wfn.org | Pension board keeps long-term view in rocky markets

[NewsDesk <NewsDesk@UMCOM.ORG>]

Sept. 25, 2001 News media contact: Tim Tanton7(615)742-54707Nashville, Tenn.
10-71B{424}

A UMNS Report
By Tim Tanton*

For United Methodist pastors and others who are concerned about their
pension funds amid the current stock market craziness, here are three
familiar words: Keep the faith.

"We invest for the long term, recognizing that there could be serious
turbulence in the markets, and historically we've gotten through it," said
Dave Zellner, a staff executive with the United Methodist Board of Pension
and Health Benefits in Evanston, Ill. He suggests that participants "have
confidence and faith that our economy will continue to be strong and bounce
back, and that things will get back to normal."

The stock market plummeted during the first week of trading after the Sept.
11 terrorist attacks on America. The Dow Jones industrial average lost 1,370
points, or 14.3 percent, during the week ended Sept. 21, its worst weekly
loss since the 1930s. The following business day, Sept. 24, it rebounded 368
points, and analysts viewed the jump as a sign of volatility ahead.

The market conditions make a special distribution by the board doubtful. The
agency's governing directors typically consider - and have regularly
approved - a special distribution to stakeholders during the fall board
meeting. The decline in the stock market, which began last year, has eroded
the board's cushion of reserves to zero, but the agency is building it back.

"The reserve has to be at 14 percent, and we're a long ways away from that,"
Zellner said. "... The stock market would have to go up at least 30 percent
before we'd get in the ballpark of the special distribution."

The board manages the pension and health benefits for 65,000 United
Methodist clergy, employees, retirees and spouses. It has the largest
pension fund of any Protestant denomination.

The agency is receiving an increase in phone calls from constituents
concerned about the markets, Zellner said. Callers are asking questions such
as: How much longer will the downturn be? What will the returns be going
forward? "We have no way of knowing," Zellner said.

In one of two messages to constituents after the attacks, the board said its
bankers and investment managers have given "assurances that your assets are
safe and secure. While we may experience severe short-term fluctuations in
the value of these assets, we remain steadfast in our belief that adhering
to long-term strategies will ultimately prove to be the most prudent course
of action."

For the year, the Domestic Stock Fund is down 26 percent, the International
Stock Fund is down 31 percent, and the Balanced Social Values Fund is down
15 percent, Zellner said. However, the Domestic Bond fund is up 8 percent,
and the Money Market Plus Fund is up 7 percent.

The assets in the Diversified Investment Fund, the agency's biggest pool of
investment dollars, are down 15 percent, to $11 billion, Zellner said. 

Despite the decreases, the performances of the board's funds are comparable
to those of its peer groups, Zellner said.

The bulk of constituents' money is in the Ministerial Pension Plan (MPP) of
the Diversified Investment Fund, which has a principal protection feature.
Zellner said participants are grateful for getting a 3 percent return on
their MPP balances when many of their counterparts are seeing reductions in
their balances. The board's other five funds float with the market and don't
have the principal protection feature, he said.

The Diversified Investment Fund is designed to withstand a prolonged market
downturn. "We had a reserve a year ago that was 14 percent, and the purpose
of that reserve was to help assure the principal protection feature during
negative market enviroments, and it's done exactly what it was designed to
do," Zellner said. 

Constituents grew accustomed to seeing their investments grow during the
long-running bull market. "I really think our participants got very
complacent with regard to investing," Zellner said. Now the market is
experiencing drops that it hasn't seen since the 1970s, he said.

The board's philosophy calls for keeping 65 percent of its portfolio in
stocks, and the current equity exposure is about 61 percent, Zellner said.
The board's portfolio managers were buying on Sept. 24 to increase the
equity stake and take advantage of low stock prices.

The agency has been in touch with its portfolio managers, not only to
discuss market conditions but also to check on whether the investment firms
were directly affected when terrorists steered two hijacked planes into New
York's World Trade Center. "We had a couple of near misses," Zellner said,
"but none of our managers had anybody that was affected, at least directly."
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*Tanton is news editor for United Methodist News Service.

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United Methodist News Service
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