wfn.org | No experience apportionment for pension plan members this year

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Note #7089 from PCUSA NEWS to PRESBYNEWS:

15-March-2002
02102

No experience apportionment for pension plan members this year

Market slump puts end to Board of Pensions' 10-year win streak 

by Jerry L. Van Marter

PHILADELPHIA - Sometimes adversity makes for easier decision-making.

The desultory performance of financial markets in 2000 and 2001made one decision more certain for the Presbyterian Church (USA) Board of Pensions (BOP) last week: This year there will be no experience apportionment for members of the board's pension plan.

The board's unanimous vote on March 9 puts an end to a remarkable streak enjoyed over the past 10 years by the U.S. economy and Presbyterian pensioners. The BOP had granted an experience apportionment - a percentage increase in pensions for retired plan members and in pension credits for active members - every year since 1992.

According to Deborah Kuenstner, of Newton, MA, chair of the board's investment committee, its investment portfolio lost 4.5 percent last year.

By not granting an experience apportionment for this year, the board will keep the pension fund's contingency reserve $604 million - 13.6 percent of total future benefits. Board guidelines say the reserve should be no lower than 10 percent. Thanks to the 1990s boom, it reached 35 percent in 1998, enabling the board to grant double-digit experience apportionments for three years running. 

Last year's apportionment was 3 percent. 

The board did grant an experience apportionment of 2 percent to those who were receiving disability benefits as of Dec. 31, 2001. The chair of the pension committee, Ross Spencer, of Chicago, said the committee's decision to grant an apportionment to disabled members but not to retired members came after "a long discussion."

Spencer explained that the pension and disability plans have separate funds from which experience apportionments are drawn. "These are two different pots of money" and that disabled plan members "have no other means to increase their income, so this helps them keep up with the cost of living (which rose 1.6 percent in 2001)." The number of plan members now on disability is a little above 300.

This was a quiet meeting on the healthcare front, but dark clouds are looming for the board's medical-benefits plan.

"I'm optimistic that you're still on solid ground here," actuary John Cookson told the BOP's healthcare committee. He said dues or benefit changes probably may be necessary by 2005.

Changes made to the medical-benefits plan last year - including the cancellation of a temporary half-percent dues credit that had been in place for a number of years and a half-percent dues increase - are expected to produce a small surplus in the medical-plan fund this year. Dues now stand at 16.5 percent of effective salary.

Cookson said current projections, based on relatively favorable assumptions about rates of cost increase, show a "modest" loss in 2003 and a "big" ($9 million) loss in 2004. 

Those losses would bring the medical plan contingency reserve - now $45 million - down to approximately $38 million, closer to its target level of between 22 percent and 25 percent of expected costs.

With cost savings pretty well maximized - the plan realized huge savings by switching to the Highmark preferred provider network  - "information is going to be the key," Cookson said. "We have to help our members be smarter consumers of health care, meaning quality plus value, because the next changes we make are going to be tougher than the big chunk of money we made by the Highmark move."

Another program facing long-term financial struggles is the board's Medicare Supplement program. Because of the ever-rising cost of prescription drugs, which account for two-thirds of program expenses, the Medicare Supplement program has seen stiff subscription-rate hikes in recent years. 

But that's not enough. "Reasonable subscription-rate increases and experience apportionments don't appear to be able to keep up with increased costs," said Margaret Mellen, the board's senior vice-president for healthcare design. She said staff will be taking a close look at both expenditure and income figures in the coming months.

The dilemma prompted the Rev. Jeff Aiken, a board member from Allentown, PA, to renew his call for a "funds-development" program at the BOP.  "The Christmas Joy Offering (which helps fund the board's assistance programs) is very helpful," he said, "but that plus dues won't meet all the needs we're facing."

In other actions, the board:

* Approved the sale of Morganwood, its retirement facility in Swarthmore, PA, to PresbyHomes and Services, of Lafayette Hill, PA, subject to approval of the upcoming General Assembly.

* Voted to allow admissions to the Assisted Living section of Westminster Gardens in Duarte, CA, from the general community on a month-to-month contract basis. (Up to now, only Westminster Gardens residents could be admitted to the Assisted Living section).

* Decided to increase death and disability dues over time for employing organizations that signed on for the Affiliated Benefits Program before the need for additional dues was announced. Dues will increase .5 percent per year from 2003 to 2007 to bring them up to 3.5 percent dues level, subject to General Assembly approval. 

* Re-elected Earldean Robbins, of San Francisco, as its chair; elected the Rev. Adele Langworthy, of Long Beach, CA, as first vice-chair (she had been second vice-chair); and elected the Rev. Art Sundstrom, of Chevy Chase, MD, as second vice-chair.
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