wfn.org | Annuity changes affect lay, clergy differently

["NewsDesk" <NewsDesk@UMCOM.ORG>]

March 20, 2003	 News media contact: Tim Tanton7(615)742-54707Nashville,
Tenn.  10-71B{156}

NOTE: This report is a sidebar to UMNS story #155.

By United Methodist News Service

Changes in the United Methodist Church's annuity policy will affect lay and
clergy retirees in different ways.

The church's Board of Pension and Health Benefits says that effective July 2,
account balances in its retirement plans will receive a floating market-based
rate when converted to annuities. The floating market rate will replace an 8
percent fixed rate that the board currently applies to account balances that
are "annuitized."

That step is necessary, the board believes, because current market rates are
in the 5 to 6 percent range. As a result, the agency is paying above-market
rates on annuities, and the extra money is coming out of its reserves.

Because the clergy retirement plan has a mandatory annuity, clergy who are at
least 62 years old or with 35 years of service have been "grandfathered" in
at the old rate. In other words, they will be able to continue working
without losing the 8 percent rate on pre-July contributions. Contributions
made to the Ministerial Pension Plan after July 2 will receive the floating
market rate.

That step was necessary because of the covenantal nature of the MPP and the
fact that clergy have no choice but to annuitize, says Woody Bedell, chief
strategic relations officer with the pension board. Otherwise, there may have
been a "rush to retirement" among clergy if the MPP had gone to a market rate
effective July 1.

Lay employees, on the other hand, have a voluntary annuity. That means they
don't have to annuitize any of the money upon retirement but can take a
lump-sum distribution and give it to an insurance company or mutual fund for
investing. They can also keep the money with the board until annuity rates
improve.
"They can elect to annuitize, but they're not forced to," Bedell says. In
fact, "very few people" have converted to annuities historically, he says.
"In the last two years, only 11 percent of all SRBP accounts have been
annuitized." The SRBP, or Staff Retirement Benefits Program, is one of two
pension plans for church lay employees, the other being the Cumulative
Pension and Benefit Fund.

Because of that flexibility, lay employees who retire after July 2 and choose
the annuity option will have their entire account balances converted at the
market rate. Their pre-July contributions are not locked in at 8 percent.

"The market rate is competitive," Bedell says. It is what most other
financial institutions would offer, he says.

The clergy plan is much more restrictive than the lay plans, he says. In
addition to having a mandatory annuity, clergy retirees can't touch their MPP
portion until age 62, though they can get their Personal Investment Plan
portion. Moreover, the laity pension plans are based on 12 percent of the
individual's compensation, whereas the clergy plan is typically 12 percent of
the denominational average compensation.

Executives with the Board of Global Ministries and its Women's Division have
raised concerns about the changes. Barbara Boigegrain, top staff executive of
the pension agency, says she will present those concerns to her executive
committee March 20. The committee will decide whether to revisit the annuity
policy changes.

Another change: After Jan. 1, 2004, the board will outsource annuities for
CPBF, SRBP and PIP balances to an insurance company chosen "for its
outstanding service and financial strength," according to a letter written by
Lisa Schilling, the board's managing actuary. "The monthly benefit will be a
monthly rate determined by the insurance company."

The new voluntary annuities will be outsourced because "you don't want to put
that potential liability on the conferences," Bedell says. Instead, that
liability should rest with an insurance company that's willing to take the
risk on behalf of participants. 

Voluntary annuities that have already been set up before Jan. 1 will be
outsourced at a later time, he says. 

However, participants need not worry about the rates on those pre-existing
annuities. "Once the rates have been set, they're set," Bedell says. "The
rates on those existing annuities would not change."

# # #

*************************************
United Methodist News Service
Photos and stories also available at:
http://umns.umc.org