wfn.org | Church pension changes prompt some to consider retiring

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March 20, 2003	News media contact: Tim Tanton7(615)742-54707Nashville, Tenn.
 10-71B{155}

NOTE: A sidebar, UMNS story #156, is available.

A UMNS Report
By Tim Tanton*

Many United Methodist Church lay employees are concerned about recent changes
in the denomination's annuity benefits policy - changes they feel may compel
them to retire prematurely in order to get the best rate for their nest eggs.

The changes could result in a higher-than-normal loss of staff from the
denomination's general agencies by July, according to several staff
executives contacted by United Methodist News Service. U.S. annual
conferences could also be affected.

Last November, the United Methodist Board of Pension and Health Benefits
approved changes in its policy for converting pension account balances to
annuities at retirement. Effective July 2, lay employees who retire and
choose to "annuitize" their pension accounts will do so at a floating market
rate instead of a fixed rate. 

Since the early 1980s, the board has applied a fixed rate of 8 percent to
annuities upon retirement; current market rates, however, are in the 5 to 6
percent range. As a result, the board has been spending from its reserves in
order to pay the above-market rates - a practice that the agency decided must
change in order to protect all plan participants in the long term. 

The policy change, however, has many lay employees considering retiring while
they can still lock in the higher rate. 

"You're going to have a mass exodus of lay people," predicts Maxine West, a
staff executive with the Women's Division of the United Methodist Board of
Global Ministries in New York. "I was planning to retire at age 65. This is
forcing me to rethink that and to retire at 61, which is not what I want to
do."

Staff executives with the Board of Pension in Evanston, Ill., say people
shouldn't feel forced to retire. 

"Even though the interest rates are low at this time, that does not guarantee
that they will be low four or five years from now," says Woody Bedell, chief
strategic relations officer for the board. "In 1982, the competitive market
rate for an annuity was around 12 percent, so they will fluctuate over time.
And what is lost is both personal income and the contribution to the
employee's pension plan during that period of time if they elect to retire
early."

Historically, "very few" lay employees - about 11 percent in the last two
years - have converted their account balances to annuities, Bedell notes.

Though the Board of Pension sent out a letter in December about the changes,
many employees who would be affected did not find out about or comprehend the
new policy until January or much later. That has been a source of stress for
some church employees, who feel they don't have much time to make a decision
and get their paperwork processed. Several of them report being given an
April deadline.

However, Bedell says the board requires only 30 days' notice of intent to
retire. "They could technically retire July 1 if they let us know May 29," he
says. "If we have all paperwork by the beginning of May, a retirement check
can be made in the first week in July."

Not everyone who would be affected by the changes received the board's
December letter, and the letter itself was "quite convoluted," says Marilyn
Magee, a staff executive at the church's Board of Discipleship in Nashville,
Tenn. "We really did not understand what it meant until we called and began
to speak directly to Board of Pension staff."

Barbara Boigegrain, top staff executive of the pension board, says she has
received three letters of concern from executives with the Board of Global
Ministries and its Women's Division. "Certainly we can understand their
consternation and their concerns about feeling like they have to make
decisions very quickly," she says. 

The Women's Division cabinet has asked the pension board to reconsider the
action, West says, so that all laity with sufficient points or who are old
enough for retirement "will be given a period of transition equal to that of
the clergy."

Boigegrain plans to take the concerns to her board of directors' executive
committee March 20. The committee would decide whether to reopen discussion
of the changes, and if so, whether to assign the topic to another committee
or consider the issue itself. 

If the board decides a change is in order, it will take the matter to the
Committee on Personnel Policies and Practices of the General Council on
Finance and Administration, which meets in late April, Boigegrain says. The
committee serves as the conduit for working with the other general agencies
receiving general church funds. 

Changing the policy could "create an additional liability on general agencies
and ultimately the church," Bedell says.

Magee had to reconsider her original plan of retiring at the end of 2004. "I
can't afford to stay around 18 months longer and risk losing the amount of
money I would lose going from an 8 percent annuity to a market rate," she
says. She knows of about nine other people at the Board of Discipleship -
seven of them lay - who are in a similar situation. 

She foresees "a disruption of services" in the church as a result of
retirements throughout the general agencies. West agrees, adding: "Any time
you lose collective history and memory, people who have served the
organization for many years ... it affects the total mission of the church."
The changes could affect 12 of the Women's Division's staff of about 100, she
says. 

The Rev. R. Randy Day, top staff executive of the Board of Global Ministries,
also is concerned about the "potential big loss of institutional memory." 

"That, coming on the heels of the 26 percent staff cut over the last two
years, would be a fairly heavy thing for us to carry," Day says. The board -
the church's largest agency - has reduced staff size by 94 to 96 people,
leaving it with a payroll of more than 400.

However, Day says he understands the Board of Pension's situation and its
struggle. "The pension crisis is really not limited to the United Methodist
Church; we're fully aware of that." The pension board is "in a tough spot,"
he notes. And he adds: "They're being very helpful and dialoguing with us."

Bedell and Boigegrain have met with the U.S. colleges of bishops to explain
the situation. Bishop Fritz Mutti, who leads the Kansas Area and serves on
the United Methodist Commission on Christian Unity and Interreligious
Concerns, attended such a meeting in February. "There was a good appreciation
for what was shared there," he says.

"I understand the rationale for doing what they're doing," says Bishop Janice
Riggle Huie of the Arkansas Area. "Long term, I think the church stands to
benefit. As with many things, this transition may be challenging."

Though only an "ordinary number" of people are taking retirement in her
annual conferences, she sees the changes having more potential impact on
agencies such as the Board of Higher Education and Ministry, on which she
serves as president.

"Potentially, this change would have a big impact on our board," Huie says.
If a large number of people did retire, that would "be hard for us going into
General Conference" next year, she says. "That's a lot of wisdom, expertise
and experience."

At the Nashville-based education board, 13 people - lay and clergy - would be
eligible to retire, out of a staff of about 70, according to Cheryl Stacker,
human resources manager.

Bedell says the Board of Pension put out "a tremendous amount of
communications" after its decisions in November. Board officials say several
letters were sent, and discussions have been held with leaders across the
church.

"The reason for the changes, ultimately, was to protect all participants from
unexpected or unanticipated losses due to payouts of annuities that are not
based on a market rate," says board spokesman Michael Lee. The money for
those 8 percent fixed-rate payouts "has to come from somewhere," he says.
"We're paying out at a fixed rate, and it's above market, so the dollars are
coming out of everybody's pocket, and ultimately, then, we can't protect
participant retirement security."

The board's fixed rate dates back to 1982, when market rates were at 12
percent, Bedell explains. The board intended then "to have a fairly
conservative annuity assumption," he says. However, the 8 percent was never a
published rate, and pension projections for participants were based on a 6.5
to 7 percent annuity rate assumption, he says. 

The last three years have been difficult for the financial markets, and
annuity rates, as set by the Pension Benefit Guaranty Corp., are slightly
above 5 percent. 

"So in effect, every annuity we set up is being subsidized, which puts
pressure on the reserves," Bedell says. It also puts potential pressure on
conferences and churches, which are ultimately responsible for ensuring the
payment of the annuities to retirees. "All the money comes from the people in
the pews," he notes.

Bedell says that while people in the private sector have lost up to 50
percent of their pension accounts in the past three years, those covered by
the Board of Pension and Health Benefits have been protected. "No one has
lost a penny" of money invested in the Diversified Investment Fund, he says. 

The fund, which has been the agency's main pool of investment dollars, has
performed well both in the bull market of the 1990s and afterward in relation
to its peer group. "It has just done beautifully regardless of the financial
conditions," Bedell says.
 
Boigegrain notes that these are challenging times. "I can surely understand
that we're all struggling with a lot of change and a lot of anxiety in the
world right now, and the last thing we want to do as a pension board is
contribute to that," she says. "We want to make sure that we can keep our
past and current pension promises. ... Our concern is to cause less anxiety
by making sure that the funds are sound." 

People who need help with the changes can contact the Board of Pension and
Health Benefits' Participant Response Center at (800) 851-2201.
# # #
*Tanton is United Methodist News Service's news editor in Nashville, Tenn.

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United Methodist News Service
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