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Church pension changes prompt some to consider retiring

3/20/2003 News media contact: Tim Tanton · (615) 742-5470 · Nashville, Tenn.

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

A UMNS Report By Tim Tanton* 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 â€¦ 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. â€¦ 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.
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*Tanton is United Methodist News Service's news editor in Nashville, Tenn.

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