Pension Funding and Pension Challenges

3/3/2010

By Rev. Harvey Ozmer

Executive Director, Conference Council on Finance & Administration
 
You may have read numerous articles, participated in discussions, and heard others express fear about the “pension crisis” in The United Methodist Church. Is it a real crisis or much ado about nothing? Let me try to bring some clarity to the issue. To get at this, I will be using headings and information obtained from the General Board of Pensions & Health Benefits and other conference benefit officers, as well as, information relating to our own conference.
No Current Danger
First, there is no danger that retiree pensions will suddenly stop or the amount will be decreased. The GBOPHB has affirmed that there is no cash flow problem. All money going into the GBOPHB could stop for several years without having an immediate impact upon the pensions of those who have already retired.
No change can be made to the retirement plans without General Conference action. It cannot happen without much discussion and prior notice.
Challenges Ahead
Second, there are serious financial challenges ahead for The United Methodist Church, and some of those are directly related to the cost of clergy benefits.
As many of my fellow benefits officers say, we need to talk about one import fact. 
The financial horizon for benefits is different than for other planning in the church. Most churches work off an annual budget. So does Annual Conference. General Conference works off a four-year budget. Pensions works with a budget that is extended decades into the future. For example, the Pre-82 pension plan is expected to still be paying benefits as late as 2060.
Who can plan finances that far into the future? An actuary. We look to the actuaries at the GBOPHB to assist us in our conference to evaluate our finances and benefit plans to determine the availability of assets in the long term.
Now, what about the challenges? Each annual conference is responsible for funding the pensions of it’s own participants. Even so, legally there is only one pension plan. The liabilities of that plan are liabilities of every annual conference. That one plan actually includes the current CRSP, but the previous plans for Pre-82 and MPP. Each annual conference pays into the plans according to their own funding schedule under rules set by General Conference. The money paid is invested by the GBOPHB and the actuaries determine whether the amount is adequate to pay the benefits that annual conference has promised. Of course, the value of assets depends upon the economy. The assets were worth more prior to the 2008 Great Recession than they were at its end.
During the low point in early Spring 2009 things looked extremely grim. The projections for the Central Texas Conference were that beginning in 2011, the conference would have to come up with $1.6 million dollars of new money each year for seven years to pay off the deficit. That’s over and above the money we are already collecting from apportionments and direct billing. The good news is that our conference is better off than many others and our Conference Board of Pensions & Health Benefits has worked hard through the years to put us in the best position possible. The board has also developed a comprehensive funding plan inclusive of the three pension components, as well as the active and retiree health plans. This funding plan will be presented at all district clergy meetings and at each District Conference prior to Annual Conference.
The bad news is that other conferences were not as well prepared as we were. Remember that legally the entire denomination has one plan. This means that faulty planning in one annual conference comes back to impact the entire denomination.
The other good news is that the Great Recession ended and did not continue for 10 years as some were projecting to happen. Some of the loss of value of assets was recovered in 2009, and the additional monies needed in 2011 could actually decrease; yet, adhering to a sound financial plan is always prudent.
Still another piece of good news is that the GBOPHB was able to declare a three-year CPP payment holiday for 2010, 2011 and 2012, because exceptionally good performance in the CPP fund had left it in an overfunded position even after the recession. We are grateful to the GBOPHB for this decision; we have built this into the conference funding plan that will be shared with you.
Other challenges
In dealing with the pension issues, the several task forces from across the denomination have come to recognize that The United Methodist Church has serious issues to face. They have all expressed the belief that for The United Methodist Church to be effective in the future there will need to be some major changes in the way we “do church.” Some issues are related to pensions and some are not.
There is not enough space to identify all these challenges and possible ways to address them, but a quick review of them is in order. (I have proposed none of them; they have come from task forces on the national level.)
1.    We have a surplus of clergy. The UMC in America has been losing members for decades without making changes in the way we operate. We have closed some churches, changed some appointments from fulltime to part-time. Overall, we have more clergy members with guaranteed appointments than we have charges who can afford them. The most common recommendation to solve this problem is to eliminate guaranteed appointment.
2.   We have a surplus of buildings. We have many buildings that are much larger than needed for the congregation they serve, resulting in higher operating costs than the congregation can afford. Proposals are to revise United Methodist procedures for closing and merging churches. Proposals call for local churches to evaluate their own situations and consider drastic change by moving to smaller locations.
3.   We have a surplus of debt. From 2000 to 2007 total local church debt grew from $260 per member to $420 per member even adjusted for inflation. The amount annually spent on principal and interest increased from $400 million to $600 million. One recommendation is that the Book of Discipline be changed to require the Annual Conference to approve debt. As it stands, a local church can get deep into debt with only approval at the district level.
Pension Challenges
So where is pensions in all this? General consensus is that the current pension plan is not financially sustainable over the long term. Remember that the long term means decades rather than the next few years. Changes need to be made. The plans need to find a better balance between the benefits promised and the church’s ability to pay those benefits. An effective plan must balance benefit adequacy and security for participants with sustainability for the annual conferences and local churches. There will be continued discussion of how the current pension plans for active clergy should be changed to better achieve that balance. It will be an issue at the 2012 General Conference. 
There are many proposals. Certainly not all will be adopted. They include:
·        Changing eligibility and vesting requirements.
·        Decreasing the defined benefit component of CRSP and increasing the defined contribution component.
·        Reducing the benefits for part-time pastors.
·        Give annual conferences more flexibility in choosing the benefits for their own clergy.
A way must be found to avoid poor benefit or financial decisions made in one annual conference from negatively impacting other annual conferences that have no say in those decisions. At a January meeting of South Central Conference benefit officers and bishops that was the single clearest message from the bishops. Currently there are no proposals I know of that accomplish this goal.
Pension funding cannot be separated from other questions of how we “do church.” Simply put, The United Methodist Church must change some of the ways it “does church” or no pension funding decisions can be effective.
Conclusions
There will be no immediate changes to benefits for those who are already retired. There is little prospect of long-term changes to those already retired. Retirees will continue to receive their monthly checks.
Year 2011 will be a financial strain on most annual conferences including Central Texas. The good news is that the Conference Board of Pensions has been diligent and proactive and has developed an inclusive Pension and Health Insurance Funding Plan that involves the GBOPHB three-year CPP holiday. There will be changes proposed to the next General Conference to change the pension plans to better balance the costs of the plans and the adequacy of the benefits to the participants. Exactly what those changes will be is yet to be determined.
There will be changes proposed to the next General Conference in areas other than pensions to make our church more flexible and better able to meet the needs of the current generation. Exactly what will be proposed and adopted is a matter for the future and will be even more important to the future of the church than how we deal with any benefit changes.