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Pension-plan decisions affect generations

December, 2016

Michael B. Watts. Courtesy photo.

Courtesy photo.

Michael B. Watts.

By Michael B. Watts*
April 13, 2012

My great-grandparents, Carew and Mary Belle Baker Smith, were founding members of the Hindman Methodist Church in southeastern Kentucky around the turn of the 20thcentury. This decision to get involved in the Methodist Church affected the lives of at least six generations. The Smiths were the parents of 12 children, and hundreds of the Smith lineage continue to worship as United Methodists. Two of their descendants – one of my cousins, who is an alternate, and I – will represent the Kentucky Annual (regional) Conference at General Conference.

Just as my great-grandparents decided to be a part of the Methodist tradition, the decisions this General Conference makes concerning the pension programs have consequences for The United Methodist Church for many generations. As United Methodists, we will be making a covenant with clergy for when they are no longer in active service to the church. We must balance their security in their retirement years with providing predictable costs for local churches and providing a sustainable program.

The United Methodist Board of Pension and Health Benefits is presenting three options to consider for the clergy retirement plan. The first is to maintain the Clergy Retirement Security Program. The second (referred to as Modified CRSP) is to reduce the benefit payments for the defined-benefit portion, reduce the non-matching portion of the defined contribution and create a matching portion for the defined contribution. The third is to have a defined-contribution plan that contains both non-matching and matching contributions.

A defined benefit provides a monthly pension payment to the participant for life. It continues a reduced monthly pension payment for the pastor’s spouse upon the clergyperson’s death. This provides security to the clergyperson and his or her spouse because payments are guaranteed for life. For churches and annual conferences, this type of program creates a liability that they must fund. Once fully funded, there is a risk that if the underlying assets reduce in value due to fluctuations in the value of the assets, then additional funds must be raised.

A defined contribution provides an account balance to use during retirement. These funds are the clergyperson’s assets. A concern with a defined-contribution program is that the clergyperson may outlive his or her assets. Depending on the underlying investments, another risk is that the value of the assets could decrease due to changes in the market. However, any gains in the value of the assets benefit the clergyperson. Since the investments are the clergyperson’s assets, they are a part of his or her estate.

Over the past four years, boards, advisory groups, associations, conferences and forums have met to consider these issues. There have been many discussions and disagreements of defined benefits versus defined contributions. A strong sentiment expressed throughout these discussions is that the plan needs to be both sustainable and affordable. Both of the new alternatives offered by the United Methodist Board of Pension and Health Benefits reduce the costs of the program by 15 percent, making them more affordable. Both plans are also more sustainable. Modified CRSP is more sustainable as it reduces the benefits paid in retirement. The third option, a defined contribution-only plan, is more sustainable as there will be no unfunded liability in future years.

As I participate in worship services, legislative committees and plenary sessions at General Conference, I will be thinking of that small-membership church of which my great-grandparents were a part. What effect would these votes have on their church? How would these decisions affect its ministry? I must also reflect upon the impact of these decisions on the clergy who faithfully serve the congregations of The United Methodist Church. Finally, the overriding principle of all of this is how these decisions would make disciples of Jesus Christ for the transformation of the world.

*Watts, a lay delegate from the Kentucky Annual (regional) Conference, is treasurer and director of administrative services for the conference. He lives in Lawrenceburg, Ky.