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Plan would provide fixed amount of income at retirement

 

A UMNS Report By John Lovelace*
April 16, 2004

The following is based largely on an executive summary prepared by staff of the United Methodist Board of Pension and Health Benefits.

Two terms are basic to understanding current United Methodist pension plans and what is proposed for change at the 2004 General Conference.

A “defined benefit plan” provides a promised and secure amount of income at retirement based on a formula that usually considers years of service and either a percentage of pay or a dollar amount. The plan sponsor — usually the annual (regional) conference — funds the plan. All financial risk or gain rests with the sponsor.

A “defined contribution plan” promises an annual contribution, usually a percentage of pay, which the plan sponsor deposits into an individual’s account with the board, and that is invested, usually at the individual’s choice. All financial risk or gain rests with the participant.

As explained in the executive summary, pension plans for service before 1982, known collectively as “pre-82,” are based principally on a defined benefit. Yet while it was designed like a defined benefit plan, the pre-82 program was funded like a defined contribution plan, according to the summary. These rely on funding by annual conferences, and benefits based on average clergy compensation vary from one conference to another, since each conference sets its own service-year rate.

The Ministerial Pension Plan, adopted in 1982, is principally a defined contribution plan, many of whose investors benefited appreciably from unprecedented market returns during the 1980s and ’90s.

The proposed new Clergy Retirement Security Program provides both a defined benefit plan and a defined contribution plan.

“The objective of the CRSP plan is threefold,” said Woody Bedell, chief strategic relations officer for the board in Evanston, Ill. It is designed “to provide security or a defined stream of income at retirement that is secure”; to provide flexibility for participants by giving them investment options and a cash distribution at retirement; and to reflect better stewardship for the annual conferences and plan participants.

The defined benefit plan provides a benefit equal to 1.25 percent of denominational average compensation times years of service after Jan. 1, 2007. The plan is funded collectively by the conferences and does not establish individual account balances.

The defined contribution plan provides for an annual contribution equal to 3 percent of salary plus housing, to be invested in a fund of the participant’s choice.

 

The proposed plan differs from its two predecessors in at least one other way. Both the pre-82 plan and the Ministerial Pension Plan assume full ministerial careers of 40 years; the proposed plan assumes 30 years as more typical. A board spokesperson said the shorter career is based on increasing numbers of second-career people entering the ministry, increasing the average seminary-enrollment age to about 35.

*Lovelace is a writer and editor in Dallas. He has covered eight United Methodist General Conferences. News media can contact Tim Tanton at (615)742-5470 Nashville, Tenn. or newsdesk@umcom.org.

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