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• A SERIOUS BENEFITS REFLECTION . . .(June 2009)

THANK YOU! I believe every conversation is better when it begins with thank you! So, THANK YOU.    Thank you for the many ways you support the clergy benefit programs of the North Alabama Conference, and thank you for the opportunity to serve as your Conference Treasurer and Benefits Officer.

 

As you know, we are currently experiencing a very difficult financial downturn – globally, across the United States, in Alabama, in our United Methodist Church, and in the North Alabama Conference. However, on this occasion, I want to briefly discuss the financial challenges facing the North Alabama Conference Board of Pension and Health Benefits (the Board).

 

There are six areas that offer significant challenges to the Board, including:

 

The Clergy Retirement Security Program (CRSP) became effective on January 1, 2007 and has two components: a defined benefit and a defined contribution. In 2010, the defined benefit component will cost approximately $3,170,000 and the defined contribution component will cost approximately $880,000, for a total of $4,050,000 – an amount that must be funded 100% by local churches. In contrast, the total cost in 2009 is projected to be approximately $3,980,000, of which a lesser amount of $3,560,000 must be funded by local churches. T he difference of $420,000 ($3,980,000 less $3,560,000) will be funded by the pension reserve fund. 

 

Thus, local churches will have to pay more for clergy pension in 2010. The increased funding by local churches is necessary because there are no other funds available to absorb any of the required funding in 2010. Did you know our pension reserve fund incurred an unrealized loss of over $400,000 due to adverse market conditions in 2008?

 

If the preceding is not a sufficiently formidable challenge, we have been notified by the General Board of Pension and Health Benefits (the General Board) that it is likely the Conference will be asked to fund an additional estimated amount of $545,000 annually for seven years beginning in 2011 to offset market declines that affect funding for the CRSP defined benefit component. Whew!!!

 

Many of you will recall that our pre-1982 pension program has been fully funded since 1992. In fact, for years after 1992, but preceding 2008, we have been significantly overfunded. To illustrate, we were advised by the General Board in October 2008 that our preliminary 2010 actuarial valuation (as of January 1, 2008) indicated our funded ratio was 154% (meaning we were overfunded by 54%). However, this was before the market decline in 2008. Now, we understand that our funded ratio is around 106%. 

 

Why does this matter? It matters because an overfunded status can be used to pay the defined benefit cost of CRSP (see above). However, at a funded ratio of 106%, none of the overfunding will be used to help pay for the cost of CRSP defined benefits, and there is some risk that we might become underfunded, requiring us to once again make contributions to the pre-1982 pension program. Another whew!!!

The Ministerial Pension Plan (MPP) provides pension benefits for the service period 1982 – 2006. MPP has historically been understood as a defined contribution plan. In a pure defined contribution plan, all of the market risk belongs to the participant. However, MPP is not a pure defined contribution plan. Rather, because many of our retirees annuitized their MPP account balances before annuitization was outsourced, the denomination and the related annual conferences bear the risk if market declines impact the ability of the General Board to pay the annuity obligations. Such is now the case. 

 

We were advised by the General Board in January 2009 that MPP annuities may only be funded at 93%, which means the annuities are underfunded and an additional estimated amount of $521,000 annually may be required from Conference over seven years beginning in 2011. WHEW with capital letters!

 

The retiree medical liability is $11,500,405, based on an actuarial valuation as of January 1, 2008. This liability represents the amount of money we would need to set aside to provide retiree health insurance for all persons who have reached the required years of service as of January 1, 2008. The Conference has traditionally funded the cost of retiree health insurance on a pay as you go basis.  However, actions taken at General Conference in 2008 now require each conference to develop a funding plan for its retiree medical liability. WHEW, boldly said!

 

The Conference has been a HealthFlex plan sponsor since January 1, 2006. HealthFlex premiums will increase by 8.45% in 2010. While there are many HealthFlex annual conferences with 2010 premium increases greater than 8.45%, the Board understands that the cost of health insurance is a significant concern in North Alabama. 

 

Our health insurance program has three key objectives:  (1) maintain a proper balance between the cost of health insurance and the benefits provided, (2) maintain adequate reserve funds to ensure that premium rates do not jump significantly in a single year because of adverse claims experience, and (3) promote wellness and a healthy lifestyle with our participants.

 

Unlike many corporate health insurance programs, the North Alabama Conference health insurance program is supported solely by premium revenue. In addition, the health insurance reserve fund incurred an unrealized loss of over $525,000 in 2008 due to adverse market conditions. As a practical matter, we can continue to raise premiums or we can reduce benefits.

 

The Board has been asked to make a contribution to the Central Conference Pension Initiative (CCPI). While the Board understands the importance of CCPI, it also has significant concerns about the funding obligations for which it has primary responsibility. Historically, the Board has contributed its annual receipts from the United Methodist Publishing House to CCPI. Accordingly, the Board has not determined at this time if or when it will make an additional contribution to CCPI but remains committed to ongoing dialogue about funding for CCPI and the possibility of a special Board contribution.

 

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Friends, this concludes my serious reflection about benefits. It is my sincere prayer that each of us will remember that all things are possible in Christ!