Study Committee Report Ministers’ Retirement Fund
The 107th Annual Conference approved formation of the Committee to Study the Ministers’ Retirement Fund. The Committee met seven times during the year to fulfil the responsibilities assigned to it.
Retirement Plans of Churches Similar in Size and Background
The Committee developed information on the retirement plans of the Evangelical Congregational Church, the Mennonite Church, and the Primitive Methodist Church. The Evangelical Congregational Church and the primitive Methodist Church were chosen for study because they were the known groups closest in size to the BFC which likely served constituencies quite similar to our own. The larger Mennonite Church was chosen because of similar historical roots, geographic proximity, and an assumption of similar cultural roots and service to similar constituencies.
In seeking to understand the nature of retirement plans it is helpful to recognize that many retirement plans can be described as either DEFINED BENEFIT or DEFINED CONTRIBUTION plans. A defined benefit plan, such as the MRF of the BFC, is one in which participants receive retirement benefits from a fund administrated by a board, administrator, committee, or other entity (The board of directors under the direction of Annual Conference in the case of the Bible Fellowship Church). The individual plan participant does not have a separate account, and level of benefits to be paid to retirees is determined by the individual or body that administrates the plan.
When the other denominations studied and the BFC (then Mennonite Brethren in Christ) decided to institute retirement plans they were faced with the following choices:
1. Find a very large sum of money to support immediate payment of retirement benefits.
2. Collect smaller sums of money from pastors and churches for many years and begin paying benefits only after enough money was on hand to support payment of benefits.
3. Institute a defined benefits plan which would collect funds from pastors and churches and immediately begin to pay retirement benefits from these funds.
Since the pastors of the other denominations studied and the BFC pastors had immediate and pressing retirement income needs, each group chose to adopt a defined benefit retirement plan.
Over time (more than ten years ago in each case) the other denominations studied all moved from defined benefit plans to defined contribution plans. Among the reasons for making that change were:
1. The plan participant can increase his retirement income by contributing funds beyond those required to his retirement account. The other groups have found that some men do make additional contributions to their accounts.
2. The participant who is unusually prudent, or has access to additional funds from other sources, may be able to use only income from the principal of his account in retirement and retain the assets for distribution to heirs, or to a favored ministry.
3. The individual account resolves the issue of fairness for men who voluntarily leave the denomination after several years of service, or serve for many years (as many as 24 years under the rules of the MRF) but do not yet qualify for benefits through their defined benefit plan.
4. Funding problems such as those which the MRF faces during the 1990’s (see appendix 1) and beyond can be avoided.
5. The shift from defined benefit to defined contribution plans grew out of desire to make plans actuarially sound and increase retirement benefits for pastors. Study led to change in type of plan and increase in contributions by pastors and churches (8% in E.C. Church).
Under a defined contribution retirement plan a stated percent of income, or a stipulated lump sum, is contributed to an individual’s account which grows until retirement, or becomes transportable should the participant change jobs. Some ways retirement income is received under such a plan are: purchase of an annuity contract; administration and distribution of benefits for each account by the sponsoring body (the E.C. Church does this); or allowing the individual recipient ot administer his fund as he sees fit.
SPECIFIC ISSUES STUDIED RELATING TO THE MRF
Can Years of Service Needed to Receive Maximum Benefits be Significantly Reduced?
It was concluded that it would be quite costly to significantly reduce the 40 years of service needed to receive maximum benefits under the MRF.
Is it Feasible to Greatly Reduce the 25 Years Now Needed to Become Eligible to Receive Retirement Benefits Under the MRF?
This Committee does not argue with the often-stated position of the Board of Directors of the Bible Fellowship Church that it is not financially possible under the present plan to greatly reduce the number of years (25) needed to become eligible to receive retirement benefits.
Can Retirement Benefits be Increased 20%?
It was concluded that the same financial constraints that make it very difficult under the present plan to significantly reduce years needed to gain maximum benefits or years needed to gain any retirement benefits make it impossible to increase benefits to retirees by 20%.
CONCLUSION
Although the assets of th MRF have grown considerably over the last 15 years the Fund is far from actuarially sound (having sufficient capital and reserves to pay out all benefits to all participants at scheduled rates if there would be the need to do so at any given time). The Board of Directors analysis presented to the 107th Annual Conference by Horace Kauffman (appendix 1) also shows that if the present policy of paying benefits out of administrative budget contributions and fund income while investing members contributions is maintained through the 1990’s, it will be very difficult to grant annual increases in benefits to retirees. In fact, contributions to MRF from the administrative budget must increase 165% between 1991 and 1999 ($46,00 to $121,360) in order to award annual increases averaging around 3% (annual increases averaged about 7% during the 1980’s). Increases in giving through the administrative budget that are more in line with that of the last several years would not allow for any increases in benefits to retirees.
Computer studies we have done through model building indicate that the MRF as presently constituted will face even greater funding problems in the next century. Since these funding problems do not even take into account any modifications to the MRF, and since we believe it is imperative at least to make the plan more fair by greatly reducing the number of years of service needed to give serious consideration to moving from the MRF to a defined contribution plan. Based on the work we have done (appendix 2 provides information about transition from the present plan to a defined contribution plan and gives examples of projected retirement benefits for pastors who enter the plan a various ages) we believe it is possible to construct a defined contribution plan that would meet the needs of plan participants and resolve the problems that exist in the present plan. It is also our opinion that this matter is of sufficient importance that should the Annual Conference wish to consider an alternate retirement plan this would be best done at an adjourned session of Annual Conference. Therefore we recommend that the 108th Annual Conference express itself on this matter through the following resolution(s):
RESOLVED, that a defined contribution retirement plan and a transition plan for shifting from the MRF as now constituted to the new plan be presented to an adjourned session of Annual Conference to be held at (place) at (time) on (date), 1992, and should the above resolution be approved) be it further,
RESOLVED, that the proposed plan be prepared for presentation by (committee or board responsible to do this work) and that copies of the proposed plan be mailed to members of the Annual Conference at least one month before the date approved for the special adjourned session of the 108th Annual Conference.
Committee to Study the Ministers’ Retirement Fund: David J. Watkins, Chairman; Wayne A. Davidson, Secretary; Willard E. Cassel; Timothy D. Cole; Jay H. Fasnacht; Keith E. Plows; Richard J. Volpe.