Wespath FAQs: Commission on a Way Forward

 

Wespath FAQs: Commission on a Way Forward

The Commission on a Way Forward sought additional expertise from Wespath regarding the potential pension impacts of the Commission’s three proposals to the 2019 Special General Conference. Wespath provided information and analysis about how various scenarios under consideration might impact clergy pensions (U.S. plans), as well as related effects on local churches and annual conferences. Wespath provided detailed analyses in “Appendix 4 – Wespath Resource to the Commission’s Report,” which was published in Exhibit D of Judicial Council Docket No. 1018-12 (see pages 216-224 of the Docket PDF).

Wespath is prepared to serve the Church in whatever form it takes in the future under any scenario. The following FAQs provide additional information. We will update this page as more information becomes available.

Context

  • Information in Appendix 4 and FAQs below applies to plans for U.S. clergy.
  • Annual conferences are the “plan sponsors” of the UMC pension plans, and are legally responsible for paying the benefits promised to clergy (BOD ¶1507).
  • Pension liabilities are a long-term responsibility under current defined benefit (DB) plans. Annual conferences have pension liabilities for currently active clergy through approximately 2090 (based on actuarial projects). See “Long Tail of Pension Payments” illustration.
  • The annual conference needs to receive assets from the local church to offset the liabilities – related to clergy service in that local church and all its local churches – that remain with the annual conference after the local church departure.

Overview of the Appendix

For Clergy

For Local Churches

Impact of Church Models on Pensions


What is the “Wespath Appendix”?

The Wespath Appendix (Appendix) is Appendix 4 of the Report submitted to the 2019 Called General Conference by the Commission on a Way Forward (Commission). The Appendix explains potential pension impacts of various proposals (“models”) considered by the Commission.

The Appendix summarizes Wespath’s analyses of potential impacts of different Church scenarios, including insights on:

  • Long-term funding liabilities for local churches and annual conferences
  • Impact on individual clergy benefits
  • Long-term sustainability for plans and plan funding
  • Record-keeping and administrative complexities

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Why did Wespath develop the Appendix?

While contemplating various models for the future of the Church, the Commission sought additional expertise relating to clergy pensions and the Church’s benefit plans.

Wespath Benefits and Investments (Wespath) is the administrator and record-keeper of the benefit plans for the UMC, and is the trustee and investment manager for plan assets—as defined and described in The Book of Discipline (¶1504).

The Commission and the Council of Bishops asked Wespath to provide information and analysis about how various scenarios under consideration might impact clergy pensions and have related effects on annual conferences and local churches.

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Does Wespath have a preferred Church Model?

No. Wespath is prepared to make whatever changes are required to continue serving the Church in whatever form it takes, while caring for those who rely on the benefit plans for their retirement security.

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If a clergyperson leaves the UMC, what happens to his or her accrued pension benefits?

Clergy who leave the UMC will not forfeit retirement benefits they have earned during their service in the UMC. However, the form of their benefits from the primary clergy pension plan may change, and they will not earn future accruals or receive certain benefit improvements such as cost-of-living increases.

  • Under BOD ¶360, active clergy participants who terminate their annual conference relationship will be treated as “terminated vested participants” under the Clergy Retirement Security Program (CRSP). Their accrued pension benefits would be converted and transferred to the United Methodist Personal Investment Plan (UMPIP, a voluntary defined contribution plan maintained by Wespath).

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How are individual clergy pension benefits determined?

Each clergyperson has a unique combination of benefits based on one’s specific years of service and the plan designs in place at that time of service.

Learn more about UMC retirement plans here.

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If a local church exits the UMC, is there a set amount each church would owe to the conference to cover its future pension obligations?

No. The amount that any exiting local church would owe would vary depending on the funded status of its annual conference and its scale relative to other churches in its annual conference. The amount of unfunded pension liability varies from conference to conference.

Context:

  • The term “exit” or “exiting churches” includes, but is not limited to, the following:
    • If the 2019 General Conference enacts legislation that permits churches to disaffiliate from the UMC
    • Churches that withdraw under BOD ¶2548 or close under BOD ¶2549

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What role would Wespath have in determining pro rata unfunded pension obligations?

Wespath would calculate the total unfunded liability for pensions and annuities being paid and for benefits earned as of that date for the entire annual conference. But the conference would then decide how to allocate a proportional share of that liability to a local church.

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If a local church exits the UMC, how would that church’s pro rata share of unfunded pension obligations be calculated?

The individual church’s share of unfunded pension obligations would be determined by its annual conference. Conferences have flexibility in how they might calculate this. Some potential options that conferences might use to calculate individual church obligations include:

  • The local church’s apportionment decimal
  • The local church’s income as a percent of income from all churches in that conference
  • The pastor’s compensation as a percent of total compensation for all pastors in the conference
  • Other methodologies as determined by the annual conference

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Does Wespath have any suggestions on how annual conferences might calculate an exiting church’s “share” of possible future pension funding?

Any final recommendations would be made after General Conference 2019. In the meantime, for discussion purposes related to General Conference 2019 considerations, Wespath has suggested this two-step approach for calculating an exiting church’s “fair share”:

  1. The conference would obtain from Wespath the additional dollar amount needed to fully fund all of the conference’s retirement plan components using actuarial assumptions similar to what a commercial insurer would use (i.e., actuarial assumptions based on a “market basis” like corporate pension plans use), including funding for: Pre-82 Plan, Ministerial Pension Plan (MPP) and Clergy Retirement Security Program (CRSP).
  2. The conference would determine the departing church’s pro rata share of this amount based on that church’s financial capacity as compared to other churches in the conference. This might be based on apportionment decimal or other methods described above.

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Why would an exiting local church be expected to pay monies to the annual conference to cover unfunded pension obligations?

The connectional nature of The United Methodist Church means that departure by one church affects the whole Connection. An exiting church would leave some portion of its long-term pension obligations to the annual conference from which it is departing. This means that the exiting church in effect would leave behind its share of market and longevity risks related to retirees and survivors receiving benefits to the other local churches in its annual conference and, to some extent, to other annual conferences and their local churches.

By paying its “fair share” of the annual conference’s aggregate unfunded pension liability as part of its exit, the exiting local church provides to the conference funding to compensate for taking on more of the responsibility involved in the promise of long-term pension payments for active and retired clergy and their surviving beneficiaries. This “fair share” payment also compensates the annual conference for assuming what would have been that church’s risks (investment, longevity and mortality risks) for long-term clergy benefits now that the church will no longer be part of the annual conference.

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Is Wespath permitted to serve conferences, churches or individual clergy who follow an avenue of exit from The United Methodist Church?

Yes. Wespath is authorized (by The Book of Discipline and the U.S. Internal Revenue Code) to manage funds and offer services to churches and nonprofit organizations related to or that share “common religious bonds and convictions” with the UMC. Under this authorization—unless changed by General Conference—Wespath would be permitted to administer benefit plans for clergy who terminate their conference relationship and most local churches and other United Methodist organizations that depart or otherwise change the nature of their connection to The United Methodist Church.

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How is Wespath preparing for the future?

  • Wespath has a “scenario planning” team analyzing the impact of various changes to UMC structure.
  • Wespath remains focused on assuring that the plans we manage and funds we invest remain sustainable for future generations. We are evaluating plan design changes to present to General Conference 2020 that we believe will help make our plans more sustainable over the long term.
  • Wespath is prepared to make necessary adjustments to continue serving the UMC in whatever form it takes following the Special General Conference 2019.
  • Wespath is well-positioned to continue fulfilling our mission of caring for those who serve the Church.

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Are potential amendments being considered for retirement plan designs for the 2020 General Conference a result of potential changes to the Church during the 2019 General Conference, or membership attrition or other disruptions that might follow General Conference 2019?

Wespath believes that a changing society (globally and in the U.S.), along with potential disruptive changes to the structure and governance of the Church—including shifting demographics and declining size of the U.S. Church—necessitate a substantial change to the U.S. clergy retirement plan in the foreseeable future in order to reflect a more sustainable design. We believe a transition from a traditional pension to an account balance type plan would be more sustainable over the long term. This belief is based not only on Wespath’s analysis and scenario planning, but also in part on feedback received from many stakeholder groups within the Church, as part of a recent Wespath plan design study. Any disruptive changes to the Church during or as a result of the 2019 General Conference will accelerate the need for the transition.

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Submit a Question

Do you have an additional question for Wespath Benefits and Investments on how the scenarios under consideration might impact clergy pensions, as well as related effects on local churches and/or annual conferences? Please submit your question to Wespath.

 

 
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