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November 12, 2010

ELCA pensions board: smaller reduction in 2011 annuities

Trustees of the ELCA Board of Pensions announced smaller-than-anticipated reductions in annuity payments for plan members in its Participating Annuity and Bridge Fund and in the interest crediting rate for bridge accounts.

At their Nov. 5-7 meeting, trustees reduced annuity payments for 2011 by 6 percent for plan members in the board's Participating Annuity and Bridge Fund and set the interest crediting rate for 2011 at -0.3 percent for bridge accounts.
In 2009 the trustees decided to reduce 2010 payments for members in the Participating Annuity and Bridge Fund by 9 percent, and announced they anticipated additional reductions of 9 percent for 2011 and 2012. The reductions were needed because the annuity and bridge fund suffered significant market losses in late 2008 and early 2009, resulting in a funding shortfall of as much as 39 percent in February 2009. To ease the reductions on plan members, the trustees decided to implement the reductions over a three-year period. Earlier in 2009 the Board of Pensions closed the Participating Annuity and Bridge Fund to new entrants.

While markets have produced more favorable investment results over the past 18 months, they remain volatile, said John G. Kapanke, ELCA Board of Pensions president. A funding gap still exists, and further reductions are anticipated to close that gap by the end of 2012, Kapanke told the trustees.

Before making the final decision on the 2011 annuity reductions, the trustees debated the size of the reduction for annuity payments and bridge accounts, given recent positive market gains.

Kapanke said he appreciated the discussion before the trustees made their decision, emphasizing that the Board of Pensions and the trustees were trying to make a judgment in the best interests of plan members.

He said that the decision is part of providing members with income for their lifetimes as the Board of Pensions works to restore the health of the Participating Annuity and Bridge Fund. Kapanke said he and Robert D. Berg, assistant to the president for church relations, had met with about 1,900 people in 27 synods in the past year to answer questions about the three-year annuity recovery plan.

David G. Adams, Board of Pensions vice president for products and services, told the trustees that the Board of Pensions has pointed out through its communications to members the "variable nature" of the annuity. For example, he said that, when fully-funded, it doesn't mean there won't be further decreases. "This is a participating annuity. There will be increases as well as decreases," he said.

James A. Justman, bishop of the ELCA East-Central Synod of Wisconsin, Appleton, said retired ELCA clergy and other professional staff are counting on the retirement funds. "We have to be in an atmosphere of carrying the burden on this one," he told the trustees and Board of Pensions staff. "As we think about the folks in our plan, they're counting on this. That's part of the 'spiritual' fiduciary responsibility we have." Justman serves as advisory bishop to the trustees.

In addition, the trustees made decisions about reopening the Participating Annuity Fund, without new bridge accounts, and delaying a second annuity fund offering. They approved a staff recommendation to authorize "reopening of the ELCA Participating Annuity Fund at a date to be determined by management," sometime in mid-2011. However, the trustees delayed launching a new second annuity fund option until a date to be determined, and asked that recommendations be brought to them when they meet March 10-13, 2011, in Chicago.

The trustees were told by staff that the delay in launching the second annuity fund option was caused by a delay in an overhaul of the Board Pensions' online systems and technology, aimed at streamlining customer service. The Board is working with a consultant to resolve the systems and technology difficulties, Kapanke said.

Kapanke told the trustees the delayed opening of the new fund was "very disappointing" but that it was positive development that the existing fund is being opened up next year to new entrants.

Other actions related to the trustees' work:

  • At its Nov. 12-14 meeting in Chicago, the ELCA Church Council is expected to consider a report and recommendations from an ad hoc committee it appointed to consult with the Board of Pensions to learn more about the decisions it made regarding the Participating Annuity and Bridge Fund. It asked the committee to explore ways to restore fund losses, increase payments to annuitants and explore ways to mitigate the adverse effects of fund losses.
  • Trustees approved amendments to the ELCA retirement, medical and dental, survivor benefits and disability benefits plans to allow congregations or qualified church-controlled organizations with "common religious bonds with the ELCA" -- such as the new North American Lutheran Church -- to sponsor members in the benefit plans. The amendments were sent for approval to the ELCA Church Council. David D. Swartling, ELCA secretary, told the trustees that the topic had been discussed by leaders of the churchwide organization and the Board of Pensions. He said it had been determined to open the plans to qualified non-ELCA congregations or churches. The benefit plans that are offered will be exactly the same as plans offered to ELCA plan members.
  • Kapanke told the trustees that direct rollovers of retirement funds out of the Board of Pensions totaled $47.5 million through the third quarter of 2010, compared to $15.3 million for 2009. The reason for the increase in 2010 is the absence of the availability of an annuity product, and removal of withdrawal limits for surviving spouses and divorced spouses, Kapanke said.
  • Trustees approved a $46.8 million operating budget for the Board of Pensions for 2011, up from about $45.3 million in actual and forecasted expenses this year.
  • Trustees learned that 70.3 percent of 12,306 eligible plan members took the Board of Pensions' online health-risk assessment in 2010, up from 64.9 percent in 2009.

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