Church Pension Group Calls Ditching DB for DC Plan ‘Irresponsible’

In its recent “State of the Church” report, the Church Pension Group (CPG), a financial services organization that serves the Episcopal Church, said moving participants to a defined contribution (DC) plan from a defined benefit (DB) plan would not be in the best interests of the Church or the clergy.

“We have considered the possibility of moving from a defined benefit plan for clergy to a defined contribution plan, and we have concluded that doing so would be irresponsible,” said the CPG. “Our analysis shows that, assuming the same contribution level, the defined benefit plan in the vast majority of cases would produce a higher benefit to a participant than would a defined contribution plan.”

The assessment is in stark contrast to the ongoing rise in DC plans and decline in DB plans, as corporations look for ways to cut costs, and lawmakers tout DC plans as a savior for struggling pension systems and overburdened state budgets.

“In recent years, many corporations have abandoned their defined benefit plans and moved their employees solely to defined contribution plans,” said the CPG. “This has been done notwithstanding the fact that defined contribution plans originally were designed only to provide supplemental retirement savings … and were not intended to replace defined benefit plans as a primary retirement vehicle.”

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The report is a response to a series of questions submitted by the Episcopal Church’s Church Pension Group Subcommittee, and addresses the pension’s financial sustainability and investment strategy One of the questions asked the CPG “to what extent have you considered moving to a defined contribution plan for all employees?”

In the report, the CPG said if the governing body of the Episcopal Church ever wanted to move participants out of the DB plan and exclusively into DC plans, it could theoretically do so by freezing the DB plan.

“However, we wish to serve the Church in the most effective way possible,” said the CPG. “In that regard, we strongly believe that for the same cost to parishes, whether that cost is 18% or more or less, the defined benefit plan provides a higher level of benefits to clergy than would a defined contribution plan, and consequently best serves both the Church and the clergy.”

The CPG also said that companies eliminating DB plans are motivated by improving the level and predictability of their quarterly earnings by eliminating the accounting expense of these plans.

“It has not been to provide a superior benefit to their employees,” said the CPG.

Tags: Church Pension Group, Pension, State of the Church Report

Newspaper publishing company A.H. Belo said it made a $20 million voluntary contribution to its pension plans during the third quarter, and used that, along with $23.5 million in liquidated plan assets, to transfer $43.5 million in pension liabilities to an insurance company.

“In addition to our focus on returning capital to our shareholders, we are committed in our efforts to de-risk our pension plans,” the company said in an Oct. 27 SEC filing. “This de-risking strategy has reduced the long-term pension liabilities of the company.”

The company didn’t name the insurance company to which it was transferring the liabilities, but said that as a result of the move, the company reduced the number of participants in its sponsored pension plans by 796, or 36%, and reduced its Pension Benefit Guaranty Corporation (PBGC) annual fees by $500,000, or 38%.

“Based on these actions, and holding constant the discount rate and the rate of return on pension assets, the company does not expect to have a mandatory contribution until 2023, and that payment would be $3 million,” said A.H. Belo.

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Last week, fellow newspaper publisher The New York Times Company agreed with Massachusetts Mutual Life Insurance Company to transfer pension benefits and annuity administration from two of its pension plans for approximately $225 million in pension obligations.

The two pension plans involved were The New York Times Company’s Pension Plan and The Retirement Annuity Plan for Craft Employees of The New York Times Company. Under the terms of the agreements, the pension plans will purchase group annuity contracts from MassMutual for approximately 3,800 retirees, or their beneficiaries. The group annuity contracts include an irrevocable commitment by MassMutual to make annuity payments to the affected retirees. All other retirees will continue to receive monthly benefit payments from the plans.

“This arrangement is part of the company’s continued effort to manage the overall size and volatility of its pension plan obligations,” said The New York Times in an SEC filing. It said the transfer will not change the amount of the monthly pension benefits received by the affected retirees, or their beneficiaries.

The company said it expects to finalize the transactions by early 2018.

Tags: A.H. Belo, De-Risking, Pension, Pension Risk Transfer, The New York Times