Board of Pensions. Special Report for the 2015 Annual Conference

Board of Pensions Special Report for the 2015 Annual Conference 1

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Table of Contents Executive Summary 4 Assets Maintained by the Conference Board of Pensions (CBOP) 6 Status of Pre-1982 Plan 7 Status of Active Health Care Reserves 8 Overview of Health Care Premiums and Expenses 9 Postretirement Benefits 10 2016 Church Pension Obligation Worksheet 13 2016 UM Personal Investment Plan (UMPIP) and Clergy Worksheet 14 Benefit Resources Medical Benefits--UPMC Dental Benefits--MetLife Vision Benefits of America Retiree Benefits--Freedom Blue Retiree Benefits--Community Blue HMO Retiree Benefits--AARP Pension Plan Information Annual Conference upmchealthplan.com metlife.com visionbenefits.com highmarkbcbs.com highmarkbcbs.com aarphealthcare.com gbophb.org wpaumc.org 3

2015 Conference Executive Summary Your Conference Board of Pensions is pleased to provide you with a comprehensive update on the health care and pension programs provided for eligible clergy, dependents and lay employees. Active employees and pre-age 65 retirees (including their pre-age 65 spouses and pre-age 65 surviving spouses) who are enrolled in Conference-sponsored health care plans have access to UPMC Healthy U HRA PPO network, MetLife dental plan, and Vision Benefits of America plan. During 2014, the Conference and local churches paid $ 5.9 million for the health care benefit plans. The average number of members in the UPMC plan was 1,112 in 2014. Most Medicare eligible retirees are enrolled in either an AARP Medicare Supplemental Plan, a Highmark Freedom Blue or HMO Medicare Advantage Plan. Retirees have an opportunity to change plans during open enrollment every fall. In addition, the Conference Board of Pensions (CBOP) provides funds to continue health care benefits for surviving spouses. At the end of 2014, there were 611 participants in these plans. The CBOP paid approximately $932,000 to supplement these retiree plans in 2014. Approximately $92,000 (about $18.20 monthly per member) is paid for dental coverage. The Accumulated Post-Retirement Benefit Obligation (APBO) to provide these benefits to current and future retirees and spouses was $24.4 million as of January 1, 2014. This valuation was provided by AON Hewitt. The Conference provides the denomination s Comprehensive Protection Plan (CPP) for full-time clergy. This plan provides longterm disability, partial income replacement benefits and death benefits to clergy and their dependents. The 2014 cost of the CPP program was approximately $641,000. The pension plan has evolved over the years. Years served prior to 1982 are covered by the Pre-1982 plan. This is a defined benefit plan and currently is overfunded. Since 2007, approximately $2 to $3 million annually has been redirected to fund the current defined benefit earned by our participating clergy. 4

Service years from 1982 to 2006 earned a benefit under the Ministerial Protection Plan (MPP). During this period, each church paid 12% of total compensation. Total compensation includes salary and a 25% housing allowance for clergy who were provided a parsonage. This is a defined contribution plan. Beginning in 2014, 65% of the benefit is converted to an annuity or defined benefit payment stream, with the balance managed by the participant. Service years from 2007 forward earn pension credit in the Clergy Retirement Security Plan (CRSP). This plan has both defined benefit and defined contribution attributes. To date the defined benefit portion has been funded by redirecting approximately $2 to $3 million annually from the Pre-1982 plan. The defined contribution portion is funded annually by each church at the rate of 3% of total compensation. In 2016, a 0.5% contribution of total compensation is required to fund the Benefit Reserve Fund to offset market fluctuations, changes in mortality tables and changes in projected market performance. On the following pages, you will find additional details supporting the Pre-1982 pension plan, post-retirement medical reserves and liabilities, the status of our active medical reserves, and the Carnahan Fund grants. Gary Grau, Chair Lamar Oliver, First Vice Chair Bob Zilhaver, Second Vice Chair; Administrative Committee Chair Tom Parkinson, Secretary Steve White, Finance Committee Chair Don Inman, Healthcare Committee Chair Rich Pearson, Heathcare Committee Vice-Chair Kathleen Lasky, Conference Benefits Officer, ex-officio Larry Bridge, Conference Treasurer, ex-officio Joel Garrett & Brad Lauster, Cabinet Representatives Administrative Committee Gary Grau, Kurt Gottschalk, Bob Zilhaver Finance Committee Steve White, Barbara Holcomb, John McKee, Erin Hartland, Jim Reese Health Care Committee Don Inman, Linda Dinger, Michael Studeny, Dara Sterling, Rich Pearson 5

Assets Maintained by the Conference Board of Pensions The Conference Board of Pensions (CBOP) maintains significant assets, as shown below, to meet active health care and post-retirement benefit obligations, as well as pension obligations under the Pre-1982 Pension Plan and Clergy Retirement Security Program (CRSP). 31-Dec-13 31-Dec-14 General Board of Pensions Pre-1982 Pensions See below See below Working Capital Needs 497,684 226,538 Health Care Active Employee Health Care Funds 6,885,742 6,200,222 Retiree Health Care Funds Deposit Account 22,801,290 21,483,676 Retiree Health Acc t 9,763,563 20,401,644 Health Insurance Reserve Fund 598,747 622,733 Sub-Total Retiree Health Care Funds 33,163,600 42,508,053 Total - Health Care 40,049,342 48,708,275 Pension Benefits Carnahan Funds 2,467,789 2,504,736 Undesignated Pension Permanent Annuity 9,951,805 10,889,202 Benefit Reserve Deposit Account 6,256,266 7,128,938 Sub Total - Undesignated 16,208,071 18,018,140 Total CBOP Assets 59,222,886 69,457,689 Pre-1982 Plan The General Board of Pension and Health Benefits of The United Methodist Church (GBOPHB) administers the retirement plan known as the Pre-1982 Plan, covering substantially all United Methodist clergy for service prior to 1982. The Western Pennsylvania Annual Conference portion of the plan is currently overfunded. On January 1, 2014, the valuation date used to determine contributions due for 2016, Conference assets in the plan were $118,456,395 and liabilities were estimated to be $77,008,894. The plan was over funded by $41,447,501, a funded ratio 6

of 154%. The change in plan assets resulted from investment growth, benefit payments, and redirection of plan assets to meet contribution requirements of the CRSP DB plan. During 2014, redirections of $10 million in plan assets to other conferences were made in return for matching contributions to our Retiree Health Insurance deposit account. Given the overfunding in the Pre-1982 Plan, CBOP intends to continue utilizing this overfunding to meet our obligations under the CRSP DB plan. Pre-1982 Plan assets were redirected to meet 2015 required contributions to the CRSP DB plan in the amount of $2,235,275. Additionally, we plan to redirect $2,255,974 to meet 2015 obligations and $2,252,942 to meet 2016 CRSP-DB obligations. In managing the assets needed to meet the pension obligations for Pre-1982 service, the CBOP intends to maintain assets at a level of at least 120% of projected liabilities. Status of Pre-1982 Plan as of January 1, 2014 The full circle represents the total funding of $118,456,395 The direct pension liability of $ 77,008,894 20% of Liability as Reserve $ 15,409,940 Redirection for 2015 CRSP-DB $ 2,255,974 Redirection for 2016 CRSP-DB $ 2,252,942 Redirection for Post-Retirement Medical $ 10,000,000 Over funding $ 11,528,645 2015 CRSP 2016 CRSP POST-RETIREMENT OVERFUNDING 20% RESERVE LIABILITY 20% RESERVE 7

Working Capital The funds shown as working capital are maintained to meet current needs. We plan to maintain these funds with a balance equal to two month s needs. The funds are maintained in liquid accounts. Active Health Care Reserves have been established to meet liabilities for current employee and clergy health benefits. Our guidelines for these accounts are to maintain adequate working capital and to meet incentive and other obligations under our current and proposed health care programs. These funds are invested with a view to their short-to-medium-term need. Status of Active Health Care Reserves at January 1, 2015 The full circle represents the total medical reserves of $ 7,450,075 Contingency 2016 $ 1,000,000 Contingency 2015 $ 1,400,000 UPMC 2014 $ 951,928 Current Payable UPMC $ 500,000 Working Capital $ 1,600,000 Available Reserves including market risks $ 1,998,147 Available Reserves Working Capital Contingency 2016 UPMC 2014 Current Payable Contingency 2015 8

Overview of Premiums and Expenses for Medical and Dental Plans Health Plan Year 2013 2014 Monthly Billing Rate for Active Employees $1300 $1300 Receipts: Health Care Billing Medical Insurance Premiums $7,159,388 $6,532,735 Dental Premiums $331,361 $328,944 Total Plan Year Receipts $7,490,749 $6,861,679 Disbursements: Health Care Disbursements Highmark, UPMC, & AARP $7,100,945 $6,422,169 MetLife Dental $412,858 $357,370 Plan Year Settlements $932,592 $951,928* Fees and other Disbursements $68,744 $200,491 Total Plan Year Disbursements $8,515,139 $7,931,958 Net Plan Year Receipts (Disbursements) $(1,024,390) $(1,070279) i *Settlement with UPMC paid in 2015 9

Post-Retirement Benefits Retiree Health Care The reserves for retiree health care have been established to provide health care coverage for those clergy (and their dependents) who retire prior to reaching age 65 and meet certain years-of-service requirements. Additionally, for Medicare eligible retirees and their spouses, a supplement of $126 per month is provided. The most recent valuation at January 1, 2014 estimated our accumulated post-retirement medical obligation to be $24,436,749. Given the continuing surplus in the Pre-1982 account, we intend to continue to review the benefit of further redirections to cover our retiree medical obligations. From an investment perspective, the obligations that these assets cover stretch well into the future. Thus, we have taken a long-term approach with these assets and have invested them with a greater percentage of equities than is held in the working capital and active health care accounts. 10

Status of Postretirement Medical and Dental Obligation of January 1, 2014 The Postretirement Medical and Dental Obligation of the Conference is funded by several accounts under the auspices of the Board of Pensions and the United Methodist Foundation. These accounts include the Deposit Account and Retiree Health Insurance Deposit Account held at the GBOPHB in Glenview, IL and the Health Insurance Reserve Fund held at the United Methodist Foundation. The Accumulated Post-Retirement Obligation as of January 1, 2014 is $24,436,749. The invested assets underlying this obligation total $33,163,600, resulting in an overfunded balance of $8,726,851. $25 Deposit Account $20 $ in millions $15 $10 Retiree Health $5 Health Insurance 0 The bar chart represents the total assets of $33,163,600 as of January 1, 2014. Funding Sources Deposit Account $22,801,290 Retiree Health Deposit Account 9,763,563 Health Insurance Reserve Fund 598,747 11

Pension Carnahan Funds The funds held in the Carnahan Trust are permanently restricted and only the income from this trust may be used to meet pension support needs of clergy and their dependents. Awards are granted from the income of this trust annually. Undesignated Reserves Pension Permanent Annuity The United Methodist Foundation has acted in the role of trustee of various funds that have been gifted to the Conference and its predecessors to provide for the health and retirement benefit of retired clergy and spouses. These funds are held in the Pension Permanent Annuity account at the Foundation. We have taken the position that these permanent annuity funds are restricted, and only the income may be used to provide retirement health benefits. The income from the fund has accumulated over time and, as of December 31, 2014, the balance in the income account stood at $3,288,580. In the future, we anticipate designating these funds to meet our expected CRSP DB obligations or our retiree medical benefits. Given the long-term nature of these potential obligations, the funds are invested in the Core Balanced Account at the Foundation. Benefit Reserve Deposit Account The Benefit Reserve Fund was established recognizing the need to make future contributions to the CRSP DB retirement plan and to fund other liabilities such as retiree medical plans. The creation of this fund recognizes the limited number of years that redirections from the Pre- 1982 plan may be available. The account is proposed to be funded by an assessment of 0.5% of each CRSP participants total compensation. Since the fund has been established to meet pension and retiree obligations, the assets are invested at the GBOPHB with a longer term perspective. 12

2016 Pension Obligations for Churches Clergy, treasurers, and finance committees should use this worksheet to determine 2016 pension responsibilities for CRSP, CPP, and Benefit Reserve payments. Step A Calculate Clergy Compensation 1. Enter your 2016 salary $ a. Multiply by 25% to adjust for housing if the pastor lives $ in a parsonage x 25% b. Amount of cash housing allowance if pastor does not live in a parsonage, if applicable $ 2. This is your Total Plan Compensation $ a. Add Line 1 plus a. if pastor lives in a parsonage b. Add Line 1 plus b. if pastor does not have a parsonage Step B Determine Clergy CPP Payment (only applies to full-time clergy)* 1. Multiply Total Plan Compensation by 3% x 3% 2. This is your Annual CPP Payment $ 3. Divide by 12 to determine monthly payment $ Step C Determine Clergy CRSP Payment 1. Multiply Total Plan Compensation by 3% x 3% 2. This is your Annual CRSP Payment $ 3. Divide by 12 to determine monthly payment $ Step D Determine Clergy Benefit Reserve Payment 1. Multiply Total Plan Compensation by.5% x.5% 2. This is your Annual Benefit Reserve Payment $ 3. Divide by 12 to determine monthly payment $ Step E 2016 Local Church Pension Obligation 1. Add Line 2 from Step B, C, and D, annually $ 2. Add Line 3 from Step B, C, and D, monthly $ *if less than full-time, contact Conference Benefits office. 13

2016 UMPIP Contributions Clergy Worksheet Step A Calculate Your Compensation 1. Enter your 2016 salary $ a. Multiply by 25% to adjust for housing if the pastor lives $ in a parsonage x 25% b. Amount of cash housing allowance if pastor does not live in a parsonage, if applicable $ 2. This is your Total Plan Compensation $ a. Add Line 1 plus a. if pastor lives in a parsonage b. Add Line 1 plus b. if pastor does not have a parsonage Step B Determine Your UMPIP Payment 1. Multiply Total Plan Compensation by 1%* $ 2. This is your minimum annual UMPIP Payment $ 3. Divide by 12 to determine monthly payment** $ * This is the minimum required contribution. If you are already contributing on a monthly basis to UMPIP and your current contribution equals or exceeds the 1% required, no additional contribution is required. **This monthly amount will be deducted from your salary and submitted by your treasurer to the GBOPHB. You are not limited to 1%. In 2015, you are able to contribute up to $18,000 per year. If over age 50 by December 31, the maximum amount you can contribute is $24,000. 14

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