Moving to a defined contribution from a defined benefit plan was ‘irresponsible’ report to General Convention stated
Moving from a “defined benefit” (db) to “defined contribution” (dc) plan for clergy pensions would be “irresponsible” and harm the interests of the clergy, stated a report submitted by the Church Pension Group (CPG) to the General Convention this week.
On 30 Oct 2017 the CPG published on its website a 19 page response to questions raised by the pension fund subcommittee of the House of Deputies Committee on the State of the Church at the 78th General Convention. The committee asked a series of questions on the long term viability of the Church Medical Trust and the Church Pension Fund. One question put forward by the committee asked: “To what extent have you considered moving to a defined contribution plan for all employees? What would that plan look like?”
A db pension is retirement plan funded by the employer that promises a set payout upon retirement. A dc plan, is a managed retirement investment account akin to a 401(k) or 403(b) plan funded by the employer, where the retirement benefit is contingent upon the return generated by the investment.
“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,” the CPG paper said.
“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 paper noted: “In recent years, many corporations have abandoned their defined benefit plans and moved their employees solely to defined contribution plans.”
“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.”
Private industry had been eliminating db plans to improve corporate earnings. “It has not been to provide a superior benefit to their employees,” said the CPG.
It was theoretically possible for General Convention to change to a dc retirement plan for clergy and church employees by freezing the db plan. “However, we wish to serve the Church in the most effective way possible,” and “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.”