presenters: david adams, elca board of pensions mark borchert, lcms concordia plan services the...
TRANSCRIPT
Presenters: David Adams, ELCA Board of Pensions Mark Borchert, LCMS Concordia Plan Services
The impact of the economic downturn on church retirement plans – an update
Nov. 30, 2010
3
Background
Triggering events • Easy credit • Bursting of the US housing bubble • High default rates on mortgages • Deregulation in the financial industry • Near collapse of major segments of the world
financial system
4
Background
Investment losses • S&P index lost 57.4% from 10/9/07 to 3/6/2009 • 49% of the loss had been recovered as of
mid-November, 2009• 57% of the loss has been recovered as of
mid-November, 2010 but need additional 33% gain to match 2007 high
5
Background
Prospects for recovery • Returns of the last 20 months are encouraging • But economic recovery is still weak
– High unemployment– High deficits and potential tax increases– Weak lending– Weak housing market– Weak dollar
6
Background
Impact on US retirement plans • Investment losses in the $trillions • Liabilities continue to grow, in part due to falling
interest rates• Path to recovery
– DC Annuity plans Market recovery / benefit reductions
– DB plans Market recovery / contribution increases
7
Background
Who bears the risk?
DC annuity plans DB plans
Initial adequacy Member Plan sponsor
Investment risk Member Plan sponsor
Longevity risk Member Plan sponsor
Inflation risk Member Member (or sponsor)
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Survey
• Questions about – Asset allocation – Investment returns – Funded status – Benefit or contribution changes – Member communication– Other changes
• Number responding in both 2009 and 2010 – 10 DC annuity plans – 10 DB plans
9
Survey
Participating organizations
DC Annuity plans (10) DB plans (10)
American Baptist Churches Baptist General Conference
Church of God, Anderson, IN Christian Brothers Services
Church of God, Cleveland, TN Christian Church (Disciples of Christ)
Evangelical Free Church of America Evangelical Covenant Church
Evangelical Lutheran Church in America Lutheran Church -- Missouri Synod
Mennonite Church USA Moravian Church Northern Province
United Church of Christ (2) Presbyterian Church (U.S.A.)
United Methodist Church Seventh Day Adventists
YMCA United Methodist Church
Unity School of Christianity
10
Survey
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
A1 A2 A3 A4 A5 A6 A7 A8 A9 A10
Asset Allocation Policy in 2008 -- 2010Annuities
Equities Fixed Income Other
11
Comments regarding asset allocation
• DC annuity plans are labeled A1, A2, etc.• DC annuity plans invest as follows:
2009 2010
Low High Avg. Low High Avg.
Equities 0% 68% 43% 0% 66% 43%
Fixed income 27% 100% 49% 20% 100% 48%
Other 0% 30% 8% 0% 30% 9%
12
Survey
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
P1 P2 P3 P4 P5 P6 P7 P8 P9 P10
Asset Allocation Policy in 2008 -- 2010DB Plans
Equities Fixed Income Other
13
Comments regarding asset allocation
• DB plans are labeled P1, P2, etc.• DB plans invest as follows:
2009 2010
Low High Avg. Low High Avg.
Equities 50% 72% 63% 50% 70% 61%
Fixed income 15% 50% 30% 15% 50% 31%
Other 0% 20% 7% 0% 20% 8%
14
Survey
-40%
-30%
-20%
-10%
0%
10%
20%
30%
A1 A2 A3 A4 A5 A6 A7 A8 A9 A10
Investment ReturnsAnnuities
2008 2009 9 months ended 9/10 33 months ended 9/10
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Comments regarding investment returns
• For DC annuity plans– 2008 returns ranged from -32% to 11% – 2009 returns ranged from -1% to 25% – 33 month returns ranged from -14% to 23%
16
Survey
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
P1 P2 P3 P4 P5 P6 P7 P8 P9 P10
Investment ReturnsDB Plans
2008 2009 9 months ended 9/10 33 months ended 9/10
17
Comments regarding investment returns
• For DB plans– 2008 returns ranged from -32% to -19% – 2009 returns ranged from 16% to 27% – 33 month returns ranged from -15% to 6%
18
Funded ratios
0%
20%
40%
60%
80%
100%
120%
140%
A1 A2 A3 A4 A5 A6 A7 A8 A9 A10
Funded Ratios -- Annuities
As of 12/08 As of 12/09 As of 9/10
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Comments regarding funded ratios
• For DC annuity plans average funded ratio was– 80% as of 12/31/2008– 92% as of 12/31/2009– 97% as of 9/30/2010
20
Impact on DC Annuity Benefits
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
A1 A2 A3 A4 A5 A6 A7 A8 A9 A10
2010 and 2011 Annuity Adjustments
21
Changes made ─ DC annuity plans
• Five of 10 plans reported plan changes– Closed annuity fund to new entrants– Closed annuity fund to new entrants; plan to reopen in
mid-2011– Implemented partial withdrawals– Changed investment consultants– Changed maximum annuity reduction from 5% to 10% for
second year of downturn
• Seven of 10 plans reported strengthening member communications
22
Funded ratios
0%
20%
40%
60%
80%
100%
120%
140%
P1 P2 P3 P4 P5 P6 P7 P8 P9 P10
Funded Ratios -- DB Plans
As of 12/08 As of 12/09 As of 9/10
23
Comments regarding funded ratios
• For DB plans average ABO funded ratio was– 81% as of 12/31/2008– 94% as of 12/31/2009– 95% as of 9/30/2010
24
Impact on DB Contributions
0%
2%
4%
6%
8%
10%
12%
14%
16%
P1 P2 P3 P4 P5 P6 P7 P8 P9 P10
DB Contribution Rates
Contribution Rate -- 2009 Contribution Rate -- 2011
25
Changes made ─ DB plans
• Two of 12 plans reported plan changes– Closed plan to new entrants– Changed to cash balance style plan
• Four of 10 plans reported strengthening member communications