The phasing out of the Brethren Pension Plan Annuity Benefit Reduction Assistance Program and a change in how the fund that pays out all Pension Plan annuities is invested were two major action items approved by the Brethren Benefit Trust (BBT) Board of Directors when they met April 30 and May 1 at the Church of the Brethren General Offices in Elgin, Ill.
While board members also addressed a number of other business items, including its securities lending program, compliance and data security issues, socially responsible investing screens, and BBT’s clean audit opinion for 2010, it was the Brethren Pension Plan that received substantial discussion time.
“Nothing that we do as a board and staff is more important than safeguarding and strengthening the Brethren Pension Plan for all of our members–both retirees and actives–using the means that we have,” said BBT president Nevin Dulabaum. “Having made a number of decisions over the past two years that immediately strengthened the Pension Plan, the board at the April meeting focused its attention on action steps that are intent on helping the plan weather economic challenges in the future.”
BBT board votes to end Brethren Pension Plan grant program in 2014:
In Oct. 2009, the month that Brethren Pension Plan members received a reduction in their annuity payments due to the underfunded status of the Retirement Benefits Fund (from which Pension Plan annuities are paid), a grant program was established for qualified members who were left most vulnerable. Members who qualified for a grant received a payment that was equal to no more than the reduction in their pension annuity payment.
This Annuity Benefit Reduction Assistance Program was approved by the BBT board to give some members assistance and time to adapt to the reality of lower annuity payments. The grants were made from BBT reserves, and the program was intended to be reviewed each year.
In April, the board approved a plan that will bring a gradual end to the grants; financial assistance from the grant program will steadily decline over the next three years. Grants will continue unchanged through the end of 2011. In 2012, members who qualify for grants will receive no more than 75 percent of the amount their annuity payments were reduced. They will receive up to 50 percent of their annuity reduction amount in 2013, and 25 percent of their annuity reduction amount in 2014, through Sept. 30, at which point the grant program will end–a full five years after its inception.
The ending of the grants will not impact regular annuity payments in any way. All annuitants who receive a monthly benefit payment from Brethren Pension Plan will continue to receive their monthly check, and at the same amount.
“Because these funds are coming from BBT’s reserves, this program cannot continue indefinitely,” said Scott Douglas, director of Brethren Pension Plan and Employee Financial Services. “However, in light of a difficult situation, we hope that this gradual reduction of grant funds will give recipients ample time to adapt to this change.”
Retirement Benefits Fund further diversified to lower risk and increase potential gains:
Despite the fact that the Retirement Benefits Fund (RBF) is underfunded, are there ways to position the fund so that it maximizes potential returns while minimizing potential risk? This is a question that BBT has been asking in the wake of the market collapse of 2008. While the RBF’s funding status is also affected by a number of uncontrollable variables–the number of people entering and exiting the pool and their ages, life expectancies, accumulations, and the surviving spouse benefit option that they may have chosen, among others–one important element that BBT can control is how it is invested.
In 2010, BBT commissioned one of its investment consultants to examine the asset allocation mix of the RBF and to propose new investment options. A preliminary report was presented to BBT’s investment committee in January, and a final report in April. After considering a number of scenarios, the board selected a new asset allocation mix for the RBF that utilizes many of BBT’s new investment options, increases the diversification of the portfolio, and is aimed at increasing returns while minimizing risk.
The board also gave the go-ahead to BBT’s Pension Plan Task Force to continue to seek ways to strengthen the plan. The team has received a report from Aon Hewitt on possible enhancements or changes that could be made based on industry trends and practices, and also is using information from conversations with other faith-based pension plan providers.
Securities lending program to become self-sustaining:
Following a discussion in the Investment Committee, led by chair Jack Grim, the board approved a motion that will result in the securities lending program becoming self-sustaining. This means that the use of future revenue from BBT’s securities lending program will first be used to offset fees to the program, including legal expenses.
BBT is currently in the middle of a lawsuit with its custodial bank regarding the securities lending program. Until this decision by the board, payment for securities lending legal fees came from BBT’s reserves.
“The action the Board took was to recognize that income from the program must first pay for all expenses of the program,” said Dulabaum. “Income in excess of expenses will continue to be used to offset the various fees associated with each investment fund.”
In other business:
FedEx was given a “no-fly zone” by the board. Each year, companies that have business practices at odds with Church of the Brethren Annual Conference statements are screened from BBT’s investment portfolio. This includes businesses that have major contracts with the US Department of Defense. Socially Responsible Investing (SRI) director Steve Mason presented two lists of Department of Defense contractors that in 2010 either earned 10 percent or more of their income from such contracts or were one of the top 25 publicly traded contracting firms. While many of the firms are not household names, the same cannot be said about FedEx. With the board’s approval of the lists, BBT will avoid patronizing FedEx during the next year, as well as the 83 other businesses that appear on the lists (review the lists at www.brethrenbenefittrust.org, click on “Downloads” then “Socially Responsible Investing”).
The Investment Committee and board addressed details related to BBT’s investment guidelines, including how large a small cap company can be and a benchmark for the Public Real Estate Fund, which was shifted to the Standard & Poor’s Developed Property Index. The board in closed sessions discussed the ongoing securities lending litigation, and efforts to comply with federally mandated security laws. A facilities and compliance task force that includes Carol Hess, Carol Ann Greenwood, Ann Quay Davis, and Dulabaum was created.
The next BBT board meetings will be on July 6 in Grand Rapids, Mich., following Annual Conference; and Nov. 18-19 in Martinsburg, Pa., at the Village at Morrisons Cove.
— Brian Solem is coordinator of publications for Brethren Benefit Trust.