Brethren Pension Plan
Frequently Asked Questions
Frequently Asked Questions
regarding the Retirement Benefits Fund
What is an “assumption rate”?
An “assumption rate” is the annualized rate of return that BBT expects to earn on the assets invested in the Retirement Benefits Fund — the pool of money that pays out monthly annuity benefits. It is also a key value used in calculating an annuity benefit amount.
Why a single assumption rate?
Reverting to a single assumption rate is the most appropriate intervention to the RBF underfunding crisis because —
- There is a justice issue. With multiple assumption rates, those who annuitized later have been subsidizing the higher benefits of those who annuitized earlier. In moving to one assumption rate, we are essentially leveling the playing field for all annuitants.
- Using multiple assumption rates has left some participants with the impression that our annuity is a “fixed amount for life” product, and that the Plan does not allow for interventions to the RBF. The Plan has always allowed for the Board to take any necessary action to preserve the RBF.
What are A and B accounts and why will they be combined?
The A account tracks employer and employee contributions (plus earnings and losses) made prior to July 1, 2003. The B account tracks contributions (plus earnings and losses) made on or after July 1, 2003. A and B accounts were created, as a result of Board action, in response to another major market downturn from 2000 to late 2002. A multiple assumption rate approach was adopted to protect the solvency and integrity of the Retirement Benefits Fund.
What does it mean that my A and B accounts are combined into one as of July 1, 2009?
As a result of returning to a single assumption rate, the need for A and B accounts no longer exists. Combining the A and B accounts will make your quarterly statement more readable and easier to understand. Your total account balance will remain unchanged.
What will change for me if I am an Active (or Inactive) Plan member?
Nothing will change if you are an Active or an Inactive Plan member. When you do decide to annuitize your Pension account, your monthly benefit will be calculated with a 5 percent assumption rate.
What will change for me if I am currently receiving a monthly annuity check?
As of Sept. 1, 2009, all existing annuities will be recalculated utilizing all of the data that went into calculating the original annuity benefit amount — except the assumption rate, which will now be 5 percent. The new, recalculated annuity amount will be less than what you have been receiving.
By how much will my annuity payment be reduced?
The exact amount of your new annuity payment will not be known until it is actually recalculated. However, our research indicates that the majority of annuity payments will be reduced in the range of 15 to 20 percent. Please note — it is entirely possible that some reductions may be less than 15 percent or more than 20 percent.
When will I find out what my adjusted annuity payment is?
At this time, we do not know the exact amount of your new annuity payment. BBT staff is working diligently to gather the data necessary for recalculating annuity amounts. A letter is scheduled to be sent during the first half of July (after Annual Conference) with your adjusted payment amount. This letter will also include more information about a grant program that BBT has created to lessen the burden on those who will be most affected by this change. The letter with your adjusted annuity amount will include an application for the grant.
Why will it take until mid-July to find out my reduced payment amount?
Gathering and validating the information necessary to recalculate the annuity payments is a time-intensive process. Three full-time, temporary employees have been hired for the express purpose of expediting this task. The integrity of the data being gathered is of the highest priority, and painstaking measures are in place to assure its accuracy — all of which take time.
How do I apply for the grant program?
The letter with your adjusted annuity amount will have more details about the grant program.
Tell me more about the grant program.
A reduction in annuity payments will create a greater hardship for some annuitants. In an effort to assist those who are most vulnerable, BBT has appropriated non-Pension Plan assets from its operating reserves to provide special assistance — up to the amount of the benefit reduction. The reserves represent the income and investment accumulations of more than 20 years of service to the denomination. It is seed money to start new projects and gives the organization adequate cash flow. While there are not enough assets in this Fund to fix the Pension Plan, there are enough to help ease the initial pain of a lowered monthly payment. The Board will be reviewing and evaluating the grant program each year to see if and how it can be continued.
At some point is it possible that my benefit payment will increase?
The answer to this question is yes, with some qualifications. BBT staff and Board are charged with balancing two important values — providing the most generous benefit possible and maintaining fiscal responsibility. As of Dec. 31, 2008, the Retirement Benefits Fund had enough assets to meet only 68 percent of its current obligations. Returning the RBF to fully funded status (i.e. able to meet 100 percent of its benefit obligations) is our first priority.
Once the RBF is fully funded, we are then free to turn our attention to accomplishing two subsequent goals — increasing benefit payments and increasing the RBF to fully reserved status, which is defined as having 130 percent of the necessary assets to meet its obligations. Currently, BBT Board and staff are working on a plan to accomplish these important goals.
Could my annuity payment change in the future?
Yes. BBT has already increased and decreased benefits and/or assumption rates in the past as market conditions required. While the Plan is designed to keep benefit amounts level (not guaranteed), it also allows the Board to take whatever action is necessary to protect the RBF. We will continue to respond to market realities and adjust benefits as necessary.
However, be assured that the desire and goal of the Board and staff have been, and continue to be, offering the most generous benefits possible while maintaining fiscal responsibility. The RBF must be able to meet its current and future obligations. Our promise is that annuitants will receive a benefit for life.
Can my original survivor option election be changed when my new benefit is calculated?
No. To change the survivor benefit election would distort your benefit calculation in a negative way. It is possible that recalculating an annuity benefit with a different survivor benefit election could result in a benefit amount that is less than what it should be.
In order to provide each annuitant with the appropriate and accurate new benefit amount (based on the 5 percent assumption rate) we must use the same values as those in the original calculation, with the exception of the assumption rate.
Why have I received multiple mailings with the same information?
In mailings where we combine multiple databases together of all BBT plan members, it sometimes is less costly and labor intensive to mail multiple pieces to the same person than it is to go through and reduce the duplicates. It seems counterintuitive, but our various databases have different rules for abbreviations, which can make it difficult to locate duplicates. The programming costs that it takes to remove these are far more than what it costs to send them out.
We are working to tie all of our databases together so that we can efficiently remove duplicates, but that project is still in process at this time.
The markets have been doing well over the past few months, so why do we need to still go through with the reduction in Pension benefits?
By August 9, the markets had gained 11.9 percent for the year, as measured by the S&P 500. However, even with the positive market activity of this year’s second quarter, we estimate the RBF’s current funding status is approximately 70 percent — a slight improvement from the Dec. 31, 2008 level of 68 percent. Currently, benefit payments of approximately $1.2 million are disbursed to our annuitants every month. At this rate, even with the recent market returns flowing into the RBF, we have high confidence that the RBF will remain underfunded and could simply evaporate without this reduction in benefits. So, the answer to this question is, “Yes, this benefit reduction is still very much necessary.”
When might we see our benefits increase?
This question is more difficult to answer. Assuming the markets continue to recover, the assets of the Retirement Benefits Fund will likewise recover, based on the implementation of this benefit reduction. We simply do not know how quickly this will happen. Our present goal is for the RBF to be 100 percent funded — able to meet all of its benefit obligations today and into the future. Returning the RBF to fully funded status while continuing to pay out monthly benefits will take many years. However, once this goal has been met, the next step is to pursue two goals simultaneously — 1. Build up the Pension reserve to meet future financial crises, and 2. Pay out additional benefits. Benefits were recalculated using a 5 percent assumption rate, but all past increases that were applied to an annuitant’s original benefit have been retained in the recalculation process and are reflected in the new benefit amount.
Why did it take longer than expected to recalculate benefit amounts?
The records of our more than 1,500 annuities span 40-plus years of service to the denomination. Many of the early records pre-date electronic recordkeeping, and approximately 75 percent of all annuity records have migrated through three different recordkeeping software systems. Many of these annuities have received several percentage increases over the past 30 years. These are several important factors that have made the recalculation process complex and have required a great deal of “hands-on” interaction. As we are committed to making sure each record was recalculated accurately, the process required more time than we originally estimated. We promised at least 30 days’ notice regarding a change in benefit, so the time needed to accurately recalculate benefits determined the October start date.
What is BBT doing to share the pain of these reductions?
Cost of living increases have been frozen for BBT staff, and positions that are open but are not deemed mission critical at this time are not being filled. Staff is also trying to reduce expenses where possible by delaying or eliminating projects. To date, BBT’s expenses are more than $200,000 under budget for the year against an expense budget of $3.3 million. Today, BBT has five fewer staff members and an expense budget that is $500,000 less than in 1999. While we are committed to managing our expenses, we do not believe it serves our members to undercut on customer service. Maintaining a strong organization and offering excellent service to our members will increase our resources and benefit our members.
How did the RBF become underfunded, and why did BBT return to a uniform assumption rate of 5 percent?
This didn’t happen overnight. The sharp decline of the markets in 2008 had a huge impact on the RBF, but for a few years, a higher percentage rate was being paid out than was being returned through investments. BBT attempted to maintain the levels of benefits for existing annuitants by lowering rates for new annuitants, but that was not enough to offset the high rates being paid out. BBT has striven to pay the highest benefits possible to its members, including paying out 13th checks during some years when earnings were good and actualized assessments indicated that we were maintaining adequate reserves. Changing to a uniform 5 percent assumption rate is the only effective way to remedy the underfunded status of the RBF. When the RBF is fully funded once again, and the markets allow it, members will once again benefit from that prosperity.
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