News Release -- 2003

Brethren Benefit Trust Board takes action
on interest rate for future annuitants

May 15, 2003 Elgin, Ill.

In a move designed to undergird the long-term health of the Brethren Pension Plan’s Retirement Benefits Fund, the Brethren Benefit Trust Board in April approved changes to the Plan as it strives to protect its monthly obligation to current annuitants while planning for its long-term obligations to future annuitants.

Over the past three years, the sputtering U.S. economy and the resulting downturn in the stock market have wreaked havoc on corporate pension plans nationwide. According to the Arizona Republic, the S&P 500 firms in 1999 had pension plans that were overfunded by $251 billion. Today, blue chip U.S. corporations in the S&P 500 have a $206 billion pension shortfall.

For BBT, its 25 percent surplus of 2000 is nearly depleted. While it appears that the U.S. economy is beginning to recover and some of the market losses may be built back, there is growing concern by Board and staff members that BBT may not be able to consistently earn at least eight percent on the Retirement Benefits Fund investments over the expected lives of future annuitants. Current retirees received an eight-percent interest rate calculation at the time their Pension monies were annuitized.

With these concerns in mind, the Board, convening April 26-27 in Elgin, Ill., for its spring meeting, approved a long-range plan that for now will maintain the existing eight-percent interest rate on past contributions to member accounts.

This means no changes will be made at this time to those members already receiving a retirement benefit. It also means that beginning July 1, 2003, all monies already invested in active Pension Plan accounts will be frozen, with no further contributions being made to those accounts. A second account will be opened for each active Plan member for contributions received after July 1, 2003. While the original “A” account for now will continue to have an eight-percent interest rate upon annuitization, the interest rate for the second “B” account will initially be set at six percent and will be reviewed annually.

According to Don Fecher, director of Pension Plan and Employee Financial Services, interest rates for defined contribution church pension plans that report to the Church Benefits Association average 5.92 percent. Of these 19 comparable plans, the Brethren Pension Plan is one of only three defined contribution plans that maintain an eight-percent interest rate. Among secular pension plans, rates average approximately four percent.

“It is our hope that contributions in the “B” accounts may some day receive an interest rate that is equal to or greater than the “A” accounts, which would mean the Plan once again had become overfunded,” said Wil Nolen, BBT president. “However, those rates are just not possible at this time with today’s market and the need to safeguard the longevity of the Plan.”

Each active Plan member will receive separate quarterly statements for the “A” and “B” accounts. Upon annuitization, the two accounts will be blended, resulting in a single annuity payment each month.

“This was really hard work to do,” said Gail Habecker, chair of the Board’s Investment Committee. “A lot of research and a lot of soul-searching went into it. I think staff has come up with a good recommendation.”

BBT develops mission statement, identifies strategic issues

New mission and vision statements, core values, and an examination of critical issues facing BBT were addressed by the Board as part of the organization’s strategic planning process, which began with a Board and management staff retreat in November.

The Board accepted the new mission statement, which states, “The Church of the Brethren Benefit Trust promotes the financial well being of the Church of the Brethren and others who share similar values by providing financial services. As a ministry of the Church of the Brethren, BBT strives to serve responsibly and compassionately, honoring and upholding the trust of those we serve.”

The vision statement includes 12 ways for BBT to achieve its mission, while the approved core values include trustworthiness, fiduciary responsibility, social responsibility, high business standards, responsible stewardship, mutual support, and compassionate service.

Following the November retreat, two Board members and senior staff identified critical issues that face BBT. Seven issues were reported to the Board members and staff, who then rated each strategic issue to develop an order of priority. The top four issues were the promotion of BBT ministries, whether BBT should offer fee-based services to the general Church of the Brethren membership, whether BBT should provide financial operations services to churches and church agencies, and how best to deliver BBT services.

Over the next two months, BBT staff will work to determine the action steps to be taken in addressing each of the strategic issues.

Modification to Brethren Medical Plan
well-received by members

Participation in the Brethren Medical Plan remained steady as coverage for employees of congregations, districts, and other eligible employer groups was moved to the Congregational Employee Plan (CEP) on Jan. 1, 2003.

Under the new arrangement, Plan members’ first $10,000 in claims each year are covered by BBT while claims above that amount are pooled with those of other CEP participating denominations.

While there were some changes in Plan membership from 2002 to 2003, total enrollment remained steady at 866.

“I’m really pleased with the response to the Plan,” said Jeff Garber, director of Insurance Plans. “It has been quite well-received by those who have enrolled.”

While most participants have been able to access provider networks that meet their needs, some areas of the country have not had strong networks. Recognizing this weakness, insurance staff have been working to find network coverage for those areas; at least one new network will join CEP in 2004.

Active pastors and other employees of congregations and districts, as well as Brethren organizations, will once again have the opportunity to receive rate quotes late this year when the Brethren Medical Plan enters its annual open enrollment period. Packets of information will be sent to employers this fall. As medical premiums across the industry continue to rise, Brethren insurance staff encourage all non-participating people and agencies eligible for the Brethren Medical Plan to obtain a quote for comparison with their current plan.

“We hope congregations, districts, and Brethren organizations will give us the opportunity to give them a quote,” said Garber. “We think they will find that the Plan meets their insurance needs well, both in coverage and cost.”

Brethren Insurance Plans meet HIPAA deadline

Insurance staff reported that the Brethren Insurance Plans met the April 14, 2003, deadline for compliance with privacy regulations of the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

To attain compliance, insurance staff

• drafted a privacy policy and mailed privacy notices to Plan members,
  
• conducted employee training with regard to privacy regulations,
  
• moved insurance files to their own secure location,
  
• obtained locked file cabinets for existing office space,
  
• installed new password protection and locked screensavers on insurance computers, and
  
• acquired a new fax machine for insurance correspondence.
  
  

“HIPAA has certainly given us a challenge,” said Garber. “We’ve always done our best to maintain the confidentiality of our clients’ personal health information and HIPAA assists us in better meeting that goal.”

Pension Plan retirement age continues to rise

Negative stock market returns and the resulting effect on Brethren Pension Plan accounts continue to cause some Plan members to delay their retirement.

The average age of new retirees in the Plan continues to rise, according to a report presented to the BBT Board. In the months spanning Oct. 1, 2000, through Feb. 28, 2001, the average age of retirement was 61.32. One year later, the average age of new retirees was 62.77. The latest report, from Oct. 1, 2002, through Feb. 28, 2003, shows a continuing trend, with the age of new retirees averaging 63.59.

Board hires manager for small cap equity fund

Following the November Board decision to introduce a domestic small cap stock fund for Foundation and Pension investments, the Board at its April meeting approved the hiring of Kayne Anderson Rudnick Investment Management. KAR is an independently managed small cap core manager based in Los Angeles. It has $5.4 billion in small to mid cap equities under management.

The addition of small cap stocks further diversifies Pension Plan investments, thus increasing returns while reducing risk over time. Small cap stocks are defined as having a market capitalization of up to $2 billion.

Foundation clients will also have a separate Small Cap Fund option in addition to the existing Domestic Stock, Domestic Stock Index, and International Stock Index funds. Pension Plan members who have allocations in the Common Stock fund will now have 10 percent of that allocation in small cap stocks. In addition, 10 percent of the equity allocation within the Retirement Benefits Fund will be invested in small cap stocks.

Other Business

• Staff reported that they are researching the possibility of offering a voluntary long-term care insurance plan to all those eligible to participate in the Brethren Insurance Plans. With the Board’s support, insurance staff will seek bids and will move to implement the voluntary LTC plan as soon as is feasible.
  
• Staff reported that Pension Plan members have invested over $100,000 in the new Community Development Investment Fund (CDIF). Several Foundation clients are moving toward allocating a portion of their investments to the fund. BBT has invested $100,000 of its reserve monies into the CDIF.
  
• Staff reported they are determining the viability of providing financial services through an alliance with the Brethren Employees Credit Union.
  
• Staff shared a segment of Pastoral Compensation and the IRS, a DVD that will be available later this year to give tax assistance to pastors. The two-hour program, taped at Bethany Theological Seminary, features the key components of a seminar led by Don Fecher. It will also include frequently asked questions and a list of resources. The DVD will be available through Brethren Press.
  
• The Board approved conflict of interest policies for its investment managers and for the Board of Directors and senior management.
  
• The Board approved the appointment of Janice Bratton, Hummelstown, Pa., to Brethren Benefit Trust Board, to be ratified by Annual Conference in July. The vacancy comes as the term of current Board chair, Ann Quay Davis, expires. Bratton, a member of the Spring Creek Church of the Brethren, is an investment officer for the Hershey Trust Company. With the expiration of the terms of Melvin Wampler and Ray Donadio, two other Board vacancies will be filled by election — the first by Pension Plan members and the second by Annual Conference. All are four-year terms.
  
• Future 2003 BBT Board meeting dates and locations are July 8, Boise, Idaho; and Nov. 21-22, McPherson, Kan.