BBT sends notification letters for recalculated annuity benefits.

Brethren Benefit Trust (BBT) has sent notification letters for recalculated annuity benefits for Church of the Brethren Pension Plan annuitants, on Aug. 19. Back in April, the BBT Board determined that because the market decline was so severe, it was necessary to recalculate all annuitized pension accounts at an assumption rate of 5 percent in order to preserve the solvency of the Retirement Benefits Fund, which continues to be well underfunded.

The recalculated benefit will be reflected in the October payment to Pension Plan annuitants. The September payment will be the same as the current benefit.

Knowing that this would be difficult for many annuitants, but would present a significant financial hardship for some, BBT has established a grant program to soften the reduction. This grant program, which will be reviewed annually, will use non-pension funds to pay out an amount that is equal to or less than the actual reduction in benefits to qualifying annuitants.

An application for the grant program was included in the notification letters mailed last week, and is available online at www.brethrenbenefittrust.org/Pension pages/GrantProgramApp.pdf to download in pdf format. The Brethren Pension Plan encourages members to complete and return the application form if they need this assistance.

In anticipation of questions resulting from this significant change, BBT is offering the following set of questions and answers:

Question: 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? Answer: By Aug. 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, BBT estimates that the Retirement Benefits Fund 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 fund, we have high confidence that it will remain underfunded and could simply evaporate without this reduction in benefits. This benefit reduction is still very necessary.

Q: When might we see our benefits increase? A: 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. BBT simply does not know how quickly this will happen. The present goal is for the fund to be 100 percent funded--able to meet all of its benefit obligations today and into the future. Returning the Retirement Benefits Fund 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--build up the Pension reserve to meet future financial crises, and pPay 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.

Q: Why did it take longer than expected to recalculate benefit amounts? A: 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 BBT is committed to making sure each record was recalculated accurately, the process required more time than originally estimated. BBT promised at least 30 days’ notice regarding a change in benefit, so the time needed to accurately recalculate benefits determined the October start date for the recalculation to be reflected in monthly payments to annuitants.

Q: What is BBT doing to share the pain of these reductions? A: Cost of living increases have been frozen for BBT staff, and positions that are open but are not deemed critical at this time are not being filled. Staff also are 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 BBT is committed to managing expenses, it does not serve our members to undercut on customer service. Maintaining a strong organization and offering excellent service to members will increase resources and benefit BBT members.

Q: How did the Retirement Benefits Fund become underfunded, and why did BBT return to a uniform assumption rate of 5 percent? A: This situation did not happen overnight. The sharp decline of the markets in 2008 had a huge impact on the Retirement Benefits Fund, 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 the fund was maintaining adequate reserves. Changing to a uniform 5 percent assumption rate is the only effective way to remedy the underfunded status of the fund. When the Retirement Benefits Fund is fully funded once again, and the markets allow it, members will once again benefit from that prosperity.

Brethren Pension Plan offers a section of FAQs at www.brethrenbenefittrust.org. For further questions contact Scott Douglas, Pension Plan director, at 800-746-1505.

-- Patrice Nightingale and others in the communications staff at BBT provided this report.

Source: 8/26/2009 Newsline