A recent report from the Certified General Accountants Association of Canada stated: “Fifty-nine percent of all defined benefit pension plans are running deficits, requiring $160 billion to cover the shortfall.”
In the Evangelical Lutheran Church in Canada , the retiree fund of our pension plan contains an “unfunded liability.” Translation: the fund is running a deficit of $14.7 million, meaning that payouts to retirees will be significantly reduced unless action is taken.
The national bishop of the ELCIC and those who manage the fund, though, are assuring members about the security of their pensions
Currently, ELCIC congregations and pastors make regular contributions to the plan: 10 per cent of an employee’s salary goes into the Active Fund, paid in equal halves by employer and member. The employer also pays a 2 per cent supplemental contribution, credited to the members’ account, unless there is an unfunded liability, in which case it is used to fund that shortfall.
(By comparison, employees of the Anglican Church of Canada contribute 2.2 per cent of their salaries and the employer – the diocese or the national church office – contributes the equivalent of 10 per cent. For more about the Anglican plan, see p. 18.)
At the start of 2003, the plan’s net assets were $132.3 million – down from $152.3 million the previous year – split between the Active Fund at $79.7 million and the Retiree Fund at $52.6 million. By Dec. 31, however, the plan showed a net return of 9.7 per cent, with assets totaling $138.6 million.
At present, the ELCIC retiree fund provides annuities to about 600 retirees or their surviving spouses. The annuities were established with an underlying assumption that the fund would return an average annual rate of 7 per cent. As the 7 per cent was not achieved in 2000, 2001 and 2002, the reserves have been exhausted and an unfunded liability generated. The liability increased at the end of 2003 even with the 9.7 per cent return because the actuarial valuation had to assume that the assets will only earn 5.75 per cent in the future (based on long term bond rates) even though the liabilities (annuities) require a 7 per cent return. That difference must be recouped.
Group Services Inc (GSI) is the administrator of the ELCIC pension plan, managed by 10 directors and executive director Hildy Thiessen. Speaking at the five ELCIC synodical assemblies held last spring and summer, Ms. Thiessen said that GSI has taken steps to address the $14.7 deficit. Effective July 1, 2003, the supplemental contribution was directed to the retiree fund, while new retirees must transfer their accumulation to a financial institution to purchase their retirement vehicle of choice. Beginning Sept.1, 2004, the 2 per cent supplemental contribution is being increased to 6 per cent as part of a substantial funding plan to tackle the shortfall.
National Church Council has also pledged, subject to regulatory approval, an immediate $2 million to begin the funding plan. This effectively provides bridge financing to get the funding started and cash flow support through the duration of the plan.
Writing to the 652 ELCIC congregations, National Bishop Ray Schultz said: “This is a long-term plan, which recognizes that it will take years to reduce and eliminate the unfunded liability. Retirees can expect to continue receiving benefits at the current rate and those not yet retired will be unaffected by the unfunded liability.”
Rev. Dr. Peter Mikelic pastors Epiphany Lutheran church, Toronto, and writes for various church and secular publications.