Pension fund facing demographic realities

By on September 1, 2004

The Anglican Church of Canada’s $480 million pension fund ? while currently healthy ? is facing several financial and demographic trends that are causing concern, according to fund officials.

?It is a maturing plan and it has to do with the state of the church today,? said Judy Robinson, director of the pension staff at the national church office in Toronto . ?There are more people retiring and fewer people actively employed and contributing. Also, the people joining are older. They contribute less and retire sooner,? she noted. Although young people are still attracted to the ranks of the clergy, many of those who become priests are in their 40s and 50s, some joining the church as a second career.

A March 2004 newsletter informed pension plan members ? clergy and lay employees ? that although ?plan investments returned 15 per cent during 2003, the assets were diminished by pension payments being higher than member contributions.?

Membership data for 2002 showed that, for the first time, there were more retirees and survivors (2,150) than active members of the plan (2,006). In 1999, there were 2,015 retirees and 2,061 active plan members. Total membership in the plan, including active, inactive and retired members, rose to 4,899 in 2002 from 4,779 in 1999.

At the end of 2002, a valuation of the pension plan (an appraisal of the plan’s value required by law every three years) was performed by Eckler Partners Ltd. of Toronto . Two calculations were performed. One, which assumed the plan is continuing into the future, called a going concern valuation, showed a surplus of $12.8 million for pensions earned to date. The second assumed the plan is terminating, called a solvency valuation, and that showed a surplus of $181,000.

However, the March newsletter noted that ?there is not enough surplus to support an increase in accrued pension at this time. It is the first time in 40 years that no upgrade has been recommended.?

Last year, the pension fund’s committee recommended that the church increase the rate it contributes to the fund, since ?due to the aging population, the current contribution rate to the plan of 12.2 per cent is not sufficient to pay for future benefits earned.? Employees contribute 2.2 per cent of their salaries and the employer ? the diocese or General Synod, the national church office ? contributes the equivalent of 10 per cent. That rate will increase to 10.5 per cent next year and 11.2 per cent in 2006. The trustees recommended that the employee contribution rate remain the same.

The fund’s trustees are currently addressing the situation by performing a study of assets and liabilities. ?They are looking at various scenarios to maximize investment income. They’re looking at income funds, hedge funds,? said Ms. Robinson. The fund is now invested 60 per cent in equities, 35 per cent in fixed income instruments and 5 per cent in real estate. It spreads its investment funds among four management firms and employs a fifth company, Mercer Asset Consulting, to give broad advice about investment markets.

The plan has, in general, been well-managed, said Ms. Robinson, who became director at the beginning of 2004, succeeding Jenny Mason, an employee of the pension office for 40 years and director for 17 of those years. Investment returns in recent years have risen and fallen with market fortunes, but the fund has generally outperformed or met its benchmarks. ?We have been in the first or second quartile? of investment performance by Canadian pension funds, said Ms. Robinson.

Non-profit organizations such as the Anglican church are in a different situation than corporations, which can boost contributions to pension funds out of an increase in profits. ?(The church) is not an employer with deep pockets,? noted Ms. Robinson.

Author

  • Solange DeSantis

    Solange De Santis was a reporter for the Anglican Journal from 2000 to 2008.

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