What about Insurance and Pensions after Separation?
By Keith Boyette
Clergy rightly have a number of questions about the implications of an amicable separation in The United Methodist Church when the Protocol of Reconciliation and Grace through Amicable Separation is adopted. “I am retired. What will happen to my pension benefits?” “I am an active clergyperson. What will happen to the benefits I have earned in the UM Church? Will there be a pension plan in the new global theologically conservative Methodist denomination?” “Will disability and life insurance be provided in the new denomination?” “How will health insurance be provided?”
Local congregations have questions as well. “Why are we being told that we have to pay money for unfunded pension liabilities if we disaffiliate from the UM Church?” “What does it mean that we retain pension liability if we align with the new denomination under the Protocol?” “How will our local church provide for the retirement and insurance needs of our active clergy when we align with the new denomination?” “What happens to any pension liability if our local church decides later that it wants to exit from the new denomination?”
These are all important and valid questions. We can provide some answers now and more as we move closer to the launch of the new church.
Under the legislation implementing the Protocol, retired clergy would continue to receive their full pension benefits regardless of whether they align with the post-separation UM Church or a new global theologically conservative Methodist denomination. Wespath, the UM Church’s pension agency, would continue to manage and invest their pension funds, and it will also administer distribution payments to retired clergy regardless of the church with which they choose to align.
Active clergy have earned pension benefits under the existing pension plans of the UM Church just like retired clergy. Benefits earned prior to an alignment decision would be paid to such clergy upon retirement. These earned benefits would not be impacted by their alignment decision. If an active clergy person aligns with the new denomination, Wespath will continue to manage, invest, and administer such pension benefits.
If the delegates at the 2021 General Conference adopt legislation being proposed by Wespath, a new plan would replace existing plans for UM Church clergy beginning January 1, 2023. It would be a defined contribution plan called “Compass.” Under such a plan, the clergyperson, after retirement, receives pension payments based on the sum he and the churches he served contributed to the plan, plus the earned income made on those invested funds. There would be no defined benefit portion in such a plan.
The Wesleyan Covenant Association (WCA) is proposing that a new conservative Methodist church adopt a defined contribution pension plan for active clergy who align with the new church as of the date they join it.
Disability, Life, and Health Insurance
The WCA has a task force currently working on the provision of disability, life, and health insurance in the new denomination. The recommendations of this task force will ultimately be shared with the WCA Council and then with the Transitional Leadership Council which is overseeing the establishment of the new denomination and its governance during the period between launch and the holding of a convening conference. Most clergy are aware that these types of insurance vary from annual conference to annual conference. They should expect the same whether they remain in a post separation UM Church or join a new conservative Methodist church.
Churches and Pension Liability
Churches that seek to disaffiliate from the UM Church under the disaffiliation procedure adopted by the 2019 special General Conference are required to pay their proportionate share of their annual conference’s pension liability.
Depending on the years in which they served, clergy may draw pension benefits from three pension programs of the UM Church: the pre-1982 plan, the Ministerial Pension Plan, and the Clergy Retirement Security Program. All three plans have varying levels of defined benefit coverage. A defined benefit plan differs from a defined contribution plan in significant ways. Under a defined benefit plan, a pastor’s pension benefit is not tied to how much she and the churches she served contributed on her behalf during her years of active service. Rather, she is paid a benefit based on the number of years she served. Her annual conference establishes an amount to be paid per years of service. Generally, that amount increases over time to adjust for inflation. And the benefit is paid usually during a pastor’s lifetime and the lifetime of her surviving spouse. Thus, the liability associated with that benefit can exist for decades after the pastor retires.
Presently, local churches pay to fund the pension payments due under the UM Church’s defined benefit plans in the local annual conferences. These payments are based on an actuarial calculation of what is necessary to fund pastors’ pension benefits owed over time. It is expected that these churches will continue to annually pay what is required to fund their portion of the obligation for clergy pensions.
When a local church disaffiliates from the UM Church, it ceases to make annual payments to pay its proportionate share of the clergy pension benefits that will continue to accrue but which were earned while their church was part of the UM Church. In order to ensure the UM Church has the funds to cover future pension payments due to clergy, the 2019 special General Conference adopted legislation that requires disaffiliating local churches to pay the sum at disaffiliation. That sum would equal what would have to be paid to purchase insurance to provide for the future payment of its proportionate share of this ongoing pension liability (the market valuation). This sum satisfies that church’s continuing unfunded pension liability at the time of its disaffiliation. Depending on the circumstances, a local church’s unfunded pension obligation could range from a five to seven figure amount. Before making a disaffiliation decision, a local church should check with its annual conference officials to determine what amount it would owe to cover its portion of the unfunded pension liability.
In contrast, if the Protocol legislation is adopted, and we continue to think it will be, churches which align with the new global theologically conservative Methodist denomination would not have to pay an unfunded pension liability fee at separation from the UM Church. Instead, their monthly liability payments to continue funding pension benefits under existing UM church plans would transfer with them into the new denomination. The new denomination would share the liability with its local churches for the continued payment of funds in order to meet those obligations associated with the UM Church’s defined benefit plans.
Importantly, when a local church aligns with the new denomination, it would be released from the UM Church’s trust clause. The WCA is proposing that there be no trust clause in a new conservative Methodist church. It strongly believes that will be the case, and therefore local congregations will own all of their property and assets.
If a local church later decided to part ways with the new denomination, it would depart with its property and assets. However, the new denomination would remain liable for the departing church’s share of its ongoing liability to fund the UM Church’s defined benefit plans. To ensure that all the remaining local churches in the new denomination would not have to pay the exiting local church’s portion of that liability, the WCA proposes that a lien be placed against the properties of local churches when they align with the new denomination. That lien would provide security in the event a local church does not make its payments when due. It is important to stress that a lien is in no way similar to a trust clause. This lien would only be enforced by the new denomination if the local church does not pay its continuing liability and the new denomination has to pay this obligation. The WCA is confident that local churches choosing to affiliate with a new conservative Methodist church will want to fulfill the promises they made with respect to clergy pensions, and they will also want to ensure that any departing local churches meets its obligations as well.
The WCA recognizes the importance of providing for the well-being of clergy in a new denomination. As it works to create a vibrant and healthy new church with others, it is working to ensure that clergy have health, disability, and life insurance, and that provision is made for their retirement years.
Keith Boyette is president of the Wesleyan Covenant Association and an ordained elder in the Virginia Conference of The United Methodist Church. He is also an attorney licensed to practice law in the Commonwealths of Virginia and Kentucky..
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