Presenters: David Adams, ELCA Board of Pensions Mark Borchert, LCMS Concordia Plan Services

The impact of the economic downturn on church retirement plans – an update

Nov. 30, 2010

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Agenda

• Background • Impact on CBA member plans

– As of late 2009– As of late 2010

• Discussion

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Background

Triggering events • Easy credit • Bursting of the US housing bubble • High default rates on mortgages • Deregulation in the financial industry • Near collapse of major segments of the world

financial system

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Background

Investment losses • S&P index lost 57.4% from 10/9/07 to 3/6/2009 • 49% of the loss had been recovered as of

mid-November, 2009• 57% of the loss has been recovered as of

mid-November, 2010 but need additional 33% gain to match 2007 high

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Background

Prospects for recovery • Returns of the last 20 months are encouraging • But economic recovery is still weak

– High unemployment– High deficits and potential tax increases– Weak lending– Weak housing market– Weak dollar

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Background

Impact on US retirement plans • Investment losses in the $trillions • Liabilities continue to grow, in part due to falling

interest rates• Path to recovery

– DC Annuity plans Market recovery / benefit reductions

– DB plans Market recovery / contribution increases

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Background

Who bears the risk?

DC annuity plans DB plans

Initial adequacy Member Plan sponsor

Investment risk Member Plan sponsor

Longevity risk Member Plan sponsor

Inflation risk Member Member (or sponsor)

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Survey

• Questions about – Asset allocation – Investment returns – Funded status – Benefit or contribution changes – Member communication– Other changes

• Number responding in both 2009 and 2010 – 10 DC annuity plans – 10 DB plans

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Survey

Participating organizations

DC Annuity plans (10) DB plans (10)

American Baptist Churches Baptist General Conference

Church of God, Anderson, IN Christian Brothers Services

Church of God, Cleveland, TN Christian Church (Disciples of Christ)

Evangelical Free Church of America Evangelical Covenant Church

Evangelical Lutheran Church in America Lutheran Church -- Missouri Synod

Mennonite Church USA Moravian Church Northern Province

United Church of Christ (2) Presbyterian Church (U.S.A.)

United Methodist Church Seventh Day Adventists

YMCA United Methodist Church

Unity School of Christianity

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Survey

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

A1 A2 A3 A4 A5 A6 A7 A8 A9 A10

Asset Allocation Policy in 2008 -- 2010Annuities

Equities Fixed Income Other

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Comments regarding asset allocation

• DC annuity plans are labeled A1, A2, etc.• DC annuity plans invest as follows:

2009 2010

Low High Avg. Low High Avg.

Equities 0% 68% 43% 0% 66% 43%

Fixed income 27% 100% 49% 20% 100% 48%

Other 0% 30% 8% 0% 30% 9%

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Survey

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10

Asset Allocation Policy in 2008 -- 2010DB Plans

Equities Fixed Income Other

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Comments regarding asset allocation

• DB plans are labeled P1, P2, etc.• DB plans invest as follows:

2009 2010

Low High Avg. Low High Avg.

Equities 50% 72% 63% 50% 70% 61%

Fixed income 15% 50% 30% 15% 50% 31%

Other 0% 20% 7% 0% 20% 8%

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Survey

-40%

-30%

-20%

-10%

0%

10%

20%

30%

A1 A2 A3 A4 A5 A6 A7 A8 A9 A10

Investment ReturnsAnnuities

2008 2009 9 months ended 9/10 33 months ended 9/10

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Comments regarding investment returns

• For DC annuity plans– 2008 returns ranged from -32% to 11% – 2009 returns ranged from -1% to 25% – 33 month returns ranged from -14% to 23%

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Survey

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10

Investment ReturnsDB Plans

2008 2009 9 months ended 9/10 33 months ended 9/10

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Comments regarding investment returns

• For DB plans– 2008 returns ranged from -32% to -19% – 2009 returns ranged from 16% to 27% – 33 month returns ranged from -15% to 6%

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Funded ratios

0%

20%

40%

60%

80%

100%

120%

140%

A1 A2 A3 A4 A5 A6 A7 A8 A9 A10

Funded Ratios -- Annuities

As of 12/08 As of 12/09 As of 9/10

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Comments regarding funded ratios

• For DC annuity plans average funded ratio was– 80% as of 12/31/2008– 92% as of 12/31/2009– 97% as of 9/30/2010

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Impact on DC Annuity Benefits

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

A1 A2 A3 A4 A5 A6 A7 A8 A9 A10

2010 and 2011 Annuity Adjustments

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Changes made ─ DC annuity plans

• Five of 10 plans reported plan changes– Closed annuity fund to new entrants– Closed annuity fund to new entrants; plan to reopen in

mid-2011– Implemented partial withdrawals– Changed investment consultants– Changed maximum annuity reduction from 5% to 10% for

second year of downturn

• Seven of 10 plans reported strengthening member communications

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Funded ratios

0%

20%

40%

60%

80%

100%

120%

140%

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10

Funded Ratios -- DB Plans

As of 12/08 As of 12/09 As of 9/10

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Comments regarding funded ratios

• For DB plans average ABO funded ratio was– 81% as of 12/31/2008– 94% as of 12/31/2009– 95% as of 9/30/2010

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Impact on DB Contributions

0%

2%

4%

6%

8%

10%

12%

14%

16%

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10

DB Contribution Rates

Contribution Rate -- 2009 Contribution Rate -- 2011

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Changes made ─ DB plans

• Two of 12 plans reported plan changes– Closed plan to new entrants– Changed to cash balance style plan

• Four of 10 plans reported strengthening member communications

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Closing

• Wrap up• Questions