The United Church of Canada Pension Plan is keeping the faith in its pension promise
The United Church of Canada has a tradition of caring for its flock, and its shepherds—especially into their retirement.
Formed in 1925 in Toronto as a union of the Methodist Church, the Congregational Union of Canada and 70% of the Presbyterian Church of Canada, The United Church of Canada has a provision for pension benefits for its employees in its “Basis of Union,” the formal document outlining its doctrine and administration.
The multi-employer pension plan, established three years after the church’s formation, today includes 8,000 members—4,200 retired and 3,800 active. “Each congregation is regarded as a separate employer, and many would just have one or two employees in the unit; others would have five or six,” says Charlie Black, chair of the pension board. There are also affiliate members of the plan; for example, if a minister serves in an institution in which there is no comparable plan such as a Christian training centre or an anti-poverty organization.
Up until 1955, the DB plan was a unit credit plan, in which a set dollar amount per year of service was credited. In 1955, it changed to a salary-based plan, with contributions set as a percentage of salary to reflect the growing variation in compensation.
Although the plan is not indexed for inflation, it does have a long tradition of providing upgrades by increasing both the credits for members in active service and the pension payments for retirees, says Black. “The target has been to look at that every two years whenever we do an actuarial valuation,” he says. “Under current circumstances, we’re not able to provide any updates, unfortunately, but it’s still part of the beliefs and principles of the plan.”
Changing Times
In more than 30 years in various volunteer roles with the United Church, Black has seen a lot of change. The most poignant change in his mind concerns the demographic shift that has taken place within the church’s employee base. “There’s been a significant increase in the age at which people come into church service and membership in the plan.”
Nowadays, he says, many are feeling the call to serve as a second or even a third career, rather than coming straight from college and theological training. “The traditional example where someone went to university, began ministry in his or her mid-20s, served till age 65 and then retired—that’s now the exception,” explains Black. Today, the average age of entry into the pension plan is about 50 rather than 30 or 35 when the pension plan was designed. “That has a very marked impact on a DB plan,” he says. “Everybody gets the same credit, based on their salary, but there’s much less time between when the credit is earned and when the benefit is payable.”
There’s also been a substantial increase in the number of women serving in the ministry—again, coming in at an older age, often after raising their families.
Although the church has been aware of the changing demographics for at least 10 years—“It shows up every time we do an actuarial valuation”—there was never a strong sense of panic about it while investment results were favourable. Even with the financial downturn of 2008, the plan didn’t suffer significant losses. “The market convulsion didn’t hit us as hard as many plans because we’re relatively conservatively invested.”
The plan has allocations to Canadian equities, Canadian fixed income (but no foreign fixed income), U.S. and EAFE equities, and real estate. The mix has been fifty-fifty but is currently transitioning to 60% equity/40% fixed income in an effort to improve the yield. Following its review of the plan’s sustainability in 2011, it has been adjusting the asset mix and dabbling in alternatives—more real estate, private placements, infrastructure—in an effort to gain returns. “But with our total fund [assets] just over $1 billion, that’s not a huge amount to do anything fancy with,” says Black.
But what has hit hard, he says, is the major decline in interest rates. “With the bank rate dropping to its current level and apparently being held there into the foreseeable future, that has had a major impact.” Together with the demographic shift, that decline prompted the church to take a serious look at the pension plan’s sustainability.
Based on that review, the plan has made major changes as of Jan. 1, 2013, increasing its contribution rates, with employees being mandated to allocate 6% of salary (up from 4%) and employers contributing 9% (up from 7%), and decreasing the rate at which benefits accrue to 1.4% of earnings (down from 1.7%). “We have always had a goal of keeping the plan fully funded, and we’re still at that level, but without these changes we couldn’t maintain that.”
Black says the committee looked at a number of possible changes to continue a sustainable plan (such as switching to a DC or mixed plan, increasing the retirement age or dropping some benefits). But the committee had a “strong leaning” to maintaining the DB structure. “We felt many of our members are more focused on serving the church, as opposed to [focusing on managing] their own personal investments,” he says. “We felt it was important that the church provide the stronger assurance of defined benefits for our members.”
Answering the Call
But spreading this kind of news to plan members and employers wasn’t easy for the plan, with the majority of church congregations operating on meagre budgets. “We were very aware of this and tried to communicate the changed circumstances even before we made the decision to revise the plan,” explains Black.
In January 2012, letters were sent to all participating employers and all plan members to let them know what changes they should expect. “Essentially, they had a year’s notice on the changes and longer than that on the likelihood of changes.”
The plan also communicated the changes in its newsletter, which is provided online or by mail three times a year. The annual report, released in June every year, also outlined the contribution increases.
In October 2012, the plan also offered webinars on four different dates for members to find out more about the changes. Of 3,800 active members, fewer than 200 participated. But Black wasn’t fazed by the low turnout. “It was an experiment for us. We’d never communicated in that way, and we were pleased with the way it turned out,” he said, adding that he expects web-based communications to be a useful way of getting out information in the future.
Though Black admits members have raised a few concerns about their increased contribution obligations to the plan, the concerted effort around communication resulted in few expressions of shock or surprise. And, he says, the plan’s long track record of stability has helped employers and members accept the changes. “I think it is good news that the DB plan is being continued and all existing benefits are being maintained,” he says. “We’re keeping that pension promise.”
Brooke Smith is managing editor of Benefits Canada.