With the departure of Dean Wessels after almost forty years as director, church leaders faced a critical question: "Who will lead Pensions and Benefits into the next century?"
P&B USA had come of age under Wessels, having progressed largely from its primary role as a provider of benevolence and life insurance, to an agency offering ministers assistance with a variety of financial services. The department had managed, in 1971, to initiate a system that provided regular monthly payments to retired ministers and widowed spouses for years of service extending back to the founding of the denomination in 1908. Beyond this, it offered an affordable group health insurance program to districts, along with basic and supplemental life and accident insurance, as well as useful information about taxes, housing allowance, compensation, and other significant financial matters important to ministers. With such a strategic position to fill, denominational leadership wanted time to consider who would become the next director of P&B, so they looked for an interim person to fill the slot.
That choice was no stranger to P&B. In fact, he had served alongside the departing director for more than a decade and, as office manager, administrative assistant, and assistant to the director, was familiar with every facet of the work of Pensions and Benefits. That individual was 41-year-old Don Walter.
A native of Iowa, raised in the farming community of Ottumwa, Walter was the son of Hershel and Eloise Walter. This working class couple modeled dedication and sacrifice to God as laypersons in their local Nazarene church. Don (their youngest child) attended and graduated from Mid-America Nazarene College and Nazarene Theological Seminary. After this, he and wife, Kathy, moved to pastor a home mission congregation in Ohio. They would eventually serve other pastorates in Pennsylvania and West Virginia.
In 1983, learning of an opportunity to serve in the Pensions and Benefits office, Walter applied for the position. Dean Wessels was impressed by the potential he saw in this young pastor: intelligence, actuarial aptitude, management skills, experience as an elder in the Church of the Nazarene, and, most importantly, a deep desire to serve ministers. Wessels lost no time in extending an offer of employment. He began confirming Wessels' faith immediately by demonstrating people skills as well as showing a strong talent for management. Within a short time, he had earned his second master's degree in human resources development from Webster University.
Now, ten years after first coming to P&B, Walter was considered the obvious candidate to fill the immediate vacancy by the Board of General Superintendents. On August 4, 1993, Finance Director D. Moody Gunter announced the appointment of Don Walter as "acting director" of Pensions and Benefits USA.
His tenure in this post would not last long. Within two months, he was addressing the fall meeting of the Board of Pensions. At that time, Walter set forth his understanding of the responsibility of P&B as providing services that make "the work of the frontline ministry more effective and less stressful." Four months later, at the annual General Board meeting in Kansas City, Gunter and General Superintendent Donald Owens submitted Walter's name to the Finance Department as the candidate for P&B director. The department concurred and their action subsequently was approved by the Board of General Superintendents. Pensions and Benefits USA had its fourth director.
In 1954, the advent of ministers being allowed to contribute to and receive benefits from Social Security considerably improved the retirement prospects of Nazarene pastors. But by the early '60s it was apparent something more was needed.
The church responded by creating the Nazarene Tax-Sheltered Annuity (TSA) Program in 1963. A TSA is a retirement savings program available to certain nonprofit groups, such as churches, which allows individuals and their employers to set aside money tax-deferred until it is withdrawn for retirement. While a TSA could offer a useful means of investing for the future, it had drawbacks: first, it was voluntary-pastors might or might not participate; second, the accounts most often were funded by salary reduction contributions. With many Nazarene pastors serving small congregations, some found it difficult to set aside part of their salaries. The problem was compounded if churches were reluctant to contribute to the accounts of their pastors.
As mentioned in John Oster's history of P&B, in 1971 the church sought to do more for its pastors through the creation of the Basic Pension-a defined benefit plan for ministers based on years of service. This created enormous liabilities in the millions of dollars for the denomination, but it was born out of faith and a deep desire to create a unified system of support for pastors. Its funding would be based on the belief that churches would willingly contribute two percent of their income to a trust fund to provide for aged ministers. Up until 1989, they would come close to this ideal by consistently giving an average of 1.8 percent of all monies spent.
As the 1980s drew to a close, P&B USA worked to further improve retirement benefits for Nazarene ministers. The formula for Basic Pension Plan payments was based on years of service, and, while upward adjustments were regularly made, benefits for Nazarene retirees often were less than those from plans offered by for-profit business and industry. The difference could be attributed to the fact that the Basic Pension Plan was newly created and was dependent on current and future payments by congregations, along with investment income. With a continuing unfunded liability, the denomination could not fulfill its promises to future retirees if it did not adhere to sound and (what might be deemed) "conservative" advice from actuarial specialists. The upshot was that while church leadership and P&B would like to provide larger monthly retirement benefits to retirees, they had to proceed with caution if they wanted the fund to be there to honor promises to future retirees.
In 1989, the 22nd General Assembly decided to create the "Commission to Study Church-related Pension Plans." In its subsequent report to the 23rd General Assembly in 1993, the commission stated, "significant contribution [has been] made to our ministers in the pioneering and developing of our multifaceted present pension program, but the time has come to establish a new direction in caring for the servants of the Church and their spouses" (Minutes of the General Board 1994, p. 41). The General Assembly responded by calling for a pensions subcommittee to continue the work of the commission and to report back to the USA National Board by January 1, 1995.
A thorough examination of the commission's report followed. It included deliberation involving the USA National Board, the staff of Pensions and Benefits USA, pastors, district superintendents, laity, and actuaries. As a result of this review, the Board of General Superintendents made recommendations to the Board of Pensions at its October 1994 session. At that meeting, the superintendents proposed a retirement plan with what they termed "three essential segments":
The Board of General Superintendents also asked that existing General Church participants be continued on their then-current retirement plan, but that new General Church employees participate in a defined contribution plan, like the new one proposed for pastors and other eligible church employees.
The Board of Pensions responded to these recommendations and charged Pensions and Benefits USA with the task of carrying them out. The staff of P&B USA had closely followed the work of both the study commission and the subcommittee and was prepared to respond almost immediately. A proposal was drafted and submitted to the Board of Pensions for consideration at its October 1994 meeting. That body adopted the recommendations which were submitted to the USA National Board on February 28, 1995. In its action, the USA National Board endorsed the "principle and concept" of the idea to create a single defined contribution plan for Nazarene ministers which would include employees of Nazarene Headquarters. They then sent the matter back to the Board of Pensions for actuarial study.
On June 9 of that year, the USA National Board approved a proposal to create a single defined contribution plan for church employees. This plan called for the utilization of the existing Tax-Sheltered Annuity (TSA) Plan. Each participant would have his or her own account into which contributions would be credited. The value accrued in the account at retirement could be used to purchase a monthly benefit or could be taken in qualifying lump sums.
Contributions to the account of individuals would be made as either salary reduction or salary addition, but would be paid to the participants' retirement accounts by a qualifying employer. Careful attention was given to assuring the new plan would be equitable for both participants in the Basic Pension Plan and the General Church Pension Plan.
For active participants in the Basic Pension Plan, an amount would be contributed annually to the accounts of qualifying participants from Pensions and Benefits Fund receipts. The amount would be three percent of the average cash salary reported for all pastors (referred to as the "Average Pastors Salary" or APS) serving in the United States. In addition, local church or district employers would be encouraged to match any amount of voluntary salary reduction contributions up to, but not limited to, three percent of actual cash salary of the individual participant. No additional matching funds were proposed from the Pensions and Benefits Fund.
For participants in the General Church Pension Plan, the proposal called for the annual contribution to the account of each full-time employee of the General Church from operational funds. The amount would be a minimum of three percent of the average cash salary reported for all pastors (APS) serving in the United States. No contributions would be provided for these participants from the P&B Fund.
The Basic and General Church pension plans and trusts would be merged. Participants in both plans would be assured that at the time of retirement the benefit payable from the new defined contribution plan would not be less than that payable from their current defined benefit plan had it continued in force until their retirement. Additionally, both active and retired participants in the Basic Pension Plan would receive a 20 percent increase in the formula.
The adopted proposals satisfied most of those who had expressed concern about the retirement plan for Nazarene ministers, but the solution would require a continuing commitment by local churches and districts to support the P&B Fund.
"The P&B Fund will remain vital since it will be the source of funds needed to pay the TSA contributions into all eligible active ministers' accounts," said P&B Director Don Walter, according to the Weekly Summary of the Nazarene News for March 3, 1995. "It will also continue to pay for any newly increased benefits now promised under the old Basic Pension Plan to all future and current retirees."
Effective January 1, 1996, the Basic Pension Plan and the General Church Pension Plan were frozen to new entrants. Anyone eligible for a retirement program in the church (local, district, or general) after that date became part of the Single Defined Contribution Pension Plan. In making these changes, the denomination was in the vanguard of a movement by both non-profit and for-profit organizations from defined benefit to defined contribution plans.
During 1995, action had been taken to create and fund an individual TSA "Option B" account for every U.S. pastor, eligible associate, full-time evangelist, and district superintendent. That action placed $150 in individual TSA Option B accounts for every person earning a year of service credit under the Basic Pension Plan. Additionally, up to $200 per account was made available to match dollar-for-dollar any participant's own or church contribution for 1995.
With the new year (1996), an amount equal to three percent of APS was contributed to Option B accounts for all active, eligible participants from P&B Fund receipts or from General Church funds in the case of General Church employees. In the new plan, the level of retirement income would be determined by the amount accrued in the individual's account at the time of retirement.
For this reason, in addition to the base contribution for local church and district-employed ministers from P&B Fund receipts, individual employees were encouraged to make contributions to their retirement accounts through salary reduction agreements with their employers. Likewise, employers were encouraged to match contributions by their employees.
P&B USA devoted much time and effort to the development of a group health insurance program for districts and churches. This effort bore fruit in 1983 with the creation of the Nazarene Health and Hospitalization Program (NHHP). It was designed to offer a consistent medical insurance plan with coverage that could be maintained by pastors and families as they moved from church to church or to other districts. A self-insured program, rates were affected by the size and health of the pool of insured persons.
Under the denomination's congregational polity, churches and districts had the freedom to join or reject the plan. Some chose to participate; others did not. The lack of an adequate pool of participants, coupled with the escalating cost of health care in the United States, finally led to the plan's elimination in 1995.
Begun in 1963, the Nazarene Tax-Sheltered Annuity (TSA) Program over nearly four decades evolved into the "Group Variable Annuity" (GVA). Issued by Minnesota Life Insurance Company, the GVA was begun in 1994. With the creation of the Nazarene Single Defined Contribution Program in 1996, the GVA became the repository for retirement contributions on behalf of Nazarene ministers and church-employed laypersons. By 1999, it offered participants nine mutual fund investment options for their retirement accounts and a modicum of access services, mostly via telephone, but P&B wanted more.
With the advent of public access to the Internet, P&B USA began the search for a partner who could leverage the capabilities of this amazing resource to the advantage of Nazarene ministers.
In July 2000, the Board of Pensions announced plans to rebid the annuity program to several vendors to insure participants in the Nazarene TSA plan enjoyed "the most competitive products, services, and prices." In September, the Investment Committee of the General Board announced Fidelity Investments® would be the new 403(b) service provider for the Nazarene Single Defined Contribution Program, effective December 1, 2000. A news release at the time noted Fidelity would provide: "more resources, more investment choices, more ways to access your account, and more flexibility."
During the next few months, P&B USA would publicize a variety of products and services to help ministers with the sometimes daunting task of investing for their future. Since that time, the relationship with Fidelity has developed into a valued partnership that provides Nazarene ministers-active and retired-with continuing support for their retirement savings. Today, ministers have 24/7 access to a variety of options for their Nazarene 403(b) retirement accounts, where they can monitor and adjust portfolios as desired.
In 1996, the Church of the Nazarene began contributing payments based on three percent of average pastors' salary (APS) to the 403(b) accounts of eligible ministers and church-employed laypersons. To further encourage retirement savings, the board dangled the carrot of "bonus" fund payments to participants. This additional payment was based on churches being on a district that paid 100 percent or more of their P&B Fund allocation.
As of January 1, 2002, the "APS" changed from "Average Pastors' Salary" to "Annual Pension Supplement." This meant contributions made to the 403(b) accounts of ministers from the P&B Fund would no longer be calculated based on a percentage of the average salary, but rather would be an amount determined by the Board of Pensions, as would any bonus amount. Additionally, a local church minister could receive the "bonus" if his/her church paid 100 percent of its allocation, regardless of the percentage paid by the district.
That first year of this arrangement saw the accounts of participants in the 403(b) Retirements Savings Plan receive an APS of $500 with the possibility of an additional $500 APS bonus.
That same year, the Pastors Life Insurance Plan was modified to provide $2,500 (an addition of $1,000) for eligible district-licensed ministers. For eligible ordained ministers, the coverage increased to $5,000. Bonus coverage also was offered. It was based on an eligible minister's credential and age, and subject to 100 percent payment of the annual P&B allocation. This bonus made possible life insurance coverage of as much as $50,000 for a minister. The new plan also added life insurance coverage for spouses.
Representatives of other denominations have expressed interest (and some amazement) in how the Church of the Nazarene managed to create and continue to offer monthly support to retirees through the Basic Pension Plan. The launch of such a system without personal contributions by participants essentially was without precedent among U.S. Protestant churches. And yet, this arrangement continues to provide regular financial support for nearly 5,000 retired Nazarene ministers and widowed spouses. In 2010, the P&B Fund paid Nazarene retirees served by the Basic Pension Plan almost $15 million dollars.
Indeed, there are retirement plans that pay more to participants, but it's likely none is more appreciated than this one. "I have been trying to find a way to say how grateful I am for the check that arrives every month," wrote a 91-year-old retired pastor in 2011. "Without this blessed service, we would really be struggling. I thank the Lord for our Great Church and her care for people like us." This is just one of the numerous expressions of "Thanks" received by P&B on a daily basis.
There are several reasons why the Basic Pension Plan has survived through more than a few recessions and stock market roller coaster rides. First, there is the careful supervision by the Board of Pensions to the operation of P&B USA. Second, there is the oversight of the fund's assets by the Nazarene Investment Committee with guidance from professional investment and actuarial consultants. Third, and most importantly, there are the congregations across the United States who express their love and appreciation for Nazarene ministers in a tangible way by regularly contributing to the full payment of P&B obligations.
Giving to the Pensions and Benefits Fund during the first year of the Basic Pension Plan totaled $1,166,051. With a goal of two percent of local church income to underwrite the fund, the first year's giving equaled about 93.2 percent of the allocation.
Over the years, giving to the fund remained between 90 and 93 percent until 1998, when it reached 94.27 percent of allocations. The following year, the percentage climbed to 95.8 percent, and, by 2004, rose to a record high of 96.59 percent. However, since then, giving has declined, dropping to an all-time low of 86.55 percent of allocations in 2010. It should be noted that the United States suffered severe economic problems in the latter part of the decade with collapses in business, banking, and the housing market and significant increases in unemployment. Giving to both the World Evangelism Fund and the Pensions and Benefits Fund were affected during this period.
As mentioned earlier, giving to the P&B Fund diminished as the first decade of the 21st century rolled to a close. Besides a weakened economy, churches and districts appealed for modifications to the budget formula for funding denominational entities, which included WEF and the P&B Fund. The prevailing wind of change, accompanied by a concern about how such modifications would affect P&B giving, prompted the Board of Pensions to explore another incentive for P&B Fund support in 2009.
Whereas, since 1996, Annual Pension Supplements automatically had been deposited and APS bonus contributions made available to Nazarene 403(b) accounts, with the advent of 2009, all Annual Pension Supplements would be linked to a church's actual dollar contributions to the P&B Fund.
"With the current variations of budget formulas being adopted by districts, it is impossible to continue to base supplemental payments on the percentages of P&B Fund paid," said David McClung, chairman of the USA Board of Pensions, in December 2008. "The new (APS) formula was adopted, in part, to keep the Pension Trust viable for those under the Basic Pension Plan within this environment."
Further explanation for the needed changes was voiced by Don Walter: "In 2008, 45 percent of U.S. Nazarene churches paid 90 percent of the allocations to the Pension Fund. Conversely, this means 55 percent of our churches paid 10 percent of the allocations. While traditionally our larger congregations have been willing to contribute more than their share to assist pastors in smaller ones, the number of U.S. churches with weekly attendance of less than 100 has grown to 72 percent, and this is placing more of a burden on the bigger churches."
Indeed, the Basic Pension Plan is a wealth transfer system in which larger, financially stronger congregations pay larger apportionments to provide for the retirement of ministers in smaller churches with less income. But something needed to be done to encourage churches who contributed nothing to at least pay minimal amounts to the fund.
As adopted by the Board of Pensions (see below), payments of APS were based solely on the amount of P&B Allocation contributed by each church.
2009 ANNUAL PENSION SUPPLEMENT
and LIFE INSURANCE
The allocation ranges from $10,001 to $25,000 were further subdivided in 2010.
In fiscal year 2010, giving to the Pensions and Benefits Fund totaled $11.7 million. While almost $174,000 more than the amount received the previous year and an encouraging sign, this was about $750,000 less than the amount received in 2008.
In that same fiscal year, P&B USA paid more than $40 million to ministers in insurance claims and retirement plan benefits. This included $15 million in Basic Pension payments to almost 5,000 ministers and widowed spouses. This is a remarkable accomplishment for such a relatively small denomination.
As it has for almost a century, Pensions and Benefits USA continues to look to the future with resolute commitment to "Serve Those Who Serve." The retirement and insurance plans, the emergency medical and benevolence assistance, the informational services-all are directed toward assisting those on the frontline of ministry.
With the close of 2010, the Board of General Superintendents issued a statement calling for renewed support of the P&B Fund by Nazarene churches. They also pledged to highlight the importance of the work of Pensions and Benefits at U.S. district assemblies in 2011.
Save for the Lord, no one knows what the future holds, but as she approaches her second century, Pensions and Benefits USA is dedicated to providing the best possible benefits and services to the dedicated men and women who serve Christ in the Church of the Nazarene.