10/4/2013 Susquehanna Annual Conference October 9,10, & 16 2013 - - PDF document

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Susquehanna Annual Conference October 9,10, & 16 2013

Presented by:

Mark A. Conner

Benefits Education Specialist

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• Not-for-profit organization
• Approximately $19 billion in assets under management
• 91,000 participants
• Largest denominational pension fund

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• Retirement provisions
• Comprehensive Protection Plan
• General Board retirement plans
• Services:

― LifeStage Investment Management Service ― LifeStage Retirement Income ― Ernst & Young Financial Planning

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• Normal retirement

― Age 65 or 40 years of service

• Early retirement

― Age 62 or 30 years of service

• Mandatory retirement

― Age 72

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Average plan compensation of United Methodist clergy serving full-time appointments

• 2015: $66,259
• 2014: $65,186
• 2013: $63,867

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$40,000 = Total $ 8,000 + Parsonage: (25%) $ 2,000 + Housing exclusion $ 5,000 + §125/§403(b)reduction $25,000 Taxable cash salary

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Death and Disability

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• 70% of plan compensation
• Reduced by Social Security

disability benefit

• Must submit application

and be approved

• Periodic re-approval

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• Death and disability benefits

― Active ― Retiree

• Educational benefits for surviving children
• Eligibility requirements

― Full-time: Compensation > 60% DAC/CAC* ― Others by conference elective arrangements

* CAC: Conference Average Compensation

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Active $50,000 Spouse 20% of DAC ($12,773) Surviving spouse 15% of DAC ($ 9,580) Child 10% of DAC ($ 6,387)

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Retiree death benefit eligibility rules— effective January 1, 2013

• 25 years of service or
• At least 12 of 15 years immediately prior,

phasing in:

― 2013: 6 of 10 ― 2014: 7 of 10, etc. ― 2019: 12 of 15

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Retired participant $20,000 Spouse $15,000 Surviving spouse $10,000 Child $8,000

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• Applies to:

― CRSP DC ― MPP not yet annuitized ― UMPIP ― CPP

• Purpose—to designate in advance of death,

who will receive the benefits

― Spouse: Usually primary, if married ― Children and other heirs: Contingent ― Charity or a trust: Contingent

• Plan defaults: Surviving spouse or estate, if single

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• Beneficiary designations are required

for retirement and welfare plans, and supersede Will provisions

• Update at times of change

― Birth or adoption of a child, marriage, divorce or death

• Can make separate designations for CRSP*,

UMPIP and CPP

* CRSP covers MPP account as well

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Pre-82 Plan (Ministerial Reserve Pension Fund) 2014+ CRSP

CRSP

1982-2006 Ministerial Pension Plan (MPP) 2007-2013 CRSP CRSP: Clergy Retirement Security Program UMPIP: United Methodist Pension Plan

UMPIP

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Defined Benefit (DB) Defined Contribution (DC)

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Monthly payment, payable for life, calculated by multiplying the following and then dividing by 12:

• 1.25%
• DAC at time of retirement
• Years of credited service from January 1, 2007 until

December 31, 2013 Example for 2020 retirement

.0125 x $80,000 (hypothetical DAC) x 7 years = $7500 ÷ 12 = $625 per month

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Monthly payment, payable for life, calculated by multiplying the following and then dividing by 12:

• 1.0%
• DAC at time of retirement
• Years of credited service after January 1, 2014

Example for 2020 retirement

.01 x $80,000 (hypothetical DAC) x 7.5 years = $6,000 ÷ 12 = $ 500 per month

CRSP Defined Benefit Component― After 2013

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2020 retirement Total benefit= 625 + 500 = $1,125 per month

• Initial dollar amount of the benefit

will be reduced to offset the value

• f spousal coverage. (credit > 2014)
• Choice of cost-of-living increase
• Reduction for early retirement

CRSP Defined Benefit Component Example: 2007 to 2020

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Actuarial reduction for early retirement:

½% for each month or fraction of a month retirement begins in advance of normal retirement

Example: Age 62 with less than 37 years of service

• Three years from normal retirement
• ½% per month for three years = 18% reduction

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• Benefit automatically increases by 2%

each year after retirement

• Surviving spouses may receive a benefit,

if elected

• Alternative survivor option and cost-of-living

increases available

― 70%, 85% and 100% to surviving spouse ― 3%,4% and 5% COLA

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• Until 2014, contribution equal to 3% annually

based on plan compensation

• Matching starting January 1, 2014

(2% contribution plus 1% match if participant contributes at least 1% to UMPIP)

• Account balance invested as directed by the participant
• Available as a cash distribution—lump sum, partial lump sum
• r retirement income (also known as cash installments)
• LifeStage Retirement Income Service for

managing distributions

• Remaining balance to beneficiary at death

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Pre-82 Plan (Ministerial Reserve Pension Fund) 2014+ CRSP

CRSP

1982-2006 Ministerial Pension Plan (MPP) 2007-2013 CRSP CRSP: Clergy Retirement Security Program UMPIP: United Methodist Pension Plan

UMPIP

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• Application for Benefits
• May leave on account until age 70½
• “Annuitize” exactly 65% of account
• Lifetime annuity options

― 70%, 85%,100% to contingent annuitant ― 0%, 2%-5% annual cost-of-living increases

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Effective after December 31, 2013, MPP annuity based on 65% of MPP balance with options for remainder:

• Roll over to UMPIP or other retirement plan
• Take as a monthly cash distribution,

using LifeStage Retirement Income

• Leave on account until age 70½
• r retirement (whichever is later)
• Take as a lump sum

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• A stream of payments
• Life annuity—benefit paid

for life (if joint, two lives)

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• Participant’s age at time of set-up
• Spouse or contingent annuitant’s age
• Account balance
• Type of annuity selected
• Percent of annual increase selected (0%, 2-5%)
• Mortality table (life expectancy)
• Annuity conversion interest factor

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Life with 100% $1,120 $1,120 Life with 85% $1,223 $1,039 Life with 70% $1,325 $927

Sample:

Payable to Annuity Type Payable to You Contingent Annuitant

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Annuity Type Payable to You

Life with 10-year certain $1,457 Life with 5-year certain $1,495 Life only $1,506

Sample:

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$0 $600 $1,200 $1,800 $2,400 $3,000 $3,600 $4,200 $4,800 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 0% 2% 3% 4% 5%

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Pre-82 Plan (Ministerial Reserve Pension Fund) 2014+ CRSP

CRSP

1982-2006 Ministerial Pension Plan (MPP) 2007-2013 CRSP CRSP: Clergy Retirement Security Program UMPIP: United Methodist Pension Plan

UMPIP

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Defined Benefit Service Money (DBSM) Formula Benefit

Pre-82

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• Life payment
• Benefit is the greater of:

― Pre-82 years of service x past service rate (PSR) ― DBSM account balance converted to annuity

Example:

• 10 years x 576 = $5,760/year ($480 /month)
• $150,000 converts to $11,250/year
• Benefit = $11,250/year ($938/month)

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Example: Past Service Rate Benefit vs. DBSM Benefit

3,000 6,000 9,000 12,000 15,000 18,000

Year Annual Benefit

PSR Benefit DBSM Benefit

$576 PSR $ 1,125 PSR

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Married Participants Life with 75% to surviving spouse (spouse at time of retirement) Single Participant

• Single-life, no refund
• Benefit ceases upon

participant’s death

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Pre-82 Plan (Ministerial Reserve Pension Fund) 2014+ CRSP

CRSP

1982-2006 Ministerial Pension Plan (MPP) 2007-2013 CRSP CRSP: Clergy Retirement Security Program UMPIP: United Methodist Pension Plan

UMPIP

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• Before-tax contributions
• After-tax contributions
• Rollovers

― 401(a) ― 401(k) ― 403(b) ― IRA (traditional)

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Before‐Tax and After‐Tax Contributions Agreement Percentage or dollar amount Can increase or decrease throughout the year

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402(g): $17,500 Catch-up (age 50+): $5,500

415(c) lesser of includable compensation or $51,000*

* See IRS Publication 571 regarding 15-year rule

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Before-Tax

• No federal income tax (currently)
• No SECA (Social Security)

After-Tax

• Pay federal income tax
• Pay SECA (Social Security)

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• Benefit choices

― Full lump sum ― Partial lump sum ― Cash installments ― Leave on account

• During retirement, you can elect to use

LifeStage Retirement Income to manage your monthly distributions

• May pass remainder to heirs

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• Hardship loans

― Up to 50% of vested account balance, not to exceed before-tax, after-tax and rollover account balances ― Not to exceed $50,000

• Hardship withdrawals

― From after-tax and rollover accounts and before-tax contributions ― Six-month suspension from contributing

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MPP

(must annuitize 65% of account balance)

CRSP/DC CRSP/DB

59½ 62 65 70½*

* Pension plan distributions must start later of retirement or age 70½ ** Required Minimum Distribution (RMD) from UMPIP and CRSP DC

UMPIP Pre-1982

Lifetime income

CRSP/DC** UMPIP**

Until accounts are depleted

Age

(35%)

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Amount to be excluded is the least of:

• Amount designated as housing allowance

(in active service, by clergy compensation agreement; in retirement by an annual conference resolution)

• Amount actually spent for housing
• Fair rental value of housing

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Appendix, page viii Are You on Track To Retire

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Example A

• Two kinds of first-year

pension withdrawals ― $44,000 for down payment ― $2,500/monthly, or $30,000

• Total: $74,000
• Lesser of:

― Amount designated: $74,000 ― Amount spent: $75,000 ― Fair rental value: $24,000

• Subject to taxation:

$50,000

Example B

• First-year set up with monthly

pension only ― No quarterly withdrawals ― $2,500/monthly, or $30,000

• Total: $30,000
• Lesser of:

― Amount designated: $30,000 ― Amount spent: $75,000 ― Fair rental value: $24,000

• Subject to taxation:

$6,000

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Example C

• Total of UMC pension withdrawals

― $2,000/monthly, or ― $24,000

• Lesser of:

― Amount designated: $24,000 ― Amount spent: $25,000 ― Fair rental value: $30,000

• Subject to taxation:

$0.00

Example D

• Total of UMC pension withdrawals

― $2,000/monthly, or ― $24,000

• Lesser of:

― Amount designated: $24,000 ― Amount spent: $10,000 ― Fair rental value: $30,000

• Subject to taxation:

$14,000

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• Available to retired clergy
• Not applicable to surviving spouse
• Attach a note to IRS Form-1040
• Refer to section in conference journal

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• Converts defined contribution account

balances into monthly income

• Adjusts payments annually for inflation
• Keeps payments within the

“payment safety zone”

• Offers excellent probability of lifetime income,

but no guarantee

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• Alternative for non-annuitized MPP balance

― 35% of MPP account (must roll over into UMPIP)

• Counters retirement tendency to overspend
• r underspend
• Participants may opt in or out at any time
• Investments managed by LifeStage Investment

Management Service

• At death, balance is left to named beneficiaries

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Annual adjustment calculated each November and reflected in January payment Participant receives letter detailing change in payment Payments are generally expected to increase— but a decrease is possible

Payment Safety Zone

$758 / month

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• Find current account information
• Tools

― Retirement Readiness Tool ― Retirement Benefits Projection

• Investment information
• Beneficiary designations
• Resources on finances

and retirement

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Social Security (after taxes) Pensions (after taxes) Unearned Taxable Income (after taxes) Non-Taxable Income After-Tax Income Need

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58 Social Security CRSP DB MPP UMPIP CRSP DC Pre-82 59 Social Security CRSP DB MPP UMPIP CRSP DC Pre-82 60

• Socially responsible investing

upholds the values of The United Methodist Church

• Low expense ratios
• Competitive returns

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Choose your own mix of investment funds Use LifeStage Investment Management Service Get an asset allocation recommendation through Ernst & Young Financial Planning Services

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General Board website— www.gbophb.org, under “Investments”

• Daily changes
• Fund descriptions
• Comparative results
• Benchmarks
• Fees

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Stable Value Fund Inflation Protection Fund Fixed Income Fund Multiple Asset Fund Balanced Social Value Plus Fund U.S. Equity Fund International Equity Fund

Investment Options

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256 Short-term Bond Funds 178 Inflation Protection Funds 1,233 Short, Intermediate, And Long-term Bond Funds 655 Funds with Balanced Objective 3,074 Multi-Asset Class Funds 1,907 Growth and Income Funds 683 Foreign Stock Funds 0.35 0.45 0.54 0.43 0.67 0.69 0.90

0.00 0.50 1.00 1.50 2.00 2.50 3.00 SVF IPF FIF BSVP MAF USEF IEF

Source: Wilshire Compass and Lipper as of 12/31/12 65

Multiple Asset Fund 0.67% Fixed Income Fund 0.54% Inflation Protection Fund 0.45% U.S. Equity Fund 0.69% International Equity Fund 0.90% Balanced Social Values Plus Fund 0.43% Stable Value Fund 0.35%

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SVF IPF FIF MAF BSVPF USEF IEF

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SVF IPF FIF MAF BSVPF USEF IEF

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SVF IPF FIF MAF BSVPF USEF IEF

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LifeStage Investment Management Service— Managed Accounts

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• Personalized investment management tool
• Variables affecting fund allocations:

― Participant’s age ― Risk tolerance ― Social Security benefits and General Board benefits ― For MPP only, begin date of annuity

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• Risk tolerance
• Date to begin

benefits

• Age

Target Allocation

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Target Allocation

• Risk tolerance
• Social Security

eligibility

• Value of Social

Security benefits

• Age

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After: Actual Fund Allocations (target) Before: Actual Fund Allocations

13% 14% 29% 17% 27% 13% 13% 34% 14% 26%

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Financial Planning

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• Confidential, expert financial counseling at no charge
• Unlimited hours of financial planning advice

via telephone

• Financial planners (Ernst & Young, LLC)
• Objective advice—no sales pitch
• No need to enroll—just call 1-800-360-2539
• r go online to set up an appointment
• Free website: http://gbophb.eyfinancialplanner.com

(company code: gbophb; company program: gbophb)

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• Creating a retirement plan
• Choosing retirement plan investments
• Buying a home
• Developing an estate plan
• Funding children’s education
• And more

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