ST. LOUIS -- The Lutheran Church, Missouri Synod, isn't counting on God alone to take care of its workers.
The church, which is the second largest Lutheran organization in the United States, has used $315 million in excess pension assets to set up a cash balance plan alongside its traditional pension plan.
The Supplemental Retirement Account is a plain-vanilla cash balance plan established as an add-on to the Concordia Plans and Pension Plan for Pastors and Teachers. The two plans have a combined $2.6 billion in assets.
"To me the message is very clear. Before an employer considers converting from a (defined benefit plan) to a 403(b) or 401(k) plan, they should consider very hard a cash balance plan option," said Dan Leeman, executive director of the synod's Worker Benefit Plans section, which oversees the plans. "We looked at probably 15 different options to properly utilize the overfunded amount."
Towers Perrin, the church's actuary, was part of the team that came up with the idea of the cash balance plan, which was implemented in January.
"Wow! It's unusual," said Susan Breen-Held, consulting actuary at the Principal Financial Group in Des Moines, who works with church pension plans.
Because church retirement plans are not subject to funding limitations imposed under federal pension law, the church can continue contributing to its traditional plan while using the excess assets for the new plan.
Moreover, because churches are tax-exempt organizations, there is no question of deductibility on contributions to pension plans, Ms. Breen-Held said.
The church contributes 3.2% of pay for single workers and 4.5% of pay for married workers annually to the original plan.
The surplus assets are the result of heavy exposure to the stock market -- 75% of the total allocation, with the remaining 25% in bonds -- and the church increased its equity exposure to 80% at the beginning of the year, anticipating increased liabilities from an aging work force, Mr. Leeman said.
Under the new arrangement, the church's 28,000 pastors, teachers and full-time administrative staff covered by the defined benefit plan also will accrue benefits under the new cash balance plan.
Although it is technically a defined benefit plan, and its assets are commingled with the traditional plan, the new plan provides workers with hypothetical individual accounts, to which the church credits 1.5% of pay annually, and an interest credit tied to the preceding September's 5-year Treasury bill rate. The interest rate that applies this year is 4.62%.
When workers retire, they may choose to take their new account balances as a monthly pension check for life, or in a lump-sum payment. Workers also may opt to take a partial cash payment, with the remainder rolled over into an individual retirement account.
Workers who joined the organization this year received no opening balance in the cash balance plan. Existing employees received an opening account balance based on their salaries and tenure, based on average salaries from and going back to 1965.