Board of Pensions approves 1% experience apportionment
New funding formula means first pension adjustment since 2008
March 11, 2013
The Board of Pensions (BOP) of the Presbyterian Church (U.S.A.) approved a 1 percent “experience apportionment” here March 9 after changing the formula by which the pension benefit for the denomination’s Pension Plan members is calculated.
An experience apportionment is a percentage increase in the pensions of retired plan members and the same percentage increase in the pension credits of active plan members. The 2013 experience apportionment ― effective July 1 for those enrolled in the plan as of Jan. 1, 2013 ― is the first such increase since 2008.
The current apportionment was made possible by the board’s decision to change the formula by which experience apportionments are granted. The change, said Pension Committee chair Frank James, “should enable us to grant apportionments more frequently, though they will probably be smaller than previous ones.”
During the height of the boom years of the Clinton administration, double-digit experience apportionments were granted two years in a row.
The primary goal of the BOP’s pension plan is long-term stability. It’s other two core principles are “generational equity,” with a goal of spreading experience apportionments over time to balance the benefits for current and future pensioners; and inflation protection ― “small but steady increases are better at offsetting inflation than large episodic increases,” James said.
The plan has been fully funded for many years, but in 2005, the board established a policy calling for the Pension Plan to reach a minimum funding adequacy ratio ― determined by dividing the market value of the plan’s market value by the liabilities) ― of 125 percent before the directors consider granting an experience apportionment. For a funding adequacy ratio below 125 percent, the policy did not recommend an experience apportionment.
The new policy establishes a tiered level of reserve requirements:
- If the funding adequacy ratio is between 110 percent and 120 percent, a 1 percent experience apportionment is granted.
- If the ratio is between 120 percent and 125 percent, a 2 percent apportionment is granted.
- If the ratio exceeds 125 percent, the board has discretion to determine the size of the apportionment.
As of Dec. 31, 2012, the Pension Plan was fully funded with a funding adequacy ratio of 114 percent, primarily due to a robust investment performance of 13.9 percent on the board’s balanced investment portfolio. That portfolio was valued at year’s end at $7.5 billion.
In a related action, the board granted a disability benefit increase of 2 percent for disabled members receiving disability benefits on Dec. 31, 2012. The increase takes effect July 1 of this year.
The financial health of the BOP’s Death and Disability Plan are evaluated independently of the board’s other plans. The board’s actuaries said the increase can be afforded because of strong reserve levels and the limited number of plan members on disability as of the end of last year.