No institution exercises greater impact upon the life of the Presbyterian Church (U.S.A.)’s retired church professionals than the Presbyterian Board of Pensions. Outlook editor Jack Haberer sat down to talk about that with BOP President and CEO Robert Maggs.
JH: Rob, when it comes to retirement, the first thing that comes to mind for most of us is, “How am I going to survive?” That puts a lot of weight and responsibility upon the administrators like yourself for pension programs. Tell me about that.
RM: I think that first thing we have to do is to get people thinking about retirement early on. I like to say, “Start thinking about it the first day you have your first job.” So our job is really to educate people, especially our plan members, from the time they’re in seminary right through their career until they have filed that application to receive a pension. The pension is going to be a good pension. Someone said this is the best pension plan in America. That was a “Jeopardy” question, I think. But the pension alone doesn’t do it. So our job is to explain to people all the risks and rewards and joys and concerns that can happen during their life, how it’s going affect their financial future and what they should be doing to hedge those risks, if you will. That includes savings through a retirement savings plan. It includes good financial planning. It includes programs that help people take care of their mental health, their physical health, as well as their financial health so that they can have productive careers.
JH: I understand that the Presbyterian Church’s pension program, as it is right now, is not what we’ve always had. We’ve had other things before. When did it shift to this plan?
RM: It shifted to this plan following the 1926 General Assembly. About 80 years ago. Prior to that time most ministers made less than $1,200 per year in salary, and they had upon retirement a fixed pension of $600 a year. In 1926 Will Hayes, the former postmaster general, and Andrew Mellon, secretary of the U.S. treasury, and his brother Richard, and 50 other prominent Presbyterians, raised $15 million. I’m going to read from the minutes of the 1926 General Assembly about why we started this pension plan. They called this a service pension plan. They said this new plan would provide a pension that, when inaugurated ” … will prove a permanent solution to a problem the church has been looking at for 200 years,” and that was the problem of taking care of its older clergy and their families. “It’s not a makeshift, half-hearted effort to do something for old ministers.” That’s their words. “Founded upon the most scientific principles, it will make pensions in our church a matter of deferred compensation to which a minister or missionary will be entitled just as certainly as he’s entitled to his annual salary while he is at work. All element of charity will be removed forever.”
That’s when our pension plan was put into effect. Ever since, we’ve had a pension program that was based upon salary and years of service.
JH: Why is that so much better than what we had before, and how does that compare with what other denominations have?
RM: Before, you got an annual amount of $600 when you retired, which in today’s dollars might be $12,000 a year. It didn’t go up. And for the rest of your needs you relied on the relief fund of the Board of Pensions, so it was heavily weighted to charity.
JH: So you were a charity case.
RM: That’s right. … And now, while we certainly have assistance funds and provide help, it’s not charity. It’s a safety net underneath the benefits plan. So, basically you can’t outlive your pension, and your surviving spouse has a pension as well, if you happen to die first, so that’s really the best benefit: you can’t outlive your pension. The second is, compared to others, very few other denominations have defined pension programs. The Episcopal Church does. The Methodists have had one, and they’re re-creating it, but most of the other denominations have a defined contribution plan, savings plans, if you will. We have that as well, but it’s a secondary plan. In those cases, especially if the market goes down and your needs go up, you can outlive your money. So I feel confident that what we’re doing is the right thing to do for our membership.
JH: Will it be enough, or is it enough for those who are retired right now?
RM: The answer, of course is, “It depends.” When taken with Social Security, it’s going to provide a replacement ratio for more than half of our members, that’s equal to or more than they make during their working life because the minimum pension is based upon the median effective salary. For at least half of our people, it’s enough. For those people who have had the good fortune to earn more than the median, then it may not be enough, depending upon their needs. That’s where financial planning comes in. Our studies have shown that we can’t stress enough the need for additional savings during your working career. As we look at what the economy brings to the future, we know their cycles. Right now we’re entering a cycle where the cost of goods and fuel, for instance, are going up dramatically and investment portfolios are at best stagnant. It’s one of those times when it’s good to have savings. So, is it enough? It should be enough, but I wouldn’t rely on it solely.
JH: When a lot of us started out in the ministry we had that mentality that we’d rather burn out than rust out. The last thing we were thinking about was retirement. You said earlier that we should start thinking about retirement on our first day of work. Do you really mean that?
RM: I really do, but of course, nobody does it. I never did. But that’s why we try to tell seminary graduates … on the way to their first call, “you had better start thinking about your future now. Things are not necessarily going to fall into your lap.” As I say, nobody does it. But, that’s why I say they should.
JH: Rob, when people are retiring some people are just chomping at the bit to be done with their work, others are dreading it, others are somewhere in the middle, and some others have spouses thrilled to have them home and yet others’ spouses don’t know how they’re going to survive having the person at home. What about that transition and varieties of transitions people go through at that time?
RM: Well, it’s interesting as I look at statistics I read about the aging Baby Boomer population. That’s people born between 1946 and 1964. Interestingly enough, 64% of our members you could put into this aging Baby Boomer category. They face significant financial, and physical, and social challenges. According to a study by McKinsey and Company, 60% of them won’t be able to maintain their lifestyle without continuing to work. And only about one-fourth of the Boomers are financially prepared for old age — now this is nationally, not our membership. 84% of them can be expected to work after retirement either for financial reasons or for fulfillment reasons. And half their net worth is in real estate. This boomer generation has the highest divorce rate in US history. 60% of them already suffer chronic health problems. Within the next seven years there will be 21 million in America single, that is, unmarried people between the ages of 51 and 70. That’s twice as many as we have today.
Now where does the Board of Pensions fall into this? As I said before, 64% of our members fall into this Boomer category. For us, our job is to help protect their health and to protect their welfare, protect their health and wealth, if you will. So what are we doing to help in that area?
JH: What ARE you doing to help in that area?
RM: You’ll be seeing more of this going forward, but we’re putting out a new campaign called Stewardship of Self, which in one place is going to remind people of all that’s available through us directly or through our third-party programs. We have a lot of preventative healthcare programs. We’re spending a fair amount of money on health prevention and health management for chronic diseases. We have the Presbyterian CREDO program, which helps clergy with their vocational, their financial, and their spiritual health. We have our assistance programs. We have substantially expanded our member education programs. And all of this coupled with the community nature of our benefits plan, which means that the costs of the plan are lower for the lower paid people. I think we’re recognizing the needs of this generation. The education about your own health and the education about your own wealth are every bit as important as the benefits we provide directly.
Right now we have about 700 new retirees each year, and at the same time we have about 700 retirees who pass away. So we stay about even. Starting in five years, we expect the number of new retirees each year to double and we also expect the cause, the article you may have seen in the national press from the folks in Washington that run the Medicare Program, that the costs of Medicare are going to double in the next seven-to-eight years and take as much as the equivalent of 16% of the gross national product in this country. So it’s time for the government to do something. At the same time, it’s important for us to really, really focus on how we can keep our retirees healthy, and how they can get supplemental medical insurance at an affordable price. That’s a huge challenge for us going forward. That’s a real focus for us through the coming decade.
JH: So do we have enough active members to sustain the plan?
RM: Right now we have about 17,000 retired members and 15,000 active members.
JH: More retired than active.
RM: Yes, and that will continue to be the case. Our plan is designed with that in mind. It’s what’s called a mature plan, which means that, for instance, the dues that we receive for the retirement plan are about $70 million a year and the benefits we pay out are about $280 million a year. So for us that means that our investment portfolio is absolutely critical to the success of this plan. And right now our investment portfolio is strong. Our balance sheet is strong and we intend to keep it that way.
Communicating with retirees is extremely important for us, and our member service reps spend a lot of time on the phone with active people but also with retirees. We have over 70 retirees (who) are over 100 years old. Most of them are surviving spouses, I hasten to add, but we know that because we send people over (age) 80 a birthday card every year. And we get thank-you notes from them, which just points out to me that the careful individual attention that the Board has a tradition of providing to its members going back a couple hundred years, is still at the forefront of what we do. It is as much a part of our mission as anything: that personal touch. And especially as things like disability care and medical care become more complicated, not to mention retirement planning, that personal touch is critical to this community of faith.
Robert Maggs has served as president and chief executive officer of the Presbyterian Board of Pensions since 1999. Prior to that he was managing attorney for Chase Manhattan Bank.
