In its recent “State of the Church” report, the Church Pension Group (CPG), a financial services organization that serves the Episcopal Church, said moving participants to a defined contribution (DC) plan from a defined benefit (DB) plan would not be in the best interests of the Church or the clergy.
“We have considered the possibility of moving from a defined benefit plan for clergy to a defined contribution plan, and we have concluded that doing so would be irresponsible,” said the CPG. “Our analysis shows that, assuming the same contribution level, the defined benefit plan in the vast majority of cases would produce a higher benefit to a participant than would a defined contribution plan.”
The assessment is in stark contrast to the ongoing rise in DC plans and decline in DB plans, as corporations look for ways to cut costs, and lawmakers tout DC plans as a savior for struggling pension systems and overburdened state budgets.
“In recent years, many corporations have abandoned their defined benefit plans and moved their employees solely to defined contribution plans,” said the CPG. “This has been done notwithstanding the fact that defined contribution plans originally were designed only to provide supplemental retirement savings … and were not intended to replace defined benefit plans as a primary retirement vehicle.”
The report is a response to a series of questions submitted by the Episcopal Church’s Church Pension Group Subcommittee, and addresses the pension’s financial sustainability and investment strategy One of the questions asked the CPG “to what extent have you considered moving to a defined contribution plan for all employees?”
In the report, the CPG said if the governing body of the Episcopal Church ever wanted to move participants out of the DB plan and exclusively into DC plans, it could theoretically do so by freezing the DB plan.
“However, we wish to serve the Church in the most effective way possible,” said the CPG. “In that regard, we strongly believe that for the same cost to parishes, whether that cost is 18% or more or less, the defined benefit plan provides a higher level of benefits to clergy than would a defined contribution plan, and consequently best serves both the Church and the clergy.”
The CPG also said that companies eliminating DB plans are motivated by improving the level and predictability of their quarterly earnings by eliminating the accounting expense of these plans.
“It has not been to provide a superior benefit to their employees,” said the CPG.