Church Pension Group Argues DB Bests DC

The Church Pension Group, the authority for administering pensions and other benefits for Episcopal clergy and to collect assessments to fund such benefits, says it has considered moving from a defined benefit (DB) plan for clergy to a defined contribution (DC) plan and concluded that doing so “would be irresponsible.”

In a State of the Church Report, the group also says, “the primary motivation of most corporations in eliminating defined benefit plans has been to improve both the level and predictability of their quarterly earnings by eliminating the accounting expense of such plans; it has not been to provide a superior benefit to their employees.”

The group says its analysis shows that, assuming the same contribution level, the DB plan in the vast majority of cases would produce a higher benefit to a participant than would a DC plan. “Whether the church contributes 12% or 18% or 24%, the clergy would fare better financially with a DB plan,” the document states. So, at the same cost to parishes, the DB plan provides a higher benefit to clergy than would a DC plan.

The reasons for its conclusion include the fact that, with a DB plan, the Church Pension Fund bears the investment risk and the longevity risk rather than transferring those risks to the clergy. The fund also has the ability to take a much longer-term investment view than could participants in DC plans and to access a broader array of high-performing assets.

However, the group notes that although its DB plan is the principal retirement vehicle for most clergy, DC plans (such as the The Episcopal Church Retirement Savings Plan) are an important component of their retirement strategies.

“We advise all clergy that their pension from the clergy pension plan in most cases will not be sufficient to satisfy their entire financial needs in retirement and that they will need supplemental income from personal savings and Social Security. Accordingly, we urge all clergy to contribute to supplemental defined contribution plans to maximize their retirement income,” the group writes.