Pension board keeps long-term view in rocky markets
9/25/2001 News media contact: Tim Tanton · (615) 742-5470 · Nashville, Tenn. A UMNS Report By Tim Tanton* For United Methodist pastors and others who are concerned about their pension funds amid the current stock market craziness, here are three familiar words: Keep the faith.
"We invest for the long term, recognizing that there could be serious turbulence in the markets, and historically we've gotten through it," said Dave Zellner, a staff executive with the United Methodist Board of Pension and Health Benefits in Evanston, Ill. He suggests that participants "have confidence and faith that our economy will continue to be strong and bounce back, and that things will get back to normal."
The stock market plummeted during the first week of trading after the Sept. 11 terrorist attacks on America. The Dow Jones industrial average lost 1,370 points, or 14.3 percent, during the week ended Sept. 21, its worst weekly loss since the 1930s. The following business day, Sept. 24, it rebounded 368 points, and analysts viewed the jump as a sign of volatility ahead.
The market conditions make a special distribution by the board doubtful. The agency's governing directors typically consider - and have regularly approved - a special distribution to stakeholders during the fall board meeting. The decline in the stock market, which began last year, has eroded the board's cushion of reserves to zero, but the agency is building it back.
"The reserve has to be at 14 percent, and we're a long ways away from that," Zellner said. "... The stock market would have to go up at least 30 percent before we'd get in the ballpark of the special distribution."
The board manages the pension and health benefits for 65,000 United Methodist clergy, employees, retirees and spouses. It has the largest pension fund of any Protestant denomination.
The agency is receiving an increase in phone calls from constituents concerned about the markets, Zellner said. Callers are asking questions such as: How much longer will the downturn be? What will the returns be going forward? "We have no way of knowing," Zellner said.
In one of two messages to constituents after the attacks, the board said its bankers and investment managers have given "assurances that your assets are safe and secure. While we may experience severe short-term fluctuations in the value of these assets, we remain steadfast in our belief that adhering to long-term strategies will ultimately prove to be the most prudent course of action."
For the year, the Domestic Stock Fund is down 26 percent, the International Stock Fund is down 31 percent, and the Balanced Social Values Fund is down 15 percent, Zellner said. However, the Domestic Bond fund is up 8 percent, and the Money Market Plus Fund is up 7 percent.
The assets in the Diversified Investment Fund, the agency's biggest pool of investment dollars, are down 15 percent, to $11 billion, Zellner said.
Despite the decreases, the performances of the board's funds are comparable to those of its peer groups, Zellner said.
The bulk of constituents' money is in the Ministerial Pension Plan (MPP) of the Diversified Investment Fund, which has a principal protection feature. Zellner said participants are grateful for getting a 3 percent return on their MPP balances when many of their counterparts are seeing reductions in their balances. The board's other five funds float with the market and don't have the principal protection feature, he said.
The Diversified Investment Fund is designed to withstand a prolonged market downturn. "We had a reserve a year ago that was 14 percent, and the purpose of that reserve was to help assure the principal protection feature during negative market enviroments, and it's done exactly what it was designed to do," Zellner said.
Constituents grew accustomed to seeing their investments grow during the long-running bull market. "I really think our participants got very complacent with regard to investing," Zellner said. Now the market is experiencing drops that it hasn't seen since the 1970s, he said.
The board's philosophy calls for keeping 65 percent of its portfolio in stocks, and the current equity exposure is about 61 percent, Zellner said. The board's portfolio managers were buying on Sept. 24 to increase the equity stake and take advantage of low stock prices.
The agency has been in touch with its portfolio managers, not only to discuss market conditions but also to check on whether the investment firms were directly affected when terrorists steered two hijacked planes into New York's World Trade Center. "We had a couple of near misses," Zellner said, "but none of our managers had anybody that was affected, at least directly."
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*Tanton is news editor for United Methodist News Service.
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