The United Methodist Church's pension and health benefits agency is temporarily suspending the 3 percent base-interest credit that it pays on accounts in its Diversified Investment Fund. The action, taken in response to uncertainty in the world and financial markets, is effective March 1.
"As always, the general board's actions are based on a consistent strategy of protecting the long-term security of participants and their beneficiaries," said Barbara Boigegrain, top staff executive of the United Methodist Board of Pension and Health Benefits in Evanston, Ill.
The board said that its suspension of the base credit would strengthen its ability "to deliver on current and future benefit promises." The Diversified Investment Fund is the agency's largest pool of investment dollars, with $8.5 billion in assets.
The suspension of the base-interest credit will affect about 40,000 active clergy and lay employees of the United Methodist Church, according to agency spokesman Michael Lee. Those are employees with accounts in the Ministerial Pension Plan (MPP), Staff Retirement Benefits Program (SRBP) and the Cumulative Pension and Benefit Fund (CPBF).
In November 2000, the board lowered its base credit rate on the fund from 6.5 percent to 3.0 percent for the first time since the 1970s, as the long-running U.S. bull market reached its end. Since then, the financial markets have struggled, and conditions have been exacerbated in recent months by uncertainty about a possible U.S.-led war with Iraq.
"As a result of the extended bear market - the second worst in the history of the U.S. stock market - action is needed to prevent further deterioration of DIF's reserve position that occurs when the 3 percent base-credit interest is paid," the board said in a statement.
While the base-interest credit is suspended, the board won't apply any interest to deposits in the fund. "No action is required by participants," the agency said. "Account balances will continue to reflect existing and future contributions, and any interest earned through Feb. 28, 2003." When the markets improve and the fund's reserve position is stronger, the agency said it would consider reinstating the base credit.
"DIF remains a viable and reliable investment vehicle largely because of the actions of the board of directors over the last several years," said Dave Zellner, managing director of finance and investments.
By Albert H. Lee