Agenda • Timeline of Events • Task Force Membership • Review current financial collections & future Conference budgets under current apportionment system • Direct Invoicing • What? • Why? • How Much? • Other Alternatives? • Recommendations from Task Force • Other Annual Conference Items • Q&A
Timeline of Events • 2003 Annual Conference-first discussed • June 2007-Task force formed based upon Annual Conference Action • September 2007-Present-Task Force Meetings • Spring 2009-Task Force Recommendations • May 2009-Pre-Conference Briefings • June 2009-Vote at Annual Conference • January 1, 2011-Implementation (if approved)
Bishop Swanson Charlie Harr, Board of Pensions (BOP) Chair Sandra Davis, CFA Rev. Don Nation, Cabinet Representative to BOP Rev. Dr. Chuck Starks, DS Rev. Ken Henderlight, DS Rev. Dr. Doug Fairbanks, DS Rev. Richard Edwards, Dir. of Congregational Development Kathy Mays, BOP Sue Ann Greene, CFA Rev. Walter Weikel, CFA Rev. Gary Grogg, CFA Rev. Linda Bird Wright, BOP Rev. Charles Lockerby, BOP Norm Sparks, BOP Patty Muse, BOP Advisors John Tate, Treasurer Ron Matthews, Executive Assistant to the Bishop Task Force Members
“We can do things the cheap way, the simple way, for the short-term and without regard for the future. Or, we can make the extra effort, do the hard work, absorb the criticism and make decisions that will cause a better future.”-Mike Rounds
“Leadership requires the courage to make decisions that will benefit the next generation” -Alan Autry
“Indecision becomes decision with time.” -Author unknown
“The definition of insanity is doing the same things over and over again expecting a different result.” -Albert Einstein
Current Collection System • Annual Conference Budget adopted each year. • Conference Treasurer allocates proportionally, based upon total church spending (Table II), an amount due from each church based upon formula adopted by Annual Conference. • Apportioned amounts due are sent to D.S. • Churches determine the amount that will be paid or not paid.
Current Reality • The Conference must apportion more than is needed. • Apportionments are a variable expense for some churches-cash flow tool. • When churches do not pay 100%, future apportionments must be increased. • Apportionment payments for benefits can no longer be treated as an optional payment. • We are directly invoiced for all benefit costs.
Single Figure Apportionments 2008 • Overall Budget • 25% of churches did not pay 100% • $15.7 million apportioned • $13.4 million received • $2.34 million total apportioned not received • Pension & Health • $6.3 million apportioned • $5.3 million received
Current Costs • 100% of pension, life, and disability costs are paid through Conference apportionments. • $7.6 million will be paid in 2010 • $3.5 million apportioned in 2010 • 25% of active health plans and 89% of retiree plans are paid by apportionments • Claims costs are increasing ~$1m/year
Projected Future Costs • Continued large increases in health costs 5-12% per year • Future pension costs • Increasing pastoral salaries & housing allowances (+3.5%/year) • Defined Benefit program (2007) • MPP Annuity rates (Defined Benefit Component) • Automatic increases in Pre-82 rates
Projected Conference Budget Pension & Health Costs Other Ministry Costs
Holston Conference Conference Budget-Ministry Funds at 0% $27 Millions $22 $17 $12 $7 $2 2004 2006 2008 2009 2011 2013 2015 2017 2019 2021 2023 2025 Pension-Funds projected pension costs assuming actuarial amounts with no increases above 2% Past Service Rate Health Insurance-12% medical increase for 5 years & 5% for next 10 years Projected Apportionments Projected Apportionments Projected Conference Budget Projected Conference Budget Pension & Health Costs Pension & Health Costs Other Ministry Costs Other Ministry Costs
Direct Invoicing • Church invoiced for their benefit costs instead of through apportionments. • Costs must be paid by local church on monthly basis. • Used by Annual Conferences to insure benefit programs are fully funded as required by the Discipline. • 65% in South East Jurisdiction • 3 Annual Conferences are considering direct invoicing @ 2009 Annual Conference • Direct invoicing is being used by the General Church to collect pension contributions.
Expected Outcomes • Proposed system would fund existing benefit programs. • No benefit participation=No costs • Aligns costs with source of expense. • Proper reflection of cost of pastoral leadership. • Will indicate potential financial stress of existing pastoral leadership. • Eliminates churches from unintentionally funding the costs of the leadership of other churches (pay vs. no-pay).
Small Church *Includes Retiree Program
Medium Church *Includes Retiree Program
Large Church *Includes Retiree Program
Direct Invoicing Impacts • Will impact all churches in a unique manner. • Depends upon salary and current benefits associated with pastoral leadership. • May cause churches to evaluate how they can support their level of pastoral leadership (i.e. full or part-time). • Apportionments for benefits will no longer be a variable expenditure.
Health Insurance Blended Rate • The cost per appointment would be allocated by a charge to determine the amount that would be paid by each church on a circuit. • Figure includes the amount paid as the church’s portion (35%) of health insurance.
Estimated Direct Invoice • Minimum Salary $15,825 • Average Compensation $19,885 • These figures include 35% of the cost that was previously paid out of the church budget $2,100-$6,444 per year for the church portion of health insurance.
Alternatives to Direct Invoicing • Do nothing. • Elimination of funding for Conference services and related agencies. • Reductions in health related programs and cost sharing %’s for pastors, retirees, and lay employees. • Increased apportionments. • Elimination of Single Figure Apportionment.
Conference Budget Impact • Eliminates benefit costs from the Conference Budget that are currently apportioned (~$5 m) • Pension (100%) • Health Insurance (25%) • Allows Conference to focus budget on other ministry and program costs that can be controlled based upon church’s support of these programs.
4 Final Points • Ensures payment for existing benefit programs for those that receive the benefits. • The budget will isolate items that can be controlled by the Annual Conference. • Matches the cost of pastoral leadership with the source of the costs. • Direct invoicing appears to be the best alternative to meet the future challenges.
Conference Council on Finance & Administration (CCFA) • Encouraging churches to pay amounts apportioned, but recognizing some cannot (will not) pay. • Reduced Conference spending by 15% in recognition of churches sending less $ • Implemented ~1.5% pay increase January 1, 2009 for some personnel (4% approved by AC) • Maintained health care costs, and pension expense at 100% of amount approved for 2009.
2010 Recommended Budget • Recommending: • Same apportioned amounts as 2009 • 0% personnel cost budget increases • Same category totals for ministry groups as 2009 amended • No health insurance increases to budgeted amounts (4% request from BOP) • No pension budget increases • Differences between Book of Reports and actual line-item activities.
If the Conference is cutting expenses by 15%, why are our apportionments not being decreased?
Differences • Reserves are the first revenue sources used to fund Conference Budget. • Lower receipts means more reserves are used. • More reserves used leads to higher future apportionment costs. • 90 day cash reserve policy is established.
CCFA 2010 • Seeking alternative methods for funding the 2011 Conference budget. • Spending caps • Multiple figures vs. single figure share • Tithe • Others? • Encouraging churches to support direct invoicing.
Board of Pensions & Health Benefits • Requested funding of $6.87m • Received apportioned funding of $6.35m • Pension Programs (adopted by General Conference) • Implementing minimum 2% Past service rate increase • Health Program (adopted by Holston Conference Board of Pensions & Health Benefits) • Implementing 4% rate increase for active programs • Short-term-utilizes reserves for 2010 • Long-term-evaluating cost share %’s, co-pays, & procedures covered • Bidding retiree plan based upon amounts funded and received (rates and plan details mailed to participants in Fall)
Trustees • Recommending a Conference-wide workers compensation program administered by the Annual Conference. • Invoiced separately on a monthly basis. • Effective for renewals after January 1, 2010.