United Methodist Church Offers Managed Accounts to DC Participants

ProManage, an asset allocation firm providing managed accounts to defined contribution plans, will provide the 66,000active and retiredparticipants in theEvanston, Illinois-based organization plan, both clergy and lay people, with access to the program, which will go live on January 1, 2006, the company announced today. The church’s defined contribution and defined benefit plans have assets in excess of $13 billion, and the managed account program will be offered to participants in the multiple defined contribution plans, which total $6.2 billion. The Church has three plans that consist solely of employer contributions, which total $4.2 billion, and another plan that is reserved for employee contributions, with plan assets of $2 billion.

Managed accounts will be mandatory for almost everyone in the plans consisting of entirely employer contributions. In the employee contribution plan, since the Board can tell what participants have made active investment choices, and what participants have gone into the default investment option (a stable value fund), the Church has decided to roll the program out differently to these two groups of participants, David Zellner, Chief Investment Officer of the General Board of Pension and Health Benefits of The United Methodist Church, told PLANSPONSOR.com . Approximately 40% of participants have not made an election in their plan since December 31, 2002. These participants will be automatically switched into the managed account option from the default fund, although those in this group will have the opportunity to switch out of the managed account plan and decide to self-manage their portfolio instead. The approximately 60% of participants who have taken actions in their plan in the past few years will have the option to enroll in the managed account option, Zellner said.

Other Options

For those participants in the managed account program, ProManage will make and execute all investment decisions for those participants. Within the managed account option, there are five funds in which participants will be invested, Zellner said, a domestic stock fund, an international stock fund, a bond fund, a stable value fund, and an inflation protected (TIPS) fund.   Most of these are composites of multiple investment managers, except for the TIPS fund. Since Church law imposes social restrictions on investments, each fund offered in the plan is a composite of companies that comply with such restrictions.

For ProManage to allocate the assets properly, the company worked with the General Board of Pension and Health Benefits of United Methodist Church to develop rules for asset allocation. Zellner says the five main components are:

1. Is the person clergy or lay?
2. What is the person’s age?
3. What is the participant’s retirement date? If it has not been specified by the participant, ProManage will use an assumed age of 65.
4. Is the participant paying into Social Security?
5. What is the participant’s specified risk tolerance? If the participant does not elect a risk tolerance, a moderate tolerance will be assumed.

Additionally, ProManage will examine what account balance the participant has in determining the individualized asset allocation, Carl Londe, chairman and chief executive officer of ProManage told PLANSPONSOR.com .

At least once a year, the factors will be reevaluated to create a new target asset allocation, Zellner said. New money contributed to the plan will be allocated according to this new allocation. The account will also be examined every three months to determine if the actual asset allocation of the account is off from the intended allocation. If it is off by more than 3%, the funds will be rebalanced. ProManage assumes co-fiduciary responsibility for all assets that it manages.    

This is not the first time the Church has made a decision to be proactive in helping its clergy and lay people planning for retirement. In May 2004, the United Methodist Church approved a plan to start a DB plan for 26,000 of its U.S. pastors and lay workers (see Methodists Swim Upstream; Create New DB Program ) . T he new combined defined benefit/defined contribution program will start January 1, 2007.