UM Pension board votes to eliminate Diversified Investment Fund

EVANSTON, Ill. (UMNS) -- Directors of the United Methodist Board of Pension and Health Benefits have approved an investment change that will affect all active fund participants.

During a Nov. 21 meeting, board members accepted the recommendation of the board's asset/liability committee to discontinue the reserve-based Diversified Investment Fund (DIF) as an investment fund for all general board plans and replace it with the market-based Multiple Asset Fund (MAF).

All eligible participant accounts and conference deposits in DIF will move to the MAF when operationally feasible and when DIF has a positive reserve.

Target dates of the transfer are Feb. 28 for conference deposits and March 31 for the Ministerial Pension Plan (MPP), Staff Retirement Benefits Program (SRBP), Cumulative Pension and Benefit Fund (CPBF) and Defined Benefit Service Money (DBSM).

Participants 61 years and older will have an option to gradually convert their accumulated employer account balances to an investment fund with a relatively low risk of loss of principal.

Account balances of MPP participants 62 or older or with 35 years of service as of June 30, 2003, will not be affected by this decision. These balances were promised an annuity conversion rate of 8 percent and the market risk associated with these balances will remain with MPP.

"The DIF appeared to protect the financial security of participants, (but) in reality, participants have been exposed to market risk all along," said Will Green, the asset/liability committee chairman. "The nature of a reserve fund like DIF in a defined contribution plan masks that exposure."

Although participants now will directly see the impact of market exposure, the board says participants who maintain a long-term investment in a market-based fund will have the best chance of achieving their financial goals at retirement.

According to Dave Zellner, chief investment officer at the pension board, it has become apparent that moving balances in DIF to a market-based fund better aligns market performance with participant opportunity.

"Over long periods of time, the investment returns of a market-based fund are expected to closely match that of a reserve fund," he explained. "MAF returns during the last 10 years have averaged nearly 10 percent per year and the current year-to-date return is 18.8 percent through Nov. 21."

In addition, current participants must wait until the DIF reserve limit of 14 percent is fully realized before they can begin earning special distributions. A market-based fund allows participants to benefit from a rising market immediately.

To protect participants against loss of purchasing power resulting from inflation, the board also authorized the establishment of a new fund known as the Inflation Protection Fund, composed exclusively of Treasury Inflation Protected Securities issued by the U.S. government. The fund is expected to become available for PIP participants Jan.1.

More information is available at www.gbophb.org, the pension agency's Web site.

Information for this story was adapted from a release sent by Mike Lee, senior communications officer for the United Methodist Board of Pension and Health Benefits.

Last updated on 02/09/2004

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