Presenters: David Adams, ELCA Board of Pensions Mark Borchert, LCMS Concordia Plan Services The impact of the economic downturn on church retirement plans – an update Nov. 30, 2010

2 Agenda Background Impact on CBA member plans –As of late 2009 –As of late 2010 Discussion

3 Background Triggering events Easy credit Bursting of the US housing bubble High default rates on mortgages Deregulation in the financial industry Near collapse of major segments of the world financial system

4 Background Investment losses S&P index lost 57.4% from 10/9/07 to 3/6/ % of the loss had been recovered as of mid-November, % of the loss has been recovered as of mid-November, 2010 but need additional 33% gain to match 2007 high

5 Background Prospects for recovery Returns of the last 20 months are encouraging But economic recovery is still weak –High unemployment –High deficits and potential tax increases –Weak lending –Weak housing market –Weak dollar

6 Background Impact on US retirement plans Investment losses in the $trillions Liabilities continue to grow, in part due to falling interest rates Path to recovery –DC Annuity plans Market recovery / benefit reductions –DB plans Market recovery / contribution increases

7 Background Who bears the risk? DC annuity plansDB plans Initial adequacyMemberPlan sponsor Investment riskMemberPlan sponsor Longevity riskMemberPlan sponsor Inflation riskMemberMember (or sponsor)

8 Survey Questions about –Asset allocation –Investment returns –Funded status –Benefit or contribution changes –Member communication –Other changes Number responding in both 2009 and 2010 –10 DC annuity plans –10 DB plans

9 Survey Participating organizations DC Annuity plans (10)DB plans (10) American Baptist ChurchesBaptist General Conference Church of God, Anderson, INChristian Brothers Services Church of God, Cleveland, TNChristian Church (Disciples of Christ) Evangelical Free Church of AmericaEvangelical Covenant Church Evangelical Lutheran Church in AmericaLutheran Church -- Missouri Synod Mennonite Church USAMoravian Church Northern Province United Church of Christ (2)Presbyterian Church (U.S.A.) United Methodist ChurchSeventh Day Adventists YMCAUnited Methodist Church Unity School of Christianity

10 Survey

11 Comments regarding asset allocation DC annuity plans are labeled A1, A2, etc. DC annuity plans invest as follows: LowHighAvg.LowHighAvg. Equities0%68%43%0%66%43% Fixed income27%100%49%20%100%48% Other0%30%8%0%30%9%

12 Survey

13 Comments regarding asset allocation DB plans are labeled P1, P2, etc. DB plans invest as follows: LowHighAvg.LowHighAvg. Equities50%72%63%50%70%61% Fixed income15%50%30%15%50%31% Other0%20%7%0%20%8%

14 Survey

15 Comments regarding investment returns For DC annuity plans –2008 returns ranged from -32% to 11% –2009 returns ranged from -1% to 25% –33 month returns ranged from -14% to 23%

16 Survey

17 Comments regarding investment returns For DB plans –2008 returns ranged from -32% to -19% –2009 returns ranged from 16% to 27% –33 month returns ranged from -15% to 6%

18 Funded ratios

19 Comments regarding funded ratios For DC annuity plans average funded ratio was –80% as of 12/31/2008 –92% as of 12/31/2009 –97% as of 9/30/2010

20 Impact on DC Annuity Benefits

21 Changes made ─ DC annuity plans Five of 10 plans reported plan changes –Closed annuity fund to new entrants –Closed annuity fund to new entrants; plan to reopen in mid-2011 –Implemented partial withdrawals –Changed investment consultants –Changed maximum annuity reduction from 5% to 10% for second year of downturn Seven of 10 plans reported strengthening member communications

22 Funded ratios

23 Comments regarding funded ratios For DB plans average ABO funded ratio was –81% as of 12/31/2008 –94% as of 12/31/2009 –95% as of 9/30/2010

24 Impact on DB Contributions

25 Changes made ─ DB plans Two of 12 plans reported plan changes –Closed plan to new entrants –Changed to cash balance style plan Four of 10 plans reported strengthening member communications

26 Closing Wrap up Questions