by Chris Ritter
“Breaking up is hard to do.” -Neil Sedaka
I predict 2021 will baptize us all into the nitty-gritty of denominational separation. Even a cursory skip through the thirty-three pages of Feinberg Protocol legislation reveals the complexity of what United Methodists of all stripes are about to wade through. This is the first in a series of posts addressing questions important to those shepherding congregations through the changes ahead.
A Matter of Trust
Those forming a new, traditional Methodist denomination are committed to eliminating the trust clause… the mandated language on the deed of every piece of UM-related real estate tying it legally to the denomination. It matters not that the local congregation payed for their own building. If that facility ceases to be a place of United Methodist ministry, its ownership reverts to the conference. This fact has stuck in the craw of many a Methodist, even as it has kept us stuck together (somewhat artificially, many would say) as a denomination. Leave your conference, lose your building. The new denomination envisions “a community of the committed, not a community of the constrained.”
There is a point of irony for United Methodists feeling trapped in a pluralistic denomination where theology seems to take a back seat to institutional preservation. The trust clause was actually created in service to our theology. John Wesley’s name was affixed to the deed of each Methodist meetinghouse to prevent the property from being overrun by the Calvinistic Whitefield-ian wing of the larger Methodist revival. Wesley’s “model deed” required that the property be used to teach the Gospel as communicated in his published sermons and Notes on the New Testament. When Wesley died, ownership of the properties was transferred to the Methodist conference.
Denominational trust clauses are not unique to United Methodism and are often tested. A noted example is The Episcopal Church which has been embroiled in legal battles over separation for years. Dalton & Tomich, the leading law firm representing congregations against the UMC, is on retainer with over a hundred UM congregations who are interested in exiting sooner rather than later. Churches with high building debt may have leverage with the conference not enjoyed by other churches. If the conference takes the building they also take the mortgage.
Life After the Trust Clause
All this is to say that the trust clause has been a big issue and there is overwhelming support among traditionalists for eliminating it in a new expression of Methodism. But there are bills to be paid. As with a divorcing couple, the debts accumulated by the family prior to separation must be addressed.
For United Methodists, the biggest liability is in the pension category. The UMC has made pension promises to their clergy and other workers over the years and in various iterations. Most annual conference delegates will remember the “Pre-1982” plan that required significant additional funding. In 2004, General Conference approved a “defined benefit plan.” Unlike a 401k where the employer simply pays in an agreed upon amount into an investment account in the name of the employee, the UMC has promised pre-defined lifetime benefits at the time of retirement. (There is legislation coming before the next General Conference to move to a defined contribution plan.)
The ability to keep existing promises requires adequate funding as determined by an annual actuarial analysis. Our 50+ U.S. conferences offer pension plans to their clergy through Wespath, our UM Board of Pensions. When there is a down-turn like 2008/2009, the pension programs require an infusion of cash to keep them afloat. The conferences each have their own demographics and cash position relative to their liability. When we talk about a pension liability, we are talking about this assumed risk a conference holds of owing additional funding.
A congregation leaving its conference voluntarily abandons its part of all the conference-level assets they helped to fund over the years (campgrounds, facilities, funds, etc.). But they can’t as easily walk away from the liabilities. If they want to offload their share of the risk assumed by their annual conference, there will be a fee for that. How to handle pension liability was a huge topic of discussion among the negotiators of the Separation Protocol.
I spoke with Wespath to better understand the unfunded pension liability. The more I learn about it the more I realize how much I don’t know. Frankly, this is over my head… and likely over the heads of most United Methodists. Actuarial math is its own animal. The folks at Wespath have prepared a Q&A Document related to the legislation flowing from GC2019 and coming to GC2021.
You will see that the discussion of pension liability related to separation is nothing new. During the three-year Way Forward process, extensive work was done with Wespath on how this should be calculated for those leaving the denomination. All Way Forward plans included language drafted by the lawyers and actuaries at Wespath, people with very sharp pencils. They also contributed to a free-standing disaffiliation process which was approved at GC2019. The legislation specified: “The General Board of Pension and Health Benefits shall determine the aggregate funding obligations of the annual conference using market factors similar to a commercial annuity provider, from which the annual conference will determine the local church’s share.” (¶2553.4d and ¶1504.23) Wespath calculates the liability held by each the annual conference, the sponsors of the pension plans. This is an ever-fluctuating number based on market changes, particularly interest rates. Per the legislation, Wespath adds another 10% representing a fee that would be charged by a commercial annuity provider to take that risk on.
It is the annual conference, not Wespath, that determines the portion of liability that should be paid by a local church at the time of exit. Each conference has its own way of doing that and some have officially established these standards through annual conference legislation. Conferences variously use a decimal of the apportionment formula, a percentage of the conference budget, or base the payment on the congregation’s clergy compensation.
This is where we stand today: If a congregation wants to leave bad enough, they can pay a share of their conference’s liability as assigned by the conference (the 110% plus other amounts the conference may charge, like two years apportionment payments). For most, the exit fee comes out anywhere between four and ten times the local church’s annual apportionment payments. Few congregations are able and willing to take this step and await enactment of the larger separation deal. But some have already bought themselves out. Granger Community Church, the largest congregation in the Indiana Conference, paid $2.6 million to exit last year because their pastor, the late Rev. Mark Beeson, was dying of pancreatic cancer. They wanted to control their own succession rather than trust the bishop to select their next pastor. Although the church left in a way that avoided the existing disaffiliation provisions (they closed as a UM church, reopened as a new independent church, and purchased the equity on their building from the conference) over $1 million of the buyout plan addressed pension and retirement issues.
Learning to Lien
This brings us to the proposed Feinberg Protocol. The ground-breaking separation agreement allows pension liability to be assumed by the new denomination and be addressed over time (as we do now in the UMC, not by paying 110% up front). Wespath is empowered to calculate the portion of the pension liability assigned to the new denomination based on the clergy who are leaving the UMC. But what the new denomination cannot become is a laundromat where local congregations join just long enough to wash themselves clean of the trust clause and pension debt before taking an independent status. Sticking the new denomination with large debts it did not incur would eventually lead to bankruptcy. So there needs to be a means to insure that the liabilities will be accounted for among the local churches comprising the new connection.
Since the new denomination is assuming liability for the unfunded pension payments by its congregations, it plans to place a lien on the real property of each local church that is reflective of their fair share of the liability. A lien is a stipulation on the deed of a property that offers the value of the property in guarantee that a creditor will be paid. The lien becomes meaningless as long as the church remains in good standing. If a church leaves the new denomination, this imposes a burden on the other churches. In that event, the lien guarantees the new denomination can recover the resources necessary to satisfy the liability. The lien is not part of the Protocol legislation itself. It is an inventive way for the new denomination to eliminate the trust clause while still maintaining some security in its ability to address pension liability.
Keith Boyette (President of WCA, Chair of the Transitional Leadership Council, an attorney, and a UM clergy) describes pension liability payments following separation in this way:
Departing churches continue to be liable for their proportionate share of future pension payments under the existing pension plans of the UM Church; however, they don’t have to pay such liability upon departure and such liability is not calculated on a market basis. Rather, the departing church will continue to be billed their pension liability on what will then be legacy plans on a monthly basis as it comes due. The departing church joins the new denomination released from the UM Church’s trust clause and the new denomination also agrees to be liable for the departing church’s ongoing pension liability. Of course, the expectation is that the departing church will make its regular payments as they come due. If the departing local church meets its pension liability as it is billed, it never ends up having to make payments on a market basis. This is a good deal.
A Rose by Another Name?
Is the lien just another form of trust clause? In a recent podcast, Boyette said a decided “no.” The lien is tied to a specific liability. It is only in force for the amount of the liability and if the liability is not paid. The trust clause is much more general and grants the conference a say in every decision made by the local church related to what it does with the property. The lien applies only to real property. The trust clause extends to bank accounts and investments held by the local church.
I am confident there will be no trust clause in a new, theologically conservative Methodist church, and so local churches will own all of their property and assets outright. And it would only have a lien to make sure we all fulfill prior commitments made to pastors regarding funding for their pensions. Personally, I think the new church will only rarely exercise a lien because the vast majority of local traditionalist churches believe it is right and good to fulfill any prior responsibilities they have made for funding clergy pension plans.
What to Watch
As far as I know, there is no easy way for a congregation to calculate the amount of its own liability. Those who have sought exit thus far have contacted their conference to be presented with a figure. A church exiting under the Protocol is exempt from lump 110% payment of a share of the liability. Instead, they enter into a multi-party Separation Agreement with their annual conferences and their new denomination. I assume the lien would be an element of this multi-party agreement in which the new Methodist Church assumes responsibility for this part of the UM legacy.
Even with the lien, joining the new denomination is intended to provide overall financial relief for a congregation. Overhead and apportionments will be significantly lower. Congregations will have a bigger voice in their own future. Because the new denomination will continue to work with Wespath for pensions, there is a possibility of negotiating fair and favorable terms moving forward.
Questions remain. The new denomination will need to determine how liability will be assigned to each congregation. Wespath is responsible in the Protocol legislation for calculating the risk assigned to the new denomination. They are not charged with assessing an amount to each local church in the new denomination. What about a small local church that has been served by retired pastors and has not participated in pensions at all? Will they have a lien? Will congregations from conferences who have paid more on their pension liability be assigned less than congregations from conferences that have historically provided less funding? I have it from the top that there is a deep commitment to fairness and equity in these matters.