Church retirement plans: A look at the Diocese of Fort Worth

Church retirement plan sponsors face unique considerations as they seek to balance benefit adequacy, equity, and security. While helping to position their clergy and other plan members for a secure future, they also must stay competitive across the wider benefits landscape to recruit and retain lay employees. For a look at how one diocese manages these pressures, Milliman actuaries Jake Pringle and Delbert Zamora sat down with Gary Patton, human resources (HR) director for the Diocese of Fort Worth, Texas.

Transcript

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Jake Pringle: Hello, and welcome to Critical Point brought to you by Milliman. I’m Jake Pringle, and I’ll be your host today. In this episode of Critical Point we’re going to be talking about church-sponsored retirement programs and how they can help recruit lay employees in a challenging job market and meet the requirements under canon law to provide for the welfare of retired priests. To talk about these challenges I have two guests today: Gary Patton, the Human Resources Director with the Diocese of Fort Worth.

Gary Patton: Good morning.

Jake Pringle: Good morning, Gary. And my Milliman colleague, Delbert Zamora, the lead actuary for the diocese.

Delbert Zamora: Hello, and good morning.

Jake Pringle: Gary brings perspectives from both corporate and church-sponsored retirement programs. Delbert and I are both consulting actuaries with Milliman, and we work with church plan clients across the country.

Let’s jump right in. Gary, I’m going to start with you. The Diocese of Fort Worth offers three types of retirement plans: an employee pension plan, a priests’ pension plan, and a 403(b) plan. Can you give us a quick overview of each of those, maybe like a rough number of employees, participants in the plan, and some key features?

Gary Patton:The priests’ plans are offered to all of our diocesan priests. Order priests are not part of our pension plan. Employees who work 30 hours a week or more are eligible for the lay plan, although they have a two-year waiting period to go in.

And things like the features, like lump sum options versus annuities, those things have had an impact, I think. I would say that from some of the reports that we’ve had on a regular basis, the number of people taking lump sum distributions when they retire has increased, although it may not be the majority. Cost-of-living adjustments (COLAs), we do those for the priests’ plans only. So far, since I’ve been here, I think it’s occurred twice, and without going into details of how much that’s been, I can tell you that it has been very generous, I think due to the fact that we’re in the North Texas area, where a lot of growth is going on.

Delbert Zamora: Yeah, and I would add that—Gary, again, thanks for joining us—the employee plan covers all your employees, approximately 1,200 total participants across the board, and about 100 priests are in your priests’ plan, and I would say that the diocese has taken pretty good care of the priests’ plans in particular as far as looking at the benefits from time to time.

Kind of just the general timeframe: in 2006 you guys made an increase, and then in 2012 that’s where you introduced a generous COLA, and then again in 2022 you revisited that and increased the benefits again. So, again, great stewards of the plan. You know, we meet constantly to discuss these aspects, and we just believe the priests are taken care of.

On your comment about the lump sums for the employee plan, again the priests are not provided the lump sum benefit option, but for the employee plan you do have approximately 250 folks that have retired and taken annuities, so they are taking full advantage of all the options in that plan that meet individual goals. Most plans out there that offer lump sums, the vast majority of participants take the lump sum like you indicated, but the paternalistic aspect of your organization has really introduced education to participants to choose the annuity if it is better for their individual goals.

Communication, education key for church pension lump sums

Gary Patton:I agree. And I think that we do a pretty good job of communicating to all of our employees about our pension plans, especially with regards to our new employees. We give out benefit summaries that give a lot of the information to them. We also, at this point, are providing summary plan descriptions that we post on places like ADP, our payroll system, so that they can go out and download them anytime they have any questions. And then we’re always available for questions, as well as they’re able to call you guys directly.

Jake Pringle: Yeah. What kind of feedback do you get from your employees, Gary? Because a lot of plan sponsors I think have struggled with that. You know, they feel like they have a great plan, but until somebody gets close to retirement they maybe don’t seem to care, or all of a sudden they want five or six estimates run the last year before retirement. It’s like, hey, we’ve been providing you this benefit for a long time, we want you to understand and appreciate how it can be a great tool for your retirement. So what are you seeing from your employees from that standpoint?

Gary Patton:Well, from the priests, we really don’t hear anything other than when they get ready to retire and we start working with them to figure out how they’re going to do it. From the employees, the same thing. We don’t get a lot of feedback about the pension plan. I think they know it’s good, it’s stable. The diocese is doing well with the economy here in the North Texas area. So usually what I hear from are people that have problems, and they’ve been very few and far between in the scheme of things.

Delbert Zamora: Yeah. I think more specifically, Gary, the lump sum feature for the employee plan kind of bodes well to what you’re saying about the growth in the North Texas area for recruiting and retaining these employees. Do you promote that feature, in particular the mobility aspect, and are you trying to draw talent from the teaching staff and the school systems and also employees within the individual parishes?

Gary Patton:Of course. In fact, that’s one of the big things that we talk about on the benefits. Without going into the health plans, our health plans are pretty generous as well for our employees. But the pension plan, because it does not require any contribution on the part of the employees, it’s a benefit that they understand is something they get just for working here, by the time that they retire, after they’ve been here five years and then they turn retirement age.

Jake Pringle: Delbert, what are you seeing as the actuary for the plan in terms of participants taking advantage of that lump sum?

Delbert Zamora: Yeah, I mean they have, like I indicated, most plans that offer the lump sum, participants generally take that lump sum, but we’re running probably at about a 50% take rate on the lump sum versus the annuity. Again, just a different style of population here, where they’re identifying the steadiness of an annuity option and choosing that over a single lump sum. So that, again, that just goes to the education that employees are receiving to make good life choices as far as how that fits into their individual needs.

Jake Pringle: Yeah, for sure. A lot of times I think the concern of a plan sponsor is, we’re offering a lump sum and employees are taking it and not using it for retirement purposes, and then all of a sudden it’s going to be 20 years later and they say, well, I don’t have any retirement benefits because I took this lump sum. So education is key, I agree, and hopefully the people that are taking those lump sums are recognizing and understanding that is a big component of their retirement income and rolling it over to their next job or to an IRA.

Delbert Zamora: While we haven’t actually done a survey as to why folks are choosing the annuity, we have to think that there are a number of teachers and educators that go through the diocese that are kind of stacking annuities, right? If they’re teachers in the larger retirement systems in the public side, or with other dioceses or other church entities where they offer pension plans. So their role through the diocese allows them the opportunity to kind of stack annuities and just build for their retirement future.

Adding a COLA to a church pension plan

Jake Pringle: Makes sense. Well, let’s switch to the priests’ plan. I understand there were some funding changes and some benefit increases you’ve kind of touched on. What sort of increases have been implemented over time with that priests’ plan?

Gary Patton:Well, as Delbert suggested before, I’m going to defer that to him, and the reason for it is I have this thing in the back of my head about I don’t discuss specifics about the plans.

Jake Pringle: Sure.

Gary Patton:I’ve been in HR for 38 years, and so that really makes a difference.

Delbert Zamora: Yeah—

Gary Patton:Delbert, do you want to take this?

Delbert Zamora: Yeah. I will say, and I think this is slightly repetitive, but there was a small increase in the 2005-2006 timeframe. Again, that was one of the first chances for the diocese, with me as the actuary, to look at the priests’ plan benefit and decide whether or not that was sufficient under canon law, whether it was sufficient to or appropriate to the priests and also manageable to the diocese. So those two kind of go hand in hand, obviously. So I think we started down this road in the 2005-2006 timeframe, where a small increase in the benefit was made. That held until 2013, when market returns and also kind of aggressive funding by the diocese, both on the priests’ plan and the employee side, just allowed the possibility for us to take a look at the priests’ plan a little bit harder, and again in the 2012-2013 timeframe. And at that point a more generous—like Gary has indicated—a more generous COLA was made, and what was also introduced was a permanent COLA on top of this, the one-time generous COLA that was provided at the time.

And we talked about the permanent feature, right? And once you—pension plan rules—once you introduce a permanent feature, it’s a “there forever” kind of concept. And so, again, we looked at it from the perspective of what’s appropriate to the priests and what’s manageable to the diocese, and we could revisit that at a later time if we deemed it was more appropriate to increase that over time. So kind of the mentality of how the diocese was approaching that benefit kind of expanded in that 2013 timeframe. Fast forward to kind of last year, we looked at the plan again, and again looked at what’s appropriate for priests today, what do they need to live on, on top of everything else being provided by the diocese, and it was decided that another increase could be made to that plan. So we amended the plan last year again with another generous one-time COLA.

Jake Pringle: Any other thoughts on the priests’ plan that we haven’t covered that you guys want to go over?

Gary Patton:Well, one of the things that I wanted to say is that it’s been traditionally my choice as an HR director to be able to have frequent meetings with whoever our administrators are so that we can get the information we need to make good decisions and make those decisions rapidly enough where it will have a positive effect.

Jake Pringle: That’s a great point, because I think there’s obviously resources out there to go through and look at, you know, what are other dioceses paying, what are other pension plans paying, what do we need to offer to be competitive? So, yeah, if you have that at your fingertips with your consultants and they’re keeping tabs on that, I think that’s an important resource to utilize whenever you’re looking at benefits for your employees and your priests.

Using a 403(b) as a church recruitment tool

Jake Pringle: All right. Let’s switch to the 403(b) plan, which is open to your lay employees. How are they using that? Are they using that? Do you think it’s a good tool for retention and recruitment?

Gary Patton:Of course. I believe it is. And the reason is that even though the pension plan is the main benefit that we put out there, so to speak, the 403(b), not everybody is going to have long-term employment plans for working at a diocese. It may be transitional for some, it could be something they’ve thought about for others but they haven’t really committed to five years or more, so it gives them a way to save money themselves. There is not a match here. The money that we allocate is strictly for the pension plans. However, it does give them an opportunity to reduce their taxable income somewhat, and also at the point where they decide to change jobs, if that’s the case, then they can transition that money to a new employer’s plan or to a conduit plan. So it’s just a supplement, but it’s a very positive supplement for those who take advantage of it.

Delbert Zamora: And we’ve seen over the last few years, maybe three, four years, participation in this plan has increased. Have you been promoting that plan up-front when you’re hiring folks? Can you give us a reason why the participation has increased in this plan, or what you think it is?

Gary Patton:Well, I can tell you, once again going back to my history in other organizations, I learned right off that the more you communicate it the more people will get involved with things. And so we do a really good job of communicating what our benefits are, the entire plan. We put benefit brochures together, we have meetings on a regular basis, we have the ability for them to call in and ask us questions, call in and ask the administrator questions. So the more communications that we can get in their hands, it may be an afterthought—oh, wow, I forgot about this, I’ve been here 18 months and I forgot I could get into this. But at open enrollment time, too, we kind of pound the airwaves, so to speak, with reminders about getting into things like the health benefits, of course, and then the 403(b) if they really want to do that as a way to save tax dollars on their income.

Jake Pringle: That’s great. Delbert, any other thoughts on the 403(b) plan?

Delbert Zamora: No. I think the more important thing is the increased participation, which, again, the promotion has kind of taken care of that plan, so that plan’s trajectory is going in a very positive direction.

Staying in touch with other church pension plan sponsors

Jake Pringle: We’ve covered the three plans that you offer, Gary, and so maybe to kind of piece it all together, you know, Delbert and I have been to some conferences. The church plan community seems to be a very tight-knit group. We see a lot of camaraderie there. How do you keep in touch with other dioceses and make sure you’re staying up to date on benefits issues and other HR issues?

Gary Patton:Thank you. It’s a good question. Because of my past, I have traditionally networked and reached out to competitors, and in fact one of the things I’ve always said is that HR is almost like an organization across organizations. And so other HR people, without getting into things that are confidential about the company themselves, are willing to share because we help each other out in a lot of ways. The same is true in the diocese. When I came here I thought, well, you know, does anybody ever reach out to the other dioceses and network with them? So I started doing so, and as a result, in about the first year, the end of the first year I was here, I started something called the Texas Diocese HR Directors Roundtable. And we don’t communicate that much, but once a quarter or so we’ll have Zoom conferences or a conference call, and we’ll talk about specific things that impact all of us and what each of us are doing. And at this point we have seven members of that, including the Diocese of Fort Worth, and that includes Dallas, San Antonio, Austin, Houston, Galveston, Victoria, and Corpus Christi. And I’m hoping to expand that in 2023 and start going up the western side of the state and maybe pick up some others on the east side that we haven’t picked up. It would be nice to have all of the dioceses in Texas a part of this group, because we would get a lot of feedback and information from each other as well as recruiting information about things that are going on at their different dioceses, how they’re growing, how they are retaining people. So all of this is a major plus to be able to do that.

Jake Pringle: That’s great. That sounds very interesting. Delbert, do you have any thoughts on that?

Delbert Zamora: Yeah, that’s an excellent roundtable, Gary. We wish you luck with that. And I think that is important, to kind of talk about HR matters, in particular what we’re talking about here today on the particular pension benefits or retirement benefits. So that is important to all employees, including the priests obviously.

Gary Patton:Absolutely.

Jake Pringle: Any final thoughts that you think we could have covered today, Gary, that we didn’t, that you want to share?

Gary Patton:Well, I just think that our pension plan is really good, especially for this part of Texas, but also for the economy in the Southwest. And we are very fortunate to be where we are geographically, because of the growth here in a lot of different areas, and so that’s helped us to grow as a diocese. We cover 23,400 square miles, and it’s a large, large diocese. And so I see us doing more of the same in the future, and that really depends on the economy of course, but I don’t see that changing that drastically for us where we are right now.

Church benefits adequacy, equity, security—and compliance

Delbert Zamora: Yeah. I would add that our approach to discussing with dioceses has been kind of boiled down into three major buckets, and that is benefit adequacy, equity, and also security. Obviously security takes care of itself by offering the pension plans, those are secure by nature. And then the equity part is very important to attract and retain talent, especially on the employee side. And then we talk probably to a great extent on the priests’ plan, on the adequacy and making sure that the amount of the benefits are taking care of priests longer-term. So, again, I think we hit on all three topics, so that’s great. We can check all those off. Thanks Gary. Anything else to add?

Gary Patton:Yeah. I think though, there’s a fourth thing to that, and it’s always been important for me, especially coming out of the acquisition world—compliance. Without compliance, there’s always that uncertainty. Will we be audited by an outside agency or have a complaint? And so far, so good. We have done a good job of making sure that we are in compliance in all aspects of our plans.

Delbert Zamora: Yeah, that’s a good point.

Jake Pringle: Thank you, Gary for joining me and Delbert today. You can learn more about church retirement plans if you go to milliman.com and search for The Bulletin. You’ve been listening to Critical Point presented by Milliman. If you enjoyed this episode, please rate us five stars on Apple Podcasts or share this episode with your colleagues. We’ll see you next time.