1. Why does the Pension Boards recommend that churches contribute 14% of salary to their ministers’ Annuity Plan accounts?

General Synod XIII passed a resolution that states, in part, “The Thirteenth General Synod of the United Church of Christ adopts 14% effective immediately as the recommended level at which dues contribution payments from churches or other United Church of Christ employers should be made to the Pension Boards for retirement benefits of the employees.”

After a 30- to 35-year career, 14% annual pension contributions are expected to result in an income replacement ratio in retirement that is equal to approximately 80% of the minister’s salary immediately prior to retirement. In other words, 14% contributed annually over a 30- to 35-year career is intended to result in sufficient pension income to maintain a reasonable standard of living in retirement.

2. Why is an income replacement ratio important?

A basic rule of thumb is that to maintain their standard of living in retirement, annuitants will need an 80% replacement ratio.  It is important to note that there are many factors that can increase or decrease this percentage for an individual or household, including age at retirement, spending patterns, mortgage payments, health care coverage, etc. 

3. The 80% replacement ratio is based on a 30- to 35-year career, but this is not the norm anymore. Why would the plan be built on that assumption?

Although this may no longer be the norm for many ministers, the goal of providing reasonable retirement income does not change.  Presumably, a person who works a shorter career in one field or position would have worked other years in another setting where retirement savings were also accrued.   It is normally expected that an individual work 30-35 years before being able to afford retirement.  Planning and saving is the most important way to ensure a financially secure retirement after a full working career.

4. Contributions in the private sector are normally less than 14%. Shouldn’t we follow that lead?

The primary motivation for the reduction in private sector employer pension contributions over the years has been to reduce the cost to the employer. Generally speaking, employers are interested in providing some type of retirement benefit in order to attract and retain employees, but may not be concerned with helping them achieve a target replacement ratio.  In the end, the reduced contribution by the employer simply means that the employee needs to shoulder more of the burden for saving for retirement.