Unfunded Liability -- Retiree Health

Unfunded Liability Definition -- The amount, at any given time, by which future payment obligations exceed the present value of funds available to pay them. In the Rocky Mountain Conference, we currently have an Unfunded Liability for Retiree Health Benefits. 

The table to the left is a statement of the unfunded liability for retiree health care.  (Clicking on it will make the resolution larger.) The source is the 

Comprehensive Benefit Funding Plan  (and that is linked to the PDF on the RMC Website.)  

This table says we have a current obligation of $8,143,183 with assets on hand of $3,767,431. That translates to a liability of $4,375,752. 

The above table says that at the current cost of sustaining this fund (Line 4 on the Table) plus the number found by dividing the $4,375,752 (the Unfunded Liability on Line 5) by 20 gets us to a 20 year liability liquidation (Line 7 on the Table).  Line 8 is the "annual cost" to make this unfunded liability by 2038.

  

Said another way:  the year 2038 represents the 20 year liquidation strategy with the cost of Wespath (formerly the General Board for Pension and Health Benefits) managing these investments staying constant.

Right now, this annual cost obligation for retiree health care Unfunded Liability is being met by payment into this account from rebates on health care premiums paid by local churches on active clergy.  These rebates occurred in 2012, 2014, and 2016 and in addition, $400,000 or so was transferred from excess collections for active health payments for 2012, 2013 and 2014.

Our responsibilities here were reviewed significantly in 2008 at Annual Conference in Grand Junction.  We significantly altered who was eligible for coverage and the amount of service time required in order to receive the coverage.  The changes in 2008, combined with other Federal changes since 2008 in the area of Health Care, eventually led to a reduction on retiree health obligations from the active budget of over $300,000.
  

At that time, the Chair of the Conference Board of Pension and Health Benefits was the Reverend Dave Lillie.  It was Lillie's position that because we were annually re-approving the retiree liability by virtue of the approval of the retiree health care petition we could change the obligation (liability) by calling the matter to the attention of the RMC and voting changes if the conference desired.

Lillie’s point was that the liability would be understood to be contingent upon continued annual approval. The conference could alter or reduce the liability with a vote after explaining the implications. The last several petitions on Retiree Health Care contained that explicit caveat.  

Please note that the unfunded liability for retiree health because of the use over the last four of (1) over billing on the health premium and (2) the rebate on active health payments, is being met by those churches that have full-time clergy (because they are the ones paying health benefits.)  I intend to cover this issue later as well.  

This particular blog is intended to be an explanation of history and facts regarding this program.  The next blog will deal with my problems with what we are doing.  

Selah, Dennis

This is temporarily the end.  More work to do.  Keep watching on FaceBook or Twitter or post your email (above) and get updates.  

    

The Summary of the Various Blogs

I will post here a quick summary, and a copy of an important chart or table, of each blog in this series.  I hope it will provide a coherent narrative in the various articles.  The "Blog Number" and the "Title" are hot-links and if the summary strikes you as interesting, then you can hop to it by touching it.  

Blog Number 1 -- Getting Started

This piece lays out the "why" I am doing this.  Quite simply, I believe we are not telling the Rocky Mountain Conference of the United Methodist Church what is going on with a significant amount of our resources.  I do not see this as fraud.

Here are three important thoughts from the Getting Started blog:

• My "so that" is "so that the churches in the Rocky Mountain Conference are better informed on financial matters." 
• I believe if that "so that" is accomplished, trust will be enhanced. 
• I quite simply 'conscientiously object' to the way we are currently (June, 2017) sharing information.

Blog Number Two -- Our Mission Again is?  

There are many ways to potentially measure vitality.  But traditional means do focus on least Worship Attendance.  We have lost 10,000 in Average Worship Attendance since 2001.  I frankly consider that an incredible loss given our near total dialogue over that issue over the past four/five years. 

I offer that a primary cause of this decline is the failure to continue to start new local churches.  We did fairly well here into the 1980s but at some point, we slowed and we are now paying the price for this.  

What does this have to do with money?  What is our mission again?  

Blog Number 3 -- Part of the Basis for my Concern

The chart to the left is investments and cash available to the RMC. There are multiple sources for these funds, but the primary issue is how much money we have -- which is nearly $13 Million and how it has grown over the last sixteen years.  

Blog Number 4 -- Health Funding

The chart on Blog 3 is the sum of all of the various elements of investments and cash that are in the possession of the RMC.  This chart is that which is earmarked to Health Funding issues.  Most of this came to be present for this investment by virtue of rebates on health premiums from Wespath in 2012, 2014, and 2016.  Another portion of it was overpayments from local churches for Active Clergy Health Premiums that was paid in 2012 through 2014.  

Blog Number 5 -- Total Income (All Sources) for 2016

The Rocky Mountain Conference income is more than the budget. The budgeted (Connectional Giving) is about $5.4 M from local churches.  However, there is another $10 M that comes in to support our obligations for health, buildings and pension.  

Blog Number 6 -- Undesignated Funds

This is money which does not have an "owner" designated.  The chart to the left shows red (losses) and blue (positive).  The losses are bookkeeping and  reflect what must be made up should the owners of the designated funds ask for their money. In effect, the red represents a loan we have given to ourselves.  

The blue numbers are another matter entirely.  They show resources which have not been designated as having a home.  To the best of my knowledge, this is real money and represents potential funds for investment elsewhere.  When we combine this with resources in a designated account for Conference reserve, we have about $1,500,000 ($1.5M) in cash/investments that are in effect "reserves."   Since 2008, this "account" has gone up right at $2,000,000 ($2.0M).

Blog Number 7 -- Unfunded Liability for Retiree Health Care

We have currently one Unfunded Liability in the area of health and retirement.  The one we have is Retiree Health.

This blog attempts to lay out in clear text what this liability is all about, and some insight into how it came about.

Topics I am working on are:

• Reducing a cost in the budget, doesn't reduce the budget.  
• My problems with the Retiree Health Care Unfunded Liability
• Some Budget Issues as well ... some issues here as well.
• We do have a potential Unfunded Liability in Clergy Retirement.
• Pre-82 Thoughts.
• Anxiety versus Urgency
• Petition versus SROP -- I vote Petition ... 

Two blogs that provide some background but are not yet part of this narrative are:

Understanding my Narrative Objective

Who gets to define what is Anxiety versus Urgency.

  

Undesignated Funds

(What follows is my interpretation (or best guess) augmented by my memory of the events that drove many of these numbers.  I spoke with the former treasurer, Dan O'Neill, at AC2017 and he had no memory of any shortfalls in this account, but he said something like 'if it is in the audit, those are good numbers.' I am sure if we had asked him on some of this at the AC of that year what was going on, he could have offered sparkling insight.  I personally was present on the Council on Finance and Administration from 2007 to 2015 and was present when much of this was discussed or agreed to.)

The above chart shows a sixteen year history of what is shown on the annual audit for the Rocky Mountain Conference as Undesignated Funds. 

I show the years in five year intervals between 2001 and 2016, but then call attention to  2008 and 2010.  

Let's start with the negative and balanced numbers between 2001 and 2009.  

Here is my interpretation:  What we see here is the report to the Conference was how "short" we would have been if on the same day, every owner of a restricted or designated account came in and said "we need our money."  Think the Bailey Savings and Loan from the movie It's a Wonderful Life. 

The negative numbers for 2001 through 2004 merely represents the shortfall that existed on December 31st of those years in the area of designated and restricted money.  Because the conference is operating from a cash basis, this piece of information is more bookkeeping and accounting than nefarious. In the movie, George Bailey had loaned the money to prospective homeowners and small business entrepreneurs.  In the RMC, we had loaned the money to ourselves.  The likelihood of a single day rush on the system to square up the borrowing was low.  In fact, it was borderline impossible.  

You will notice that between 2005 and 2007, we had gotten to a place where on December 31st, we were totally balanced and were not relying on borrowing from ourselves in order to handle the operations of the conference.  I have to think this was a conscious decision to try and do this, but I don't know with certainty.  

The next two negative years of 2008 and 2009 were a function of the new apportionment model and the changes made for 2009 with the pending but not yet finalized sale of our camp at Woodland Park, CO called Templed Hills impacting on our decision making.

Here is my memory: The RMC really struggled financially in 2008. We had embarked on a new apportionment model and our fielding of that program was problematic.  We had bills we needed to pay, people accounts, and the negative numbers for 2008 are very close to the income/expenses differences for the 2008 budget.

Factored into this discussion was a technically driven decision, associated with Templed Hills, by our supporting bank, to suspend our line of credit.  

To summarize, we:  

• Did not have a line of credit in order to make payroll.  
• Were sitting on more designated and restricted money than we would need in a singled day, and perhaps the most important factor in this,
• Had (by late 2008) a very good offer on Templed Hills.  

If readers want to discuss Templed Hills, let me know, but I don't wish to engage in the efficacy of the decision. We were losing a lot of money annually on Templed Hills and we reached a decision in 2007 to sell.  

In order to make payroll in 2008, the first year of the new apportionment model, we had to use designated and restricted funds to support the budget.  Said another way, because we did not have a line of credit, we had to finance ourselves the shortfall of income in relation to expenses.  

I will cover apportionment income to budget expenses in a separate piece later.  

We made changes in the apportionment model for 2009 and also significantly reduced expenses.  You see the impact of that on the Undesignated short fall in 2009.  It went from down about $500K to down less than $200K.  A lot of credit should go here to Wayne Bettendorf (Conference Treasurer) and Bishop Elaine.  Others were factors in this.  

We then completed the sale of Templed Hills and you see that change in Undesignated cash for 2010.  

I have been asked, "where did the Templed Hills money go?"  

Much of the Templed Hills money was used to make up the shortfall we had created by financing the RMC in 2008 (the budget) out of the designated and  restricted accounts.  I am sure some see that as problematic and I agree.  I also saw it as necessary to avoid a crisis. 

Conference Reserve.  That positive number of nearly $300K in 2010 does NOT show the decision out of the Templed Hills moneys (plus income over expenses for 2009 in the budget) to create a conference cash reserve. By definition, now that it had a designation, it was now a designated account.   

The Rocky Mountain Conference went from nearly bankrupt in 2008 to sitting in a very good cash position by the end of 2010.  

This happened because:

• We tweaked the apportionment model to yield more income.
• We reduced budgeted spending considerably (nearly $1,000,000 in 2009). 
• We got out from under the negative cash flow issues of Templed Hills.
• We effectively eliminated the need for a line of credit by creating a Conference reserve. 

While the red numbers from 2001 to 2009 are a function of "accounting", I think the blue numbers are another matter entirely. They show resources which have not been designated as having a home. To the best of my knowledge, this is real money and represents potential funds for investment elsewhere.

It should be noted that because the Conference reserve is now a designated account, we actually have in that account plus undesignated moneys, as of December 31, 2016 right at $1,500,000 in cash available to us to lubricate the financial systems and back stop needs for cash to support unexpected requirements. This is a swing from the end of 2008 to the end of 2016 of right at $2,000,000.       

Selah, Dennis

The next blog is HERE.  

The apportionment is called "Connectional Giving" in the Rocky Mountain Conference.  This new naming occurred early in 2017.  

    

Total Income to the Conference - 2016

The above chart represents all income reported by the Rocky Mountain Conference for 2016.

The total income in all areas is slightly more than $16,000,000 ($16M).  

Only about a third of that $16M is derived from Connectional Giving, or the apportionment receipts.

The other two thirds comes in, generally from local churches, to pay for pensions, health benefits, and property/liability insurance. Some of the money shown under Desig and Restr (that is the designated & restricted) is money from the sale of local churches.

I don't think I need to over explain what health plans, property and liability insurance, and pension plans are.  Those are expenses that are billed directly to the local church.  

A table of the above chart looks like:

I have a fairly simple "big idea" with this chart and corresponding table.  The "budget" of the Rocky Mountain Conference is one thing, but all money passing through the conference is another $10,000,000+.  The income to support our total spending is arguably more like $16,000,000, not $5,500,000.    

Selah, Dennis

Ex cathedra

I annually provide a statistical analysis of the Rocky Mountain Conference. I do this because I have a status (and I will come back to that) as the Statistician to provide the story drawn from what the numbers are trying to tell us.

 

I am performing ex cathedra.  It literally means “from the chair” and it emanates from my “chair” as the Statistician.

 

The ex cathedra function gets a bad rap with Protestants because of our flawed understanding of Catholicism.

 

Too often we think of the pope as “infallible.”  No, it is only when the Pope of Rome functions ex cathedra he is said to be infallible, and that is actually quite rare.  And even in the rare occasion when he does act ex cathedra, we as Protestants flinch at the idea of anyone short of Jesus being understood to be infallible.  Let’s be clear, I am married and my kids were once teenagers, I am under no illusion of infallibility.  And if my family doesn’t keep me humble here, my local church for sure will.

 

But might I in humility, rather than hubris, offer that while I am the Statistician, and thus expected to speak ex cathedra about numbers, offer:  I don’t see my mission in numerical terms.  I see my role as trying to draw from numbers, narrative.  I am a (not the) narrative guy.

 

I run into people who say “well Dennis, you are the numbers guy” and while technically true, I will often offer a different proposition of my self awareness:  I am Dennis, narrative guy.

 

My task is to try and help us tell our story in this place in the Rockies about what is going on with this unique group o people called Methodists.

 

I confess this makes for cognitive dissonance when I talk to colleagues, mainly because it is so counter cultural to how they see my role.

 

When I am talking about the reliability of numbers and how robust they might be in technical terminology, I am operating where many, if not most, are prepared to see as the seat of my authority, numbers.  But when I venture out into the tableau of narrative, then my linkage to my chair is tenuous, ambiguous, and sketchy.  When I am operating here, I must endorse a different self with true and honest humility.  I can when speaking about numbers, exercise a certain amount of hubris in my role.  A certain amount, not a lot:  too much hubris is usually not a good thing.  But when I venture into narrative, I must move in honest humility.  I think I see a story, but what if I am wrong, and for sure, I am not infallible, right?

 

Is this meaningless navel gazing?  I think not.  It is not meaningless in that I truly want my colleagues to understand how I self identify here, how I approach my task.  But know this:  I invite others to join us, to be co-tellers of the narrative of the Rocky Mountain Conference, and perhaps eventually, the Mountain Sky Area.

It is my fervent belief that we have a narrative to be drawn from our financial numbers.  We want to tell a story but I offer in humility that story has been lost in required reports, overly precise words and an over reliance on the Book of Discipline for our economic first principles.

    

I am going to try and operate much more over the next several years from the seat, chair, of my responsibility, but know this:  I also see that responsibility in terms of weaving the compelling narrative of what God has done, is doing, and will continue to do with those people called Methodists in the Rocky Mountain Conference.

 

Selah, Dennis

My real issue ....

The previous chart on the last blog showed all cash and investments and their value over time.

This chart shows the primary contributor to that increase in the value of our cash and investments:  Health Plan Funding.

We have gone over the last sixteen years from a little under $42,000 in this account to over $4,300,000.  That is a change of 10,000+ percent.  

The vast majority of this money is targeted against our unfunded liability in the area of retiree health.  According to the report by the Conference Council of Pensions and Health Benefits (CP&HB) our obligation in this area given our current policy and population is a little under $10,000,000 (report here, page 3).  Given our current policy, last discussed extensively in 2008, we have an unfunded liability here of at least $4.4M and probably more like $5.6M (my conclusions from reading the provided report.)  

Those are very real numbers, and the type of numbers that cause accountants to flinch.  Justifiably.  

But my issue is not the realness of the unfunded liability, which I will discuss at a different time, my issue is the growth in this account.  How did it happen?  

Real money invested right now is making some real returns on that investment.  As I type this, the Dow Jones Index is over 20,000.  

Where did the real money come from that was invested?  

Two primary means, and both of them start at the local church.  

• First, the collections in 2012-2013 for active health insurance in the conference yielded $400,000+ income above expenses, and that overage was invested in retiree health.  
• Second, rebates were sent back to the conference by the national church in 2012, 2014, and 2016.  All of these rebates, with money that started off at the local church, was, consistent with the Book of Discipline authority.  I do not know the precise number of these rebates but I suspect they are over $2M.  

A third possible point that is in theory an option, is not forecast ed to happen in 2018 but our Comprehensive Protection Plan (CPP) obligation to the national church is zero.  This is sometimes called a "holiday."  But CPP will be billed and that billing will be used for other (and right now, non-retiree) unfunded liabilities.  (Read the report linked above). 

My advocacy for several years on this has included the concept of "sharing" of this bounty with the source, i.e. the local church, and if not, at least explicitly share the information with the local churches why this strategy of lowering unfunded liabilities is beneficial in the long term.

The information is available that this is going on if we look at and read the reports.  The information has not been shared in any kind of targeted, intentional, explicit, manner so that congregational buy-in is acquired.

Selah, Dennis Shaw

The next blog is HERE.  

The Chart That Causes Me Concern ....

If you were to take out the last fifteen journals of the Rocky Mountain Conference and the unpublished auditors report for 2016, which will be in the next Journal, you too could create the following chart.

This is the cash and investment position of the conference over the last sixteen years.  

It shows in this non-budget area of accumulated cash and our other investments, we have increased our value by over 700%.  I show how much in 2001 ($1,559,396) and two of the last three years.  

I will attempt to unpack these numbers in future blogs.  

For those who have a lot of history with the conference, please know that this does not include how we are doing in terms of obligations for those retirees who had service before 1982.  That is a separate pile of money.   

For the next several entries on this blog, I intend to try and take a little of this apart.  I will endeavor to be as fair as I possibly can in why this money exists.  I really do understand the why, and I hope to share that with you as we move through this, but my concern is that during a period of significant performance decline in key missional metrics, we have accumulated significant capital.  

At least one person on Saturday at Annual Conference asked me "and that is bad?"  Let's see in five or six blogs how I do on this, but no, it isn't bad in and of itself.  What is bad is the lack of transparency in how this occurred.  

What is our mission again?  

If our role were the accumulation of capital through wise financial planning I would say we are doing quite well, quite well indeed.  

Read on please.  

Selah, Dennis Shaw  

The next blog is HERE.  

Our Mission Again is .... ?

Before I get to money, I want to focus briefly on what our mission is after all ...

I am mindful that there are many ways to measure how we are doing on our prime directive of making disciples.  If we truly believe that making disciples is best done at the local church, and we do indeed offer that right after we speak to the idea of transformation in our Book of Discipline, I posit that Average Worship Attendance is a very good metric to determine how we are doing in terms of our prime directive.  I am open to other metrics, but this is a good one, if not the best (or only) one.  

I call this chart A Complex Look at Attendance because of Ralph Waldo Emerson, Senior comments about simplicity being of value ONLY after it has been filtered through the lens of complexity.  I see this chart as simultaneously complex but also simple.  

Our attendance from 1976 to 2001 was a relatively flat.  We were in 36,000 range for those twenty-five years.  

But that was a function in part of decline in the churches founded before 1974 offset by increases in those who moved, merged, or were chartered in 1974 or later.  

Our decline over the last fifteen years has been by and large a function of (1) continued decline in the older churches and (2) a lack of new church starts, good strategic mergers, and moves over the last twenty-five years.  

Here is the point:  attendance is down by 10,000+ since 2001.  

Hold that thought -- in one of the most critical metrics of how we measure our effectiveness, we are down by right at 30% over the last fifteen years.  I do not wish to sound here like a "Chicken Little" screaming that the sky is falling.  I do believe that the focus of our accumulated "treasure" should be directed towards a better focus on our prime directive -- making disciples for Jesus Christ at the local church for the transformation of the world.  

I confess that one person's need for urgency can be construed by someone else as anxiety.  I don't know how to solve that, but I am not trying to inject anxiety into the system.  I expect that anxiety makes a system that doesn't always work well in the first place, work even less well.  But I do hope we can raise the temperature on what is the most important task we have in front of us:  transformative disciple making.  

I hope you keep reading.  

Selah, Dennis Shaw   

The next blog is HERE 

Getting Started

I am initiating this blog in order to share with laity and clergy in the Rocky Mountain Conference (RMC) of the United Methodist Church (UMC) thoughts on financial transparency.  My "so that" is "so that the churches in the Rocky Mountain Conference are better informed on financial matters."  

I believe if that "so that" is accomplished, trust will be enhanced.  

I quite simply conscientiously object to the way we are currently (June, 2017) sharing information. 

I do not believe we are working with a strategic goal of informing the local churches what is going on financially, with a particular emphasis to those matters that are "off budget." 

Our conference budget is supported by what the RMC calls Connectional Giving. This giving is across the connection called "the apportionment" and is the means by which the regional church, the conference, and the national and international church is funded.

This coming year, 2018, a small portion of that budget within the RMC will be met with money from other sources than the local church in 2018.  It is "safe" to say that the vast majority of the 2018 budget will come from sharing by the local churches of the conference, i.e. all but about $50,000 or so or less than 1%. 

I expect over time, I will engage in some excursions on the budget.  That said, most of my quest for clarity is with resources found in our cash and investments.  Most of these resources are associated with pensions, health benefits, and property.  

My issues here are not ones of fraud or waste.  I will reserve judgment temporarily on the potential for abuse.  I expect to come back to that element of potential abuse some day, but not in this piece. 

I do not remotely suggest the issues are fraud. There is information, if at times challenging to get to and often deeply buried inside of reports or footnotes, to address much of my frustrations if one knows where to look and what to ask.  

I see the issue first as a distinct lack of transparency. I simply believe that the people, represented through the local church, who in much of this actually share their hard earned treasure deserve more clarity about money.  

Here is a dilemma.  One person's transparency is to another, too much information. I will do all in my power to avoid too much information, and try to focus on the narrative behind the numbers.  

The second issue is one of principles.  My view is that the sources of money should be appraised of rebates or under spending.  It is my principle for example, that if the original source of money is the local church, the local church should be told with great intentionality what happens with a rebate or budgetary under-spending.  

If that last paragraph is right now not clear, I hope over time, it will.  I invite you to come back to this periodically and reread as I develop more material for this intentional sharing.  

That is a good place to stop for this post.  

There is no fraud or waste going on here.  I cannot emphasize that strongly enough. 

Selah, Dennis Shaw

The next blog is HERE