South Pacific Division changes retirement plan

In keeping with Ellen White's counsel concerning the importance of caring for those who had "borne the heat of the battle" and needed support in their sunset years, denominational employers in the South Pacific Division have taken seriously their duty to care for retired workers. Conferences in Australia and New Zealand have systematically contributed to division-organized "sustentation"¹ (retirement benefit plan) since it was first introduced at the 1910 Annual Council.

The objective of the plan was to provide an income to retired ministers and other denominational workers. According to South Pacific Division policy, a person with 40 years of service would receive approximately 70 percent of the base salary (100 percent) earned at the time of retirement. In more recent years, sustentation paid to beneficiaries has complemented a pension² paid by the government to retirees from tax revenues. (The pension is a variable benefit because it was "means tested"³). The complimentary arrangement has meant that the call on church resources has been significantly reduced with sustentation fund paying only between 46 and 56 percent of base salary to a worker with 40 years of service.

Policies that have guided the operation of the plan have generally followed those of the public service or other similar organizations except that the fund has been viewed as non-contributory "gratuitous" benefit. There was no individual "entitlement." Church administrators through the years have had to manage the arrangements closely with frequent refinements and contribution levels being increased in order to ensure that income to the funds matched the outflow. Policies have also had to be amended from time to time as government legislation has changed with respect to pension and tax arrangements.

A radical change

A rather radical change to the South Pacific Division retirement benefit plan was mandated by industrial legislation in 1986. In that year the federal government approved a 3 percent salary increase to all employees. It decreed, however, that rather than the increase being paid directly to workers through their pay packets, the amount should be paid into a superannuation⁴ fund on behalf of the employee as an "entitlement" to be claimable upon the employee's retirement sometime after the age of 55. Payments could be made into an existing superannuation fund, or employee groups could set up their own superannuation funds. The South Pacific Division decided to establish its own fund for this purpose and in November 1987 incorporated the Australian Conference Association Superannuation Trust (ACAST). The 3 per cent salary increase was paid into this fund in the employee's name. Individual workers could contribute additional payments (tax-free) to their ACAST account if they chose. Contributions continued to be made by the employer organizations to the denominational sustentation scheme without any reduction.

Since 1988, employer contributions to ACAST have gradually increased from the initial three percent to six percent in 1997, and contributions to the sustentation scheme have been maintained. Upon retirement at 65 an individual's retirement benefits payments would be comprised of a combination of ACAST payments, sustentation, and for most workers, the government pension.

During the early 1990s, however, it became clear that the changing age profile of the church's workforce and the longer life span enjoyed by retirees had the potential to stress seriously the denomination's finances. Further, there was a growing dissatisfaction with the sustentation scheme due to loss of benefits if a person left denominational employment.

Because of Australian government projections that mandated superannuation contributions would rise to 9 percent or more in coming years, in 1996 the division set up a task force to explore the possibilities of moving to a fully funded superannuation fund scheme using ACAST and phasing out the sustentation scheme altogether. Funding both would be impossible. Initial calculations indicated that for many workers with long years of service, existing sustentation benefits would need to be "preserved" until retirement when they would then be drawn upon. For others with fewer years of service a lump sum payment into the ACAST system would be better. Where to draw the lines, however, and how to decide the amounts of payout that might be possible needed to be established. This was a difficulty. Changes impacting on workers' retirement arrangements tend to cause considerable anxiety and apprehension. To alleviate anxieties, the division task force working on the project decided to embark on a program of consultation with all employees.

A document outlining the proposed changes provided sample scale projections and examples of payments that would ap ply for a number of categories of workers. This was circulated to every church worker in April 1997. Representatives from the di vision treasury followed this up in May with meetings with groups of ministers and teachers in each conference and in each institution around the division. Changes were explained and feedback obtained on the proposal. Initially it was planned that the proposed changes be implemented July 1, 1997. Some groups of workers, however, felt that not enough time had been given to the process of consultation and re quested that the implementation of changes be delayed for six months in order to allow them time to make formal submissions to the task force. For example, staff members at Avondale College serving on the institution's staff advisory committee on terms and conditions of employment studied the proposal closely and suggested adjustments to the proposal at several points where the proposed changes seemed to be less equitable or desirable. The division task force considered these submissions and in October brought out a revised proposal which was again circulated to all employees. The proposal was voted through the division committee in November 1997 and became operative January 1,1998.

The new system

The new system involves lump-sum transfers into the ACAST fund of various amounts for those with service less than 20 years, "preserved" sustentation benefits for those with longer periods of service, and, commencing January 1, 1998, a nine per cent payment into ACAST for all employees. (Different arrangements apply for some Medical and Health Food Company employees.) This ACAST entitlement is "portable" and can follow the employee as careers may change.

Since January 1990, where both a husband and wife have been employed in the church, it has been possible for the couple at the point of retirement to choose to receive either a single rate of benefit for each or a married rate with a survivor benefit attached. In practice, because years of service for one of the spouses tended to be shorter than the other's, most couples tended to opt for the married rate in order to benefit from their spouse's longer years of service. The single track option was better for couples with approximately equal lengths of service. Under the new arrangements, for those whose sustentation is "preserved," the choice is still available. Orchestrating the changeover in systems has been an enormous task, according to Owen Mason, associate treasurer of the South Pacific Division. Consulting with each worker to establish that service records were accurate has been important but very time-consuming. Yet while the new arrangements have produced some short-term stresses, it is much better for the long term, he stated.

ACAST is managed by a group of trustees comprising four employer representatives nominated by the division and four church employee representatives. (Carefully selected professional fund management companies manage the actual investment of funds.) Employee representative trustees of the fund are elected every three years by postal ballot of all those who are beneficiaries of the trust. The trustee group must be gender inclusive and include representatives from the pastoral ministry, teaching ministry, and from the institutions.

Reports are issued annually to beneficiaries on the status of their individual accounts. A more general annual report is also published on the overall performance (investment and otherwise) of the trust fund.

Recently workers were offered new growth strategies for the investment of their retirement funds. Investors could choose a portfolio approach which included a 70/30 percent split between investment in fixed interest deposits and property and generally higher yielding stocks and shares, a 50/50 percent split, or a 30/70 percent split. Ad vice was offered on projections of the various portfolios and on which portfolio would be most suited to the various age groups. Over recent years, returns on ACAST investments have been significantly above the average for similar Superannuation Funds.

According to Chris Akroyd, the employee representative ACAST trustee, the introduction of the ACAST superannuation scheme in place of sustentation has met with widespread support from church employees. "It has solved the major problems with sustentation" and the consultation process has "helped smooth the way for a modern and fair retirement income scheme of which the church can be proud," he said.