Augsburg Fortress announces plan to buy out pensions
Augsburg Fortress, the publishing ministry of the Evangelical Lutheran Church in America (ELCA), announced in a December 31, 2009, letter to participants that it will terminate its defined benefit retirement plan effective March 5, 2010. The action, approved by the board of trustees of Augsburg Fortress December 18, affects 500 plan participants.
Not affected by the decision is the company’s current retirement plan — a defined contribution plan — in which Augsburg Fortress’ current employees can participate. That plan is a 403b plan “common for non-profit organizations,” according to information from the publisher. Approximately 150 current AFP employees are enrolled in this plan.
Most participants in the defined benefit plan will receive a lump sum payment, said Beth A. Lewis, president and chief executive officer, Augsburg Fortress, Minneapolis. The trustees amended the plan to provide for a “more equitable allocation of plan assets among plan participants,” she wrote in the letter to plan participants. Without the amendment, more than half of the plan participants would have received nothing at all, Lewis wrote.
The costly defined benefit plan “has been underfunded for about nine years,” Augsburg Fortress CEO Beth Lewis said.
“We wanted to make certain that we had the most equitable distribution of assets possible,” she said in an interview with the ELCA News Service. “If we had done nothing, the plan would have run out of money in approximately five years and left about 60 percent of those in the plan with no retirement benefits. We didn’t think that was equitable or fair.”
In 2005 the Augsburg Fortress board of trustees took action to freeze the defined benefit plan, and began offering its 403b plan to its employees. The costly defined benefit plan “has been underfunded for about nine years,” Lewis said.
She explained that the defined benefit plan appeared to have enough funding to provide payments to plan participants for many years, but all of that changed when financial markets turned downward in 2008 and early 2009.
As of December 31, 2009, the plan’s retirement benefit obligations totaled about $24.2 million, the company said in a series of questions and answers sent to plan participants. The plan’s assets were only $8.6 million.
The company said other options to fund the shortfall were considered, such as trying to find sources of external funding, declaring bankruptcy and selling company assets, or doing nothing. In the end, the board chose to terminate the plan and amend it to spread assets more equitably.