Decision Number 218
Request of the Southwest Texas Annual Conference for a Declaratory Decision As to the Legality of Its Proposed "Tax-Sheltered Annuity Trust Fund"
There is no disciplinary authority for the organization and administration of a "Tax-Sheltered Annuity Trust Fund" by an Annual Conference.
Statement of Facts
The following communication was received by the Secretary of the Judicial Council:
"WHEREAS, the Southwest Texas Annual Conference has this day May 21, 1964, adopted the attached Tax-Sheltered Annuity Program open to its ministerial members; Therefore, Be It Resolved,
"That the Southwest Texas Annual Conference hereby requests a declaratory decision from the Judicial Council as to the legality of this plan under the provisions of Pars. 1604; 1610.1, 4; 1611.1; 1613; and 1630.10 of the 1960 Discipline and other applicable rules and regulations of the Pension Code of The Methodist Church.
"As Secretary of The Southwest Texas Annual Conference, I hereby certify that the above request was adopted by said Conference on May 21, 1964 and is to be found on pages 66 and 142 of the 1964 Journal of said Conference and that the attached statement is true and correct copy of the Report and explanatory materials of the Board of Pensions of said Conference.
/s/ Murray 0. Johnson Secretary Southwest Texas Conference The Methodist Church"
In addition to the above communication certifying the request of the Southwest Texas Annual Conference, the following documents were received from the Secretary of the Southwest Texas Annual Conference:
1. A reprint of pages 138 and 139 of the Southwest Texas Conference Journal for 1964 which is the report of the Board of Pensions as adopted by the Southwest Texas Conference in session on May 21, 1964.
2. A mimeographed copy of "Questions and Answers" about the proposed pension program of the Southwest Texas Conference for 1964-1965.
3. A copy of the Southwest Texas Conference News which includes an article written by the Rev. Leroy Russell, Vice-Chairman of the Board of Pensions, as an explanation of the program.
4. A reprint of pages 63, 64, 65, 66, and 67 which are the daily minutes for the morning sessions of May 21, 1964, of the Southwest Texas Conference of The Methodist Church.
The official Journal of the Southwest Texas Annual Conference of Thursday, May 21, 1964, records the action of that Annual Conference in the adoption of Report No. 1 of its Board of Pensions. Item #3 of that report reads as follows:
"3. That the Annual Conference authorize the establishment of the Tax-Sheltered Annuity Trust Fund by the Board of Pensions of the Southwest Texas Annual Conference, to receive and personally credit funds from ministers, to invest these funds, and to pay annuities to the contributing ministers on their retirement. Participation in this Annuity Program is to be voluntary, and the amount each minister authorizes to be withheld from his salary for deposit with the fund is to be voluntary. Income tax deduction at the time will be allowed on any amount up to 16.66% of the minister's salary, in accordance with the provisions of the Internal Revenue Code. The Board of Pensions recommends that each minister have a minimum of 3% of his salary withheld and remitted to the Trust Fund by the Treasurer of the church or employing institution, for his annuity contract. The annuity payments received by the minister upon his retirement or his widow, shall be based upon the amount accrued in his account from deposits and interest, and shall be determined by standard actuarial tables at the time. The annuity a minister shall receive from this account shall be in addition to the pension paid by the Conference, which is based on his number of service years.
"With the adoption of the Tax-Sheltered Annuity Program the 3% apportionment of each minister's salary for the Conference Claimants Fund shall be discontinued. However, this shall not be construed as changing in any way the indebtedness of any minister for non-payment of this apportionment while it was in effect, or of the interest charged on defaults created prior to its discontinuance." (Emphasis added.)
Following the adoption of the report the Annual Conference Journal of the same date records the adoption of the following resolution:
"WHEREAS, the Southwest Texas Annual Conference has this day, May 21, 1964, adopted the attached Tax-Sheltered Annuity Program open to its ministerial members; Therefore, Be It Resolved, That The Southwest Texas Annual Conference hereby requests a declaratory decision from the Judicial Council as to the legality of this plan under the provisions of Paragraphs 1604, 1610.1, 4, 1611.1, 1613, 1630.10 of the 1964 Discipline and other applicable rules and regulations of the Pension Code of The Methodist Church."
The Judicial Council takes jurisdiction in this case under the provisions of Paragraph 914.8 of the 1964 Discipline.
Analysis and Rationale
From the facts as presented to the Council it appears that the Southwest Texas Annual Conference, by its action in adopting the report of its Board of Pensions as quoted above, proposes to establish for the benefit of individual ministerial members of the Conference a Reserve Pension Fund to be administered by the Conference Board of Pensions to be called a "Tax-Sheltered Annuity Trust Fund." Participation in the Fund would be voluntary, each minister being permitted to contribute 3 per cent or more of his salary. The Conference Board of Pensions is given the responsibility for the profitable investment of the ministerial contributions. A separate account is to be set up for each contributing minister for the purpose of recording the amounts of his contributions plus his proportionate share of the earnings of the Fund. The total of these sums is to be used at the time of the contributing minister's retirement to provide an annuity in addition to the pension regularly provided by the Annual Conference, such annuity to be determined from actuarial tables in effect at the time.
The question submitted to the Judicial Council is: "Does the Southwest TexasAnnual Conference have authority under the provisions of the Discipline to establish and administer such a Fund?"
Paragraph 22 of the 1964 Discipline, which is Division Two, Section VII, Article II of the Constitution, states: "The Annual Conference is the basic bodyin the church ... It shall discharge such duties and exercise such powers as the General Conference under the Constitution may determine."
Paragraph 1610.1 of the 1964 Discipline sets forth the authority of an Annual Conference in the field of ministerial pensions as follows:
"Annual Conferences, hereafter in this chapter called conferences, are authorized to establish and maintain investment funds, preachers aid societies, and organizations and funds of similar character, under such names, plans, rules and regulations as they may determine, the income from which shall be applied to the support of conference claimants. It is recommended that each conference provide a corporation to administer its permanent funds, under some other corporate name than that used by the General Board of Pensions, the directors of which shall be elected, or otherwise designated, by the conference where permissible under the laws of the state of incorporation."
The function of the Annual Conference Board of Pensions is set forth in Paragraph 1611.1 of the Discipline:
"There shall be organized in each Annual Conference a conference board, auxiliary to the General Board of Pensions, to be known as the Conference Board of Pensions ... which shall have charge of the interests and work of providing for the support of its conference claimants, except as otherwise provided for by the general board."
Under "Pension Code," Paragraph 1613 of the Discipline sets forth the responsibility of the General Board of Pensions in relation to the pensioning of ministers in Annual Conferences as follows:
"The administration of the pensions and support of conference claimants within the Annual Conferences situated in the United States, hereafter in this chapter called conferences, shall be the responsibility of the General Board of Pensions, and shall be governed by the rules and regulations contained in the following code, and such amendments thereto as may hereafter be adopted."
Paragraph 1630.10 of the Discipline, also a part of the Pension Code, places a limit upon the authority of an Annual Conference, as follows:
"An Annual Conference may not make any arrangement with a life insurance company for the purchase of annuities for the benefit of individual effective or retired ministers, or take any steps to nullify, in whole or in part, the annuity plan of The Methodist Church by making contracts with outside parties. However, group life insurance may be provided through the medium of a life insurance company."
From the facts as stated, the action of the Southwest Texas Annual Conference now under review, in effect provides for the organizing of an insurance plan under the direction of its Board of Pensions which would receive contributions, make investments and promise at some future date to pay annuities to its policy or contract holders in accordance with generally accepted actuarial tables.
In the disciplinary provisions quoted above, we find no authority for the organization or administration of such an insurance plan on the part of an Annual Conference. Paragraph 1610.1 of the Discipline which has been cited by the proponents of the Plan as containing the authority for its organization, actually authorizes the Annual Conference "to establish and maintain investment funds, preachers aid societies, and organizations and funds of similar character, . . . the income from which shall be applied to the support of conference claimants. It is recommended that each conference provide a corporation to administer its permanent funds . . ." (Emphasis added).
It seems clear to us that this and succeeding paragraphs of this Chapter have to do with the establishment and administration of endowment or permanent funds which are invested for the benefit of all conference claimants of an Annual Conference and do not contemplate nor authorize the establishment of a reserve pension fund by the conference for the benefit of individual subscribers or contributors.
The establishment of a Ministers Reserve Pension Fund and a Partial Reserve Pension Fund as a part of the annuity plan of The Methodist Church is a function of the General Board of Pensions as authorized in Paragraphs 1642-1657 of the 1964 Discipline. Further sustaining this opinion are the provisions of Paragraph 1630.10, quoted above, which denies to the Annual Conference the making of any arrangements with insurance companies or outside parties for the purchase of annuities for the benefit of individual effective or retired ministers. While not specifically stated, the strong implication of this prohibitive provision would make it apply to an act of an Annual Conference by which it establishes itself or its own Board of Pensions as the insuring body.
We are unable to find any provision in the 1964 Discipline which would authorize the organization and administration of a reserve pension fund, such as the Proposed Tax-Sheltered Annuity Trust Fund of the Southwest Texas Annual Conference. We must, therefore, hold that this action of the Annual Conference is without warrant under the present provisions of the Discipline.
The action of the Southwest Texas Annual Conference in setting up a Tax-Sheltered Annuity Trust Fund to be administered by its Board of Pensions for the benefit of individual retired ministers is without warrant under the present provisions of the Discipline.