Clergy Financial Seminar Manuel Vargas, Wespath Benefits and Investments

1. Clergy Financial Seminar Manuel Vargas, Wespath Benefits and Investments Fort Lauderdale, FL September 12, 2019

2. Wespath Benefits and Investments • Not-for-profit organization • Approximately $23 billion in assets under management • 100,000 participants • Wespath maintains the largest reporting faith-based pension fund in the world Caring for those who serve by providing investment and benefit services that honor the mission and principles of The United Methodist Church.

3. Overview • Retirement Provisions • Wespath Retirement Plans • Investing with Wespath • Housing Allowance Exclusion • Comprehensive Protection Plan (CPP) • EY Financial Planning • Wespath Participant Services

4. Provisions for Retirement—Book of Discipline ¶357 • Normal Retirement:Age 65 or 40 years of service • Early Retirement:Age 62 or 30 years of service • Mandatory Retirement: Age 72 • 20-year retirement

5. §415 Compensation Plus Housing Benefits—Plan Compensation Example:

6. Denominational Average Compensation (DAC) Average plan compensation of clergy serving full-time appointments 2018: $70,202 2019: $71,361 2020: $72,648

7. Wespath Retirement Plans CRSP 2014+ CRSP UMPIP 2007-2013 CRSP 1982-2006Ministerial Pension Plan (MPP) Pre-82 Plan(Minister’s Reserve Pension Fund)

8. Clergy Retirement Security Program (CRSP) + Monthly benefit Account balance Defined Benefit(DB) Defined Contribution(DC)

9. CRSP DB: Service from 2007 – 2013 • Monthly payment, payable for life, calculated by multiplying the following and then dividing by 12: • 1.25% • DAC at time of retirement • Years of credited service from January 1, 2007 until December 31, 2013(7 years if full-time) Example for2019 Retirement $71,361 (2019 DAC) x .0125 x 7 years = $6,244 ÷ 12 = $520 per month

10. CRSP DB: Service 2014 – June 30, 2019 • Monthly payment, payable for life, calculated by multiplying the following and then dividing by 12: • 1.00% • DAC at time of retirement • Years of credited service from January 1, 2014 until June 30, 2019 Example for2019 Retirement $71,361 (2019 DAC) x .01 x 5.5 years = $3,925 ÷ 12 = $327 per month

11. CRSP DB: Service 2007 to 2019 2019 Retirement Total benefit: $520 + $327 = $847 per month • Surviving spouse benefit available • Choice of cost-of-living adjustment (COLA) • Reduction for early retirement

12. CRSP DB: Age 63 Early Retirement 2019 Early Retirement Total benefit: $745 per month $847Full amount for 2019 -$102 12% reduced; reduction of 6% per year =$745Per month In this example the clergyperson does not meet the 40-years-of-service rules

13. Matching Contributions Participant before-tax, Roth and/or after-tax contributions 1%Match With 1% UMPIP contribution 2%Non-Match CRSP DC UMPIP

14. CRSP DC • Account balance invested as directed by the participant • Available as cash distributions • Full lump sum distribution • Partial lump sum distribution • Cash installments: • Self-Managed Retirement Income, or • LifeStage Retirement Income • Remaining balance paid to beneficiaries upon participant’s death • Can leave on account until age 70½

15. Wespath Retirement Plans CRSP 2014+ CRSP UMPIP 2007-2013 CRSP 1982-2006Ministerial Pension Plan (MPP) Pre-82 Plan(Minister’s Reserve Pension Fund)

16. Ministerial Pension Plan: 1982– 2006 • MPP provides a lifetime benefit upon retirementand a cash account balance • Account balance invested using LifeStage Investment Management • MPP account balance (including accumulated earnings) remains separate from other plan balances and benefits until distributed in retirement

17. Ministerial Pension Plan Account Balance • As a cash distribution • Other options Life Annuity • Six-life annuities • Percentage increase

18. MPP Election Options • Annuity is based on 65% of MPP balance—no more, no less • Remaining 35% of balance may be: • Rolled over to UMPIP or other retirement plan • From UMPIP, taken as: • Partial lump sum • Self-Managed Retirement Income • LifeStage Retirement Income • Taken as full cash distribution

19. Retirement Options:MPP Life Annuity Options 6 Life annuity types % COLA Annual increase

20. What Is an Annuity? A series of payments Life annuity—benefit payments that last through the participant’s lifetime (or two lives, if joint annuity elected)

21. Life Annuity Factors • Participant’s age • Contingent annuitant’s age (typically surviving spouse) • 65% of account balance • Type of annuity selected • Percent of annual increase selected(i.e., 0%*, 2%*, 3%*, 4%* or 5%*) • Mortality table (life expectancy) • Wespath annuity payout rate (wespath.org/retirement/mpp) * CRSP DB does not offer a 0% COLA

22. MPP and CRSP DB Distribution Options: Life and Survivor Annuities Example:

23. MPP and CRSP DB Distribution Options: Life Annuities Example:

24. 0% 2% 3% 4% 5% MPP and CRSP DB Annuity: COLA Options* $4,800 $4,200 $3,600 $3,000 $2,400 $1,800 $1,200 $600 $0 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 * CRSP DB does not offer a 0% COLA

25. Historical Annual U.S. Inflation Rates 8.7% 4.0% 2.8% 2.2% 1.9% -3.3% Past 198 Years Past 100 Years Past 50 Years Past 25 Years Highest 10 Years Lowest 10 Years Sources: 1821-1913 Global Financial Data; 1914-2018 U.S. Bureau of Labor Statistics; Consumer Price Index for All Urban Consumers: All Items (CPIAUCNS), retrieved from FRED, Federal Reserve Bank of St. Louis

26. Retirement Considerations:MPP • Can leave on account until age 70½ • Annuity options • 0, 70%, 85%, 100% survivor • 0, 2%, 3%, 4% or 5% annual increases • Single Life • Use of 35% of account balance

27. Wespath Retirement Plans CRSP 2014+ CRSP UMPIP 2007-2013 CRSP 1982-2006Ministerial Pension Plan (MPP) Pre-82 Plan(Minister’s Reserve Pension Fund)

28. CRSP Supplement One: Pre-82 Plan Pre-82 Formula Benefit

29. Pre-82 Benefit • Lifetime monthly benefit payment • Benefit is based on: • Pre-82 Years of Service x Past Service Rate • Example: • 10 years x $586 = $5,860 annual benefit / 12 = $488 monthly benefit

30. Pre-82 Formula Benefit Actuarial Reduction for Early Retirement: ½% per month or portion of a month that retirement begins in advance of Normal Retirement • Example: • Age 61 with 37 years of service • 3 years from normal retirement • ½% per month for 3 years = 18% reduction

31. Pre-82: Benefit Paid for Life Single Participant • Single-life, no refund • Benefit ceases upon participant’s death Married Participant •Life and 70% to surviving spouse—set by annual conference • Spouse during episcopal appointment, at time of retirement and when beginning benefits

32. Wespath Retirement Plans CRSP 2014+ CRSP UMPIP 2007-2013 CRSP 1982-2006Ministerial Pension Plan (MPP) Pre-82 Plan(Minister’s Reserve Pension Fund)

33. What Is UMPIP? • Personal retirement savings plan • Accepts contributions from: • Plan sponsor/employer • Participant • Participant decides amount of personal contributions • Participant directs investments • “Self-manage” • LifeStage Investment Management

34. Participant Contributions Roth Before-tax Rollovers After-tax

35. Participant Contributions Roth Before-Tax After-Tax* * This option is available only in UMPIP

36. Roth Contributions and Earnings Tax-free if: • First Roth contribution was made at least 5 years*prior to withdrawal • Participant is 59½ or older,permanently disabledor deceased • * Unless a rolled over Roth 403b or 401k is a part of your UMPIP. Also, any Roth balances may be takenlast (securing the 5-year qualification) to avoid tax consequences.

37. Rollovers—Direct or Indirect • Accepted from IRS-Qualified Accounts—such as: • 401(k) Plans • 403(b) Plans • 457(b) Governmental Plans • Traditional IRA* UMPIP • * Roth IRAs and after-tax contributions in IRAs cannot be rolled over Submit Incoming Rollover form

38. 2019 Contribution Limits Before-tax and Roth combined • $19,000 for 2019 • Additional $6,000 for age 50+ catch-up • Total $25,000 • Total annual employee and employer contributions limited to lesser of $56,000 or 100% of compensation • Future year limits subject to indexingfor inflation

39. Electing Your Contributions Contribution Election form—before-tax, Roth and after-tax contributions • Percentage or dollar amount • Increase or decrease at any time • Remit form to employer

40. UMPIP Access • In-service withdrawals at 59 ½ • Hardship loans • Hardship withdrawals • Disability • Separation • Retirement

41. In-Service Account Access

42. Distribution Options for Retired and Separated Participants • Leave on account until RMD* • Distribution choices • Full lump sum • Partial lump sum • Cash installments • Self-Managed Retirement Income • LifeStage Retirement Income • At death remaining balance to beneficiaries • * RMD: Required Minimum Distributions

43. Required Minimum Distributions • Beginning by no later than April 1stof the following year after the participant turns age 70½* • Applies to defined contribution accounts (UMPIP, CRSP and MPP 35%) • Subsequent RMDs each calendar year using prior-year December 31 balances • MPP, CRSP DB and Pre-82 benefits must also begin at this time • See IRS Publication 590 for details * Or retirement, if later (e.g., age 72)