The Augsburg Fortress story

It’s been awhile since we’ve seen a story get as much reaction as an Associated Press-distributed story (based on a KSTP report) about pensions benefits at Augsburg Fortress Publishers. The original story has been taken off the MPR site, but here’s what it said:

The publishing house of the Evangelical Lutheran Church in America is cutting off retirement benefits for current employees and retirees.

KSTP-TV reports that Augsburg Fortress sent notices to about 500 employees and retirees last week saying it will terminate its retirement plan March 5.

Former employee Karen Walhof told KSTP the letter stated that as of Dec. 31 the company owned members more than $24 million, but only had a third of the money in assets. If the company kept paying out monthly benefits, the plan would run out of money in five years.

Most people in the plan will receive some type of lump sum payment. Minneapolis-based Augsburg Fortress blamed the money problems on fewer book sales, shrinking ELCA congregations and increasing competition on the Internet.

The Associated Press issued a corrected version last night, but it had already circulated. Today, a public relations firm issued a clarification:

1. It was Augsburg Fortress that terminated the program, not ELCA. They are separate entities for this purpose. Augsburg has its own board and made the decision.

2. Benefits were not “cut off” for retirees and current employees. The vast majority in the defined benefit program will receive a lump sum payment in the coming weeks based on their time of service and retirement status. That is not a “cut off.” Also, current employees have participated since 2005 in a defined contribution program similar to a 401(K), with a company match, that is not affected by this move.

3. The company’s theoretical total liability is roughly $24 million, based on estimates of mortality and the time value of money, etc.. It doesn’t “owe” people $24 million due in a defined period of time. They are different concepts and are commonly addressed as such.

4. The causes for the problem cited in your article are accurate, but incomplete. All those factors have been present for some time but were manageable from the point of view of maintaining retirement benefits. The key change was the market decline from 2007-2009. The portfolio fell sharply, as did most organizations’, but AFP had to continue paying out close a quarter million dollars per month from that market bottom, which compromised its ability to capitalize on the market recovery. As the AP story said, if it did nothing we’d have run out of money in five years and some 300 current and former employees not currently collecting benefits would have received nothing.

This press release was also attached from the ELCA News Service:

CHICAGO (ELCA) — Augsburg Fortress, the publishing ministry of the Evangelical Lutheran Church in America (ELCA), announced in a Dec. 31, 2009, letter to participants that it will terminate its defined benefit retirement plan effective March 5. The action, approved by the board of trustees of Augsburg Fortress Dec. 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 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.

“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 Dec. 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.

“This decision breaks our hearts,” the document said. “But, among four bad options, we truly believe this is the best of them. Not good. Just the best of the hard choices facing us.”

Augsburg Fortress is a separately incorporated unit of the ELCA churchwide organization. The company said it sought support from the churchwide organization, but was advised that it “has no obligations or fiduciary duties with respect to the Augsburg Fortress plan.” The publisher’s retirement plan is separate from any ELCA-sponsored retirement plan.

John Rahja, Augsburg Fortress’ chief financial officer, said assets of the defined benefit plan are separate from the company’s assets. “The plan operates independently from Augsburg Fortress. Terminating this plan really doesn’t affect Augsburg Fortress operations and how we run our business day to day,” he told the ELCA News Service.

The company reported to plan participants that it could not cover the retirement plan’s shortfall “because of our own operational challenges resulting from fewer sales to shrinking ELCA congregations, and increasing competition from the Internet and publishers outside of the Lutheran tradition.”

Rahja explained that a defined benefit plan is funded solely by the organization, and benefits are determined by average earnings and length of service. The current 403b defined contribution plan gives employees the option to contribute and the organization the option to match those contributions. Employees also determine how their retirement funds are invested, he said.

  • Beth Wright

    Thanks for mentioning this, Bob. There’s more to this story than the PR firm is saying, though. And why they need to emphasize the fact that the ELCA didn’t terminate the program, when nowhere has there been a claim that it was the ELCA, is a mystery. And another clarification: It’s not just in relation to the pension that Augsburg Fortress and the ELCA are financially separate. Augsburg Fortress is completely financially independent, supported solely by sales of its products. This has always been true, even though the publishing house was established by the ELCA constitution as a publishing “ministry” of the church.

    For more information, see the public Facebook group Augsburg Fortress Pension—Speak Up!

    I’m a former AF employee, by the way, and I’m affected by this decision.

  • Elizabeth

    Bob, thanks for posting this information with regard to the Augsburg Fortress Publishers (AFP) Pension Termination letter dated December 31, 2009.

    I am a former AFP employee and as a participant affected by this termination. While my “Lump-Sum” of the March Pension Pay-out will be small, I am deeply concerned about long time, loyal, currently retired AFP employees who will see their monthly income cut in half as a result of the termination. They have no way of re-capturing their money and some are unable to work due to age or health.

    Wondering why AFP didn’t find/hire a publicist to construct the termination letter? It seems a little late to try to back-peddle itself out of the situation.

    AFP does “owe” $24 million – a figure it was using as the basis for sustaining the plan. Having only $8 was a breech of the bond between the employer and its employees. A bond based on the Christian belief that this Christian organization would stay true to its word. WoW!

  • Jim

    The P.R. firm made a big point of saying that Augsburg has its own board that made the decision. The truth, but not the whole truth. Neglected to note that Board is selected and appointed by the ELCA.

  • Bob M

    What is getting overlooked in this story is the lack of full disclosure of the specific changes made to the plan to “provide a more equitable allocation of plan assets”. Were the original criteria for determining pension eligibility and amount inequitable? Or were the changes made to provide more money for active employees and officers who have been getting equivalent contributions to their defined contribution plans since 2005 and will continue to receive those contributions?

    Is this another case of AFP execs taking care of themselves.

  • Pat

    Funny! They can afford to hire PR firms but they can’t afford to contribute to the pension plan.