News Release -- 2006

BBT takes a stand by adopting new investment guidelines pertaining to pornography and gambling

Dec. 18, 2006, Elgin, Ill.

For many years, Brethren Benefit Trust has taken a corporate stand against four industry sectors that promote products and services that are contrary to Brethren statements and resolutions — defense, alcohol, tobacco, and gambling.

Now BBT is taking a stand against pornography.

At its fall meetings, held Nov. 16-18 in Bridgewater, Va., the Brethren Benefit Trust Board of Trustees voted to strengthen the firm’s socially responsible investing (SRI) strategy by adopting a fifth social screen for its investments, which means BBT will refrain from investing in firms that generate 10 percent or more of their revenues from the production or distribution of pornography.

“The Church of the Brethren has two statements that relate to pornography, with the most recent being approved by the 1985 Annual Conference,” said Nevin Dulabaum, BBT’s director of Communications and interim director of Socially Responsible Investing, following the Board’s meeting. “Since that time, the pornography industry has grown dramatically through the development of the World Wide Web, satellite and cable television, and pay-per-view movies at hotels.”

According to Forbes, the porn industry in 2001 was a $2.6 to $3.7 billion business in the U.S. Moreover, Focus on the Family says the industry is growing. For example, the number of pornographic Web pages jumped from 14 million in 1998 to 260 million in 2003. There are more than 100,000 adult-oriented subscription sites in the United States and about 400,000 sites globally. The U.S. sites are maintained by about 1,000 major firms, with perhaps another 9,000 operating as affiliates of other established online adult firms. Total adult-oriented sites (subscription and non-subscription) number 4.2 million and comprise about 12 percent of the Internet’s total. On a global basis, approximately 70 million different individuals per week view at least one adult site (20 million view sites that appear to be hosted in the U.S. or Canada).

“With the widespread accessibility of pornography, the time was right for BBT to make a statement against this industry,” Dulabaum said.

The Board decided the time was also right to expand its screen on gambling. For years BBT has screened out companies that generate 10 percent or more of their income from the operation of gambling machines. With the Board’s approval in November, BBT now also screens out firms that meet that 10 percent threshold benchmark by manufacturing these devices.

“These new screens on pornography and gambling are logical expansions to BBT’s SRI strategy,” Dulabaum said. “Removing tacit support of these industries by refusing to invest in companies that generate 10 percent or more of their revenues from pornography and gambling is simply the right thing to do.”

As the manager of $400 million in assets from more than 4,000 Brethren Pension Plan members and 200 Brethren Foundation clients, BBT impacts the corporate world through its investments in stocks and bonds.

BBT’s SRI strategy has three components. The first is screening. BBT screens out the top 25 U.S. defense contractors and firms that generate 10 percent or more of their revenues on defense, gambling, tobacco, alcohol, and pornography. The second component calls for BBT to proactively challenge firms in which BBT owns stocks or bonds to improve their business practices, which usually are related to human rights or environmental issues. This action is done through a range of activities, from writing letters and engaging in dialogue with companies to presenting resolutions to company shareholders. BBT’s third SRI prong is its Community Development Investment Fund, an investment choice that helps spur economic development in low-income areas of the U.S. and around the world.

“I appreciate the committee looking at this issue and including these items pertaining to pornography and gambling,” said Dave Gerber, BBT Board member.

Board member Eric Kabler agreed. “This action gives the Church of the Brethren an opportunity to take a stand.”

BBT assessing a change to Brethren Pension Plan annuity rates
An actuarial report given to BBT this fall showed that the Brethren Pension Plan’s Retirement Benefits Fund (RBF) earlier this year dipped into territory it had not seen for many years, if ever — underfunded status. That status, believed to be corrected now with the strong growth of the investment markets in the second half of this year, said Darryl Deardorff, BBT’s chief financial officer, was the result of two factors — poor overall performance by the markets for the past five years and the fact that payments given to Brethren Pension Plan annuitants are based on the actuarial assumption that the RBF can generate eight percent earnings on Part A monies.

For the past four years, the Board has wrestled with how to ensure that the RBF will be able to pay its liabilities decades from now.

In 2003, the Board split funds contributed into the Pension Plan by active and inactive members into two categories due to concerns that BBT would not be able to offer an eight percent annuitization rate in perpetuity. Funds contributed prior to July 1 of that year would be placed in an A account and would receive an eight percent assumption rate when annuitized, although that rate could be changed by the Board at any time. Funds contributed after that date (B account) would receive a six percent assumption rate when annuitized, with the knowledge that the Board would assess that rate annually.

In 2005, the Board took a second step to undergird the RBF by creating a contingency fund to ensure the fund will meet its liabilities long-term.

Despite these two actions, the RBF dipped into underfunded status because investments simply were unable to achieve a sufficient rate of return to match the fund’s annuity rates, said Gail Habecker, Investment Committee chair. She reported that over the past five years, the S&P 500 has averaged 0.5 percent of growth while most balanced funds have averaged slightly above 2.5 percent.

Habecker reported that staff had researched other Church Benefits Association (CBA) members with similar pension plans to see how they have addressed the problem of low market performance, and found few offering a six percent annuity rate and none offering eight percent. In fact, research found that many CBA members have moved to offering a four percent “floor rate” with a supplemental payment contingent upon market performance.

The Board considered a variety of options pertaining to the Brethren Pension Plan’s A and B accounts, but determined a decision could not be made before an up-to-date funding status is reviewed. That study, being conducted by Hewitt and Associates, is expected to be completed in mid-January. The BBT Investment Committee is scheduled to meet shortly thereafter to determine next steps. The Board did approve allowing the Investment Committee to change the Plan A account annuity rate without further action by the full Board, if the Committee deemed such an action to be appropriate following its analysis of the funding status report.

Two new fund options are approved for Brethren Foundation clients
A Domestic Stock Value Fund and a Domestic Stock Growth Fund are two new investment choices Brethren Foundation clients are expected to be offered early in 2007. These two investment styles, along with a growth core style, have comprised BFI’s Domestic Stock Fund for many years, but only the core style has been offered as an additional investment option. In response to some inquiries from BFI members, the Board approved making all three styles individual investment choices.

BBT changes its financial custodian
The Budget and Audit Review Committee reported to the Board that BBT has successfully transferred custodial services of the $400 million in assets BBT manages to Union Bank of California. LaSalle Bank, which had served as BBT’s custodian for several years, ceased providing these services for pension plans mid-year. The Board was made aware that the initial setup occurred with some difficulties, which required extra staff time and the engagement of an outside auditor to work with the financial institutions to ensure there was an accurate reporting of all accounts.

Credit Union to offer new services
The Church of the Brethren Credit Union in 2007 is expected to offer a number of new services, which could include online banking, checking accounts, debit cards, and home equity loans. In an effort to expedite the implementation the new services, the BBT Board voted to provide funds the Credit Union will use to engage an independent consultant to assist in writing internal control policies and to market its new products. The new services are scheduled to be available by midyear.

Guests attend a luncheon sponsored by Brethren Foundation
Fifteen guests representing seven congregations and Bridgewater College joined the Board at a luncheon sponsored by Brethren Foundation, which was held at Bridgewater Church of the Brethren. Steve Mason, the new BFI director, gave background information on the work and mission of BFI; highlighted BFI’s milestone of crossing the $125 million mark of asset management; and expressed BFI’s commitment to partner with clients to serve their long-term financial needs.

In other actions ―

• Karen Crim of Dayton, Ohio, joined the Board for her first meeting; she replaced Steve Mason who resigned in October from the Board to become BFI director.
• The Board approved Janice Bratton to serve another four-year term as Board member. The Board is in the process of calling a person to fill a one-year term in 2007-2008. The names for both positions will be submitted to the 2007 Annual Conference for affirmation.
• The Board approved Donna Forbes Steiner as chair of the Nominating Committee. Gail Habecker was re-elected chair of the Investment Committee and Janice Bratton was re-elected as secretary. The Budget and Audit Review Committee will elect officers in April 2007.
• The BBT Board adopted resolutions allowing retired ministers or ministers who receive a disability benefit and who own or rent their own homes to designate 100 percent of their retirement annuity as housing allowance for calendar year 2007 and in all future years unless readdressed by the Board.
• The Board ratified BBT’s proposed 2007 expense budget of $3,334,725 and a capital budget of $66,550.
• The Board awarded payments totaling $123,567 for the Supplemental Income for Equitable Annuitant program. Members in SIFEA are former lay employees of the General Board who were enrolled in an Equitable retirement plan prior to their inclusion in the Brethren Pension Plan.
• The Board adopted dates and locations for its meetings in 2007 ― April 21-22 in Elgin, Ill.; July 3 in Cleveland, Ohio, during the 2007 Annual Conference; and Nov. 16-17 in a location to be determined.