Economic and Societal Impacts of Fraternal Benefit Societies

Economic and Societal Impacts of Fraternal Benefit Societies Phillip L. Swagel McDonough School of Business Georgetown University September 20, 2010 - 2 - Executive Summary With federal and state governments facing severe budget deficits as far as the eye can see, budget decision-makers are looking carefully for ways to curb spending and raise revenue. In making these difficult decisions, policymakers must balance fiscal concerns against the important returns to American families and the U.S. economy from public investments. Substantial economic and social returns are delivered from government investment in the fraternal benefit society model. These not-for-profit mutual aid organizations, created more than a century ago to serve the financial and social needs of communities around the nation, yield some $3.4 billion in annual returns to the country. This return on investment occurs through the direct impact of fraternal benefit organizations’ charitable and volunteer activities, and through the value of the indirect positive impacts they make by building social capital that strengthens local communities around the country. Compared to the national investment of $50 million or so annually in all the nation’s 70 fraternal benefit societies combined, the U.S. government sees a benefit of $3.4 billion each year – a 68-fold annual return on its investment in the fraternal benefit system. To generate this conclusion, this study focuses on the largest U.S. fraternal benefit societies, the Knights of Columbus and Thrivent Financial for Lutherans with 1.3 million and 2.6 million nationwide members, respectively. - 3 - 1 Like other fraternal benefit societies, the Knights and Thrivent are organized around a “common bond.” The two societies operate as social and charitable organizations whose missions are to provide financial security for their members as well as help their members give back to society through charitable giving and volunteerism. Fraternal benefit organizations such as the Knights and Thrivent operate through community-based member networks, making them uniquely positioned to identify and effectively respond to pressing local needs. Fraternal benefit societies are perhaps a lesser-known, but highly effective private sector economic and social support system. Fraternal benefit organizations contribute to society in a wide range of ways, from acting as a first-response network in the face of natural disasters to providing the largest non-governmental source of funding for Habitat for Humanity; and, from assisting families struggling with medical bills to improving financial literacy at the local level. As the fraternal benefit system could not be easily replicated by government entities, support for the successful fraternal benefit society model is all the more important today – and the significant contributions it yields by strengthening communities across the United States – is all the more important in light of today’s fragile economy. As the analysis which follows demonstrates, it is also worth noting that: • Thrivent Financial for Lutherans and the Knights of Columbus alone generate $1.8 billion in direct value of volunteering and charitable contributions (including nearly 70 million in volunteer hours) and $1.6 billion in indirect value of improved social 2 - 4 - capital brought about through the activities of fraternal benefit society members – for a total of $3.4 billion annually. o The federal tax exemption under which fraternal benefit societies have long operated sustains the fraternal benefit model and the societies’ community activities. o Government could not afford the costs of filling the needs currently met by the Knights, Thrivent and the fraternal benefit system. Thus, it is important now more than ever to ensure fraternal benefit societies exist to help address these growing gaps. • Fraternal benefit societies, like the Thrivent and the Knights, have served their original purpose for over a century, and today they continue to serve modern communities and create social capital in a way that is relevant to the evolving needs of families throughout the nation. o Despite reports of a decline in social and civic engagement in America, fraternal benefit societies represent a successful, modern-day model which builds social capital, an important community asset resulting from individuals with a common bond coming together for a common purpose to serve the greater good. o A wide range of economic research on social capital shows that social networks that give rise to increased trust and group cohesion are associated with better economic outcomes such as higher incomes, increased personal satisfaction, and lower incidence of social ills such as criminal activity throughout the communities they serve. § This positive societal multiplier effect reflects the leveraging impact of the community-based networks created by fraternal benefit societies. • Fraternal benefit societies and their members are already on the ground in communities across the nation, uniquely positioned to have impact. - 5 - 3 o The economic and social contributions of fraternal benefit societies are made possible by the unique mix of local energy and knowledge with national infrastructure and resources – a combination with compounding benefits that could not be replaced by government programs at any level. o Governments can provide money (less so in the current deficit environment) but are not as effective at providing energy and volunteers. Moreover, any government would take years to be able to build the same intricate infrastructure of local member groups (i.e., chapters, councils or lodges) that ensures that fraternal benefit societies’ charitable activities are targeted to pressing needs of local communities. o By leveraging the time and contributions of their members, and through mobilizing their community-based member networks, fraternal benefit societies such as Thrivent and the Knights make a much bigger – and qualitatively different – impact than a typical corporate donation to a charitable cause. The charitable and voluntary activities of these benefit societies are precisely the core of their fraternal mission. Fraternal benefit societies are a model that works to sustain and strengthen communities and enrich the lives of millions of Americans. Societies such as the Knights of Columbus and Thrivent Financial for Lutherans bring together like-minded members for the good of all. This study shows that a federal commitment of $50 million through a tax provision leads to a $3.4 billion annual return, with benefits for communities across the United States that would be difficult to replicate. Overview Lodge-based “fraternal benefit societies” such as Thrivent Financial for Lutherans and the Knights of Columbus are part of the fabric of American life, with a long and distinguished 4 - 6 - history dating back to mutual aid societies formed in the 1800’s.1 More than a century later, fraternal benefit societies remain a vital part of our economy, with the charitable and volunteer efforts of millions of lodge members making significant positive impacts in local communities across the country. These efforts address unmet needs in ways that are possible only because of the structure of fraternal societies, in which activities initiated by members of local lodges are backed by the organizing power and financial resources of national fraternal benefit societies. This unique and well-established arrangement leverages the charitable and community-oriented interests of lodge members throughout the United States to generate a greater contribution to society than would be possible with members’ individual efforts alone. At a time in which government resources face increasing constraints, the system of fraternal benefit societies provide well-targeted and effective help for people and communities in need. The two largest fraternal benefit This study describes and quantifies the societies alone generate an economic benefit to the United economic and social contributions of fraternal States of $3.4 billion each year benefit societies. The results of this study indicate from their charitable, volunteer, and other community activities. that the two largest fraternal benefit societies alone generate an economic benefit to the United States of $3.4 billion each year from their charitable, volunteer, and other community activities. This compares with a $50 1 Thrivent Financial for Lutherans and Knights of Columbus are fraternal benefit societies, defined in the Internal Revenue Code and state law as a not-for-profit mutual aid organization that, (1) insures members and their families against death, disease, disability, and (2) operates under a lodge system. Thrivent is organized under Wisconsin laws governing fraternal organizations, and Knights of Columbus was chartered by an act of the Connecticut legislature. - 7 - 5 million annual cost to the U.S. Treasury to support the fraternal model (JCT 2005). This contribution of fraternal benefit societies is made possible by the unique mix of local energy and knowledge with national infrastructure and resources—a combination that could not be replaced by government programs at any level. Fraternal benefit societies engage and leverage the enthusiasm of their members with resources from both the local and national levels supporting, activities developed and carried out in each community. This model provides substantial leverage, since local members define the critical needs and drive the lodge-based volunteer

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