401K Folktales

October 19, 2011

A lot of folks are confused about the folktales being told about the new 401K plan for lay archdiocesan employees. Hopefully, this post will help the benefits folks at 66 Brooks do a little better job of explaining things than they have done up to now, for the benefit of the folks who will rely on these benefits in the future.

One source of angst and confusion has concerned the listing of funds in the August mailing to archdiocesan employees. The letter sent to folks  gave a list of funds that included a number that were load funds. Because there was nothing in the letter to employees and supporting materials that suggested otherwise, folks naturally assumed that they were getting stuck with front-end fees, which go to the brokers that sell the fund shares and thus reduce the amount of your investment.  Here is a list of the funds at catholicbenefits.org, which is a slightly updated version of what was sent to folks in the mail in August:

It did not take much for folks to start looking up the investment options and find that funds like AIIEX, LSMAX, PEEAX, ACLAX and others charge front-end loads of up to 5.75%.  Who wants sales commissions taken right off the top that reduce the amount of your retirement investment?

Many load funds waive their loads for purchases of fund shares through 401K retirement plans, but since there was no mention in the communication from the archdiocese that the loads were being waived with this plan, folks understandably started to get a bit stirred up.

Now, in the most recent edition of The Pilot, Carol Gustavson, director of benefits trust and plan administrator, says there will be no front-loaded fees or sales charges on mutual funds offered in the package.  If indeed that applies to all of the funds, that is a good thing.  But, assuming that is the case, why was this not communicated up-front in the original mailing two months ago? Must folks subscribe to the The Pilot or attend a meeting in order to learn critical details like this? If it is true that the published load fees are being waived, why is this important information still nowhere to be found on the Benefits Trust website?

Last BCI heard, the person managing this important program is paid  about $150K/year and her multi-millionaire boss who has executive-level oversight for this area is paid $250K/year. These excessive salaries relative to other dioceses take a few hundred $K annually away from ministry programs.  Is it too much to hope and expect that for these excessive salaries, the so-called  “best and brightest” could put together a complete set of materials about the program and utilize the cost of printing and mailing effectively to communicate the critical details of the 401K program?

If the folks at 66 Brooks who are telling 401K folktales would like to email us when they have officially posted and communicated the provisions regarding the waiver of load fees, BCI will be glad to notify our readers.


Ethicspoint Disappoints: Diversion of Funds

July 8, 2011

BCI continues our occasional series today on how the anonymous whistleblower process in the Boston archdiocese is corrupted. Here is yet another report recently sent to us by a reader.  As compared to the one we published last Friday about the conflict of interest in the hiring and employment of Terry Donilon, at least this one got a response with an explanation, albeit one which was still somewhat dismissive of the original claim.

Issue Type

Abuse of or Fraud with Benefits

Please identify the person(s) engaged in this behavior:

James McDonough – Chancellor

Do you suspect or know that a supervisor or management is involved?

Yes

If yes, then who?

Cardinal O’Malley

Is management aware of this problem?

Yes

What is the general nature of this matter?

Cardinal O’Malley promised in 2004 on two occasions that lay pension plan obligations from closed parishes would be repaid from reconfiguration funds. That has never happened. But somehow, $2.5M was diverted to Trinity Academy in Brockton.

Where did this incident or violation occur?

The promise to repay pension obligations is documented in letters from Bishop Lennon to priests of the archdiocese from 2004. See this document: http://www.apcboston.org/forms/PUBLIC%20REPORTS/2006_APC_Minutes_03_02.pdf

How long do you think this problem has been going on?

More than a year

Please identify any persons who have attempted to conceal this problem and the steps they took to conceal it:

Chancellor James McDonough has ignored it.

Details

From letter dated February 13, 2004 about use of reconfiguration funds: “The Archbishop has chosen this approach so that many issues may be addressed…The proceeds from the assets of suppressed parishes will provide monies due employees of suppressed parishes for past work and separation assistance, for vendors who are owed monies from suppressed parishes, for amounts for past employee benefits and parish insurances due from suppressed parishes…”

http://www.apcboston.org/forms/PUBLIC%20REPORTS/2006_APC_Minutes_03_02.pdf
A second letter, dated July 24, on pages 6-7 that reiterates the promise: “The funds raised from the sale of suppressed properties will be used to address past due obligations and employee benefits of the suppressed parishes, including: 4. For covering unfunded pension liability for lay employees and clergy of all parishes. The promise was not upheld. In this 2010 actuarial report on the pension plan,

http://www.catholicbenefits.org/PDF/pension/PensionPlanValuationReport_July2010.pdf
you can clearly see on page 9 a number of employers have unpaid obligations to the pension fund. Open parishes owe nearly $40 million, and closed parishes have a $5M debt to the pension plan. Despite that $5M debt to the pension plans from closed parishes, the 2008 annual report found here says: http://www.bostoncatholic.org/uploadedFiles/BostonCatholicorg/Offices_And_Services/Offices/Sub_Pages/Finance_and_Technology/FY08/RCAB%20Financial%20Report%2006%2030%2008%20finaltestsmall.pdf

“On August 13, 2007 as part of the parish reconfiguration process $2.5 million was transferred to Trinity Catholic Academy Brockton, Inc.” a newly formed related organization that consolidated the operations of certain parish schools in Brockton.”

How did Jack Connors’ Catholic Schools project become part of the previous “parish reconfiguration process”?

How is it that funds originally promised by the Archbishop to parishes, employee benefits, and the unfunded employee pensions were instead redirected to the Brockton project? Doesn’t this constitute illegal conversion of funds and perhaps fraud? Now, instead of repaying the $5M due to the employee pension fund, 7 years later, the remaining $5.4M in the reconfiguration fund is supposedly being slotted to create an endowment for Parish Services, under the guise that this was one of the original purposes of reconfiguration funds? Why is the 2004 promise to repay the pension fund not being kept, when some of that money was directed elsewhere? See: http://bostoncatholicinsider.wordpress.com/2011/03/11/is-boston-archdiocese-committing-fraud/

Response from Archdiocese:

4/15/2011 10:08 AM – A total of $12.7 million was transferred into the pension program from Reconfiguration funds. The first transfer was $1.3 million on October 31,  2005 and the second was $11.4 million on December 26, 2005. These transfers are detailed in the Fiscal Year 2006 Financial Statements for the Pension Fund and  Corporation Sole Audit Reports.

http://www.bostoncatholic.org/Offices-And-Services/Office-Detail.aspx?id=11050&pid=508

The governing body for the use of the management of reconfiguration funds is the Parish Reconfiguration Fund Oversight Committee. The Charter of the Parish Reconfiguration Fund Oversight Committee (http://www.bostoncatholic.org/Parishes-And- People/Content.aspx?id=14124) states:

Purpose: To fulfill its mission of reviewing the integrity of the financial reporting of the reconfiguration process and to provide recommendations to the  archdiocese for operational improvements, the committee will review transactions contemplated by the archdiocese, such as the following:
• The closing and cash transfers of all unrestricted suppressed parish bank accounts.
• The process of dealing with all suppressed parish restricted accounts.
• Expenses related to the closing process.
• Property management methods and expenses.
• The sale of all parish personal property, sacred and non-sacred.
• The valuation and sale of all real property.
• Severance payments.
• The repayment of debts of a suppressed parish.
• Payments for past pension service (active and suppressed parishes), lay and clergy.
• Restore the equity, totaling $28,226,028, to the revolving loan fund, the clergy medical and hospital trust, the hospital chaplaincy, the parish school tax fund, the group life insurance fund, the lay pension plan, the health benefit trust, the long term disability trust, the insurance fund and the transition assistance trust that were incurred as a result of Jubilee Year debt forgiveness.
• Establishment of a sinking fund to cover the retirement of an operating line of credit that will total roughly $32 million and that results from the decline in annual appeal revenue since 2001.
• Funding of ongoing support services for parishes.
• Direct operating aid to parishes.
• Direct construction aid to parishes.

Finally, the $2.5 million transferred to Trinity Catholic Academy Brockton, Inc., on August 13, 2007, was a decision of Cardinal O’Malley, and was well within the Cardinal’s discretionary authority.

All three  transactions were clearly publicly  documented and the respective financial  statements  for each fiscal year were successfully audited and received  unqualified opinions.

This is BCI commenting now with several reactions. First, the person who submitted the claim was incorrect on one very important point when they said “Cardinal O’Malley promised in 2004 on two occasions that lay pension plan obligations from closed parishes would be repaid from reconfiguration funds. That has never happened.” Indeed, as documented in the response, funds were repaid at the times indicated, even if that was ultimately not adequate to fund the pensions considering the variations in the plan funding as of 2011.  As BCI has learned on more than one occasion, if you get one fact wrong, the archdiocese will then dismiss everything else you say, almost forever.

But, even with that claim incorrect and even with the archdiocese having contributed funds to repay a particular pension obligation at that time, as we all know, the pension plan trustees did–and still do–have an obligation to maintain sufficient funds to cover pension obligations in the future, and when that pension fund balance dropped a few years later, no more monies were contributed to meet the obligation.

Beyond that, is it just BCI, or is anyone else asking why the fact that the transactions referenced (such as the diversion of funds to Trinity Academy in Brockton) were publicly documented and audited necessarily also means that they were consistent with the promises and commitments made by the archdiocese to the Catholic faithful?  Is it permissible to break a promise as long as you publicly document it? Why was the decision of Cardinal O’Malley to send reconfiguration funds to Trinity Academy in Brockton “well within the Cardinal’s discretionary authority” when funding an archdiocesan school was nowhere on the list of possible beneficiaries for reconfiguration funds? Was it somehow justified as being some sort of pseudo-funding “support service for parishes,” or new way to provide “direct operating or construction aid to parishes,” even though it’s not a parish school?  Furthermore, the comment about the audit opinion is nothing but a diversion and the archdiocesan respondent knows that.  An audit opinion is just a reasonable assurance that the financial statements are presented to give a fair and accurate view of the numbers and financial status–it does not say whether the decisions to spend money in a certain way were right or wrong, or inconsistent with promises and commitments made.

In reading the claim and the response, we credit the archdiocese at least with responding, as they pledged to do when this facade of a true whistleblower program was first launched. But the flippant response–and those we have posted previously and been copied on–leaves us wondering whether anyone has actually gotten a response to a claim that suggested these complaints were being taken seriously.

As recommended by auditors years ago, the archdiocese needs a real whistleblower policy and program that is taken seriously and that does not fall under Chancellor McDonough for execution and management, but rather has some degree of authority over him.  Maybe this one needs to go on the list for the new Vicar General in the fall.


Diocesan Deception with Daughters

June 3, 2011

BCI has been very busy this past week and has wanted to say a bit more about the overall deception by the archdiocese regarding the Daughters of St. Paul legal action to recover pension funds for their lay employees.

Among the more troubling aspects of the situation is the deceptive “spin” from Communications secretary Terry Donilon sent out late last Thursday night saying that the archdiocese played no role in the leadership changes inside of the Daughters of St. Paul.  The archdiocese knew that the Boston Globe was going to publish a story the next day (Daughters of St. Paul replace local leader), so this was an attempt to protect the image of the Cardinal and archdiocese. Here is the email he sent out Thursday night around 9:30pm.

Good evening,

I want to make you aware of a story we expect to be published in the Boston Globe tomorrow (Friday, May 27th) regarding the Daughters of St. Paul and changes in the local leadership.  We were asked for comment about the leadership changes and what if any role the Archdiocese had in advancing such changes because of the recently settled lay pension plan lawsuit.  Neither the Cardinal nor the Archdiocese had any role in the leadership changes and in fact has made it a priority to look past the lawsuit to continue the strong and effective shared ministry on behalf of the faithful in the Archdiocese of Boston.

Thank you and my apologies for the lateness of this notification.

Terry

In the opinion of BCI, a key problem with this message is that it is simply untrue. We do not know if Terry Donilon knew the truth and sent a message he knew was not true, or if he was given this message by someone else higher up who knew it was untrue and was asked to just send it along.  Regardless, BCI thinks it says a lot about the archdiocese that they would send a message they know is not accurate.

It is undisputed that Cardinal O’Malley knew the Daughters were looking to recover pension funds for their lay employees and he and the archdiocese let the pension complaints from the Daughters drag on for 5 years.  It is undisputed that Cardinal O’Malley called the Superior General Sr. Bruscato in Rome to complain about the lawsuit.  It is also undisputed that not long after that, the provincial leader Sr. Sato and other leadership team members were abruptly removed.  A benefactor to the Daughters was quoted in the article saying: “the cardinal had called Bruscato in Rome and told her that he was embarrassed by the lawsuit. As a result, Nicotra said the nuns told him, Bruscato…ousted Sato.”  Hello?  No role in “advancing such changes”?

Some have suggested to  BCI that we begin applying this expression to the archdiocese and various officials when it comes to their communications:

Q. “How can you tell when [insert name] is lying?
A. “Their lips are moving.”

As we wrote in some of the comments last week, had the Cardinal and his staff acted on 5 years of complaints (which started before the the provincial leadership just removed was installed in July 2008)–including advance word to him and the Trustees that legal action was imminent–there would have been no legal action and thus no removal of the provincial leadership.

Trustees of the lay pension fund include Cardinal O’Malley, Chancellor Jim McDonough, Vicar General Fr. Richard Erikson, priest-secretary to Cardinal O’Malley Fr. Robert Kickham, Fr. Bryan Parrish and Fr. Joseph K. Raeke. Are all of these people willing to go on the record and say that there was never any advance word at trustee meetings and they never saw anything in writing to them as Trustees that informed them legal action was a next step if this dispute was resolved? If they had acted to preclude the legal complaint and resolve the situation, then there would have been no lawsuit, no call from the Cardinal to the Superior General, and no removal of the provincial.

The Daughters’ legal complaint was quietly filed on December 20, 2010 and the archdiocese did little to resolve it before word got out. See this post and this court information about the complaint. As we wrote in our March 9 post, citing publicly available information on the archdiocesan benefits website, “During December 2010, a Complaint for Equitable Relief and an Accounting was brought against the Plan’s Trustees by the Daughters of St. Paul, a participating entity in the Plan. The entity is seeking a transfer of the assets and liabilities allocable to it relative to its current and former employees who have been participants in the Plan.” Nearly 3 months had passed since the complaint was filed when BCI wrote our March 9 post. The general public beyond BCI readers did not even know about the complaint until March 21 when the Boston Globe published their article about the legal action–3 months after the action was filed.

If the Cardinal was really troubled by the lawsuit, he could and should have worked double-time to settle it in the days and weeks right after it was filed. We know unequivocally from comments made by the Cardinal that he was particularly disturbed by BCI’s March blog post about the legal action and the subsequent mainstream media coverage by the Globe and other publications which he felt were embarrassing and hurt the Church. Yet, he has never expressed openly to the Pastoral Center staff or clergy to the best of our knowledge that he was disturbed by the 5 years of foot-dragging by his staff at the archdiocese or by the lack of progress by his team in the weeks after the legal action was filed. This whole thing is reminiscent of how the archdiocese initially treated complaints of sexual abuse years ago–it was the parents and victims legitimately complaining who were the problem, not those in the hierarchy who ignored the complaints for years. Once again, had the Cardinal himself pushed to settle the lawsuit in December, January, or February within 3 months after it was filed, there would have been no Globe story, no embarrassment, no call to the Superior General, and genuinely no role in advancing the removal of the provincial.

BCI does not know exactly when the Cardinal called the Superior General in Italy to complain about the situation. We believe it was somewhere around the time of the Globe article in late March but we do not have the date. Did the Cardinal specifically ask the Superior General to remove the provincial leadership? Doubtful.  But was it because of Cardinal O’Malley complaining to the Superior General that the removal action followed?  Put another way, had the Cardinal not called the Superior General to complain, would the Superior General have removed the provincial?  Unlikely.

Had the Cardinal taken responsibility for his own actions and those of the archdiocese for 5 years before the legal action and/or precluded the negative media coverage by settling the case after it was filed and before it hit the mainstream media, and had he not called the Superior General to complain after the proverbial “doo-doo” hit the fan, would the Superior General have removed the provincial? Probably not.

The question was: What if any role did the Archdiocese have in advancing changes in local leadership of the Daughters of St. Paul because of the recently settled lay pension plan lawsuit?”

The answer was “Neither the Cardinal nor the Archdiocese had any role in the leadership changes.”

If the archdiocese is really asking us to believe there was no cause-and-effect between the complaint from Cardinal O’Malley (with associated playing of “red hat” trump card to the Superior General) and the action against the provincial leadership, then BCI has a bridge in Brooklyn up for sale.

Going forward, beyond a need to address what went wrong internally that led to the 5 years of frustration for the Daughters, the associated legal action, and failure of the RCAB to act on the legal complaint quickly, the archdiocese needs to do a better job at rebuilding and maintaining trust.  We suggest the archdiocese look at this overall situation and also the most recent communication.  Was Terry the author of the deceptive statement acting in cooperation with those who have actual knowledge of the situation, or was he told a lie by those in the know and directed to use it as a public statement? Either situation calls for corrective action.

Lastly, if the Cardinal and archdiocese have “made it a priority to look past the lawsuit to continue the strong and effective shared ministry on behalf of the faithful,” how exactly did the removal of the provincial leadership team and associated decimation of morale with the Daughters play into that plan? And more importantly, what are you doing to repair situation?

- – – – – – – – – – – – – – – – – – -

Obituary: Senior Priest, Fr. Jim Lyons, “one of the archdiocese’s best liked priests, especially among his brother priests,” died unexpectedly at 77-years-old.  It is unusual for Cardinal O’Malley to celebrate the funeral of a priest, so you know he was special in the eyes of many.  Eternal rest grant to him, O Lord. Let perpetual light shine upon him, and may his departed soul remain in peace in heaven!


Retaliation

May 27, 2011

The saga of the Archdiocese of  Boston and the Daughters of St. Paul continues today with so many developments, BCI can barely keep up.

We posted yesterday in, “Daughters’ Lawsuit Against Cardinal Settled, But…” how the legal action was settled, but the provincial leadership team was removed. It is tough to see that move as anything but retaliation.

Today, the Boston Globe is running an article, “Daughters of St. Paul replaces local leader” that sheds some new light on who did what, but there is still a lot of ambiguity. So, BCI will try to fill in the gaps.

Bottom line is that Cardinal O’Malley and the Archdiocese of Boston are asking you and me to believe some things that defy believability. The archdiocese is asking us to believe there was no connection between the Cardinal calling the Superior General of the Daughters in Italy to complain about the legal action by the U.S. province and the ultimate sacking of the U.S. provincial and most of the provincial leadership team.

We only have time for a few points today, so we will have to come back to this in our next post.

Everyone needs to remember that the U.S. province did not sue the Archbishop of Boston.  The Daughters asked the court to order a full accounting of their contributions to the plan by the plan trustees (that included Cardinal O’Malley), or to order that their contributions be returned. They did not sue the bishop, they brought action against the Board of Trustees, of whom the Cardinal was a member.  As the Boston Globe reported initially back in March,” the nuns have asked the Massachusetts Supreme Judicial Court to order the pension plan trustees, who include O’Malley and several of his top aides, to provide them with a full accounting of the nuns’ portion of the fund, or to rule that the nuns were technically never part of the church-run plan and to order the archdiocese to reimburse the nuns’ contributions, plus returns.”  Taking care of their lay employees is required under civil law and there is nothing canonically wrong or disrespectful with this either, especially since the Cardinal’s own staff stonewalled the Daughters for 5 years.  Based on what BCI has heard, it appears to BCI that neither the Cardinal nor the Daughters Superior General completely understand how both canon and civil law work.

The circumstances around the sacking of the U.S. provincial merit clarification.  First off, according to this article, the appointment of the previous U.S. provincial was in the first week of July of 2008.  Thus her 3-year-term would have ended in July of 2011. Was the provincial government near the end of the term?  Yes. At the end of the term?  No.  There is no question that the Superior General’s decision to remove the provincial two months before the end of the 3-year term was unusual.  There is also little question that the complaint from Cardinal O’Malley contributed to that move.  Did the Cardinal specifically ask the Superior General to remove the provincial leadership? Probably not.  But was it because of Cardinal O’Malley complaining to the Superior General that the removal action followed?  Put another way, had the Cardinal not called the Superior General to complain, would the Superior General have removed the provincial? Probably not.

Here is what the Globe article says: “Richard Nicotra, a Staten Island hotelier who is a significant benefactor of the Daughters, said in an interview with the Globe Monday that Sato and other nuns were deeply distraught about the leadership change. He said they told him that the cardinal had called Bruscato in Rome and told her that he was embarrassed by the lawsuit. As a result, Nicotra said the nuns told him, Bruscato came to Boston and ousted Sato. “What the nuns in Boston were so upset about was that she didn’t have their back,’’ he said.

The new U.S. provincial is Sr. Mary Leonora Wilson. According to this short biography, Sr. Leonora has been out of the U.S. for most of the past 28 years (in Russia and Germany) and away from the motherhouse for all of that time.  Just now back in Boston, she may not yet completely understand the current situation, politics, deception and corruption in the Archdiocese of Boston, and current level of discontent amongst the other Daughters locally and in the U.S. over what has just happened.

As for the timeframe of exactly when the previous provincial and new provincial were informed, there really is not nearly as much that is “disputed” as the Globe report suggested.  Sr. Leonora says the Superior General decided to not reappoint the previous provincial “shortly after Easter.”  Easter was April 24, so “shortly after Easter” could have been within a week or two after Easter.  As best as BCI can determine, the U.S. province learned about the change in provincial government during the first week in May. Terms of the settlement were also finalized during that timeframe. The Superior General arrived the following week (during the week of May 9)  and met with Cardinal O’Malley at the Cathedral Rectory on Saturday, May 14.

The various communications from the archdiocese, including Terry Donilon’s late-night communication Thursday night to warn priests and employees about the Globe story appearing on Friday will have to be the subject of a different post.

Suffice to say that Donilon saying to the Globe, the Cardinal, “feels a particular bond with the Daughters and strongly supports their mission of communicating the Gospel” rings hollow right now.  If the Cardinal felt a particular bond with the Daughters, then why did he fail to take responsibility for resolving this and instead let their situation drag on for 5 years, leading to the legal action?  Why did he deny he knew of their level of frustration? Why did he not get personally involved to try and expediently settle the matter with the U.S. province? Why did he allow the patriarchal church to attack faithful women religious? What is he doing to address the problem of the collateral damage to the U.S. province that happened after he called the Superior General?

Something needs to change around the Archdiocese of Boston soon. Please keep the Cardinal and Daughters of St. Paul in your prayers.


Lay Pension: Case for Removal of Trustees

April 28, 2011

Those of you following the flap over the lay pension plan may have read our post from Tuesday, “Pension Communication,” where we published a copy of the letter sent from the archdiocese to former employees explaining the changes to the plan that reduce payments to beneficiaries.

Yesterday we received a copy of this statement dated April 27, 2011 from David Smith, former Chancellor of the Archdiocese of Boston and former Pension Administrator and Pension Trustee.  It offers additional insights and perspectives not yet aired in the press or here at BCI, so here is the statement:

Former Archdiocese of Boston Chancellor speaks out on needed Pension Trust reforms and the case for removal of control
of the Trust from Cardinal O’Malley and his conflicted appointees .

Remove control of the Trust from those who have consistently breached their fiduciary obligations (or not). There are
some things that just need to happen to protect those due benefits from the Trust and the 79 public charities that use the Trust to deliver their contractually obligated pension benefits.

What must be done and when:

To protect the tax status of the accrued benefits and stop the Trustees from further violating the terms of the Trust by their acting to protect the interests of the participating employers rather than those owed benefits from the Trust, the “voluntary’ benefit forfeiture scheme must be withdrawn before the first payout now scheduled for May of this year.

In addition, to facilitate planning for eventual full funding of the Trust, reasonable actuarial assumptions must be adopted promptly and the
2010 actuary’s report and June 30, 2010 financial statements must be reissued using those assumptions within 90 days.

As soon as corrected statements are prepared, the Trust must issue the required reports to each Participating Employer showing their
portion of the true unfunded position, which I estimate at roughly $125 million vs. the roughly $75 million reported by the Trustees.  These amounts need to be billed to the participating employers as soon as they are known.

By not collecting contributions from all participating employers, the trustees have de facto made loans—in the amount of the underfunded benefits–to the 79 Participating Employers, in violation of the terms of the Trust.  These loans must be repaid promptly.  To protect the
interests of those due benefits from the Trust and the other participating employers, the loans need to be documented in loan agreements with appropriate covenants and interest rates consistent with the Trust’s adjusted earnings assumptions.  They need to be secured with at least 150% collateral coverage.  All of these loans need level payment schedules at sufficient amounts to fully amortize the debt within 10 years.

If control of the Trust does not change, consideration must be given to the fact that the Roman Catholic Archbishop of Boston, a corporation
sole, is roughly 62% of the Trust.  This means it needs to come up with about $75 million to fund its share of the accrued benefits.  It has also closed and up-streamed assets from some of the 79 charities.  Given the past misconduct on the part of the Archbishop and the Trustees, the Archbishop and his appointees cannot be allowed to control the determination of what Corporation Sole owes to the Trust. Nor can they be allowed to determine the terms of the necessary loan and collateral agreements.

The Trust must bill the Archdiocese of Boston for the true outstanding shortfall from closed parishes which I estimate will be about $7.5 million and require immediate payment of that amount since the Archbishop of Boston (a trustee) used funds from the sale of the assets of those parishes for other purposes instead of “acting solely for the benefit of the Participants and their beneficiaries” as required he is required to do by the Trust document.

Those due benefits from the Trust and the 79 public charities need protection against continuing and future breaches of fiduciary responsibility on the part of the Archbishop and the Trustees as a group.

Case for removal of control of the Trust:

The Trust began in 1963 as a multi-employer defined benefit church Trust allowing Catholic employers the benefit of sharing administration, legal costs, investment expenses and returns.  The assets were comingled for management purposes but tracked separately for each employer as required by the Trust documents.  Liabilities were also separately tracked so that contributions could be adjusted for each employer based on their respective demographics and experience.  In essence, we had many Trusts sharing administrative services and backstopping each others’ credit solely in the interest of the Participants and their beneficiaries.

Trustees are appointed by and serve at the pleasure of the Archbishop of Boston.  The Trust document sets out a standard of conduct for the Trustees (paragraph 18.10) says:

Standard of Conduct:  Notwithstanding the Trust’s status as a non-electing church Trust exempt from ERISA, the Trustees and any
Investment Manager will discharge their respective duties with respect to the Trust and Trust solely in the interest of the Participants and their beneficiaries
and 

(a)   For the exclusive purpose of providing benefits to Participants and their beneficiaries……

(b)   With the care, skill, prudence and diligence under the circumstances the prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims….

That Standard was carefully observed while I was involved in the management of the Trust and abandoned when it became clear that significant additional funding would be needed at a time when: (1) The Roman Catholic Archdiocese of Boston was running massive operating
losses and bleeding cash.  (Notwithstanding the recent financial announcements, these conditions continue)  (2) Other participating employers were finding difficult financial times and asking for relief. 

For the reasons stated above, and long before the Trustees came up with the most recent scheme to abuse those due benefits from the Trust for the benefit of the Participating Employers, breaches of fiduciary duties were prevalent by the trustees in general and importantly by the Archbishop of Boston in his personal capacity as a trustee.

Breaches of fiduciary responsibility on the part of the Archbishop of Boston include:

Absence by Cardinal Sean O’Malley from pension fund trustee meetings. Although the Trust Administrator refuses to confirm specifics, Cardinal Sean O’Malley has rarely, if ever, attended trustee meetings during the period while the Trust has been in a downward spiral.  (Note: he is not the only absentee trustee).

Failure on the Cardinal’s part to pay over to the Trust amounts needed to cover the benefits of parishes that he closed.  Not only would a prudent trustee “acting solely in the interest of the Participants..” as required by the trust have insisted that Corporation Sole pay over these sums from the liquidation proceeds of its partial shut-down, Sean Cardinal O’Malley breached his public promise (made seven years ago) to do so.  He is now plotting with his advisors to use the balance in that reconfiguration account for other purposes before he can be ordered to fund Trust benefits.

Breaches of fiduciary responsibility on the part of the Trustees as a group include:

  1. Placing the interest of the Participating Employers above those due benefits from the Trust by failing to adjust actuarial assumptions to reflect market realities, thereby keeping pension contributions at levels insufficient to ever fully fund the obligations of the Trust.
  2. Serving the interest of the Archdiocese of Boston over those due benefits from the Trust and the other 78 public Charities by not billing Associated Catholic High Schools, Inc. (it owes the Archdiocese millions) for its unfunded pension liability.  ACHS is now a real estate holding company, leasing out its properties to new Catholic high schools.  We cannot see how, or if, the funds it earns have been up-streamed to the Archdiocese because the Archdiocese does not disclose its financial statements. What we do know is that ACHS has millions of dollars in real estate holdings and could be made to pay if the trustees acted in accordance with the standard of care required of them. According to the June 30, 2010 actuary’s report ACHS’ obligations to Trust are underfunded by $5,116,000 (with realistic actuarial assumptions about $7.5 million) because of this negligence on the part of the trustees.
  3. Serving the interest of the Archdiocese of Boston over those due benefits from the Trust and the other 78 employers by negligently
    allowing it to liquidate parishes with related pension obligations but without insisting on payment in full for those past obligations.  In fact, no payment was made or sought with respect to these obligations in FY 2009 or FY 2010.  According to the June 2010 Actuary’s report, $5,059,000 is due the Trust—with realistic actuarial assumptions, about $7.5 million—for accrued benefits by these parishes.
  4. Failure to collect $1.5 million owed by one of the contributing employers. This is describe in Footnote 4 of the Trust’s June
    30, 2009 statements, which says “At June 30, 2008 the funding status was 89%, which would result in the employer (unidentified but believed to be Catholic Charities) owing an additional $1.5 million to the Trust and additional funding to the escrow account.  The Trust did not book a receivable of $1.5 million as the employer and the Trust have agreed that the funds will not be remitted and there will be no additional funding to the escrow account……”
  5. Failure by the Trustees to articulate a credible plan for funding the Trust.  The Trust Administrator says that it will take well over ten years depending on investment results.   Her statement is based on grossly inflated actuarial assumptions.  The reality is that based on her understanding of the Trust’s future revenue prospects the Trust would never be funded.
  6. Reduced funding plans by the Archdiocese in the coming year. The Chancellor has announced that next year the Archdiocese
    will cut its funding of the Trust by 28.5%.  By the Trustees allowing the Archdiocese to do this, the reality is
    that the Trust would never be funded.
  7. In April 2008 the Roman Catholic Archbishop of Boston, a corporation sole, granted enhanced retirement benefits to certain
    employees in order to induce early retirements.  Not only would prudent trustees have insisted on advance payment given
    the funded status of the Trust, the Trust’s provision 7.3(c)(ii) says “prior to the date of commencement of the early retirement program, the Participating employer shall have deposited with the Trust an amount determined by the Administrator to fund.  By not requiring
    funding, the trustees both violated the terms of the Trust and also favored the interests of the Archdiocese of Boston over those due benefits from the Trust and the other 78 participating employers.
  8. The trustees are de facto in violation of the Trust documents which specifically prohibits making loans to employers.  By ignoring their Section 11.1 obligation to determine the immediate and long term financial requirements of the Trust …, these trustees are making undocumented loans in undeclared amounts to the participating employers.
  9. Failing to produce reports required by section 18.11 of the Trust document. The Daughters of St. Paul have filed suit against
    the trustees because they either will not or cannot produce these reports.
  10. Last fall the trustees announced a scheme to cut the funding deficit.  The trustees amended the Trust to allow for “benefit forfeiture by consent” and used coercion and deceit about the true value of the offer in an attempt to get participants to accept lower benefits.  The offer is also discriminatory among Trust Participants because it was made only to employees of certain employers.

Responsible parties acting “solely in the interest of the Participants and their beneficiaries” don’t act as these trustees have acted.  One way or the other, adult supervision needs to be put in place.

#   #   #   #

The statement makes what sounds to BCI like a strong case for removal of the current trustees.  What do you think?


Pension Communication

April 26, 2011

BCI hopes you all had a blessed Holy Week and Easter!   About 2 weeks ago, the archdiocese sent letters out to a number of former employees to address any questions or concerns they might have about the pension plan.  Apparently, those darned “recent media reports” might have sparked some concerns.

We think it is a step in the right direction that the archdiocese sent such a detailed communication, but the letter still leaves a number of issues unaddressed.  Here is the letter.  Our commentary will follow the letter.

April 2011

ROMAN CATHOLIC ARCHDIOCESE OF BOSTON
BENEFIT TRUSTS
66 BROOKS DRIVE, BRAINTREE, MASSACHUSETTS 02184

Dear Archdiocese of 80ston Pension Plan Participant:

You may be aware of recent media reports regarding the Roman Catholic Archdiocese of Boston Pension Plan. It is possible that these reports raised questions or concerns for you as a former employee, or a retiree or beneficiary, of the Plan that you feel have not been answered. The purpose  of this letter is to provide additional background information that the Trustees of the Plan hope will address any concerns you may have. This letter will also provide details about the timing of the changes to the Pension Plan. These changes were outlined in a letter sent to you in the Fall 0f 20 10.

Recent Financial Performance of the RCAB Pension Plan and Goals for the Future

As you may know, the Plan, like most pension plans, is funded through two sources. One source is employer contributions from parishes, schools, the Pastoral Center, and other Catholic entities in the Boston area, on behalf of approximately 10,000 current and former employees of these locations. Historically, employers have contributed a percentage of each eligible employee’s salary on a monthly basis. In recent years, these contributions bave totaled approximat ly $ 10 million per year. Some media reports have suggested that parishes and schools failed to make necessary payments into the Plan over an unspecified period of time. In fact, in 2006, recognizing that some parishes had old debt to the Plan that had not been paid, the Archdiocese transferred $ 12.7 million into the Plan from the Reconfiguration fund, created to receive assets of closed parishes and intended to be  used, in part, to cover unpaid debts incurred by parishes. This additional contribution brought the parish portion of the Plan to over 90% funded. A year later, in 2007, all funding locations were at least 97% funded.

The second means of funding the Plan is through investment returns on employcr contributions. Because pension plan funding is tied to investment returns, it is norma l for the funded status of pension plans to go up and down over time. While cmployer contributions have continued  throughout the life of the Plan, the extraordinarily difficult financial market performance beginning in 2007 caused the Plan to become significanlly underfunded by 2009, with only 74.6% of assets available to cover the plan’s obligations, and a deficit of over $81 million. With the recovery of the investment markets, the average funding ratio of the Plan for 2010 improved to approximat ly 83%.  Open parishes continue to have a deficit of$39 million, and closed parishes have a deficit of$5 million. The remaining $24 million deficit is spread across all other locations based on their allocated assets and liabilities. The Plan’s funding level is comparable to Fortune 1000 company pension plans, which were funded at an average of 82% at the end of2010. This funding level also compares favorably to state and local government pension plans, many of which were less than 80% funded, on average, at the end 0f 2010.

Since the inception of the Plan almost 50 years ago, benefits under the Archdiocese Pension Plan have not been guaranteed or insured, a fact that has not been emphasized in the past but one that the Trustees feel must be noted as the Plan undergoes significant changes. However, it is the goal of the Trustees to achieve full funding for the Plan through a combination of the changes described below, continued employer contributions, and a prudent investment strategy. We have worked closely with legal counsel, actuaries and pension consultants, all of whom have been outside consultants to the Plan for many years, to determine how best to achieve this goal. In a recent statement published in The Pilot, Cardinal O’Malley reaffirmed the Archdiocese’s commitment to continued payment of its portion of the Pension Plan’s obligations. This commitment will be essential as the Trustees work with all employers in the coming years to improve the Plan’s financial position.

Decisions and Communication of Plan Changes
In the Fall of 2009, the Trustees began to review and analyze the information summarized above, adding projections for future employer contributions and investment returns to the historical information available. In mid-2010, pastors. business managers, school principals and other Catholic employer representatives were asked for their feedback on various options for stabilizing the Plan. In July 2010, the Trustees voted to cease or “freeze” accruals for active employees at the end 0f 2011. This freeze will dramatically slow the growth of future Plan liabilities, which will allow employer contributions and investment returns to bring the Plan to full funding more quickly.

The freeze will not reduce the benefits accrued through 2011. The Trustees also voted to offer two new voluntary options to eligible individuals: an early monthly annuity payment or a lump sum payment, each reduced to reflect the Plan’s underfunded status (83% as of 2010). The decision was made to offer less than full v lue for the two new voluntary options in order to reflect the Plan’s approximate funded status at the time of the election, rather than the funded status that might be attained at some point in the future. The v luntary lump sum option reduces both the Plan’s deficit and overall liability. In addition, it prescrves the Plan’s current funded percentage and does not disadvantage participants who elect to wait to receive their benefits as a monthly annuity in the f ture. The Trustees fclt strongly that thc lump sum option be entirely voluntary and that there be no reduction or change in thc monthly annuity benefit paid upon retirement.

In late February 2011, a detailed package of information was sent to approximately 1,800 former employees who are not already receiving a monthly pension payment. This information was voluntar ly shared with the Public Charities Division of lhe Massachusetts Anorney General’s Office a few weeks later. The package emphasized that the choice to take a lump sum payment or keep vested benefits in the Plan was a voluntary one based on each individual’s own lifc circumstances. To emphasize the voluntary nature of the election, each former employee who has or will elect a lump sum will be sent a letter from Cardinal O’Malley offe ing him/her the opportunity to revoke this election prior to April 30, 2011.
Some media reports have suggested that the v lue of lump sums is being overstated by the Plan to attempt to mislead former employees about their options. This statement is not accurate. Each ,individual’s life circumstances, including age, number of years before retirement, estimated life  expectancy, and how and when the funds are invcsted, will result in a different detennination of the value of a lump sum to that person. All individuals offered a lump sum have been encouraged to consult with a financial planner, and meetings have been held in March and April 20 1 1 with financial educators present, who have provided information to attendees about how to evaluate these options. If you are a former employee who would like additional information about your lump sum or annuity offer, please contact me as soon as possible at (6 17) 746·5830 or  cgustavson@rcab.org. I will make myself available to you to answer any of your questions.

Beginning in September 2011, current employees who will be vested and at least age 55 as of December 2011 will be offered a lump sum or in·service annuity, both reduced to reflect the 83%  funding of the Plan from 2010.

If you are a retiree or beneficiary of the Plan, you will recall receiving a request for an anonymous response t0 a survey sent to you in the Summer 0f 2010 asking whether a lump sum option should be made available to you. At a Trustees’ meeting in the Fall 0f 2010, the responses (approximately 1,000) were reviewed. A slight majority of the respondents indicated that they would not be interested in a lump sum. The remaining responses were divided between defmite interest in a lump sum and a request for more information before an opinion was offered. The Trustees will continue to review a lump sum option in the coming months and will communicate a decision when it is made.

Additional Information
In January 2011, the Plan document was filed with the IRS for routine review based on a schedule set by the IRS in 2005. Notice of the filing was posted on the Archdiocese website (www.bostoncatholic.org) and tbe Archdiocese’s benefits website (www.catholicbenefits.org). We have again reviewed the legal status of the Plan with counsel and believe that the Plan meets the requirements for a qualified church plan. Information about the Plan, including audited fmancia! statements back to FY2005, is available on the Archdiocese website and the Archdiocese’s benefits website. Benefits Office staff members knowledgeable about the Plan can be reached by phone at (6 17) 746-5640 or by email at cgustavson@rcab.org for specific questions.

Opportunities for additional information for former employees currently eligible for a lump sum or early annuity are noted above. If you are a retiree or a former employee who decides not to elect a lump sum or early annuity before April 30, 2011, so that you have an additional venue to ask questions or convey concerns, we will host meetings at the Pastoral Center at 66 Brooks Drive in Braintree in May 2011 as noted below. Plan Trustees will attend these meetings, along with representatives from the Plan’s legal counsel (Wilmer Hale), pension consultant (Towers Watson),  and actuarial services (October Three). We would encourage you to attend a meeting or webinar in May to leam more about the reasons behind the changes to the Plan or to answer any questions you may have about your benefits.

7:00 pm, Thursday, May 12,2011
7:00 pm, Wednesday, May 18, 2011
1 :00 pm, Saturday, May 2 1, 20 11
7:00 pm, Tuesday, May 24,2011 (webinar – please RSVP to pension@rcab.org)

We appreciate your consideration of the information described above and hope that you avail  yourself of one of the many opportunities to learn more about your benefits under the Plan.

Sincerely,

Carol Gustavson, Plan Administrator
on behalf of the Trustees, Roman Catholic Archdiocese of Boston Pension Plan

Most Rev. Sean O’Malley, OFM Cap. [BCI note: yes, the letter listed the Cardinal as "Most Rev."]
Very Rev. Richard Erikson, Ph.D., V.G.
James P. McDonough
Very Rev. Joseph K. Raeke, VF
David Woontan
Rev. Robert Kickham
Paul Sandman
Jonathan Mellin
Jane Walsh
Michael Ryan
Very Rev. Bryan Parrish

- – – – – – – – – – – – – – – – – – – – – – – – – – – -

First the positive.  As we said before, we think it is good that the archdiocese sent a letter explaining some things that were previously not explained. And for the first time in nearly a year, the letter lists the actual names of the trustees, rather than leaving them anonymous by just saying “The Trustees” or “Carol Gustavson, on behalf of the Trustees.”

Now the key concern and area for improvement. The biggest issue is that the letter and approach being taken still neglect to address the trust agreement’s promise that the plan would be fully funded by employer contributions.  Part 19.3 of the trust agreement says “Each employer shall periodically make contributions which … are sufficient on an actuarial basis approved by the plan’s actuary to fund the costs of the plan arising with respect to the participants…”   Does that commitment not sound like a “guarantee”?  Even if the plan was not insured, this part of the trust agreement says that the Trustees effectively have an obligation to invoice the participating institutions as needed to meet Plan liabilities. How can the Trustees be trusted to be acting solely in the interests of the plan participants–to provide benefits to the participants and their beneficiaries–if they are not working to collect what is due from each employer?

Here is the crux of the problem as BCI sees it. The archdiocesean lay pension plan that is the subject of this controversy is a “defined benefit” plan.  Like it or not, good or bad, in this type of plan, the employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age, rather than depending on investment returns.  This means the employer–the archdiocese in this case–committed to bear the investment risk.  The plan was fully funded, or nearly fully funded at times, but then the investments dropped. By definition of the plan and defined terms of the trust, it would be the employer who is responsible for re-funding the plan.

In a defined contribution plan, which the archdiocese is moving to, contributions are paid into an individual account for each member. As described in wikipedia, “The contributions are invested (e.g. in the stock market), and the returns on the investment (which may be positive or negative) are credited to the individual’s account. On retirement, the member’s account is used to provide retirement benefits.”

Apparently defined contribution plans are now the dominant form of plan in the private sector in many countries. The number of defined benefit plans in the US has been steadily declining over years–this report says that 49 percent of 200 of  the largest U.S. companies had ongoing defined benefit plans in 2009,  down from 61 percent in 2006, according to Mercer’s Retirement.  Wikipedia and other sources say that more and more employers see pension contributions as a large expense avoidable by disbanding the defined benefit plan and instead offering a defined contribution plan.

The move to a “defined contribution” plan for the plan going forward makes sense to BCI.  But what should happen to the “defined benefit” commitments made by the current plan to former employees who relied on those promised benefits for their retirement? Even if it is legal to cut the benefits, is it ethically and morally the right move, given the plan itself by definition promised those benefits, and still does today? Are the Trustees in a conflict of interest trying to balance the needs of the archdiocese and those of the beneficiaries?

Many questions.  No simple answers.  What do you think?


Former Chancellor Renews Call for Takeover of Archdiocesan Pension Plan by Mass. Attorney General Secretary of Commonwealth to Protect Public Interest

April 4, 2011

The following statement was released to the press and to BCI this afternoon. For those following or affected by the ongoing situation with the lay pension fund, we thought you would find it to be of interest.

April 4, 2011 Statement of David W. Smith, Retired Chancellor of the Archdiocese of Boston, Former Pension Plan Administrator, Former Pension Plan Trustee

Former Archdiocese of Boston Chancellor renews Call for Takeover of Archdiocesan Pension Plan by Massachusetts Attorney General Martha Coakley and Secretary of Commonwealth William Galvin to Protect Public Interest

I am pleased that His Eminence Sean Cardinal O’Malley publicly committed on April 1 to “do everything in my power to care of the thousands of people who have given their lives in service to the Church.”   While at a high level the words may be reassuring to some pension beneficiaries, since the details and actions behind the words are missing, the question must still be asked, “Where’s the beef?”  Unfortunately, the Cardinal’s statement on the Archdiocesan pension plan failed to answer the open questions and did little more than shift the focus away from the key issue: The Archdiocese cannot be allowed to retain control of the pension trust.

I am also glad that Cardinal O’Malley has implicitly acknowledged coercion was used to get people to sign up for the “take you share of whatever happens to be left” offer and he will give those who have already made that choice a chance to change their decision.

Although Cardinal O’Malley committed to do everything in his power to care for the thousands of people who served the Church, what he did not say is that he has promised this in the past and those promises have not been kept. This is the same position he took when he and I first talked about lay pensions, and it’s also the same position he took when he committed in 2004 to use the proceeds of reconfiguration to fully fund the obligations of closed parishes. 

As many know, the 2010 pension fund actuary’s report shows that over $5 Million is still due the pension fund for benefit obligations arising from closed parishes. Instead of honoring the commitment, this “take your share of whatever happens to be left” offer has tried to shift that extra $5 million in costs to employees.  Nothing in the Cardinal’s statement or the current archdiocesan operating plans addresses or fulfills this commitment. We need an independent trustee to make sure that this time the Cardinal’s statement has a real payment plan—preferably one secured by assets—that can’t be set aside to balance a budget. 

Beyond the issue of past commitments having been broken, the Archdiocese cannot be allowed to retain control of the pension trust for a number of other reasons:

  1.  Tax Consequences to Beneficiaries: The “take your share of whatever happens to be left” offer simply cannot be made by a qualified pension plan, ERISA or not.  Any “voluntary” forfeiture provision not removed from the plan before the Internal Revenue Service rules on the plan will result in adverse tax consequences for all of the beneficiaries of in the plan.
  2.  Use of Unreasonable Discount Rate to calculate lump sum payouts: is not permitted by qualified pension plans, ERISA or not.  Failure to correct this issue would also provide a basis for disqualification of the plan by the Internal Revenue Service.
  3. Deceptive Offer: Using a 6.5% discount rate misleads employees into concluding that the “take your share of whatever happens to be left” offer is worth 83% of each employee’s accrued benefit, when, in reality, the sum offered will only allow for the purchase of an annuity equal to something in the low 60% range.  This tactic is, at best, deceitful.  I can’t find a single insurance company who would even consider writing fixed rate life annuities at 4%, let alone 6.5%.  On that basis alone Secretary Galvin should immediately seek an injunction to halt the offer.
  4. Unfair Allocation of Shortfall: The pension plan is being used to shift assets and liabilities from one corporation to another.  Employees of entities that are 95% funded and those that 63% funded got the same offer.
  5.  Selective Targeting of Beneficiaries: The “take your share of whatever happens to be left offer” is not made across the board to all beneficiaries of the plan—it depends on which entity they worked for. It is also selective in that it only targets those who are not yet drawing benefits.
  6. Abuse by Trustees: Since RCAB Corporation Sole is about two thirds of the plan, the other participating Catholic entities are being abused by the trustees for the benefit of the Archdiocese.  Worse yet, I would expect that plan assets are being used to defend legal actions resulting from that abuse.
  7. Conflicts of Interest: Many, if not all, of the trustees have conflicts of interest.  The Archdiocese has repeatedly refused to divulge those conflicts.  Perhaps the press should ask the “transparent” Church the same question.

All employers must fund up proportionate to their obligations, and I believe they will do so much more readily once they know they will not be taken advantage of by the current conflicted trustees.

It is hoped that appointment of an independent trustee by the state will also ensure that the true status of pension plan funding is openly communicated. While the pension plan funding percentage is by definition a guess, ERISA assumptions would show the plan funded in the low 60% range. Ms. Gustavson says it will take more than 10 years to fund it and she thinks the deficit is only half of what more rational assumptions would indicate that it is.  The Chancellor says that the Archdiocese will cut its contribution rate nearly 30% next year, when instead it needs to be doubled, at the very least, in order to meet the Cardinal’s new promise. These contradictions need to be resolved for the sake of the beneficiaries.

The statement by Cardinal O’Malley which fails to address previous broken promises or detail how it would be fulfilled this time around is an attempt by the Archdiocese to shift the focus off the key issue. The issue is that they cannot retain control of the pension plan.

I ask that Mr. Galvin and Ms. Coakley do their duty and put an independent trustee in place promptly.  I ask every employee and former employee to call and write to each of their offices until they do.


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