In follow-up of our last post with excerpts from the Boston Globe’s article on this same topic, BCI has obtained a copy of the statement released by David W. Smith, Retired Chancellor of the Archdiocese of Boston at a 3pm press conference at the Newton Marriott. We are publishing the statement worded just as we obtained it, with no editorial comments by BCI.
March 28, 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 Calls for Takeover of Archdiocesan Pension Plan by Massachusetts Attorney General Martha Coakley and Secretary of Commonwealth William Galvin to Protect Public Interest
I am here today because almost 10,000 people, most of whom worked for years at low wages in service to the Catholic Church in Boston, have their retirement pensions endangered by a reckless attempt by the Archdiocese to shirk their financial commitments by changing the previous “defined benefit” plan with guaranteed benefits to a “take your share of whatever happens to be left” offering. Conflicted trustees are doing this through coercion and deceit, and by withholding information needed to evaluate their offer. Worse yet, the promises of two Cardinal Archbishops, Cardinal Bernard Law and Cardinal Sean O’Malley are being abandoned, while money promised for pensions has been withheld or diverted elsewhere. The time has come for Secretary of the Commonwealth Galvin and Attorney General Coakley to protect the public interest by taking control of the Archdiocese of Boston’s lay pension plan away from the Church and placing it in the hands of a truly independent third party trustee.
Officials of the Archdiocese Pension Plan are “offering” to “select” groups of employees the option of forfeiting previously accrued benefits. Examples of the coercion can be found in their presentation materials:
“Financial stress on Plan expected to increase due to investment volatility, lower investment returns, and employees covered by the Plan are living longer”
“The pension Plan is not and has never been an insured plan…Although the goal is to make sure there are adequate assets in Trust to meet all Plan liabilities, due to the unpredictability of future investments, there is no guarantee that all benefits will be fully payable at retirement”
“The time frame for achieving full funding depends upon future market returns and the rate of future employer contributions and thus cannot be guaranteed. The plan could become less well funded at any point in time, depending on economic and other factors”
Curiously, absent from their presentations on funded status is any reference to the obligations of the Trustees to invoice the participating institutions as needed to meet Plan liabilities, the liquidity of many of the participating employers or the obligation of these employers to fund the Plan as directed by the Trustees. For example, paragraph 19.3 of the pension plan 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…”
The average person reading the Archdiocesan–prepared “take your share of whatever happens to be is left” presentation materials who is unfamiliar with IRS code might easily miss the deceit. Here is an example they used in the Archdiocesan presentations:
“ Example estimate: One-time lump sum opportunity
- Sharon Sullivan has a $6,000 annual benefit ($500 monthly benefit) if she retires and begins payments at age 65.
- If she elects a lump sum payment at age 55, the estimated amount of her lump sum payment would be $6,000 multiplied by a “present value” factor which takes into account her current age, the number of years payments will likely be made over her lifetime, and expected interest returns over that period.
$6,000 x 5.41 (PV FACTOR FOR AGE 55) = $32,460”
By using unrealistic assumptions, most notably a 6.5% investment return, the Trustees come up with a 5.41 PV Factor for Miss Sullivan. Reasonable actuarial assumptions as defined by the Internal Revenue Code require a 7.0 PV factor and Miss Sullivan’s benefit would be worth closer to $42,000. What happened? Miss Sullivan not only lost almost $10,000 to a fast-handed actuary,, the conflicted Trustees want to take yet another 17% discount because the plan is “underfunded.” Her offer is for 64.1% of what the Internal Revenue Code says her benefit is worth, not the 83% that the trustees want her to believe.
The real value of the “take your share of whatever happens to be left” offer was confirmed when I asked for an annuity quote from the Hartford Insurance company. If I took the funds offered to me, I could buy an annuity from them equal to 61.8% of my vested benefit, not the 83% that the trustees want me to believe.
If the plan were really 83% funded and 6.5% was a realistic investment target, why would the trustees be asking beneficiaries to accept payments worth just 62-64% of their accrued benefit? By trying to get us to simply “take our share of whatever happens to be left offer,” the conflicted trustees are acting to protect their income at the expense of the plan beneficiaries.
Unanswered Questions and Stonewalling
Further, the Plan Administrator and the Chancellor have stonewalled my written attempts, dating back to December 21st of last year, to get answers to questions that would be necessary to fairly evaluate the “take your share of whatever happens to be left” offer.
Here are some of the questions they that they have promised to answer for me on many occasions but have not answered. I cannot help but wonder why these are unanswered:
- Were assets and liabilities being shifted from one trust to another to facilitate the sale of Caritas?
- Why are employees of the Archdiocesan Cemetery Association (94.4% funded according to the July 2010 actuarial valuation) getting the same offer as employees of the new central high schools (62.6% funded according to the same valuation report)?
- Why are the 956 employees and former employees of Boston College High School, Campion Health Center, Inc, Campion Residential & Renewal Center, Inc., Catholic Charitable Bureau, Central Catholic High School, and New England Province of Jesuits (Society of Jesus of New England) are not included in this “offer”?
- What are the conflicts of interest of “outside” trustees? I know only two of them. Both fine gentlemen BUT both represent major vendors. We have a right to know about the others.
- What is the attendance record of the each of the Trustees? From what I know, the Cardinal never comes and the Chancellor rarely attends a full meeting, if he attends any portion of the meeting at all. We should know who is behind this cost-shifting attempt.
- What information do you have about the participating employers’ ability to fund their respective obligations, especially the Archdiocese and the Parishes?
- Why did the Archdiocese breach its promise to fully fund the obligations of closed parishes and how do you justify making this offer without first paying over the funds needed to cover the obligations to employees of closed Parishes and increasing the proposed payout?
Even if all of this were somehow acceptable, what is not acceptable is that the plan will lose its tax deferred status if this “take your share whatever is left” offer is allowed to stand. On March 16th my lawyer Russ Gaudreau of the Wagner Law Group filed a six-page comment letter with the IRS along with three pages of attachments pointing out that the amended and restated plan would not, as written, qualify to retain its tax status.
Broken Promises by Cardinal Bernard Law and Cardinal Sean O’Malley
A number of promises made by two Cardinal Archbishops have been broken, whether intentionally or due to employee turnover.
First, I remember when His Eminence Bernard Cardinal Law called me to his office and dispatched me to a Board meeting at what was then, Youville Hospital, because he had heard that they wanted to withdraw from our pension plan and go to a defined contribution plan. I was sent to relay this message:
Every Catholic institution in this Archdiocese has a moral obligation to guarantee adequate pension benefits to its employees. Most Church and hospital employees work for low wages and lack financial training. Therefore, we must take on the investment and mortality risks for them. Maintaining and funding a defined benefit pension program is our moral obligation.
Second, after then-Archbishop O’Malley arrived in Boston, Bishop Lennon sent me to his office to make sure that the Archbishop would allow the elimination of the cost of living allowance (COLA) provisions of the plan and the reduction in future accruals. After a long discussion, then Archbishop O’Malley signed off on the changes with the express understanding that we could never even discuss any reduction of pension benefits, especially those that were already accrued.
Third, in two published letters from 2004, then-Archbishop O’Malley promised that funds from parishes closed as part of reconfiguration would be used to repay unfunded pension liabilities. That has also been broken:
From letter dated February 13, 2004: “The Archbishop has chosen this approach so that many issues may be addressed…The proceeds from the assets of suppressed parishes will provide… for amounts for past employee benefits and parish insurances due from suppressed parishes…”
From letter dated July 24, 2004: “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.”
Despite these 2004 promises from the Archbishop, the Actuary’s 2010 report shows $5 million in unfunded benefits owed to the pension plan for employees of closed parishes. So what the trustees are really saying is: after we allow the Archdiocese to divert $5 Million that Cardinal O’Malley promised to pay over to the pension plan, past and present employees can “take your share of whatever is left (minus $5 Million)”.
So what happened to the promise made by Bernard Cardinal Law that the Church in Boston would always and under all circumstances fund its pension obligations? Not valid just because he is no longer Archbishop of Boston? What happened to the promises of Sean Cardinal O’Malley that there could never even be a discussion about reducing accrued benefits, or that funds from closed parishes would be used to repay unfunded pension liability? Not valid because David Smith is no longer Chancellor?
In summary we have:
- Shifting of funds set aside for by one corporation to benefit another
- Conflicts of interest
- Selective offers
- Breach of promise to fund liabilities of closed parishes
- Material non-disclosure
- 10,000 or so victims of pension abuse
- The tax status of the beneficiaries at risk
The Secretary of the Commonwealth and/or the Attorney General share responsibility to address these breaches of public trust and to protect the best interests of these citizens of the Commonwealth. I urge them to take control of this plan away from those with conflicts of interest who have broken the trust of the beneficiaries and have acted wrongly, and to appoint an independent trustee to correct this situation and protect the 10,000 people at risk.