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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.