Lay Pension: Case for Removal of Trustees

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employers rather than those owed benefits from the Trust, the “voluntary’ benefit forfeiture scheme must be withdrawn before the first payout now scheduled for May of this year.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

(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.

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

12 Responses to Lay Pension: Case for Removal of Trustees

  1. Al says:

    Many people including myself have made financial commitments based on the lump sum amount that we are expecting. If David Smith wants to force The Archdiocese into bankruptcy than he must take responsibility for people ending up with nothing in the long run. What is it about the term voluntary that David Smith does not understand. If David Smith feels that taking the lump sum payment is a bad deal because of the 83% funding, he has the option to take his annuity payments at retirement without any reductions. This fact has been stated over and over again. There are many of us who selected the lump sum option and are counting on it. I am not a stupid person. I was offered options. I don’t need someone telling me that the option I selected is the wrong option for me.

    • Another former employee says:

      There is nothing VOLUNTARY about this offer when former employees are taking it because they are afraid that there will be nothing left if they do not take it. I have heard this from a number of former co-workers. For you this may be the right choice but others feel forced into it. The archdiocese could have done what several other dioceses did which is freeze the plan but continue to fund it and honor all commitments.

      • Al says:

        If a number of former co-workers that you know have selected the lump sum out of fear that there will be nothing left if they don’t take the lump sum, it seems to me that David Smith confirms those fears. He is sending conflicting signals. He tells us not to trust The Archdiocese, but rather than take your money out now, he tells us we should let our money stay in the hands of the very people we cannot and should not trust.

  2. Anonymous says:

    If what David Smith says is true concerning the pension underfunding, then how is the archdiocese going to fully fund the plan? You can remove trustees, you can change control, but if the money isn’t there, the plan cannot meet commitments. Even though the lump sum is definitely shafting those that take it, it should be the retirees choice. Smith should stay out of this.

    • Carolyn says:

      The letter from the Pension Trust is long, but read the whole thing before you comment.

      The letter that Carol Gustavson sent allows people who have taken the lump sum option to keep it, or back out. If you have made commitments on receiving the drastically reduced amounts, you can continue with that plan. If you have left your options open to allow the pension fund to be supervised and get to full funding before you take your pension, you can do that.

      David Smith’s actions in no way deprives those who have committed to the lump sum from sticking with it. Neither does the lawsuit of the Daughters. Those actions likely will force RCAB to fully fund so that those who hang in there see a pension based on a far more solid footing than otherwise.

      The prior statements and intimidating insinuations of the speakers at the pension meetings don’t square with the facts. They were self-serving statements put forward to benefit the trustees.

      David Smith and the Daughters are requiring accountability and the truth. This may cause the Chancellor McDonough, Martha Coakley, and others who breached their duty to get heartburn, but you are confusing me with somebody who’s worried about them.

  3. Angry Parish Council Member says:

    I don’t know what to make of this. The case that Mr. Smith makes that the Trustees have serious conflicts of interest and are not working towards the best interests of the beneficiaries is a strong one. Even if there was no more funding, I think they should be removed. I also think they should recover funds from whichever employers have owed money and whose employees are benefiting from the plan but didn’t contribute. Based on the way they spend money at 66 Brooks Drive, I’ve also got little doubt there is more money available that could be used to fund the pension plan. If people want to take the lump sum, I’d say take it, but if others want to hold out based on the hope that they won’t get screwed, then I say hold out.

  4. Yet Another Former Employee says:

    I’m not a finance person and don’t know exactly how the archdiocese will fully fund the plan. Collecting what’s due from member employers, which has apparently not been done with any seriousness as described in many of the numbered points, is a good place to start. Even if that added another $5-10M to fund annuity or lump-sum payments, that’s better than the current situation. No explanation has been given by the archdiocese or trustees for why they’re not doing this.

    As I see it, Smith is exposing the conflicts of interest, deception and multiple failures by the trustees to protect the beneficiaries, and I commend him for that. He’s the only one putting his name out there on the line to try and help address some rather grievous wrongdoing, and I know many people who appreciate that.

    I think Al and others who have already decided to take the lump sum for your own reasons have little to worry about–you’ve signed the paperwork and I’m sure checks will be in the mail shortly. I for one would like to see the archdiocese kept accountable for fulfilling their prior promises and hold the Cardinal accountable for his commitment to fully fund the plan as long as he has breath in his body.

    If other dioceses have frozen their plans but continued to fund them and honor all commitments to former employees, I don’t see why Boston should not be held to the same standard.

  5. Church Mouse says:

    Slightly off topic but about money!
    Today’s Herald on page 5 notes upcoming fundraisers for President Obama next month in Boston, that will culminate with a dinner at Jack and Eileen Connors’ house in the president’s honor at $17,900 per person with the opportunity to have one’s picture taken with the president for another $10,000.
    Will any of the trustees, other influential figures associated with, top level employees of RCAB or even the Cardinal be among the dinner guests?

  6. anonymous says:

    It figures that Jack Connors is an Obama butt boy.

  7. Mack says:

    Obama is the most pro-abortion president ever. Why are Catholics like Connors so blind to this? How about supporting some pro-life causes instead of politicians who promote abortion and other evils opposed to Catholic teaching?

  8. DBP says:


    “Catholics like Connors” are Democrats, not Catholics.

    Unfortunately, “Catholics like Connors” truly, truly believe there is no line of separation between the two, and if anything has to go, it’s their faith in the Church, not their faith in The Party.

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