Pension Roadshow: “The Circus is in Town”

If you are new to the saga of how the Archdiocese of Boston is cutting promised pension benefits to former employees and religious, you may want to first catch-up by reading our most recent posts on the pension plan  issue, as well as “Is Boston Archdiocese Committing Fraud?

A series of meetings took place on Thursday evening and Saturday at the Pastoral Center with former employees to discuss the changes.  BCI received this essay written by some former employees who were in attendance and BCI is sharing it with their permission:

“The Circus is in Town”

It was cold and rainy when the circus pulled into 66 Brooks Drive Thursday night.  The Commonwealth requires permits for games of chance and limits the amount of wagers at church fundraisers.  No permits were needed that night when Carol Gustavson kicked off the big show for the Archdiocese of Boston, or for the repeat performances with Carol and Jim McDonough on Saturday. Why not?  Because there was no chance that any of those who showed up for the event could win!

All of the truth that’s fit to print.  That’s what 50 or so people heard.  Early in the presentation, Ms. Gustavson was asked why are we being offered less than 100% of what we are due from the trust?  Answer, because if the trust paid 100% it would hurt the funded status of the trust.  It must be the new math. 

Example: A trust owes 10,000 people a total of $300 million (on average $30,000 each) and has $225 million. (Numbers are close to her trust, but rounded, so even a plan administrator can understand them).  The example trust is underfunded by $75 million.  If the example trust pays half of the people $30,000 each (what they are due in our example) the trust still owes the rest of the folks $150 million and it has $75 million. The trust is underfunded the same $75 million that it was before the payments were made.  It is not hurt by the transaction.

If that same trust pays each of those people $25,000 (around 83% of what is due) and those people discharge the reminder of the trust’s debt, the Trust then owes the same $150 million to the remaining folks but has $117,500,000 left.  Wow, it cut its funding deficit in half! 

So begins a big-time capital campaign hiding with the circus chickens under a tent.  The trustees–virtually all employees of the Archdiocese or vendors who rely on relationships with the Archdiocese–are doing a great job, but for whom?  The people who gave their lives in service to the Church? Not from where we sit.  Perhaps the trustees are more likely serving those upon whom they rely for income as employees or vendors.

So how do you scare half of your creditors into taking a big haircut?  Not so hard.  Tell them times are tough, smile at them and tell them that it is your goal to be able to pay them all of what you owe.  When they ask if there is any guarantee that they will get all of what they are due if they pass on your “voluntary offer,” be careful to say “no.”  Feel comfortable saying no.  Just assume that the question meant something more like, “Is there FDIC Insurance behind this?”  Of course there isn’t.  Make sure that you don’t tell them that paragraph 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…”

Don’t tell them that your benefits are GUARANTEED BY NOT ONLY THIER EMPLOYER BUT ALL OF THE OTHER EMPLOYERS IN THE PLAN.  They don’t need to know, and after all, it wasn’t likely the information they were seeking.

Speaking of things they don’t need to know, the largest employer, The Roman Catholic Archbishop of Boston  holds real estate with a value we estimate is north of $1 Billion and has no material liabilities.  They don’t need to know that Boston Catholic Television has a huge unrestricted endowment.  Don’t mention BC High and its balance sheet.  Don’t tell them that the now well-capitalized Caritas Christi was once in the plan and is on the hook for much if not all of this shortfall.  Just say no.  There are no guarantees because the plan isn’t backed by whoever you thought they were asking about.  Then call Anne Hathaway and see if she has an extra acting award left over from the Oscars gala.

Other things you might forget to mention?  Oh, you might forget to mention that you valued your offer based on the trust’s assets on hand, versus those that the Archbishop promised would be on hand.  Why tell them this?  They also really don’t need to be reminded that the Archbishop promised to pay off all of the debts of closed parishes from the proceeds of their sale before using the rest of the money for a series of other purposes. And why would they need know that the July 1, 2010 Actuarial Valuations show (on page 4) that the portion of the shortfall attributable to closed parishes was $5,059,000?  They might be less inclined to buy into the whole lump-sum payoff scheme if they knew the amount of the offer would have been larger had the Archdiocese only kept its word to first pay off the debts of the closed parishes.  If someone raises this question, you can always say that no one is left here that remembers what was promised in 2004.

Even with all of the influence the Archdiocese has over the Boston Globe, the Globe’s own experts said in essence the payouts were “financially unwise” and that no one should take this offer unless they know themselves to be terminally ill.  If all of those who are due pensions read that article and followed that advice, guess what would happen?  The trust would pay out money to a bunch of folks who its actuary didn’t count on and the trust would be worse off.  The circus owners need not worry–the article ran a long time ago and few people listen to the Globe’s financial experts.

Also, no one will take note of the fact that all of Father Bryan Hehir’s old Catholic Charities folks didn’t get this offer.  Ever wonder what the circus folks are telling them about ultimate funding risk?

If you are considering taking this offer and are not terminally ill, you will need to earn 6.5% on the money you take today, and you would need to die on schedule.  People without the investment skills of a hedge fund manager and or with good genes should think twice.

What should you do? Like the circus chicken says, carefully consider what you know, look at your circumstances, consult with you lawyers and advisors.

What might a truly independent trustee do?  How about sending bills to all of the participating employers for their respective shortfalls, noting on each bill that it accrues interest at the 6.5% rate from today forward and giving them each 6 months to come back with a payment plan and real collateral to back their obligations.

What should Attorney General Martha Coakley and Secretary of State William Galvin do???

Last thought, don’t play tic-tac-toe with the chicken. He plays every day.

Lay Pension Plan: Can You Trust the Anonymous Trustees?

We are not yet done with the topic of compensation and Finance Council-related corruption, but based on popular demand, will take a break today and tomorrow to discuss the Lay Pension Fund and some secrecy issues surrounding it.  And yes, we will also get to the new Vice Presidents and other six-figure-salaried staff from the Campaign for Catholic Schools now moving over to the supposedly cash-poor Pastoral Center in a separate post.  The pace of ill-conceived moves by the folks at 66 Brooks Drive is making it tough for us to keep up.

For months now people have been asking us to report on the cuts in the Lay Pension Plan, and in view of the Boston Globe article on Sunday and substantial number of questions we are getting, we will take a stab at it today.

Problem is that the archdiocese has been so non-transparent about this, we really have more questions than answers to offer you.

Today we are not going to try and sort out the various options for current employees or former employees who are not yet retired and collecting benefits.  For those not yet retired, we know that the Archdiocese is not going to fully fund the existing plan and instead will be reducing promised retirement benefits to fund the plan.  The plan is currently underfunded by about 21% (see chart at right), so all payouts are reduced by that amount and also discounted to the present value of future payments based on the age of the person.

For example, if someone was to collect $500/month for life ($6,000/year) from age 65 and they take a lump-sum payment at age 55, they get a one-time lump-sum payment of only $25,296. (See here for the explanation or click on image to right).   Yes, that is a lot less benefit than you would have received over, say, 20 years of retirement.

Given the magnitude and impact of the changes on 10,000-odd participants, you would think that the archdiocese would be very transparent about what is going on and who is managing all this.  Nope.

We hope this post is seen in the spirit of helping the archdiocese become more transparent and trustworthy, so they can better help employees and retirees who are dependent on these pension funds .

Here are the first 5 of 10 categories of questions the archdiocese should be answering:

1) Fund Trustees

Who are the fund trustees?  A “trustee” is an individual or organization that holds or manages and invests assets for the benefit of another. How can anyone trust the trustees to be upholding their fiduciary responsibility if we do not know who they are? This presentation says the trustees are Cardinal O’Malley, the Vicar General, the Chancellor, and “Priests and lay individuals with pension/finance expertise.”  (click on image to right). Who are these individuals?  Why the secrecy?  Why does the archdiocese refuse to identify them, despite many requests over a period of many months?

2) Qualifications for the Plan Administrator(s)

What qualifies Carol Gustavson, Exec. Dir of HR, to be running the separate company, the Benefits Trust?  She is trained as an attorney and did labor relations for a newspaper before working for the Archdiocese. From where did the proudly ex-Catholic Gustavson gain the benefits expertise for this job in the Catholic Church?

3) Compensation for the Plan Administrator(s)

Is the compensation for Carol Gustavson of $150K/year appropriate for this role in a Catholic archdiocese?  Are we paying some premium salary for a non-practicing attorney that would otherwise not be necessary for a benefits specialist?  We asked another large archdiocese about this and were told that Carol’s comp was much higher than they pay their HR director.

How is Carol discharging her fiduciary duty exclusively for the good of the beneficiaries of the trust?

Who else’s salary besides Ms. Gustavson’s is paid in whole or in part?  Is she and/or are others paid by both the trust and RCAB?

4) Vendors

Who are the vendors of the trust (investment and program managers)?  How are they compensated?

When do they meet with the trust leadership?  How are they chosen?

Why are their plans underway to aggregate the 403B pension plan under one vendor?  [Note: A 403(b) is a tax deferred retirement plan available to employees of certain non-profit organizations or educational institutions as determined by section 501(c)(3) of the Internal Revenue Code. Contributions and investment earnings in a 403(b) grow tax deferred until withdrawal (assumed to be retirement), at which time they are taxed as ordinary income].  What is or was the objective criteria used for selection? If a vendor has been selected, which one?  Who else was evaluated?  Why that vendor?  How does aggregating under one vendor serve the needs of the beneficiaries?

5) Conflicts of Interest

Is a written agreement in-place that forbids Carol Gustavson from receiving any benefit from the vendor(s) employed for the trust?  Is she legally foresworn from later being employed by any one of them or a related entity?

We will get to issues 6-10 (Costs, Goals, Transparency, RCAB Give & Take, and Investment Advisory Committee) tomorrow.

Archdiocesan Anonymity: Benefits

In our first installment of  “Archdiocesan Anonymity,” we talked about how a letter signed by the anonymous trustees of the employee benefit trust was sent to all archdiocean employees letting them know how their pension benefits are being reduced.  While we continue the investigation and search for clues to try and solve that mystery, we have learned the mystery is deeper than we thought.  On top of that, it appears to perhaps carry over to the many mysteries over how the critically important Clergy Retirement Fund is being managed.

Several sources now tell us that Ms. Carol G, the proudly non-Catholic Executive Director of HR who has been hiring lots of people for the Catholic archdiocese, is becoming head (or has already become head)  of a separate corporate entity called the “benefits trust.”   Unfortunately, we have been so busy here at the blog we must have missed the press release about the worldwide search to fill the position with someone skilled in benefits.  The whole situation feels cloaked in anonymity and obscurity.  Here are a few questions that readers might want to ask the Chancellor, Carol G, or bring up at the next Archdiocesan Presbyteral or Pastoral Council meeting to better understand what is really happening in this area:

• Who is the leadership of the trust besides Ms. Carol G?  Why are the names of those people currently kept anonymous? What are their backgrounds?  How were they chosen?  When exactly will the names be disclosed?
• Does the trust benefit both lay and ordained?
• How is Ms. G discharging her fiduciary duty exclusively for the good of the beneficiaries of the trust? 
• Who else’s salary besides Ms. G’s is paid in whole or in part?  What is she paid?  What is the total cost of the salaries paid by the trust?
• Is she paid by both the trust and RCAB?  What is her total compensation?
• Who are the vendors of the trust, namely investment and program managers?  How are they chosen? How are they compensated? 
• When do the vendors of the trust meet with the trust leadership? 
• What goals is the trust given?  Who sets those goals, tracks progress, and maintains accountability for achieving those goals?
• Is Ms. Carol G. forbidden from receiving any benefit from the vendors of the trust?  Is she foresworn from later being employed by one of them or a related entity?
• Is there any impediment to making all agreements entered into by or on behalf of the Trust public?
• Is there any impediment to making the periodic earnings reports submitted to the Trust public?  If there is an impediment, what is it?  If there is not, why not publish them? 
• Where is the much-touted transparency?

Given the serious fiduciary responsibility associated with managing these funds, it seems logical that those involved should be held to the highest standards, does it not?  However, the much-touted transparency looks to us more like obscurity.  We are aware that there are a number of  mysteries surrounding the Clergy Retirement Fund specifically, including its management, compensation of managers, proper allocation of contributions to the fund, the names of the “anonymous” trustees of the fund, and more.   Tune in soon for an upcoming episode when we will focus on the Clergy Retirement Fund, but in the meantime, feel free to send us your questions or comments about the funds.

Lastly, if you are still following the Caritas Christi storyline, here is a colorful post from one of the cross-town Catholic blogs about the dismantling of Caritas’ Catholic identity.  We thought the pictures alone made it a worthwhile read.

We are taking off from blogging for the holiday weekend.  Have a very happy and safe holiday.  See you next week!

ps. Silence Meter Update:

• 11 days passed since archdiocese said they are seeking a conversation with bloggers; no response to Open Letter.
• 41 days passed since July 23 email to archdiocese asking for explanation of conflicts of interest that led to hiring Communications Secretary and Chancellor; no response.

Archdiocesan Anonymity

Welcome to the first episode of an occasional series called, “Archdiocesan Anonymity.”  For every 100 compliments and supportive emails we get, every so often we get 1 complaint about the bloggers being anonymous, hence we cannot be taken seriously.  The archdiocese tried to discredit us with the same argument last week. (By coincidence, those complaining invariably ignore the credible content of the blog).  Beyond the reasons we have already stated for our maintaining anonymity—to avoid retaliation and threats to our livelihoods—we think this graphic is an appropriate response to the archdiocese. (Hint: think of the expression “pot calling the kettle black.”)

Even though we are just blogging information you can almost always objectively verify, the archdiocesean concern over the bloggers is great enough that senior cabinet officials met with outside lawyers some weeks ago to discuss possible legal options to stop the anonymous bloggers, so we feel the threats are real. What we find most ironic is how the same archdiocese that just complained about the anonymity of a bunch of lowly bloggers (with no influence over anything), itself practices anonymity and deception in matters of great importance to priests, employees, laity, and the future of the Catholic Church in Boston. (See graphic once again).  We share just three examples today.

Example 1: Last week, the archdiocese sent a letter to all employees with “important information about upcoming changes” to the employee pension plan, to address the minor matter of the plan’s financial condition being “unsustainable.”   Here is a copy of the Aug 31 memo  passed on to us by several concerned readers.  Notice how it is signed: “The Board of Trustees of the Roman Catholic Archdiocese of Boston Pension Plan.”   Is it just us here at Boston Catholic Insider, or is anyone else wondering why such an important memo is not signed with the actual name of anyone?  A lot of employees are affected by these changes to pension benefits and are wondering who exactly authored this important memo, who are the anonymous trustees of the pension plan, and how each anonymous trustee came to be appointed.  When someone finds this information, do send it our way and the anonymous bloggers will post it here to help answer the questions for everyone concerned.

Example 2: Current membership on the Archdiocese Finance Council, as well as the Finance Council’s standing committees (Steering Committee, Investment, Real Estate, Audit, Institutional Advancement, Legal Affairs, Financial Services) is not available.  These committees are defined in the Finance Council charter:

The last update to the membership list was published with the annual report for the fiscal year ending June 30, 2008.  Why is the current membership on these important committees as of September 2010 now anonymous?  Who has anonymously been added to the Finance Council in the past two years, exactly which anonymous member of the Finance Council or which pastor invited them to join, and what are the backgrounds of the anonymous new members?   Why are the names of the people currently reviewing the sale of real estate, disposition of Church properties, and developing guidelines for construction projects kept anonymous?

Example 3:  As announced by the Coalition to Save Catholic Healthcare and reported on this blog, the spokesman for Caritas Christi, Chris Murphy, sneaked into a recent Coalition event at the Omni Parker House in Boston under false pretenses using a pseudonym, asked no questions during the event, and then told the Boston Globe afterwards using his real identity that most of the group’s complaints were “unfounded”.  

We bring all of this up because on April 29, 2006, the Archdiocese launched an unprecedented Financial Transparency Initiative saying the following:

“Our commitment to financial transparency and accountability is an important step in the process of healing the Church of Boston and rebuilding the trust of the people of this Archdiocese” said Cardinal Sean “In releasing this financial information, we hope to achieve a shared understanding of both the challenges and the opportunities we share as a faith community. Together, we can work together to solve our problems and strengthen the Archdiocese’s ability to continue the good works it performs each and every day of the year.”

In view of the three examples listed above, we feel compelled to ask: How’s that transparency initiative going these days?  Tune in again for more examples in a future episode of “Archdiocesan Anonymity,” and feel free to share other ones you want to see published.

ps. Silence Meter Update:

• 9 days passed since archdiocese said they are seeking a conversation with bloggers; no response to Open Letter.
• 39 days passed since July 23 email to archdiocese asking for explanation of conflicts of interest that led to hiring Communications Secretary and Chancellor; no response.