Debt-Ridden Boston Archdiocese Pays Lay Execs $3.7M, Violates Fiduciary Responsibility and Motu Proprio

February 1, 2013

The Boston Archdicoese, saddled with $137 million in debt and operating deficits of $11 million in the past two years, paid their top lay executives $3.7M in salaries and benefits in the past year. They acknowledge many are overpaid, and to add insult to injury, they even gave raises to some overpaid execs last year. This excessive spending on salaries violates the diocese’s fiduciary responsibility to make proper use of donor funds, and it also violates the recent Motu Proprio from the Pope Benedict XVI. Because the Massachusetts Attorney General has oversight for Non-Profits and their use of donor funds, she has reason to intervene.  Meanwhile, Cardinal O’Malley appears to be fiddling, as the fiscal and moral version of “Rome” is burning.

There is enough content here to take multiple blog posts. We will cover as much as possible today and continue in subsequent posts.  That Boston was paying excessive six figure salaries to lay execs has been a public complaint for more than three years. That nothing is being done about it, even with the window-dressing of a “Compensation Committee” formed in 2010 is an even bigger travesty, especially even after publication of the Pope’s “Motu Proprio.” First we cover the “Motu Proprio” and diocesan code of conduct guidelines, then the salaries, the Compensation Committee report, and then examples.

“Motu Proprio

Signed on November 11, 2012 by Pope Benedict XVI and officially in effect December 10, 2012, the Motu Proprio says salaries need to be in due proportion to analagous expenses of the diocesan curia.

§ 4. In a particular way, the Bishop is to see that the management of initiatives dependent on him offers a testimony of Christian simplicity of life. To this end, he will ensure that salaries and operational expenses, while respecting the demands of justice and a necessary level of professionalism, are in due proportion to analogous expenses of his diocesan Curia.

Priests in the Boston curia are paid about $41K annually.  How can anyone in the Boston Archdiocese claim that the $300K+ salaries of their top execs are in “due proportion” to the analogous expenses of the diocesan Curia? Here is our December blog post describing the violation.

Archdiocesan Code of Conduct

The diocesan Code of Conduct says:

“Church Personnel will be responsible stewards of the resources, human and financial, of the Archdiocese and any Archdiocesan Affiliated Organization with  which they are associated, observing both canon and civil law, and making decisions concerning the disposition of resources that reflect Catholic social teaching.”

Salaries Disclosed in 2012 Annual Report

The 2012 Annual Report released on Friday, January 18, reports that 16 lay executives are paid more than $150,000 a year, and on top of that, another 10 are paid $100K or more a year. The salaries of the top-paid execs can be found in pages 77-82 of the pdf.  12 of the 16 people paid $150K+ are listed in the report, but it is easy for anyone to determine with high certainty who the other 4 are from the Pastoral Center directory based on titles.  (BCI knows several are paid $200K+ and the others a little less than $200K, so we assumed an average of $200K for their salaries in the table below).  To make it easier for you to see all 16, we have arranged the publicly available data in the table below (click on image to zoom):

RCAB salaries 2012

Compensation Committee Report

The short version of the story here is that the “Compensation Committee” formed in November 2010 to study compensation and address the complaints about excessive six-figure salaries spent tens of thousands of dollars of donor funds and accomplished next to nothing.  Their “report,” if you can call it that, is on page 83 of the Annual Report.  They hired a consultant, AON, to do a study, which probably cost a minimum of $30K.

“We determined that the competitive environment varies by position. Depending on the job, the arena in which we compete for talent includes some or all of the following: other Catholic organizations, other not-for-profit groups, and for-profit organizations. The peer group against which we measure ourselves is tailored for each position. The consultants accessed numerous data bases containing applicable information, and conducted a custom survey of Catholic dioceses. The results of the study are as follows:

a. Six of the senior lay executives are paid between the 50th and the 75th percentiles;
b. Five of the positions have attributes that are unique to our Archdiocese, and are paid comparably to peers in the Archdiocese with similar levels of responsibility; and
c. Five of the senior lay executives are paid above the 75th percentile.

“The Committee believes that, over time, most senior lay executive positions should be paid at approximately the median compensation (or 50th percentile) identified in the salary study, as updated from time to time.”  There is more, but wait a moment.

In other words, a) 6 of 16 people are slightly to somewhat overpaid, c) 5 of 16 people are way overpaid (note, there is no upper limit specified, so some could be off the charts overpaid), and b) 5 other people are overpaid comparably to their Boston Archdiocesan peers who are overpaid, but we justify it based on their “unique attributes.”

Hmm.

Now the “unique attributes” justification:

“There are, however, factors that may require pay at levels that differ from the median, and the amount any particular individual is paid should reflect such factors. These include the nature of an individual’s experience to include the time and performance in the role, the uniqueness of an individual’s qualifications, the scope of the position relative to those included in the salary study, the strategic importance of the position, and the urgency and seriousness of any problems that need to be addressed. All individuals in the group are currently paid at a level that is consistent with our compensation philosophy.”

So, once they determined that basically everyone was overpaid, then they apparently created a “compensation philosophy” to justify overpaying everyone. That philosophy is summed up here:

“Our philosophy is based on the belief that senior lay executives are employed by the Archdiocese to advance the mission of the Church, and that accomplishing this goal requires competent, compassionate, efficient and effective leadership. The purpose of the compensation system is to enable the Archdiocese to attract and retain individuals whose personal goals and achievements are in harmony with the Church’s teachings, and whose motivation, talents and capabilities will assist the Church in achieving its objectives. This means that our pay practices must be: (i) competitive, so that we are able to hire people with the requisite qualifications; (ii) equitable, so that our employees are paid fairly relative to one another; and (iii) realistic, so that they reflect economic conditions in the Archdiocese and in the wider world.”

Without seeing the actual AON study, there is no proof they achieved (i) or (ii) and lots of other evidence they did not, and it is abundantly clear they have not achieved a compensation scheme that reflects the economic conditions in this archdiocese, where 40-50% of parishes cannot pay their bills and Central Operations lost $11M in the past 2 years. They apparently missed the “Motu Proprio” and should go back to work to add a new item “(iv) pay in due proportion to analogous expenses of the Boston diocesan Curia.”

The poster-child for excessive compensation, Mary Grassa O’Neill (see “Up in alms over salaries”), is perhaps the highest-paid lay Catholic diocesan employee in the country, making far more than public school superintendents in New York and Los Angeles who have 10X+ more responsibility. She just had her pay upped from $325K to $341K. Just one more quick example of the evidence they are over-paying is:

Carol Gustavson: Executive Director Lay Benefits: $169,190. A proud ex-Catholic whose previous experience was as a labor attorney for a newspaper. When they slashed lay pensions in 2011, readers reported she was unable to respond to basic questions about pensions in the public meetings. As reported here, she was making $149,999 before her job as Executive Director of HR was reduced by about 2/3 in 2011. Other archdioceses we surveyed said they were not paying their head of HR nearly what Carol was making when she was responsible for HR and paid $149,999–coincidentally, just enough to fall below the $150K limit for reporting in past years.   Jim DiFrancesco is “Director of Human Resources” and Carol is largely just responsible for Pension/Medical Trust (minus the prior work of dealing with plans for 10,000 Caritas Christi employees who now are Steward Healthcare’s responsibility).  A pension/medical plan administrator for an archdiocese like Boston makes around $80-85K.  Amount of excessive pay: $70-80K.  Oh, we forgot, she is also responsible for bringing yoga into the Pastoral Center.

The whole situation is frankly, preposterous.  It will take us multiple blog posts to address the depth of the problem.  Now that the Boston Archdiocese has just finished giving fat raises to most of overpaid people (a topic for the next post), all the Compensation Committee is doing is the following:

At the Committee’s recommendation, no merit increase was granted for FY 2013 to any member of the senior lay executive group whose salary was at or above the applicable median. In the future, compensation should be limited to levels that satisfy our compensation philosophy through tools such as renegotiation of contracts, sunsetting of current pay and/or salary freezes.

In the future?  How about in the present while the archdiocese is $137M in debt (not counting the $50M in lay benefits owed to former employees, off the books entirely now), is running a $6M annual operating loss, and has half the parishes in the red? Why not immediately start reducing salaries by 10% as of 90 days from now, with successive 10% cuts every 90 days until they get overpaid execs where they need to be?

Every Catholic, plus the Attorney General and Vatican should be up in arms about this financial scandal. If you care about the future ability of the Boston Archdiocese to carry on the saving mission of Jesus Christ, click below to send a copy of this blog post via email to the Papal Nuncio  [nuntiususa@nuntiususa.org] the Massachusetts Attorney General Division of Public Charities [charities@state.ma.us] and the Boston Globe [newstip@globe.com].


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.


Pension Contention

March 30, 2011

We know everyone is waiting for the latest in the employee pension saga–both the issues raised by former Chancellor David Smith on behalf of former employees, and the mediation session yesterday between the Daughters of St. Paul and the Archdiocese of Boston to try and resolve the stalemate over them getting their lay employee pension funds out of the archdiocesan pension plan.

To be honest with you, we are afraid that we have not got much news we can report.

There is no public word from Attorney General Martha Coakley or Secretary of the Commonwealth William Galvin about whether they will intervene to take over and manage the archdiocesan plan.  Perhaps Martha is so busy looking at the issue of board of director fees paid by the state’s large health insurers that she has simply not had the time yet to look at the problems of coercion, deception, withholding of information, diversion of funds from one corporate entity to benefit a different one, material non-disclosure, and broken promises that affect 10,000 lay employees dealing with the $70 million underfunding of the Archdiocese’s employee pension fund.  As an aside, it baffles BCI how she can justify being so committed to dealing with the problem of director stipends at some non-profits (like Blue Cross), but not concerned at all with vastly greater excessive spending at other non-profits, like the Boston archdiocese. The AP reported earlier in March that she said this about Blue Cross:

“Blue Cross enjoys certain tax benefits as a non-profit in exchange for being committed to a purpose other than making money. Paying directors makes it look a lot like a regular business, and Blue Cross can’t have it both ways.”

Is it not be case that paying excessive salaries to lay executives instead of using those scarce monies to fund the lay or clergy pension funds would also be problematic for a non-profit charity like the Catholic Church, whose purpose is also other than making money?  (Sorry, we digress…)

Back to the pensions, as far as the mediation between the Daughters of St. Paul and the Boston archdiocese, sources indicate that no meaningful progress was made in the day-long mediation session on Tuesday.  The absence of any announcement by either side today would serve to validate that.  In terms of  next steps in the lawsuit and court case, we need to confirm those before we can share more details, but by all indications, it appears they will be headed to court.

The silence by Terry Donilon on this issue today is particularly noteworthy.  Terry was “Mr. Interview” on Monday when he was leading the smear campaign to counter the bad press about the latest pension flap.  Today, nada.  You will all also recall how confident he was just a week ago to Catholic News Service that the situation with the Daughters would get resolved amicably:

“Terrence Donilon, archdiocesan secretary for communications and public affairs, told Catholic News Service in an email March 23 that the archdiocese has been working “for some time” with the Daughters of St. Paul “regarding their request to withdraw from the lay pension plan.” Donilon said archdiocesan officials believed they were “making progress toward resolving any outstanding concerns” and found the December lawsuit “unexpected.” Since the suit was filed, he said, the archdiocese reached an agreement with the Daughters of St. Paul “on a number of issues.” He also noted that the archdiocese has “a long-standing and good relationship” with the sisters. “We will resolve this disagreement through mediation and continue to work closely together in the future for the good of the church.”

Terry, how confident are you now that the disagreement will get resolved through mediation?


Pension Tension

March 29, 2011

Tensions are escalating over the employee pension fund, and if you did not notice from the statement by the former Chancellor, David Smith and subsequent response by the archdiocese, there was a bit of a war of words going on yesterday.  As one might expect , the Archdiocese still fails to answer pointed questions and apparently has started their characteristic “smear campaign” in retaliation when someone raises public criticism they do not like.   Here are a few highlights from the fireworks:

Article in today’s Boston Globe:Church is faulted on handling of pensions.”  There are not really any new insights here.

“My concern is that there are 10,000 people out here who have worked their whole lives for the church for submarket wages, and those people are being put at risk,’’ Smith said.

He also said the archdiocese is overstating the value of the lump sum payments.

Smith also said that the archdiocese is taking advantage of the fact that church plans are not held to strict federal standards, which apply to most pension plans and which prohibit pension funds from asking employees to accept a reduced benefit.

Even if the church does not have a legal obligation to follow federal guidelines, he said, it has a moral responsibility to do so.

O’Malley should “simply stand up and publicly say on television that this is the full faith and credit of the diocese and every single person will get every dollar they’re due,’’ Smith said.

Before yesterday’s press conference, Smith met with a group of about 15 current and former employees of the archdiocese whom he provocatively dubbed “Boston Pension Abuse Victims.’’

Most of the employees declined to speak to the press. But one former administrator for the archdiocese who would give only her first name, Karen, said she had worked for the archdiocese for 22 years. Her lump sum payment would amount to about half of her former annual salary, but she is nervous about leaving it on the table.  “They’re making a threat that it may not be there,’’ she said.

In an interview yesterday, the current archdiocesan chancellor, James P. McDonough, said it is “the cardinal’s goal and the pension trustees’ goal to fully fund the pensions, but neither the cardinal nor the trustees can predict what will happen over the next 30 years.’’

Carol Gustavson, director of benefit trusts and plan administrator for the archdiocese, said the plan has been carefully reviewed by lawyers and actuaries to make sure it complies with the law.

Yes, Jim and Carol, it may comply with the law (because the law does not govern church plans), but does what you are doing comply with past promises made by the Archdiocese of Boston to employees and the Catholic faithful?  Is it correct on an ethical and moral basis to have the Catholic Church reneg on a promise made to the Catholic faithful like this?  Why will no one from the archdiocese acknowledge the promise made by Cardinal O’Malley in 2004 to repay $5 million still owed to the pension plan by closed parishes and to be repaid from reconfiguration funds? Why won’t the Chancellor at least add that $5 million to the pool of funds and recalculate all of the lump-sum payouts?  Why is no one explaining why $2.5 million of reconfiguration funds that was promised to first repay pension obligations was instead diverted to Jack Connors’ Trinity Academy project in Brockton?  The next time a reporter talks to Terry, could you ask him that question?  Terry, Jim, and Carol, next time you make a statement, could you comment on that?

Then there is the smear campaign.

Terry Donilon, criticized the former chancellor for there not being balanced budgets during his tenure, with no context for the financial freefall that followed the clergy sexual abuse crisis which Terry, of course, never had to deal with because he was doing PR at Shaws Supermarkets at the time.  Terry’s predecessor, who made somewhere in the range of $50-65K less/year than Terry is paid today, walked into her job thinking she was doing proactive PR for the good works of the archdiocese and Catholic Church in Boston, and instead found the sexual abuse crisis hitting weeks later.

In a WBUR interview, Terry continued the smear campaign.  The WBUR reporter discussed the objective downsides of the offer to retirees (listen at 2:35):

“I’ve talked to tax experts who say this is a problem because it could open the person receiving this lump sum up for a large tax bill, in addition, they’re reducing the amount that they get because they’re taking it earlier in their retirement, and in addition, they’re absorbing the losses for the plan suffered. One tax expert said,  ‘It’s a surprising idea to come from a Church.’ “

The response by Terry Donilon from the archdiocese (listen at 2:48):

“I don’t know what planet David Smith is living on.  What we’re doing is a very responsible transparent, and fair way of trying to protect the beneficiaries. We are living in extreme and extraordinary times.”

The reporter went on to say (3:30) that “Terry, really just attacked David Smith’s track record as chancellor of the archdiocese.”

Nice job, Terry, of upholding the “highest Christian ethical standards and personal integrity.”By the way, if you are being transparent, how’s about explaining what happened to the $5M owed by closed parishes the Cardinal promised would be repaid from reconfiguration funds?

We are waiting now to see what Attorney General Martha Coakley and Secretary of the Commonwealth William Galvin are going to do.  Do not all hold your breath at once waiting for their response. In the meantime, we think the failure to repay this $5M as promised and the redirection of reconfiguration funds to Brockton’s Trinity Academy constitutes “Abuse of, or Fraud with Benefits”, which would be a violation of the new Code of Conduct Policy.  Anyone who cares about this issue and wants to do something about it immediately can submit an Ethicspoint claim here and see what happens. All the information you need to reference is here.  Former employees, current employees, priests, religious, or any concerned Catholic can file a claim, and is set-up so you can file the claim anonymously.

Lastly, as reported in the media, the Daughters of St Paul and the Archdiocese sit with a mediator today to see if the issues that motivated their lawsuit against the archdiocese can be resolved.   Comedian and talk show host, Conan O’Brien mentioned the lawsuit by the Daughters in one of his monologues last week.  Here is a link to the video. (fast forward to 4:00 for the 20-second part about the Daughters).

Even if what they are doing is technically “legal,” does anyone believe it is correct ethically and morally for the Catholic archdiocese to summarily abandon their promises made to long-time dedicated Catholic employees and publicly position it as though they are somehow doing the right thing?


Statement of Former Boston Archdiocese Chancellor Calling for Takeover of Pension Plan by Massachusetts Attorney General and Secretary of Commonwealth

March 28, 2011

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.

Coercion

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…”

Deceit

The average person reading the Archdiocesanprepared “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:

  • Coercion
  • Deceit
  • 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.


Pension Roadshow: “The Circus is in Town”

March 13, 2011

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.


The Connors Conundrum (and Facts about Jack)

February 26, 2011

The article in Wednesday’s Boston Globe about Peter Meade leaving his job leading the Sen. Edward M. Kennedy Institute had a detail we did not get to mention in our last post—namely, how Jack Connors, Jr. is raising $125 million to fund the new Kennedy Institute.

That brings us back to the conundrum over powerbroker, Jack Connors, and his ongoing involvement in the Archdiocese of Boston.  At the end of this Opinion piece, you will find an interactive poll for audience participation, so you may want to keep reading, or just jump to the end of the post for the poll.

In the interest of balance, you can see from articles in the Boston Globe and Boston Magazine that Jack Connors does much good around Boston.  But those civic good works are different from the nature of his involvement in the Archdiocese of Boston and Catholic Church, where different questions need to be asked.

In the context of the Catholic Church and the Archdiocese of Boston, the more one looks at the actions by Connors, the more one cannot help but ask if he has objectively disqualified himself from serving on a key archdiocesan body like the Finance Council. We ask the question. You will have a chance to weigh-in on the answer in a few moments.

Anyway, according to the Globe article about the Kennedy Institute, Jack has almost hit the $125 million fundraising goal. This is the same Jack Connors who is supposed to have raised $70 million for the Campaign for Catholic Schools “2010 Initiative”—which was supposed to have ended December 31, 2010. Yet here we sit two months later, and the new archdiocesan fundraising group announced under the pretense of enabling more “accountability and transparency” has yet to account for what they raised by their deadline. One can only assume that they missed the goal and are still scrambling to raise the money.

A number of BCI readers have asked how Jack can be raising $70 million for the Catholic schools—a part of the Catholic Church, which we all know opposes abortion–while at the same time he is raising even more money, and apparently more prodigiously, to fund an institute commemorating a man who publicly supported abortion on demand. If we knew how to reach Jack via email, we would invite his reaction, but we just cannot seem to find his email address anywhere.

Beyond this matter of his conflicting fund-raising priorities, an even more important question to ask is the following:

Based on the guidelines for membership on the Archdiocese of Boston Finance Council, has Jack Connors, Jr.–by virtue of his public actions and public advocacy for certain politicians–objectively disqualified himself from membership on the Finance Council?

We are not commenting on Jack as a person or his values.  We are simply sharing objectively verifiable facts and public actions and asking the question.  Below we share the requirements for membership, definitions of key terms, and the “Facts about Jack” that call into question whether he has made himself ineligible for membership.

REQUIREMENTS FOR MEMBERSHIP ON FINANCE COUNCIL

Beyond business/financial expertise, there are two requirements to serve on the Archdiocesan Finance Council we would like to highlight:

  1. The Code of Canon Law (Can. 492 §1.) says that Finance Council members must “outstanding in integrity.”
  2. The Archdiocese of Boston’s Finance Council Charter also says that members should be “Catholics in good standing.”

DEFINITIONS OF KEY TERMS

  1. Integrity: Here is the definition of “integrity” from Dictionary.com: “adherence to moral and ethical principles; soundness of moral character; honesty.”
  2. Catholic in good standing: There is no dictionary definition for “Catholic in good standing,” or even one in the Catechism, so we turned to Google instead and grabbed what several Church leaders have said on the topic:

Archbishop of Milwaukee, Jerome Listeki, speaking about a group that promoted use of contraception and abortion among Catholic youth said the following: using media advertising the group is, says the Archbishop-Designate, “attempting to convey the message that Catholics can disregard Church teaching regarding contraception, abortion and human sexuality in general and remain Catholics in good standing.” However, “Nothing could be further from the truth.'”

Archbishop of St. Louis, Robert Carlson wrote the following in the St. Louis Review:  it is “clear and unambiguous” that Catholics who want to remain in good standing with the Church can’t support abortion….Since the first century, the Church has addressed the moral evil of abortion and the killing of a defenseless baby in the womb…”You cannot be ‘pro-choice’ (pro-abortion) and remain a Catholic in good standing.”

Fr. Roger Landry of Fall River after the funeral of the late Sen. Ted Kennedy wrote in The Anchor about how the bishops’ “educating” policy has not converted any politician or made any politician less pro-abortion: “Jesus spoke of a different way in the Gospel (Mt 18:15-18). It involves not merely general educational statements that we hope offenders will apply to themselves in conscience, but the type of one-on-one instruction traditionally called fraternal correction. If that fails, and fails repeatedly, Jesus enjoined us to regard the offender as someone who no longer belongs to the community, who is no longer a member in good standing.”

Cardinal Sean O’Malley, in a 2007 interview with the Boston Globe: acknowledging that Catholic voters in Massachusetts generally support Democratic candidates who are in favor of abortion rights, O’Malley said, “I think that, at times, it borders on scandal as far as I’m concerned.”

FACTS ABOUT JACK

Now, here are some objective facts which are not in dispute. In other words, regardless of ideology, we believe that no one can disagree with these pieces of information:

  1. Jack was chair of the “sham search” to select a new Secretary of Development for the Archdiocese of Boston–announced to every Catholic in the archdiocese with great fanfare in June of 2010–while Jack, Chancellor Jim McDonough and others closely involved knew knew before the committee was formed that Kathleen Driscoll was slotted for the job.  There was never the intention to conduct an open search. Committee members were told they were selecting a new person, but the committee never met to interview candidates, no ads were ever placed in philanthropic journals to try and find the best candidate, and the committee was told in October of 2010 that their services were no longer needed since Kathleen had been chosen independent of them. BCI detailed the situation in multiple posts, including “Diocesan Deception and Coverup?” and “Diocesan Deception and Coverup: The Archdiocesan Response.” We repeatedly asked the archdiocese to respond to the issue of the sham search and they never did. [Issue: Integrity]
  2. Jack is Chairman of Partners Healthcare, whose Brigham and Women’s Hospital profits from performing 4,300 abortions every year (3,600 first-trimester and 570 second-trimester).  The only data we can readily find on number of abortions per state  annually (which is likely incomplete), suggests Brigham and Women’s handles about 18% of the 24,128 abortions performed annually in Massachusetts. [Issue: Catholic in good standing]
  3. Jack was the Co-Chair of the 2004 Democratic National Convention that nominated Sen. John Kerry for president. Sen. Kerry is pro-abortion in his voting record. [Issue: Catholic in good standing]
  4. Jack publicly endorsed Martha Coakley for U.S. Senate. Martha Coakely is pro-abortion in her political record. In a January 2010 radio interview, when asked about conscience rights and religious freedom for Catholic healthcare workers who believe what the Pope teaches, Coakley responded, “You can have religious freedom but you probably shouldn’t work in the emergency room.” [Issue: Catholic in good standing]

THE CONNORS CONUNDRUM

So now we return to the Connors Conundrum.

To be a member of the Finance Council, someone must be “outstanding in integrity” and a “Catholic in good standing.”  We make no judgment calls on Jack Connors’ character, motivations, political views or the state of his heart and soul.  We simply look at the factual information–words and actions that can be objectively observed, and pose a question.

Based on the guidelines for membership on the Archdiocese of Boston Finance Council, has Jack Connors, Jr.–by virtue of his public actions and advocacy for certain politicians–objectively disqualified himself from membership on the Finance Council?

Since the archdiocese is doing a survey to get input on the “relegation to profane status” of closed church buildings, we thought it would be timely for us to do a survey on the Jack Connors Conundrum.  Here is the one question:

We will keep the poll open through the weekend until Monday, so let other friends and family members know.  Only one vote per person.

What do you think?  Please keep any comments to just the topic of this post and free from personal attacks.


Is Boston Archdiocese Violating the Law?

January 7, 2011

For months now, we have been told by readers they are rather certain the Archdiocese of Boston has been violating the law in ways that could make the archdiocese subject to any of a variety of civil charges or fines.  The excessive salaries we have been reporting on which represent a breach in fiduciary responsibility, and now the manner in which the archdiocese is handling the freezing of the lay pension plan, both raise significant enough questions that we feel this merits urgent attention by those legally expert in such matters, as well as the Presbyteral Council, Finance Council, and College of Consultors.

In yesterday’s post, Catholic School Questions, the comments revealed how the archdiocese is implying to employees that their pension fund might not be there some day so as to encourage them to take a lump sum pension fund payment now.  Beyond the troubling ethical implications, on a legal basis, doing this could leave the RCAB open to sanctions under state and federal regulations. We will take this whole matter up in a separate post, but for now you can share your thoughts on that issue via comments on that post or this one.

Excessive salaries is a whole different issue which we bring to a new level in our coverage today based on the legal consequences many readers may have not been aware of.

In 2004, the Internal Revenue Service announced a new enforcement effort to identify and halt abuses by tax-exempt organizations that pay excessive compensation and benefits to their officers and other insiders.

Could the Boston Archdiocese be subject to fines or loss of their tax-exempt status because of excessive compensation?  The $325,000 annual salary of Schools Superintendent Mary Grassa O’Neill remains one of several glaring examples that could trigger government fines or sanctions.  Read on.

“We are concerned that some charities and private foundations are abusing their tax-exempt status by paying exorbitant compensation to their officers and others,” said Mark W. Everson, then-Commissioner of the Internal Revenue Service. (The current commissioner is  Douglas Shulman)

This particular enforcement effort lasted about a year.  According to this IRS report , twenty-five (25) of the organization examinations resulted in proposed or assessed excise taxes aggregating in excess of $21 million against 40 persons or organization managers. Among the issues giving rise to these assessments was “excessive salary and incentive compensation.”

If the IRS were to get wind of the current pay practices of the Boston Archdiocese for executive cabinet members, we are honestly not sure what would happen.

This report on the IRS effort says the following:

“There is no bright-line rule defining “reasonable” compensation. The IRS has indicated that reasonable compensation is measured with reference to the amount that would ordinarily be paid for comparable services by comparable enterprises under comparable circumstances.”  Fines are 25% of the part of compensation deemed “excess” plus an excise tax of 10% to the organization manager.  The report also says, “Finally, if the IRS determines that a nonprofit organization pays “excessive” compensation to an employee, it could revoke the nonprofit’s Section 501(c)(3) tax-exempt status on the basis that the payment of excessive compensation violates the prohibition against the use of nonprofit assets to benefit private individuals.”  We are not making this up.  Click on the image to see for yourself.

The report, “Wrongdoing by Officers and Directors of Charities: A Survey of Press Reports 1995-2002″ by the Hauser Center for Non-Profit Organizations at the Kennedy School of Government (where  the most trusted advisor to Cardinal O’Malley on everything, Fr. Bryan Hehir, works and collects his six-figure salary) looked at allegations of criminal and civil wrongdoing by officers and directors of charitable organizations. Of the 152 incidents found, 104 entailed criminal activity, 54 involved breaches of fiduciary responsibility (the duties of loyalty and prudence) – self-dealing, failing to carry out the mission of the charity, and negligent management of assets – and 6 fell into both categories.  Under the caretory of “Fiduciary Duties Breached”, in 14 cases “payment of excessive compensation” was present.

This is a very serious problem.

For first-time readers, here is a quick summary.  Dr. Mary Grassa O’Neill is paid a salary of $325,000 as Secretary for Education and Superintendent of Schools for the archdiocese.  This is the highest paid person in the archdiocese, and we can find no other person in a comparable role in another archdiocese paid at this level.  We checked.  (If someone proves us wrong with documented information, we will issue a correction, but no one has to date).  There are 42,500 students in Catholic schools in Boston and the number is dropping every year.  By means of comparison, Dr. Carol Johnson, superintendent of Boston Public Schools is paid $265,000 and they have 56,000 students.  (Apologies for an error previously–an alert reader checked with the Boston Public Schools office and verified directly that Dr. Johnson is paid exactly $265K, with no bonus accepted).   Here is our previous post on this topic where we cited how Grassa O’Neill was making about $138,000 in 2003 in her last superintendent job.  Here is a comparison vs other public school superintendents in large metropolitan areas:

But even this comparison is flawed because, unlike public schools, where the superintendent is directly responsible for management of policy, curriculum, busing, district-wide budgets, hiring and firing teachers and principals, negotiations with labor unions, and a host of other issues, Grassa O’Neill is not directly accountable for results.  She and her office may support pastors, school leaders and faculty on an as-needed basis with areas like planning, curriculum development, recruitment and hiring, development and fundraising, but they do not actually manage, direct or drive these areas. Since most Catholic schools are parish-based, the key decisions are all made locally, so the role of Catholic Schools Superintendent is mostly consultative and advisory.  As one reader wrote to us about the Boston Catholic Schools Office (CSO):

They aren’t running anything, they are just running to the bank.  It is far from the job description of a superintendent in New York City, Brookline, or Los Angeles, where the superintendent has the ultimate responsibility and authority over the schools.  CSO has none.  So why the big paydays?

It is bizarre.  A million bucks for a command staff that commands nothing, and puts out no financial reporting, no long range plan, no results, nothing.

One of our researchers wrote to other large dioceses about salaries and recently heard back from the head of HR for one of them.  Our researcher shared the Boston salaries and asked if the other diocese could give some sense for how they compared.  Here is what our researcher wrote and received back:

To HR Director,

I am a Boston-based writer conducting some research into whether salaries paid to lay leaders and executives in the Boston archdiocese are consistent with those paid in other dioceses.  I’m wondering if you might be able to share a general range of compensation paid in ___ for key positions, such as the following. The amount in parenthesis is what has been reported publicly that these positions pay in Boston:

Superintendent of Schools (publicly disclosed salary is $325K/year in Boston)
Assoc. Superintendents of Schools (publicly disclosed salary is $188K/year in Boston)
Chancellor and head of finance: (publicly disclosed salary is $250K in Boston)
General Counsel: $300K/year in Boston
HR Director: $150K/year in Boston

Are the salaries of some of these roles a matter of public record in the ___ archdiocese?  If not, I’d appreciate if you are able to give some sense for the ranges. We are looking for a basis to compare vs other large archdioceses.

Thanks in advance for any perspectives you can share.

The response:

These are not consistent in ___.  The first 2 are way over ___
Chancellor is a priest on priest stipend
General Counsel varies but $300K is high
And I wish HR got $150K…..but, not in my lifetime.

As best as this writer can determine, based on IRS guidelines and based on the Kennedy School of Government Hauser Center for Non-Profits’ report on wrongdoing by Officers and Directors of Charities, the leadership of the Boston Archdiocese is today breaching their fiduciary responsibility by paying excessive salaries to a number of senior lay executive employees–in the Catholic Schools Office, in HR/benefits, in legal, in finance, and probably in fund-raising, communications and other areas.   Are laws being violated?  We do not know–we will have to leave that determination up to others.

The archdiocesan Presbyteral Council is meeting with Cardinal O’Malley next week.  We are asking all readers to talk to their pastor this weekend at Sunday Mass about the problems you have seen documented on this blog and ask him to request that these concerns be discussed at the Presbyteral Council meeting. You can focus on just the excessive compensation and legal risks if you wish, but better still, ask him to request that the following concerns be discussed:

  • Leadership/Governance: especially the need for engaged, active leadership and governance by the Archbishop of Boston
  • Integrity: on the part of cabinet members and the archbishop in words and actions
  • Fiscal Management: breach of fiduciary responsibility with excessive six-figure salaries being a good starting point, and
  • Team: will there be likely changes with the Vicar General (returning to the military) and the Chancellor?  How will those be dealt with?

Click on “Leave a comment” at the end of this message, and you’ll get an email link/graphic that will let you easily email a copy of this post to any friend or colleague.  If you have your pastor’s email address or that of a member of the Archdiocesan Presbyteral Council, we suggest you start there.  At the same time you are asking your pastor to request that these issues be discussed by the Presbyteral Council, let your pastor know you are praying for him and supporting him 100% in raising these issues. If you do not know your pastor’s email, talk to him in-person over the weekend.  Regardless, you can also send a copy of this post to: newstip@globe.com.


Caritas Christi: Going…Going…Gone!

October 7, 2010

 As expected, yesterday we heard that Attorney General, Martha Coakley, approved selling Caritas Christi to Cerberus, with a few additional restrictions that make the deal less bad but still not all that great. Some readers are asking us for shorter posts, so we will try this time around and see how it goes.

All would probably agree this marks the beginning of the end of Catholic healthcare in Massachusetts. Do you remember Coakley’s comment during her failed U.S. Senate campaign that devout Catholic healthcare workers who abide by Church teachings on abortion and birth control, “can have religious freedom but you probably shouldn’t work in the emergency room“? Well, it looks like the chicken will be coming home to roost on that comment in the not-too-distant future.

Anyway, the 39-page report by the Attorney General’s office makes for an interesting read, and we learned quite a few things from a quick 15-minute review of it, including the 9-page appendix that answers some of the most frequently asked questions. Below we simply will share the high level conclusions of the report, and what we learned, including some disturbing gaps in what initially seemed like a fairly comprehensive assessment.

High Level Conclusions from the Report

“In any transaction involving the transfer of a hospital’s charitable assets to a for-profit entity, the Attorney General’s Office has statutory authority to conduct a review of the proposed transfer. In its review of the Caritas transaction, the Attorney General’s Office found that:
(1) it is impracticable for Caritas to continue to survive in its current charitable form;
(2) due care was followed by the Caritas Board and senior management during the transaction;
(3) the Board and senior management appropriately disclosed and managed conflicts of interest;
(4) the transfer of assets affords Caritas fair value for its assets and operations; and
(5) the transfer is in the public interest.”

What We Learned, Gaps in the Report

1) Impracticable for Caritas to have survived in its current charitable form?

Coakley’s report gives a list of all of the negative aspects of Caritas’ financial position through February 2009, including doom-and-gloom consultant reports, and reduced numbers of patient discharges, patient days, and outpatient surgery volume. These reports indicated Caritas had limited options to stay afloat and also fund pensions and needed facility improvements. We hear in 2009 that consultant Navigant projected Caritas “would default on its existing debt covenants (i.e., less than 30 days cash-on-hand) in less than one year.” You read the report, and it seems like there were no other options and the Cerberus deal sounds like a “white knight.”

But, conspicuously absent from Coakley’s report is one word about how Moody’s and Standard and Poor upgraded their long-term bond ratings on Caritas in late 2009 and February of 2010. In February of 2010, Caritas and the Boston Business Journal reported that Moodys upgraded their long-term bond ratings.

The upgrade reflects the turnaround in financial performance in FY 2009 and our belief that this new level of performance is sustainable. Moody’s said the hospital group has better cash flow to cover its debt service and experienced an upswing in unrestricted cash and its investment position, $235.3 million compared with $172 million at the end of fiscal 2009. Moody’s said its analysis takes into consideration a potential $100 million bond issue during fiscal 2010.

Why is this information from late 2009 and early 2010–which undermines the doom-and-gloom scenarios from the consultants up to early 2009–not mentioned in Coakley’s report? We do not know. Nor do we hear about how Caritas has the cash resources be off acquiring other hospitals like Landmark, and “quietly courting area hospitals about potential mergers” while claiming to be unable to fund their own operations. It makes no sense that Coakley omitted this from her report.

 (2) Due care was followed by the Caritas Board and senior management during the transaction?

The report details the history of trying to merge Caritas with a Catholic hospital chain and/or sell it over several years. Most interesting is how the Caritas Board approved entering into a letter of intent with Vanguard Health Systems to sell most of Caritas assets, and how Caritas and Vanguard Health Systems signed that letter of intent on November 4, 2009. Next thing we hear in the report was they were unable to reach agreement on material terms, including the underfunded pension liability and no-sale period, so the letter of intent was terminated in December 2009 (no exact date provided). The report says Cain Brothers was then engaged to help Caritas explore other options, which meant reaching out to private equity firms. We are told that of five approached, three responded, including Cerberus, and two were pitched in January of 2010.

Apparently no one in the Attorney General’s office read the March 28, 2010 Boston Globe, where the general public was told the deal to sell Caritas to Cerberus was actually set in motion in November of 2009 at the Marriott Desert Springs Resort & Spa in California. [We peg that date as being November 11-15, when Nardelli was a keynote speaker at the Ernst and Young Strategic Growth Forum 2009 at the Marriott Desert Springs]. Maybe the Vanguard negotiation was already problematic a week after the letter of intent was signed, and de la Torre was hedging his bets in case it went south, or maybe the prospect of the deal with the three-headed lion that guards the gates of hell (Cerberus’ symbol) looked better than Vanguard. We just find it curious that Coakley’s report attempts to paint a detailed timeline, but then we find stuff like this omitted that was right out in the public domain.

 (3) The Board and senior management appropriately disclosed and managed conflicts of interest?

 The report does not say anything about Coakley’s own conflict of interest of accepting $34,000 that was donated to her by de la Torre and Caritas executives during her U.S. Senate campaign. Also, folks like friend-of-Martha and campaign-donor-to-Martha, Jack Connors on the archdiocesan finance council, who may want selected Caritas properties for Partners and who gives direction to Caritas board member Fr. Bryan Hehir, were not considered in the report.

Catholic Action League of Massachusetts weighed in saying, 

“Although Martha Coakley deserves some credit for extending the period during which the hospitals cannot be closed, and in trying to ensure care for the indigent, her refusal to address the issue of the termination clause will likely result in the secularization of the six hospitals under the new owners. This means the abandonment of Catholic medical ethics, including the right to life from conception to natural death, the loss of conscience protections for pro-life doctors and nurses, a reduction in charitable care for the poor, and the replacement of Catholic social teaching in employee relations, such as the family wage, with the free market law of supply and demand. Catholics must now turn to the Holy See as the last court of appeal if one hundred and forty-seven years of Catholic health care in Boston is to be preserved.”

What do we think will happen ahead? The SJC and state Department of Public Health will approve the deal. If the Vatican does as well, look for Carney Hospital to eventually close (because the modified agreement says they can do that if it is unprofitable for 2 years), maybe St. Elizabeth’s will close as well, and Jack Connors’ Partners to likely pick-up whichever of the hospitals Cerberus closes or unloads at a great price.  That would leave only two more Archdiocesan assets available for Jack Connors to potentially try and grab—Regina Cleri for Partners and St. Johns Seminary for his alma mater, Boston College.

For now, just start practicing how to say adios, because that is the word we will use to describe what happens to the Catholic identity at Caritas and Catholic healthcare in Massachusetts.


Boston Catholic Insider Error, More Caritas Questions

August 31, 2010

We usually try to stick to one topic per post, but just wanted to acknowledge a mistake and also get some Caritas news out to you quickly.

First, 8 days have passed since the Archdiocese said they had reached out to bloggers (other bloggers that is, not us) seeking a conversation, and we still have received no response to our Open Letter.  (The Open Letter just lists a few topics for discussion and consideration to help the archdiocese improve how they operate).  Also, 38 days have now passed since our first email to the archdiocese of July 23 asking for an explanation of the conflicts of interest that led to the hiring of the Secretary of Communications and the Chancellor, and we still await a response.

Second, alert reader “John” pointed out an error in our Open Letter that we have since corrected.  We said we were unable to find another schools superintendent in the country paid $325,000/year, as Dr. Mary Grassa O’Neill is paid by the Boston Archdiocese.  We really had not found any higher-paid public or parochial school superintendents, but John did better than us.  He found that the Boston public schools superintendent makes a healthy bonus on top of her base salary of $280,000, putting her at total compensation of $335,000 for administering 56,000 students.  Since the archdiocese serves 43,000 students (about 24% fewer students than Boston), John suggested “on this very generous City of Boston basis, Mary Grassa O’Neill should be getting only $257,876 per year. O’Neill’s earnings should be reduced NOW by $67,124 per year . This would buy quite a bit of school supplies, don’t you think?”  (John’s proposed correction would put Dr. Grassa O’Neill closer to the compensation of the New York Public Schools superintendent, Joel Klein, who makes $250,000/year for managing 1.1 million students in 1600 schools with an annual budget of $17 billion, as well as Ramon Cortines in Los Angeles who also makes $250K/year for directing the second-largest public school system in the country with 694,288 students, 45,473 teachers, 38,494 other employees, 1044 schools, and a total school district budget for 2009-10 of $7.3 billion).  We apologize for the inaccuracy in our previous statement.  As always, if you find something incorrect or any claim you feel is “unfounded,” just let us know and we will adjust accordingly with a public correction.

In followup of the announcement Friday that Caritas Christi is planning to acquire Landmark Hospital in Rhode Island, we wanted to quickly share a couple more Caritas Christi questions for you.

1. If Caritas is in danger of folding w/o Cerberus’ cash infusion, where exactly is the money coming from to buy Landmark?

2. If Caritas Christi is planning to abide by Catholic religious and ethical directives after the acquisition by Cerberus, how do they explain the plan to keep Landmark secular (see Providence Journal report), which includes allowing them to continue doing sterilizations and performing family planning services that violate such directives (see Boston Globe report)?  How does that gibe with Cardinal O’Malley’s March 2009 statement that “Caritas Christi will never…in any way participate in actions that are contrary to Catholic moral teaching…and no arrangement will be entered into unless it is completely in accord with Church teaching.” Are we who question this still “doing a great disservice to the Catholic Church”?

3. Going back a few years, can someone explain how we should reconcile Fr. Bryan Hehir’s emphatic statement in October  2007 that Caritas would never be sold to a for-profit when their financial condition was weak (“The idea that the archdiocese would sell Caritas to a for-profit system – it’s not going to happen,” and now with their financial condition stronger, they are being sold and converted to a for-profit?

4. Since Caritas explored a sale or merger with other Catholic healthcare chains several years ago (including Ascension Health, Catholic Health East, and Catholic Health Initiatives) that would have preserved the Catholic identity and mission, have similar discussions been re-opened and re-explored at this time as an alternative to the Cerberus deal?

5. Has anyone yet explained what the Boston Globe called an “unusual move” by 3 insurance carriers (Blue Cross Blue Shield, Harvard Pilgrim, and Tufts Health Plan) to  fund the Caritas study commissioned by Attorney General Martha Coakley in November 2007 that led to her “roadmap” of recommended changes in governance, which now have set the stage for the Caritas sale and conversion to a for-profit hospital?

6. Was it just a pure coincidence that the Hauser Center at Harvard’s Kennedy School of Government (where Fr. Bryan Hehir works) issued a working paper on “Attorney General Oversight of Charities” in October 2007, and shortly thereafter on November 3, Massachusetts Attorney General Martha Coakley announced she was commissioning a study of Caritas’ governance in order to issue a roadmap for their future?

7. Who from the Archdiocese with solid  business skills and a track record of adherence to the teachings of the Roman Catholic Church is ultimately in charge of decision-making over Caritas Christi today?

You can read more questions about the sale of Caritas in our posts:
Caritas Christi: Is Catholic Healthcare in Boston Being Sold-off for a Few Silver Coins?
Caritas Coincidences? 
Caritas Coincidences: Part 2, and
Trust

Have a blessed day!


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