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.

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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.


Boston Globe: Nuns take O’Malley to court over pensions

March 21, 2011

We commend the Boston Globe for their article today, “Nuns take O’Malley to court over pensions.”  as well as the Associated Press for also picking-up the story, now running in the Boston Herald and no doubt across the country.  BCI urges everyone to read the articles, and we invite the lawyers involved to keep reading below to find some additional insights that perhaps might help you.

The gist of this is as BCI first reported March 9, Boston Archdiocese Sued Over Pension Plan.  The Globe captured it well, so we will share their reporting of the situation:

In a highly unusual case pending before the Supreme Judicial Court, an order of nuns is suing Cardinal Sean P. O’Malley, the Roman Catholic archbishop of Boston, after years of trying in vain to withdraw from a church-run pension fund.

Nuns fighting a cardinal in court is almost unheard of, and their lawyers say they are doing so only as a last resort.

“The Daughters of St. Paul are just as unhappy as they can be about having to do this,’’ said Michael C. McLaughlin, an attorney for the nuns.

The nuns have asked the Massachusetts Supreme Judicial Court to order the pension plan trustees, who include O’Malley and several of his top aides, to provide them with a full accounting of the nuns’ portion of the fund, or to rule that the nuns were technically never part of the church-run plan and to order the archdiocese to reimburse the nuns’ contributions, plus returns. The nuns are also seeking attorney’s fees.

Their lawsuit alleges that representatives of the church-run plan were unable to supply data concerning the Daughters’ contributions and earnings required to effectuate the spinoff. The trustees, the lawsuit alleges, never kept separate records for each contributing employer — even though, it alleges, they were required to do so by the document establishing the trust.

BCI has not spoken to the Daughters or had any interaction whatsoever with them concerning this matter. Everything we report to you comes from other sources familiar with what is going on, and everyone we have communicated with feels the Daughters are in the right, and the archdiocese is in the wrong.  Here are several points to note which are not covered in the Globe article:

1) Pension Money Missing

As we reported in “Is Boston Archdiocese Committing Fraud?, $5 million is owed to the pension fund for employee pensions by closed parishes.  That has not yet been repaid, yet $2.5 was diverted from closed parish reconfiguration funds to pay costs of Finance Council member, Jack Connors’ pet Catholic Schools project in Brockton.  Another $40 million is owed to the pension fund by open parishes.  One might reasonably ask, is the amount the archdiocese is offering the Daughters for their contributions being reduced to adjust for other employer participants who the Archdiocese is not collecting from?  (Sidenote: as we know from our post yesterday, Diocese Defaults on Debt, the current administration is not one necessarily prone towards upholding all of their their financial commitments, but we digress..).

2) Accounting for All Benefit Funds

If it is not happening already, BCI thinks the lawyers for the Daughters should insist on a full accounting of all employee pension plan-related payments made over the past 5 years.  We know that $1.4 million was taken from insurance funds in 2010 to say that the 2010 Central Ministries budget was balanced (see “Easy Come, Easy Go” or graphic below.

And we already knew from the 2009 Annual Report (p. 75) that $2.6M was taken from the self-insurance program to cover the expenses associated with administering abuse prevention efforts and outreach to promote healing and reconciliation with survivors and others harmed by sexual abuse.

In what ways might the Benefits Trust funds intended for pensions have been used to pay other expenses (e.g. finance, accounting, HR, IT, etc) over the years that were not pension-related?   Has anyone talked to  or deposed Joe M. over in Risk Management to ask him in what ways Risk Management/Insurance reserve funds were used by the Chancellor to help balance the budget by cross-billing them to other departments?

How much from the Benefits Trust has been paid towards Carol Gustavson’s compensation, that started at $125K/year and supposedly increased to around $149,999–vastly higher than HR people in other dioceses are paid? Who else is paid by Benefits Trust funds and how much?  How do the benefits administrative expenses compare today vs the cost in 2005 before Jim and Carol arrived? If they are higher, why?

As we asked in “20 Questions About Pensions,” what has become of the many millions of dollars the RCAB has retained over the past 20 years as fee income from the investment returns for some other purpose or Corporation Sole expense?   Since RCAB charged these fees without license, why should the RCAB not have to make up all losses?

3) Hypocrisy

Carol Gustavson said the archdiocese requested information “demonstrating that the Daughters were equipped to oversee their employers’ own pensions.”  Why exactly is that required of the Daughters of St. Paul, when the archdiocese is saying Corporation Sole is neither equipped nor feeling morally bound to oversee  and fund their own employee pension plan?

4) Is Carol Competent to Hold this Role?

At one of the recent meetings with former employees, Carol Gustavson, an attorney and labor negotiator by previous occupation, said she was unable to answer an important question about the plan, explaining she was not as good with numbers as the former employee, gone 5 years, who asked the question. 

Sources familiar with Carol’s tenure in the archdiocese tell BCI that Carol had to ask employees or consultants basic questions about the attributes of a “Defined Benefit” vs “Defined Contribution” plan.  She was unaware of the need to file certain healthcare forms, required by law, and disputed knowledgeable employees and consultants who knew the requirements.  We are told that her emails had to be checked for errors, and sources indicate on one occasion, she was unable to do simple math regarding costs of a life insurance program that employees would pay for.  

5) Nature of the Negotiation

In the Globe article, Marcia S. Wagner, a pension law specialist whom the nuns hired in 2007, said she has never encountered such difficulty acquiring basic information to complete what she said should have been a straightforward matter.

“What struck me as most atypical is the incredible lack of responsiveness, the lack of any hard data or information, non-answers to very specific questions, and just endless, fruitless negotiations,’’ she said.

She added: “When you want to accomplish something that is par for the course and ordinary, and it becomes mired in arcane complexity, nonresponsiveness and non-answers, that will usually mean that something is amiss.’’

We have confirmed the validity of her comments.  Negotiations were characterized to BCI as “adversarial”  and occasions where “vitriol was spewed.”   One person told BCI, “The Archdiocese stonewalled them because they thought if the RCAB allowed the Daughters to exit the plan, then we’ll lose other organizations in the same manner.”

Then there is Carol G’s style.  BCI has it on good word that Jim McDonough paid a substantial amount of money not long ago to an organizational consultant he knew from his days at Abington Bank to try and help him resolve the dysfunction on his team.  (John Straub is the latest attempt at resolving the dysfunction). Of Carol, she was apparently found by the consultant to have low teambuilding and collaborative skill and to have created significant animosity amongst her colleagues within the department and across the Pastoral Center, which in turn created problems for the Chancellor.  She was perceived as a labor negotiator, not as an empathetic, fair, trustworthy head of HR.   That is not a personal attack, it is simply factual information. (Moving her out of high-level responsibility for HR and having her coordinate just benefits, the Pastoral Center floorplan and the phone system was an attempt to address those problems, but BCI thinks it would be better for her to be told she is simply not a fit for this organization). Some amount of your donations to the Catholic Appeal probably paid for the organizational consultant.

If Carol is not good with math, does not understand pensions and benefits, and does not get along well with other people, one might reasonably ask why she is still employed at the Catholic Archdiocese of Boston making a nice six-figure salary in a job that requires the aforementioned skills?  Answer: because she is seen by the Chancellor as loyal to him and his agenda.

Perhaps the Daughters’ attorney should also request a different archdiocesan representative to negotiate with.

6) Other Lawsuits?

This one lawsuit is just about getting pension funds back.  Though BCI knows of no other lawsuits, we hear that the Chancellor has nicely positioned the archdiocese for other potential lawsuits on age discrimination, especially by women.  For example, there is the manner in which the Chancellor pushed out his former administrative assistant after about 30 years of service.   People familiar with the situation report he said many times he was looking to hire a young blond secretary. (He ended up hiring a student, Peter, straight out of BC with no experience, and in short order he was making the same or more than the previous admin with 30 years experience).  Was it age discrimination, or simply that he did not want people around in the Chancellors and Cardinals’ offices who knew their jobs well, had institutional memory and connections to past leaders, and who would not let him break past promises?  How many other long-time knowledgeable, dedicated people over the age of 55 were pushed out with offers of early retirement on the basis that if they did not take the money at that time, there would be less in the future?

A BCI commenter wrote that when the Chancellor was hiring the new head of HR, he was overheard by a manager saying his goal was to hire someone who could “get rid of all these menopausal women” without triggering a lawsuit.  Nice Christian attitude, Jim.

So, there you have it.  Yet more reasons for a changing of the guard.  Does the Cardinal have the courage and backbone to make the tough decision to replace the Chancellor and other members of the cabal? We are asking this question not for BCI, but in order that the Cardinal can rebuild trust, take care of dedicated former employees living on limited retirement incomes, and ensure the future good works of the Catholic Church in Boston


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.


Boston Globe Gets it Wrong…Again

January 15, 2011

NOTE: The blog post originally published at 9:30am has been updated as of 12pm today.

We will have more for you on the new Catholic Schools policy in a separate post.  But in case you saw the headline in today’s Boston Globe about the appointment of Fr. Christopher Coyne to an episcopal position in Indianapolis, we wanted to let you know the Globe got the news wrong, yet again.  That is, they got it wrong until BCI corrected them.

First, let it be said that the blog thinks Fr. Chris Coyne is a fine priest, and we congratulate him on his appointment as auxiliary bishop of Indianapolis. He will also be Vicar General, which is effectively the #2 leadership/administrative position–at least it is in basically every other diocese in the country (except Boston today).  That he was appointed to be auxiliary bishop of Indianapolis seems rather clear from the Vatican announcement and the article in The Pilot, whose headline reads, Pope names Father Christopher Coyne auxiliary bishop of the Archdiocese of Indianapolis.”  It also is extremely clear from this article published yesterday afternoon in the Indianapolis Star whose headline reads, Indianapolis archbishop introduces new second-in-command and says,

“Coyne’s main mission will simply be to help Indianapolis Archbishop Daniel M. Buechlein carry out his duties. He will carry the load of the sacramental duties — like priest ordinations and confirmations — the archbishop typically performs in the large archdiocese that covers 14,000 square miles in 39 counties. Coyne also assumes the role of vicar general, which essentially is the No. 2 administrative post.  Buechlein, who turns 73 in April, has been on a reduced schedule since 2008, when he was diagnosed with Hodgkin’s disease, a cancer of the lymph nodes. That cancer is now in remission, church spokesman Greg Otolski said Thursday.

Today’s appointment came with no guarantee that Coyne could become archbishop of the Archdiocese of Indianapolis…Buechlein said he asked the pope for a co-adjutor, or assistant, but he chose to designate an auxiliary bishop.”

Yet despite that clarity, the headline of today’s Boston Globe article in the print edition reads, “Coyne to lead Indianapolis Archdiocese.”  It read the same way online as of 9:30am when we put out our post criticizing their mistake.  Keep reading to see the before and after.

That is simply inaccurate.  The photo caption says, “The Rev. Christopher J. Coyne listened yesterday as Archbishop Daniel M. Buechlein of Indianapolis announced his retirement.”  That is wrong–Archbishop Buechlein did not announce his retirement at all.  The title tag on the page (in the blue bar at the very top of the browser) says, “Spokesman for Cardinal Law to lead Indianapolis Catholics.”  That is wrong too.

Note the Indy Star headline for comparison:

Might auxiliary bishop-designate Coyne be well-positioned to become the bishop of Indianapolis in the future when the current archbishop of Indianapolis retires?  Sure.  But that is not assured, and he was simply appointed auxiliary bishop at this time.  Often times, the people who write the articles (e.g. Lisa Wangsness at the Globe, in this case) are not the same people who write the headlines, so we do not fault the reporter.  But we felt we should let you know about the error, because if we or our readers tell the Globe about the error, they are not likely to listen to us.

12pm UPDATE: Well, the Globe did listen to us in this case!  The headline of the article and photo caption are now changed as you can see below.

This shows that at least in this case, when the Globe sees something is objectively wrong, they are able to report the truth.

This brings us to three other related points.

First about the Boston Globe.  For some reason, the Globe seems to be totally ignoring the Boston Catholic Insider blog these past few months (except this morning!) and the breaches of fiscal responsibility and corruption we keep reporting on. In previous years and in other metropolitan areas, if there were serious allegations of corruption or breaches of fiscal responsibility like this, it would merit an investigation and probably be headline news, like the cronyism and misconduct in the Massachusetts Probation Department have been here lately.  Not the case with the corruption in the Archdiocese of Boston.  Seems as though the Globe must get exclusive rights or first access to the pablum handed out by Terry Donilon and Jack Connors–about the Catholic schools (fund-raising, increasing appeal to non-Catholics, the new Catholic Schools non-discrimination policy) or the personal good works of the Cardinal (e.g. visit to Pine Street Inn, visit to a prison), or the “dialogue” with the vigil parishes–and in exchange, the Globe simply will keep their heads in the sand and not write about the fiscal mismanagement, breaches of fiduciary responsibility, conflicts of interest, and other corruption that squander millions of dollars in donor contributions and could result in government sanctions some day.  If it makes Terry, Jack or the current leadership of the archdiocese look bad, the Globe is simply not likely to report on it today.

Secondly, this news about Fr. Chris Coyne being appointed auxiliary bishop/Vicar General/#2 in Indianapolis should cause everyone to ask about what is happening with the leadership in Boston.  Vicar General Fr. Richard Erikson is rumored to be heading back to full-time duty with the Air Force within a few months.  What attributes should the Cardinal look for in his next Vicar General?  What is happening with the future of the Chancellor? That will be the topic for a different post.

Thirdly, it is noteworthy that when the Archbishop of Indianapolis felt that he could not lead effectively, he asked the pope for help.  And the pope responded.  Food for thought..

We will have more about the Catholic Schools policy in our next post.

In the meantime, we extend our heartiest congratulations to Fr. Chris Coyne on his elevation to auxiliary bishop.  Here is a 2-minute video clip of the introduction of Fr. Coyne in Indianapolis we thought you would find of interest. The loss for Boston is a gain for Indianapolis.  We hear he has been an outstanding pastor at St. Margaret Mary in Westwood and we wish him well in his new assignment.


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.


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