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.


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