Wednesday, January 21, 2009

Archdiocesan Pension Pitfalls

By Michael V. Tegeder

The decline of the economy in our country is impacting everyone including churches. Donations are down, investments are worth much less, parishes are slashing budgets and laying off employees. Pensions are also affected. In the Archdiocese of St Paul and Minneapolis, all lay employees over age 18 who work at least 25 hours per week are part of the lay pension plan. They have a vested interest in the plan after 5 years of work.

Our plan was started in 1970 and on the surface appears pretty standard. The parish or institution puts into each person's account an amount equivalent to 5% of his or her annual salary. These funds are invested and the plan is monitored by the Archdiocesan Pension Board. The Board has a fiduciary responsibility to the plan's participants. These trustees are appointed by and report to the Archbishop, who has the ultimate control of the plan.

One unique feature of any church pension plan is that they are exempt from the Employee Retirement Income Security Act (ERISA) of 1974 or the Federal Government's strict accounting regulations for private pension plans. These rules require certain funding levels and other safeguards. ERISA also requires each private pension plan to pay to the government a certain percentage to cover insuring the plan. If a business's pension defaults, the Federal Government will protect the individual pension participant up to a certain maximum amount. Although churches are exempt from ERISA, most church plans, as a matter of standard practice, seek to follow the ERISA rules. They do have the bonus of not having to pay the pension insurance. Of course, if a church plan fails, the participants have no protection.

Our Archdiocesan Lay Pension Plan has been run in fairly normal fashion with an outside pension consultant (The Mercer Corporation) and investment advisors. We do have some oddities. For instance, when the plan was started in 1970 all parishes and Archdiocesan institutions were required to participate unless they had an approved, legitimate defined benefit plan already. One parish, St. Bernard in St. Paul, did have such a plan; and to this day that parish and their schools do not participate in the Archdiocesan plan. Catholic Charities and the then College of St. Thomas also were exempt.

A number of pastors objected to participating in the pension; but only one held out, Msgr. Richard Schuler from St. Agnes. For over 30 years until he left the parish as pastor, St. Agnes parish and school did not pay anything into the plan. He set up a 403-b7 plan but legally this is not an approved pension but only a supplement. When some of the St. Agnes lay employees turned 65 they were able to apply and receive the Archdiocesan pension even though no funds were ever paid in for them. When I became aware of this situation over 10 years ago I made repeated efforts to have it addressed but to no avail. Under a new pastor, the employees at St. Agnes are now officially written out of the Archdiocesan plan, although employees are grand-fathered into the plan up to this change. No funds have been paid into the plan to cover this expense. This is simply incredible and would be obviously illegal under ERISA. I was the bad guy for bringing up this and other concerns and was removed from the Pension Board.

There is a separate plan for the priests. Their plan is really not a true pension plan but more of a disability plan. There are all kinds of departures from ERISA in how this plan is run. I will save this for another day. However, up until this year, the biggest difference between the two plans was the significant under-funding of the priest plan. Unlike the lay plan, from its inception in 1969, the priest plan grand-fathered in all those who reached retirement age even though most of their ministry took place before the plan existed and so no monies were contributed for them. To accomplish this, the plan was to have been fully funded by 30 years. Unfortunately, the priest plan never came to over 75% of funding its liabilities, and so in recent years the plan's trustees have extended the funding deadline out another 30 years.

Meanwhile, because the lay plan was run on normal actuarial standards, lay employees (with the exception of St. Agnes) only receive an amount based on the actual contributions made for them. Indeed, for many years the lay plan was over-funded. The plan had investments that more than covered the plan's liabilities. However, with the recent market decline that is no longer the case.

A year ago, in January of 2008, the lay plan was over 100% funded with assets valued at 107 million dollars. A year later the plan's value is estimated to be between 64 and 77 million dollars, and this includes the extra funds that were contributed to the plan over the past year. It is a remarkable loss. The priest plan had an even greater loss, but because the priest plan was always under-funded, it had to be more aggressive in its investments. For the lay plan to have had losses of 40% plus suggests that it was heavily invested into stocks. Bond investments are more conservative and had far fewer losses. It is very surprising that a plan that was obviously adequately funded, and could have lessened its risks by more conservative investments, had such large losses. This is very troubling.

To get back on track, instead of a 5% match, the lay plan would have to almost double this amount contributed for lay employees. This will not happen. We can all hope that the market will come back, but these losses are for real. It is time for a truly independent plan with trustees not hand picked by the Archbishop. Indeed, the time is opportune for true pension reform in the Catholic Church. Other denominations have pension plans based on a national basis. The economy of size allows them to have much lower expenses and to get true expertise in Board members. Indeed, the ELCA (the largest Lutheran Church body) pension plan is run from its Minneapolis headquarters and covers churches throughout the United States.

Ten years ago when at a Pension Board meeting I suggested that we might learn from the Lutherans, the priest fiscal director of the Archdiocese told me to join the Lutherans. He has since gone off to his ultimate retirement rewards, and I am still catholic enough to think we can learn from the Lutherans.

I have had trouble getting information for this article. The Chancery staff who work with the pension plans have been told they cannot talk to me or give me information. Under ERISA, plan participants have a right to financial information about their pension plan. This is one more violation of the intent of ERISA with the church officials using their exempt status to remain unaccountable.

Rev. Michael V. Tegeder is the pastor at St. Edward’s Catholic Church in Bloomington, MN.

1 comment:

  1. There is a pension crisis looming for all pension plans, including the PBGC which is underfunded itself, and if these church plans can slide under the radar without making changes to benefit structure, vesting, etc., they will be even further problematic to the participants in them long-term. Thank you for bringing this up.