March 28, 2011

The Archdiocese of Boston has been consistently and actively involved in developing and implementing a comprehensive plan to address the long-term stability of its defined benefit lay pension plan (the Plan). The pension plan impacts approximately 10,000 current and former employees and beneficiaries of parishes, schools, and Archdiocesan-related agencies. Due to extraordinarily difficult global markets, the Plan, once 100% funded, is now estimated to be 83% funded. Like portfolios, pension plans and endowments in many sectors of society, the Archdiocesan Plan suffered greatly during the recent economic downturn. Trustees of the Archdiocese pension plan are committed to addressing the financial problems the pension plan faces and continue to work towards the goal of full funding. Neither commitments are new; both have been a matter of fact and practice for decades. Despite the fact that since the inception of the Plan almost 50 years ago, benefits under the Archdiocese Pension Plan have not been guaranteed or insured, it is the goal of the Trustees of the Pension Plan and a priority of the Cardinal Archbishop to achieve full funding.

The Trustees for the Plan have been committed to a process that is transparent and inclusive while relying on the financial advice of experienced and reputable professionals in the industry. Meetings regarding the changes to the plan, which include freezing the benefits for active employees at the end of the 2011, began in June 2010 with leaders of Archdiocesan entities. Plan changes were then adjusted based on their feedback. In the fall of 2010, letters went out to all 10,000 participants in the plan, and over 45 meetings and webinars were held with current employees. Approximately 1,600 individuals attended those meetings. Additional meetings with current employees will be held in the fall, when they will become eligible for the lump sum or in-service annuity options.

In late February 2011, a detailed package of information was sent to approximately 1,800 former employees. These individuals were being offered two voluntary options: those vested may elect to receive a monthly payment when they retire or a lump-sum payout reduced to reflect the plan's underfunded status. The average payment at age 65 for those receiving a letter is approximately $365 per month. Information about the voluntary options was posted on www.catholicbenefits.org and a dedicated telephone line was set up to answer calls. Call volume was high right after the mailing and is now steady at 5-10 calls per day, many from financial advisors who represent eligible former employees. All individuals offered the option were invited to attend one of 11 regional meetings and encouraged to bring a spouse or trusted advisor. Approximately 100 people have attended the meetings to date. The meetings include information from an independent financial education firm engaged to provide information about factors that should be considered in electing either option or doing nothing with the options today. The Archdiocese has informed meeting attendees that the choice to take a lump-sum payment or remain in the pension plan would be a voluntary and individual one. The Archdiocese has noted at the meetings and in prior correspondence that each person must consider his/her own life circumstances when making his/her decision. The plan’s staff has also provided translators and held one-on-one meetings when requested. Throughout these communications, the message that these options are voluntary has been consistent.

With regards to claims made by former Chancellor David Smith, a participant in the Plan and an individual currently eligible for a lump sum or monthly annuity payment, the Archdiocese and Plan Trustees deny unequivocally his claims, including that the choice to take a lump sum payment is an involuntary one. The Plan Administrator and multiple Trustees have communicated directly with Mr. Smith via email, phone and in person since December 2010 to provide specific information in response to his expressed concerns.

Just as it would with any former employee who received a packet in February 2011 outlining his lump sum and monthly annuity option amounts, the Archdiocese has been responsive and thorough in responding to Mr. Smith’s questions. Specific concerns he raised were addressed in two meetings he attended recently at the Pastoral Center with other former employees.

Mr. Smith notified the Archdiocese late last week that he had filed a document with the IRS several days earlier. He was asked to provide a copy and to date has not done so.

The Pension Plan Trustee’s worked for over a year with several highly-respected consultants to develop the current voluntary options, all of whom had worked with Mr. Smith in the past when he was a Trustee and/or Plan Administrator - the Plan's actuary; the law firm for the Trustees (Wilmer Hale); and the consultant for the Trustees (Towers Watson). Careful and considered thought, in additional to thorough legal and actuarial reviews, were completed before the options were announced.

The Trustees have made audited financial statements for the Plan available online back to FY2005 on the Archdiocese website (http://www.bostoncatholic.org/annualreport.aspx). A new benefits website (http://www.catholicbenefits.org/) was launched in early 2010 to encourage sharing of information to employees and employers. Notice of the new website was sent to employees. Detailed information about the Pension Plan, including recent financial statements and valuation reports, is available on the website and has been for nearly a year.

To date, 190 beneficiaries have elected the lump sum payment, 14 have waived participation and 22 have elected a monthly annuity. The first round of payments will be mailed first week of May 2011.

Former Chancellor David Smith held a press conference on Monday, March 28, 2011 criticizing the Archdiocese’s approach to addressing the long-term stability of its defined benefit lay pension plan. Mr. Smith has indicated he might lead a legal effort and seek government intervention.

In addition, Mr. Smith has made statements stating the Archdiocese has failed to use funds from the sale of closed parish properties to support the pension plan and that the Plan risks losing its tax-exempt status. In response, we offer the following: we disagree with David Smith, who is eligible for the current voluntary lump sum or annuity option. In fact, during Mr. Smith’s time as Chancellor, more than $12 million (FY06 corp sole financials available online) was transferred from the reconfiguration fund into the pension plan. Commitments were kept with regards to the use of this money; the economic downturn caused the assets to erode, resulting in underfunding across the entire plan, including the portions of the fund which received the reconfiguration funds. Under Mr. Smith’s current theory, every time the return on investment of the pension assets is less than projected, employers must pay more right away to make up the difference. During his time as Chancellor and a Trustee of the pension plan, he kept employer contribution rates the same, regardless of the investment performance of the assets, including through times when the underfunding was worse than it is today. Catholic employers in the plan have been paying into the plan, but no employer can afford to put in double or triple the current amounts, which is what it would take to get the plan to full funding any time soon. With regard to the statement about the plan possibly losing its qualified status, the fact that it is underfunded, whether by $5 million or some other number, will not cause loss of qualified status. It is our understanding that Mr. Smith has sent a document to the IRS, but we have not received a copy of that document so we cannot comment on it. We have chosen a more thoughtful and reasonable approach that has been developed in consultation with pension plan experts (including the law firm, pension consultants, and actuary chosen by Mr. Smith during his time as Chancellor).