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Novena of Grace 2016

Home : News : Nation and World
Philadelphia church employees, retirees brace for pension changes
Catholic News Service


PHILADELPHIA — In an effort to plug a more than $150 million hole in the retirement plan for its lay employees, the Archdiocese of Philadelphia announced Nov. 5 that it would "freeze" the current defined benefit pension plan next summer.

The decision to freeze the plan and cease the accrual, or accumulation, of benefits in the Lay Employee Retirement Plan after June 30, 2014, affects 8,500 current lay employees of the archdiocese.

All current staff of the archdiocese including workers in parishes and schools, the Archdiocesan Pastoral Center, agencies and facilities of Catholic Human Services and other church entities learned the news in meetings.

More details and a personalized statement of expected benefits were to be mailed to all beneficiaries Nov. 7.

Following that distribution, staffers of a call center will be available to answer specific questions regarding the announcement beginning Nov. 12, the archdiocese said in a statement.

"This action is not being taken to resolve a short-term concern," said Timothy O'Shaughnessy, chief financial officer of the archdiocese. The $478 million in assets of the plan "are well managed, they're in a separate legal entity governed by a separate trust agreement and a separate pension board.

"The shortfall of $150 million is an issue that needs to be dealt with for the long term. An underfunded obligation of $150 million puts a duty on us to ensure that we have a plan to cover the shortfall," he said.

The latest initiative to stabilize the archdiocese's teetering finances follows moves over the past 18 months to sell church buildings and land, lease Catholic cemeteries, market archdiocesan nursing homes for possible sale and lay off 25 percent of the workers at the archdiocese's headquarters.

The underlying reasons for those decisions were a financial condition marked by a reported $39.2 million operating deficit for the fiscal year ended June 30, 2012, and revelation of $350 million in long-term debt, the largest component of which was the $152 million shortfall in the pension plan.

Approximately 4,700 retired archdiocesan employees are already receiving benefits from the traditional pension plan, known as a "defined benefit plan" because workers receive a set monthly retirement benefit.

In such a plan, employees do not contribute to the pension; the employer contributes funds based on a percentage of the employee's salary. The monthly pension benefit is based on a formula using a participant's years of service and compensation history.

Under the plan, the archdiocese will contribute a percentage of payroll but the employee also will be able to contribute to the fund on a pretax basis -- up to limits indicated by rules of the Internal Revenue Service -- and be able to choose the makeup of funds in which to invest for his or her retirement.

While the liability, or expected payout, of the defined benefit plan will not grow over time after the freeze, the archdiocese will continue to contribute toward it to achieve financial stability for the fund so it can satisfy its commitments to retirees.

The switch from traditional pension plans such as that of the archdiocese to defined contribution plans has accelerated in recent years for companies of all sizes as well as other dioceses.

One factor is people are working more years and living longer than was expected at these plans' inception, be that Social Security in the 1930s or the archdiocese's plan, which started in 1965. The result is much higher benefit liability for such a plan because of the length of time it is likely to be enjoyed by a retiree.

In such cases, pension plans face the dilemma of raising contribution rates (taxes, in the case of governments, and charges to parishes and church entities, in the case of the archdiocese); changing the benefit structure; or both.

The archdiocese's Lay Employee Retirement Plan as of June 30, 2012, held assets of $478 million, but actuarial calculations indicate a liability of $630 million at that date for future retirement benefits. The difference between the two has been growing for years and now stands at $152 million.

By freezing the plan and thus the growth in potential benefits to be paid, the decision allows the archdiocese time to replenish the fund through continued contributions to fully fund benefits for today's workforce. The fund is expected to be in balance by approximately 2031.

Since 2012, the pension charge to parishes and other entities has been raised to 7.5 percent. Next summer at the time of the freeze, the charge will rise at least to 8.5 percent -- 4 percent will constitute the contribution toward the traditional pension plan and 4.5 percent to the new defined contribution plan.

"If we maintain the (current) plan and keep charging 7.5 percent, we will keep falling further behind," O'Shaughnessy said.

"By freezing the plan at June 2014 and contributing to it annually, we believe that we can get the plan to fully funded status in 20 to 30 years," he added. "Until then, there are assets that are adequate to meet the retirement benefit plan payments to participants that they have earned, until the plan is fully funded."

Archdiocesan officials said a vendor to operate the new retirement plan will be selected by spring, and the full plan document with details will be completed. Archdiocesan employees will receive new information at that time.

O'Shaughnessy said the archdiocese is taking action now "to ensure that we've got a plan that meets its ultimate obligations. I'm very confident about the short term and the medium term but for the long term we need to put a solution in place that works for both the plan and the archdiocese. And that's what we think we've done."





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