The way the Archdiocese of St. Paul and Minneapolis helps provide for the retirement of its lay employees — many of them teachers in Catholic schools — will change beginning in January.
What has been a defined benefit pension plan for some 6,835 teachers, parish staff, archdiocesan staff, and retirees from schools, parishes, the chancery and other local Catholic ministries, will become a defined contribution plan, one in which the employer contributes a determined amount to the lay employee’s 403(b) Tax Deferred Annuity (TDA) account.
The current defined benefit plan will be frozen, which means that the pension portion of vested lay employees’ retirement packages will be calculated on the amount they would be eligible for based on their eligible years of service and salary history as of Jan. 31, 2011.
After that date, the defined benefit or pension will not continue to increase in value.
Instead, the archdiocese will contribute an amount equal to 2.5 percent of an employee’s salary to the employee’s 403(b) account, enabling the employee to structure his or her own investment strategy with that portion of the retirement package.
As with the current program, employees are vested after five years of service.
The priests of the archdiocese are covered under a separate pension plan that has a different funding formula, according to John Bierbaum, the archdiocese’s chief financial officer.
Two main causes
Bierbaum explained that while the pension plan was over-funded in 2008, by 2009 the market collapse meant the pension fund was only 61 percent funded, a $38.8 million shortfall.
Although gains in the market brought that funding up to 70 percent by January 2010, the growth of the plan’s obligations added to the need for the archdiocese to take action. More lay employees with longer years of service at higher salaries meant that the pension plan required a greater level of funding.
The combination of the two factors caused the Pension Board of Trustees to consider several options, and Archbishop John Nienstedt accepted the recommendation to adopt the freeze-plus-defined-contribution option.
At a meeting of priests and ministry leaders Nov. 27, he said two positives in the new retirement package are that vested employees don’t lose anything, and the new 403(b) contribution will continue to provide benefits.
“I’m convinced it’s the best program to offer our people,” the archbishop said.
“We want [our employees] to know how valuable they are to us.”
Several options considered
A contributing factor is that the actual employers of lay people — primarily parishes, but the archdiocesan central corporation as well, and ministries such as Catholic Finance Corporation and The Catholic Spirit — have been impacted by the economic downturn and would struggle to continue to increase their contribution to the plan.
Earlier this year, the employer contribution to the pension plan was increased 50 percent, from 5 percent of employees’ salary to 7.5 percent.
Bierbaum said a Pension Task Force comprised of members of the Pension Board, the Archdiocesan Finance Council, and at-large financial experts began last May to address the funding shortfall in the defined benefit plan.
Among the options — but not the only ones — considered were:
- Dropping the pension altogether, which would have greatly reduced the benefit to employees — current and retired.
- Raising the employer contribution. It would have required increasing that contribution from 7.5 percent to 10-to-12 percent, an amount that neither the parishes nor the archdiocese could afford.
The pension freeze along with the 2.5 percent contribution to a 403(b) plan was seen as the best option to preserve the pension dollars employees have earned up to this point, and with the 403(b) contribution to help them continue to save
for their retirement.
“The move to a defined contribution plan is changing responsibility for retirement funds from employer to employee,” Bierbaum said. “It sounds defensive, but we’re not the only ones doing this.”
The Diocese of Gary, Ind., and the Archdiocese of Boston are going to the same plan, he said.
Impact of market felt
Poor investment choices were not a factor in the pension fund deficit, Bierbaum noted.
Investments in the pension fund — selected by an investment board — have out-performed the market overall during the past 25 years. An 18.6 per-cent return during 1984-89 and a 13.8 percent return from 1989-1994 turned into a 2.3 percent return from 1999-2009, mimicking the market to a great degree.
Over the 25-year period from 1984 to 2009 the pension fund investment averaged a 10 percent return.
The archdiocese began this week to inform employees of the change to the retirement package, and nine additional meetings are scheduled Dec. 7 through 17 at parishes and schools across the archdiocese.
Meeting dates and times for lay employees to learn about pension changes
Nativity of Our Lord, St. Paul
1900 Wellesley Ave.
Dec. 7, 3-4:30 p.m.
St. Michael, Prior Lake
16311 Duluth Ave. SE
Dec. 8, 3-4:30 p.m.
Shakopee Area Catholic School
2700 17th Ave. E
Dec. 9, 4-5:30 p.m.
St. Stephen, Anoka
525 Jackson St.
Dec. 10, 3-4:30 p.m.
St. Ambrose, Woodbury
4125 Woodbury Dr.
Dec. 13, 3:30-5 p.m.
St. Jude of the Lake, Mahtomedi
700 Mahtomedi Ave.
Dec. 13, 7-8:30 p.m.
509 54th St. W.
Dec. 14, 3-4:30 p.m.
Holy Name of Jesus, Wayzata
155 County Road 24
Dec. 14, 7-8:30 p.m.
St. Elizabeth Ann Seton, Hastings
2035 15th St. W.
Dec. 17, 4-5:30 p.m.
Category: Local News