Myth vs. fact: Setting the financial report record straight

| February 26, 2014

Following the online disclosure of the archdiocesan Chancery Corporation’s full audited financial report Feb. 13 and the publication of a condensed version in The Catholic Spirit, some local media stories misinterpreted or did not accurately present the information. Thomas Mertens, chief financial officer for the archdiocese, offers the following information to set the record straight.

Myth: A $3.9 million deficit at the end of fiscal year 2013 puts the archdiocese in a very precarious financial situation.

Fact: “The $3.9 million deficit is a result of the $3.9 million accrual that we recorded as a reserve for potential litigation,” Mertens said. “Without this reserve, our operating net income would have been slightly positive. As a result of this reserve, our liabilities have increased, our expenses have increased; however it hasn’t affected our cash balance.

“We booked the reserve at the end of June 30, 2013 because, prior to releasing our audit report in December, sexual abuse civil lawsuits were filed as a result of the current three-year removal of the statute of limitations in Minnesota. Even with this reserve, we’re in a solid financial position.”

Myth: The annual report does not reflect all of the archdiocese’s assets.

Fact: “The audit report for the Archdiocese of St. Paul and Minneapolis covers the Chancery Corporation and the General Insurance Program Trust,” Mertens said. “It does not include the parishes, Catholic schools, health care facilities and other Catholic entities within the 12-county area that make up the archdiocese.Under Minnesota law, those are separately incorporated and operated, and the Chancery Corporation has no fiscal or operating control over these entities.”

“There is a lay pension trust, a priest pension trust and an archdiocesan medical benefit plan trust, but those are separate entities that are not part of the Chancery Corporation,” he said. “Footnote No. 1 in the audit report provides a clear explanation of the nature of the organization.” (View the report at http://www.archspm.org.)

Myth: The archdiocese has paid more in clergy abuse-related expenses than what is listed in the annual report.

Fact: The archdiocese has not paid more in clergy abuse-related expenses than what is listed in the annual report, Mertens said. But additional funds have been paid by the archdiocese’s insurance provider; some men have received disability payments from the priest pension plan. That number is under three-quarters of a million dollars during the past 10 years, he said.

Myth: The archdiocese is facing impending bankruptcy because of current lawsuits and the threat of future ones.

Fact: “In regard to potential litigation, we’ve explained very clearly how we approached our Litigation Reserve Liability, which amounts to a $5 million change year over year between FY 2012 and 2013,” Mertens said. “As I said in my report, that’s an estimate. The Chancery Corporation is involved in various lawsuits relating to claims of alleged sexual abuse. For known claims, there is no practical means to determine the likelihood of outcome. Under accounting standards, when no amount within a particular reserve range is a better estimate of a particular outcome than any other amount, we are required to use the minimum amount of the range for our accrual. We have not accrued any amount for unknown claims because they cannot be reasonably determined, due in part to the unprecedented third ‘open window’ for civil sexual abuse claims in Minnesota.”

“In terms of the impact of future litigation expenses, we just don’t know,” Mertens added. “It’s going to depend on the number of claims that surface over the next two years and how these may be litigated or settled.”

Myth: The priest pension plan will be insolvent in 10-15 years.

Fact: “The priest pension plan is underfunded like most pension plans are in the state and across the country,” Mertens said. “The current contributions to the plan are great enough to pay out the current obligations of the plan. So the good news is that our plan isn’t becoming worse off — the money we bring in from the contributions of the active priests is currently able to pay the obligations of the retired priests.”

“Back in July, we formed a new pension board of trustees, and we created a subcommittee of that pension board of trustees: an investment advisory committee,” Mertens added. “We brought new people onto those committees to take a fresh look at both the priest and lay pension plans. We’re looking at our options and strategies to essentially put ourselves in a position where we can get the priest pension plan better funded as we move forward. It might take us 15-20 years to get it to where it’s near 100 percent funded, which is our goal. To say the program is going to be insolvent in 10-15 years is simply inaccurate.”

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