‘A really grave injustice’ - Dioceses face ‘devastating’ Christian Brothers pension crisis
Description
One Catholic bishop said he is “devastated” by a pension crisis faced by potentially dozens of American dioceses, which could leave longtime lay Catholic employees facing serious financial hardship in their retirement.
And bishops told The Pillar they are looking to find solutions — fast — after learning that diocesan pension plans administered by Christian Brothers Services are dramatically underfunded, and would take millions to get on track.
In addition to dioceses, the pension crisis impacts Catholic schools across the country, and could leave tens of thousands of Catholic employees and pensioners facing benefit cuts.
—
Bishop Andrew Cozzens of Crookston, Minnesota told The Pillar that his diocese received “devastating” news in early August that his diocesan lay pension plan was “significantly underfunded,” and that retired and current diocesan and parish employees could face the prospect of significant reductions to the benefits they were expecting.
The diocesan pension plan was managed by Christian Brothers Services, a non-profit founded by a LaSallian religious brother, which says it provides Catholic organizations with health benefit, retirement, and risk management plans. The Crookston plan, Cozzens learned, was funded only to 58% of its obligations — well below the threshold for a healthy retirement fund.
The crisis meant that his diocese would face new annual payments of about $1 million to get the plan on track, Cozzens said.
“When you have a pension fund, you’re paying a certain percentage of what your employees make. That goes into a fund which is going to pay out a certain percentage back to people over the years. And they told us that since it was significantly underfunded, they were going to slightly reduce the percentage that we were paying per employee … But they were to charge us an extra $1 million a year for the next 25 years, to make up the deficit.”
“This was a shock to us because we had no reason to believe, up to that point, that the pension plan was seriously underfunded.”
Bishop Cozzens told The Pillar that he does not have the money to pay the annual seven-figure amount that would restore the diocesan Christian Brothers pension fund back to health.
There are fewer than 40,000 Catholics in the bishop’s northern Minnesota diocese. There are few reserve funds available.
“The diocesan appeal, which goes to every Catholic, raises about $1 million a year. That’s our largest funding mechanism. We also have the cathedraticum tax on parishes, and that’s almost another million in income. So our annual income is right around $2 million a year, and we just can’t add another million to our expenses.”
Cozzens said the prospect of selling diocesan properties to meet the gap is also a non-starter.
“Like many dioceses in the United States, Crookston had a settlement for abuse cases long before I got there. And so any properties at that point were sold,” the bishop said.
—
Christian Brothers Services, based in Chicago, was founded in 1960, by DeSallian Brother Joel Damien, who wanted to create a cooperative purchasing network for schools run by the Christian Brothers religious order. The non-profit expanded into insurance and pension services for Catholic institutions, and is now used by 180 Catholic institutions across the country.
Among the services offered by Christian Brothers is the Employee Retirement Plan, which has more than $1.5 billion in assets, and whose defined benefit pension plan has more than 40,000 members.
But the plan is now facing an $800 million total deficit against its liabilities, with funding problems starting in the 2008 financial crisis, and continuing to decline thereafter, according to the Minneapolis Star-Tribune.
Dioceses say they were not informed that their pensions were on such shaky ground, and that periodic communications from Christian Brothers indicated that the plan was healthy.
In fact, Cozzens said, his diocesan administrators had believed that their pension plan was well-funded, and being well-managed — annual communications suggested as much, and they had seen only one rate increase, in 2019.
In 2020, the Christian Brothers fund faced “catastrophic losses” because of a hedge fund investment managed by the German firm Allianz Global Investors, a company eventually charged with fraud for exposing investors to “higher risk than promised,” federal prosecutors said in 2023.
Christian Brothers sued Allianz, alleging that the fund manager “improperly invested client assets, employed a reckless strategy… and abandoned the risk controls it was required to have in place,” according to court records.
“AllianzGI’s extraordinarily risky and self-interested gamble resulted in massive multiple employer plan losses for the [Employee Retirement Plan], wiping out, in a matter of weeks, nearly $150 million of ERP’s participants’ retirement savings that had been accumulated over decades,” Christian Brothers alleged in the suit.
While Christian Brothers settled privately with Allianz, it is not clear how much of the $150 million it lost on the investment was recovered. But the losses, along with changing retiree demographics, compounded liabilities for the fund.
For most of the past five years, the Christian Brothers pension plan has sat below 70% of total liability funding, and presently has only 66% of the money needed to cover its total obligations, the Minneapolis Star-Tribune reported this week.
And as the fund got shakier, the company did not annually raise employer contribution rates — until its announcements of major plan changes this July.
For Cozzens, that pattern is a problem.
“Not only were we not informed,” Cozzens told The Pillar, “but there wasn’t over the years the kind of steady raising of the rates that you would’ve expected if the pension was in trouble.”
To the bishop, it seems “negligent that [Christian Brothers] didn’t keep us informed all the way along.”
—
While it is common for many pension plans to face some level of underfunding, generally federal regulators expect to see plans funded to at least 80%. A plan funded at less than 60% of liabilities — as is the case in Crookston — faces a steep road to financial recovery, putting benefits at both short and long-term risk. And because the Christian Brothers pension plan is classified as a “church pension plan,” it is not actually monitored by federal regulators — and is not eligible for a federal bailout if it collapses.
That leaves the plan’s participants especially vulnerable to underfunding.
For his part, Cozzens said he’s not sure what the situation will mean for current and former diocesan and parish employees, especially as his diocese tries to work out a strategy — which could mean spinning the plan off from Christian Brothers and looking at other management solutions.
“We want to do everything we can to try to say there won’t be any reduction in benefits, but of course I can’t promise that at this point, because we’re still working on all of our options and trying to figure that out. We just want to do everythin
United States
