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 With the Church still absorbing the roughly $3 billion cost of a
clergy sex abuse scandal, another financial crisis is looming -- a
potentially crippling shortfall in funding the pensions of its
ageing priests.
A Reuters review of U.S. Catholic financial disclosures shows the
pension funding shortfall in 2014 likely approached $2 billion, with
much of that coming due in the next five years as thousands of
priests retire.
The U.S. Catholic Church has lost millions of its members over the
past 14 years following the child abuse scandal that tarnished its
reputation and forced it to sell assets to pay billions of dollars
in settlements.
The Church’s finances are also under pressure from emptying pews and
a demographic shift among Catholics to the U.S. south and suburbs
that has left much of its inner-city bricks and mortar underused and
bleeding money.
The financial woes and the destabilizing effect they could have on
the Church's social and educational work will be a constant backdrop
to the pope's Sept 22-27 visit to Washington, New York and
Philadelphia.
 Since the pope's election in March, 2013, the Vatican has enacted
major reforms to clean up its often muddled finances and adhere to
international financial standards. In June the Vatican appointed its
first auditor-general, and each department's financial statements
are now reviewed by an international auditing firm.
"It is basically about poor management on the part of Church
leaders. And I think the pope is very aware of that," said Charles
Zeck, an economics professor at Villanova, a Catholic university in
Pennsylvania. "When he’s out there making speeches, he’ll hit the
big topics, but this is one (issue) that is there every day."
(Graphic: http://reut.rs/1LNDGki)
The financial burden of meeting its pension obligations could take a
toll on a U.S. Church already showing signs of retrenchment, forcing
it to sell off more assets. A Pew Research Center study in May
showed the number of self-declared U.S. Catholics at about 52
million, down from 55 million in 2007.
The number of adults who label themselves "former Catholics",
meanwhile, has more than doubled to about 25 million since 2000, and
Church attendance has plateaued over the same period, according to
the Center for Applied Research in the Apostolate (CARA) at
Georgetown University.
Low donations by parishioners and rising expenditures led 24 percent
of U.S. parishes into the red in 2013, according to a study
published in August by the Center for Church Management and Business
Ethics at Villanova.
Cost-cutting has contributed to a decline in the number of U.S.
parishes, a steep drop in the number of Catholic schools, as well as
fewer hospitals, according to CARA.
LOOMING CRISIS
A review of 51 dioceses that provide detailed financial information
showed a clergy pension funding gap of nearly $700 million - a
figure that does not include other post-retirement benefits, or
obligations to lay staff. If the remainder of the roughly 197
dioceses in the United States face similar funding issues, the total
pension gap would be close to $2 billion.
 Weakening global markets are likely worsening the funding gap, since
the pensions are typically invested in a mix of equities and
treasuries, mainly through mutual funds, according to the
disclosures.
An official at the U.S. Conference of Catholic Bishops did not
respond to a request for comment.
Jack Ruhl, an accounting professor at Western Michigan University
who has been tracking the finances of the Catholic Church since
2004, said that figure is realistic.
He said his own research showed that more than half of the 61
dioceses that provided audited financial reports for fiscal year
2013 had pension funding levels below 65 percent - a threshold the
U.S. Department of Labor would classify as "critical" if its
regulations applied.
It is a bill that can't be ignored for long. More than half of the
roughly 17,000 active diocesan priests are expected to retire by
2019, Ruhl said.
"It is a crisis, and the only thing the dioceses can do is start
finding some funds, selling some assets, or doing something to fund
those liabilities," he said.
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Pensions for priests became commonplace in the U.S. Catholic Church
in the 1970s, typically funded through donations, fundraising
drives, and – in some cases – contributions from clergy wages.
The pensions are generally fairly meager at around $20,000 per year.
A report issued by non-profit group Laity in Support of Retired
Priests (LSRP) last year showed that an average priest's pension and
social security benefits are projected to be lower than the cost of
living.
According to LSRP, there are about two active diocesan priests for
every retired one, a ratio that is expected to narrow in the next
few years as more priests retire with fewer to replace them.
GOOD FAITH EFFORT
Several dioceses such as Boston, New York, and Philadelphia have
been shoring up their books by clawing back benefits to retired
clergy, closing down money-losing schools, selling land, merging
parishes, and organizing fundraising drives.
Boston, for example, increased the retirement age to 75 from 70 in
2009 and trimmed pension benefits, triggering protests from some
priests. The archdiocese had a clergy pension funding shortfall of
$42 million in 2014, from $60 million in 2009, according to its
financial disclosures.
"It seems that Boston has made a really good faith effort. They are
still hugely underfunded, but they are going in the right
direction," said Ruhl. He said Boston, like other dioceses, had for
a time stopped funding the pension to help it cover settlements in
abuse cases.
A Boston archdiocese official declined comment.
In Philadelphia, which has a pension shortfall of about $80 million,
the archdiocese now requires retirees to refund some of their
pensions as payment for living in Church housing.
"Aggressive steps have been taken in recent years to increase
funding levels," said Robert Bouche, the chief financial officer of
the archdiocese. But he added the pension liability had still
worsened in recent years due to assumptions of longer
life-expectancy.
Father John Jagodzinski, a retired Philadelphia diocesan priest,
said he was happy with the pension he receives but added some of his
fellow retirees have been upset by the clawbacks. Other priests
declined to comment.
The Archdiocese of New York, meanwhile, is in the midst of the
biggest reorganization in its history, closing dozens of parishes
and selling iconic churches due to sliding attendance and a shortage
of priests.
The U.S. Church does not lack assets. A report by The Economist in
2012 estimated the Archdiocese of New York was Manhattan’s largest
land owner. It also said that the U.S. Catholic Church spent about
$170 billion in 2010 - five times more than Exxon Mobil's planned
global spending in 2015.
But as a non-profit organization it tends to spend as much as it
brings in, meaning unfunded obligations could force it to shrink its
operations or holdings. Ruhl's 2013 study showed about 10 percent of
U.S. dioceses lost money that year.
Rich Kelly, the head of finance at the Archdiocese of Cincinnati,
said he has been working for the past seven years to improve funding
for the clergy pension program, which is underfunded by about $60
million. He has cut some retirement benefits, launched fundraising
drives, and switched new priest entrants over to 401ks - retirement
savings plans that rely heavily on employee contributions.
He said the root cause of the crunch was likely decades of decisions
made by people untrained in finance. "It is fine to provide raises
for priests and better pensions, but without funding, that is
questionable judgment," he said.
(Writing by Richard Valdmanis; editing by Stuart Grudgings)
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