Diocese creates investment fund, pension trusts - Catholic Courier

Diocese creates investment fund, pension trusts

Although its name does not appear in the summarized 2005-06 financial statements for the Diocese of Rochester, the establishment of The Communis Fund of the Diocese of Rochester and related transactions had a major impact on the diocese’s financial picture at June 30, 2006.

The combined impact of these changes was so significant, in fact, that the diocese opted to restate its 2004-05 balance sheet to facilitate comparison with 2005-06 figures.

Communis was incorporated in April 2006 to serve as the vehicle for investing diocesan, parish and related-agency assets. It replaces the 14-year-old Diocesan Pooled Investment Fund.

In another move, the diocese established separate pension trust funds for priests and lay employees, transferring approximately $22 million in related assets from the diocesan books to these trust funds. The assets of both pension trust funds ‚Äì plus pension assets that had been held by a third-party administrator — are now invested with Communis.

Before the pension-related transfers, the diocesan Statement of Activities shows a revenue shortfall — or reduction in net assets — of nearly $5 million. The non-operating transfer of pension assets to the trust funds increased the deficit to $16.2 million.

Yet as in 2004-05, the situation should be understood as a planned reduction in net assets, explained diocesan Director of Financial Services Mary Ziarniak. The apparent deficit arises from timing differences related to the diocese’s 2003 Partners in Faith capital campaign.

When donors made pledges to Partners in Faith, those pledges were recorded as revenue for the 2002-03 and 2003-04 fiscal years, Ziarniak said. Now, as donors pay their pledges and the diocese disburses the funds to achieve stated objectives, these disbursements appear as expense items on the diocesan financial statements.

Absent the Partners in Faith disbursements, the Diocese would have had a surplus, Ziarniak said.

She said the effect of Partners in Faith will continue in 2006-07 and, to a lesser degree, in subsequent years because some campaign pledges were made on five-year or longer payment plans. Through June 30, 2006, parishes had received a total of $14.9 million in PIF disbursements, representing half of unrestricted funds received through the capital campaign, she said.

Parishes do not receive a share of PIF funds that were earmarked by donors for the priests’ retirement fund or for the endowment funds for Catholic Charities, Catholic schools and faith formation.

According to diocesan policy, roughly 5 percent of net annual investment income produced by endowment funds will become available to support related ministries.

In the diocese’s 2006-07 budget, for example, the Catholic schools endowment will generate approximately $36,000 for use by the Department of Catholic Schools. As the endowment funds grow through the receipt of more PIF pledges, annual proceeds from the endowments will have a greater positive impact on the related ministries, Ziarniak said.

“It is very important that donors fulfill pledge commitments in a timely way,” she said, adding that every pledge is critical to fulfilling the diocesan mission.

The endowment funds now are invested through Communis, which can accept investments from agencies closely related to the diocese.

Ziarniak said attaining efficiencies in investing was the objective in establishing Communis, which was modeled on similar programs in other dioceses. She added that diocesan officials wanted to concentrate investment efforts within one corporation — separate from the diocese — that could provide sophisticated investment services.

She described the former pooled fund as “one-size-fits-all investing,” offering prospective investors a single fund that was heavily weighted toward equities. Communis offerings, on the other hand, are highly diversified, she said. A growth fund, an income fund and a balanced fund are being offered.

Also among Communis’ initial investors are the newly formed Priests’ Pension Trust Fund and Lay Employees’ Pension Trust fund. Yet establishment of the trusts did not resolve the strain of funding future retirement obligations, which diocesan officials had identified as a major challenge in the 2004-05 fiscal year, according to Father Joseph A. Hart, vicar general and moderator of the diocesan Pastoral Center. The 2005-06 diocesan Balance Sheet shows a liability of $6 million for future provision of health and dental coverage for retired priests, and a liability of $5.4 million due to the Lay Employees’ Pension Fund.

Father Hart said accounting norms require diocesan financial statements to reflect the level of funding that would be needed to satisfy pension obligations if the diocese were to go out of business tomorrow. Since the diocese will not cease operations, a more accurate picture of diocesan pension obligations is provided by actuarial estimates, which take into account ongoing contributions to the pension funds, he said.

“This pension analysis indicates the level of contributions is adequate short-term,” Father Hart said, noting that provision of retirement benefits and health and dental coverage for retired priests is clearly a significant obligation for the diocese.

Last year diocesan officials also had identified funding the diocesan self-insurance program as a challenge that would persist for the next several years.

The diocese purchases insurance policies to cover itself, parishes and related agencies for accidents such as slip-and-fall claims related to church properties, as well as liability insurance and workers’ compensation. Market pressures and prior claims have caused some of these premiums to rise, particularly in the area of workers’ compensation, Father Hart said.

Yet the greater concern relates to deductibles on such policies — $250,000 for liability, $500,000 for workers’ compensation and $750,000 for property claims. Rarely, Father Hart said, are insurance claims large enough to exceed the deductibles, which must be covered by the self-insurance program.

To ensure that the program has adequate funds to cover deductibles, the diocese in 2005-06 increased by 30 percent the amounts it charged to parishes and other participating agencies and Father Hart said he expects to see “continuing challenges on the premium side for the foreseeable future.”

Despite the increases, Father Hart noted that the diocese’s Balance Sheet shows a reserve liability of nearly $7 million for anticipated deductibles payments. This amount was revised upward by approximately 8.5 percent since June of 2005 to reflect revised actuarial estimates as well as new claims. As of June 30, 2006, only $2.7 million was available to cover this liability, Father Hart said, adding that the diocese is working to build up assets to the level of projected liability.

A positive development is reflected by a new line on the diocesan Statement of Activities for repayment of nearly $1.3 million from Sacred Heart Cathedral Parish for funds the diocese had advanced in the prior fiscal year for cathedral renovation. The parish was able to reimburse these funds through a 20-year mortgage it obtained during 2005-06, Father Hart said.

Overall, Ziarniak observed that 2005-06 was “an OK year. The diocese is holding its own. Some challenges remain.”

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