Compliance June 3, 2019

Archdiocese of San Juan Asks Supreme Court to Weigh In on Pension Plan Judgement

The Archdiocese says since it was ordered to pay $4.7 million to teachers whose pension plan was terminated, officials have seized assets from all Catholic entities in Puerto Rico, including those not covered by the plan.

Reported by

The Roman Catholic Archdiocese of San Juan, Puerto Rico, has filed a petition for writ of certiorari with the U.S. Supreme Court over actions taken by the Supreme Court of Puerto Rico in a case regarding a terminated pension plan.

Following a decline in enrollment in Catholic schools as residents left the territory due to a 12-year recession, and the exacerbation of the problem due to Hurricane Maria, in 2016, the archdiocese notified several hundred teachers that their pension payments were being stopped because payouts exceeded contributions. The teachers filed a lawsuit, and in 2018, a judge ordered the archdiocese to pay $4.7 million to both retired and active teachers.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Among other things, the teachers’ alleged in their original complaint that the multiemployer plan set up by the church for Catholic school employees elected to be an Employee Retirement Income Security Act (ERISA) plan, but plan fiduciaries, including service providers, failed to comply with ERISA.

According to the petition to the U.S. Supreme Court, following the court decision, the Puerto Rico Supreme Court proceeded to declare every single Catholic entity in Puerto Rico—including the Roman Catholic Archdiocese of San Juan, five separate Roman Catholic dioceses, all 338 parishes, and all other Catholic entities on the island—part of one monolithic (and, in both Church doctrine and secular reality, nonexistent) entity dubbed the “Roman Catholic and Apostolic Church in Puerto Rico.” Most of these entities did not participate in the Church Pension Plan.

The Archdiocese of San Juan said the Puerto Rico Supreme Court decision represents an unprecedented intrusion on the First Amendment rights of religious organizations. “It has been settled law for 150 years that civil courts lack the power to intrude on matters of church structure and governance, as to do anything but defer to a church’s own views on such matters would raise grave concerns under both the Free Exercise Clause and the Establishment Clause. The Puerto Rico Supreme Court not only ignored those principles, but got them exactly backwards, viewing itself as not just empowered, but obligated, to ignore the Catholic Church’s own canon law establishing the many constituent parts of the Church as distinct legal entities,” the petition says.

The Archdiocese alleges that based on a refusal to defer to the separate nature of the various Catholic entities on the island, a sheriff was ordered to “open doors, break locks, or force entry … night or day” into Catholic churches throughout Puerto Rico and seize and sell off artwork, furniture, and anything else of value unless and until the nonexistent “Roman Catholic and Apostolic Church in Puerto Rico” supplied $4.7 million to fund the pension obligations of three Catholic schools whose pension plan has run out of money. “The resulting seizure of critical assets of churches and other Catholic entities throughout the island has forced the Archdiocese into bankruptcy and dramatically interfered with the ability of Catholic entities to minister to the faithful, provide for their employees, and provide social services desperately needed by the people of Puerto Rico,” the petition says.

The petition is asking the U.S. Supreme Court to answer the question: “Whether the First Amendment empowers courts to override the chosen legal structure of a religious organization and declare all of its constituent parts a single legal entity subject to joint and several liability.”
Administration June 3, 2019

Consolidating Competition Keeps Recordkeepers on Their Toes

Fidelity’s head of workplace investing expects the recordkeeping business will grow ever more competitive over time, leading to additional consolidation and, he says, more unified services for plan participants.  

Reported by

Unlike many of Fidelity’s top executives, Kevin Barry, president of workplace investing, has not spent his entire career at the firm.

Prior to Fidelity, Barry spent some 15 years working in finance roles for large consumer products companies, including Gillette and Frito-Lay. He says that his previous experiences continue to give him an important perspective into the way finance and human resources departments have to come together to build and maintain quality retirement programs. He also got an important view into the way large and small companies’ diverse workforces require a range of support services from retirement plan providers.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

“One thing I learned in my earlier career in consumer products is that there is both a rational and an irrational component to how people make decisions about any product or service,” Barry says. “This is true when talking about razors or snacks, but it is also true in the financial services space.”

One element of his current gig that is quite different from the earlier consumer products work, Barry says, is that the retirement plan industry has a serious jargon problem that has held back growth. It’s hard enough to demonstrate to a potential customer what makes a given potato chip flavor better or different, or why they may want to consider buying a particular razor blade. Explaining complex financial instruments to consumers with a low level of investment savvy is even harder.  

“We don’t always help ourselves by using very complicated language,” Barry says. “Yes, there are always going to be non-intuitive parts of this business. There is so much potential complexity and a whole language of finance to be learned, but when you pull back a lot of this jargon, at the end of the day, there are simple and effective ways to communicate about investments.”

According to Barry, the key to success for recordkeepers and plan sponsors alike is to remember that it is always a human being that is facing any given buying decision, whether one is talking about consumer products or investments.

“We need to be aware of the client’s journey,” Barry says.

A shifting competitive landscape

During Barry’s time with Fidelity, the company has grown to be the largest provider of recordkeeping services to retirement plans—now overseeing thrice the assets of its nearest competitor, according to the latest PLANSPONSOR Recordkeeping Survey.

As Fidelity has grown, other companies have grown as well, and many have undergone major mergers and acquisitions that have reshaped the list of top providers. Most recently, the announcement of Principal’s acquisition of Wells Fargo’s retirement plan business further reduced the list of recordkeepers from which plan sponsors can choose. The trend of recordkeeper consolidation has been ongoing since at least 2009. In fact, an analysis of the top 20 recordkeepers by assets in 2009 versus 2017, performed by Brian O’Keefe, PLANSPONSOR’s director of research and surveys, finds only four have not pursued an acquisition-based growth strategy.

Asked about what he sees as the future of Fidelity and its competition amid a shifting industry landscape, Barry says the firm will continue its current strategy of pursuing strong organic growth. It will also be closely watching the M&A activity of its competition.

Barry says he does not think the firm or the industry in general has achieved a peak size, even as withdrawals from retirement plans are growing as the Baby Boomer generation enters retirement. This is because there are still many millions of Americans who lack access to retirement plans at work. In addition, firms like Fidelity, which have long been focused on serving 401(k) plans and individual retirement accounts (IRAs), are moving into other service areas, such as student loan repayment benefits.

“In late 2017 we launched the student loan debt repayment program, and there has been an enormous amount of client interest—thousands have asked about this and have started to learn about how you can add value in this area as a plan sponsor,” Barry said. “Of course, there is a learning curve. Today, we have 59 clients already using the student loan program so far and multiples of that in terms of those with serious interest.”

Barry expects this business line to continue to heat up, thanks in no small part to the private letter ruling issued by the IRS to approve a benefit already being offered to the employees of Abbott Laboratories. In that student loan repayment program, the employer makes a non-elective retirement plan contribution on behalf of an employee, conditioned on that employee making sufficient student loan repayments. The program is voluntary—an employee must elect to enroll, and once enrolled, may opt out of enrollment on a prospective basis. If an employee participates in the program, the employee would still be eligible to make elective contributions to the plan but would not be eligible to receive regular matching contributions with respect to those elective contributions.

“This type of budget-neutral approach solves one of the key hurdles to greater adoption of student loan programs, which is that most companies that would consider this have generous benefits programs already, and they have a budget cycle internally that they have to work with,” Barry says. “It takes finance and human resources getting together to find the dollars for this type of program.”

Challenges facing recordkeepers.

Looking to the long-term future, Barry says, recordkeeping will clearly remain “an incredibly challenging and complicated set of services wherein delivering consistent quality is not easy to do at the price point that clients demand.”

“At Fidelity, stability, service, quality and price is what we compete on,” Barry says. “In that sense, we don’t get distracted by the industry consolidation. Given our position in the marketplace, we are focused on the day-to-day service quality, but we also have to focus on asking ourselves where we are going in five years and 10 years. If we just hang our hat on service quality and we don’t think about the future of the industry, the definition of great service is going to change over time, and so we would be setting ourselves up to fail.”

Barry notes that an important question for all providers (and plan sponsors) to contemplate is whether the number of providers that a given customer interacts with is growing or shrinking. In his estimation, financial services consumers are growing more comfortable with consolidating their provider relationships. They like the idea of being able to manage their money in a coordinated and rational way, Barry says. 

“There is an increasingly sophisticated set of products and components coming out every day in terms of investment options,” Barry explains. “At the same time, participants’ ability to deal with complexity is not really growing. This is why target-date funds are so popular, and why robo-advisers continue to gain traction.”

Barry expects there will be growing demand for consolidated financial services from “those people who don’t have the will, skill and time to manage their short- and especially long-term finances.”

“Workers are increasingly looking for a company that they trust to integrate all of this stuff,” Barry suggests. “Financial services companies that can play this role as the hub of the investors’ financial life will be the most successful.”

«