Church Pension Fund Report Responds to Criticism of Management Style
Episcopal News Service. March 7, 1996 [96-1407]
(ENS) Culminating a year-long effort to respond to strong criticism of its portfolio management and what has been described as an opulent management style, the Church Pension Fund (CPF) board of trustees in February released a 40-page report outlining the fund's recent performance and explaining some of its more controversial business decisions.
With the report, the board is not "attempting to convince everybody that every decision made over the past 10 years was wise," said Alan Blanchard, president, in a briefing with church press. "Some critics we will never satisfy."
The trustees do hope, though, that the materials will help reassure the church about the pension management's "honesty, competency and judgment," he said. Where there is disagreement about management decisions, the report should at least show that "quite high quality and quite thorough analysis is done" before major decisions are made, he said.
The fund distributed the report, called "The Stewardship of the Church Pension Group," to all active clergy, pension beneficiaries, lay members of Executive Council and interim bodies, diocesan administrators and diocesan communicators.
Blanchard said that while the effort to respond to criticism has been time consuming, the picture of the CPF that emerged as a result was heartening. "The last five years have been extremely good, especially as you compare them with the previous five years," he said. The data, he maintained, clearly "counterbalances claims that the wheels have fallen off the wagon."
In particular, he said, the fund's affiliates -- Church Insurance Company, Church Life Insurance Corporation, Medical Trust and Church Hymnal Corporation -- performed well in 1995 to show a combined profit of more than $5 million. The turn-around came specifically from improvement in the Church Insurance Company, which rebounded from a mostly negative net performance in 1986-1990, and "very negative in 1990," Blanchard said, and the Medical Trust, though the Medical Trust still must make up more than $1 million in past losses.
The rapid return to profits "is a pattern for which Wall Street guys would kill," and is starting to raise questions about "how much is too much," Blanchard said. "We're not supposed to be making money."
He pledged increased communication with the wider church, noted repeatedly as a shortcoming in recent years, but said he felt the fund already does extensive communication. Given that, he said, "the lack of understanding about what we do and why we do it is disappointing."
Better communication is key, agreed the Executive Council committee charged with discussing the criticisms with CPF representatives.
"I believe that the environment of trust and communication has been enhanced through the dialogue" of the past year, said the Very Rev. M.L. Agnew of Western Louisiana, committee chair, in the committee's mostly favorable written report presented to the council meeting in Miami in February. But committee member Tim Wittlinger of Michigan stressed that "communication is much more than just information dissemination." He encouraged more interaction between trustees and other church organizations, and more informal exchanges like the just-completed dialogue.
A candid meeting between the committee and the full board of trustees, January 17, was particularly helpful, Wittlinger said. While improvements still can be made, especially in the involvement of all members of the board of trustees in crucial decisions, the committee was convinced after that meeting that "the trustees and management were being faithful to their duties," he said.
"It was clear that the board still feels there is an inner circle (of decisionmakers) and an outer circle," he said, but "the board said it will continue to work to get all (members) into the inner circle."
More trustees, he said, are attending meetings of the committees to which they are not appointed, including the Executive Committee, but "there is a 'cost' to a visitor speaking out at the Executive Committee meetings, as such involvement is not actively encouraged," Wittlinger said. Orientation of new members, half of whom are elected at each General Convention, must be improved as well, he said.
In general, though, he said, "I am convinced that the trustees are dedicated, devoted servants of the Church and responsible stewards of the assets under their control" who are "aware of the issues reflected above and are committed to continued dialogue directed toward a workable, pastoral, compassionate and responsible resolution."
Instead of being disbanded, as the committee members requested, the committee was asked to explore ways the Executive Council can continue to relate to the CPF.
Blanchard acknowledged that decisions to reduce nearly $260 million in excess reserves in 1994 through a "give-back" to parishes, additional life insurance for clergy, a $50 million "clergy wellness initiative" and other measures were not communicated well enough in advance and sparked criticism about how the money was to be used.
"A big thing we learned in 1994 is the high level of interest in things financial among the clergy, and maybe the low level of trust," he said. "If you're going to do something that affects peoples' lives, how much should you talk to them about it?"
As the clergy wellness program continues with the input of a 16-member Wellness Initiatives Advisory Committee, "we will allow for a lot more comment" on proposals, he said. "I think the lesson we learned is that we have to do that."
The committee, he said, is looking specifically at ways to make early retirement financially possible for clergy who have had long tenures in the church, and is exploring other ways to assist clergy.
Consideration of wellness issues and such activities as the Church Insurance Company's efforts to address sexual misconduct in the church, contributes to a "blurred" role for the CPF and remains an unresolved issue, Wittlinger noted in his report to Executive Council. "Is the Church Insurance Company primarily an insurance agency, or an agency of the Episcopal Church?" he asked.
"At the present time, the board has pretty much determined that the emphasis should be on its role as a pension fund and insurance company," he said.
Claims of opulence in management style are harder to address with fund performance figures, Blanchard noted, since "luxuriousness is in the eye of the beholder."
The report presents the fund's recent purchase of office space to replace its leased offices -- singled out by critics as an extravagance -- as a sound business investment, and again stresses the analysis that preceded the decision. The report maintains that the new offices are "not luxurious space -- as anyone can see in a quick tour."
"I would believe the degree of luxuriousness in this space is no greater than the average diocesan space that has been built or refurbished in the last five years," Blanchard said. Most of the religious art that decorates the walls -- which has attracted criticism as extravagant -- has been loaned by churches, or are inexpensive photographs, he said, and only 10 pieces were purchased.
"If we are going to have a professional staff, we need to have a space that reflects professional New York standards," he said. In the context of the $25 million cost to purchase and refurbish the new office space, the decorating expense seemed minor to him, but he admitted it might seem high to others.
The salaries of Blanchard and other top management continue to draw criticism, he said, acknowledging that "compensation of the senior five people is higher than many of the other (denominational) pension funds." The trustees are looking at its compensation policy, but so far have felt that salary levels are appropriate given the scope of responsibilities in managing the group of five companies, and the cost of competing for top-flight executives in the New York market. "That's the conclusion that has been reached here," he said. "Other thoughtful people could reach a different conclusion."