2012-13 Accountability Report

Chief Financial Officer’s Report

Archbishop Joseph W. Tobin has defined stewardship as “What you do, with what you have, when you believe in God.” The following accountability report reflects that the Archdiocese of Indianpolis operates by the Archbishop’s definition and continues to be good stewards of the Church’s resources. For fiscal year 2013, the chancery and agencies of the archdiocese continue to operate at a balance or surplus as compared to budget. Our Catholic Community Foundation’s (CCF) net assets increased to $151 million. Since CCF’s inception it has distributed $83.4 million for various ministries. The clergy and lay retirement plans continue to show significant improvement from the decline caused by volatile investment returns during the 2008-2010 time periods. In 2013, the archdiocese refinanced the 2003 Series bonds at a lower rate, which will position the Archdiocese Deposit and Loan Fund (ADLF) to minimize rate increases for parish loans and assist in continuing to provide parishes with an above market rate of return on their deposits. For FY13, parishes, schools and agencies increased their deposits in ADLF by 11 percent, these funds help provide loans to parishes. The CCF, ADLF and several of our benefit plans have been favorably impacted by positive investment results during the year and the Federal Reserve policies, which kept interest rates low.

Similar to all organizations, the archdiocese faces many challenges associated with various government laws and regulations enacted over the last several years. We are committed to providing our employees with the solid benefits, which are in-line with Catholic teaching, balanced with controlling costs to the employee and parishes, schools, and agencies. In addition, we continue efforts to provide the best options for employee and priest retirement in a volatile and challenging investment market, while maintaining reasonable fees and costs to the employee and parishes, schools and agencies.

This accountability report provides detailed information on the financial activities of the archdiocese for the fiscal year ended June 30, 2013 including operating results, parish stewardship, shared services plan activity, grant awards available to entities in the archdiocese and more.

Chancery Fiscal Year 2013 Operating Results

The chancery offices and agencies of the Archdiocese of Indianapolis completed its ninth consecutive year with a break even or surplus operating budget. For fiscal year 2012-2013 we ended the fiscal year $1.9 million or 6 percent ahead of budget on $33 million of operational expenses. The operations surpluses were generated mostly from unexpected bequests and contributions.

The archdiocese continues to be challenged by parish operating deficits. The financial impact of these parish deficits shows up in the deposit and loan fund operated by the archdiocese for its parishes (ADLF). The ADLF has an approximately $12.8 million deficit net asset position as a result of parish loans and interest forgiven over the last 15 years. The ADLF currently operates at a small surplus (inclusive of the current level of annual parish operating deficits) designed to slowly recover this negative net asset position over a period of years. Over the past several years, we’ve implemented a plan that is designed to help the struggling parishes navigate their financial troubles by identifying areas for improvement, improve the transparency to the parishioners, and reduce or eliminate operating deficits and accumulated debt to the archdiocese. These efforts are paying off for many parishes as we have fewer parishes with operating debt on their balance sheet and more parishes with a balanced budget.

Parish and Archdiocesan Stewardship

For the fiscal year ended June 30, 2013, parish stewardship, through Sunday and holy day collections, experienced a slight increase over the previous fiscal year. This 2.9 percent increase of over fiscal year 2012 continues the positive trend of increased giving at the parish and proves the strong and steady member commitment in our current economic environment.

The FY 2013 annual parish and archdiocesan community United Catholic Appeal: Christ Our Hope experienced a modest increase in recorded revenues. The FY 2013 appeal also enabled parishes to direct resources into those ministries closest to their community. The appeal received pledges totaling $5.0 million in fiscal year 2013, compared to the pledges of $4.8 million in FY 2012. While the annual appeal continues to trend upward, we are still below our historic highs by nearly $1 million.

Parish Services: Insurance and Benefit Plans

The Archdiocese of Indianapolis operates several insurance plans, employee and priest benefit plans, and other services on behalf of parishes, schools, agencies and employees. Two of the larger plans are the lay employee health insurance plan and the property and liability insurance plan. Despite the challenging economic environment, both of these plans continue to experience positive results.

Lay Employee Health Insurance Plan

Since 2007 the archdiocese has been operating a high deductible health insurance plan, complete with Health Savings Accounts (HSA) for our lay employees. While medical and dental expenses trend upward on a national basis, our claims experience has trended much lower and has contributed to generating a surplus in this plan. Each year since inception of our high deductible plan, we have been able to give back to both the employees participating via bonus contributions to their personal HSA and back to parishes, schools and agencies via premium reductions. We have also funded an endowment with some of the surplus that is designed to be used to offset significant expense increases in the future. In fiscal years 2012 and 2011, we spent a portion of the surplus from the Lay Health plan to close the funding gap for our Lay Retirement plan (see section Parish Services: Priest and Lay Employee Retirement Plans).

Property and Liability Insurance Plan

The property insurance plan also experienced positive results for the 2012-2013 fiscal year. The continued positive results have enabled us to fund a property insurance reserve fund in the Catholic Community Foundation of $7.8 million. The reserve fund was established to protect parishes, schools and agencies against catastrophic losses and will help to mitigate annual insurance cost increases. The archdiocese was also able to maintain our self-insurance level at $1 million for the 2013-2014 fiscal year which translates into lower premiums paid by our parishes, schools, and agencies for property and liability insurance.

Parish Services: Priest and Lay Employee Retirement Plans

The archdiocese administers defined benefit plans for the priests and eligible lay employees employed at the various parishes, schools, and agencies throughout the archdiocese. Over the past several years we’ve communicated the funding challenges the archdiocese and individual parishes face to fully fund these two benefit plans. While positive investment results will assist in closing the gap, the archdiocese has also contributed additional funding to assist in alleviating the funding deficit. In fiscal years 2011 and 2012 additional contributions to the Lay Plan of $6.3 million were made. Our most recent report from our plan actuaries as of January 1, 2013 indicates that the Lay Plan was underfunded by $10.9 million or a funding level of 84 percent, an improvement from a 76 percent funding level in 2011. In September 2011 the Chancery announced changes to the Lay Plan. Effective January 1, 2012, no newly hired employees are eligible to participate in the Lay Pension Plan. Existing employees as of that date will continue to accrue benefits in the Lay Plan. In addition to the Lay Plan the archdiocese provides a retirement savings plan or 403b Plan whereby both employees and employer can contribute. The archdiocese matches 50 percent of up to a maximum of 8 percent employee eligible compensation. This match is an increase from 50 percent of 6 percent of eligible wages prior to January 2012. The archdiocese intends to continue to make contributions to these benefit plans for employees indefinitely. However, as we continue to focus on funding levels of our existing benefit plans we may need to reassess these decisions at a future date.

Similar to the lay defined benefit plan, the most recent actuarial valuation report as of January 1, 2013 indicate that the priest retirement plan is underfunded by $9.5 million, which represents a funding level of only 52 percent. This is also an improvement over the 2011 actuarial funding analysis that reported a funding level of 49 percent. We look to invest new dollars and continue to recover investment losses in the plans, as the funding level of each of these benefit plans is a priority for the archdiocese. For financial reporting purposes these pension plans are considered to be multiemployer plans since the financial activity of parishes and other entities of the archdiocese, which contribute to these plans, is not included in the audited combined financial statements. There are neither separate valuations of plan benefits nor segregation of plan assets specifically for the Chancery.

Expenses Related to Sexual Misconduct Lawsuits

In fiscal year 2013, approximately $47,000 was spent to provide counseling for victims of sexual misconduct perpetrated or alleged to have been perpetrated by priests or lay employees of the archdiocese. Approximately $76,000 was spent for these purposes in fiscal year 2012. Through January 2014, we have settled a total of 10 sexual abuse lawsuits through mediation with an average settlement per case of $157,000. Additionally, approximately $60,000 was spent for legal fees to defend the archdiocese from sexual misconduct lawsuits in 2013 compared to $121,000 in 2012. There are currently four additional cases in litigation.

Archdiocesan Grants Awarded

Thanks to the generosity of the parishes in the archdiocese and a special bequest, we have three endowments in the Catholic Community Foundation that have been established such that the annual distributions are used to award grants in the archdiocese to parishes, schools and agencies. These grant opportunities are awarded through an application process and target home missions opportunities; growth and expansion initiatives in the archdiocese; and matching grants for capital needs in our parishes, schools and agencies. Historically, the archdiocese has awarded home mission grants and growth and expansion grants using separate allocation committees on an annual basis. With the addition of the James P. Scott gift in 2011, we’ve combined these efforts and issue all three grants on a bi-annual basis through a combined application and allocation committee process.

St. Francis Xavier Home Missions Fund

The St. Francis Xavier Home Mission Endowment Fund was established to provide grants to home mission parishes in the archdiocese. The annual distribution from the endowment is combined with the funds the parishes direct that are collected over and above the parish United Catholic Appeal goal awarded to home mission parishes and schools. These grants began in 2002 and since inception we have disbursed over $3.5 million to support our parishes and schools with the greatest needs. The endowment that is established to support these grants had a June 30, 2013 balance of $4 million which allows us to distribute approximately $200,000 in grants each year.

Growth and Expansion Endowment Fund

The growth and expansion endowment fund was established to provide grants to parishes, schools and agencies in the archdiocese that are growing their existing ministries consistent with the overall strategic plan of the archdiocese. Since the inception of this granting fund we have disbursed approximately $780,000 to support various growth opportunities in ministry and capital throughout the archdiocese. The endowment that is established to support these grants had a June 30, 2013 balance of $3.1 million which allows for approximately $150,000 in annual grant funding.

James P. Scott Capital Improvement Endowment Fund

This endowment fund was made possible by an undesignated estate gift to the archdiocese from James P. Scott. The annual distributions will be provided in the form of a matching grant or award to support parish, school and agency capital projects that demonstrate the greatest potential impact on an archdiocesan program, parish or the larger Catholic community. The endowment had a June 30, 2013 balance of $5.2 million which generates annual grants of about $265,000.

2013 Grant Awards

In the fall of 2012, 15 grants were awarded across the three grant types with an average value of $19,000. These grants were awarded to parishes in six different deaneries and to three Archdiocesan agencies. In the spring of 2013, 12 grants were awarded across the three grant types with an average value of $22,000. These grants were awarded to parishes in seven different deaneries and to two archdiocesan agencies.

For more information on the grant process please visit the Finance Office webpage at www.archindy.org/finance/grant or contact Stacy Harris in the Finance Office at sharris@archindy.org.

Catholic Community Foundation, Inc.

The Catholic Community Foundation’s total cash and investments were $150.1 million at June 30, 2013. The composite investment returns for the year were 10.8 percent driven by the equity returns which were quite volatile over the course of the year. The Foundation investments have returned a very respectable 7.4 percent (annualized) since the inception of the current investment structure in January 1995 despite facing one of the worst 10-year periods in history of the U.S. equity markets. Parishes, schools and agencies of the archdiocese added 31 new endowments during the year, bringing the total number of endowments held in the foundation to 437. The endowments distributed over $6.7 million in both fiscal years 2013 and 2012, to support parish, school and agency ministries, demonstrating the ability of endowments to provide long-term funding for ministries.

Operating Budget for 2013-2014

For the 2013-2014 fiscal year we anticipate a break-even operating budget on approximately $34 million of total operating expenses. We anticipate the most significant challenges to include:

• Managing and assisting the parishes that continue to be challenged by operating deficits.
• Continuing efforts to bring the status of the lay and clergy benefit plans to fully funded
• Strengthening the support within our parishes for the United Catholic Appeal
• Managing our public charter schools to be self sustaining and our city center schools to balance their supported budgets
• Providing parishes, schools and agencies with sound employee benefit and service plans while minimizing cost increases and meeting the guidelines within the Affordable Care Act

On the other hand, we have several positive opportunities:

• Utilizing the benefit of state vouchers in our school system while providing quality Catholic-based education
• Structuring our assets to better match liabilities enabling us to manage our risks and opportunities
• Continuing strong growth in the Catholic Community Foundation with an increase in endowments and charitable gift annuities.

Accountability

Accountability is an important part of our stewardship responsibilities. Each year, the archdiocese subjects itself to the scrutiny of an independent audit. The firm of Deloitte & Touche LLP performed the audit for the last fiscal year. The audited financial statements are available for inspection through the Office of Accounting Services or at www.archindy.org/finance/archdiocese. Archdiocesan leadership has established and regularly confers with the Archdiocesan Finance Council. The council, whose existence is required by canon law, focuses on financial policies, procedures and activities of the Church in central and southern Indiana. Current members of the Archdiocesan Finance Council are:

• Most Rev. Joseph W. Tobin Archbishop, Chairman
• Most Rev. Christopher J. Coyne Auxiliary Bishop, Vicar General
• Jerry Williams President, St. Simon Parish, Indianapolis
• Greg Monte Vice President,St. Patrick Parish, Terre Haute
• Members
  • Daniel L. DeBard St. Patrick Parish, Terre Haute
  • Kenneth J. Hedlund St. Matthew Parish, Indianapolis
  • Scott Nickerson St. Pius X Parish, Indianapolis
  • Dan Riley St. Luke Parish, Indianapolis
  • Timothy Robinson St. Joan of Arc Parish, Indianapolis
  • Brian Burkert Chief Financial Officer, Staff

This past fiscal year marked continuing financial advancement for the parishes, schools and agencies of the Archdiocese of Indianapolis as we worked to build a sound financial footing. Revenues continued to grow, expenses generally fell in line with or below budget expectations and we’ve seen a recovery in the investment markets. We continue to place great emphasis on improving the financial stability of those parishes experiencing deficit operations. May God lead us toward continued success in our ministries.

Respectfully submitted,

Brian Burkert, CPA
Chief Financial Officer