7. Holes in the Pension Fund

  1 From the 2013 estimated budget, chart of pension fund contributions and post 1.1.93 pension chart.

  2 When confronted by the crisis of the diocese of Berlin, the German Bishops’ Conference agreed to let the consultants from McKinsey step in. According to the journalist Sandro Magister, the Conference, “asked the manager of the Munich branch, Thomas von Mitschk-Collande, to get its accounts back in order. He also drew up a plan for the German Bishops’ Conference to save on costs and personnel.” “La curia di Francesco, paradiso delle multinazionali,” Espressoonline, January 17, 2014.

  3 From the minutes of the auditors’ meeting on June 21, 2012.

  4 “If you look at the contribution of active employees (current average value of contributions—presently active),” Messemer underlines, “it will bring in 494 million euros: this is about 288 million less than what is needed to cover the estimated liability of 782 million euros for active employees.
    “It is presumed that this discrepancy is financed both by the net assets and by future employees and that it will be covered, for the most part, by a mathematical reserve of about 180 million euros in the profits and losses account. To put it simply, the contributions of future employees should amount to about 575 million euros, while liabilities for the same group of persons is estimated at only 395 million euros.
    “To be more concise: contributions from future employees will finance about 180 million euros of the pension [liability] of current employees. If you look at the need to cut personnel costs, thereby reducing the financial base of future contributions to the pension fund, this would seem to be an unrealistic assumption …
    “The most important analysis that must be done urgently is an analysis of the correspondence between assets and liabilities. We are unable to say whether earnings from current and future assets (from a prospect based on the rate of risk/profit) are stable enough to guarantee the profits needed to cover the liabilities. The current interest rate for the calculation is about 4.7 percent. I should mention that the current interest rate on German government bonds (10 years) is 1.3 percent.
    “The IRS, the Swap interest rate (20 years) is about 2 percent, also indicates that we are seeing a dramatic drop in interest rates, within which a projected rate of about 5 percent is truly ambitious. Making things more complicated is the fact that one-third of the assets are real estate. What type of asset are we referring to? In what does it consist? Are there also investments that could, in the future, modify the budget structure?”

  5 The auditor had been particularly harsh five months earlier, on June 21, 2012, as documented in the minutes of the meeting of the international auditors’ board: “Mr. Messemer hopes that, in the space of a few years, we can have a holistic view of the economic and financial activity of the Vatican, avoiding unpleasant surprises … This is why it is important for the Pension Fund to have exact risk assessments and to undertake an accurate actuarial calculation. To this end, Mr. Messemer underlined several important needs:

1. Change the pension system for new employees (i.e., per contribution);

2. Understand that the Pension Fund is part of a scenario in which interest rates vary from 2–3%;

3. Verify the exact correspondence between assets and liabilities. There are models that could be used as reference;

4. Always assess the counterpart’s risk. The top insurance companies never neglect this aspect. If an insurance policy is drawn up with a bank, first check whether the bank is solvent.

5. Try to respect promises made to employees. This regards both the Pension Fund and the Health Insurance Fund.

6. Address the media’s skepticism in calm cool tones, trying not to sound too worried about what is happening.”

The other auditors share Messemer’s concerns: “Mr. Prato returned to the subject of the Pension Fund and the two systems, of payments and contributions, that should exist after the introduction of contributions for new employees. Considering, however, the rather low turnover rate of Vatican personnel, it would be better to schedule a set date for the full transition to a system of contributions, for all employees, to prevent any possible disorder due to the coexistence of the two systems. Mr. Messemer claims that the separation of the two systems is the most immediate solution. It is problematic to transition to the new system if the old one is still widely misunderstood. Another source of concern is tied to the flows from one system to the other to allow the new pensions to pay for the old ones.”

  6 The document continues by underlining the following:

1. All the personnel offices of all the administrative bodies that report to the Apostolic See, in any way and regardless of the de facto or legal autonomy they have so far enjoyed, will be unified in a single administrative structure that will perform all the functions in this area. Some of these functions could be delegated, in part or in whole, for a fixed term.

• This structure will be called “Personnel Office of the Apostolic See” and it will report to the Prefecture of the Economic Affairs of the Holy See.

• It will be headed by an appointed Director of Human Resources who will direct and coordinate all personnel who, at present, handle assignments in this field at the single administrative bodies;

• The structure will be divided into two sections: one for all full-time permanent employees and another for other types of collaborators of any type working for administrative bodies of the Holy See, including unpaid collaborators.

• All the existing regulations at the single dicasteries will remain valid, provided they are in compliance with regulations at the higher level and, of course, with the universal principles of equity and justice.

  7 Minutes from the meeting of the board of auditors on December 12, 2012.

  8 Risk-identification document drafted for the Council of Cardinals on February 17–18, 2014.

  9 Ibid.

10 Ibid.

11 From the “Report on the 2013 YTD Budget and the 2014 Estimated Budget.”

12 Subsequently, we find 35 million in ordinary bonds of Barclays Bank Plc, 25 million at the Commerzbank, another 25 at General Electric, 12.3 million in France (Govd.Of), and 8 million in Eléctricité de France. Among the stock bundles, the most substantial are at Snam Rete Gas Spa (38,326), for a value of 143,000 euros, BASF for 141,000 euros, Eni for 127,000 euros, Enel Spa (22,800) for 64,000 euros, and Royal Dutch Shell with stocks valued at 73,000 euros. A substantial amount of stocks: investments in bonds would increase for the pension fund, to 11.2 million in the 2014 estimated budget (10.6 in euros and 0.6 in dollars) by comparison to the 10.9 million in the 2013 YTD budget.

13 From the “Report on the 2013 YTD Budget and the 2014 Estimated Budget.”

14 In the summer of 2014, Francis gave the OK to the reform of the assets of the Holy See. The Vatican’s immense patrimony will be placed under a single office, on the basis of ethical and Catholic criteria, currently being defined. The main novelty of the reform will be the style of management for the IOR, APSA, Propaganda Fide, the Pension Fund, and the Governorate. All asset management will be assigned to a new entity, Vatican Asset Management (VAM). The transition process will be gradual. As the Pope sees it, a more central system means more oversight, which was always missing in the past. But too much power in a single entity and to a small number of cardinals also generates the risk of mismanagement.