How Pension Promises Fail: Examples in Christian Brothers Services and Chicago Pensions

What happens without a backstop... and will anybody get bailed out?

In the U.S. Catholic world recently, some news came out: a major supplier of Catholic pension plans had notified them of deep underfundedness and a need to boost contributions:

18 Nov 2025, Minnesota Star Tribune: Pension fund covering scores of Minnesota Catholic schools has $800M shortfall

Cretin-Derham Hall’s president, Jeb Myers, had alarming news for retirees and employees at a recent packed meeting on its St. Paul campus.

Their pension plan, managed by suburban Chicago-based Christian Brothers Services, is in need of a costly fix. If Cretin remains in the plan, its annual pension contribution would almost quadruple to an untenable $1.5 million, Myers told those in attendance.

The pensions of thousands of current and former workers at Catholic Minnesota institutions, particularly schools, are part of the Christian Brothers Employee Retirement Plan.

Many of them are getting the same ominous warnings as the Cretin employees: Their pension funds are significantly short of money.

The Christian Brothers plan, which covers 180 employers and 40,000 people nationwide, is asking for big boosts in employer contributions to erase an $800 million shortfall.

There’s “really no faith” that the Christian Brothers’ funds will be there in the long term, said Sam Hartmann, a pension consultant hired by Cretin who attended the school’s meeting.

Note the numbers, which I emphasized. That’s not for the entire school, but the entire pension plan. I will be returning to this, because I’m going to be comparing it to Chicago.

Here is a link to Christian Brothers and information about their defined benefit program.

Before I go further with the more in-depth coverage from The Pillar, I want you to understand why these plans are particularly vulnerable: there is no backstop for church plans.

ERISA: Protects only SOME pensions

Last year, I noted the 50th anniversary of ERISA (Employee Retirement Income Security Act):

ERISA came into being due to some notorious private pension failures. (You can read that post for those details.)

The new law of 1974 created the PBGC (Pension Benefit Guaranty Corp), which provides a minimum benefit when private pensions fail. There have been updates to ERISA since 1974, and there has been a big bailout of multiemployer plans during the Biden administration (of course, that bailout may ultimately fail, but that’s going to take decades before that happens.)

But this post is not about private pensions — it’s about the pensions not covered by ERISA:

• church plans

• public pension plans

The Catholic Church employees — though not priests or bishops or such — are not covered by ERISA in their pension plans.

There was a SCOTUS case in 2017, which I wrote on the prior STUMP site:

March 2017: Pensions at the Supreme Court: Church Plans

This surrounds “church plans”, but specifically DB pension plans started by various healthcare entities owned/operated by various churches. Church plans are exempt from ERISA, the pension-related law that makes requirements regarding covered plans, especially with regards to required contributions to the pensions and also being covered by the PBGC if the pension’s sponsor goes belly-up.

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But there’s a reason it was never brought up legally before now.

It’s because now, many of these pensions are bankrupt. And the pensioners are finding they have no backstop whatsoever, unlike with regular private pension plans, which provide cover via ERISA and the PBGC.

There’s also the issue of multiple mergers, orphaned plans, etc.

As covered by SCOTUSblog, the case: Advocate Health Care Network v. Stapleton, which was ruled upon in June 2017:

Holding: Under the Employee Retirement Income Security Act of 1974, a defined-benefit pension plan maintained by a principal-purpose organization -- one controlled by or associated with a church for the administration or funding of a plan for the church’s employees -- qualifies as a “church plan,” regardless of who established it.

Judgment: Reversed, 8-0, in an opinion by Justice Kagan on June 5, 2017. Justice Sotomayor filed a concurring opinion. Justice Gorsuch took no part in the consideration or decision of the case.

Lower courts had held that plans had to be established by churches themselves. But there had been a change to the law:

(a) The term “church plan” initially “mean[t]” only “a plan established and maintained . . . by a church.” But subparagraph (C)(i) provides that the original definitional phrase will now “include” another—“a plan maintained by [a principal-purpose] organization.” That use of the word “include” is not literal, but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition. In other words, because Congress deemed the category of plans “established and maintained by a church” to “include” plans “maintained by” principalpurpose organizations, those plans—and all those plans—are exempt from ERISA’s requirements.

Basically, it was fine for Catholic hospitals to establish pension plans, and those would be church plans. It didn’t need to come directly from the diocese, for instance.

And yes, many of those plans have gone bankrupt… and there is no PBGC backstop.

Deep problems with church plans: bad demographic trends, bad assumptions, chasing yield

In this case, it’s not merely the Catholic hospitals (many of which have been sold off to private hospital groups, and the pension plans already spun off… that’s an “old” problem) — this is current Catholic schools and the dioceses themselves. There is no question that these are church plans.

20 Nov 2025, The Pillar: ‘A really grave injustice’ - Dioceses face ‘devastating’ Christian Brothers pension crisis

One Catholic bishop said he is “devastated” by a pension crisis faced by potentially dozens of American dioceses, which could leave longtime lay Catholic employees facing serious financial hardship in their retirement.

And bishops told The Pillar they are looking to find solutions — fast — after learning that diocesan pension plans administered by Christian Brothers Services are dramatically underfunded, and would take millions to get on track.

In addition to dioceses, the pension crisis impacts Catholic schools across the country, and could leave tens of thousands of Catholic employees and pensioners facing benefit cuts.

Bishop Andrew Cozzens of Crookston, Minnesota told The Pillar that his diocese received “devastating” news in early August that his diocesan lay pension plan was “significantly underfunded,” and that retired and current diocesan and parish employees could face the prospect of significant reductions to the benefits they were expecting.

The diocesan pension plan was managed by Christian Brothers Services, a non-profit founded by a LaSallian religious brother, which says it provides Catholic organizations with health benefit, retirement, and risk management plans. The Crookston plan, Cozzens learned, was funded only to 58% of its obligations — well below the threshold for a healthy retirement fund.

The crisis meant that his diocese would face new annual payments of about $1 million to get the plan on track, Cozzens said.

“When you have a pension fund, you’re paying a certain percentage of what your employees make. That goes into a fund which is going to pay out a certain percentage back to people over the years. And they told us that since it was significantly underfunded, they were going to slightly reduce the percentage that we were paying per employee … But they were to charge us an extra $1 million a year for the next 25 years, to make up the deficit.”

“This was a shock to us because we had no reason to believe, up to that point, that the pension plan was seriously underfunded.”

Bishop Cozzens told The Pillar that he does not have the money to pay the annual seven-figure amount that would restore the diocesan Christian Brothers pension fund back to health.

It is a fairly lengthy article that you can read at The Pillar itself.

I will be extracting some information from the article, and I may do another post later, another time, because it can be difficult to get public information for these sorts of plans. I found some documents on the Christian Brothers-backed pensions, but for only a few years. I was trying to see if I could get information on the cash flows, and how sustainable it might be, but to a certain point… it’s beside the point.

They have no backstop - they don’t have taxing authority. They have no PBGC to guarantee anything.

I don’t want to go over their options (some of them are in the article linked above).

I want to talk a bit about how pension promises fail, and what may have happened here, on limited information.

But let me start out with how defined benefit pension plans are often funded and managed:

• The benefit is a lifetime retirement income, usually based on some formula related to ending income level(s) and years of service (and sometimes adjusted by retirement age)

• There may or may not be an inflation adjustment of income in retirement

• Funding is often done as a percentage of payroll/employee income, which may or may not increase with age (or based on the average age of employees if funding is done on the employer level)

• There is a minimum number of years of service to “vest” in the benefit

• To the extent that the amount saved falls short (and it usually does), the unfunded liability is supposed to be amortized over the average time until retirement for active participants (or even separated vested to get nitpicky), so that the benefit is fully-funded by the time the (average) workforce is retired (updated)

• The assets backing the retirement promises are supposed to match dimensions of the retirement liabilities — timing of the benefit cashflows, inflation, etc.

• Of course, all of the funding and valuation is based on actuarial assumptions that are supposed to be either a little conservative (for safety) or at least best estimates… not something that underestimates how much the promises are going to cost.

Okay, there are the “supposed to”s, and then there is “what usually happens”.

What has usually happened with the non-ERISA plans — that is, public pension plans- is that amortization has been extended well beyond working years.

Assets backing the liabilities have been far riskier than the liabilities, trying to chase yield, in order to try to avoid having to increase contributions to the pension funds.

And about those valuation assumptions…

Ways to make pension promises look cheaper

A lot of numbers go into pension valuations, and then others into funding formulas:

• valuation interest rate/return on assets

• mortality rate

• distribution of retirement ages

• payroll growth

• inflation

and on and on. The valuation interest rate is the biggest lever on cost.

From something I wrote in 2016: Math Ain’t Magic: Playing With Numbers Doesn’t Make Pensions Cheaper

The assumed rate of return is used to develop what contributions need to be made year-to-year to appropriately fund the pension and is one of the most important assumptions there is for determining liability value.

Of course, reality intrudes and you get whatever return you get… the cash flows will be whatever they are, and the farther off your original assumption was, the faster the shortfall grows.

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And overall mortality improvement hasn’t been an even trend. In a recent NY Times article, it was noted that life expectancy improved for higher-income people more than low-income people (and in some cases those lower-income people’s life expectancies lowered… but more on that another time.)

Many of those public employees are in the higher income brackets. Actually, the people in the lowest income brackets tend not to be employed at all.

….

Every year that more retirees live longer, that experience is translated into actual pension cash flows out of the assets and to the retirees.

Reality always catches up.

GEEKING TANGENT: SMALLER PLANS NEED MORE CONSERVATISM

Even if a small plan had an excellent mortality assumption, modest rate of return assumption, etc., it can still run into trouble just due to natural variability.

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Similarly, if a pension plan has only a few dozen participants, even with up-to-date assumption sets, reality is going to diverge quite a bit from the average.

At least, chances are good that will happen.

REALITY ALWAYS WINS

But back from my actuarial geeking: putting a thumb on the scale, with the assumptions all in an optimistic direction, “helps” the plan only in the short-term.

For a while, especially when you have many more active workers than retirees, the plan will look relatively cheap. Some of the investment experience will start to filter through before retirement occurs, as well as changes such as salary experience, but that won’t necessarily have a large effect on the funds.

Until people start retiring. And living a lot longer in retirement than originally expected. Money keeps going out the door, and one finds that one has to liquidate assets in order to meet pension cash flow needs.

Even if one keeps the optimistic assumptions, cash goes out of the fund, and the unfunded liability climbs and/or the required annual contribution starts to climb rapidly. This is not unique to Illinois plans – I’ve seen it at multiple plans in the public pensions database. The more the assumptions diverge from reality, the faster this demand on more cash will climb.

The point is that the assumption sets are there to help pensions to plan their contributions, so that they’re stable. But if the assumptions all diverge from reality in the same direction: the direction of lowering the liability value on paper compared to what more realistic assumptions would, then one ends up with an unsustainable funding path. That’s what Connecticut is seeing. That’s what many Illinois plans are seeing.

Too “optimistic” ends up with something very pessimistic indeed, as reality is revealed.

Now, what I found in documents so far, Christian Brothers Services may have had the fatal problem that many defined benefit programs needed: a growing contribution base.

Which many/most defined benefit plans no longer have.

Allianz Global Investors: an asset loss

So, like many defined benefit plans outside ERISA, they chased yields and got burned by a hedge fund: (back to the Pillar)

In 2020, the Christian Brothers fund faced “catastrophic losses” because of a hedge fund investment managed by the German firm Allianz Global Investors, a company eventually charged with fraud for exposing investors to “higher risk than promised,” federal prosecutors said in 2023.

Christian Brothers sued Allianz, alleging that the fund manager “improperly invested client assets, employed a reckless strategy… and abandoned the risk controls it was required to have in place,” according to court records.

“AllianzGI’s extraordinarily risky and self-interested gamble resulted in massive multiple employer plan losses for the [Employee Retirement Plan], wiping out, in a matter of weeks, nearly $150 million of ERP’s participants’ retirement savings that had been accumulated over decades,” Christian Brothers alleged in the suit.

While Christian Brothers settled privately with Allianz, it is not clear how much of the $150 million it lost on the investment was recovered. But the losses, along with changing retiree demographics, compounded liabilities for the fund.

But that’s not enough to explain an $800 million hole.

This seems to be the fraud that many pension funds got caught up in: Structured Alpha Fraud

During the March 2020 market sell-off, the Structured Alpha funds lost over 7 billion USD leading to accusation that the funds misled investors (such as pension funds) about their risk profile.^[2] While the fund claimed that it used hedging to protect against market crashes, no such hedging was actually employed and the fund produced manipulated reports.^[2] On 1 August 2021, the United States Department of Justice began a probe into Allianz Global’s Structured Alpha Funds^[8][9] with the German Federal Financial Supervisory Authority launching an investigation later in 2021.^[10][11] Additional lawsuits were filed by investors such as American public pension funds, including New York City Subway employees and employees of the City of Milwaukee.^[12] In 2022 Allianz pleaded guilty to criminal securities fraud and agreed to pay over 6 billion USD in one of the largest cases so far.^[2] The funds former manager, Gregoire Tournant, was indicted for fraud, conspiracy and obstruction and two other portfolio managers, Stephen Bond-Nelson and Trevor Taylor, pleaded guilty to charges of fraud and conspiracy.^[2]

The fraud was that the fund wasn’t pursuing the strategy that they said they were: the hedge fund wasn’t hedging.

Many public pension funds were caught in this. As we’ve seen over the years, many public pension funds have been chasing yield through alternative assets:

It sounds like the Christian Brothers hadn’t been asking for contribution increases over the years, as funding ratios were eroding.

Instead of doing that, they decided to ramp up asset risk to try to dig out of their funding hole… and of course, with more asset risk, that also means downside risk. Oh well, a deeper hole to try to dig out of, and now they know they need higher contributions.

It reminds me of what happened with the Chicago Municipal pensions, which had too-low contributions for an extremely long time, and when it was finally forced to increase contributions, now they’re finding those contributions to be too expensive.

Chicago pensions: also failing, due to years of poor choices

Public pensions are the other type of pension with no PBGC backing.

There were First Amendment arguments re: omitting church plans from ERISA.

For public pensions, the argument was federalism (same argument for allowing state/local governments to opt out of Social Security).

I will link the following podcast:

25 Nov 2025, Statecraft: Should the Feds Bail Out Chicago?

Should the Feds Bail Out Chicago?

It will surprise nobody that I think Chicago shouldn’t be bailed out. Now, politically, chances are they’ll get some kind of bailout, but they had better time it very well…

…because I don’t think they understand what sort of pain they’re courting right now with the sort of behavior they’ve been up to.

The guy being interviewed is younger than me (though not by much), David N. Schleicher, a law-type-guy at Yale. I’ve bought his book: In a Bad State: Responding to State and Local Budget Crises, though I bet I’ll disagree with him:

The book sets out three possible federal responses.

1. Bailout. We’ve done it a number of times over the course of American history. A jurisdiction is on the edge of bankruptcy, and the federal government — or, with respect to a city, a state government — offers it a bunch of money. Probably the most famous fiscal crisis in American history is the first major one. The states were on the edge of bankruptcy, and Alexander Hamilton and the federal government assumed the state debts.

2. Creditor loss. The federal government could provide a legal mechanism or otherwise force the creditors to eat the loss. This is bankruptcy, but there are other tools that do this as well, that make it hard for people to recover against governments that they’ve lent to.¹

3. Austerity. Enforce those contracts very aggressively and also not offer bailouts. The loser then would be the people. The jurisdiction would have to raise taxes, cut spending, and sell everything. Maybe that won’t be enough, in the case of a small local government. But Illinois has extraordinary taxing authority. This would be very costly. It would be a huge spending cut during an economic decline. In a decline, people have greater need for social welfare services. You’d be cutting those.

For instance, I see so many more options.

Because what’s involved in pensions are really long-term promises. The Detroit pensioners took a loss in the bankruptcy… but for those still alive, there’s always a chance of getting some of the benefits back. There’s always a short-term loss. The bondholders get whatever they got in the workout, but if there’s a continuing cashflow, then the deal can change.

People forget the different nature of the deal. The Detroit deal was quite creative, in my opinion.

Unfortunately for Chicago, they don’t have as much to work with. They don’t have art they can hold hostage. For cities, there’s municipal bankruptcy court and process to work out.

The part that we haven’t tried in a long time is a state defaulting on its bonds (excuse me, renegotiating its debt terms/refinancing.)

Here is a reality that Illinois and Chicago hates looking at:

That is, Illinois is one of the few states that lost population between 2010 and 2020… and continued to lose population to 2024.

Then, Chicago’s population history:

Much of what is behind this pattern of Chicago’s Municipal plan:

The blue part is what they actually contributed, as a percentage of payroll.

It was held artificially low while the additional amounts they were supposed to contribute (depicted in red) grew at alarming rates.

The funded ratio eroded to alarmingly low amounts:

MEABF (the municipal fund) is supposed to be paying abour 50% of payroll just to tread water.

They can’t really look to Illinois for a bailout — Illinois is deep in the red as well.

Chicago and Illinois may feel like they’re just holding on until they can get Democrats in charge in DC and go begging for a bailout…

Bailouts? From other bankrupt entities?

….but what does a bailout look like for them (and New Jersey and Connecticut and California and…) when Social Security and Medicare will also need bailouts?

picture from 2021…. the order of magnitude is probably the same now, but I should update

They got a nice infusion of cash during COVID… and a big spike of inflation, that has only boosted pension liabilities in some cases, as public employees’ salaries rise and pension benefits sometimes get a boost.

The “will the Feds bailout everybody?” question shows up from time to time. Here’s one time I addressed it, when Biden was President:

Obviously, it didn’t happen during Biden’s time.

In that April 2023 piece, OF COURSE IT WAS CHICAGO being talked out.

I mentioned that simply running out of assets isn’t exactly bankruptcy for public pensions. The reason pension funds were set up was that many state and local pensions were pay-as-you-go during the Great Depression… and that didn’t work so well. But given the taxation power for state and local governments, non-zero amounts of money can go to retirees, even when pension funds don’t exist.

Things take a long time

I have been waiting for New Jersey and Illinois pensions to “fail” since I was in my 30s. I’m going to be turning 49 in a few weeks.

They’ve got plenty of assets to limp along for quite a while.

….

So, no. I’m not seeing any explicit bailouts going on. Not within 2 years.

Now, if you want to talk about politicians 10 years from now…..

The federal government wouldn’t dump $200+ billion on Chicago and Illinois, most likely. They wouldn’t make them whole that way.

What they would do is “guarantee” the retirees’ pension payments by direct cash payments, I bet.

Hey, maybe wrap them into the Social Security system! (bwa ha ha)

As it was, Congress balked at giving Illinois just $10 billion. And that was just an eensy-weensy amount to contribute to their pensions.

Again, it’s going to be a really hard sell, because Illinois and Chicago are just some of the worst-behaved with respect to their pensions (except for IMRF). California might try to back them, but it will be difficult. Illinois and Chicago both deliberately underfunded their pensions for decades.

That’s different from what happened with Christian Brothers Services, by the way, from what I can tell — that sounds like a third party holding off on telling clients bad news, so the bad news accumulated before acting. That’s more like what is happening with systems like California.

Why bail out the bad actors?

There is very little motive to bail out Chicago or Illinois.

Their failing systems aren’t bad luck.

They made deliberate choices.

And when you see the various other non-ERISA plans that have failed — and that includes Detroit, by the way — and they didn’t get bailed out. It’s not the moral hazard that people will be thinking about.

It will be: why are we bailing out one of the most corrupt cities and states around?

They decided to make empty promises.

It will be an extremely important lesson to let bad actors fail.

It’s not just a matter of being wrong and then suffering the consequences of being wrong. That is important, too.

But this is a situation of promising pension benefits… and then waiting to increasing contributions to that promise until the funded ratio has eroded to 30% and you’ve been told you’re 7 years away from all the assets running out.

What’s interesting is that Chicago is picking worse and worse mayors with each new election. They won’t even try to work with Springfield… not that they can get any money from the state, but given both the state and the city need to go begging from any source for money, it might be nice to band together for strength.

Oh well.

Hey, maybe Chicago and Illinois will get lucky.

Happy Thanksgiving!

Swinging back to the Catholic plans and Christian Brothers, they do actually have multiple options.

I don’t think suing the company will do much (not like they can make the employers whole).

But the main issue was that the company was low-balling what the pensions were worth in the first place. If the employers want to deliver on those original promises, they may consider annuities (group or individual... and yes, those will be pricey, because, again, those promises are expensive.) There are more options, as well. This is getting into my day job wheelhouse… and it’s holidaytime for me, so I will stop.

Best wishes to all, and I hope people don’t have too much of a Thanksgiving coma.