NORTH PROVIDENCE, R.I. (WPRI) – What happens to a pension plan when it becomes an orphan?
That’s the difficult question facing roughly 2,700 current and retired Our Lady of Fatima Hospital employees after a judge agreed last week to put their 52-year-old pension plan into the hands of a court-appointed receiver, Stephen DelSesto, who is considering cuts of up to 40% in their benefits.
The next hearing in the case is Oct. 11. “There will be no changes to benefit payments until the hearing,” DelSesto told Eyewitness News in an email Tuesday.
Christopher Callaci, a lawyer for the United Nurses and Allied Professionals union that represents nurses and other staff at Fatima, said employees are alarmed about the situation.
“I don’t know what happened here, but we’re going to find out,” Callaci said.
The legal status of the plan – formally known as the St. Joseph’s Health Services of Rhode Island Retirement Plan – is complex.
It was set up in 1965 by the Roman Catholic Diocese of Providence to cover employees of St. Joseph’s Health Services of Rhode Island Inc., Fatima’s owner, and is classified as a so-called “church plan” under federal law.
Facing growing financial challenges, St. Joseph’s merged in 2009 with Roger Williams Medical Center under the umbrella of a new parent company, CharterCARE Health Partners. Then five years later, in 2014, CharterCARE set up a joint venture with Prospect Medical Holdings, a California-based for-profit company, and transferred its hospitals to the new entity.
But the retirement plan was not included in the transaction – leaving it as an orphaned liability of St. Joseph’s Health Services, a hospital company that no longer owned a hospital. It’s unclear how the plan was expected to pay benefits under the auspices of a sponsor with no significant source of revenue. (The plan was also frozen in 2014.)
As part of the 2014 transaction, however, Prospect did agree to make a one-time contribution of $14 million to the St. Joseph’s pension plan, which officials said would bring the plan’s funding level above 90%. But that was apparently the last deposit any entity was required to make to the plan – meaning it is now drawing down its assets to pay benefits.
A March actuarial report reviewed by Eyewitness News shows the deteriorating condition of the pension plan, whose liabilities totaled $126.7 million as of July 1, 2016. During the previous 12 months, the plan had paid out $10 million in benefits while receiving no employer contributions, helping to reduce its assets’ market value from $98.5 million to $86.8 million in a single year. Those assets are with Bank of America.
The actuarial report – by East Providence-based Angell Pension Group, which administers the St. Joseph’s plan – recommended that $4.6 million be deposited into the plan for the year, with a minimum of at least $2.7 million needed to keep it healthy. And all of the Angell report’s estimates rely on the pension plan’s investments earning a relatively high average annual return of 7.75%, higher than most plans forecast.
Callaci, the union’s attorney, questioned the numbers. “How do you lose that much money in a three-year period with the stock market doing what it’s doing?” he asked.
Callaci noted the actuarial report suggested $43 million would be needed to fully fund the pension plan. “The economy has only gotten incrementally better since then, and now we’re $43 million in the hole? It simply doesn’t add up,” he said.
A document filed last month with the secretary of state shows a Fatima executive and a top aide to Roman Catholic Bishop Thomas Tobin were both still on the board of the St. Joseph’s shell corporation left behind when the hospitals were transferred to the new joint venture with Prospect. But Prospect, CharterCARE and the Catholic diocese all say that they have no legal responsibility to bail out the pension plan.
“It is important to note that the pension fund is not connected to either CharterCARE Health Partners or Prospect,” CharterCARE CEO John Holiver told employees in an email last week. “The Pension was not transferred to the purchaser when the transaction with Prospect was completed three years ago. Neither CharterCARE Health Partners nor Prospect have any oversight or control of the Pension.”
Holiver added that CharterCARE’s HR department would direct all questions about the pension plan to DelSesto, the receiver.
Karen Davis, a spokeswoman for the Catholic diocese, said church officials “share many of the questions and concerns” expressed by the union and employees.
“The Diocese of Providence is not currently, and has not been, responsible for the ownership, management, or oversight of the pension funds in question, and [St. Joseph’s Health Services of Rhode Island Inc.] is not a diocesan entity,” she said.
“In fact, it is our understanding that the acquisition of the hospitals by Prospect/CharterCARE in 2014 left the pension funds in a very strong position,” David added.
Attorney General Peter Kilmartin, whose office signed off on the 2014 Prospect transaction along with the Department of Health, finds the pension situation “concerning,” spokeswoman Amy Kempe said in an email.
But, Kempe said, Rhode Island’s state law governing hospital transactions “does not give the attorney general the authority to oversee or manage private pension funds.” She said it focuses only on “governance, charitable assets and conflicts of interest.”
In the legal petition to place the pension plan in receivership, Richard Land, an attorney for the old St. Joseph’s Health Services corporation, argued doing so was the best chance to salvage some of the members’ benefits. He noted that the alternative might be liquidating the plan altogether, and suggested assets may become available as he winds down the old St. Joseph’s and settles its affairs.
“While the availability of additional funds is uncertain at this time, such additional funds could be used to support the Plan for long-term payouts to beneficiaries or provide supplemental distributions to beneficiaries whose benefit payments might be reduced as part of the Plan’s wind down process,” Land wrote.
Land also warned of another challenge facing the pension plan – by the end of next year it will lose its “church plan” status and will be required to fulfill more stringent federal regulations that he said it cannot afford.Ted Nesi (email@example.com) covers politics and the economy for WPRI.com. He writes Nesi’s Notes on Saturdays and hosts Executive Suite. Follow him on Twitter and Facebook