When the $86.8 million pension plan that covers current and former employees of Our Lady of Fatima Hospital
filed for receivership last month, public discord quickly dissolved into finger pointing, deflection and calls for investigation.
But the reality is that it should have been relatively clear in 2014, when Prospect Medical Holdings Inc. and CharterCare Community Board purchased St. Joseph Health Services of Rhode Island Inc., that the retirement plan – which covers about 2,700 people – would quickly run out of money.
“For all intents and purposes, it was insolvent at the point of that transaction,” said Stephen Del Sesto, partner at Donoghue, Barrett & Singal in Providence. Del Sesto was appointed by an R.I. Superior Court judge to usher the retirement plan through receivership.
When Prospect purchased the operating assets of St. Joseph, the former parent of Fatima, it did not assume the liabilities of the pension plan, known formally as the St. Joseph Health Services of Rhode Island Retirement Plan. That meant there would no longer be any revenue-generating operations to support the retirement plan.
As part of the deal, Prospect agreed to contribute $14 million to the fund, which increased the plan’s funding level – a measure of assets to liabilities – to about 90 percent, a relatively healthy amount compared to most pension plans throughout the country.
But once the Prospect transaction was completed, the pension plan continued to pay benefits, but there was little money coming in.
“Without any source of revenue, and therefore any ability to make contributions, the board didn’t have a lot of options,” Del Sesto said.
Today, the pension plan’s funding ratio has fallen to 75.4 percent. The Angell Pension Group Inc., based in East Providence, estimates the fund is short about $43 million.
The only income the fund is realizing is on investments and interest, but it doesn’t nearly offset the amount of money being paid out. And last fiscal year the fund lost money on its investments, realizing a net loss return of 1.8 percent.
The St. Joseph Hospital Board of Directors filed for receivership in R.I. Superior Court on Aug. 18. In addition to hemorrhaging money, the fund by January could lose its long-standing affiliation with the Catholic Church that exempts it from making minimum contributions and paying for insurance from the Pension Benefit Guaranty Corp.
The board has asked the court to reduce pension benefits by 40 percent for all current and future pensioners.
“[The board] believes that a uniform reduction of 40 percent of pension benefits is likely the most reasonable approach to achieving an equitable resolution for all beneficiaries,” according to court documents.
The group estimates the reduction – along with implementing more conservative assumed rates of return than the fund’s current 7.75 percent – would enable the now-closed plan to maintain funding for the lifetime of its participating members.
One alternative would be to immediately close the plan, liquidate its assets and pay out whatever is left. The option would result in about 67 percent of the plan’s current beneficiaries receiving about 60 percent of their benefits in one lump sum, according to Richard J. Land of Providence-based Chace Ruttenberg & Freedman LLP.
The remaining 33 percent of plan participants wouldn’t receive a dime.
A union lawyer representing some of the plan’s current members didn’t respond to a request for comment, but Land – who represents the board – said the liquidation option would result in a bad and unequitable outcome for plan participants.
“The board of directors is trying to do the right thing,” Land said.
Since the board filed for receivership, criticism surrounding the handling of the retirement plan has soared.
‘I am concerned that a seemingly healthy pension fund has failed so suddenly.’
SEN. DOMINICK J. RUGGERIO, Senate president
Senate President Dominick J. Ruggerio, D-North Providence, represents the district where Fatima Hospital is located. He called on both the state attorney general and the R.I. State Police to open investigations into the matter.
“It is extremely troubling that the fund would fall into receivership so quickly, and during a period of economic growth and record financial markets,” he said. “I am concerned that a seemingly healthy pension fund has failed so suddenly.”
Attorney General Peter F. Kilmartin has also become the subject of some criticism, as it was his office – along with the R.I. Department of Health – responsible for overseeing the 2014 transaction.
In a statement, Kilmartin said the deal met the “limited scope” of requirements spelled out under the Hospital Conversions Act, which mandates how nonprofit health providers can become for-profit entities.
He also is troubled, however, that the retirement plan had realized such a rapid decline.
“I am very concerned and have many questions as to how the pension fund could be insolvent just three years after being funded at 90 percent,” he said.
Eli Sherman is a PBN staff writer. Email him at Sherman@PBN.com, or follow him on Twitter @Eli_Sherman.
