PROVIDENCE – The investigation into the insolvent St. Joseph Health Services pension plan could be heading toward litigation, with attorneys having identified up to $20 million in recoupable funds.
The investigation, headed by court-appointed attorney Stephen Del Sesto of Pierce Atwood LLP, is looking into the pension plan, known formally as the St. Joseph Health Services of Rhode Island Retirement Plan.
The plan became insolvent after a business deal in 2014 left it without any employee contributions. At risk are the benefits of about 2,700 current and former employees of Our Lady of Fatima and Roger Williams hospitals.
As part of the investigation, Del Sesto has issued several subpoenas to multiple organizations, including St. Joseph, Prospect Medical Holdings Inc., the Roman Catholic Diocese, CharterCare Community Board, the office of the R.I. attorney general and law firms representing various parties.
The subpoenas are not necessarily indicative of future litigation, Del Sesto said, but he’s taking a wide-angled approach to his investigation.
“I wouldn’t be doing my job if I didn’t look under every stone,” Del Sesto said on Thursday.
Most recently, Del Sesto issued a subpoena to the Rhode Island Foundation, one of the state’s largest philanthropic groups. Del Sesto said he’s identified about $8.2 million in assets given to the foundation after Prospect acquired the hospitals in 2014.
At the time of the deal, Roger Williams Hospital had $8.2 million in a charitable trust, which it needed to unload to change from a nonprofit to a for-profit entity. The court ordered the money be transferred to the Rhode Island Foundation, which would serve as its custodian.
The foundation, with assets totaling $950 million, takes in money, invests it and uses the capital gains to give grants.
“It wasn’t a nefarious or backroom deal,” Del Sesto said. “But I may disagree [with the idea] that the funding, restricted or not, should not have first gone to the pension.”
Del Sesto argues the $8.2 million should have been dissolved and given instead to the $85 million pension plan. He doesn’t believe the Rhode Island Foundation is a target of litigation but is nonetheless frustrated about how long the philanthropic group has taken to respond.
The foundation released a statement saying it was in the process of gathering a response, pointing out the subpoena had a deadline of Feb. 28.
“As the state’s community foundation, we take our role as a fiduciary and steward of charitable dollars very seriously,” wrote Chris Barnett, a foundation spokesman, in a statement.
Barnett declined to comment further.
Del Sesto said the foundation asked him for an extension of time, which he declined.
“I don’t have the luxury of time,” Del Sesto said. “I’m frustrated because to me it’s a lack of acknowledgment of the pressure that the court is under and the amount of stress it’s causing these pension holders.”
In addition to the Rhode Island Foundation, Del Sesto has identified an additional $10 million held by shell companies that previously owned Roger Williams and St. Josephs. He’s also looking at money held by a third entity created as a joint venture between CharterCare and Partners.
He estimates the total recoupable funds could total between $18 million and $20 million. Although he notes there’s no guarantee his efforts will yield any results.
“I’m not saying I’m going to be able to bring all – or even any – of it back, but we’re looking at it,” he said.
The Providence lawyer expects to file a recommendation in Superior Court on March 5 to approve 90 more days of full benefits for the plan’s beneficiaries. He also expects to ask the court to allow pending benefit applicants – which have been held up since the legal preceding started last fall – to be processed.
There are about 138 pending applicants Del Sesto estimates will cost the plan about $65,000 more each month.
The plan, notwithstanding recent market volatility, has largely benefited from strong investment income in recent months, which has helped offset benefit expenses.
“We’ve basically been able to maintain the status quo,” he said.
Another reason for processing the pending applicants relates to a parallel strategy Del Sesto is pursuing to try and save the pension.
The attorney has begun preliminary discussions with the Pension Benefit Guaranty Corp., known as PBGC, which is an independent federal insurer of private defined-benefit pension plans under the Employee Retirement Income Security Act, known as ERISA.
The plan isn’t currently backed by the PBGC because of its past designation as a “church plan,” which exempted the diocese – once administrator of the plan – from paying annual insurance costs.
Del Sesto is making the case that the plan should have been designated an ERISA plan after its disassociation with the Roman Catholic Church. If the PBGC agrees, the federal agency would guarantee every pension holder up to $65,000 each year. That would pay for about 98 percent of total benefits promised.
Del Sesto, however, doesn’t know whether the strategy will work, and the PGBC isn’t currently compelled to decide within a certain timeframe.
“The problem is we’re in an area with the PBGC that they’ve never been in before,” he said. “Nobody has asserted what we’re asserting.”
Del Sesto said not processing pending applicants could violate regulations under ERISA, which adds to the reasons why he’s asking the court to approve his request.
“I’m not going to say this is anywhere near a slam dunk, but there’s a real opportunity here,” Del Sesto said. “It’s going to come down to our discussion with the PGBC.”
At the same time Del Sesto is trying to recoup money and devise a plan with the PGBC, attorney Max Wistow is trying to determine whether to pursue any legal challenges.
Wistow, of Wistow, Sheehan & Loveley PC, is a Providence lawyer known for handling big-name lawsuits.
Rhode Islanders most likely remember him for his recent work as the state’s lead attorney in the famed 38 Studios LLC civil suit.
He helped the state recoup millions of dollars lost on a failed $75 million public investment into the now-defunct video game company.
The court appointed Wistow special counsel to the St. Joseph pension case, and Del Sesto has tasked him with trying to identify whether any lawsuit should be brought against the involved parties.
Wistow is expected to make his recommendations to Del Sesto within the next month.