Diocese, Kilmartin’s Legal Delays Are Increasing Costs to Recover Monies For St. Joseph Pension
Friday, December 01, 2017
From the date of the fund being thrust into a receivership until October 31, legal costs have hit nearly $250,000 and the pace in the just-completed month of November was even higher.
Much of the effort of the past two months has been in seeking information from the Diocese and Kilmartin and then forcing them to adhere to the court authorized subpoenas.
“Time is not my friend or the friend of the pension holders devastated by this situation. Every person or party that I am seeking documents and information from should make every effort to produce those documents in full and as quickly as is possible,” said Del Sesto.
Neither Kilmartin nor the Diocese’s attorney Eugene Bernardo, Jr. responded to requests for comment.
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Judge Brian Stern seemed stunned at a hearing on Tuesday in Superior Court, when he was alerted by members of the Attorney General’s office that despite receiving a subpoena on November 3, Kilmartin had not complied with any part of the order and had not provided a single document.
“Clearly, these delays cost real time, energy, and money that has had to be dedicated to the effort to get the Attorney General and the Diocese to provide information — it is a significant expenditure of time and money,” said special investigator, attorney Max Wistow.
The impact to the recovery process has cost retirees months, at a time when retirees are facing a potential 40 percent cut to their pension payments on February 1, 2018 — just two months away.
Wistow has been forced to spend an inordinate amount of time forcing Kilmartin and the Diocese to comply with the subpoenas. On Tuesday, Judge Stern ordered Kilmartin to comply with the subpoena, set forth a process for disputed documents and a drop-dead due date for all documents by January 15, 2018 - just two weeks before retirees face dramatic cuts to their pensions.
Moreover, the legal wrangling and delays by Kilmartin have forced the documents to be delivered two months after the subpoena-ordered delivery of the documents.
Kilmartin’s strategy has successfully driven up costs and delayed the delivery of key documents by two months.
Key Resources Being Depleted
Del Sesto, Wistow and all the associated costs of the receivership are paid by the old Saint Joseph company, or “Old Co,” that was the corporate holding company for the hospital. Those resources are both critical and limited as they are some of the potential funds that could be dedicated to make pension plan participants whole.
“I have been told St. Joseph holds approximately $1.5 million in (cash and investments) and [the old] Roger Williams Hospital holds approximately $4 to $5 million (cash and investments). At my request, the Estate did receive and is holding $650,000 from Roger Williams. These funds will be used to pay the Court approved fees, costs, and expenses,” said Del Sesto.
Related Slideshow: 10 Things to Know About One of Biggest Pension Failures in RI - St. Joseph Bankruptcy
Biggest Pension Failure Ever in Rhode Island?
There is not a record book, but according to a number of top bankruptcy attorneys, the failure of the St. Joseph Health Services Pension Fund impacts the most individuals and the adverse financial impact will be the highest percentage impact to the retirees' monthly payments in Rhode Island history.
In Central Falls, by 2014 then-Governor Lincoln Chafee signed legislation that upped police and fire beneficiaries to 75 percent of their benefits. The cost of the legislation — post-Central Falls bankruptcy — was $4.8 million.
Kilmartin’s Role in the Hospital Conversion Act
Attorney General Peter Kilmartin won’t answer questions about his role in the approval of the Hospital Conversion of St. Joseph Health Services to CharterCare. GoLocal has repeatedly reached out to Kilmartin to answer questions, without response.
As part of the review of the deal, Kilmartin, as Attorney General, had the responsibility to review and approve the financial viability of the transaction. The Hospital Conversion law is very specific to the responsibilities of Kilmartin and his office.
"The department of attorney general [is] to preserve and protect public and charitable assets in reviewing both hospital conversions which involve for-profit corporations and hospital conversions which include only not-for-profit corporations.”
The bankruptcy of St. Joseph Health Services pension fund will impact between 3,600 and 3,800 existing or future pensioners — and the loss of pension payments may be 40 percent, according to court-appointed receiver Steven Del Sesto, a partner at Donoghue Barrett & Singal.
However, Del Sesto said the plan for winding down the pension fund is only in the preliminary phase.
How Many Are Presently Receiving Benefits
According to the receiver, attorney Stephen Del Sesto, there are 1382 active/vested who have reached retirement date; 639 active/vested who reached early retirement, for a total of 2,021.
On average, retirees are receiving just $425 between the two classes. The retirees are facing a 40 percent reduction — thus, the average retiree would receive just $255 per month.
Kilmartin Called the Plan "Best Interest of...Employees"
At the time of the agreement in 2014, Kilmartin said, “The transacting parties have worked diligently to provide regulators with the necessary documentation and information throughout this review process to make this decision, a decision I believe is in the best interest of Rhode Island’s healthcare marketplace, the community, the employees, and most importantly, the patients.”
Kilmartin said in his statement, “Conducting a hospital conversion review requires the commitment of a substantial amount of resources for the Office of Attorney General. I commend my staff for the time and careful consideration put into this review process.” Kilmartin's office has refused to respond to questions from GoLocal regarding the collapse of the fund.
How Much Will the Receiver be Paid?
Stephen Del Sesto, the receiver for the St. Joseph Health Services Pension Fund, said he will be paid $375.00 per hour -- which is more than the average retiree will receive per month after the 40 percent cut in benefits.
“My fees will not be paid from the plan assets,” said Del Sesto in an email to GoLocal.
Role of the Diocese of Providence
According to to the document filed with the court seeking bankruptcy protection, the fund or petitioner “has been affiliated with the Catholic Church — “as an affiliate of the Catholic Church, the Plan Qualified as a 'church plan,' which is exempt from the provisions of the Employment Retirement Income Securities Act of 1974 (ERISA) governing defined benefit pension plans.”
And, as a “church plan” the fund and the Diocese were not required to make a minimum contribution to the Plan, or “make pension insurance payments to the Pension Benefit Guaranty Corp."
Will the Receiver Seek a New Actuarial and an Independent Audit?
Stephen Del Sesto, the receiver, said he does not know yet if he will seek an independent actuarial and call for a forensic audit.
He is less than a week in his role and told GoLocal that he would need the court's approval to move forward with both steps.
The big date for this case is October 11 -- at that time the receiver Stephen Del Sesto will present the full plan of action.
Payment levels and payment dates will continue at present level, "nothing will change until October 11," said Del Sesto.
The biggest question swirling over the sale of St. Joseph's to CharterCARE and the bankruptcy is how could Attorney General Peter Kilmartin approve the sale with the only condition relating to the pension fund was a one-time $14 million payment in 2014 as part of the approval process -- and then just three years later -- the fund collapses.
The present fund has a balance of approximately $85 million. According to court documents filled as part of the bankruptcy petition, the actuarial claims the fund has a shortfall of $43 million.
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