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Diocese, RWMC and CharterCARE All Failed to Make Millions in Pension Payments to St. Joseph

Wednesday, October 04, 2017

 

Peter Kilmartin approved the pension payment.

The St. Joseph pension fund was in a dire financial situation going back as early as 2007, according to actuarial documents secured by GoLocal. 

Moreover, each of the three organizations that controlled the hospital over the decade ignored directives from the actuarial as to the amount needed for contributions to properly fund the pension fund.

In 2014, during the sale of St. Joseph to CharterCARE, the actuarial identified that the contribution needed to "reach 100% funding level projected to the end of the plan year” was $29,573,536, but CharterCARE's contribution was just $14 million.

“But, clearly a hospital like St. Joseph that was dealing with financial distress - you clearly know that if not funded properly, the retirees would be impacted adversely,” said Stephen Del Sesto, the receiver for the pension fund.

Retirees are now facing a 40 percent cut to their benefits.

The amount needed to be contributed in 2014 -- CharterCARE contributed just $14M.

Kilmartin Approved

The CharterCARE payment of less than half of what was needed for that year was approved Attorney General Peter Kilmartin as part of the sale of the hospital. “I do not know how it could be approved,” said Del Sesto

“It was an issue that had to be looked at and it was looked at, but I can’t say (to what detail by the Attorney General)," said Del Sesto.

Kilmartin has repeatedly refused to be interviewed regarding the collapse of the pension fund.

“As I previously wrote to you when you last requested an interview, the receivership is on-going, the Court recently appointed a special counsel to review the issue, and the Office is closely monitoring this ongoing process.  As is standard policy, given these set of facts, we have no further comment at this time,” said Kilmartin’s spokesperson Amy Kempe in an email to GoLocal.

From 2007 to 2015, contributions were made only in two years. Despite the fund needing tens and tens of millions of dollars annually, contributions were made only in the years in which St. Joseph was being sold.

In 2010, when the Diocese merged St. Joseph into Roger Williams Medical Center — that year a $1.5 million contribution was recorded. The other contribution was the $14 million in 2014.

CharterCARE is owned by CA-based Prospect

In response to GoLocal's questions, CharterCARE issued the following statement, “We understand how difficult this situation is for those employees and retirees who are impacted by the pension fund’s decision to file for receivership.

It is important to note that the pension fund (the “Pension”) is not connected to either Prospect CharterCARE, LLC or Prospect. The pension fund was organized by St. Joseph Health Services of Rhode Island, Inc., a separate organization that retained control of certain assets and liabilities that were not transferred to the purchaser when the transaction with Prospect was completed three years ago. Neither Prospect Chartercare, LLC nor Prospect have any oversight or control of the Pension.
 
As part of the overall transaction for the system,  Prospect provided over $40,000,000 dollars in cash to the seller of the system. The allocation of the funds was a decision made by seller. Similarly, neither Prospect nor Prospect Chartercare had involvement with decisions about contributions to the plan in years prior to 2014."

But, the actual Hospital Conversion Act documents signed by all the parties in the sale of St. Joseph and the other hospitals to CharterCARE explicitly dictate just a single $14 million contribution would be paid to the St. Joseph pension fund and the fund would then be orphaned. Anyone at St. Joseph (or its then parent company Roger Williams), the purchaser (CharterCARE) or in Kilmartin's Attorney General's office that had read the actuarial reports (or tax filings) during those years would know the pension fund would crater in a short time period. 

The sale was approved in the spring of 2014 and by August of 2017 the St. Joseph's pension fund was forced into receivership.

Document from the final agreement for the purchase by CharterCARE approved by Kilmartin

 

Bishop Tobin chaired the Board.

Diocese for Years Failed to Make Payments

On Monday night, nearly a thousand retirees attended a meeting with the group of attorney’s involved in the receivership.

Arlene Violet told the story of a 99-year-old retired nurse from St. Joseph, who worked for the hospital for 50 years and earns in pension payments $209 dollars a month and now faces a 40 percent cut in her benefits.

“The bad guys have to pony up the money to make folks whole,” said Violet on Monday, who is the past has singled out the Diocese of Providence, Attorney General Peter Kilmartin, CharterCARE for failure to protect retirees and fulfill their responsibilities.

In the records secured by GoLocal, the Diocese was shown to have failed to make payments in 2007 to 2009, then Roger Williams Medical Center made a payment of $1.5 million in 2010, but failed to make another payment. 

CharterCARE made the one payment in 2014 and then the fund was orphaned and in August of 2017 filed for receivership.

 

Related Slideshow: 10 Things to Know About One of Biggest Pension Failures in RI - St. Joseph Bankruptcy

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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.

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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.”

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Number Impacted

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. 

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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.

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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.

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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.

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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."

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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.

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Big Date

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.

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Big Question

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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