After Week of Silence, Kilmartin Issues Statement on St. Joseph Pension Bankruptcy
Friday, August 25, 2017
As GoLocalProv was first to report, the filing will impact between 2,000 and 3,000 pension accounts, but the exact number of people affected is not known.
It was Kilmartin who signed off on the deal and the pension payment and structure is now at the eye of the storm. As part of the review of that 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.”
Relative to the 2014 acquisition of St. Joseph, Kilmartin’s only requirement relative to the pension fund was a stipulation that CharterCARE make a $14 million contribution to the pension fund.
In his statement issued Thursday, Kilmartin distanced himself from the pension collapse.
Kilmartin issued the following statement on Thursday:
"The healthcare landscape in Rhode Island has changed dramatically in the past several years. Most of the community hospitals we grew up with are no longer financially viable as stand-alone, independent health centers. Financial realities and the ever-increasing cost of healthcare have resulted in smaller community-based hospitals being scooped up by larger not-for-profit and for-profit healthcare organizations.
Certain transfers in ownership, authority or control of a hospital in Rhode Island require approval by both the Department of Health and the Attorney General's Office pursuant to the Hospital Conversions Act (HCA). While each agency is guided by criteria within the HCA, in general, the review by the Attorney General's Office, restricted by legislative statute, is limited to governance of the new entity, the charitable assets, and conflicts of interest.
The HCA is not all encompassing and the Legislature did not grant the Attorney General's Office the statutory authority to make sweeping demands that are outside the scope of the statute. Specifically, it neither gives the Attorney General nor the Department of Health the authority to oversee or manage private pension funds associated with the healthcare system.
In 2014, the Attorney General's Office reviewed the HCA application submitted by CharterCare - which operated Roger Williams Medical Center, and St. Joseph Health Services of Rhode Island - and Prospect Medical Holdings, a California-based, for-profit healthcare corporation, which operated several hospitals and primary care clinics in California and Texas.
After a thorough review and public comment, my Office and the Department of Health determined the joint venture met the requirements under the limited scope of the HCA and each agency approved, with conditions, the affiliation change.
It is within this context that I would like to address the troubling news and misinformation regarding the pension fund associated with the St. Joseph Health Services petition to the Court for receivership.
Every hospital conversion starts with an agreement between the two parties, which are commonly referred to as asset purchase agreements. The HCA review process includes a review of the asset purchase agreement, and the scope of such review is authorized by the HCA statute.
As noted above, the HCA does not give the Attorney General's Office the authority to oversee or manage private pension funds associated with the healthcare system. That said, as part of the joint venture, the transacting parties did provide both the Department of Health and the Attorney General's Office assurance through the asset purchase agreement that the pension fund would receive an injection of $14 million, bringing the pension fund to 90 percent funded.
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. While the Attorney General's Office is not directly or indirectly involved with the management of the pension fund, we have engaged with counsel for the Petitioner and the Court-appointed receiver, and will be closely monitoring the legal process, and assessing where we have legal standing to intervene.
The men and women who dedicated their careers working at St. Joe's expected that their pension would be there for them when they retired, and rightfully so. Many, if not most, live on fixed incomes and depend on that monthly pension check to survive. Just as state employee pensioners know all too well, it can be devastating to see your monthly income decrease precipitously because of broken promises.
These retirees deserve to know how this happened and what is being done to protect their investment. I urge the receiver of the pension fund and the Court to establish and maintain complete transparency throughout this process, and to consider every available option to regain financial viability of the pension fund.
If you are a participant in the St. Joseph Health Services of RI pension plan and have questions about the recent court filing, please call 401-865-6249 to contact the Receiver. Here is the website page where the receiver is posting information. You can also send questions or concerns to the Receiver via email at [email protected] "
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 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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