St. Joseph’s Failed Pension Fund Pushed Into Federal Control, Controversial Move Is Unprecedented
Friday, May 10, 2019
GoLocalProv.com has learned that Rhode Island's largest failed pension fund has been pushed into federal oversight by receiver Stephen Del Sesto.
The unprecedented action by Del Sesto will move the St. Joseph Health Services pension fund to the control of the federal Pension Benefit Guaranty Corporation. This action will force the fund to be treated under the Employee Retirement Income Security Act of 1974 (ERISA) — the federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.
The problem? St. Joseph's failed plan does not comply with the ERISA standards.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTPreviously, the St. Joseph pension plan was treated as a “Church Plan” — the name for retirement plans controlled by religious organizations which are exempt by federal law from state or federal regulatory review and compliance.
Unprecedented Move
The decision by Del Sesto is a complex and admittedly an extraordinary move. Traditionally, pension funds that are already being regulated under ERISA, but are financially failing are placed under the federal control of the PBGC.
In February, 2019, the Pension Benefit Guaranty Corporation took responsibility as trustee for Sears Holdings Corporation’s two defined benefit pension plans. Together the two plans cover about 90,000 workers and retirees of Sears, Roebuck and Co. and Kmart Corporation. The Sears pension plans are underfunded by more than $1.5 billion.
“This should have been done 10 to 20 years ago. [St. Joseph’s] was not a church plan despite the Diocese [of Providence] claims," said Del Sesto in an interview with GoLocal.
The St. Joseph pension funds approximately 2,700 participants and the fund is underfunded by an estimated $118 million. For years the Diocese of Providence failed to make proper contributions to the fund. Then, in 2014 St. Joseph was orphaned — no longer receiving any contributions — as a part of the deal that sold the CharterCare hospitals (St. Joseph, Roger Williams, and Fatima) to Prospect of California.
In a submission to Superior Court Judge Brian Stern, Del Sesto wrote, “In the federal lawsuit brought by the receiver, the receiver contends that these prior sponsors (Dioceses and Prospect) intentionally misclassified the Plan as a Church Plan in an effort to avoid their obligations and responsibilities as fiduciaries of an ERISA-covered defined benefit pension plan.”
The St. Joseph pension fund was put into receivership in August 2017. This move does not directly impact the ongoing federal and state fraud suits brought by Del Sesto and special investigator Max Wistow against more than ten entities including the Diocese of Providence and Prospect of California.
LEARN MORE ABOUT THE FRAUD LAWSUITS BELOW
Bound to Collapse
The PBGC has acknowledged that they have received Del Sesto’s submission and payment of more than $1 million to place the plan under its control, but Del Sesto says due to the inability of the fund to make annual contributions as required by federal law -- the fund is likely to be out of compliance almost immediately. "I am required to make about a $10 million contribution annually and the pension plan has no income coming in. The fund will nearly immediately be in failure," said Del Sesto.
Further Del Sesto writes to the court, "Pending those determinations and based upon advice from his retained experts, the receiver has taken steps to revise the Plan's terms and to administer benefits in a manner that complies with the requirements of ERISA and the tax-qualification rules of the Internal Revenue Code on a going forward basis. As part of that effort, the Receiver adopted a revised Plan document on April 15, 2019, subject to a retroactive effective date of July 1, 2017 (the "Effective Date"). The Receiver also retained and directed certified public accountants and an actuary to prepare and file an annual financial report on behalf of the Plan with the United States Department of Labor and Internal Revenue Service, as is normally required of ERISA-covered pension plans. Lastly, the Receiver also has filed an election (as part of that annual report) to have the Plan covered by ERISA for all Plan Years beginning on or after the Effective Date."
Del Sesto warns that this is unprecedented -- a failed plan that has never been compliant with ERISA now being thrust under federal control and which will almost immediately be out of compliance. "I am unaware of any situation like this and we have looked," said Del Sesto.
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