St. Joseph Pension Fund Collapse -- A Week of Inaction, Action, and Reaction
GoLocalProv News Team
St. Joseph Pension Fund Collapse -- A Week of Inaction, Action, and Reaction
But, the fund faces a massive number of challenges moving forward and most concerning is that there is no word from the federal agency that regulates and insures pensions.
The pension funds 2,700 members face a shortfall of more than an estimated $118 million.
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Inaction
In early May, receiver Stephen Del Sesto took the unprecedented action of moving the St. Joseph Health Services pension fund to the control of the federal Pension Benefit Guaranty Corporation (PBGC). 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.
Now, a month later Del Sesto has received no word from the agency.
Federal Court Judge Will Smith issued a ruling sending $11.9 million from CharterCare’s Community Board to the pension fund.
“Settling Defendants will make an initial lump sum payment of at least $11,150,000 to the Receiver. RHW will also assign to the Receiver its interest in an escrow account held by the Rhode Island Department of Labor and Training with a current balance of $750,000,” wrote Smith in his decision.
“I am very happy that the Court provided this preliminary approval,” said St. Joseph pension fund receiver Del Sesto.
“The preliminary approvals of this settlement and the Charter Care Foundation settlement are significant first steps to, hopefully, put substantial funds into the Plan so the pension holders can be better protected and they and their families can continue to rely on the benefits they worked so hard throughout their lives to earn,” said Del Sesto.
“We believe we will and look forward to obtaining final approval from the Court at the hearings scheduled for late August and early September,” he added.
The Rhode Island Senate passed legislation that extends the Hospital Conversion Act.
The legislation is sponsored by Senate President Dominick Ruggerio.
“This legislation will help prevent what happened with the St. Joseph’s Health Services pension plan from ever happening again in Rhode Island. Extended monitoring will provide the necessary increased oversight, while stiffer penalties will work to ensure those who don’t comply with the law are held accountable,” said Ruggerio.
The bill has been sent to the House of Representatives for consideration.
The Bill
The legislation requires monitoring for hospital conversions involving non-profit purchasers, at the expense of the acquired, and extends the monitoring following a conversion from 3 to 5 years.
It also doubles penalties for failure to comply with the terms of the conversion from $1 million to $2 million.
“The passage of these amendments to the Hospital Conversion Act ensures that the Office of the Attorney General, as well as the Department of Health, have the legal and financial tools necessary to adequately monitor and enforce our conditions in future transactions. I would like to thank Senate President Ruggiero for his strong advocacy and members of the Senate for working with my office to pass this legislation, which gives us the necessary strategic enforcement tools to protect the interests of all Rhode Islanders,” said Attorney General Peter Neronha.
This bill comes after last year, when a law introduced by Ruggerio helped members of the insolvent pension plan to reach settlements in their multiple class-action lawsuits by better positioning members to reach fair, equitable settlements with the multiple defendants of the lawsuits.
10 Shocking Elements of the St. Joseph Pension Fund Lawsuit Against the Diocese and Others
Another Hospital Group Identified that the Pension Fund Needed $72M for Plan
In 2012, prior to CharterCare, then the owner of St. Joseph being sold to Prospect of California, another hospital group wanted to purchase Roger Williams, St. Joseph and Fatima. That group, LHP Hospital Group, identified that the pension fund needed a $72 million infusion, but their offer was rejected.
The $72 million was $58 million more than the amount put into the pension fund by Prospect, the eventual purchaser, in 2014.
All the Parties Knew the Pension Plan Was No Longer a Church Plan
Post sale of St. Joseph to CharterCare in 2009 and then CharterCare’s sale to Prospect, and despite knowing that for the pension fund to continued to be considered a “church plan,” the Diocese and hospital officials continued to list the hospital under the U.S. Conference of Bishops’ Catholic directory as “operated, supervised, or controlled by or in conjunction with the Roman Catholic Church.”
The lawsuit states that all the defendants in the suit knew this claim was false.
Tobin Misleads the Vatican
The lawsuit lays out that “Bishop Thomas Tobin did not disclose in his letter to the Vatican that the proposed asset sale increased the probability of the Plan failing. Instead, Bishop Tobin omitted that information and, in effect, said the opposite, that approval of the asset sale was actually necessary to secure the Plan.”
The suit goes on to assert, "On September 27, 2013, Tobin signed his letter as altered by [legal] counsel for [St. Joseph Health Services, CharterCare and Roger Williams Hospital] and sent it to the Vatican.”
The parties knew the implications, “These misrepresentations and omission concerning the Plan in the Bishop’s letter to the Vatican…all understood that Vatican approval was required for the transaction to proceed..”
Suit Alleges Fraud
The lawsuit is blunt as it alleges that, "Saint Joseph Health Services of RI, the Prospect Entities, and other Defendants violated ERISA, committed fraud, breached their contractual obligations, violated their duty of good faith and fair dealing, and otherwise acted wrongfully. As a result, they must be required to compensate losses to the Plan and remedy such violations, including returning all assets improperly diverted to the Plan, and to otherwise fully fund the plan."
Severe Remedy
Wistow and his team claim the remedy of violating the "fraudulent conveyance" laws in Rhode Island are severe and that the Plan -- thus the retirees -- should receive the assets, aka, CharterCare.
"They also ran afoul of Rhode Island laws prohibiting fraudulent conveyances. The remedies for those violations include that the Prospect Entities must turn over to the Plan and its participants the entirety of the assets they acquired in the 2014 Asset Sale, with no credit of offset for what they paid for those assets, or for the improvements that they may have made on the facilities. In other words, the Plaintiffs are entitled to a judgment awarding them these assets, including but to limited to New Fatima Hospital and New Roger Williams Hospital, or ordering that these properties and other assets be sold and awarding Plaintiffs the process from the sale up to the amount necessary to fully fund the Plan on a termination basis and to ensure the pensions of all Plan participants."
Quid Pro Quo
On August 14, 2013, key hospital officials meet with the leadership of the Diocese of Providence’s office to get sign off on the sale to Prospect.
According to documents, a meeting was convened which was attended by Bishop Tobin, Rev. Timothy Reilly and Msgr. Paul Theroux at that meeting the top Diocese officials signed off on the deal which cast the pension off as an orphaned plan. The deal also asserted certain promises critical to the leadership of the Diocese specifically that Roger Williams Medical Center would not engage in prohibited activities of the Diocese and specifically listed:
Abortion
Euthanasia
Physician-assisted suicide
The suit asserts that there was a “quid pro quo for freeing New Fatima Hospital from the unfunded liabilities of the plan, and granting these extensive and perpetual ‘Catholic identity covenants’ for New Fatima Hospital and New Roger Williams Hospital.”
Violated Federal Law and Federal Oversight
As the hospitals left the control of the Diocese and were sold off in 2009 and then, the ultimate sale to Prospect, officials knew that the pension plan was no longer a "Church Plan" and thus needed to then fall under federal regulatory review under ERISA.
According to the lawsuit, the "deceit" create a federal violation of the law and de facto an "unlawful violation of tax law and ERISA."
Misleading the Vatican, Continued
Bishop Tobin did not disclose in his letter to the Vatican that the proposed asset sale increased the probability of the plan failing. Instead, Bishop Tobin omitted that information (removed from the letter was “spiraling and gaping liability’ which was in the draft) and, in effect, said the opposite, that the approval of the asset sale [to CharterCare] was actually necessary to secure the plan."
The lawsuit goes on to assert, ”These misrepresentations and omissions concerning the Plan in the Bishop’s letter to the Vatican were included by the defendants…and the Diocesan defendant, all understood that the Vatican approval was required for the transaction to proceed, and knew or were told that the Vatican must approve specifically the ‘pension structuring.’”
Most Damning - Email After the Sale
In order to continue the status of the pension fund as a "Church Plan" and thus hide the financial condition of the fund from members and keep from federal regulation, after the sale legal counsel for St. Joseph Health Services of RI sent an email to the Diocese and copied CharterCare and the actuary Angell, reminding everyone of the consequences of the Diocesan defendants not listing St. Joseph in the Catholic Directory.
"Saint Joseph Health Services of RI believes that if it is not included in the 2015 issue of the directory that the pension fund will no longer qualify as a church plan and that the loss of the status will require that they immediately notify the applicable governmental authorities that the plan is currently underfunded."
The Diocese officials than contacted the editors of the directory and made sure that the St. Joseph remained listed, according to the suit.
Funds Diverted to Priest's Pension Fund
One of the biggest affronts to members of the now failed St. Joseph pension fund was that when the sale of CharterCare was completed the Diocese received a $640,000 repayment of a loan from the Inter-Parish Loan Fund.
The Diocese received those funds and instead of applying them to the pension fund, according to the lawsuit church records show that the loan was partially repaid, but that $100,000 was diverted to the priest's retirement fund -- a fund that is reportedly fully funded.
