RI Hospital Pension Seeks OK for 40 Percent Benefit Cuts

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By Jacklyn Wille

A Rhode Island hospital pension fund with more than 2,700 participants says it could run out of money in the next decade if it doesn’t cut benefits by at least 40 percent.

St. Joseph Health Services of Rhode Island Retirement Plan on Aug. 18 asked a Rhode Island Superior Court judge for permission to enter receivership, which it says would allow for a “long-term wind-down” of the plan. The plan—which was 90 percent funded when the hospital was sold to California-based Prospect Medical Holdings Inc. in 2014—now has a deficit of more than $43 million and could become insolvent as early as 2026, according to the receivership petition filed with the court.

The 2014 transaction—in which the plan received a one-time $14 million contribution and froze future benefit accruals—transferred St. Joseph’s hospital operations to Prospect but didn’t require Prospect to continue funding the pension plan. This appears to have left the plan effectively orphaned. During one recent 12-month period, the plan paid out more than $10 million in benefits while receiving no employer contributions, according to documents filed with the petition.

In the receivership petition, St. Joseph said the assumptions made about funding levels at the time of the 2014 transaction “did not consider all of the long-term issues affecting the Plan.”

The deal was approved by Rhode Island Attorney General Peter Kilmartin and the state’s Department of Health under the state’s Hospital Conversion Act. Kilmartin on Aug. 24 released a statement calling the recent developments troubling and questioning how a pension fund could become insolvent three years after being 90 percent funded. Kilmartin said he will be closely monitoring the legal process and “assessing where we have legal standing to intervene.”

Church Plan Exemption

The decision to seek receivership was driven in part by St. Joseph’s belief that the pension plan would lose “church plan” status on or before Dec. 31, 2018, the petition says. Church plans are exempt from many rules governing employer-sponsored pension plans under the Employee Retirement Income Security Act, including minimum contribution requirements and the mandate to obtain government-backed pension insurance with the Pension Benefit Guaranty Corporation.

Church plans also are exempt from an ERISA rule barring reductions in accrued benefits—such as the 40 percent cuts proposed here.

St. Joseph’s petition says that if the plan loses church plan status, the nonprofit corporation “would be required to make minimum annual contributions and annual payments to PBGC, and would otherwise be required to comply with ERISA.” St. Joseph, which ceased hospital operations in 2014, said it “does not have the financial resources” to do this.

St. Joseph’s belief that a loss of church plan status may be imminent is informed by advice from counsel and not from conversations with federal regulators, Richard J. Land, an attorney representing St. Joseph and a partner with Chace Ruttenberg & Freedman LLP in Providence, R.I., told Bloomberg BNA.

Land said the concern stems partly from the fact that St. Joseph no longer generates revenue through the operation of a church-affiliated hospital.

The receivership petition says St. Joseph has been “an affiliate of the Catholic Church” both before and after the 2014 transaction. The Roman Catholic Diocese of Providence, which St. Joseph says it operates “under the patronage of,” released a statement calling the development “troubling” and denying responsibility.

“It should be noted that no action by the Diocese resulted in the filing of this receivership,” the statement says. “The Diocese of Providence is not currently, and has not been, responsible for the ownership, management, or oversight of the pension funds in question, and SJHSRI is not a diocesan entity.”

Since 2013, dozens of religiously affiliated hospitals have been hit with class actions saying they’ve mismanaged their pension plans by wrongly treating them as church plans exempt from ERISA’s funding, disclosure, and vesting requirements. Several lawsuits have led to multimillion-dollar settlements, including a $352 million deal inked by Providence Health & Services. The U.S. Supreme Court addressed this issue in June, holding that church-affiliated hospitals are free to run their pensions as church plans exempt from ERISA’s requirements in certain circumstances.

Land said St. Joseph’s concern over losing church plan status wasn’t specifically influenced by the Supreme Court’s decision.

Familiar Facts

It’s not unprecedented for a hospital with a claimed ERISA-exempt church plan to attempt benefit cuts following a merger.

Workers at Chicago’s Holy Cross Hospital in 2016 filed a lawsuit saying their pension benefits were shortchanged after Holy Cross merged with Sinai Health System three years earlier. The workers accused Holy Cross of attempting to transfer liability for the underfunded pension plan to an order of nuns, which the workers say led to significant benefit cuts when the plan was ultimately terminated.

Holy Cross settled this lawsuit in 2017 by adding an additional $4 million to the pension plan.

Schenectady, N.Y., hospital St. Clare’s Corp. informed workers and retirees last fall that its pension plan had a deficit of more than $35 million and would run out of money between 2024 and 2028, according to correspondence reviewed by Bloomberg BNA. St. Clare’s, which was consolidated with other Schenectady health providers in 2008, said the plan had no meaningful source of contributions and “will not be able to pay benefits to participants after its assets have been exhausted.”

In November 2016, participants in the pension plan for St. James Hospital of Newark, N.J., were informed by the plan’s custodian that it hadn’t received any deposits to the plan “for a number of years” and it had been unable to communicate with the parties responsible for funding the plan. The letter from Transamerica Retirement Solutions LLC, which was obtained by Bloomberg BNA, said plan assets would be depleted within the year and that “no further pension payments will be processed” after that time.

St. James closed in 2008 in connection with a hospital acquisition by Catholic Health East, which has since become Trinity Health Corp.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

For More Information

The receivership application is at http://src.bna.com/rUU.

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