PROVIDENCE — Diocesan officials say that their hearts go out to those affected when the St. Joseph Health Services of Rhode Island Inc. pension fund entered receivership last month.
“We are deeply concerned for the participants in the pension fund of St. Joseph Health Services,” Bishop Thomas J. Tobin said. “We certainly hope and are praying that this comes to a very positive solution for them as will be possible.”
However, in light of the media coverage to date, diocesan officials also feel compelled to note that the diocese is not responsible for the ownership or administration of the St. Joseph Health Services of Rhode Island Inc. pension plan.
Father Timothy D. Reilly, chancellor for the Diocese of Providence, said the diocese “is not currently, and has not been, responsible for the ownership, management or oversight of the pension funds in question, and St. Joseph Health Services of Rhode Island is not a diocesan entity.”
He said the St. Joseph Health Services of Rhode Island Retirement Plan was “adopted, operated, managed and funded by SJHSRI Inc., an independent corporation, and not by the Diocese of Providence.” (During a hearing on the matter Friday at Superior Court, attorney Stephen DelSesto, the appointed temporary receiver, stated that the SJHSRI Inc. pension plan was entirely employer-funded, with no money coming from employee contributions.)
The diocese notes that it has only been involved with SJHSRI in a very limited way since 2009, when CharterCARE was formed to serve as the parent corporation and operating entity of St. Joseph Health Services of Rhode Island Inc. and Roger Williams Hospital. Its role was to ensure that the Catholicity of the St. Joseph’s and Fatima hospitals was maintained, and that no medical practices that run contrary to Church teaching were carried out at the hospital facilities. After the sale of CharterCARE to Prospect Medical Holdings Inc. in 2014, even that role ended, since SJHSRI no longer owned any hospitals.
Further, the chancellor said it is the diocese’s understanding that the 2014 acquisition of CharterCARE Health Partners by Prospect Medical Holdings — a California-based for-profit company — had left the pension funds in “a very strong position.”
In the 2014 sales agreement, which was vetted and approved by both the Rhode Island attorney general and the Department of Health, Prospect Medical Holdings had committed to infusing $14 million into the SJHSRI Pension Fund in order to bring it to a level of being 92 percent fully funded.
But three years later, on August 17, St. Joseph Health Services of Rhode Island Inc. filed a petition in Superior Court for the appointment of a receiver for its defined benefit pension plan after an actuarial review revealed that the plan “is severely underfunded and requires additional capital of more than $43 million to reach a 100 percent funding level.”
It isn’t completely clear why it was represented that the SJHSRI Inc. pension fund was 92 percent funded in 2014, but it appears drastically underfunded just three years later. Since SJHSRI Inc. had been the source of funding for the pension plan, with no hospital parent to fund the plan following the sale, it lost an important revenue stream.
The petition also concluded that the 7.75 percent annualized rate of return that had consistently been attributed to the plan was not sustainable and therefore resulted in a higher underfunding level.
In addition, during Friday’s hearing at Superior Court, DelSesto attributed a blossoming of the fund’s indebtedness following the 2014 sale to several factors, including the payment of approximately $850,000 per month in retirement benefits, and the fact that some former SJHSRI Inc. employees who continued to work in the same capacity for Prospect Medical Holdings Inc. suddenly became eligible to begin collecting SJHSRI Inc. pension benefits at the same time.
Finally, Prospect and CharterCARE, meanwhile, have taken the position that their corporate entities are not responsible for the SJHSRI pension plan, which is considered “orphaned” since SJHSRI Inc. was not part of the 2014 sale.
The petition also states that the pension plan will lose its “church plan” status on or before December 31, 2018, at which point SJHSRI Inc. would then be required to make minimum annual contributions and payments to Pension Benefit Guaranty Corporation and would otherwise be required to comply with the federal Employee Retirement Income Security Act of 1974, which sets minimum standards for pension plans.
“[The] Petitioner does not have the financial resources to make such payment, or to comply with the other financial and regulatory requirements of ERISA,” the petition states. Therefore, according to the petition, SJHSRI Inc. is also asking the court to approve a 40 percent reduction in benefits being paid through the plan to recipients.
However, the receiver requested, and the Court granted, a deferral of any decision on a benefit reduction until after the first of the year. As a result, current retirees of the SJHSRI Inc. Retirement Plan will continue to receive 100 percent of their retirement payments at least through the end of this year.
Asked where any “moral obligation” should rest for any of the parties, Bishop Tobin said that the diocese’s moral obligation had been fulfilled in ensuring the survival of community hospitals and the continuation of their mission despite years of multi-million dollar losses.
“I think the St. Joseph Health Services Board realized a number of years ago that this community hospital, as does every community hospital, could no longer exist by itself,” he said.
Precisely because SJHSRI could no longer support St. Joseph’s and Fatima as freestanding hospitals, the Bishop indicated, corporate restructuring deals were sought out in order to save them. Beginning with the CharterCARE affiliation in 2009, and ending with the sale to Prospect in 2014, the Bishop indicated that the goal of the additional capitalization and cost savings was to ensure the survival of the hospitals, the preservation of jobs for their employees, the continuation of health care for the poor and underserved populations that St. Joseph’s and Fatima had served for over 100 years, and the strengthening of the SJHSRI pension fund.
The Bishop also said that Prospect Medical Holdings Inc. is in the best financial position to help shore up the pension plan. He reiterated that when Prospect purchased CharterCARE it was publicly represented that the pension plan was funded at 92 percent.
“I think the only entity that can improve the condition of the pension funds now is Prospect Medical Holdings. They’re a billion dollar for-profit corporation,” he said.
It wouldn’t be unprecedented for Prospect to provide debt relief for a company it has purchased. In its 2016 purchase of Crozer-Keystone Health System in Pennsylvania Prospect included in a long series of deductions toward its final purchase price $120 million to help shore up Crozer’s pension plan, according to an account of the sale published in the Philadelphia Inquirer.