Fatima pension fund’s shortfall nearly tripled in 2 years after Prospect deal

Spike in retirements, big investment losses, lack of new money all contributed

PROVIDENCE, R.I. (WPRI) – The funding shortfall in Fatima Hospital’s old pension plan nearly tripled in the two years after it was severed from Fatima’s parent company, setting the stage for the current proposal to slash benefits, an Eyewitness News review of actuarial reports shows.

The reports show the St. Joseph’s Health Services of Rhode Island Retirement Plan – created by the Catholic diocese in 1965 and named for Fatima’s former parent company – had a funding shortfall of $14.8 million as of July 1, 2014. That’s around the time the plan lost its source of new funding because it was left out of the deal that transferred Fatima to a new owner, Prospect CharterCARE.

The plan’s funding shortfall soared over the subsequent two years, doubling within 12 months to $32.3 million and reaching $43 million by July 2016, according to The Angell Pension Group of East Providence, the pension plan’s actuary. That dropped its funding level from 92% in 2014 to 77% in 2015 and then 68% in 2016. (An estimate of the shortfall as of this past July has not yet been completed.)

The reports indicate multiple factors caused the shortfall to explode from July 2014 to July 2016: a 25% spike in benefit payments to retirees immediately after the plan was orphaned; investment losses that reached $16.5 million over two years; and updated mortality tables that projected retirees would live longer, and therefore collect more benefits, than previously estimated.

The reports also show the actuaries recommended that $8.6 million be contributed to the pension plan during those two years, but no money was put in.

‘Doesn’t take much to get behind the 8-ball’

On the payment side, the plan paid out $10 million in pension benefits to 1,229 retirees during the year ended July 1, 2016, compared with $7.6 million in benefits to 1,074 retirees just two years before. Its assets dwindled from $108 million to $87 million over that period.

The amount of money being paid out was far higher than had been projected a few years earlier, when Angell had forecast only about $8 million a year in benefit payments, not $10 million. The worsening financial picture led a judge to put the plan in receivership earlier this month, and double-digit benefit cuts have been proposed ahead of an Oct. 11 court hearing.

Richard Land, a lawyer for Fatima’s now hospital-less former parent company, cited the $10 million in annual benefit payments as a key contributor to the pension fund’s woes.

“It doesn’t take much to get behind the 8-ball quickly in terms of keeping pace with distributions and returns,” he said.

Stephen DelSesto, the pension plan’s court-appointed receiver, said a legal quirk contributed to the jump in benefit payments after the Prospect CharterCARE deal went through.

At that time, current Fatima employees were “terminated” on paper from the hospital’s old parent company, St. Joseph’s, then immediately “hired” by Prospect CharterCARE – even though in practice the workers were still going to the same job. But because the employees were technically terminated, those who qualified for early retirement were able to start collecting pension benefits from the old St. Joseph’s plan – even though they were still working their day jobs at the hospital.

“What I understand was, once the transaction was over there was kind of a run on the plan,” DelSesto said.

However, DelSesto also said that because those employees were taking early retirement, their pension payments were lower than they would have been had they waited longer to collect – making it unclear exactly how much of an impact the issue will have over the long term.

Albert Krayer, the Angell Pension Group employee who signed the most recent actuarial report for St. Joseph’s, did not respond to a request for comment Wednesday.

‘That commitment was woefully inadequate’

Ray Sullivan, a spokesman for the United Nurses and Allied Professionals union that represents Fatima employees, noted that Prospect CharterCARE agreed to contribute $14 million to the pension plan before disposing of it in 2014, and that in a regulatory filing then the company asserted that doing so “will assure that the pensions and retirement of many former employees, who reside in the community, will be protected.”

“Today, we know that commitment was woefully inadequate,” Sullivan said Wednesday.

In fact, the actuarial reports show the $14 million contribution Prospect made in 2014 was less than half the amount the actuary said needed to be contributed that year to fully fund the pension plan: $29.6 million.

On the investment side, the St. Joseph’s plan’s portfolio has been managed for a number of years by Mercer Investment Management, a consulting firm, with benefit payments administered by Bank of America.

DelSesto did not have a final figure for how the plan’s investments performed in the year ended this past July 1, but said its portfolio rose 8.2% during the first half of this calendar year.

Land added, “The fund is performing reasonably well this year. But it has to perform really well to cover distributions.”

With calls from Senate President Dominick Ruggerio among others for an investigation into what went wrong with the pension plan, Land defended those who have been overseeing it in recent years.

“They were all trying to do the right thing once we were figuring out what was going on,” said Land, who became involved about six months after the Prospect CharterCARE transaction was completed. “People can look at the books and records since I’ve been involved and they’re not going to find anything improper.”

But Sullivan, the union spokesman, argued more answers are needed.

“Neither active nor retired beneficiaries were given any forewarning about just how poorly this fund was being handled,” he said. “While UNAP has never had a role in controlling the fund’s assets or influencing its investment decisions, we will continue to raise important questions to those parties who have – Prospect, CharterCARE, the St. Joseph pension board, and the Diocese of Providence.”

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He writes Nesi’s Notes on Saturdays and hosts Executive Suite. Follow him on Twitter and Facebook