Judge Stern Shoots Down Prospect and Attorney General in St. Joseph Pension Fund Collapse

Tuesday, December 19, 2017

 

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Max Wistow, Special Investigator

Superior Court was full of charges and counter-charges between special investigator Max Wistow and his partner Stephen Sheehan and the office of Attorney General Peter Kilmartin. This time Kilmartin's team augmented two junior attorneys with a plethora of others including the number two man in the office Gerry Coyne and Assistant Attorney General Rebecca Partington.

In total, Kilmartin's office had five attorneys in the courtroom, but yet still no site of Kilmartin.

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Gerry Coyne, Kilmartin's #2, at the back of the courtroom

It was a bit of another day and another battle over the delays by Kilmartin's office relating to the production of key documents relating to the Attorney General's office approval of the acquisition by Prospect of California of CharterCare in 2014. The deal, approved by Kilmartin, "orphaned" the pension plan of nearly 2,800 plan participants of the St. Joseph Health Services pension plan. The plan went into receivership in August.

The outcome after two hours, Judge Brian Stern shot down yet another effort by Kilmartin's office to limit and slow the production of documents. A GoLocal report on Saturday unveiled that Kilmartin's office, which knew of the failure of the fund in early August prior to the collapse, as of the time of yesterday's hearing had only produced three documents that were not publicly available on the agency's website.

"To be effective subpoenas need to be complied with...to be effective court orders need to be complied with," Sheehan argued to Stern, nearly pleading for the Court to take action against Kilmartin's "nearly endless delays."

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Stephen Sheehan ask for sanctions against Kilmartin

Sheehan had asked that Kilmartin be forced to pay a portion of special investigation's legal fee due ($20,000 this month alone relating to forcing the AG to comply with subpoenas and court orders) to the delays and legal maneuvering, but Stern refused to rule on the request.

The other material action in the court was a last-second effort by Prospect to shield over 300 pages of "confidential documents." The request by Prospect's attorney was filed at 11:57 p.m. on Friday night, just before the deadline for Monday's hearing. Stern rejected that motion.

 

Related Slideshow: 10 Things to Know About One of Biggest Pension Failures in RI - St. Joseph Bankruptcy

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Biggest Pension Failure Ever in Rhode Island?

There is not a record book, but according to a number of top bankruptcy attorneys, the failure of the St. Joseph Health Services Pension Fund impacts the most individuals and the adverse financial impact will be the highest percentage impact to the retirees' monthly payments in Rhode Island history. 

In Central Falls, by 2014 then-Governor Lincoln Chafee signed legislation that upped police and fire beneficiaries to 75 percent of their benefits. The cost of the legislation —  post-Central Falls bankruptcy — was $4.8 million.

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Kilmartin’s Role in the Hospital Conversion Act

Attorney General Peter Kilmartin won’t answer questions about his role in the approval of the Hospital Conversion of St. Joseph Health Services to CharterCare. GoLocal has repeatedly reached out to Kilmartin to answer questions, without response.

As part of the review of the deal, Kilmartin, as Attorney General, had the responsibility to review and approve the financial viability of the transaction. The Hospital Conversion law is very specific to the responsibilities of Kilmartin and his office.

"The department of attorney general [is] to preserve and protect public and charitable assets in reviewing both hospital conversions which involve for-profit corporations and hospital conversions which include only not-for-profit corporations.”

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Number Impacted

The bankruptcy of St. Joseph Health Services pension fund will impact between 3,600 and 3,800 existing or future pensioners — and the loss of pension payments may be 40 percent, according to court-appointed receiver Steven Del Sesto, a partner at Donoghue Barrett & Singal.

However, Del Sesto said the plan for winding down the pension fund is only in the preliminary phase. 

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How Many Are Presently Receiving Benefits

According to the receiver, attorney Stephen Del Sesto, there are 1382 active/vested who have reached retirement date; 639 active/vested who reached early retirement, for a total of 2,021.

On average, retirees are receiving just $425 between the two classes. The retirees are facing a 40 percent reduction — thus, the average retiree would receive just $255 per month.

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Kilmartin Called the Plan "Best Interest of...Employees"

At the time of the agreement in 2014, Kilmartin said, “The transacting parties have worked diligently to provide regulators with the necessary documentation and information throughout this review process to make this decision, a decision I believe is in the best interest of Rhode Island’s healthcare marketplace, the community, the employees, and most importantly, the patients.”

Kilmartin said in his statement, “Conducting a hospital conversion review requires the commitment of a substantial amount of resources for the Office of Attorney General. I commend my staff for the time and careful consideration put into this review process.” Kilmartin's office has refused to respond to questions from GoLocal regarding the collapse of the fund.

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How Much Will the Receiver be Paid?

Stephen Del Sesto, the receiver for the St. Joseph Health Services Pension Fund, said he will be paid $375.00 per hour -- which is more than the average retiree will receive per month after the 40 percent cut in benefits.

“My fees will not be paid from the plan assets,” said Del Sesto in an email to GoLocal.

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Role of the Diocese of Providence

According to to the document filed with the court seeking bankruptcy protection, the fund or petitioner “has been affiliated with the Catholic Church — “as an affiliate of the Catholic Church, the Plan Qualified as a 'church plan,' which is exempt from the provisions of the Employment Retirement Income Securities Act of 1974 (ERISA) governing defined benefit pension plans.”

And, as a “church plan” the fund and the Diocese were not required to make a minimum contribution to the Plan, or “make pension insurance payments to the Pension Benefit Guaranty Corp."

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Will the Receiver Seek a New Actuarial and an Independent Audit?

Stephen Del Sesto, the receiver, said he does not know yet if he will seek an independent actuarial and call for a forensic audit.

He is less than a week in his role and told GoLocal that he would need the court's approval to move forward with both steps.

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Big Date

The big date for this case is October 11 -- at that time the receiver Stephen Del Sesto will present the full plan of action.

Payment levels and payment dates will continue at present level, "nothing will change until October 11," said Del Sesto.

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Big Question

The biggest question swirling over the sale of St. Joseph's to CharterCARE and the bankruptcy is how could Attorney General Peter Kilmartin approve the sale with the only condition relating to the pension fund was a one-time $14 million payment in 2014 as part of the approval process -- and then just three years later -- the fund collapses.

The present fund has a balance of approximately $85 million. According to court documents filled as part of the bankruptcy petition, the actuarial claims the fund has a shortfall of $43 million.

 
 

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