Riley: When Will Rhode Island Retirees Get Truth About COLAs?

Wednesday, September 06, 2017


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Gina Raimondo

In the 2010 race for Treasurer in Rhode Island, Gina Raimondo would often say that it's "just math" in describing how the State of Rhode Island and its 39 municipalities were headed into a disastrous outcome and failure. She made the case that politicians were not focused on the problems of underfunding caused almost entirely by politicians overpromising and under-delivering.

Raimondo's reform was widely praised by friends and donors across the country including the John Arnold Foundation, American Enterprise Institute, and her biggest booster, Michael Bloomberg.  

Like many financially focused policy commentators, I agreed with the above-cited groups and most notably the work of Stanford professor Joshua Rauh. I supported State and municipal pension reform as critical to the survival of Rhode Island. Raimondo went on a one-year public speaking tour and made her case for reform.

We all know the story but what we forget is how bad a shape municipal pensions were and that Raimondo, Chafee, and the ill-fated Crisis Pension Commission dropped the ball. Mayors like Joseph Polisena, Angel Taveras, and others ignored the warnings and reports findings and ended up doing nothing. Taveras efforts led to lawsuits and re-configuring numbers and a $70 million addition to liabilities missed by all his experts. 

So here we are in 2017 and after some very good returns in the market, it’s still just math.

The reformed pension Retirement Plan had $7.23 billion in assets on June 30, 2012, and was 59% funded. As of June 30, 2017, the plan had $8.04 billion in assets was 58% funded.

What happened?

Is Raimondo still of the opinion today that the current retirees will get their COLA back? COLAs for many are suspended until their plan reaches 80% funded.

This was a goal Raimondo thought easily achievable in 20 years or less. So, when does Ms. Raimondo or Mr. Magaziner expect that to be?

Rhode Islanders just saw another plan's fiduciaries leave their retirees uninformed about changes in the outlook for their benefits. 

This was St. Joseph's pension collapse. 

Their chance for receiving promises is near zero. Has the outlook for RI State teachers and retirees ever getting their COLA’s back dramatically changed in the six years since RIRSA?

If it has changed is it also near zero? If not, what is the likelihood of getting their COLAs back? These calculations are available and have been publicly made by Raimondo’s staff and should be easily calculated by Magaziner and staff.

Raimondo and Magaziner both made promises and are fiduciaries who need to better inform employees and retirees of changes in the outlook for their COLAs. It’s just math.

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Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC. 


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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