Schenectady

NY Attorney General sues diocese over St. Clare’s pension crisis

New York state Attorney General Letitia James speaks about the St. Clare's Hospital pension crisis in Schenectady on Tuesday, May 24, 2022.
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New York state Attorney General Letitia James speaks about the St. Clare's Hospital pension crisis in Schenectady on Tuesday, May 24, 2022.

SCHENECTADY — The state Attorney General’s Office on Tuesday filed suit against the Roman Catholic Diocese of Albany, seeking millions of dollars for roughly 1,100 former St. Clare’s Hospital employees whose pensions were reduced or eliminated in 2018.

Other defendants are named in the legal action, including the current bishop and previous bishop of the diocese and the St. Clare’s Corporation, the legal successor to the defunct Schenectady hospital.

But speaking Tuesday outside the McClellan Street facility, state Attorney General Letitia James laid out reasons her office’s investigation concluded that the diocese is at the heart of the pension crisis. 

And she indicated the diocese has the estimated $55 million it will take to make the pensioners whole.

“These former hospital workers nobly served their community and cared for the sick, elderly, and vulnerable. But when they retired, they were left with nothing,” James said. “No one should ever have to deal with the financial and emotional trauma of losing the resources they were counting on to survive. With this action, we’re standing up for New Yorkers who deserve to retire with dignity, and I will do everything in my power to make sure they get the pension benefits they’re owed.”

The suggestion that the diocese caused the pension crisis is not new. In response, it previously expressed compassion for the pensioners but said it bore no responsibility for their plight and has no resources to solve it.

On Tuesday the diocese said the new lawsuit duplicates existing litigation. It said:

“We are sympathetic to the plight of the St. Clare’s pensioners and want to see these hardships resolved as soon as possible. We respectfully disagree with the attorney general’s decision to file this lawsuit. … Today’s announcement does not raise any new issues. It will only lead to more protracted proceedings which will further delay resolution of the case.”

THE HISTORY

St. Clare’s Hospital opened in 1949 on McClellan Street in Schenectady and often served as the city’s “safety net” hospital, caring for underinsured and uninsured patients, which led to long-term financial problems. 

It surrendered its operating license in 2008 amid a state-run effort to strengthen the statewide hospital system by merging or closing weak facilities. St. Clare’s and Bellevue Woman’s Center were absorbed by Ellis Hospital into what is now Ellis Medicine.

St. Clare’s had made little or no contributions to its pension fund in the decade leading up to the merger; a $28.5 million state bailout of the pension fund as part of the merger proved far inadequate.

A decade later, pensioners were warned that the pension fund was running out of money, then were abruptly informed that their pensions would be reduced or eliminated.

Since then, they’ve been fighting not just to be made whole but to learn what went wrong, or even just to have their story heard.

Through all this, the Albany Diocese had deep involvement with St. Clare’s from long before it opened to well after it closed, right up to the top:

Bishop Cusack bought the land a century ago. Bishop Gibbons laid the cornerstone. Bishop Hubbard was chairman of the board in the hospital’s last days and negotiated its closure. Bishop Scharfenberger, sat on the board of directors of the St. Clare’s Corporation until shortly before the pension crisis erupted.

Edward Scharfenberger, the current bishop, and Howard Hubbard, his immediate predecessor, are named as defendants in the AG’s lawsuit, as are Vicar General The Rev. David LeFort and Joseph Pofit, president of the St. Clare’s Corp. board and administrator of the pension fund.

THE LAWSUIT

The Attorney General’s Office became involved through its status as a regulator of nonprofits and charities when the St. Clare’s Corp. moved to dissolve itself in 2019. 

James said its directors were attempting to protect themselves with this move, after learning that the liability insurance covering them and the corporation would not be renewed.

The lawsuit filed in state Supreme Court, Schenectady County, states and alleges that the diocese:

  • Failed in its fiduciary duty to administer the pension fund.
  • Used a federal loophole that allowed religious organizations to opt out of federal pension fund insurance but ignored state law requiring it take steps to ensure the pension fund’s viability. 
  • Made no contributions to the fund for all but two years from 2000 to 2019, leaving a $43 million deficit.
  • Hid the pension fund collapse from the federal government and pensioners. 
  • Rejected all attempts to address the deficit.
  • Requested the state bailout of $28.5 million in Medicaid funds and said that would be sufficient, though it knew that sum was too small.
  • Failed to require yearly audits and accounting of St. Clare’s Corp. finances and pension, as its bylaws required, and didn’t attend its board meetings.
  • Allowed LeFort to assume the role of voting director, though that was prohibited by St. Clare’s Corp. bylaws.
  • Appointed diocesan employee Pofit to leadership roles despite his self-professed lack of expertise in pension matters.
  • Filed inaccurate and misleading Form 990 nonprofit tax returns with the IRS.

The lawsuit seeks a judgment calling for the defendants to account for their conduct in failing to manage the corporation’s charitable assets and to pay damages and full restitution to the corporation for “waste and misuse” of those assets, plus interest at 9%.

In remarks to journalists Tuesday, James said the sum needed to make the pensioners whole is $55 million.

“I’m confident that they have the resources,” she said of the diocese, and said her office is ready to sit down and discuss the matter.

The AARP Foundation in 2019 commenced legal action against the diocese on behalf of the pensioners. That case continues, slowed by the COVID pandemic and failed attempts by the diocese to have it dismissed.

THE REACTION

A crowd of pensioners and elected officials stood behind James on Tuesday as she spoke outside the former St. Clare’s, which is still used as a medical facility by Ellis. 

One after another, they spoke of the turmoil the pension failure has caused in the lives of a thousand-plus Capital Region residents, many of them near or beyond the end of their working years, dealing with the COVID pandemic and rampant inflation without a big chunk of the retirement income they’d been counting on.

Mary Hartshorne of Malta, a retired sonographer, has been a relentless fighter for her friends and former colleagues almost from the beginning, taking over a lead role after the passing of Lori Daviero of Amsterdam.

Hartshorne choked up as she thanked James for the three years of investigation and advocacy by her office and for the lawsuit, which she didn’t know was in the works.

“The pensioners are suffering terribly,” she said. “It’s very difficult, we’ve lost homes, we’ve lost careers, and now we’re going through a pandemic.”

Hartshorne also thanked state Sen. James Tedisco, R-Glenville, and Assemblyman Angelo Santabarbera, D-Rotterdam, who have been advocating for more than three years on their behalf.

Tedisco credited teamwork, and called Hartshorne the coach and leader of the pensioners. He also alluded to an uncomfortable fact: Time is not on their side. They need the money promised to them now.

“This is the start,” he said. “But it’s a start that has to move as quickly as we can possibly make it move because we’re all getting older.”

Santabarbara pointed out the cruelty and injustice of those who’d worked so hard for the health of the community having the rug pulled out from under them.

“Those who work in health care are critical to our community,” he said. “These dedicated employees gave years of their lives and deserve a stable retirement they can depend on to get them through their golden years. The loss of this investment is unthinkable.”

Mayor Gary McCarthy complimented James for her staff’s tenacity in re-creating a historical record of action and inaction decades ago that led to the crisis today.

“It allows people to understand the significance of their actions and hopefully as it moves forward it’s going to bring some compensation to these individuals that have been so adversely affected.”

U.S. Rep. Paul Tonko, D-Amsterdam, said: “Pensions are earned benefits, and I underscore the word ‘earned.’ … The work done by the attorney general to determine some of the failure here is an important part of the process that builds hope in these lives.”

The action by James is critical because there is no remedy at the federal level, Tonko said. The Pension Benefit Guaranty Corp. is the federal safety net, he said, and there’s a hole in it that church-backed hospitals can exit through.

“They had the opportunity, which they shouldn’t have skipped over,” Tonko said. “That’s the nexus. That’s how we help these pension groups.”

Beyond the diocese, and without the PBGC, there is no publicly identified target for money to help the pensioners.

In the merger with St. Clare’s, Ellis Hospital was protected from any liability for the St. Clare’s pension fund.

Early on in the crisis, Tedisco had called for the state Department of Health to take responsibility for the pension default, saying it forced and oversaw the merger.

But Tuesday he backed off that assertion, saying he doesn’t have subpoena power and can’t say what happened in 2008. Tedisco was an early advocate for getting the Attorney General’s Office involved, and he offered strong praise Tuesday for the work it has done.

“I’ll accept the attorney general’s findings,” he said. “You saw what she found.”

James wouldn’t disclose details of her office’s investigation, but the AARP Foundation said its own inquiry was a dead end.

“AARP Foundation has investigated all avenues and we don’t believe the state is responsible or liable,” attorney Dara Smith said via email.

Categories: Business, News, Schenectady, Schenectady County, Your Niskayuna

2 Comments
Ignatious P. Reilly May 24, 2022
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It is about time. I hope they win back their retirements and are each awarded 1 million dollars, tax free. The catholic church is despicable.