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The St. Clare's pension plan: What went wrong?

The St. Clare's pension plan: What went wrong?

How a struggling community hospital shorted its employees on tens of millions of dollars in retirement income
The St. Clare's pension plan: What went wrong?
St. Clare's Hospital in Schenectady as it looked during the early 1950s.
Photographer: Courtesy Efner History Center, City Hall

SCHENECTADY — The St. Clare's pension plan collapse has its roots not just in the state-ordered shutdown of the hospital 10 years ago, but in more than a decade's worth of financial struggles that led up to the closure and a chain of events that followed.

In retrospect, it seems almost inevitable that the fund would run out of money too soon:

The hospital made only part of the recommended deposit to its pension fund in three years and no deposit at all in the other seven years in the decade leading to its closure in 2008. 

It used a $28.5 million state bailout to satisfy the existing guaranty.

Then the fund's investments sank during the Great Recession. Finally, the payout projections were revised upward -- the already inadequate fund would need much more money than previously believed. 

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So, 10 years after the hospital surrendered its license to operate, the trustees of its pension plan have decided to cut or eliminate payouts to make the fund last longer. This has left retirees angry and confused, searching for answers about what went wrong even as they try to figure out how to live on significantly reduced incomes.

St. Clare's Hospital in Schenectady as it looked during the early 1950s. Photo courtesy Efner History Center, City Hall

Here are some factors behind the current troubles, as detailed in earlier news accounts and Daily Gazette interviews from late October and early November:

  • What became St. Clare’s Hospital was conceived a century ago to meet the needs of a growing county served by just one general medical facility — Ellis Hospital. The Roman Catholic Diocese of Albany purchased a plot of land for the project in 1917, but the idea went nowhere for years. 
  • "From the collection of the Schenectady County Historical Society"
Undated images show the early stages of construction of St. Clare's Hospital in Schenectady in the late 1940s.
  • By the 1940s, a petition drive and a fundraising campaign were underway to buld the hospital. More land was purchased for the McClellan Street campus. The cornerstone was dedicated in 1948, and construction was completed in 1949.
  • However, St. Clare’s was always the smaller of the two city hospitals and was always a safety net for the city’s less-fortunate residents. Many of its patients were uninsured or underinsured, and many bills went unpaid over the decades.
  • The hospital struggled for years with its expenses, recalled John Owens, its chief financial officer from 1986 to 2004, and it sometimes shorted its pension fund deposits as a result. 
  • Critically, St. Clare’s in the 1990s took advantage of a religious exemption in federal law that allowed it to not pay insurance on its pension fund — saving the hospital money but leaving its future retirees with no prospect of a bailout from the federal Pension Benefit Guaranty Corp., in the case of insolvency.
  • "From the collection of the Schenectady County Historical Society"
Undated images show the early stages of construction of St. Clare's Hospital in Schenectady in the late 1940s.
  • St. Clare’s made only partial contributions to its pension fund in three of the last 10 years it was in operation and no contribution at all in the other seven years, according to Joseph Pofit, president of the board of St. Clare’s Corp., the successor entity that became responsible for the hospital’s legacy assets and liabilities in 2010. Moreover, one of the three partial payments, he added, was only a nominal amount.
  • Enter the New York State Commission on Health Care Facilities — commonly called the Berger Commission, after its chairman, Stephen Berger. Formed under then-Gov. George Pataki in 2005 to improve efficiency and reduce costs in the healthcare industry, it mandated closures and mergers of dozens of hospitals statewide.
  • The continuing financial problems of St. Clare’s made it a ripe target, Owens said.
  • People gather in front of then-new St. Clare's Hospital for a cornerstone ceremony on Sunday, June 13, 1948. Photo courtesy Efner History Center.On order of the commission, St. Clare’s surrendered its operating license in 2008.
  • Ellis Hospital absorbed St. Clare’s, as well as Bellevue Woman’s Hospital in Niskayuna, another facility targeted by the Berger Commission.
  • The consolidations cost state taxpayers more than $80 million: a total of $58.7 million paid to Ellis by two state agencies to cover transition costs with St. Clare’s (including $28.5 million for the anticipated needs of the St. Clare's pension fund) and $22 million to Bellevue to cover its mortgage and other outstanding costs (which included a $1.8 million pension shortfall).
  • The three facilities became Ellis Medicine. They operate today as Ellis Hospital, Bellevue Woman’s Center and The McClellan Street Health Center, site of primary care, outpatient procedures, short-term rehab and long-term nursing care.

PENSION CRISIS 

The St. Clare’s pension fund deficit was well-known in 2008. Ellis Hospital, in fact, refused to absorb St. Clare’s unless it was absolved of all St. Clare’s pension liabilities.

As matters developed, the state's $28.5 million was not enough to prevent exactly the problem coming to a head a decade later.

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There are three main reasons for this, Pofit said: The United States entered the Great Recession right after the deal was completed, so the value of investments made at that time quickly fell. Then, after the economy recovered, interest rates paid on investments were very low for a very long time. And third, payments to retirees were more expensive than anticipated.

In other words, the fund's assets appreciated less than expected and was depleted faster than expected.

Pofit laid out the situation then and now in detail for The Daily Gazette:

  • As it shut down in 2008, St. Clare’s paid $28.4 million of the $28.5 million in state pension bailout money to Prudential to fund guaranteed annuities. Prudential had long guaranteed the hospital's retirement payments, but St. Clare’s, for many years, had been unable to pay Prudential for that guaranty. As part of the settlement, Prudential terminated the guaranty for anyone who retired from St. Clare's after Nov. 1, 2005.
  • During the Great Recession, the pension plan saw an 18 percent drop in asset value, from $34.2 million to $27.3 million. Also, the plan has paid $22.6 million in benefits since 2009. Despite these factors, the fund rebounded and gained 3 percent in value since the recession through the actions of professional fund managers at Prudential.
  • The plan currently holds assets of $29 million. Its current liabilities — money it must pay to retirees under the soon-to-be slashed pension schedule — are estimated at $68.7 million.
  • Because the hospital hasn’t existed for a decade; because no other entity is paying money into the pension fund, or is likely to; and because the fund is now conservatively invested in safer, lower-yielding bonds, the fund is on track to run out of money in six to 10 years, when many retirees will still be alive. Payouts to retirees began to outstrip returns on investment in 2017. So, to preserve payments to the older retirees, younger former employees were cut from the plan.
  • Retirees were notified in 2017 that their benefits would be reduced in six to 10 years’ time. But last month, retirees were notified the cuts would come much sooner: In January, approximately 443 current beneficiaries will see their pension payments reduced. Approximately 661 current and future beneficiaries, mostly still employed or recently retired, will see their pensions eliminated outright.

The moves have caused an uproar among the still close-knit former St. Clare's workforce. Pofit provided a statement from the corporation in response:

“Please know that the St. Clare’s Corporation board of directors is very sympathetic to the difficulties this situation has created for the participants in the St. Clare’s plan. We have great respect and admiration for the outstanding service of employees of St. Clare’s Hospital who with skill and compassion delivered health care services to many of the most vulnerable people in the Schenectady community over many years.”

LIMITED OPTIONS

PHOTO COURTESY ALBANY LAW SCHOOL
Albany Law School Professor David Pratt is shown in an undated image provided by the school.Amid all this, the retirees have found little recourse. They’ve held meetings, maintain an active Facebook group and have been getting advice from Albany Law School professor David Pratt.

Their options are few and unattractive, Pratt said. They can:

  • “Grin and bear it, fundamentally unfair”
  • Negotiate a settlement with the diocese to provide funding, which the diocese refuses to do
  • Or bring a lawsuit to force such a settlement, which no law firm has been willing to take on without being paid a large sum of money up front.

“I cannot tell you how bothered I am by this,” Pratt said. “It keeps me up at night.”

So, who really is to blame for the mess -- or responsible for cleaning it up? Beyond the long-gone administrators of a hospital that no longer exists, there are three obvious candidates, each of which has emphatically rejected responsibility: Ellis Medicine, New York state and the diocese.

  • Almost uniformly, the dozen-plus St. Clare’s retirees who spoke to The Daily Gazette seemed not to blame Ellis. They are thankful, in fact, that Ellis offered them jobs at the start of the Great Recession. And of course, Ellis took steps before the merger to avoid liability for the pension plan.
  • The state has said its involvement ended when it paid tens of millions of dollars to reorganize the three Schenectady County hospitals.
  • The diocese maintains it never operated the hospital, saying it was affiliated with St. Clare’s, sponsored it, but never owned or operated it and does not now bear responsibility for its legacy costs.

Most of the retirees object to this last contention: It was a Catholic hospital under the wing of the local diocese.

Bishop Cusack bought the land a century ago. Bishop Gibbons laid the cornerstone. Bishop Hubbard was chairman of the board in the hospital’s final days and negotiated its closure. Bishop Scharfenberger, until recently, sat on the board of directors of the St. Clare’s Corp., as did two Schenectady parish priests. The corporation itself operated until recently out of rented space in the diocese’s Pastoral Center in Albany.

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Pofit explained that there obviously was a decades-long relationship between the diocese and the hospital, which was opened by an order of nuns that was not part of the diocese. But there was never an official linkage -- St. Clare’s was a Catholic institution that followed the teachings and practices of the Catholic Church, and the Albany diocese helped it do this, he said.

“I do not accept that explanation,” Pratt said, in more succinct words than many of the retirees he’s been working with. “My basic take is: Promises were made, and promises should be kept.”

MARC SCHULTZ/GAZETTE PHOTOGRAPHER
Entrance to Ellis Medicine McClellan Street Health Center which was St. Clare's Hospital.

HEAL THE HEALERS

Ceil Mack, a longtime St. Clare’s employee (and now pension recipient) who helped created a website repository for the hospital’s history in its final weeks in 2008, has now helped create an online petition drive to try to create some momentum for a pension bailout.

The group's tagline, “Help Heal the Healers,” harkens back to the original 1940s petition to build St. Clare’s.

“We are again tapping into that spirit,” Mack said. “Our call to action is going to be to all the people that have been raising their voices in the past weeks and months.”

Mack is not identifying a single culprit or savior; local, state and federal officials, the diocese and the Catholic church, and the business community will all be asked to help find ways to help.

“We want to urge them to come up with solutions to fund that pension,” Mack said. “All of these people and organizations represent a great collective network of problem-solvers.

“We’re looking for people with great ideas. That’s what our call to action will be.”

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