SCHENECTADY — The state Attorney General’s Office is backing efforts to remove the trustees of the troubled St. Clare’s Hospital pension fund, which has reduced or eliminated benefits to more than 1,100 former employees of the defunct Schenectady hospital.
In court filings this week, the agency — acting in its capacity as a watchdog over nonprofits within the state — supported efforts by three of the pensioners to be granted a seat at the legal proceedings to dissolve the hospital’s successor entity, the St. Clare’s Corporation, as well as to change control of the pension fund.
In the filing Tuesday in State Supreme Court, Schenectady County, the chief of the Attorney General’s Charities Bureau also raises multiple questions about the long chain of events that led to the pension crisis, and indicates the corporation has provided zero access to witnesses and less than complete access to documentation as he looks into the situation.
Among the most notable findings: As the pension fund was imploding, the corporation directors voted in October 2017 to seek to reinstate federal pension insurance by the start of 2018, which would reduce but not eliminate the loss suffered by individual pensioners. However, in November 2017, they apparently discussed whether reinstating insurance would increase the likelihood of being sued. There’s no evidence they ever did seek pension insurance after that.
It has been 11 months since the pensioners learned their monthly checks would be slashed or eliminated, and seven months since the cuts took effect.
The issue is not just a year's or even a quarter-century's worth of legal and accounting maneuvers — the crisis has had a significant impact on the pensioners, many of whom are beyond their working years and cannot easily replace their lost income.
In a statement emailed to The Daily Gazette on Thursday, Attorney General Letitia James noted this:
“This case is a matter of extraordinary public importance. For 1,100 individuals and their families, the sudden loss of their pension is devastating, and they deserve a seat at the table. As the dissolution process proceeds, we are determined to get to the bottom of how this happened and to support the recovery of benefits rightfully owed to these hardworking retirees.”
FRUSTRATED SO FAR
Mary Hartshorne, once a sonographer at St. Clare’s and now a leader of a pensioners group fighting to regain what was promised to them, has had the same experiences as the Attorney General’s Office — she’s been unable to get documentation or explanation of what went wrong and why.
“I’m not surprised by this finding,” she said Thursday.
Assemblyman Angelo Santabarbara, D-Rotterdam, who has been working in vain since October to find a solution for the pensioners, was dismayed by some of the things the attorney general has found.
“The news so far is more than disturbing, I’d say,” he told The Gazette on Thursday.
He has been especially incensed about the corporation’s attempt to exclude pensioners from participating in court proceedings over its dissolution.
“That’s absurd — no one has been more affected than they are. It's wrong in so many ways and it also raises concerns. Why do they not want these voices heard?”
Santabarbara also faulted the corporation’s limited cooperation with the attorney general.
“That raises a red flag for me.” he said. “I would urge them to reconsider ... I would urge them to be cooperative.”
The pension crisis was more than a quarter century in the making. St. Clare’s, the smaller of Schenectady’s two general service hospitals, was a safety net health care provider for uninsured and under-insured residents of the city’s poorer communities; as such, it had perennial financial problems because of unreimbursed expenses.
In 1992, as a church-affiliated institution, it got federal permission to exempt itself from ERISA, the federal Employee Retirement Income Security Act, which safeguards employees’ pensions, and from having to pay into the insurance fund of the federal Pension Benefit Guaranty Corp.
Having eliminated the safety net for its employees in the event of a pension crisis, the hospital proceeded to create a pension crisis, making partial payment or no payment at all into its pension fund in many of the next 15 years.
When the state Department of Health ordered St. Clare’s to merge with Ellis Hospital as part of the Berger Commission’s statewide streamlining of healthcare facilities, St. Clare’s told the state its pension fund’s assets were $28.5 million short of its obligations. The state provided this bailout, and St. Clare’s surrendered its operating license in 2008. St. Clare’s and Bellevue Woman’s Hospital joined with Ellis Hospital to become what is now Ellis Medicine.
Attorney General’s Charities Bureau Chief James G. Sheehan, in the court filing Tuesday, makes the following points, with the caveat that he lacks full documentation for parts of the sequence of events he is laying out:
- The pension plan was established Oct. 1, 1959.
- On Jan. 29, 1992, the IRS ruled the pension plan was church-affiliated and thus eligible for exemption from federal ERISA rules.
- On Dec. 12, 1994, the parties involved — including the Roman Catholic Diocese of Albany — agreed to cancel the federal pension insurance and seek a $88,335 refund of premiums already paid.
- Federal laws and regulations trump state rules; however, the state attorney general asserts, having removed the pension plan from federal oversight, the plan's trustees were now subject to state law. As of Aug. 28, 2019, they have never submitted filings required by the state.
- St. Clare’s assured the state Department of Health in 2008 that $28.5 million was sufficient to provide for the pension plan’s obligations.
- Less than two years after the $28.5 million infusion, a Jan. 1, 2010, actuarial report showed the plan to be $15 million short of what was needed to cover liabilities. This climbed to $18.5 million in 2012, then dropped to $17.94 million in 2013 and 2014, then surged to $32.82 million in 2015 and bumped up to $35.52 million by 2017.
- As they sought to dissolve in 2019, the corporation’s directors estimated the total liability at $53.5 million — even after having reduced or eliminated monthly checks to many pensioners.
- At an Oct. 11, 2017, meeting (held at the Pastoral Center of the Albany Diocese and attended by the vicar general of the diocese as legal representative of the bishop) the directors of the corporation acknowledged the pension fund was roughly $35.5 million short and unanimously voted to seek to reinstate ERISA coverage effective Jan. 1, 2018. Participants in every distribution group would benefit under this scenario, the corporation's directors were told at the meeting, even if the pension plan were terminated as early as 2021.
- No evidence suggests that the corporation ever followed through, however.
- A summary of the November 2017 meeting at which directors apparently discussed whether reinstating ERISA would increase legal liability was heavily redacted. So what was said by whom could not be determined by the Attorney General's Office.
- Finally, state case law prohibits directors of a corporation from serving as trustees of its pension fund, which is what the St. Clare’s Corporation’s directors did, Sheehan wrote. That’s why the attorney general is supporting their removal as pension trustees.
Legal Aid Society attorney Victoria Esposito, who represents two pensioners with decades of service at the hospital in their effort to regain their benefits, said she was heartened by the attorney general’s stance, particularly the endorsement of their right to be part of the case.
“I certainly believe that my clients are entitled to know what happened with these funds,” she said.
There's a larger issue beyond the legal maneuvers: Someone is going to have to come up with a very large pile of money if the pensioners are to obtain any relief. It won't be a hospital that ceased to exist before the Great Recession.
The state has refused to provide any more money on top of its 2008 bailout, bluntly stating at one point that the crisis is the moral responsibility of the Albany Diocese to clean up.
The Diocese has maintained it didn’t create the crisis, isn’t responsible for fixing it, and can’t afford to fix it. The close association of the diocese with St. Clare’s through the hospital’s 60-year life and after its closure leads some of the pensioners to disagree, sometimes in caustic fashion.
Hartshorne said Bishop Edward Scharfenberger has been warm, open and supportive in private and public meetings with her but has not provided or promised a solution.
Also, since the pension crisis set in, the diocese and the Catholic Church have a new and likely more expensive problem to deal with: lawsuits from purported victims of clergy sex abuse decades ago.
That, combined with the lack of a new state bailout, is discouraging, she said.
“But it doesn't mean we're going to give up,” she said.
As the pension crisis nears its one-year mark, the fight continues.
“If other people aren’t going to help us, we’re going to help each other,” Hartshorne said.