$30 Million Settlement Reached in Lawsuit Over DB Plan Funding

A settlement has been reached in litigation claiming that the St. Joseph Health Services of Rhode Island Retirement Plan had not been adequately funded.

Plaintiff Stephen Del Soto, in his capacity as receiver for and administrator of the plan, appointed by the Rhode Island Superior Court, filed the lawsuit on behalf of the plan and its participants. He alleged that, at some point, the retirement plan failed to be a “church plan” as defined by the Employee Retirement Income Security Act (ERISA), and entities administering or associated with the plan hid this to keep from adhering to ERISA funding rules.

Under the terms of the settlement agreement, $30 million will be paid to the plan by the hospital’s parent company, Prospect Chartercare, and other defendants. The lawsuit says “the settling parties recognize that the claims released herein are disputed and uncertain,” and it notes that it was reached amid a “desire to settle such claims so as to avoid the cost, risk and uncertainty of litigation, and acknowledge that no party is admitting any fault or liability in entering into this settlement agreement.”

Prospect Chartercare is a limited liability company (LLC), which directly and through its 100%-owned subsidiaries owns and operates health care facilities in Rhode Island, including but not limited to two hospitals, Roger Williams Hospital and Our Lady of Fatima Hospital, having acquired them with an asset sale that closed on June 20, 2014.

Also named are Prospect Medical Holdings Inc., a corporation organized and existing under the laws of the state of Delaware; St. Joseph Health Services of Rhode Island (SJHSRI), which prior to the 2014 asset sale owned Fatima Hospital; and Roger Williams Hospital (RWH), the survivor of a merger in 2010 with Roger Williams Medical Center, sometimes doing business under that name. There are a number of other named defendants in the suit.

According to the lawsuit, since the 2014 asset sale, SJHSRI no longer operates a hospital or otherwise provides health care. Instead, SJHSRI’s business consists of defending lawsuits and workers’ compensation claims, collecting certain debts and receivables, paying or settling certain liabilities which were excluded from the 2014 asset sale, and, until the receiver was appointed, administering the plan. The same is true of the business of RWH.

The case concerns an insolvent defined benefit (DB) retirement plan, the St. Joseph Health Services of Rhode Island Retirement Plan, with more than 2,700 participants. The participants learned in August 2017 that the plan had not been adequately funded. The disclosure occurred when the plan was placed into receivership by SJHSRI, with the request that the Rhode Island Superior Court approve a virtually immediate 40% across-the-board reduction in benefits.

The lawsuit inspired legislation in Rhode Island. In June 2018, Governor Gina M. Raimondo signed legislation aimed at helping members of the St. Joseph’s Health Services pension plan reach settlements in their multiple class action lawsuits. The legislation helps protect defendants who settle lawsuits from claims from co-defendants.

In addition, Rhode Island General Treasurer Seth Magaziner joined retired members of the St. Joseph Health Services of Rhode Island pension plan to propose new transparency requirements for pension plans managed by religious organizations.

In a statement about the settlement agreement, Magaziner said, “I’m pleased to hear the positive news that Chartercare and other defendants have agreed to help make St. Joseph’s Hospital and Fatima Hospital retirees whole again after mismanagement allowed their retirement system to become underfunded. While we are still reviewing the specifics of this settlement agreement, this is positive news for these workers. All Rhode Islanders deserve retirement security, particularly health care retirees who have spent their careers caring for others.”