Attorney General James Sues to Protect St. Clare’s Hospital Retirees

 

Mismanagement and Neglect Caused 1,100 Former Hospital Workers to Lose Retirement Benefits

 New York Attorney General Letitia James today took action to protect Capital Region retirees by filing a lawsuit against the Roman Catholic Diocese of Albany, its leadership, and others, for their negligent and intentional actions that deprived more than 1,100 former employees of St. Clare’s Hospital of their pensions. Attorney General James alleges that the Diocese shirked its fiduciary and legal responsibilities to the former hospital workers when it failed to preserve and protect the hospital's pension. The decision of the Diocese to remove the pension plan from the protections available under federal law, its failures to adequately fund, monitor, or insure the pension, and its resulting failure to administer the pension violate New York Not-for-Profit Corporations Law and New York Estates, Powers & Trusts Law. In her suit, Attorney General James seeks to hold the Diocese liable for the misconduct and recover the pensions that the former hospital workers lost.

“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,” said Attorney General James. “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."

In her suit, filed in the New York State Supreme Court of Schenectady County, Attorney General James argues that the Diocese’s breaches in fiduciary duty led to its failure to properly administer the pension that was entrusted to their care. As a result of its actions, the Diocese was unable to fulfill its mission and honor its commitments to the former hospital employees. More than 1,100 former employees lost their retirement benefits, including 650 retirees who lost all their pension rights, and nearly 450 retirees who received a single payment equal to 70 percent of the value of their pension. These former employees served St. Clare’s Hospital as nurses, lab technicians, social workers, EMTs, orderlies, housekeepers, and other essential workers and ranged between 10 and 50 years of service.

St. Clare’s Hospital was co-founded by the Diocese in 1948 and was managed primarily by the St. Clare’s Corporation, a not-for-profit corporation created by the Diocese to oversee operations of the hospital. In 2019, Attorney General James launched an investigation into the Diocese after it terminated the pension that had been in place since 1959. That investigation found repeated and pervasive violations of the Diocese’s fiduciary duties of care, loyalty, obedience, and disclosure to St. Clare’s Corporation, which resulted in failure to pay the promised retirement benefits to its former employees and vested pensioners.

In 1992, the Diocese used its religious status to obtain a federal exemption in order to avoid the required federal protections for pensioners, such as pension insurance and minimum funding contributions. After obtaining the exemption, the Diocese violated their fiduciary duties under New York law by failing to make any annual contributions to the pension for all but two years from 2000 to 2019 — causing the pension to be underfunded by $43 million — and by hiding the collapse of the pension plan from the federal government and former hospital workers who were vested in the plan. Diocese leadership rejected all attempts to address the deficit, including applying for pension insurance to protect the pensioners’ benefits, efforts to combine the St. Clare’s pension plan with other Diocesan pension plans, and allowing the Diocese to provide direct financial assistance to the pension.

In 2007, the Diocese requested $28.5 million in Medicaid funds from the state of New York to eliminate the pension’s deficit, which the state provided. However, the Diocese knew the funds were not sufficient to fully fund the pension, despite representing that they were. Leadership for the St. Clare’s Corporation knew that the pension would continue to be underfunded even with the state grant, but they never sought additional funds to fully fund the pension.

The Diocese also failed to fulfill its fiduciary duties by:

• Failing to monitor or safeguard the pension, its related investments, and pension administrator;
• Failing to require yearly audits and accounting of the St. Clare’s Corporation's finances and pension, as required by the St. Clare’s Corporation’s bylaws;
• Failing to attend regularly scheduled board meetings as leadership was required;
• Permitting a non-director, Vicar General David LeFort, to assume the role of director and to vote as a director, although not permitted by St. Clare’s Corporation’s bylaws;
• Appointing a diocesan employee, Joseph Pofit, to leadership roles despite Pofit’s own admission of his lack of expertise in pension matters; and
• Failing to adequately review IRS Form 990s to ensure that they were accurate, thus filing IRS Form 990s that were inaccurate and misleading.

In 2018, the leadership of the St. Clare’s Corporation learned that their liability insurance coverage for directors and officers would not be extended, so to avoid exposing themselves to the risk of personal liability, they unanimously voted to terminate the pension and dissolve the Corporation. In the petition for dissolution, filed with the court in 2019, the Corporation admitted that it owed more than $50 million to the retirement plan and its members and had no means or intention to fully fund the pension. New York law requires the Office of the Attorney General (OAG) to approve voluntary dissolutions of New York not-for-profit corporations. Due to unresolved questions and concerns regarding the outstanding benefits owed to more than 1,100 New Yorkers, Attorney General James opposed the Corporation’s petition and immediately sought discovery to determine why the pension failed to provide the promised and earned benefits, what happened to the $28.5 million in Medicaid funds received by St. Clare’s from New York state, and to ensure the Corporation fulfilled its obligation to the pensioners.

“This is very exciting news for all the pensioners,” said Jerry and Kathy Adach, St. Clare’s pensioners. “Hopefully, this will result in a very positive outcome for all of us. We are so appreciative and thrilled to have Attorney General James fighting for us!”

“On October 18, 2018, a letter was sent to over 1100 hardworking and devoted health care workers, abruptly ending or limiting their pension,” said Mary Hartshorne, a St. Clare’s pensioner. “There was no notice and no explanation. More importantly, no one consulted any of these hardworking and devoted hospital workers on this monumental decision. We have fought to regain our rightful pension for more than three years. We have endured a pandemic and skyrocketing inflation that limited our already depleted resources. We had almost given up on multiple occasions. Today, Attorney General Letitia James has proven that her word is true. She told us that she would do everything that she could to get our pension back for us. I am humbly grateful to our attorneys and to the attorney general for supporting us in this manner. It means the world to us to know that we have them all on our side. We finally have light at the end of the tunnel.”

“Justice requires that St. Clare’s Corporation and the Roman Catholic Diocese of Albany hold up their end of the bargain and restore the financial security earned by and promised to their employees. We applaud the attorney general for filing this lawsuit,” said William Alvarado Rivera, senior vice president of litigation, AARP Foundation, whose attorneys, along with several legal aid groups and pro bono attorneys, filed a case against the Diocese and others in 2019. “We look forward to continue fighting for the St. Clare’s pensioners with the Office of the Attorney General.”

“We are pleased that OAG has taken this step, which can only benefit our clients and the other hardworking pensioners who are simply seeking the money they were promised as a part of their employment,” said Victoria Esposito, advocacy director, Legal Aid Society of Northeastern New York (LASNNY). “We remain grateful for OAG’s ongoing work to enforce fundamental fairness on behalf of St. Clare’s pensioners.” 

The defendants named in today’s suit are the Roman Catholic Diocese of Albany, the St. Clare's Corporation, Bishop Emeritus Howard Hubbard, Bishop Edward Scharfenberger, Joseph Pofit, and Very Reverend David Lefort, Vicar General, and an officer of the Diocese. In her lawsuit, Attorney General James is seeking to hold the defendants accountable for all debts owed to pensioners.