WILMINGTON, N.C. (WECT) - Employees of New Hanover Regional Medical Center, the county’s largest employer, wanted to know what a sale would mean for their pensions. It’s one of the first questions people asked after New Hanover County raised the possibility of selling the county-owned hospital, and county and hospital officials were quick to try and calm any fears.
“Their pension is protected. It’s protected by law. It’s protected by our pension documents. It’s protected through the audits and everything we have to do,” NHRMC CEO John Gizdic said. “Those funds are specifically designated for our pensions, they have to be set aside, and those are benefits our employees have earned and therefore those are protected for them.”
Hospital officials note that tax laws prohibit creditors from accessing pension funds.
“For as long as benefits are owed under the pension plan, the [pension] trust fund will only be used to satisfy the pension plan’s obligations. The tax code does not permit NHRMC or any purchaser to use the trust fund for another purpose following a sale. Therefore, the pension plan will remain securely funded by the trust regardless of any potential sale,” said NHRMC spokesperson Carolyn Fisher.
But many NHRMC employees remain unconvinced, concerned in part by the actions of other hospital systems in the state, and lawsuits filed against them over their pension plans.
“We can’t trust them, and we don’t trust them,” Herb Harton said. “You know, words mean so little when they can just come back and say, ‘Oops, sorry, your pension is gone.’ And you’ve worked all your life for it.”
Harton does not work for the hospital but says he represents the employees’ interests. He is a board member of the North Carolina Alliance of Retired Americans and is the president of the Southeastern North Carolina Central Labor Council.
“For the Alliance of Retired Americans, this is a group of people that are unbelievably interested in what happens [with the proposed hospital sale], because they have seen over and over corporate takeovers where their pensions get gutted, and that is a terrible financial hardship for people,” Harton said.
Despite their concerns over the impact of a sale on their retirement benefits, NHRMC employees who contacted WECT declined to go on-the-record, fearing it could jeopardize their job at the hospital.
NHRMC is among the minority of employers that still offer “defined benefit plans.”
Defined benefit plans are traditional pension plans, typically providing retirees with a set amount of money every month based on their years of service and their income while they were working.
By comparison, “defined contribution plans” are much more common. In that type of retirement plan, employees typically invest part of their income into a 401k or 403b, and employers offer a matching amount to help them save for retirement.
With a defined benefit plan, the employer bears the investment risk, guaranteeing a set payment to retirees regardless of market performance. With defined contribution plans, stock market performance, the investment savvy of the employee, and the amount the employee elects to contribute to their own plan play major roles in how much money is actually available to them upon retirement.
Because of the significant expense of managing defined benefit pension plans, a shrinking number of employers offer them.
“There are very few health systems left in the country who have those types of pensions. So most health systems have really frozen those pensions or shut those down,” NHRMC’s Gizdic explained. “Our employees have great benefits, they have both a traditional pension and a defined benefit.”
WECT looked into pension plans offered by other hospital systems in North Carolina that could be possible partners or buyers of NHRMC.
Just last year, a group of former Atrium Health employees filed a federal class-action lawsuit against the hospital group, alleging they cheated thousands of employees out of retirement protection by falsely claiming to be an arm of government. They also claimed Atrium underfunded its pension plan by $379 million.
Plaintiffs were upset the hospital group did not insure its pension plan, using a loophole in the Employee Income Retirement Security Act (ERISA) exempting government agencies from that requirement imposed on private-sector pension plans. The lawsuit claimed that for practical purposes, Atrium had little public oversight.
But late last month, a federal judge threw out the lawsuit, saying Atrium, which technically operates as the Charlotte-Mecklenburg Hospital Authority, is indeed a government agency, and not subject to ERISA safeguards. The judge noted that the chairman of the Mecklenburg County Commission can remove Authority board members and that the hospital group is subject to public records laws, and therefore the group is publicly accountable.
NHRMC employees who spoke to WECT on background fear that if Atrium were to purchase their hospital, Atrium would merge New Hanover Regional’s now secure pension funds with its own pension fund to make up their deficits.
Gizdic said they could address pension concerns by writing specific pension protections into any contract they sign with a potential buyer or business partner. He also noted that even if New Hanover County retains ownership of the hospital, traditional pensions may not be offered forever.
“It could change without a partnership. As we evaluate our options, looking at how much longer can we continue a traditional pension, what do we do with our 403b or 401k option? So that’s something that we always evaluate, just to make sure that we are offering competitive benefits or staying current with the market. If we were to get to the point of partnership, that is something that could possibly change, benefits could possibly change or pensions or pension options could possibly change. Those are all things that we would very deliberately consider as part of this process, because protecting our employees is extremely important,” Gizdic said.
In September 2017, Novant Health paid $32 million to settle a lawsuit filed by six employees who claimed that the healthcare system automatically enrolled tens of thousands of employees in a retirement plan, and then caused employees to pay excessive fees for record-keeping and administrative fees connected to third parties managing the plan. In exchange, plaintiffs alleged, Novant executives got kickbacks from an outside firm. According to the Winston-Salem Journal, Novant denied the allegations of “kickbacks” and did not admit guilt as part of the settlement agreement, simply saying it was “in the best long-term interests of our health system and our retirement plan participants.”
Novant sent WECT a link to their retirement benefits options. It appears the hospital system will match employee’s contributions to their own retirement accounts, but does not offer traditional pensions.
A third possible buyer for NHRMC has also been sued by former employees over retirement benefits, though the lawsuit happened more than 20 years ago.
During a series of hospital mergers and acquisitions involving the company that eventually became HCA Healthcare, 22,000 employees who left or lost their jobs when their hospitals were sold claim the company cut them out of promised retirement benefits.
Those employees sued Columbia/HCA over $184 million in stock options. The company claimed the employees had not worked for long enough to be vested in those stocks, but the employees argued an original version of the stock ownership plan said they would be vested if the plan was eliminated, regardless of their length of service. Because of the age of the lawsuit, it was difficult to determine how it was resolved. When asked for details, HCA declined to elaborate.
However, HCA did direct us to their website for information on the employee benefits they offer, including medical, 401k plans and education assistance like tuition reimbursement, scholarships, and student loan assistance.
We were unable to find any reports of significant issues employees of UNC Health Care had regarding retirement benefits, at least none that appear to have resulted in lawsuits. Alan Wolf, the hospital system’s media relations manager, shared the following statement with WECT regarding their potential interest in purchasing or partnering with NHRMC.
“It is not surprising that with the ever-changing landscape in health care, many hospitals are seeking new opportunities, including New Hanover. Like many others across North Carolina, we will be following what’s happening,” Wold said.
UNC Health Care offers employees 403b retirement savings plans with company match.
Like Atrium, New Hanover Regional Medical Center is exempt from ERISA government requirements put in place to safeguard pensions in the private sector. NHRMC Spokeswoman Carolyn Fisher explained what that means and how it could change were a sale to go through.
“Under ERISA, non-governmental plans must use more conservative assumptions about rates of return and mortality than governmental plans, which may make it appear that a plan for a governmental organization is “underfunded” relative to a private plan. But both groups are calculating funding in a way designed to ensure the pension benefits are secure and fully provided. The non-governmental plans simply use assumptions that often result in more rapid contributions,” Fisher said.
“Similarly, ERISA requires private plans to be insured by the Pension Benefit Guarantee Corporation. But that insurance option is only available to non-governmental plans. Governmental organizations like NHRMC, are not allowed to voluntarily elect into this pension insurance system and there aren’t similar insurance products available for governmental plans.
"Like other organizations, NHRMC reviews its pension contributions every year to determine the amount that should be put aside. This contribution rate is evaluated every year by an actuary service and helps ensure it exceeds the rate needed to meet our obligations to our employees and retirees. Over the last five years, this averaged close to $13.9 million each year. We are well funded compared to industry benchmarks.
“If NHRMC were to change ownership to a system that does not meet the public exemption requirements for ERISA, it would be subject to the more rapid funding rates and insurance requirements set out in the law,” Fisher said.