Singing River Health

Public audits showed SRHS retirement fund sinking deeper each year

Jackson County supervisors and Singing River Health System CEO Kevin Holland say they were surprised to learn SRHS' employee retirement fund was in trouble, but hospital audits on file with the county show mounting liabilities each year since 2009.

The audits also show SRHS contributed less than half of its estimated pension cost in 2009 and stopped contributing altogether in 2010. The retirement fund sank deeper in the hole each year after contributions ended, audits show. Fund liability mounted from $3.8 million in 2009 to $35.5 million in 2013. More recently, Holland said, only 48 percent of the money needed is available to fund retirements.

The upshot is retired employees can no longer count on the comfortable nest eggs they built. They are contacting lawyers to review their options, several attorneys have confirmed. Biloxi attorney Jim Reeves said the hospital staff told one of his clients, who was counting on $700,000 to $800,000 in retirement, he might collect $150,000. Reeves said the amount is an estimate, not a final offer.

"It's a fiasco," Reeves said. He said it's "a given" retirees will collect less money than

expected. "How much less," he said, "nobody knows for sure yet."

Interviews with several county supervisors and the State Auditor's Office, which also has some oversight of county-owned hospitals, indicate they relied on SRHS' management, board and accounting firm to keep them abreast of finances. Though they had access to the 50-page audits, several supervisors said, they did not review them in detail.

"We have always been given positive reports about Singing River's finances," said John McKay, the county's longest-serving supervisor. "But you could tell they were beginning to have some problems around three years ago, when they started laying a few people off and consolidating things.

" Nobody realized how bad it really was, I guess."

SRHS' financial woes started coming into public focus March 3, the day Holland stepped into the CEO's job and after the Sun Herald filed requests for SRHS financial records. The former CEO, Chris Anderson, departed for an executive position at Baptist Hospital in Jackson before the news broke.

Holland, who had been chief operating officer directly reporting to Anderson, told supervisors in March that SRHS had to write off $88 million in bad debt that had been listed as operating income.

Problems with the retirement system became public when the Sun Herald reported them Oct. 28. Former SRHS manager Greg Shoemaker, in a letter he recently wrote to county supervisors, said he'd warned SRHS' management two years earlier the pension plan was headed for trouble.

While serving briefly as chief financial officer in 2012, Shoemaker's letter said, he "sounded the alarm" about the pension plan. He told the senior management team, including Holland, that SRHS was booking pension liabilities as "an accounting exercise" without making plan contributions.

Shoemaker's letter said, in part: "The 2012 pension report that I reviewed (a report that was made available to senior leaders, the board and auditors) warned of the dangerous trend of the pension plan without adequate funding. Based on that report, I predicted the pension plan would be 40 percent to 50 percent funded within just a few years -- a correct prediction that I'm not proud of. It was almost mathematically impossible for the pension plan to be sustained with only 3 percent employee contributions and it didn't require a financial genius to understand that."

Holland will not talk to the Sun Herald and did not respond to most of a list of questions the newspaper submitted, including one about Shoemaker's warning. Spokesman Richard Lucas said Holland was busy, but would work on answers Monday.

Singing River's board of directors has remained publicly silent about the system's financial problems. Board president Michael Heidelberg did not respond to a telephone call Thursday from the newspaper. The hospital is publicly owned, but state laws allow community hospital boards to keep meetings and many records private.

Gulfport businesswoman Myrtis Franke, who served for 20 years on the board of Memorial Hospital at Gulfport, 18 years as chair, said her board never would have stood for ending contributions to its employee retirement system. Memorial's retirement plan promises employees only 27 percent of pay, compared with the 50 to 70 percent SRHS retirees are supposed to receive. At Memorial, employees don't have to contribute to their plan.

Franke said a board has a fiduciary responsibility -- a legal duty -- to act in another party's interest. In this case, the other party was SRHS, including patients and employees.

The first year without funding for the pension plan should prompt action, she said.

"If we didn't have money to put in the pension fund, we would have immediately found a solution and it would not have been not putting money in and not telling the employees," she said. "We would have tightened belts all over the place to do what we had to do. That's what your fiduciary responsibility is.

"I had to put my head on the pillow at night knowing that I was doing what I needed to be doing. Protecting the facility and community is a serious thing."

Karen Nelson and Margaret Baker, Sun Herald staff writers, contributed to this report.