I’ve followed the unfolding Singing River Hospital financial disaster from afar and thus far have managed to not look at a single audit or financial report as I’m currently neck deep in paying work. That said I have seen woeful misinformation spread about Defined Benefit Pension Plans during the course of the reporting. Defined Benfit plans, if properly run, can still be an excellent and cost effective employee benefit and it is there we begin because many have been looted out and then dumped on the taxpayers:
Looting the Pension Funds ~ Matt Taibbi
‘Retirement Heist’: How Firms Trimmed Pensions ~ Interview with former WSJ Reporter Ellen Schultz, WTEST
At Singing River Hospital, the pension fund was not looted. Instead it was simply not funded by the hospital to the point now where management now claims that the plan is actuarially unsound. The implications of not funding a qualified defined benefit plan, which likely had mandated minimum funding requirements, are legion.
For instance, when most people think of qualified pension plans they think IRS, because it is the IRS that writes the regulations for plan qualification and actually approves the plans both when they are established and terminated. However it is not the IRS that Singing River Hospital needs to worry about in this instance as it is the Department of Labor, specifically the Employee Benefits Security Administration that would handle the potential ERISA violations associated with the media disclosures involving the Singing River defined benefit plan and that is the bad news because while the IRS “audits”, the DOL “Investigates”. Having handled a DOL Investigation once or twice in my time practicing public accounting, I can say first hand it is far better to have the IRS show up than the DOL when it comes to this subject matter.
All that said the Singing River financial debacle could keep an enterprising business writer busy for weeks as the ramifications of seeing yet another defined benefit pension plan crash and burn are literally legion. Here are a few things that come to mind:
- Most pension plans are required by law to be covered by some sort of fidelity bond? Was the Singing River Plan covered by a bond and if so will the plan trustee seek coverage for the prior malfeasance in plan administration?
- After 5 years of not being funded by the Hospital can the plan be salvaged from an actuary standpoint and if so what would the funding minimums look like to save the plan.
- Did the IRS/DOL annual tax filings disclose whether the Hospital was meeting its funding minimums?
- Did the Singing River Audit properly disclose the unfunded pension benefit liability as required by Generally Accepted Accounting Principles?
- Is the DOL currently investigating the Singing River plan in light of the media disclosures?
Of course part and parcel to this story is a potential audit failure by KPMG. The press reports essentially indicates the $88 million dollar problem centers on the Allowance for Doubtful Accounts. The problems associated with overstated receivables manifest themselves in a number of ways but are most often found in problems with liquidity and sure enough Karen Nelson at the Sun Herald tantalized us with exactly that albeit in a slightly different context:
Hospital system leaders were planning the retreat even as they were trying to scrape up money for cash on hand with a $3 million short-term bank loan.
And that brings me to the larger point because at times it has been suggested to the media that the problems with the Allowance for Doubtful Accounts was some sort of surprise to the hospital and its Board of Directors when the fact is the financial problems were well manifested and evidently being covered up. All Horne (the new CPA firm) did by booking the $88 million dollar adjustment was formalize the financial problems that were already well manifested in other ways.
And this brings me to KPMG because there is a little secret I just shared with the reporters covering this mess:
— Slabbed New Media (@SLABBEDblog) November 13, 2014
And that dirty secret is actually worse than that:
There are more implications beyond what I have raised. The new management team recognizes this because, per a letter to employees obtained by Slabbed New Media, the gang pulls out all the stops going so far as to ask for prayers. Like I said there is enough here to keep an enterprising business reporter busy for weeks. Before this is done divine intervention may be required to keep shafted retirees from hanging a few current and former Hospital execs from the Singing River Bridge.