Judge allows bankrupt Steward to keep employee retirement funds

Former employees of bankrupt Steward Health Care may soon collectively lose tens of millions of dollars in retirement savings, as financial reckoning continues for the system that once operated eight hospitals in Massachusetts.

Those employees put their trust — and their savings — with the company, only to see their retirement funds revert to Steward as it works to resurrect a viable business from what was the largest private, for-profit hospital network in the country.

Earlier this month, the federal bankruptcy court in Houston overseeing Steward’s Chapter 11 proceedings ordered the employees’ retirement programs dissolved. The order called for almost $60 million from the savings plans be transferred to Steward to pay off company creditors.

Under its two plans, Steward allowed certain employees to invest in a type of retirement savings program known as a deferred compensation trust. Its plans were what’s referred to as “rabbi trusts,” which are typically used by companies to provide senior executives with additional retirement benefits.

Steward’s plans allowed participants earning at least $180,000 a year as of 2022 to set aside large sums of their compensation and bonuses before taxes, without some of the limits that exist for other types of retirement contributions. Participants were permitted to put up to 75% of their salaries or bonuses into the trust.

Steward expanded the plans in 2019 to include nurses and physician assistants who met other eligibility requirements.

While such trusts have tax advantages, they may not be protected if a company declares bankruptcy. When that happens, the money in the plans can become the property of the company or its estate.

Participants in Steward’s plans filed a motion with the bankruptcy court arguing the funds employees invested belonged to them, and should be protected under the federal Employee Retirement Income Security Act (ERISA).

“[Steward] knew they were in trouble as they were expanding the opportunities for people to participate, which was just a way for them to create a bigger piggy bank — so that in the event of declaring bankruptcy, they had a bigger pot that they could go to, to keep things going.”

Alan Hackford

Steward’s attorneys argued the deferred compensation plans were exempt from ERISA requirements and were part of the company’s assets. The bankruptcy court judge sided with Steward, although the plan participants have appealed.

One participant, retired Dr. Alan Hackford, a former interim chief medical officer at St. Elizabeth’s Medical Center, said he had about $500,000 in his deferred compensation account as of early last year.

After he retired in 2022, Hackford, who is 74, said he received two annual payouts from the plan as promised. But the rest of his savings — an expected eight annual payouts — remained in the trust and were left in limbo when Steward declared bankruptcy.

St. Elizabeth’s is one of many facilities Steward sold, transferred or shuttered as part of its bankruptcy. The Brighton hospital is now operated by Boston Medical Center. Steward previously operated seven other hospitals in Massachusetts and dozens more across the country.

Hackford’s funds, along with those of other participating employees, will likely be used to help pay off some of the more than 100,000 creditors Steward listed in court documents when it filed for bankruptcy last May.

“It was sort of like a big loan to Steward,” Hackford said. “And now they’re kind of saying, ‘Well, we’re taking it back, even though you earned it.’ “

A Steward spokesperson did not respond to requests for comment.

Hackford and other former employees who spoke with WBUR said Steward encouraged workers to use its deferred compensation plans, telling them this would provide more retirement income than traditional vehicles such as social security and 401(k) accounts.

In a 2020 presentation shared by one of the employees, the workers were told that “given your compensation levels, you are probably not going to put away enough to continue the same standard of living into retirement using these programs alone.”

The plan documents did explain that if Steward faced financial problems, participants risked losing their investments.

“Unlike a 401(k) plan, if Steward Health Care becomes insolvent, Steward’s creditors will have access to your plan account. You will have the rights of a general unsecured creditor in such event,” the plan stated.

Hackford said he was aware the money wasn’t protected, but he thought the risk of Steward declaring bankruptcy was slim. While he’s had to make changes in his retirement planning, he believes some other former Steward workers are likely in worse financial situations because the plans included a range of employees.

Some former employees said they wonder whether Steward had ulterior motives when it urged employees to join the plans, allowing the company to collect contributions and then pay the workers over 10 years.

“[Steward] knew they were in trouble as they were expanding the opportunities for people to participate, which was just a way for them to create a bigger piggy bank — so that in the event of declaring bankruptcy, they had a bigger pot that they could go to, to keep things going,” Hackford said.

He called reports that some Steward leaders received millions of dollars and are not being personally touched by the bankruptcy “grossly wrong.”