By Fred Hiers
Published: Thursday, May 23, 2013 at 5:40 p.m.
The Marion County Hospital District's first payout after leasing Munroe Regional Medical Center to a new operator later this year will be to close out its employee pension plan.
The conservative cost estimate is between $10 million and $20 million, though the eventual number could be lower.
Hospital District Chairman Jon Kurtz reported to his fellow trustees this week that PriceWaterhouseCoopers, the company that oversees the hospital's pension plan, warned that when the hospital's new 40-year lease begins with Health Management Associates, transferring the pension will be expensive.
Kurtz said although the pension plan is fully funded, a conservative estimate puts the cost of paying out some portion of pension and transferring other portions into annuities could cost between $10 million and $20 million.
Kurtz said he learned of the potential cost last week when he met with PriceWaterhouseCoopers. Kurtz was quick to say that regardless of the final amount due when the pension plan is transferred to new annuities, the trustees will pay what's due and employees need not worry.
The hospital has 2,600 employees and about 2,800 people signed up with the pension plan. The latter figure includes about 200 people who are vested in the plan but have retired or are no longer working at Munroe, according to Dan O'Connor, Munroe's vice president of human resources.
Although Kurtz said he knew there would be work and some cost in transitioning the pension plan, this was the first he heard of a potential $20 million pricetag.
“We should have been made aware of this…,” Kurtz said of the price range.
Kurtz also said during a trustee meeting Monday that the $10 million-$20 million range was conservative; the eventual cost could be significantly less.
Kurtz said the cost of transitioning the pension, regardless of how much it eventually will cost, is unavoidable and part of the cost of creating a new lease.
Steve Purves, Munroe president and CEO, said Monday the cost is unavoidable as HMA takes over operations and employees begin to work for HMA.
“You can't do anything about it,” Purves said. “It's a closing cost.”
Munroe is owned by the state-sanctioned Marion County Hospital District and is overseen by seven trustees who are appointed by the County Commission.
The trustees currently lease the hospital to Munroe Regional Health System Inc., which is overseen by a 13-member board, some of whose members also are district trustees.
Last month, trustees voted to lease the hospital to Health Management Associates for 40 years in exchange for $200 million and agreements from HMA to invest another $180 million toward hospital improvements.
The details of that lease are currently being worked out and the lease is expected to be implemented by the end of the year.
Florida law requires trustees to use the lease money to help fund health-related services and programs.
Munroe invested between $4 million and $5 million annually in its pension plan during the past couple of years. It paid out between $3.5 million and $4 million annually, said Munroe spokesman Ryan Gerds.
The pension plan money is invested and has seen an annual 10.3 percent return over the past three years and 8 percent during the past 10 years, according to Gerds.
Heller Pension Associates Inc. President Todd Heller said that although he is not familiar with or involved in Munroe's pension program, he can attest that ending a pension and switching to a new annuity system for so many employees is “very complex…and potentially very expensive.”
Existing pension plans assumes a set interest rate and a reliable annual infusion of cash by the employer, said Heller, whose company has offices in New York and Florida.
But when a pension plan ends, that cash infusion ends too and the new annuity funds come with “premium” costs, he said.
Almost always there is a financial “shortfall” that has to be made up and that shortfall “can be quite substantial.”
O'Connor said he thinks the $10 million to $20 million estimate is on the conservative extreme. PriceWaterhouseCooper is working up a better estimate that should be available in a few weeks.
He said the real cost could end up being only a fraction of the current estimate.
Trustee David Cope said during the Monday meeting that he understood the pension changeover process was complex, but was frustrated with how the company that oversees the pension couldn't have given better cost estimates sooner.
A clearly frustrated Cope said he was “mystified” by how “nebulous” the pension information has been.
Reach Fred Hiers at firstname.lastname@example.org and 352-867-4157.