Reeling from sticker shock, executives at a Tallahassee, Fla., hospital say their former CEO may have intentionally misled them about the size of his lifetime pension plan.
Former CEO sues hospital for more pension pay
Duncan Moore, whose 15 years as president and CEO of Tallahassee Memorial Healthcare ended with early retirement in 2003, says the hospital agreed to calculate his “top hat” pension payments under a formula that comes out to $605,000 per year until he dies. Hospital officials have balked at the amount, saying the payment formula they agreed to comes to $228,000.
The dispute, which is spelled out in an unusually detailed federal lawsuit Moore filed against the system in July demanding payments, essentially comes down to a question of whether Moore's first three years of severance benefits should be included in the calculation of his lifetime pension because of the way that such payments are reported on the Internal Revenue Service's Form 990 disclosure filings.
“We're serious about the pleadings we filed,” said Tallahassee Memorial Healthcare lawyer Kenneth Hart, an attorney with Ausley & McMullen, whose response to Moore's lawsuit accuses the former CEO of either lying, being negligent or committing outright fraud. The hospital says that if Moore actually believes the calculations upon which his lawsuit rests, then he breached his fiduciary duty to disclose that knowledge to hospital administrators and to auditors as a material liability in annual filings between 2000 and 2003.
To the contrary, Moore's lawyer says, the hospital's management just doesn't like the deal that Moore got and is now trying to unravel its past agreements with hollow claims that board members in 1998 and again in 2000 didn't understand the agreements they were signing. “There would not be any fiduciary duty anyway. This was a bargaining situation. There was a compensation committee … and there was Mr. Moore,” said Paul Parrish, a partner at Holland & Knight. “He did not mislead them in any way.”
Ron Seifert, a healthcare-sector leader at Philadelphia-based compensation consulting firm Hay Group, said top-hat pension plans—which are taxable and only available to highly compensated executives—are common among healthcare providers who are seeking to compensate executives beyond what is otherwise allowed by IRS regulations for not-for-profits. However, the type of calculations being put forward by Moore are “somewhat atypical” of what is commonly seen in the industry.
Seifert said best practices would dictate that Moore's estimated post-retirement benefits would have been more clearly spelled out for the board that approved it, but it's not clear that failure to do so would amount to any wrongdoing on Moore's part. “It would be a reasonable expectation to have those numbers laid out. I don't know if that constitutes any malfeasance or fraud, that would be a different question,” Seifert said.
All sides agree that Tallahassee Memorial's board of directors in 1998 approved a plan under which Moore would receive payments for the rest of his life equal to 65% of the average of his earnings in his five highest-paid years. The payments were set to start three years after his retirement in 2003, because he was set to receive a severance package from 2004 to 2006.
However, IRS rules dictate that multiyear CEO compensation be disclosed on the Form 990 in the one year when the employer recorded it as a liability on the books. In this case, that meant 444-bed Tallahassee Memorial recorded Moore's salary in 2003 as $2.2 million, which included the severance he was supposed to receive from 2003 to 2006.
Moore's total compensation from his other four highest-paying years, from 1999 to 2002, averaged $554,000, according to figures presented by Moore. Including the $2.2 million in “compensation” reported on the Form 990 in 2003, his five-year average was $881,000, Moore argues.
Hospital officials say they intended the calculation to be a percentage of base salary and benefits, not total compensation. Tallahassee Memorial's Supplemental Executive Retirement Plan, or SERP, Appeal Committee has concluded that Moore's average salary during the five years was $425,000.
“The SERP Appeal Committee has determined that Mr. Moore, as CEO of a not-for-profit entity, did not have a right to deal at arm's length with his volunteer board, but rather had an inherent fiduciary responsibility to ensure that elements of his own compensation and benefits were fully and properly authorized, based on appropriate information and procedures, by the TMH board or its committees,” a May 15, 2007 letter to Moore says.
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