California’s Senate Judiciary Committee passed a bill that aims to boost not-for-profit health systems’ public disclosure requirements for executives’ deferred compensation.
AB 1404, drafted by California state Assembly member Miguel Santiago, a Democrat, would close an alleged loophole that allows not-for-profit systems to hide deferred compensation when not-for-profit entities are used to provide a supplemental retirement plan to employees that work for a for-profit arm of the company. The legislation would require organizations to tell the secretary of state the total amount of deferred compensation allocated by the not-for-profit entity every year, the name and title of each individual, whether taxes were paid on the deferred compensation, and the agreement or legal document governing the deferred compensation.
“The Kaiser Foundation Health Plan receives billion-dollar tax breaks in return for being a ‘non-profit’ organization that is required under California law to put the community’s interests first, and yet it refuses to fully disclose what it’s doing with taxpayers’ money,” Santiago said in a statement. “The public deserves to know who exactly is benefiting from this secretive arrangement, how much they are receiving and why the for-profit medical group doesn’t take financial responsibility for its own retirement plans.”
Santiago and the SEIU-United Healthcare Workers West union specifically cited Kaiser Permanente, which entails the not-for-profit hospital and clinic arm Kaiser Foundation Hospitals; the not-for-profit Kaiser Foundation Health Plan, which provides insurance to Kaiser members; and the for-profit Permanente Medical Group that oversee doctors who work at Kaiser.
Under the undisclosed arrangement between the not-for-profit and for-profit arms of Kaiser, the not-for-profit Kaiser Foundation Health Plan furnishes a supplemental retirement plan to the for-profit Permanente Medical Groups’ executives and doctors, the SEIU said. The insurance arm bears the financial liability for the medical groups’ supplemental retirement plan, which amounts to $7.7 billion, rather than the medical groups themselves, the union said.
Kaiser said in a statement that the union’s claims are “flat out wrong” and it is “misusing the legislative process to try to influence contract bargaining.”
“The retirement plan for physicians of the Southern California Permanente Medical Group is the only retirement plan for about 11,000 current and retired physicians, and is very similar to the retirement plan enjoyed by the employees of Kaiser Permanente, including the 24,981 who are represented by SEIU-UHW in Southern California,” the company said. “The only significant difference is that the physician retirement plan is not trust-funded.”
Details of the plan are reported to state regulators every quarter and disclosed online, Kaiser Permanente added.
Deferred compensation plans such as pensions, retirement plans and employee stock options allow employees to allocate some of their salary or bonuses to a tax-deferred account. Part of the draw is that the individual could pay less income tax when they take the money out, or if he or she needs a supplemental retirement plan after contribution limits of a traditional plan are maxed out.
A recent Modern Healthcare analysis found that the 25 highest-paid not-for-profit health system executives received a combined 33.2% increase in total compensation in 2017, as their compensation rose to $197.9 million from $148.6 million in 2016. Two Kaiser executives made that list.
The reporting system through the Form 990 is a convoluted one, with health systems sometimes stashing executive compensation in different sections of the IRS Form 990 or in separate 990s. The bill echoes calls for more transparency from the federal government, consumers and other stakeholders.
AB 1404 is headed to the state Senate Appropriations Committee.