Volatile financial markets have cost the Regional Medical Center’s pension fund about $4.2 million.

The loss has prompted one trustee to question the wisdom of the hospital’s retirement investments. But hospital officials say the institution has always had a diversified pension fund including higher risk and lower risk investments.

“If you ask anybody who invests in pensions, they will tell you don’t stay in bonds. Bonds don’t have the returns over the long term than a diversified portfolio does. You protect yourself on down markets but also not getting as greater a return on up markets,” hospital President Tom Dandridge said.

The hospital initially placed about $37 million in the pension fund in March 2006. By Jan. 1, 2008 the pension fund had $47.1 million in total assets.

Today the fund has about $32.8 million.

About $7.5 million of the pension funds were initially placed in investments considered higher risk, according to hospital officials. Today, $6.9 million of the $32.8 million total is in hedge funds.

But an August 2008 state Supreme Court ruling made clear that political subdivisions such as public hospitals cannot make high-risk investments with retirement funds. And South Carolina voters decided in a November referendum not to allow such investments.

As a result, the hospital’s Finance Committee voted in December to liquidate the $6.9 million in hedge funds over the next three months.

Trustee Danny Covington said he and some other board members were unaware the hospital was making higher-risk investments, such as in hedge funds.

“We are in the dark,” Covington said. “I think the public needs to know how this money is being handled.”

Covington also questioned why the hospital would still invest in hedge funds after Orangeburg County Council questioned the hospital’s investment of $25.4 million in the Edisto Health Foundation, which was later closed.

“It is mind-boggling,” Covington said.

But Dandridge said council was concerned about operating funds, such as those in the Foundation, and not pension funds which are restricted from hospital operations.

“Pension funds were never mentioned,” Dandridge said, in reference to Council’s concerns.

Covington said the hospital would have done better with a simple investment in certificates of deposit.

“The money was put in the fund in March 2006,” he said. “Do you have any idea if the money was put in a CD what it would have gained about now? Do you believe it would have made $6 million by now had it been put in the bank?”

The matter was brought up during the hospital’s monthly board meeting on Tuesday as trustees received a review of the 2008 audit by Dixon Hughes. Covington asked Dixon Hughes representative Michael Kelly whether the company audited the retirement/pension fund.

After Kelly informed him the fund was not audited by Dixon Hughes, Covington asked why.

Dandridge answered that Aon Corporation audits the pension fund.

“I can’t recall ever seeing that report,” Covington said. “Why didn’t we get that report?”

Dandridge said the report was brought before the finance committee. Dandridge said he was also pretty sure that the entire hospital board had given the finance committee the authority to settle matters related to the pension fund.

Hospital Chief Operations Officer Lisa Goodlett said that historically the pension plan has made money and if the portfolio was strictly in bonds, the fund would be facing a deficit, requiring the hospital to reach deeper into its operations money to fund it.

“This has been a bad 18 months, but prior to that, the allocation was making a ton of money,” she said.

In other business during Tuesday’s meeting:

Trustees learned the hospital received “an unqualified or clean opinion” on its audit, which in auditing terms is a thumbs-up.

n Trustees also learned the hospital’s outstanding $17.7 million 1998 bond was remarketed by CitiGroup at a 9 percent interest rate Jan. 15.

That means the hospital is paying a 9 percent interest rate on the bond with the potential the rate could go as high as 12 percent.

The hospital issued a $30 million variable rate demand bond insured through the Ambac Assurance Corporation in 1998. But Ambac’s credit rating has been downgraded a couple of times, most recently in November.

Trustees approved a $78,000 contract with Himformatics to oversee the Cerner project. The Cerner project will provide an integrated system for the hospital’s IT functions.

Three trustees opposed the project due to some confusion as to whether or not the project has already been voted upon.

T&D Staff Writer Gene Zaleski can be reached by e-mail at gzaleski@timesanddemocrat.com or by phone at 803-533-5551. Discuss this and other stories online at The TandD.com.

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