Steward Healthcare’s Collapse: What It Means for Your Steward Healthcare 401k and Deferred Compensation Retirement Savings
- Daniel Harris
- 2 days ago
- 14 min read
13 Important Questions and Answers Physicians Need Right Now
What You Will Learn in This Article
In the wake of Steward Healthcare’s bankruptcy, many physicians are left with serious questions about the future of their retirement savings. In this article, you'll learn:
Why Steward Healthcare stopped matching 401(k) contributions — and what that means for your financial future.
Whether you should roll over your 401(k) or leave it where it is, depending on your employment status.
How $60 million in deferred compensation was seized by creditors — and what that teaches us about the risks of non-qualified retirement plans like rabbi trusts.
What Chapter 11 bankruptcy really means for Steward employees — and how it differs from Chapter 7 liquidation.
What physicians at other financially troubled healthcare organizations can learn about evaluating deferred compensation, job security, and retirement plan risks.
Steward’s Bankruptcy: What It Means for You as a Physician
As a physician, you’ve dedicated your life to caring for others. But when your employer, Steward Healthcare, filed for Chapter 11 bankruptcy, your financial security was suddenly at risk. What does this mean for your 401(k), deferred compensation, and retirement planning?
Let’s explore what happened — and how you can move forward.
13 Key Questions Physicians Are Asking about the Steward Healthcare 401k and Deferred Compensation Plan
1. What Happened to the Steward Healthcare 401(k) Match?
A Sign of Deeper Financial Trouble
Steward Healthcare's 401k retirement plan had both discretionary and contractual matches. Because most Steward employees did not have a contractual right to matching contributions, Steward Healthcare was able to not provide any employer matching contributions to certain employees when they fell into financial distress.
Key Insight: Suspending matching is often a red flag of financial distress — especially when it lasts longer than a year.
2. Should Steward Healthcare Physicians Keep Their 401(k) Assets at Steward?
While this is a personal decision and it should be carefully considered after doing your own research or talking to your own fiduciary financial advisor and tax advisor, a change in employer often allows you the option to Rollover your 401(k) into an Individual Retirement Account or IRA. When Steward Health sold its physician group to Rural Health Group this change of employer may have created an opportunity to roll over your Steward Healthcare 401(k) into an IRA.
What is important to understand is that 401(k) assets are fairly thinly insured by a fiduciary bond and the liability of the employer. A large plan like Steward Healthcare's 401(k) may only have a $500,000 surety bond or fidelity bond insuring something like $1.8 billlion in employee assets. That is a lot less coverage per person than the Securities Investor Protection Corporation (SIPC) coverage that a person may get through a brokerage firm in an Individual Retirement Account.
You can learn about SIPC coverage - but it is typically about $500,000 in coverage for securities (as of this writing on 5/7/25) inclusive of $250,000 in cash. So there may be more insurance in an Individual Retirement Account than through a 401(k) surety or fidelity bond.
There are a lot of great brokerage firms and we work all of them with our clients - Fidelity, Robinhood, Charles Schwab, Vanguard etc. So it is not difficult to find a good brokerage firm to hold Rollover IRA assets if you decide you don't want to keep your money in the Steward Healthcare 401(k) Plan.
Of course for those who decide to keep their money in the Steward Healthcare 401(k) there are a number of checks and balances which help protect assets, even when the employer is in bankruptcy but if I were a physician at Steward Healthcare and I had the opportunity to rollover my 401(k) into and IRA I would definitiely do it.
3. $60 Million in Deferred Compensation Lost – How Is That Legal?
Real Story Highlight: Dr. Alan Hackford lost most of his $500,000 in deferred compensation after receiving just two payouts. His experience is detailed in this WBUR article.
Here is an excerpt of the important parts of the article with emphasis added - the full article is available in the link below:
"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
[D.R. Harris & Co. Note: this is from WBUR story and reflects Dr. Hackford's personal opinion - D.R. Harris & Co. and Daniel Harris have no opinion on this case, but we will provide perspective later in this article]
Continuing on with the article...
"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." [Emphasis added]
Source: WBUR (NPR for the Boston Area)
Title: Judge allows bankrupt Steward to keep employee retirement funds
Link to Full Article here: https://www.wbur.org/news/2025/05/01/steward-health-care-deferred-compensation-massachusetts
Link to WBUR's coverage of the Steward Bankruptcy: https://www.wbur.org/tag/steward-bankruptcy
The Risk of Rabbi Trusts
Funds in rabbi trusts are not always protected by ERISA and can be seized in bankruptcy. A federal judge ruled that Steward could use those funds to pay creditors — a devastating outcome for many.
Here is the key feature of rabbi trusts which are sometimes overlooked by some physicians
"All non-qualified deferred-compensation plans must involve substantial risk of forfeiture...." (i.e. loss)
"The unique feature of the rabbi trust is that the money placed into the trust is protected from changes of heart of the employer.
"Once placed in the trust, the money cannot be revoked by decisions made by the employer. As long as the employer's financial position is sound, the money in a rabbi trust is considered to be relatively safe. However, if an employer files for bankruptcy protection, the money may be subject to the claims made by that employer's general unsecured creditors." (D.R. Harris and Co Edits: Periods, Bolding and emphasis added to wikipedia article)
Source: Wikipedia
4. Will the Lawsuit Against Steward Succeed?
Neither Daniel Harris nor D.R. Harris & Co. have any opinions on the merits of the case for Dr. Hackford and other Steward physicians since we have never reviewed the filings in this specific case.
However, for other physicians working in rural hospitals it is worth noting that these lawsuits have been really tough to win in other cases in part because of the logical challenge of the tax deferral. If the money is subject to risk of loss, income tax doesn't have to be paid on it in the year received because it may be lost instead of ever received, but, if the condition of the income tax deferral was that the money could be lost, then when it is lost due to bankruptcy it is hard to argue that it shouldn't have been lost.
Basically when you are trying to exclude those earnings from income, you are arguing to the IRS that you shouldn't be taxed on this money yet because you may never receive it, but then you have to turn around and argue to the bankruptcy judge the opposite argument that this money should have never been at risk because it was your money all along and your employer had no right to turn the money over to the creditors to make the lenders whole during bankruptcy.
The tax code has a lot of deferral benefits in there (such as tax write offs on oil and gas wells) that really do require the money to be at risk in order to get the tax benefit. But the catch when the money is at risk, sometimes it is actually lost, and that is part of the deal on why you don't have to recognize the income as taxable to you in the year it was transfered to you.
What happened to Dr. Hackford is very sad and unfair in a way, but it is also a condition of why the income didn't have to reported in the year in which it was received. Once the IRS perceives that you really control the income and can no longer lose it, they are going to want you to recognize that income as taxable to you in the year in which the money becomes permanently yours, and so this has been a difficult logical pretzel for claimants to get out of.
There have been previous cases where employees have tried to stop their deferred compensation assets from being seized by creditors during a bankruptcy but these cases have generally not been very succesful for the employees from what I've seen. I don't know any of the details of this case, so I have no opinion of its likelihood of success or failure in the case for Steward physicians, but according to the WBUR article the bankruptcy judge initially decided that Steward Healthcare could use physician deferred compensation accounts to pay off their debtors, and so this is always a risk to be aware of when participating in a deferred compensation plan at an employer, especially if the employer has undergone any financial difficulties.
5. Should Physicians Avoid Deferred Compensation Plans at non-government employers
Our View: For our clients we sometimes do recommend using deferred compensations plans at their employers — but only if the employers cash flows are pretty good and we or they are monitoring their employer’s financial health closely.
Non-government employers deferred compensation plans are generally subject to a risk of loss. A lot of our clients use these plans but we monitor their employers financials fairly closely as a result.
If you are a do it yourself investor you may wonder how are you supposed to know how your employer is doing?
If they are a not for profit employer they'll generally file a form 990 which is a public document which will lay out whether their revenues and expenses and assets and liabilities. You can generally google your non-profit employer's legal name and the words "form 990" and websites like ProPublica will generally provide this information for your review. Here is a link to ProPublica: https://projects.propublica.org/nonprofits/
If they are a private company and are a major employer, generally operating losses make it into the news somehow. For example, you can usually google your employers name and "profitability" and most years you'll get some idea if they are profitable. You can also Google your employers name and the word "credit rating"
Generally speaking persistent operating losses combined with a disappearance of new credit ratings can make it very difficult to evaluate and employer's financial health but in general it is bad if your employer is losing money most years and you have a lot invested in their deferred compensation plan. Any company can lose money for a short period of time but if a company is losing money 3 or 4 years in a row, that can be a real concern.
There may be a way to extract yourself from that situation and protect your assets - but to do that you may want to talk to your fiduciary financial advisor to help you navigate the process.
In fairness to the physicians at Steward Healthcare the financing according to publicly available sources, seems to have come largely from their landlord in recent years instead of the bond market - making it so their debt wouldn't be receiving fresh credit ratings even though the operating losses were apparently public information.
Here is the story of how Steward limped along for their last few years before they declared bankruptcy in 2024: https://www.healthcaredive.com/news/steward-health-care-bankruptcy-risk/712899/
6. Should former Steward Healthcare Physicians Withdraw Their Money from the Steward 401(k)?
While this is an individual decision and you should make it after consulting your own advisors, if you've left Steward, a rollover to an IRA can often feel safer and more financially advantageous for many physicians.
Withdrawing outright may result in recognition of income taxes in the year in which you make the withdraw and up to 10% tax penalties if you withdraw at too young of age unless you qualify for certain exemptions. Here is a link to a description of the IRS early distriution penalty exceptions according to their website: IRS Early Distribution Rules
7. Is the Steward Healthcare 401(k) Plan Still Stable Post-Bankruptcy?
401(k) assets legally belong to the employees (except for unvested employer contributions) and aren't subject to claims from Steward Healthcare's creditors or lenders.
Generally speaking when a company tries to continue on as a going concern, which is indicated by filing a chapter 11 instead of chapter 7 bankruptcy it means that they plan to keep a lot of their employees.
Having a 401(k) is pretty much an essential benefit to attract employees so in my past observations and experience 401(k)s of bankrupt large companies tend to do fine.
With that said, most 401(k)s are backed by a small Fidelity bond - usually about $500k or less than is insuring a lot of 401(k) assets and it is reasonable to consider rollovers into an IRA as well as keeping money in the 401(k) dependng on what your preferences are.
8. Can Steward or Its Successor Stop Retirement Contributions?
Yes — and it’s more common than many think. While safe harbor rules encourage contributions, employers can still halt them, especially in financial crisis.
However, bankruptcy tends to be a resetting process where the old lenders become the new owners and the old owners get their stakes in the company wiped out.
Usually after a bankruptcy the debt burden can go down to a more manageable level at a company as previous lendors forgive some of their debt or bonds in exchange for equity or stock in the restructured company. This tends to allow an employer emerging out of bankruptcy to have more breathing room in their operations and it tends to give them the opportunity to offer competitive pay and benefits again, if they want to do that.
As an employee the process can be really traumatic to go through, but for those who stay with the company which typically will be taken over by the bond or debt holders, who become the new stockholders, the new company tends to be in better shape than the old company.
9. What About the Defined Benefit Pension Plans? Are They Safe?
It is common that more and more pension plans are being frozen these days which means that already earned and funded benefits are paid, but employees don't accrue new benefits.
Pension liability is a big deal because if cash flows decrease it can be hard for a company to keep their pensions open.
To my knowledge while the deferred compensation plan for highly paid employees may likely be lost to creditors, I'm not aware of any imminent problems in the Steward Healthcare defined benefit plans at this time.
One of the challenges is that retirement plans can sometimes be abandoned in the case of bankruptices. Here is how the US Department of Labor explains what happens:
"What if your employer goes bankrupt?
Generally, your retirement assets should not be at risk if your employer declares bankruptcy. Federal law requires that retirement plans fund promised benefits adequately and keep plan assets separate from the employer's business assets.
The funds must be held in trust or invested in an insurance contract. The employers' creditors cannot make a claim on retirement plan funds. However, it is a good idea to confirm that any contributions your employer deducts from your
paycheck are forwarded to the plan's trust or insurance contract in a timely manner.
Significant business events such as bankruptcies, mergers, and acquisitions can result in employers abandoning their individual account plans (e.g., 401(k) plans), leaving no plan fiduciary to manage it. In this situation, participants often have great difficulty in accessing the benefits they have earned and have no one to contact with questions. Custodians such as banks, insurers, and mutual fund companies are left holding the assets of these plans but do not have the authority to terminate the plans and distribute the assets. In response, the Department of Labor issued rules to create a
voluntary process for the custodian to wind up the plan's business so that benefit distributions can be made and the plan terminated."
10. How Do I Rollover or Withdraw My Steward 401(k)?
Most major brokerages (Fidelity, Vanguard, Schwab, Robinhood) make this easy and affordable.
Some firms like Robinhood might even put money in your account for rolling over your IRA to their firm. You can learn about the Robinhood match here: https://robinhood.com/us/en/support/articles/ira-match-faq/
As an indepdent fiduciary financial advisor, D.R. Harris & Co. provides advice to clients who custody their assets at almost every major brokerage firm in the US including Robinhood, Fidelity, Vanguard, and Charles Schwab. One of the benefits of working with an independent advisory firm is that they can steer you to the best products and services for your needs and goals, and can show you everything, not just what one firm offers. By contrast, most captive broker dealers or investment advisors may only recommend products at their own firms and so if another firm has a substantially superior product or service you may never hear about it.
Whether you choose to work with a fiduciary financial advisor specializing in working with physicians or not, it can be beneficial to understand what all the major brokerage firms will offer you if you roll over your 401(k) to an IRA at their firm.
You can google the words "rollover ira" and the brokerage firm of your choice and they can explain the process.
11. Will I Vest in Employer Contributions?
Steward contributions were likely immediately vested for most physicians. If you’re already vested, successor companies usually don’t try to claw these funds back.
12. Chapter 11 vs. Chapter 7 – What’s the Difference for You?
Chapter 11 = Reorganization (business keeps running, job may remain)
Chapter 7 = Liquidation (business shuts down, job loss likely)
Steward’s lenders are trying to recover more by keeping hospitals operational and while some hospitals have been shut down, the majority are still open to my knowledge.
13. Lessons for Physicians at Other Rural or Struggling Hospitals
Hospitals with thin margins (like many rural facilities) can’t always absorb rising costs. You must understand your hospital’s financial condition — especially if you're participating in deferred compensation or pension plans.
Key Resources:
KFF Hospital Margin Data (notice the profit margins for rural hospitals versus urban hospitals)
Maine Hospital Study (PDF) (Maine and the northeast have the oldest populations in the US and their hospital challenges reflect what many hospitals may experience in the future as the payor mix shifts as more people age into medicare versus being on employer paid health insurance in their working years given that employer paid health insurance generally compensates hospitals better)
Median Age by State from Visual Capitalist (this helps show the average age of your state so you can see which parts of America are relatively older and where your state fits in)
We Help Physicians Plan for the Unexpected
At D.R. Harris & Co., we specialize in physician retirement and financial planning — especially in times of uncertainty like this. We’re a fiduciary financial advisory firm — meaning we have a legal duty to put our clients interest first or tell them when we aren't doing so?
Need a second opinion? Did you get caught up in the Steward bankruptcy? Reach out to us to talk through your retirement plan or rollover strategy.
About Daniel Harris
Daniel Harris is the founder of D.R. Harris & Co., a Stanford and UC Berkeley Law graduate, and a trusted advisor to doctors facing complex financial challenges in today’s healthcare landscape. Learn more about Daniel here.
Disclosure: This article is for educational and entertainment purposes only. We are not your financial advisor unless you have a signed written advisory agreement with us. We believe the information in this article is correct to the best of our knowledge at the time it was written, but you should verify all this information with your own professional advisors and by doing your own independent research before acting any information you learn about in this article.