Spectrum Health System

“The organization is organized on a non-stock directorship basis with no members.”

“The organization is organized on a non-stock directorship basis with no members.”

“MS. MICHELLE VAN DYKE AND MS. CHRISTINA FREESE-DECKER - Business relationship, Mr. Richard Breon and MS. CHRISTINA FREESE-DECKER - Business relationship, MR. RICHARD DEVOS, JR. AND MR. WILLIAM PAYNE - Business relationship”

“A copy of the Form 990 is provided to the Board of Directors prior to filing. The review process for this Form 990 is as follows: 1. Preparation of the return is supervised and reviewed by the Organization's Corporate Tax Manager. 2. A second review is performed by an external CPA firm with expertise in tax-exempt return preparation. 3. The return is reviewed by the Organization's finance and legal departments (including the Chief Financial Officer, Chief Legal Officer and Corporate Controller) and shared with the members of the Finance and Audit Committee and Board of Directors. 4. The Organization's Chief Financial Officer reviews comments or questions received by members of the Board of Directors, if any, to address or to incorporate, as appropriate, into the return prior to filing.”

“BOARD OF DIRECTORS 1. Conflicts of interest must be disclosed, BOTH VIA AN ANNUAL ELECTRONIC DISCLOSURE PROCESS as well as verbally at a board meeting prior to discussion of any agenda item with regard to which a board member has a conflict. 2. A person having a financial interest in a proposed transaction or arrangement may make a presentation at a meeting of the Board of Directors or committee considering that transaction or arrangement, but after that presentation he or she shall leave the meeting during discussion and voting on that proposed transaction or arrangement. The person having the financial interest shall not be counted in determining whether a quorum is present. 3. The chairperson of the Board of Directors or committee shall, if appropriate, appoint a disinterested person or committee (including outside advisors) to investigate alternatives to the proposed transaction or arrangement, and to advise whether the proposed transaction or arrangement is in Spectrum Health's best interest. 4. The Board of Directors or committee shall exercise due diligence to determine whether Spectrum Health can, with reasonable efforts, obtain a more advantageous transaction or arrangement that would not give rise to a conflict of interest. 5. If a more advantageous transaction or arrangement is not reasonably attainable under circumstances that would not give rise to a conflict of interest, the Board of Directors or committee shall determine by a majority vote of the disinterested directors and members whether the proposed transaction or arrangement is in Spectrum Health's best interest and for its own benefit and whether the transaction is fair and reasonable to Spectrum Health, and shall make its decision as to whether to enter into the transaction or arrangement in conformity with such determination. 6. The minutes of the meetings of the Board of Directors and all of Spectrum Health's committees shall set forth: a)The names of the persons who disclosed a financial interest in a proposed transaction or arrangement involving Spectrum Health or any of its subsidiaries and the nature of the financial interest; and b)The names of the persons who were present for discussions and votes relating to such transaction or arrangement, including any discussion of alternatives to the proposed transaction or arrangement, and a record of any votes taken in connection with that matter. The votes of individual members need not be recorded unless otherwise directed by the Board of Directors or committee. 7. There is an ongoing requirement that members of the board of directors complete another disclosure questionnaire at any point during his/her tenure on the board of directors when a new potential conflict of interest arises. If a member of the board of directors completes a disclosure questionnaire as a result of a new potential conflict of interest, that disclosure questionnaire is submitted to the legal, organizational integrity, internal audit, and human resources departments for review. MANAGEMENT 1. Upon acceptance of an employment offer, each member of management completes a conflict of interest disclosure questionnaire. A copy of the member of management's disclosure questionnaire is sent to Spectrum Health's organizational integrity department. A copy of the member of management's disclosure is reviewed by Spectrum Health's COI coordinator and escalated to the COI Committee if necessary. 2. Annually, each member of management completes a conflict of interest disclosure questionnaire electronically. The disclosure questionnaire is reviewed by the legal, organizational integrity, internal audit, and human resources departments. 3. There is an ongoing requirement that members of management complete another disclosure questionnaire at any point during his/her employment when a new potential conflict of interest arises. If a member of management completes a disclosure questionnaire as a result of a new potential conflict of interest, that disc”

“The Spectrum Health System Board of Directors (through its Executive Committee) uses the following process for determining compensation of the top management official, other officers, and key employees at Spectrum Health System. Labor market data reflecting comparable organizations and jobs (prepared by independent firms) are relied upon. Competitive assessment reports are provided to the Executive Committee in advance of meetings. The competitive assessment report is prepared by a nationally known independent executive compensation firm. For FY 2017 (7/1/16-6/30/17), four health care executive compensation surveys, three medical group surveys, two pediatric hospital surveys and one health plan survey prepared by independent firms were the primary sources referenced to obtain market data for the review: * American Medical Group Association: 2015 Medical Group Compensation & Financial Survey * Integrated Healthcare Strategies: 2015 Children's Hospitals Executive Compensation Survey * Integrated Healthcare Strategies: 2015 Health Care Executive Compensation Survey * Mercer Human Resources Consulting: 2015 Integrated Health Networks Compensation Survey * Medical Group Management Association: 2015 Management Compensation Survey * Sullivan, Cotter and Associates: 2015 Survey of Manager and Executive Compensation in Hospitals and Health Systems * Sullivan, Cotter and Associates: 2015 Custom Survey of Manager and Executive Compensation in Children's Hospitals * Sullivan, Cotter and Associates: 2015 Physician Compensation and Productivity Survey Report * Towers Watson: 2015 Hospital and Health Care Management Compensation Survey Report * Warren: Fall 2015 HMO Salary Survey In addition, one retirement community survey and four general industry surveys were referenced: * Rodeghero Consulting Group, Inc.: 2015 AAHA-CEMO Leadership Compensation Survey * Mercer: 2015 Executive Compensation Survey * Mercer: 2015 Information Technology Survey * Mercer: 2015 Human Resources Survey * Towers Watson: 2015 Top Management Compensation Report In addition to the above data sources, the Executive Committee approved the creation of a custom peer group of high performing integrated health systems to ensure robust data and a relevant comparator universe. The peer group organizations are approved by the Executive Committee and consist of double A bond rated and / or Truven top quintile organizations. Data for the peer group organizations is compiled by the independent executive compensation firm. Compensation adjustments are approved by Executive Committee members, consistent with the Spectrum Health compensation philosophy described below. Minutes of Committee discussions and decisions are prepared to memorialize Executive Committee decisions based upon the above data. Cash compensation data relied upon by the Executive Committee is national and reflects the compensation paid to executives in comparable jobs in comparably-sized health care and / or health insurance organizations. Spectrum Health recruits nationally for its executives. Benefits data reflect national health care / health insurance market practices. Geographic pay differential and cost of living data indicates consistency with national data. This process is intended to assist Spectrum Health in qualifying for the rebuttable presumption of reasonableness (Intermediate Sanctions Regulations) and complying with the potential Spectrum Health Excess Benefit Transaction Policy for those individuals in the group who are disqualified persons. The opinion submitted from the third party independent consulting firm is in accordance with the provisions of Treasury Regulations Section 53.4958-6(c)(2) and is also intended to satisfy the professional advice requirement of Treasury Regulations Section 53.4958-1(d)(4)(iii).”

“See explanation provided for Form 990, Part VI, Line 15a.”

“The organization's Articles of Incorporation have been provided to the State of Michigan and are available to the public on the State's website. The organization's Bylaws and internal policies are generally not made available to the public. The overall system consolidated financial statements are provided at www.spectrumhealth.org in the section titled "About Us".”

“THE COMPENSATION REPORTED FOR EMPLOYEES OF THE ORGANIZATION IS NOT FOR SERVICES IN THEIR CAPACITY AS MEMBERS OF THE BOARD OF DIRECTORS BUT FOR SERVICES AS EMPLOYEES OF THE Health System. CERTAIN DIRECTORS WERE PAID REASONABLE COMPENSATION FOR THEIR SERVICES AS MEMBERS OF THE BOARD. CONSISTENT WITH PRIOR YEARS, COMPENSATION AND BENEFITS ARE REPORTED USING THE MOST RECENT CALENDAR YEAR COMPENSATION DATA. THE COMPENSATION FIGURES REPORTED IN THESE SECTIONS ARE FOR THE YEAR ENDED DECEMBER 31, 2016. EMPLOYEES WITH COMPENSATION REPORTED IN PART VII WORK A COMBINED AVERAGE OF 50 HOURS PER WEEK FOR THE Health System.”

“Based on external opinion by Sullivan Cotter and Associates, Inc., Spectrum Health System compensates board members in a manner that is reasonable in relation to market data. Board of directors compensation is continually reviewed to confirm compensation falls within reasonable limits. Any compensation amount is treated as taxable to the board member and is reported and provided to them on Form 1099.”

“Other Program Service Revenue - Total Revenue: 472938, Related or Exempt Function Revenue: 472928, Unrelated Business Revenue: , Revenue Excluded from Tax Under Sections 512, 513, or 514: 10;”

“Valuation allowance - -968372; minimum pension liability - 30203552; funds transfer from supported organizations - 13701707;”

“The Organization, which is a Type III functionally integrated supporting organization, engaged in an excess benefit transaction ("EBT") under IRC Section 4958(c)(3) because it provided a loan to a disqualified person. Under IRC Section 4958(c)(3), an EBT occurs if a supporting organization, such as the Organization, provides a loan to a disqualified person. In general, a disqualified person is defined as any person who was, at any time during the 5year period ending on the date of such transaction, in a position to exercise substantial influence over the affairs of the organization, or was a family member of the disqualified person. In 2014, the Organization started its Executive Masters of Business Administration Program ("EMBA Program"), which was developed as a way to further the education of select executives at a local university. The program is structured to take two years to complete. Once accepted to the program, each participant signs an agreement and promissory note (the "Agreement") agreeing to meet specific requirements of performance and continued employment. Under the Agreement, the Organization pays the annual tuition amounts, which is to be repaid with interest by the employee. After graduation, the Agreement provides that the loan to the employee is forgiven over the following three years of his/her employment at the Organization. Such forgiveness of debt constitutes income to the employee (less the allowable annual qualified tuition reduction amount of $5,250/year) as it is forgiven. It has been determined that a disqualified person (in this case, the daughter of a retired Executive Vice President and Chief Financial Officer of the Organization (the "DQP")) participated in the EMBA Program, and thus had a loan arrangement with the Organization, creating an EBT through no fault of her own. Neither the Organization, nor the DQP, became aware that the Agreement resulted in an EBT until August 2017. The DQP was not aware that the Organization was prohibited from making loans to disqualified persons or that she was a disqualified person. She was simply participating in a program that was also offered to her colleagues, in which more than 60 of whom have participated with the same terms. Within thirty (30) days of discovery of the EBT, the Organization and the DQP took actions to correct the EBT. The loan was terminated pursuant to a written agreement and the Organization issued an amended 2016 Form W2 to the DQP in amount equal to the tuition paid in 2016 (less allowable deductions). The Organization also reviewed the list of other participants in the EMBA Program to ensure that no other disqualified person was in the program. Further, the Organization has set up a screening system to ensure the supporting organization no longer provides loans to disqualified persons.”