Some sys­tems freeze/cut back pen­sions be­cause of re­ces­sion: anal­y­sis

Some hos­pi­tals, sys­tems freeze de­fined-ben­e­fit plans

Modern Healthcare - - Front Page -

Pen­sion plans, a re­tire­ment ben­e­fit on the de­cline for decades, are grow­ing even less com­mon at hos­pi­tals and health sys­tems since the re­ces­sion be­gan. More health­care em­ploy­ers have moved to scale back or freeze pen­sions that prom­ise work­ers an in­come upon re­tire­ment—known as de­fined-ben­e­fit plans—af­ter volatile mar­kets sharply drained cash re­serves to fund the ben­e­fits dur­ing the sharp eco­nomic slide of late 2008 and early 2009, ac­cord­ing to rat­ings agen­cies and in­dus­try ex­ec­u­tives.

The shift, though not wide­spread, un­der­scores the ris­ing scru­tiny on re­tire­ment ben­e­fits and pen­sion in­vest­ment port­fo­lios af­ter de­fined-ben­e­fit plans com­pounded stress hospi­tal and health sys­tem bal­ance sheets ex­pe­ri­enced from shaky credit mar­kets and the eco­nomic down­turn, said health­care fi­nance and ben­e­fit ex­perts.

“We’re hear­ing more hos­pi­tals talk­ing about plan de­sign changes than we did be­fore the credit cri­sis,” said Liz Sweeney, di­rec­tor of health­care rat­ings for Stan­dard & Poor’s, but added that fewer than 10% of hos­pi­tals and health sys­tems rated by Stan­dard & Poor’s have no de­fined ben­e­fit pen­sion plan.

None­the­less, more are mov­ing to dis­con­tinue such ben­e­fits.

One of the na­tion’s largest Catholic health sys­tems, Catholic Health East will freeze the ben­e­fit in 2011 and in­stead of­fer newly hired work­ers a cash pay­ment to­ward re­tire­ment, said Moody’s In­vestors Ser­vice. An­other sys­tem, MedS­tar Health, which owns eight hos­pi­tals in the District of Columbia and Mary­land, froze its pen­sion in Jan­uary for nonunion em­ploy­ees, Stan­dard & Poor’s re­ported.

A sur­vey of 23 hos­pi­tals and health sys­tems by Stan­dard & Poor’s, pub­lished ear­lier this month, found seven made “sig­nif­i­cant mod­i­fi­ca­tions” to plans in 2009 from the prior year and the me­dian pen­sion fund short­fall sky­rock­eted to $210 mil­lion from $57 mil­lion dur­ing the same pe­riod.

Catholic Health East’s de­ci­sion to freeze its de­fined ben­e­fit plan was one fac­tor that helped the 23-hospi­tal sys­tem hold onto its A1 credit rat­ing on $1.2 bil­lion in March de­spite con­tin­ued op­er­at­ing losses, Moody’s In­vestors Ser­vice said.

“Larger-than-an­tic­i­pated” pen­sion costs were one fac­tor that led the New­town Square, Pa.-based sys­tem to end its fis­cal year—Dec. 31—with a $17 mil­lion op­er­at­ing loss rather than a pro­jected $30 mil­lion gain, ac­cord­ing to Moody’s.

Catholic Health East, which did not re­spond to re­quests for com­ment, poured $76 mil­lion into its pen­sion fund last year, more than dou­ble its $32 mil­lion con­tri­bu­tion in 2008, the rat­ings agency said.

MedS­tar Health cut its pro­jected pen­sion costs by $31.7 mil­lion when it froze its pen­sion for nonunion em­ploy­ees in Jan­uary, S&P noted in its re­port ear­lier this month. The sys­tem de­clined to com­ment.

Hos­pi­tals and health sys­tems will likely put more cash into pen­sions in com­ing years to off­set losses dur­ing the mar­ket plunge, S&P’s an­a­lysts said. The me­dian pen­sion fin­ished fis­cal 2009 with enough as­sets to meet 68.6% of pro­jected pen­sion obli­ga­tions com­pared with 82.9% the prior fis­cal year, ac­cord­ing to the rat­ings agency anal­y­sis of avail­able fi­nan­cial state­ments for 111 and 252 not-for-profit hos­pi­tals and health sys­tems in 2009 and 2008, re­spec­tively (See chart, this page).

An­a­lysts also re­ported more health­care em­ploy­ers with pen­sions will likely “cur­tail ben­e­fits, shut out new en­trants or un­dergo other types of ben­e­fit re­struc­tur­ing.”

In Maumee, Ohio, St. Luke’s Hospi­tal froze its de­fined ben­e­fit plan and re­placed it with yearly re­tire­ment con­tri­bu­tions in Jan­uary af­ter the mar­kets’ dive left the pen­sion fund short $51 mil­lion by the end of its fis­cal year on Dec. 31, 2008.

“It just crashed,” said Daniel Wake­man, pres­i­dent and CEO of the 198-bed hospi­tal. One year be­fore, the pen­sion had enough

Fry, left, says Sut­ter Health moved $505 mil­lion from cash re­serves to its pen­sion fund. St. Luke’s Wake­man, says its pen­sion “just crashed.”

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