Mar­ket gains boost hospi­tal pen­sion funds

Modern Healthcare - - NEWS - By Bob Her­man

A ris­ing stock mar­ket seems to be lift­ing most boats when it comes to health­care sys­tem pen­sion funds.

Many not-for-profit sys­tems markedly im­proved the sta­tus of their em­ployee re­tire­ment funds last year thanks to ris­ing in­vest­ment re­turns and a shift to­ward de­fined­con­tri­bu­tion plans, ac­cord­ing to Stan­dard & Poor’s an­nual re­port on health­care pen­sion plan me­di­ans.

The aver­age funded sta­tus of health sys­tems’ de­fined-ben­e­fit pen­sion plans rose sig­nif­i­cantly to 80% in 2013—mean­ing an or­ga­ni­za­tion on aver­age had 80% of what it needed to cover fu­ture re­tire­ment pay­outs to em­ploy­ees. This com­pared with 69.2% in 2012. S&P looked at pen­sion data for 172 health sys­tems that ended their fis­cal years Sept. 30, 2013. An ad­e­quately funded pen­sion plan, ac­cord­ing to rat­ings agencies and pen­sion ex­perts, hovers around 80%. Last year of­fered re­lief for sys­tems, but their pen­sions are still un­der­funded com­pared with pre-Great Re­ces­sion lev­els, said Ken Gacka, a di­rec­tor in S&P’s not-for-profit health­care group. In 2007, health sys­tem pen­sions were funded at 90% on aver­age. In ad­di­tion, health­care providers were be­hind the U.S. de­fined-ben­e­fit funded rate of 93.5% at the 100 largest pub­licly traded cor­po­ra­tions in 2013.

One of the pri­mary ways health sys­tems have coped with the ris­ing ex­pense of pen­sions has been a shift away from de­fined-ben­e­fit plans and to­ward de­fined-con­tri­bu­tion plans. Such a shift has been used at the five-hospi­tal Nor­ton Health­care sys­tem based in Louisville, Ky. In 2012, Nor­ton had one of S&P’s 10 high­est-funded plans at 110%; it held steady at 108% in 2013. John Ham­mond, Nor­ton’s di­rec­tor of ben­e­fits and com­pen­sa­tion, said go­ing into 2010 the sys­tem froze its DB plan, with all new em­ploy­ees placed in a DC plan in­stead. This shielded Nor­ton from swings in the in­vest­ment mar­ket.

The three-hospi­tal Catholic Health Sys­tem based in Buf­falo, N.Y., has been at the op­po­site end of the spec­trum. Ac­cord­ing to S&P’s re­port, it had one of the 10 low­est-funded plans in 2012 at a mea­ger 43.6%. Last year, how­ever, the not-for-profit sys­tem im­proved its sta­tus to about 60%. Chief Fi­nan­cial Of­fi­cer Jim Dun­lop said he ex­pects the plan will be 75% funded by 2018 and 94% by 2022 if in­vest­ment earn­ings con­tinue to grow.

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