Many U.S. not-for-profit hospitals and health systems will likely face increased pension funding needs in the next several years despite an improvement in funded status in 2011, according to a Standard & Poor's Ratings Services report released Monday.
In the report, “U.S. Not-for-Profit Health Care Sector’s Pension Funding Rose In 2011, But the Gap Is Still Wide,” Standard & Poor’s noted that “…hospitals’ desire to make pension plan changes to reduce costs is occurring within a broader context of revenue pressure and a broad-based review of costs at all levels of the organization, of which pensions is one.”
[See also: Managing bad debt: Four key factors]
“While overall credit quality in the sector was favorable in 2011 and should remain stable this year, high pension contributions could crowd out other cash needs like capital projects and force more health systems to change their plan design,” said Standard & Poor's credit analyst Liz Sweeney and report co-author, in a written statement.
Key report findings include:
- The median funded status of defined-benefit pension plans increased to 78.6 percent in 2011, up from 71.7 percent a year earlier, reversing a declining trend, but other pension-related medians, such as annual pension expense to employers, worsened.
- The improvement in funded status was mainly due to an increase in asset values and curtailment gains for some sponsors who changed benefits designs.
- Due to the timing of required contribution calculations, many plan sponsors will continue to see rising contribution requirements despite an increase in funded status.
Follow HFN Editor Rene Letourneau on Twitter @ReneLetourneau.