A report last month from Standard & Poor's found that the median funded status of hospital pension plans dropped to just 69.4% in fiscal 2012, compared with 72.6% the previous fiscal year.
The Government Accountability Office and others typically define a “healthy” pension plan as one that is at least 80% funded.
Moody's found that one of the most common strategies hospitals are using to deal with mounting pension liabilities is to transition employees from a defined-benefit plan to a defined-contribution plan, such as a 403(b) plan, or to a hybrid plan. Likewise, hospitals are also making structural changes to their defined-benefit plans or terminating them completely.
While these strategies can mitigate risk, the report cautioned that they could also decrease employee satisfaction and increase turnover.
On the other side of the equation, hospitals are shouldering the burden directly, putting more cash into their pension plans, often at the expense of their liquidity, and issuing more debt to cover pension obligations. They're also changing the allocation of their pension-related investments in order to reduce market volatility.
Moody's highlighted the Mayo Clinic, Rochester, Minn., and Partners HealthCare System, Boston, as two systems that have issued debt directly related to their retirement plans.
Some systems are using a combination of strategies to deal with the issue. In 2010, Wake Forest Baptist Medical Center, Winston-Salem, N.C., had a pension plan that was just 68.5% funded.
The following year, the system launched an overhaul of its retirement benefits—including freezing its pension plan and moving employees to 403(b) accounts. At the same time, it injected $25 million into the pension plan while also investing in less-risky, longer-term assets.
In an interview earlier this year, system officials said the measures helped it achieve the most improved funded ratio among S&P rated systems, and its plan was 96.2% funded in fiscal 2011.
Follow Beth Kutscher on Twitter: @MHbkutscher
