Market gains boost hospital pension funds

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 defined-contribution 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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