Nonprofit healthcare organizations benefited from an increase in pension funding last year, according to S&P.
Despite a volatile investment market, the median funded status of defined benefit pension plans for nonprofit healthcare organizations in 2018 was 85%, increasing nearly 5% due to a higher bond rate, according to an S&P Global Ratings report released Thursday afternoon.
Among nonprofit providers, Ponoma Valley Hospital Medical Center in California led the way with a 144.5% funding status, followed by Jackson County Schneck Memorial Hospital in Indiana and Northwestern Memorial Hospital in Illinois.
The lowest funded pension plans were at Northern Inyo County Hospital District in California, with a 44.6% funding status, followed by Kaiser Foundation Health Plan in California and Catholic Health System in New York.
The report found that most pension costs for Financial Accounting Standards Board (FASB) issuers are still low while Governmental Accounting Standards Board (GASB) issuers have dealt with cost as a credit pressure on the organization.
The ratings agency also noted that overall funded ratios have improved, crediting the absence of defined benefit plans as a positive factor, but indicated that such a trend is unlikely to continue going forward.
“In our view, most hospitals and health systems have managed their pension burdens well, with no credit implications,” the report stated. “However, we believe that even without a direct negative credit impact, in some circumstances, a high funding burden has inhibited improvement in credit quality.”
The report continued: “Furthermore, not all hospitals’ pension funding improved in 2018, and for providers already struggling with thin income statements and balance sheets, underfunded pension plans could contribute to credit
Looking at the short-term, nonprofit providers are slated to experience a boost to their respective financial profiles due to a higher funded status resulting in “lower statutory minimum contributions” to defined benefit plans.
Conversely, the S&P report indicated that underfunded or soon-to-be underfunded defined benefit plans posed a credit risk for nonprofit providers.
As with other lingering financial challenges that health systems face, the looming pension crisis poses a substantial risk to long-term solvency and the ability to attract clinical talent.
According to the S&P report, the majority of issuers have closed plan offerings to new employees or eliminated plans to lower risk, while some have used debt funding to prop up plans despite an increased market risk.