S&P forecasts lower near-term statutory minimum requirements for defined benefit plans, which could help financial profiles for not-for-profit healthcare providers.
The nation’s not-for-profit healthcare sector has benefited from a boost in the funded status of its pension plans in fiscal 2017 due primarily to robust investment market returns, according to a report this week from S&P Global Ratings.
This boost is occurring, S&P said, despite lower assumed discount rates in recent years, which provide a more conservative liability measure.
In the near term, S&P said a higher funded status should mean lower statutory minimum contributions to defined benefit pension plans, which could help overall financial profiles as operating performance in the healthcare sector has come under stress.
"However, the projected benefit obligation for many plans has continued to increase and many have had to contend with updated mortality tables, which more accurately recognize longer lives -- which leads to increased pension liabilities," said S&P credit analyst Anne Cosgrove.
Cosgrove said many not-for-profit issuers have focused on lowering pension funding risks, including increasing annual contributions to improve the funded status, closing current plans to new participants, freezing plans, and in some cases terminating plans altogether.
S&P has tracked the funding levels of defined-benefit plans of not-for-profit hospitals and health systems since 2007, when, on average, they were at their highest level (at 90%).
Funded statuses declined sharply in 2008 and 2009, by 20 percentage points during the Great Recession and the cratering of global investment markets. After the recession, funded ratios were essentially flat at near 70% through 2012, despite hospitals' healthy contributions to plans, S&P said.
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.