S&P says investment returns bolstered nonprofit healthcare pensions in FY 2017: 5 things to know

Nonprofit hospitals and health systems saw the funded status of their pension plans rise in fiscal year 2017, which proved financially advantageous for these organizations due to high investment returns, according to a report released March 28 by S&P Global Ratings.

For the report, called "U.S. Not-For-Profit Health Care Pensions: 2017 Funded Ratios Benefit From Robust Returns," S&P took an overarching look at nonprofit healthcare pensions.

Here are five things to know.

1. The nonprofit median funded status of defined benefit pension plans reached 80 percent in fiscal year 2017, according to S&P. This represents the highest number since 2013, when the funded status was close to 85 percent. Between 2009 and 2012, in the aftermath of the recession, the funded status remained around 70 percent.

2. S&P primarily attributed the funded status growth in fiscal year 2017 to high investment returns. The agency said this is despite recent lower assumed discount rates.

3. While the median funded status of defined-benefit pension plans grew, most nonprofit hospitals and health systems still saw net periodic pension costs stay low and manageable, according to S&P. The agency's report showed median net periodic benefit cost to total operating expenses was 0.6 percent in fiscal year 2017. This compares to 1.3 percent in fiscal year 2011. Additionally, the report showed employer contributions as a percentage of EBIDA reached 11.3 percent in fiscal year 2017 compared to 15 percent in fiscal year 2012.

4. Overall, S&P said it believes a funded status growth should translate to lower statutory minimum contributions to defined benefit pension plans in the near term, which could financially benefit nonprofit healthcare.

"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 in the report.

5. Meanwhile, S&P said many nonprofit hospitals and health systems have focused on lowering pension funding risks. The agency said their strategies have include "increasing annual contributions to improve the funded status, closing current plans to new participants, freezing plans, and in some cases terminating plans altogether."


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