Even before Bear Stearns and Lehman Brothers became shorthand for Wall Street disaster, executives at the Pension Benefit Guaranty Corp. were concerned about hospital pension funds.
The independent, federally chartered guarantor of defined benefit plans saw two challenges with the hospital industry after it undertook an internal study of health-care pensions, according to Suzanne Kelly, a senior financial analyst for the PBGC. (The study has not been released publicly before.)
The PBGC completed its study of 1,037 health-care defined benefit plans, including 802 hospital plans, in March 2008 — when the Dow Jones industrial average was in the range of 12,000 vs. about 8,500 today — and found two elements that were problematic, Ms. Kelly said.
One is familiar to hospital executives: The hospital industry has a much different profile from most of the industries the PBGC deals with, Ms. Kelly said. It is largely not-for-profit, runs on thin margins and has to provide at least some level of service to all who walk through its doors — something the PBGC doesn't see with any other industry, Ms. Kelly said. Its fragmented nature also leaves hospitals more exposed to the fortunes of their local economies than most businesses the PBGC monitors, she added.
The other concern is also related to that fragmentation: The hospital plans are much more numerous and much smaller individually than any industry the PBGC deals with, Ms. Kelly said. That means there are simply a lot of plans, an internal challenge the PBGC faces in monitoring hospital pension plans and the additional burden it would face in taking control of a significant percentage of them, Ms. Kelly said.
The PBGC's study relied heavily on the Form 5500 annual filings DB plans must make with the Internal Revenue Service. At the time of the study, the Form 5500s that were available covered 2004 and 2005; the PBGC adjusted those figures to estimate where the pension plans stood as of Dec. 31, 2006.
Hospital pension plans don't differ materially from other pension plans in one respect — their asset mix, Ms. Kelly said. Typical pension plans hold about 60% of their assets as equities, so they have suffered from the drop in the stock market.