Nonprofit Hospitals’ Pension Funded Status Could Weaken After COVID Relief

Funded ratios for nonprofit hospital pension funds ended the last fiscal year mostly unscathed. But leaders at the typically stable plans will have to worry about how much market volatility will add pressure and dampen future funded status.

The median funded status for nonprofit hospital pension plans dropped to 83% in fiscal year 2019, one percentage point off from the previous 84%, according to a Thursday report from S&P Global Ratings. A lower discount rate slightly increased liabilities.

But trouble is ahead. Added pressure from continued market volatility will drive many hospital providers to rely on the Coronavirus Aid, Relief, and Economic Security (CARES) Act for near-term liquidity. This measure allows single employer plans to have pension funding holidays during the 2020 calendar year. That could undermine the retirement systems.

For more stories like this, sign up for the CIO Alert newsletter. 

“We note that many providers are taking advantage of this provision to achieve near operating and liquidity relief,” analysts wrote. “However, we expect this to result in weaker future funded ratios and will assess this impact on a case-by-case basis.”

Hospitals and other health systems are under great financial pressure due to the demands of treating COVID-19, according to a report by the American Hospital Association. The costs of caring for coronavirus patients, a number of them uninsured, plus spending for extra equipment, personal protective measures, and dealing with staff needs such as child care are mounting, the trade group noted. In addition, non-virus-related care has been postponed, reducing revenue.

After the last financial crisis, the funded status for not-for-profit systems tumbled to 70% through 2012, down 20 percentage points from 2009 despite healthy contributions, according to the report.

But nonprofit hospital systems are generally considered good managers of their pension funds. Among the highest-funded plans, Columbus Regional Healthcare System in North Carolina and El Camino Hospital in California, funded ratios are 129% and 119%, respectively.

Nonprofit hospitals typically plan for longer investment horizons, unliked for-profit systems that worry about generating quarterly returns for shareholders. The shorter investment horizon typically means for-profit systems include more fixed income in their portfolios.

Many hospital systems are slowly moving to de-risk plans, including converting them to defined contribution (DC) plans, though the current downturn will pose challenges for that.

Pandemic Spurs Growth in Health Care Technology Venture Capital Deals

Alternative Investors Target Health Care, Logistics, Shun Real Estate

Tags: Coronavirus, COVID-19, Funded Status, Health Care, health care system, hospital, nonprofit hospital

The US Securities and Exchange Commission (SEC) has filed an emergency action and obtained a temporary restraining order and asset freeze against two brothers and three firms they control to stop an alleged offering fraud and the misappropriation of investor proceeds.

The regulator has accused Sean Hvizdzak and Shane Hvizdzak of fraudulently raising and misappropriating millions of dollars from the sale of limited partnership (LP) interests in High Street Capital Fund USA LP, which they claimed would invest in cryptocurrency assets for the benefit of the investors. The two allegedly lied about the fund’s performance, fabricated financial statements, and forged audit documents.

High Street Capital Partners LLC (HSCP) was the fund’s general partner (GP) and was exclusively responsible for managing the fund. Pursuant to an investment management agreement between the fund and High Street Capital (HSC), HSC agreed to serve as the fund’s investment manager. The Hvizdzak brothers solely owned and controlled both HSC and HSCP and were alone responsible for the operations and management of the fund and its investments, the SEC said.

The fund’s private placement memorandum (PPM) stated that the fund operated as a “pooled investment vehicle through which the assets of its general partner and the limited partners” were “invested in a wide variety of cryptocurrency investments.”

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

According to the SEC’s complaint, the Hvizdzaks pocketed approximately $26 million of the $31 million they collected from investors by moving the investors’ money from the fund’s accounts to their personal bank accounts, and then transferring the assets on multiple blockchains to themselves and others.

The complaint alleges that the Hvizdzaks misrepresented in marketing materials that the fund earned 100.77% and 92.9% on its investments during the third and fourth quarters of 2019, respectively, when the fund actually lost 17.12% and 24.5%, respectively. For all of 2019, the High Street Capital Fund lost approximately $477,000 from its digital asset investments, for a net loss of approximately 25%, according to the complaint.

The PPM explained that the investment vehicle was an “algorithmic quant fund that intends to take advantage of the volatility of the cryptocurrency market,” and its “primary investment objective is to achieve capital appreciation with above average returns” for its limited partners using various predictive indicators.

In addition to granting a temporary restraining order and an asset freeze, the court ordered an accounting, expedited discovery, and an order prohibiting the destruction of documents. A hearing is scheduled for June 30 to consider continuing the asset freeze and the issuance of a preliminary injunction.

“As alleged in our complaint, the Hvizdzaks touted exceptional, but false, performance to potential investors when offering their fund,” Adam Aderton, co-chief of the SEC’s Asset Management Unit, said in a statement. “Investors should be skeptical of claims that seem too good to be true.”