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Unfunded pension liabilities are posing increasing credit risks to public colleges and universities as market interest rates decline and investment returns fall below many pension systems’ assumed levels, a new Moody’s report shows.
The liabilities will likely lead to greater required pension contributions from colleges and universities. Colleges with the highest pension liabilities are more vulnerable to economic and fiscal disruptions. But those with large amounts of outstanding debt tend to have the financial flexibility necessary to withstand pension challenges, the report states.
“While pension contributions tend to be manageable, pension liabilities exceed direct debt for over half of universities,” MaryKay Cooney, vice president at Moody’s, said in a press release. “Pension costs and the associated unfunded liabilities will continue to rise, adding credit risks for most public universities and colleges. The risks are particularly elevated for institutions with highly underfunded retirement plans that are losing ground, rooted in historically low contributions, consistently low interest rates, capital market volatility and a combination of practical and political limitations to reducing pension benefits.”
