STUMP » Articles » Mortality Monday: Pension Plan Mortality » 1 May 2017, 19:37

Where Stu & MP spout off about everything.

Mortality Monday: Pension Plan Mortality  

by

1 May 2017, 19:37

This is not for public pensions, by the way. But I’ll use a life expectancy calculator I wrote over a decade ago… so there’s that!

Two recent items:

Updated mortality tables are raising concerns:

Contribution increases, higher liabilities likely; delay attempt underway

Updated mortality tables expected this year from the IRS will increase defined benefit plan contribution budgets and other pension fund calculations by billions of dollars beginning in plan year 2018, a new analysis shows, unless a recent attempt to slow the agency’s work gains traction.

A Society of Actuaries report released April 26 projects updated mortality tables will increase pension liabilities and reduce plans’ funded status in the short term. Minimum required contributions will increase 11%.

For estimated aggregate funding targets in 2018, liabilities would increase 2.9%, or $65 billion, and the aggregate funded status would drop 1 percentage point to 96%, as calculated by the SOA. Premiums paid to the Pension Benefit Guaranty Corp., which are based on plan funding levels, would increase 12% to $9.6 billion.

The SOA study is based on 7,500 single-employer [private] plans that represent 98% of all liabilities.

Despite those increases, adjusting to updated tables now is better than making expensive catch-up contributions later, SOA experts noted. It also will be better for plan participants, pension advocates said. Annuities and lump-sum payments offered to plan participants have been below fair market value because of the outdated tables, they added.

Sensitive to the controversy that arose when the society released 2014 mortality tables after a 14-year gap, SOA officials already are collecting data from sponsors and hope to release the next update by 2020, said Dale Hall, managing director of research for the Society of Actuaries, Schaumburg, Ill. “We want to make sure that happens on a more frequent basis.”

When the Internal Revenue Service in late December proposed the updates based on the SOA’s latest mortality tables and mortality improvement scale, plan sponsors did gain some flexibility: the option of choosing between two standard mortality tables, generational or static. Sponsors wanting to use mortality tables specific to their plan’s demographics and death rates — referred to as mortality experiences — would also have updated tables, and many more would be able to use them thanks to the proposal’s lower requirements. The current requirement that a plan have at least 1,000 participant deaths within two to five years to use custom tables would change to at least 100 deaths.

And another:

Stakeholders call for delay, new review on IRS mortality table update

Critics of an Internal Revenue Service proposal to update mortality tables used by plan sponsors to value defined benefit plans asked the agency Thursday to defer final action until more extensive economic impact analysis is made.

At an IRS hearing in Washington, Mercer partner and chief actuary Bruce Cadenhead testified on behalf of the ERISA Industry Committee that plan sponsors also need more advance notice — at least 18 months — to adopt new mortality improvement rates. ERIC sent a letter Thursday to Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Mick Mulvaney asking for the rulemaking process to be reviewed.

The IRS last year proposed an update to mortality tables that have not been updated in at least 10 years, asking for comments.

American Benefits Council counsel Kent Mason testified that the rulemaking falls under President Donald Trump’s executive order calling for two existing regulations to be cut before new regulations are issued. Mr. Mason also argued that cost-benefit analysis is required because updating the tables “is going to have an effect in the hundreds of millions of dollars on some companies.”

That’s a lovely Trump angle there, Mason. Let me know how well that works.

FWIW, I haven’t been able to find the SOA report, yet. It’s not on their press release page or the main pension mortality page, as of right now.

I did see this tweet:


So maybe they were busy at the meeting and will update when they get back into the office.

One of the things that the Society of Actuaries excels at is experience studies, especially in mortality. I use their mortality research all the time.

SOME ILLUSTRATIONS

For “fun”, I’m going to take an old life expectancy calculator I had, and seed it with three different mortality table sets – using sex distinct mortality:

  • GAM 94, Static tables — includes mortality improvement
  • RP-2000, Healthy Annuitant
  • RP-2014, total data set, Healthy Annuitant

I’m pulling all of these from the SOA mortality database, and you can find lots more mortality tables there.

I will share my spreadsheet, but keep in mind I am doing this somewhat quickly and won’t have the whole thing locked down right yet. There may be errors when you play with it.

For fun, let’s consider a male age 65, in the three mortality sets:

Um, that was a bit of a jump in life expectancy. Jeez.

If you’d like to play with the spreadsheet and try different settings (age from 50 to 85, the three mortality table sets, two sexes), you can download the spreadsheet here.

It does have macros – it’s a user-defined function that does the interpolation for determining percentiles.

OLDER STORIES

This is catch-up week, so here are some stories on pension mortality tables from the last year:

The increasing life expectancies, especially when the discount rates are fairly low, can have a large effect.

PUBLIC PLANS GET AN OMINOUS WARNING

Back to that original article.

Here is how it ends:

The change could also spill over into public pension funds. “It has sparked questions for public-sector plans as to whether or not they should be reflecting the updates, and how they should do it,” said Ms. Kleinstuber with the American Academy of Actuaries.

She sees two schools of thought on whether public plans need to update their tables, which the Society of Actuaries will study next year. In the meantime, actuarial standards of practice require public plans to use their best estimates, said Ms. Kleinstuber. “There is a lot of professional judgment that comes into play. Different actuaries will have different views of what is going to happen in the future, and different plan sponsors may have different ideas.”

Ooogah Boogah public pensions. They’re coming for ya.


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