Yesterday, the society issued two reports, RP-2014 Mortality Tables and MP-2014 Mortality Improvement Scale, which effectively approve the mortality rates first unveiled in a February exposure draft of the tables. The new numbers reflect increased longevity, as measured by an intense five-year study, and will be sent to all practicing U.S. actuaries, who then decide how to implement them into real-world pension plans.
“The purpose of the new reports is to provide reliable data that actuaries can use to assist plan sponsors and policymakers in assessing the financial implications of longer lives,” Dale Hall, managing director of research for the SOA, tells PLANSPONSOR. He adds that the process of implementing the new tables takes time. In fact, according to Hall, the society’s mortality tables are just part of what actuaries consider when evaluating a plan. They also look at specific mortality studies they performed on their own plans.
“Then they’ll layer in things such as health and wellness programs at the employer that may have an impact on future mortality. It’s usually the combination of these three factors that actually go into the final table used at a real-world pension plan,” he said.
Good news of added longevity aside, some sponsors of defined benefit (DB) plans—which rely on mortality tables to assess their pension liabilities and liquidity needs—worry about the revised numbers, which may cause increased liability and lowered funded status for their plan (see “Mortality Tables Impact Depends on DB Plan Demographics”). Hall says the SOA itself predicts between 4% and 8% liability growth for a typical pension plan upon adoption of the new tables.
The mortality figures on the new tables come from a peer-reviewed study of real retirement plan mortality experiences of participants in U.S. defined benefit plans—representing 10 million life years and over 220,000 deaths. In short, both men and women show approximately two years’ additional lifespan over SOA’s earlier tables.
Men aged 65 this year, for example, are expected to live to 86.6, compared with 84.6 in 2000; women currently 65 saw longevity increase 2.4 years from age 86.4 in 2000 to age 88.8 in 2014. Such changes translate to a possible increase in private pension plan liability, the SOA acknowledges, pointing out that some plans will feel the impact more than others, based on their demographic profile and design.
While the new tables will be widely available, the SOA does not by itself hold the regulatory authority to mandate their implementation. Nor does the society see that as one of its responsibilities, Hall said, explaining that the society’s goal was, rather, to perform “a scientific objective study on mortality.”
“We put this information out so that practicing actuaries can work with plan sponsors and auditors to make informed decisions as to what the final tables should look like for evaluating the specific plans,” he said, observing that the standards of practice for selecting a mortality table for valuing a qualified retirement plan are established by federal law. “The tables give a new place for actuaries to look at current, up-to-date information to assess the effectiveness of their own processes.”
The study itself was begun in late 2009 when the SOA’s Retirement Plans Experience Committee (RPEC) began collecting data from various sources, sifting through the materials to create the draft published early this year. Following this, both the updated mortality tables and improvement scale underwent a four-month comment and review period. Resulting constructive feedback was added to the final reports.
“Over the course of the summer and early fall we brought on several independent review teams to closely review the work our committee had done, looking for any problems,” Hall said. “We walked through the independent reviews and audits, got approval from the board of directors, and through that whole process we came to the conclusion that, yes, these are the accurate tables.”
Critics such as Michael Moran, senior pension strategist at Goldman Sachs Asset Management in New York City, have complained that the study lacked breadth, yet Hall stands by the SOA’s findings. “The analysis uses more than 10 million life years of plan experience and over 220,000 deaths. So bottom line is that we certainly walked through a lot of review on a lot of data. We’re completely confident in the results of our effort,” he said.
The SOA, a professional association of U.S. actuaries, provides research that furthers actuarial science and that is used in developing pension funding requirements.
Full versions of the 2014 Mortality Tables (RP-2014) and 2014 Mortality Improvement Scale (MP-2014) are available here.
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