Longer Life Expectancy Will Lead to Spike in Liabilities In Near Future

Hundreds of pension funds across the country are struggling to rein in their liabilities, but their funding situations may soon be considered even worse. That’s because an actuarial tweak that takes into account greater life expectancy will increase the liabilities on the books of many plans. From Pensions & Investments:

The measured value of liabilities for most defined benefit plans will increase between 3% and 8% with the adoption of new mortality tables, said a report from Wilshire Consulting.

The tables, released by the Society of Actuaries in exposure draft form in February, reflect an increase in the life expectancy of Americans, resulting in increased pension plan liability values and liability durations.

For women ages 25 to 85, the liability increase ranges from 5.5% to 10.5%. For males in that age group, the increase ranges from 2.5% to 17.4%.

The tables most DB plans now use to measure pension liabilities were published by the Society of Actuaries in 2000.

Some pension plans will be affected more than others, as P&I explains:

The impact of the updated tables on a particular plan will depend on the makeup of its participants, said Jeff Leonard, managing director at Wilshire Associates Inc. and head of the actuarial services group of Wilshire Consulting, based in Pittsburgh.

Some public and corporate plans are large enough to use custom mortality table and likely will stick with them, Mr. Leonard said.

For U.S. plans that rely on the industry tables, however, the mortality assumption changes are “another nail in the coffin” and might encourage some sponsoring entities to move away from DB plans altogether, Mr. Leonard said.

These changes haven’t come out of nowhere, and they won’t go into effect right away; according to Wilshire, the new tables likely won’t affect funding ratios until 2016.


Photo by Alexander Baxevanis via Flickr CC License