SOA’s longevity tables show public pension participants living longer than earlier predicted

When the Society of Actuaries published updated mortality tables in 2014, it relied primarily on data from private sector pension plans.

But the SOA’s Retirement Plans Experience Committee also reached out to three “very large public/private” pension plans, according to the SOA.

“Our request for data went to a handful of public plans,” explained Dale Hall, managing director of research at the Society of Actuaries. “From that (2014) study we noted differences in public plan mortality. That led to a request for data from public plans.”

While the SOA has a long history of mortality study research, longevity tables and life expectancy research drawn specifically for public plans have never been produced by the Society, until now.

In January, SOA released its Public Retirement Plans Mortality Tables Report, a first-ever look at the life expectancy of public sector pensioners. The tables, which took five years to amass, are based on data from 78 plans in 35 public pension systems.

The report examines life expectancy of teachers, safety professionals–cops, fire fighters, and first responders–and general employees separately.

In some lines of work, public pension participants are living longer than counterparts in private-sector plans.

Female teachers are living the longest among public sector pensioners, with a life expectancy of 90.03 years, while male teachers had a life expectancy of 87.7 years.

Male first responders had a life expectancy of 85.27 years, compared to 87.68 for female first responders. Among general employees, the tables show females living to 88.48 years, and males 85.49 years.

Longer lives than in private sector

SOA’s mortality tables for the private sector show the average 65-year old female can be expected to live to 87.8 years, while the average male can be expected to live to be 85.8 years. SOA made downward revisions to its initial 2014 tables after considerable pushback from the private sector, which was bracing for significantly higher pension funding requirements under the new scales.

With the exception of first responders, females in the public sector have longer life expectancies than women in the private sector pension plans. Male teachers can be expected to live almost 2 years more than men in the private sector. Female teachers can be expected to live more than 2.2 more years than women in private sector pensions.

Aggregate funding shortfalls for the nation’s public pensions vary by different calculations, but most agree the numbers are dramatic.

Last year, a Pew Charitable Trust study of state pension funds found a cumulative deficit of $1.4 trillion—assets were $2.6 trillion against $4 trillion in liabilities. When applying a 6.5 percent assumed return on invested assets, instead of the median assumption of 7.5 percent in state plans, the funding gap jumps to $1.7 trillion, Pew found.

Longevity is a key factor actuaries use to determine pension plan liabilities. In its preliminary findings published last August, SOA said the “mortality assumptions for many (public) plans may be lagging behind current aggregate mortality experience among public plans.”

Public plans use widely varied morality assumptions, SOA said. About 37 percent of public pension use a static mortality projection, which provide a snapshot of mortality rates at a given point of time.

Another 58 percent of plans use a generational projection, a more conservative measurement that accounts for improvements of mortality going forward.

But even among public plans that are using the more conservative, and sophisticated, generational method, more than half are using private-sector mortality tables published before 2014, SOA found.

Are public pensions now even worse off?

All of which begs a politically charged question: Under SOA’s new public sector mortality tables, are public pensions even worse off than they already are?

Not necessarily, says Todd Tauzer, a director at S&P Global Ratings who analyzes state and local pension plans.

“There are a lot of pension systems out there,” said Tauzer, who previously spent seven years at CalPERS analyzing risk for the nation’s largest public pension plan.

Large plans like CalPERS already use their own mortality tables based on data from their own participants. “SOA’s new study was done by going to all of the large plans,” said Tauzer. “They already use their own experience. So basically, there is no surprise in the new tables for those plans.”

But not all plans are as large as CalPERS, where Tauzer says the actuarial work is done in-house. “Mid-sized and small plans don’t have a large enough population to determine longevity on a dependable basis. You need a base number of lives to create your own tables.”

And smaller plans may not have the bandwidth or resources to develop pension-specific mortality assumptions.

“Some plans may have one or two in-house actuaries, and farm out work to consultants,” he said. “That can cost more. Those plans may prefer to use SOA tables, and depend on them to a much greater extent.”

Tom Aaron, vice president at Moody’s Investors Service, said mortality expectations can have a “significant impact” on public pension liabilities.

“In recent years, there have been several examples where mortality assumption updates by US public pension systems have driven material liability increases,” said Aaron.

CalSTRS, California’s pension for teachers, updated its mortality assumptions in 2017, which in part led to a 4.5 percent decrease in that plan’s funded level.

In 2015, New York updated its pension fund to reflect SOA’s 2014 mortality tables. That resulted in 4 percent contribution increases to the Empire state’s two pensions. Vermont updated its mortality assumptions in 2017, increasing that state’s unfunded liabilities by $10 million.

From the perspective of ratings agencies, SOA’s new tables won’t create across-the-board funding shocks for public pensions.

But some plans will be impacted. “While some public systems may continue to use outdated mortality assumptions, most review these key assumptions periodically to gauge their performance against actual experience,” said Aaron.

S&P’s Tauzer said there are outlier pensions that are “behind the ball” on mortality assumptions.

“But from our perspective, if you have a plan keeping up to date, the change will not be that great. If plans are using outdated tables, it is significant. It’s all about context,” said Tauzer.

State teacher retirement systems stand to be most impacted, given the increased longevity of teachers.

A study of 50 states and the District of Columbia’s teacher retirement systems by the National Council on Teacher Quality put the aggregate underfunding of teachers’ pensions at $516 billion in 2016. Only seven states had pensions funded at 90 percent or better.

For teacher pensions that don’t calculate plan-specific mortality tables, the SOA’s new data could result in liability increases up to 5 percent, said Tauzer.

SOA plans continued updates for public plans

Hall said the SOA plans to continually update its new mortality tables for public plans, as it is for private sector plans. An update for the latter is slated for 2019. He expects public plans will also be updated on a five-year basis.

He also emphasized that the new tables are intended to be used as benchmarks and a “broad” starting point for pensions to update plan-specific mortality tables.

A variety of inputs influence mortality assumptions, and vary by plan. As an example, Hall noted how health and wellness programs influence longevity.

“We think this is a very helpful benchmark for actuaries and plan sponsors to consider,” said Hall.