Society of Actuaries releases preliminary update to longevity tables; data reveals trend to monitor

The Society of Actuaries is standing by its pledge to issue more consistent updates to the longevity tables that private sector pension sponsors use, in part, to assess liabilities on defined benefit retirement plans.

The recent release of an exposure draft of PRI-2012 — Private Retirement Plans Mortality Tables — shows slight changes to the RP-2006 tables, which were issued in 2014 before undergoing revisions, most recently in 2016.

The latest data shows the life expectancy for a woman age 65 in 2019 is 87.4 years, roughly the same as the previous table. The life expectancy for a man age 65 in 2019 declined to 84.7 years from 85.

For sponsors of defined benefit pensions, the new numbers in the latest exposure draft would amount to only small changes in pension liabilities, typically between plus or minus 1 percent, said Dale Hall, managing director of research for the SOA.

“It’s worth our while to pursue these types of studies, if only to note the impact of change may not be that large on pensions,” said Hall. “Most sponsors would only experience small changes in liabilities. But you don’t know what the changes will be until you go through the study, which is important to do to see if trends emerge.”

The SOA’s Retirement Plans Experience Committee, which produces the data on mortality, has pledged to issue new tables every five years, with annual updates.

The 2014 tables were issued after a considerable lull; it was the first update since 2000. Plan sponsors and pension experts had expressed concern over the lag, given the more substantial impact on sponsors’ contribution requirements, the cost of lump-sum payouts, and the cost of variable rate premiums paid to the Pension Benefit Guaranty Corp.

Industry has until July 31 to comment on the findings in the new exposure draft. SOA will then issue finalized tables this fall. “We are staying true to our word,” said Hall.

New data on multi-employer plans

The PRI-2012 tables were derived from 16.1 million life years and 343,000 deaths from 402 benefit plans between the years 2010 and 2014, a data set that is larger than previous longevity studies, said Hall.

The new data also includes a substantial look at the mortality experience of participants in collectively bargained multiemployer retirement plans.

Previous tables included minimal multiemployer data. About 41 percent of the data in the new exposure draft is derived from multiemployer plans, which accounts for 70 percent of the information collected on blue collar workers.

Participants in multiemployer plans did not show significantly different mortality rates than participants in single-employer plans. That revelation is significant, said Hall, and shows that for the time being, there is not a need to develop separate tables for collectively bargained plans.

“We’ve always wanted to make sure we could do that type of analysis, but for the last study, we didn’t have a vast amount of multi-plan data,” said Hall. “Now we have a better data collection exercise, and were glad the question of multiemployer plans is better answered.” Hall credits the efforts of SOA’s RPEC members, all of whom are volunteer actuaries, for their outreach to the multiemployer plan universe.

A tipping point for longevity and waning defined benefit plans

The new data confirms previous trends: Women tend to live longer than men, and white collar workers tend to live longer than blue collar workers.

For instance, the average life expectancy of a blue collar female is 86.9 years, or half a year lower than for white collar females. Male blue collar workers live on average to age 84.1, compared to 84.7 for white collar men.

And those in the top 25 percent of income generally live longer than those in the bottom quartile.

But the life expectancy of the top income quartile dropped a bit, a trend that Hall says will motivate a watchful eye from actuaries going forward.

“We’re coming out of an era of sponsors freezing benefit plans,” he said. “The top quartile of income is lower than what we had in the last study simply because of the new type of defined benefits. As you move forward in time, the amount of annual income benefits will be lower. That has an impact on mortality, and is something we will want to pay attention to. It will be very interesting to keep an eye on the level of retirement benefits and its impact on longevity.”

Encouraging a conversation with IRS, sponsors

According to a summary of the exposure draft, life expectancy is not used directly to determine pension plan liabilities, but generally, increased life expectancy increases liabilities, and vice versa for decreasing life expectancy.

While the Internal Revenue Service will ultimately issue mortality tables that are applied more universally by plan sponsors, the SOA’s work is likely to be used as input by regulators, as well as by plan sponsors that run their own longevity assumptions based on the experience of lives in specific pension plans.

“Whenever SOA produces new tables, it’s seen as something by regulators to pay attention to,” said Hall. “Perhaps IRS will digest this, and have questions about how the tables were construed. We are happy to have those conversations. But the ball is really in their court.”

For sponsors, the new tables are a good starting point to initiate individual plan analysis, said Hall.

“The goal is always developing objective tables for plans to use so sponsors have good information to build their own decisions,” he said.