Tag Archives: SOA

Mortality projection considerations

How much longer will people live in the future? This is difficult to predict. The Society of Actuaries (SOA) has created very precise projections of mortality improvement that are updated each year. These annual updates are reasonable and based on the most current information, but the precision can cause volatility in the annual calculations of pension costs and liabilities.

In this paper, Milliman consultants Mark Olleman and Matt Larrabee present two alternative options for mortality projections based on historical mortality improvement data. These alternatives are intended to reduce volatility from changes in the mortality improvement assumption, and therefore lead to more stable long-term pension cost and liability calculations, while providing a reasonable estimate of the long-term pension liability in accordance with the Actuarial Standards of Practice.

Updated mortality tables proposed for pension plans

On May 22, the Society of Actuaries (SOA) released an exposure draft that includes new mortality tables that private-sector defined benefit pension plan sponsors and their actuaries consider in measuring retirement plan obligations. The proposed new tables, referred to as “Pri-2012” in the exposure draft, are generally designed to replace the tables known as “RP-2006.” The RP-2006 tables currently serve as the mortality basis for funding valuations and lump sum calculations, as well as for many companies’ accounting valuations.

The SOA indicates that most plan sponsors that update their mortality assumptions from the RP-2006 tables to the Pri-2012 tables “will experience only a small change in their pension liabilities, usually within plus or minus 1%.” The SOA also notes that the pension liability change will vary depending on a plan’s demographics and other assumptions (e.g., the discount rate) that are used to compute pension liabilities. According to the SOA, significant indicators of mortality are the participants’ “collar type”—white or blue—and income level, with the collar type being a stronger predictor of longevity than a plan’s benefit amount.

The total data set for the study included a substantial amount of multiemployer plan experience. However, the SOA found no significantly different mortality experience for participants in multiemployer versus single-employer plans, and thus did not produce separate Pri-2012 tables for multiemployer plans.

With regard to measuring retirement plan obligations under the Financial Accounting Standards Board’s accounting standards, employers that historically have chosen to use the most recent mortality tables published by the SOA will consider applying the Pri-2012 tables for measurement dates that occur after the SOA publishes the final version of the study, which is expected in the fall of 2019. At that time, the SOA also will likely and concurrently release an updated mortality improvement scale to succeed the currently used MP-2018 scale to estimate how mortality rates will change in the future.

Looking ahead, the IRS has already released the required mortality tables to measure pension obligations for 2020 funding valuations and to calculate lump sums for stability periods beginning in 2020. Therefore, the Pri-2012 tables will not be used for these purposes until at least 2021.

The SOA’s exposure draft can be found here. The deadline to submit comments on the exposure draft to the SOA is July 31, 2019. For additional information about the exposure draft or to assess the impact on your specific retirement plans, please contact your Milliman consultant.

What’s ahead for RP-2014 mortality table users?

Hagin NeilThe Society of Actuaries Retirement Plans Experience Committee (RPEC) published an October 2014 study analyzing mortality experience of uninsured private defined benefit pension plans in the United States for the period 2004 through 2008. It is referred to as the “RP-2014” mortality table report. RP-2014 replaces RPEC’s “RP-2000” mortality tables published in July 2000.

While the RP-2014 report may imply there is only one mortality table, there are several mortality tables published within the report. A companion report was concurrently published detailing a “mortality projection scale,” referred to as the “MP-2014” improvement scale. Because mortality studies are not completed all that frequently, mortality improvements scales are developed to be used in conjunction with a mortality table to project future mortality improvements.

Since the release of the two RPEC reports, defined benefit pension plan sponsors felt compelled to reflect the longer life expectancies in the determination of defined benefit plan liabilities for financial disclosures. For those plan sponsors that elected to change the plan’s mortality assumption to RP-2014 with projection scale MP-2014, it generally increased the plan’s liability between 4% and 10%. The impact on a plan was dependent on that plan’s demographics as well as on the mortality table that was previously used.

RPEC published a revised mortality improvement scale in October 2015, appropriately labeled “MP-2015.” Additional mortality data published by the Social Security Administration (SSA) was used for the new calculation.

RPEC had indicated within the MP-2014 report that it intends to publish updated improvement scales at least triennially. However, an updated report issued one year after RP-2014 was a surprise to defined benefit pension plan sponsors, as well as many pension actuaries.

The MP-2014 mortality improvement scale was constructed based on a model developed by RPEC utilizing SSA mortality data between 1950 and 2009. The MP-2015 mortality improvement scale incorporates two additional years of SSA data (2010 and 2011). The SSA data indicates that mortality rates remained relatively constant for 2010 and 2011. This is in contrast to the expectations of the MP-2014 calculations, which predicted mortality improvement for this period. Plans that utilized the RP-2014 mortality table with MP-2014 mortality improvement scale may see a 0% to 2% decrease in plan liabilities by utilizing the MP-2015 mortality improvement scale in their fiscal year-end financial disclosures.

The SSA has recently released two additional years (2012 and 2013) of mortality data, which again indicate that the mortality rates are not decreasing as significantly as expected. In fact, this newly released data suggests that mortality rates have been stagnant over the last five years. The RPEC committee has indicated that it intends to issue future periodic updates to the model as soon as practicable, following the public release of updated data upon which the model is constructed.

The question is when will a new mortality improvement scale, reflecting the latest SSA data from 2012 and 2013, be released? Will RPEC issue “MP-2016,” a new mortality improvement scale reflecting the latest SSA mortality data?

The MP-2015 report states that RPEC will not publish any additional information before the second quarter of 2016. Unfortunately, because of the timing of the release, a new mortality improvement scale (MP-2016 potentially) will not be available for disclosures with fiscal years ending in 2015. However, the updated mortality improvement scale may be able to be incorporated into the net periodic pension expense determination for fiscal years ending in 2016. This will be dependent on the timing of the RPEC analysis and publication, as well as approval by the plan sponsor’s auditor.




Top Milliman blog posts in 2014

Milliman consultants had another prolific publishing year in 2014, with blog topics ranging from healthcare reform to HATFA. As 2014 comes to a close, we’ve highlighted Milliman’s top 20 blogs for 2014 based on total page views.

20. Mike Williams and Stephanie Noonan’s blog, “Four things employers should know when evaluating private health exchanges,” can help employers determine whether a PHE makes sense for them.

19. Kevin Skow discusses savings tools that can help employees prepare for retirement in his blog “Retirement readiness: How long will you live in retirement? Want to bet on it?

18. The Benefits Alert entitled “Revised mortality assumptions issued for pension plans,” published by Milliman’s Employee Benefit Research Group, provides pension plan sponsors actuarial perspective on the Society of Actuaries’ revised mortality tables.

17. In her blog, “PBGC variable rate premium: Should plans make the switch?,” Milliman’s Maria Moliterno provides examples of how consultants can estimate variable rate premiums using either the standard premium funding target or the alternative premium funding target for 2014 and 2015 plan years.

16. Milliman’s infographic “The boomerang generation’s retirement planning” features 12 tips Millennials should consider when developing their retirement strategy.

15. “Young uninsureds ask, ‘Do I feel lucky?’” examines the dilemma young consumers face when deciding to purchase insurance on the health exchange or go uninsured.

14. Last year’s #1 blog, “Retiring early under ACA: An unexpected outcome for employers?,” is still going strong. The blog authored by Jeff Bradley discusses the impact that the Patient Protection and Affordable Care Act could have on early retirees.

13. Genny Sedgwick’s “Fee leveling in DC plans: Disclosure is just the beginning” blog also made our list for the second consecutive year. Genny explains how different fee assessment methodologies, when used with a strategy to normalize revenue sharing among participant accounts, can significantly modify the impact of plan fees in participant accounts.

12. Doug Conkel discusses how the Supreme Court’s decision to rule on Tibble vs. Edison may impact defined contribution plans in his blog “Tibble vs. Edison: What will it mean for plan sponsors and fiduciaries?

11. In her blog “Retirement plan leakage and retirement readiness,” Kara Tedesco discusses some problems created by the outflow of retirement savings. She also provides perspective on how employers can help employees keep money in their plans.

Continue reading




Revised mortality assumptions issued for pension plans

The Society of Actuaries (SOA) issued two final reports that update the mortality assumptions that private defined benefit retirement plans in the United States use in the actuarial valuations that determine a plan sponsor’s pension obligations. Affected pension plan sponsors should expect the value of the actuarial obligations to increase, but the rate of increase will depend on the specific demographic characteristics of the plan participants and the types of benefits provided.

The RP-2014 Mortality Tables Report (RP-2014) replaces the RP-2000 Mortality Tables Report (RP-2000), using the incidence of deaths in private plans over the 2004 through 2008 period. The SOA’s companion Mortality Improvement Scale MP-2014 Report (MP-2014) adds a second, complex variable to the RP-2014 tables for “future mortality improvements.” “Improvement” refers to the concept that mortality rates have generally decreased from year to year and this pattern is expected to continue in the future. The new MP-2014 improvement scale varies by both age and year. The SOA concluded that its best estimate for long-term mortality improvement in the United States is an ultimate annual rate of 1% through age 85 and slowly diminishing for higher ages.

The SOA committee that developed the tables recommends consideration of their use, effective immediately, for measuring private pension plan obligations. Their use also will affect the measurement of plan obligations associated with private employer postretirement health and life insurance plans.

Implications of the SOA’s reports include:

• The calculations to comply with the accounting standards for retirement plans (Financial Accounting Standards Board Topic 715) may be affected as early as for fiscal year-end 2014.
• Calculations to comply with single-employer pension plan funding rules of the Internal Revenue Service (IRS) under the 2006 Pension Protection Act will not be affected until the U.S. Department of Treasury formally adopts—possibly not until 2017—a replacement for the current statutory tables (based on the RP-2000 Mortality Table). Minimum required cash contributions and, where applicable, lump-sum payments, will likely increase when the Treasury adopts a replacement mortality table.
• Although the SOA’s analysis acknowledged statistically significant structural differences in the underlying mortality rates produced for public and private plans, and therefore eliminated from the final RP-2014 report the data from “three extremely large public plans,” the SOA still states that “it would not necessarily be inappropriate or inconsistent for actuaries to consider…the RP-2014 tables as suitable mortality benchmarks for a specific public plan.”
• Public and multiemployer pension plans are not required to adopt these new tables. However, as these plans’ actuaries review the mortality assumption they currently use, they may find that information presented in the new tables may influence the plans’ assumptions as RP-2014 and MP-2014 become widely accepted. If the plans’ mortality assumptions are reviewed on a regular basis, the timing of the next review is not likely to be affected.

Actuarial calculations using the two-variable approach embodied in the RP-2014 and MP-2014 tables will be more complex when compared to current typical calculations using the RP-2000 table. And although pension obligations could increase, the effects will differ. For example, the obligations associated with a cash balance plan will likely only modestly change, while certain postretirement health insurance obligations may be the most dramatically affected.

Please contact your Milliman consultant for more details on how your defined benefit pension plan will be affected by the SOA’s new mortality table and mortality improvement scale.