Calculating Mortality Improvement

The SOA released the updated mortality improvement scale for private pension plans, MP-2017 R. Dale Hall

As a data-driven organization, the Society of Actuaries (SOA) is committed to providing updates to experience studies and related subject matter, including mortality improvement. Last fall, the SOA released the annually updated mortality improvement scale for private pension plans, MP-2017. Developed by the SOA’s Retirement Plans Experience Committee (RPEC), MP-2017 incorporates the latest publicly available mortality data from the Social Security Administration (SSA) through 2013. The scale uses the private pension mortality tables RP-2014 as the base table.

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The Actuaries Climate Index reached a new record high in winter 2016–17, following the record value measured in fall 2016. The change reflects increasing deviation of weather extremes and sea levels from historically expected patterns for the United States and Canada.

ANNUITY FACTOR CALCULATOR

The SOA developed the Annuity Factor Calculator to calculate an annuity factor using user-selected annuity forms, mortality tables and projection scales commonly used for defined benefit (DB) pension plans. This tool is designed to calculate relatively simple annuity factors for users who are accustomed to making actuarial calculations for DB pension plans in the United States or Canada.

STATS ON ENTERTAINMENT INDUSTRY PENSIONS

The SOA updated the statistics on multiemployer pension plans and provided a comparison of 2016 pension plan funding within the entertainment industry. These multiemployer pension plans include the Screen Actors Guild–Producers Pension Plan, Directors Guild of America–Producer Pension Plan and the Motion Pictures Industry Pension Plan, among others. Access the comparison paper and the statistics for each of the plans.

Additionally, MP-2017 includes 2014 and preliminary 2015 data, developed by the SOA and obtained from the Centers for Disease Control and Prevention (CDC), Centers for Medicare and Medicaid Services (CMS), and the U.S. Census Bureau. This updated mortality improvement scale on private pension plans provides actuaries and plan sponsors with current information to measure retirement obligations and make forward-looking mortality improvement assumptions. However, every plan is different. It is important for actuaries and plan sponsors to perform their own calculations and decide how to reflect the impact of emerging mortality changes in their own plan valuations. There’s been quite a bit of media coverage on this mortality improvement scale, and you may consider checking out the different articles on the calculations, including one from Bloomberg.

This updated scale reflects that age-adjusted U.S. population mortality rates increased 1.2 percent between 2014 and 2015. It is important to note that this is the first year-over-year mortality rate increase since 2005. Based on this scale, pension plan participant life expectancies declined slightly, which may also decrease pension plan obligations slightly.

Our preliminary estimates suggest that implementing the MP-2017 improvement scale could reduce a private pension plan’s pension obligations by 0.7 percent to 1.0 percent, when calculated using a 4 percent discount rate.

The updated improvement scale reflects a slight decline in life expectancy, stemming from an increase in mortality from eight of the 10 leading causes of death in the United States, as reported by the CDC. For example, the life expectancy for a 65-year-old male private pension plan participant declined to 85.6 years using the MP-2017 scale, compared to 85.8 years under MP-2016. Additionally, the average life expectancy for a 65-year-old female private pension plan participant declined to 87.6 with MP-2017, from 87.8 years with the MP-2016 scale.

Check out the report as it includes a wealth of information, including a sensitivity analysis to model the impact of different improvement model assumptions on annuity factors for plan funding. We will continue to provide updates to a variety of our experience studies, including on pensions, so check out our research pages for the latest developments.

R. Dale Hall, FSA, CERA, MAAA, is managing director of Research at the Society of Actuaries.