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Mortality Assumptions Revised for Pension Plans

Updated mortality assumptions for participants and beneficiaries in private-sector defined benefit plans have been issued by the Society of Actuaries (SOA). The updates are contained in its Mortality Improvement Scale MP-20141 Report, along with its companion document, the RP-2014 Mortality Tables Report, which present a new basis for mortality assumptions for private sector retirement programs in the United States.

These reports are the culmination of a comprehensive study of uninsured retirement plan mortality experience SOA’s Retirement Plans Experience Committee (RPEC) began in late 2009. The primary focus of this study was a comprehensive review of recent mortality experience of uninsured private retirement plans in the United States. With the exception of the mortality rates at the youngest and oldest ages, the participant data underlying the RP-2014 tables reflect mortality experience of retirement plans subject to the funding rules of the Pension Protection Act of 2006 (PPA).

The RPEC maintains that, as of their release date, the RP-2014 tables presented in the report represent the most current and complete benchmarks of U.S. private pension plan mortality experience, and it recommends consideration of their use for the measurement of private pension plan obligations. The RPEC also recommends generational projection of mortality rates using Mortality Improvement Scale MP-2014, or an appropriately parameterized version of the RPEC 2014 model.

SOA expects the financial impact of the combined change to vary substantially based on the starting mortality assumptions; for example, the impact of switching from a static projection using Scale AA will typically be much more significant than the impact of switching from a generational projection using Scale BB. The impact will also vary with the characteristics of the covered group. These new mortality assumptions could result in an increase in plan liabilities of 5% to 10% for traditional defined benefit plans.

The Internal Revenue Service is to issue an updated mortality table for minimum funding purposes in 2017 or 2018. The RP-2014 is expected to serve as the basis for the revised IRS table. In 2013, IRS requested comments on whether or not they should continue to publish static mortality tables. ASPPA and ACOPA submitted comments recommending that static tables continue to be made available.