Understanding Mortality Improvement For Private Pensions

Six months ago the Society of Actuaries (SOA) released the updated private pension plan mortality tables, which shows that longevity is increasing in the U.S. The SOA’s Retirement Plans Experience Committee (RPEC) developed the final reports, which cover the RP-2014 mortality tables and the mortality improvement scale MP-2014. The SOA continues to work with its members in understanding and implementing the 2014 mortality tables and the mortality improvement scale.

The committee developed the “RPEC_2014” mortality improvement model, and a spreadsheet-based tool for users to create a customized mortality improvement scale with the “RPEC_2014” model. This additional approach helps actuaries to construct two-dimensional mortality improvement scales based on assumption sets other than that used by RPEC.

Plan sponsors have begun incorporating the mortality tables and mortality improvement scale to help them more accurately estimate financial obligations associated with their plans. Since October 2014, there have been several articles from U.S. news outlets and industry media about the mortality tables, mortality improvement, private pension funding, and most recently updating projections of contribution requirements. Some of these recent articles include Bloomberg News and The Wall Street Journal, to name a few.

The tables, scale and “RPEC_2014” model reflect the hard work of SOA members, staff and RPEC to compile accurate data from pension plan sponsors based on their actual experiences with representative populations. These tables are an example of how the SOA develops and updates actuarial research to inform the public and public policy makers on key issues, such as on mortality improvement.

The SOA and RPEC maintain an ongoing discussion about the update cycle and any volatility it may introduce into valuations. For more information on mortality tables visit the tables and scale page on the SOA’s website.

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Discussion

2 responses to "Understanding Mortality Improvement For Private Pensions"

  • Wanted to suggest that the SOA have a webinar or call pertaining to the tables since think would be good to understand the following:

    -SOA sent out email blast about an error in the table. Several actuarial firms contacted me about it so want to understand further what the error is and if resolved.

    -Clarification on the required or expected usage of the table. Some firms say SOA mandates use of a table and never saw SOA ever mandate a tables usage before. Understand if IRS or PBGC mandates a table, but not SOA, so wanted to have true clarity on this issue so that is clear.

    -Some auditors say that not mandated, solely required for certain valuations (e.g., PBGC). Others say mandated regardless of type of valuation.

    -Summary of studies comparing the current table to previous tables (e.g., RP2000). Does SOA have an opinion on what they felt range in value of RP2000 with Scale AA going to new RP2014 table with new mortality improvement.

    -Besides the fact that new table has more current data, was there a different approach or methodology used for the new table. For example, different methods of data graduation, etc.

    • SOA says:

      In response to Michael Frank’s questions:

      • Last year RPEC uncovered an error in the collar- and the quartile-specific Employee rates. The updated collar- and the quartile-specific Employee rates should be used, and this change has no impact on other RP-2014 tables. A detailed explanation of the change can be found on page 3 of the RP-2014 report. For the final reports and supplementary information, please visit https://www.soa.org/Research/Experience-Study/Pension/research-mort-table-mort-imp-scale.aspx.

      • There are clear standards of practice (ASOP) that are designed to guide actuaries. Those standards encourage actuaries to look at information from published tables, plan-specific mortality studies, and any other items to help the actuary, auditor and plan sponsor find the assumptions to use.

      • The SOA’s role is to provide objective research for the pension industry. The SOA does not have authority over how the tables may be used and implemented.

      • Section 12.2 in the RP-2014 report contains comparisons of annuity values using RP2000 and Scale AA versus RP2014 and MP2014.

      • The RP-2000 and RP-2014 provide the details regarding the construction of the tables. Details of the RP-2000 can be found in Chapter 3 of the RP-2000 report. Details of the RP-2014 construction can be found in Section 5-8 of the RP-2014 report.

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