October 9, 2015
The level of projected mortality improvement — how death rates are expected to decline in the future — is a key assumption in determining the liabilities of defined benefit (DB) pension plans. On October 8, the Society of Actuaries (SOA) released a report containing an update to its mortality improvement tables, which can be accessed from the Mortality Improvement Scale MP-2015 page on the SOA website. The report reflects two additional years of data, in which actual mortality rates did not improve as much as predicted, and accordingly projected rates of improvement are more modest than those published previously.
That decrease in improvement rates could lower some pension liabilities by up to 2 percent, depending on plan demographics. Generally, this decrease will only apply to the extent that liability determinations currently based on the 2014 SOA improvement rates are updated to utilize the 2015 SOA improvement rates. Other alternative improvement rates may already reflect, explicitly or implicitly, the effect of the new mortality data.
The 2014 report replaced previous mortality improvement rates that were 19 years old, resulting in significantly increased in rates. The improvement rates in the 2015 report have decreased slightly from that level. The SOA now intends to publish updated improvement tables annually.
Sponsors of DB plans and their actuaries should continue to monitor emerging trends and consider the implications for plan costs and related disclosures.
Sibson helps our clients navigate the maze of federal, state and local laws and regulations related to benefit plans.Learn more about our compliance services