Talk of possible new miracle drugs -- especially for cancer -- clearly has excited the public and the press. But, actuaries agree, it's too early to make pension adjustments around them.
The past two generations have seen "a steady decline in mortality" rates of 1% to 2% a year, and the opinion is that this trend "is going to continue as different cures are found for different diseases," reports Edwin Hustead, senior vice president in the Washington office of the Hay Group.
This steady improvement is already built into actuarial assumptions pension funds use, Mr. Hustead said. He also is author of the book "100 Years of Mortality."
Moreover, mortality improvement isn't the biggest cost concern for plan sponsors. And pension funds don't make adopting more up-to-date mortality tables a priority. Many plan sponsors now use 1983 mortality tables in their actuarial assumptions; those were revisions from the 1971 tables. When sponsors changed from the 1971 to the 1983 mortality tables, it increased pension costs by an average of about 5%, Mr. Hustead said. In turn, as plans gradually start using the next-newest 1994 mortality tables, their costs will increase by roughly another 5%, he estimates.
"But although that is significant," it pales in comparison to, say, the cost of changing a fund's interest rate assumption, he said.
Indeed, miracle drugs could be financially helpful to sponsors of retiree medical plans. As Mr. Hustead points out, a pill that cures cancer is likely to be overall less expensive than today's costly treatments.
