Pension plan liabilities will increase meaningfully due to new mortality tables released Feb. 4 by the Society of Actuaries. These tables reflect the results of the society's Retirement Plans Experience Committee's recent “Pension Mortality Study” and include a new mortality table (RP-2014) and a new mortality improvement projection scale (Scale MP-2014). Compared to previous tables and projection scales, these tables highlight longer life expectancies and faster increases in mortality improvements.
The new tables and scale likely will become the basis of lump-sum calculations and pension funding valuations in the near future, as well as a standard for pension accounting measurements. The result will be a noticeable increase in costs for most pension plans in the years to come that makes 2014 the ideal time to start looking at “shrink-the-ball” opportunities such as vested term lump-sum cashout initiatives.
(Technical details: The RPEC's study was intended to result in proposed mortality tables and an improvement scale that will ultimately supersede the RP-2000 mortality table and associated improvement scales (AA, BB, & BB-2D). Data, consisting of more than 10 million life-years, initially was collected from over 120 private pension plans covering the years 2004 through 2008. The existing RP-2000 mortality table was based upon data from 1987 through 1992, and improvement scale AA was based upon data from 1977 through 1993. The updated mortality improvement scales BB and BB-2D were released in September 2012 by the SOA as interim scales for measuring improvement post-2000.)