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Pension Funds

New mortality scale could lead to dip in pension obligations

Pension plan obligations could see a slight decrease under the updated mortality scale being released Friday by the Society of Actuaries.

The annually updated mortality improvement scale for pension plans, known as MP-2017, reflects a 1.2% increase in age-adjusted U.S. population mortality rates between 2014 and 2015. This is the first year-over-year mortality rate increase since 2005, but the updated scale suggests life expectancies declined slightly, which could lead to slightly lower pension plan obligations.

According to SOA preliminary estimates, plan sponsors implementing the MP-2017 improvement scale could see their pension obligations reduced by 0.7% to 1%, when calculated with a 4% discount rate.

Dale Hall, the SOA's managing director of research, said while MP-2017 gives pension actuaries and plan sponsors current information to measure retirement obligations and make forward-looking mortality improvement assumptions, "every plan is different, and it's important for actuaries and plan sponsors to perform their own calculations and decide how to reflect the impact of emerging mortality changes in their own plan valuations."

The MP-2017 report includes a sensitivity analysis for sponsors to model the impact of different assumptions on annuity factors for plan funding.

MP-2017 incorporates the latest publicly available mortality data from the Social Security Administration through 2013 plus 2014 and preliminary 2015 data developed by the SOA and obtained from the SSA, Centers for Disease Control and Prevention, Centers for Medicare and Medicaid Services, and the U.S. Census Bureau. The slight decline in life expectancy stems from an increase in mortality from eight of the 10 leading causes of death in the U.S., as reported by the CDC.

Under the new scale, the life expectancy for a 65-year-old-male pension plan participant declined to 85.6 years from 85.8 under MP-2016, while that for a 65-year-old female pension plan participant declined to 87.6 from 87.8.

The mortality report is available on the Society of Actuaries website.