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Pension Funds

Public plans receive their own mortality tables

Release could be most beneficial to smaller plans due to ability to look closely at funding scenarios

Kevin Woodrich said the data will offer officials greater funding insights.

The first mortality tables specifically for public-sector pension plans — identifying teachers as likely the largest public pension obligation cohort — might not surprise administrators of large plans, but it does offer them a way to benchmark to their peers.

And for smaller public funds, the mortality tables released Jan. 22 by the Society of Actuaries provide ways to fine-tune the assumptions they use to make funding decisions.

The new tables are welcome, said Kevin Woodrich, a principal consulting actuary with Cheiron Inc. in Charlotte, N.C., because the significant amount of information allows public plan officials to dissect by job category.

"How different are (public plans) from the private sector, and within the public sector? It gave us the ability to produce that kind of table. It is important because now (public plan officials) can use it as a benchmark comparing to other public plans," said Mr. Woodrich, who served on the SOA Retirement Plans Experience Committee producing the tables.

"It also allows plans the ability to use a variation tailored to their actual experience. In the past, they may have had to rely on tables based on private-sector data," Mr. Woodrich said.

Plan sponsors were reluctant to comment on how the new tables might affect their actuarial assumptions going forward.

David Kausch, a Society of Actuaries fellow and chief actuary with Gabriel, Roeder, Smith & Co. in Southfield, Mich, said: "Mortality assumptions are one of the more significant demographic assumptions. The next one is, when are they going to retire? Those two tend to have the biggest impact."

Mr. Kausch also served on the Retirement Plans Experience Committee.

Officially known as the Pub-2010 Public Retirement Plans Mortality Tables Report, it is the first look at public-sector mortality distinct from the private sector. The findings are based on the experience of 35 public systems covering 78 retirement plans between 2008 and 2013, broken down by three job categories: general employees, public safety employees and teachers. The tables also suggest a correlation between higher income and lower mortality.

Another first for the report was projecting that teachers would have the largest pension obligations among public-sector employees, when comparing the same benefit amount. Teachers have the longest age-65 life expectancy, and higher rates of deferring the start of their benefit to age 62, compared with public safety and general employees. Known as annuity factors, these two points are used to value a plan's liabilities, and larger annuity factors mean larger liabilities.

The life expectancy for female teachers reaching age 65 is 90.03, compared with 88.8 for women among general employees and 87.68 for public safety personnel. For men reaching age 65, teachers' life expectancies are 87.7, compared with 85.49 for general employees and 85.27 for public safety workers.

While the teacher data initially sparked some concern that the new tables could cause public teacher pension systems' liabilities and contributions to rise, many of the plans already have accounted for their participants' higher longevity, actuaries said.

"To a large extent, actuaries in the public-plan sector already know that and are reflecting that," Mr. Kausch said.

Unlike in the private sector, where use of updated mortality tables is dictated by the Internal Revenue Service, public-sector practices are governed by actuarial standards of practice, and public pension systems have been adjusting mortality tables all along to reflect their plans' actual experience. "Most of the large systems already do scale tables to fit their own experience. These new tables won't mean much difference for large plans," Mr. Kausch said.

It could take as many as five years for the impact of the new tables to show up, since public plan actuaries typically revisit their mortality assumptions when they update their experience studies every three to five years. Still, Mr. Kausch said, "we are definitely going to be considering these the next time we are looking at actuarial assumptions."

The biggest impact of the new mortality tables is expected to be on small public retirement systems without enough mortality experience to adjust previously used tables. Smaller plans could use the new tables off the shelf, or as reference tables for credibility-weighted blended mortality rates, actuarial experts said.

The key will be interpreting the mortality tables based on individual job categories, said Dale Hall, SOA's managing director of research in Chicago. "There is no single mortality table covering aggregate public retirement plan mortality across all professions studied, due to the varying mortality patterns from each job category," he said. SOA officials stress that demographics specific to each pension plan also matter, and the mortality tables are just one of many assumptions used to calculate pension funding, along with income, education levels and other factors.