Workers are living longer, and for pension plans, this means more payments and a bigger overall price tag on benefits.
In order for employers to estimate the cost of retirement benefits, they need to know a variety of characteristics about the current and future retiree pool, including how long a retiree will live. Recently, the Society of Actuaries released new mortality tables, aka death rate data on how long a person can be expected to live into retirement and continue collecting monthly benefits. The tables come from data collected from over one hundred primarily private pension plans and reflect more than 220,000 deaths and over 10.5 million years of life.
It’s morbid, but this new death data has significant implications for the private pension plans who will likely use these new tables, and who have been otherwise using the older tables based on data collected from over 20 years ago. Some plan liabilities will go up by as high as 7 to 8 percent, other plans can expect a 3 to 4 percent increase depending on factors such as workforce composition (i.e., gender and age distribution). Females, for example, tend to have longer life expectancies, and so plans with predominantly female workers will be more affected, all else equal.
Although the report did not collect enough data to evaluate the impact on public pension plans, increased lifespans are certainly an important factor for public sector plans also, especially teacher pension plans which have a predominantly female workforce. And as life expectancies increase, stakeholders will need to responsibly prepare to take on higher retirement expenditures.