Improved Mortality a Challenge for Pension Plans

By ASPPA Net Staff • February 10, 2016 • 0 Comments
Increased longevity is good news! But for pension plans it’s another story. For them, it creates more stress — it spells greater drain and heightens the likelihood that plans will pay benefits for a longer period.

The Social Security Administration’s (SSA) Office of the Chief Actuary late in 2015 issued updated disability and death probability tables. The SSA Office of the Actuary said that projected probabilities of death before normal retirement age have decreased between the 1966 and 1995 cohorts, which it says at least in part reflects the improvement in mortality between 1986 and 2015.

“It’s good news for retirees that they’re living longer,” Minnesota State Retirement System Executive Director David Bergstrom told the Star Tribune, adding, “From a pension standpoint, it’s bad news.”

The effect of increasing longevity are not isolated to any particular kind of plan — private- and public-sector plans alike are experiencing it.

The pension plan serving Baystate Health, a non-profit health system based in Springfield, Mass. that serves five hospitals, a multispecialty medical group and an HMO, is a private-sector plan whose challenges include the effects of greater longevity.

Baystate Health’s plan already had problems, but increased longevity has exacerbated them. Baystate Health Chief Financial Officer Dennis Chalke told HealthLeaders Media, “The mortality table changes were the final event that really caused everyone to take a hard look at whether these plans were affordable,” Chalke says.

Baystate Health already had closed its pension plan to new employees in 2005, and in 2015 it indefinitely froze its pension benefits. Baystate Health reported $69.7 million revenue in the year ended Sept. 30, 2015.

Public-sector pension systems also are feeling pressure due to longer lifespans. It is especially pronounced in Minnesota; only Hawaii has a higher life expectancy among U.S. states. Minnesota’s pension funds reportedly still use mortality projections from 2000, something that actuaries have recommended the state change.

According to the Star Tribune report, state pension funds support more than half a million people and face at least $1 billion more in future pension liabilities since the longevity of state employees and retirees has increased by an average of two years. And the challenges are especially great for the state’s Teachers Retirement Association (TRA): According to Minnesota State Retirement System deputy executive director J. Michael Stoffel, the TRA will need to offset $600 million in new liabilities due to improved mortality rates and $800 million arises from lower anticipated investment returns for a total of $1.4 billion.