Another Year, Another Mortality Improvement Scale

In October 2014, the Society of Actuaries (“SOA”) released the RP-2014 Mortality Tables and Mortality Improvement Scale MP-2014, establishing the new basis for mortality assumptions for pension programs. These new mortality assumptions suggested great improvements in longevity compared to the older mortality studies counterparts, placing a financial burden on plan sponsors in terms of pension liabilities.

In October 2015, the Mortality Improvement Scale MP-2015 was released, including two additional years of mortality data from the Social Security Administration. This updated scale supported smaller improvements in longevity than its predecessor, thus decreasing pension liabilities and alleviating some of that burden.

Well it’s that time of year again! On October 20, 2016, the SOA released an updated mortality improvement scale for pension programs: Scale MP-2016. Incorporating three additional years of mortality data from the Social Security Administration, as well as adjusting for slight methodology modifications, Scale MP-2016 suggests smaller improvements in longevity than previously estimated under Scale MP-2015. It is expected that updating the mortality improvement scale assumption from Scale MP-2015 to Scale MP-2016 will reduce pension liabilities by between zero and two percent.

What’s the Driving Difference in Longevity Expectations?

Mortality improvement experience in the United States from 2010 to 2014 is lower than the long-term average since 1950, and considerably below the average from 2000 to 2009. As a result of this recent pattern, the Scale MP-2016 rates are generally lower than Scale MP-2015 rates. Lower mortality improvement rates result in higher projected rates of mortality; in other words, shorter life expectancy.

Impact on Your Plan

Accounting firms will likely expect Scale MP-2016 be immediately considered in setting assumptions for both corporate and plan financial statements. Plan sponsors can expect the SOA to provide updates to the mortality improvement scale on an annual basis in order to best reflect the most recent trends.

In addition, the IRS and PBGC will likely use these revised rates when updating the mandated mortality assumptions in 2018 for determining required plan contributions, minimum lump sum values, and PBGC variable-rate premiums. Tables used for these purposes in 2017 plan years will be unaffected.

BPAS Actuarial & Pension Services can review the effect that the updated mortality assumption may have on your plan. If you would like to discuss the potential impact on your plan or would like us to move forward with a review, please contact your BPAS APS representative.