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Death May Pamper Pension Plan Participants

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What You Need to Know

  • From 2014 through 2017, the age-standardized mortality rate for men in the general U.S. population improved by 0.6% per year.
  • For men in U.S. pension plans, the age-standardized mortality rate improved by 1.4% per year.
  • The gap was even bigger for the men on track to collect the biggest pensions.

Companies that use death rate statistics for the entire U.S. population to run pension plans could face a big forecasting problem: Mortality rates have been improving much more quickly for U.S. pension plan participants than for other Americans.

Death has been going so much easier on pension plan participants than on everyone else that basing pension benefits liability estimates on general population mortality data could wreck the estimates, according to analysts at Club Vita.

Club Vita is a company that helps pension plan sponsors, investment firms and other organizations estimate how long the plan participants might live.

Club Vita analysts recently combined their ability to analyze pension plan participant data at the ZIP code level with ideas from a paper by Magali Barbieri, who used government data to show how a U.S. county’s social and economic status might affect residents’ life expectancy.

The Club Vita analysts looked at how income and participation in a pension plan affect U.S. adults’ life expectancy.

The Data

Barbieri found that, since 1982, average life expectancy at birth has been improving much more quickly in the higher socioeconomic status counties than in other counties.

The Club Vita analysts looked at data for the period from 2014 through 2017 — before COVID-19 came along — and concluded that something similar is happening to pension plan participants.

“Pension plan participants have recently experienced much higher mortality improvements than the general U.S. population,” the analysts wrote.

The analysts estimated, for example, that one key mortality indicator, the age-standardized mortality rate, improved an average of 0.6% per year for men in the U.S. population during the 2014-2017 study period, and 0.5% per year for women in the U.S. population.

For U.S. pension plan participants, the average rate of improve during that period was 1.4% for men and 1.3% for women.

“More affluent pensioners, who will dominate pension plan liabilities, have longer life expectancies,” the analysts observed.

What It Means

The Club Vita analysts emphasized that they looked at just three years of data, and that the effect they saw could be temporary.

But, if the effect is real, and if the effect lasts, “the existing gap between [defined benefit] pension plan participants and the U.S. population will widen by around 1 more year by the late 2020s,” the analysts predicted. “The COVID-19 pandemic is likely to further grow this disparity.”

The analysts said actuarial groups may have to build that growing life expectancy inequality into their mortality improvement estimation rules.

(Image: Shutterstock)