As background, the Society of Actuaries (SOA) released a 2014 study on mortality indicating that plan participants are l
The Beacon LOCKTON RETIREMENT SERVICES
MORTALI TY RAT ES H OLD S T EA DY F OR 2017
AUTHOR
DE F IN E D B E N EFI T P LA N FU N D ING
PAMELA DEVLING Vice President Consulting Actuary
Plan sponsors have another year before they have to worry about new plan funding mortality assumptions. IRS Notice 2016-50 defined the tables for 2017 to have the same underlying basis as 2016’s tables; though the Notice does indicate an adjustment will likely occur for 2018 plan years. As background, the Society of Actuaries (SOA) released a 2014 study on mortality indicating that plan participants are living longer than anticipated. Since the IRS previously relied on SOA research, many expected to see
SOA Mortality Changes
the mandated mortality for plan funding change and, when plan sponsors
Anticipated Life Expectancy
switch to the new tables, a 5–10% increase in their liabilities. Fortunately, plan sponsors received yet another reprieve for the 2017 plan year. For plan accounting, most plan sponsors have already updated mortality assumptions, and will see no impact in 2018 to plan expense or balance
2000
2014
65-Year-Old Males
84.2
87.1
65-Year-Old Females
86.1
89.3
IRS mandated 2014 mortality vs. RP-2014 annuitant tables with MP-2014 generational projection, no collar adjustment.
sheet entries. However, all sponsors should expect increases in minimum required contributions, PBGC variable rate premiums, and lump-sum benefit payments, beginning in 2018. In planning for the coming mortality table updates, many defined benefit plan sponsors are considering the following strategic changes:
Lump-sum windows continue to offer plan sponsors a relatively low-cost way to transfer risk from the corporate balance sheet.
Lump-sum payments for plan terminations will be lower in 2017 than would be expected for 2018, unless interest rates climb enough to offset the increased mortality cost. This does not, however, affect annuities purchased during a plan termination or partial buyout.
Asset allocation decisions made in light of the plan’s funded status should incorporate the new mortality assumption.
While the underlying assumptions may change, a plan sponsor’s ultimate financial obligation will not. Providing long-term pension benefits to employees requires a consistent funding strategy intertwined with a well-defined investment policy that can weather the risks of both participant longevity and economic changes.
Our Mission To be the worldwide value and service leader in insurance brokerage, risk management, employee benefits, and retirement services
Our Goal To be the best place to do business and to work
R I S K MA NA G E ME NT | E M PLOYE E B E N E FITS | RE T IRE ME N T S E RV ICE S
lockton.com
The communication is offered solely for discussion purposes. Lockton does not provide legal or tax advice. The services referenced are not a comprehensive list of all necessary components for consideration. You are encouraged to seek qualified legal and tax counsel to assist in considering all the unique facts and circumstances. Additionally, this communication is not intended to constitute US federal tax advice, and is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending any transaction or matter addressed herein to another party. This document contains the proprietary work product of Lockton Financial Advisors, LLC, and Lockton Investment Advisors, LLC, and is provided on a confidential basis. Any reproduction, disclosure, or distribution to any third party without first securing written permission is expressly prohibited. Securities offered through Lockton Financial Advisors, LLC, a registered broker-dealer and member of FINRA, SIPC. Investment advisory services offered through Lockton Investment Advisors, LLC, an SEC-registered investment advisor. For California, Lockton Financial Advisors, LLC, d.b.a. Lockton Insurance Services, LLC, license number 0G13569.
© 2016 Lockton, Inc. All rights reserved.
