New mortality estimates released Monday by the nonprofit
Society of Actuaries show the average 65-year-old U.S. woman is expected to
live 88.8 years, up from 86.4 in 2000. Men age 65 are expected to live 86.6
years, up from 84.6 in 2000. Longer lives for retirees may add to a squeeze at
many pension funds already struggling to plug funding gaps and force companies
to contribute more to cover future obligations. The estimates also are expected
to accelerate a shift away from defined-benefit pension plans that offer
guaranteed payouts, said Rick Jones, senior partner at consultant Aon Hewitt.
More companies are moving workers into defined-contribution
plans, such as a 401(k), where employees are largely responsible for saving and
investment choices. The new estimates released Monday—based on data from
corporate pension plans—could eventually increase retirement liabilities by
roughly 7% for most corporate plans, according to Aon Hewitt. The Society of
Actuaries predicts the increases could range from 4% to 8%.
Corporations have roughly $3 trillion in current retirement
liabilities. Companies being hit with rising insurance premiums and
longer-living retirees also are expected to unload the risks of running a
pension plan by offering workers lump-sum pension buyouts or selling those
liabilities to insurance companies.
One such deal came in September, when Motorola
Solutions Inc. agreed to transfer about $3.1 billion in pension
obligations and their risk to Prudential Financial Inc., and to
purchase a group annuity contract from the insurer. That and other related
moves are expected to roughly halve Motorola’s retirement obligations. General
Motors Co. and Verizon Communications Inc. have struck similar
arrangements, which worry some retirees, because their benefits no longer carry
a backstop from the federal Pension Benefit Guaranty Corp.
Many corporate auditors rely on the mortality predictions
from the Schaumburg, Ill., nonprofit organization, which represents 25,000
actuaries around the U.S., as a starting point when calculating how long
retirees will live and how much it will cost to cover a company’s retirement
obligations.
The last time that the Society of Actuaries released its
life-expectancy predictions was 2000. The Internal Revenue Service, which sets
minimum funding calculations for corporate pension plans, is expected to
consider the new estimates starting in 2016. The society also is considering a
set of separate calculations for public pension plans.
Life expectancy for men and women is on the rise because
fewer are smoking and there is better medical treatment. The actuarial group’s
figures differ from other mortality estimates.
The Centers for Disease Control and Prevention said this
month that the average 65-year-old man would live to be 82.9 years old, while
the average 65-year-old woman would live to be 85.5 years old. The life
expectancy from birth for the total U.S. population was 78.8 years old, the
agency said. The CDC figures were based
on death rates from 2012.
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