If your company is planning to set aside new mortality tables in arriving at assumptions about pension and other post-employment benefit obligations because they are simply too new, that might be a mistake.
The Securities and Exchange Commission sent a clear signal to the accounting profession that companies need to consider new information from the Society of Actuaries suggesting Americans covered by employer pension plans and health insurance tend to liver longer. After extensive study, SOA released new data in October that shows males who reach age of 65 live 2.0 years longer to age 86.6 years than previous mortality tables suggested, and women who reach that milestone live 2.4 years longer to age 88.8. Experts have said applying the new mortality data could produce increases of anywhere from 4 percent to 10 percent in private pension plan liabilities.
“The staff understands there has been some discussion among companies about whether the SOA’s recent mortality data can be ignored for current year measurements,” said Kirk Crews, a professional accounting fellow at the SEC during a recent national accounting conference on regulatory events. “Given plan sponsors have historically utilized the SOA’s mortality data and that data has been updated, the staff does not believe it would be appropriate for a registrant to disregard the SOA’s new mortality data in determining their best estimate of mortality.”
Under U.S. Generally Accepted Accounting Principles and International Financial Reporting Standards, companies use various judgments and estimates, including mortality, to arrive at their calculated benefit plan obligations. SOA mortality data has long been regarded by the Internal Revenue Service and other authorities as key evidence to be considered in projecting costs for pension and other post-employment benefits, such as retiree medical insurance. That suggests companies need to plan to pay for two additional years of benefits for their retirees than they likely are currently expecting or projecting, which increases the plan liability and current contribution requirements.
The SOA says it updated its mortality tables and mortality improvement scale over a five-year period with the input of independent review committees and peer reviewers at multiple points in the process. The updated tables and improvement scale were subjected to a four-month public comment period, with input incorporated into the final reports, SOA says.