Americans are living longer – and that creates new funding challenges for state and local pension plans. Private sector plans are already required to utilize new mortality tables which account for increased longevity when formulating their cost estimates. A new issue brief from the Center for State and Local Government Excellence, How Will Longer Lifespans Affect State and Local Pension Funding?, examines the impact that incorporating longevity improvements into their costs estimates would have on the funded status of state and local defined benefit plans.
The brief explores explores what public plan liabilities and funded ratios would look like under two alternative scenarios:
- if public plans were required to use the new mortality tables designed for private sector plans; and
- if public plans were required to go one step further and fully incorporate expected future mortality improvements.
Key findings include:
- Using the private sector standard, public plans underestimate life expectancy by only 0.5 years, reducing the 2013 funded status of state and local plans from 73 to 72 percent.
- Incorporating future mortality improvements would increase life expectancy by 2.3 years and reduce the funded ratio of public plans from 73 to 67 percent.
- Public sector plans appear to be making a serious effort to keep their life expectancy assumptions up to date.