Products May 6, 2016

Actuaries Release Online Longevity Analyzer for Participants

Explaining the motivation for releasing the new tool, the groups observe that life expectancy is usually given as “a single number coming from a single set of assumptions, and individuals may outlive that estimate.”

Reported by

The new Actuaries Longevity Illustrator released by the Society of Actuaries (SOA) and the American Academy of Actuaries is billed as an easy-to-use online tool that calculates longevity risk on an individual basis and according to a variety of scenarios.

According to the groups, the Actuaries Longevity Illustrator is “available to everyone and provides the user with the likelihood of living various lengths of time, through which individuals and couples can better understand the risk of outliving their retirement income.”

Get more!  Sign up for PLANSPONSOR newsletters.

Explaining the motivation for releasing the new tool, the groups observe that life expectancy is usually given as “a single number coming from a single set of assumptions, and individuals may outlive that estimate.” To combat this risk, the Actuaries Longevity Illustrator provides a range of outcomes illustrating the uncertainty of longevity risk. The American Academy of Actuaries and SOA note that there is a “significant financial risk involved in living longer than expected, which is why retirement planning should include a range of situations and risks that may be encountered.”

Ted Goldman, a senior pension fellow of the American Academy of Actuaries, says the initial idea of making an interactive illustrator tool available as a public service began several years ago, “when we noticed that retirees, and those planning for their retirement, did not have access to information that objectively breaks down the nature of longevity risk that can be readily understood both from a conceptual standpoint and operationally for those who are considering retirement income options.”

As such, the groups designed the Actuaries Longevity Illustrator to “help plan for the possibilities of surviving to a range of different ages both for individuals and couples,” concludes Andrew Peterson, senior staff fellow of retirement systems at the SOA. “Life doesn’t fit into just one scenario or age to reach in retirement. Instead, people should plan for a variety of outcomes—living shorter or longer than expected.”

The tool is accessed directly online at www.longevityillustrator.org. 

Administration May 6, 2016

DB Funded Status Continues Struggle in 2016

Data from several providers indicate U.S. corporate pension plans’ funded status fell in April.
Reported by

According to the BNY Mellon Institutional Scorecard, the funded status of typical U.S. corporate defined benefit (DB) plans fell by 0.3% in April, to 79.9%.

Likewise, Mercer found the estimated aggregate funding level of pension plans sponsored by S&P 1500 companies decreased by one percent to 78% as of April 30, as a decrease in discount rates more than offset mildly positive equity markets. And, S&P 500 aggregate pension funded status decreased in April from 78.2% to 77.9%, according to the Aon Hewitt’s Pension Risk Tracker.

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

According to BNY Mellon, after a slight increase in March, the funded status of corporate defined benefit (DB) plans has now fallen five out of the last six months, since closing the month of October, 2015, at 84.7%. Over the course of April, liabilities grew by 1.6%, which outpaced a modest 1.2% return in assets. Corporate discount rates fell by 9 basis points in April, to 3.91%—which led to much of the 1.6% gain in liabilities. For the year, assets are now up 4.4%, but remain behind liabilities, which are up 9.1%.

Funded status is now down by $100 billion from the $404 billion deficit measured at the end of 2015, according to Mercer. “After a rough first quarter of 2016, April continued the trend of declining funded status,” says Matt McDaniel, a partner in Mercer’s retirement business. “Long term interest rates continue to fall in spite of the Fed’s rate hike last year.” McDaniel notes, however, this presents some compelling savings opportunities for plan sponsors making lump sum payouts. “With rates down 50 basis points from last fall, plans paying lump sums in 2016 can book gains when using the IRS-prescribed rates. However, this window of opportunity is closing, and plan sponsors will need to move quickly to take advantage.”

Aon Hewitt found that year-to-date, the aggregate funded ratio for S&P 500 plans decreased from 81.1% to 77.9% and the funded status deficit increased by $92 billion. Aon Hewitt estimates that this change was driven by asset gains of $29 billion overshadowed by a liability increase of $121 billion.

BNY Mellon Institutional Scorecard, which is available online here. Aon Hewitt’s Pension Risk Tracker is at https://pensionrisktracker.aon.com/.

«