Updated Mortality Tables Increased Pension Liabilities by $100B

For year-end 2014, Moody’s estimates that pension funding levels for its rated U.S. corporates decreased, by 8 percentage points, to 78% of pension obligations, versus a year earlier.

According to Moody’s recent Credit Outlook, in dollar terms, this equates to $201 billion of increased underfunding. The ratings agency says two forces drove this large plunge in 2014: lower discount rates and increased longevity.

Moody’s estimates the average discount rate was approximately 4% at the end of 2014, down from 4.8% at the end of 2013, increasing pension benefit obligations (PBOs) by approximately $165 billion alone. Additionally, the Society of Actuaries in 2014 released updated mortality tables to help retirement plan sponsors more accurately estimate their PBOs; according to Moody’s, the tables increased PBOs by more than $100 billion for rated U.S. corporates.

Last year, Wilshire Consulting anticipated that defined benefit pension plan liabilities would increase between 3% and 8% in total for most plans due to new Society of Actuaries mortality tables.