Long Live Public Pensions

The Center for State and Local Government Excellence’s issue brief, “How Will Longer Lifespans Affect State and Local Pension Funding?,” asks two questions: What would happen if public plans were required to use the new mortality tables designed for private-sector plans? What would happen if they were to fully incorporate the expected future mortality improvements?

The answer: not much. According to the brief, on average public plans underestimate life expectancy by about six months, compared to the private-sector standard. Adopting the new mortality tables would lead to a 1 percentage point difference in funded status—from 73% to 72%.

The biggest decline, the authors found, occurs among the smallest plans, while larger plans keep their life expectancy assumptions more up to date. The most underfunded plans also tended to be the most out of date with their mortality assumptions, meaning those plan sponsors—and their participants—may face a rude awakening. For most plans, though, fully incorporating the anticipated mortality improvements would add 2.3 years to life expectancy, dropping the funded ratio of public plans from 73% to 67%.

The impact of applying the private-sector assumptions was roughly equal among general employees, a 7-percentage-points decline in funded ratio; teachers, 7.3 points; and fire and police forces, 8.8 points.

The brief was authored by Jean-Pierre Aubry, Mark Cafarelli and Alicia H. Munnell of the Center for Retirement Research at Boston College. The full report is available here.