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How the new mortality tables could affect liabilities related to defined benefit plans and charitable gift annuities

May 14, 2015 Article 2 min read
Katie Thornton

New mortality tables issued for defined benefit plans

On October 27, 2014, the Society of Actuaries (SOA) issued updated versions of its mortality tables to help retirement plan sponsors more accurately estimate the financial obligations associated with their plans.  The updated tables, which show that longevity in the U.S. is increasing, establish a new benchmark for mortality rates of private pension plan participants in the U.S. The SOA is the largest professional association of actuaries in the U.S. and periodically conducts a comprehensive review of available mortality data and publishes mortality tables and improvement scales. The SOA’s last comprehensive study was in 2000. The new mortality tables reflect increasing life expectancies in the United States, along with an expectation that the trend will continue. The SOA has issued base mortality tables (referred to as RP-2014) and a mortality improvement scale (referred to as MP-2014) that are used to address the anticipated rate of improvement in life expectancy in future periods when calculating plan obligations. 

New mortality tables issued for charitable gift annuities

On November 3, 2014, the Board of Directors of the American Council on Gift Annuities (ACGA) voted to reaffirm the existing schedule (originally published on January 1, 2012) of suggested maximum rates for charitable gift annuities. The ACGA uses the results of a gift annuitant mortality study it commissioned in 2010 when calculating a schedule of suggested gift annuity rates. The 2012 Individual Annuity Reserve Table (2012 IAR Table) should be used for all charitable gift annuities to determine the liability. 

How will these new tables affect defined benefit plans and charitable gift annuities?

The measurement of benefit plan obligations and related costs for defined benefit pension and post-retirement benefit plans and reserves for charitable gift annuity requires an estimate of mortality of the participants. U.S. GAAP requires the use of mortality assumptions that reflects the “best estimate” of the future experience that considers all information as of the current measurement date. However,  it should be noted that when making this estimate, U.S. GAAP requires that all available information through the date the financial statements are available to be issued should be evaluated to determine if the information provides additional evidence about conditions that existed at the balance sheet date.

While U.S. GAAP does not prescribe the use of a specific mortality table or mortality improvement scale, given the widespread use and acceptance of the SOA mortality tables in determining plan obligations and the required tables prescribed by state departments for calculating reserves for charitable gift annuities, there is an expectation that these tables will be used as a basis for developing mortality assumptions beginning in 2015, even if beginning of year actuarial information is presented in the defined benefit plan.


Overall, both of the new mortality tables are expected to meaningfully increase benefit obligations for defined benefit plans and values of the charitable gift annuities.  

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