Living Longer and the Effect on Pensions

The Center for Retirement Research at Boston College released their April Brief on How Will Longer Lifespans Affect State and Local Pension Funding? The authors considered whether state and local governments are factoring in the increase in longevity into their budgeting for employee pensions. The authors use two alternatives to explore the answer: “1) if public plans were required to use the new mortality table designed for private sector plans; and 2) if public plans were required to go one step further and fully incorporate expected future mortality improvements.” The article first discusses the current climate for these pensions, discusses a scenario illustrating longevity’s impact on pensions and then covers the two options. 

The authors’ conclusion might surprise you.  “The question underlying this analysis is whether outdated mortality assumptions are a serious problem among state and local plans. The answer appears to be “no.”…  In short, public sector plans seem to be making a serious effort to keep their life expectancy assumptions up to date.”  The brief also has an appendix with a table showing the “life expectancy and funded ratio” for various state and local government pension plans.