How Will Longer Lifespans Affect State and Local Pension Funding?

SLP#43

The brief’s key findings are:

  • Rising life expectancy makes defined benefit pension plans more expensive.
  • The question is the extent to which state and local plans have already incorporated rising life expectancy into their cost estimates.
  • The analysis explores how plan liabilities and funded ratios would be affected by using
    • RP-2014, a new mortality table designed for private plans; and
    • a stricter standard that fully incorporates future mortality improvements.
  • Under the first scenario, liabilities and funding would barely change. Under the second, the average funded ratio would drop from 73 to 67 percent.
  • Since not even the private sector fully incorporates future improvements, public plans seem to be making a serious effort to keep their assumptions up to date.