February 2012

A View from the SOA's Staff Fellow for Retirement

By Andrew Peterson

What's the one question probably every actuary has been asked at a social event when someone finds out you are an actuary? "So how long am I going to live?" or something similar along this theme. Actuaries are assumed to be experts in mortality and longevity-related issues. Whether this expectation is fully realistic, it provides both an opportunity and a challenge for us, particularly those of us who work primarily in the retirement arena.

I see it as an opportunity because issues related to longevity and making assets last for a full lifetime are in the forefront of people's thinking particularly as the baby boom generation is entering retirement. We should be leveraging our expertise to provide leadership in this area. On the other hand, I see it as a challenge because I believe we as pension actuaries have some work to do to really be on the cutting edge of the issue–particularly as it relates to changes in mortality trends. This is challenging because few pension actuaries work with retirement plans that are large enough to have individually credible mortality plan experience to develop plan specific mortality and so we tend to rely on standard and often prescribed mortality tables, particularly in the case of U.S. "qualified" plans (plans that comply with federal rules).

In addition, we know that life expectancy has generally been increasing and that we should be projecting mortality and many plans do, usually with Scale AA, either as prescribed by the IRS methodology or some other method. But it is difficult to have real confidence in assumptions about how much and for how long mortality improvements should be projected. And some argue that mortality increases are not sustainable due to obesity and related concerns, at least in a U.S. context.

At the same time, this has become an issue that actuaries subject to the U.S. Actuarial Standards of Practice (ASOPs) must now explicitly address through the recent revision to ASOP 35. Hopefully this is not news to any U.S.-based actuaries, but as a quick reminder, ASOP 35, which revised with effect for plan years ending on or after June 30, 2011, requires actuaries to have and disclose an explicit mortality improvement assumption (even if assuming no improvement).

Given all this, the Pension Section Council has discussed the need to have an emphasis in 2012 on providing educational opportunities to our members on mortality and longevity-related issues. In this spirit, I want to highlight a few items, both existing and in the pipeline that should be useful to pension actuaries:

  • There have been a number of recent continuing education sessions on the topic of mortality improvements, including a June 2011 webcast, Implications of Mortality Improvement and Longevity Risk, and a session at the 2011 SOA Annual Meeting, Mortality Projection Issues and Modeling Methods. Both of these sessions received excellent reviews and can be purchased on the SOA website for viewing (and CPD credit).
  • The Pension Section has developed a mortality resources page on the SOA website that provides a wealth of different articles on mortality topics. It's an easy to remember weblink. We'll highlight resources on this page in coming issues, but in the meantime feel free to check it out and suggest other additions. Special thanks to Larry Pinzur, chair of the SOA's Retirement Plans Experience Committee (RPEC) for providing many of these links and suggesting an organizational scheme.
  • While I'm on the subject of RPEC, that committee has been working hard at evaluating experience related to mortality improvements and in particular comparing it to Scale AA. Stay tuned in 2012 for more information coming from them.
  • Finally, the Pension Section Council is committed to making sure that future issues of the Pension Section News regularly have articles on mortality-related topics as a means of educating our membership.

While I find that the volume of articles and materials on this topic can be overwhelming, I suggest a starting point, particularly for U.S.-based actuaries, is to read the recently revised American Academy of Actuaries practice note titled, Selecting and Documenting Mortality Assumptions for Pensions. It was revised in 2011 in light of the ASOP 35 revisions and a significant portion of it provides a helpful "question and answer" format to many common questions about mortality tables and the assumption-setting process. It can get you thinking about the issues as you start your "education process" on this important issue.

I challenge you to make a goal to improve your knowledge in this area...stay tuned for more from the SOA.

Andrew Peterson, FSA, EA, MAAA is staff fellow–retirement systems at the Society of Actuaries headquarters in Schaumburg, Ill. He can be reached at apeterson@soa.org.