Impact of Mortality Change on U.S. Single Employer Pension Plan Funding

April 2017

In December 2016, the Internal Revenue Service (IRS) issued proposed updated mortality tables starting in 2018 for minimum funding requirements for single employer defined benefit pension plans.[1] This study estimates the impact of the proposed change on the single employer pension system as a whole; the impact on individual plans may differ. Here are highlights of the research:

  • The proposed mortality tables increase liabilities and reduce funded status:[2]
    • On a funding basis, estimated aggregate 2018 Funding Target liabilities increase 2.9% from $2.278 trillion to $2.343 trillion, and the estimated cost of current year benefit accruals (normal cost) increases 1.6%, from $49.6 billion to $50.4 billion.
      • The estimated aggregate unfunded Funding Target would increase 35%, from $63 billion to $85 billion.
      • Estimated aggregate minimum required contributions for 2018 would increase 11% from $7.1 billion to $7.9 billion. Note that many plan sponsors have been contributing considerably more than the minimum amount required. Assuming that recently exhibited contribution patterns continue, 2018 contributions would rise about 4%, from $94 billion to $98 billion.
    • For PBGC premiums, estimated aggregate 2018 Premium Funding Target liabilities would increase 3.1%, from $2.679 trillion to $2.763 trillion.[3]
      • The estimated aggregate unfunded Premium Funding Target (also known as unfunded vested benefits) would increase 24%, from $217 billion to $268 billion.
      • Estimated PBGC premiums for 2018 would increase 12% because of the mortality change, from $8.6 billion to $9.6 billion, assuming that actual contributions follow recently exhibited patterns.
  • Analysis illustrates that, in the end, it costs less to fund expected longevity directly than to pay amortized losses that arise from undervaluing it.



Impact of Mortality Change on U.S. Single Employer Pension Plan Funding


Thank You

The authors thank the following volunteers who provided advice for the analysis and arm’s-length review of the study. Any opinions expressed may not reflect their opinions or those of their employers. Any errors belong to the authors alone.

Daniel S. Atkinson, FSA, EA, MAAA

Charles D. Cahill, FSA, EA, FCA, MAAA

Jason D. Melbye, FSA

Lee W. Morgan, FSA, EA, MAAA

Questions Or Comments?

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[1] REG‒112324‒15, RIN 1545‒BM71, Federal Register Vol. 81, No. 250, December 29, 2016, p. 95911.

[2] Internal Revenue Code section 430 and its accompanying regulations govern funding requirements for single employer pension plans.

[3] PBGC premiums are governed by Employee Retirement Income Security Act of 1974 (ERISA) sections 4006–4007 and accompanying regulations 29 CFR Parts 4006–4007.