New paper: “How Will Longer Lifespans Affect State and Local Pension Funding?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Will Longer Lifespans Affect State and Local Pension Funding?”

by Alicia H. Munnell, Jean-Pierre Aubry, and Mark Cafarelli

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

This brief is available here.