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The Impact of Longevity Improvements on U.S. Corporate Defined Benefit Pension Plans

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Author Info

  • John Kiff
  • Michael Kisser
  • Mauricio Soto
  • Stefan E. Oppers

Abstract

This paper provides the first empirical assessment of the impact of life expectancy assumptions on the liabilities of private U.S. defined benefit (DB) pension plans. Using detailed actuarial and financial information provided by the U.S. Department of Labor, we construct a longevity variable for each pension plan and then measure the impact of varying life expectancy assumptions across plans and over time on pension plan liabilities. The results indicate that each additional year of life expectancy increases pension liabilities by about 3 to 4 percent. This effect is not only statistically highly significant but also economically: each year of additional life expectancy would increase private U.S. DB pension plan liabilities by as much as $84 billion.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/170.

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Length: 34
Date of creation: 01 Jun 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/170

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Related research

Keywords: Corporate sector; Economic models; pension; pension liabilities; life expectancy; mortality tables; mortality table; pension plans; longevity risk; pension funds; retirement; annuity table; pension plan; pensions; public pension; defined benefit; value of pension; retirement age; pensioner; pension fund; average pension; pension contributions; defined benefit pension plans; private pensions; corporate pension; defined benefit pension; benefit pension; benefit payments; public pension liabilities; future pension; pension plan liabilities; pension benefit; private pension; pension valuation; pension law; risk management; annuity market; life expectancies; pension liability; global pensions; additional pension; pension obligations; information on pension; average retirement age; life annuities; future payouts; pension benefit guaranty; national pension; future payout; pension committee; pensioners;

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  1. Pablo Antolín, 2007. "Longevity Risk and Private Pensions," OECD Working Papers on Insurance and Private Pensions 3, OECD Publishing.
  2. Dushi, Irena & Friedberg, Leora & Webb, Tony, 2010. "The impact of aggregate mortality risk on defined benefit pension plans," Journal of Pension Economics and Finance, Cambridge University Press, Cambridge University Press, vol. 9(04), pages 481-503, October.
  3. Robert Novy‐Marx & Joshua Rauh, 2011. "Public Pension Promises: How Big Are They and What Are They Worth?," Journal of Finance, American Finance Association, American Finance Association, vol. 66(4), pages 1211-1249, 08.
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