The Society of Actuaries should have bumper stickers.
They could say things like, “I’ve Got Your Number,” or “Who’s Counting?” or some other pithy remark. The point is, I don’t think that actuaries — and their affinity group — get much respect. And yet, they should. Not because everyone wants to join this club, but because the organization wields such power, even though most people have never heard of them. Actuaries are the people that calculate the probability of something happening. More specifically, they analyze risk-related events like hurricanes and floods. Some of their most notable work involves figuring out how long people will live on average, which is very useful for insurance companies and other firms that key off of people’s longevity. While most people can’t exactly describe what an actuary does, the Society of Actuaries just told most Americans something very personal about themselves — when it comes to retirement, they’re even worse off than they thought. And there’s one reason for that…we’re living longer.
The Pension Crunch
The Society just released its latest estimates of longevity, the first revision since 2000. A 65-year-old man is expected to reach 86.6 years of age, up 2.0 years from the estimate in 2000, while a 65-year-old woman’s life expectancy has been increased by 2.4 years. That sounds really good until you realize we all have to pay for it! The news is hitting home for companies that offer pensions because they’re legally required to use the Society’s life expectancy tables in calculating their pension obligations. Adding a couple of years onto every future retiree’s stream of payments means that a lot more money will go out the door.
Take the case of General Motors Company (GM) … the life expectancy change added $2 billion in pension liabilities. The consulting firm Towers Watson & Co. (TW) estimates that the change could cost the pension plans of the 400 largest US companies roughly $72 billion. That’s a lot of cash.
No Such Thing as a Free Early Bird Lunch
But, according to analysts, the story isn’t all that bad. Luckily, private pensions have been winding down. Just 16% of private-sector employees participated in defined benefit pension programs, with 15.7 million active members. That’s 48% less than the number of people covered by such plans in 1980. So, luckily, a bunch of private companies won’t be footing the bill for longer payments to as many people as they would have in the past. But here’s the catch — those people still exist. Not the same ones from the 1980s, but private-sector employees in general. If they aren’t covered by private pension funds from their employers, then here’s the question: who is responsible for their retirement?
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