Too early to assess the impact of COVID on long-term retirement

However, Milliman cautions that plan sponsors and practitioners will be scrutinized this year and will likely need to justify their assumptions.

The COVID-19 has had a significant impact on current death rates, but the impact on retirement plans may not be felt for a while, Milliman said in a recent analysis.

“For now, the effects of the pandemic are most evident, not in changes to participants ‘mortality plans or pension prices, but rather in participants’ choices regarding their benefits, such as choosing lump sums over pensions,” said Risk Management -Company.

A team of actuaries at Milliman warned: “Although a short-term effect of the pandemic was a significant increase in mortality, no consensus has yet developed among leading institutions on the long-term impact on mortality trends.”

Between March 22, 2020 and December 26, 2020, total deaths in the U.S. were 21.1 higher than expected, Milliman said. About 80% of this increase is due to the coronavirus. In its analysis, the company said the death rate of these people is higher than that of the general public because membership of a retirement plan is generally associated with higher socioeconomic status.

However, Milliman noted that death rates are not updated frequently, and noted that the impact of COVID-19 will not be reflected in funding ratings until 2024 at the earliest. And since mandatory mortality assumptions are revised at least every ten years, an update to baseline mortality trends may not take effect until 2028.

“At this point, the ongoing effects of the pandemic will likely be better understood and measurable,” Milliman said. “So if it is determined that there is no long-term mortality impact, the results of the funding assessment may never reflect experiences during the pandemic.” The lump sum prescription assumptions are also lagging, the researchers said, adding that the The effects of the pandemic may never have a direct impact on the amounts paid out for the lump sums. Instead, because of uncertainty, participants may be more willing to accept a flat-rate payout than to take the risk and receive benefits through a pension.

“Plan sponsors and practitioners should closely monitor recent decisions made by plan participants and determine if they indicate any lasting trends,” said Milliman. “Such behavior can also inform plan sponsors who are considering offering lump sum windows to participants who currently do not have the opportunity to claim a full cash distribution.”

Milliman added, “It is currently recommended that plan sponsors continue to select the baseline mortality rates that are most appropriate for their plan populations.”

However, Milliman cautions that plan sponsors and practitioners will be scrutinized this year and will likely need to justify their assumptions.

However, the death assumptions used for pension plan liabilities are mandated by the IRS and are inflexible.

“Unless there is a change in the current release structure, recent trends or experiences from the pandemic will likely not be reflected in these results for some time, if at all,” Milliman said.

The death rates used in determining the lump sum distributions are also determined by the IRS. The measurement of liabilities for defined benefit plans in accordance with the Financial Accounting Standards Board requires assumptions based on the best estimate of the carrier of a plan’s future events. These assumptions, including mortality, are used in determining the benefit cost and funded status of a plan and are disclosed in the financial statements.

Milliman said the current state of the financial markets is a bigger concern for pension providers. “High volatility, a low interest rate environment and uncertainty about the ongoing effects of the pandemic have combined to create uncertainty about investment returns, liquidity and earnings,” said Milliman.

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