Pub-2010 Public Pension Mortality Study

1. Pub-2010 Public Pension Mortality Study Patrick Nolan, FSA, MAAA March 26, 2019

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4. Webcast Topics • Quick Highlights • Naming Conventions • The Data • Multivariate Analysis • Comparisons to Other SOA Mortality Tables • Observations and Other Comments • Q&A

5. Quick Highlights • A total of 94 individual tables based on over 46 million life-years of exposure and approximately 580,000 deaths • Three separate sets of mortality tables based on job category • Rates for Teachers produce the largest deferred-to-62 annuity values* of all three job categories; even higher than RP-2006** White Collar • Rates for Public Safety produce the smallest deferred-to-62 annuity values of all three job categories; close to RP-2000 • Rates for General employees produce deferred-to-62 annuity values that generally fall between RP-2006 and RP-2006 White Collar • In addition to job category, income level has high predictive value * All mortality rates were projected generationally for annuity comparisons; Scale BB for RP-2000 and Scale MP-2017 for all other tables. ** Removing Scale MP-2014 mortality improvement for 2007-2014 from the RP-2014 rates yields the RP-2006 rates

6. Naming Conventions • RPEC considered the following subgroups in this study • Employee: A nondisabled plan member who is actively employed (including those in plans that no longer have ongoing benefit accruals) • Retiree: A formerly active member in benefit receipt who was not deemed disabled at the date of retirement • Contingent Survivor: A surviving beneficiary (of a formerly active or retired member) who is older than age 17 and in benefit receipt • Disabled Retiree: A retired member in benefit receipt who was deemed disabled as of the date of retirement • Juvenile: A member’s surviving beneficiary who is under the age of 18 • Consistent with the RP-2014 tables, terminated members were excluded from this study

7. Naming Conventions • RPEC considered mortality by job classification • The full set of all public plan mortality tables produced in the study is denoted Pub-2010 • Individual table names indicate job classification • PubT-2010 for Teachers • PubS-2010 for Safety • PubG-2010 for General • Headcount-weighted tables are indicated with an “.H” • Tables based on above and below median amount are indicated with an “(A)” or “(B)”

8. Naming Conventions • For example: • PubG-2010 Û Amount-weighted General (total subpopulation) • PubT.H-2010(B) Û Headcount-weighted below-median Teachers • Additional note on historical mortality tables • The RP-2006 Mortality Tables are based on the same data used to construct the RP-2014 Mortality Tables but as of 2006, the base year of the RP-2014 study • These were computed by backing out mortality improvement from 2007-2014 from the RP-2014 rates using Scale MP-2014

9. The Data

10. Data Collection • Data request distributed by National Association of State Retirement Administrators (NASRA) • Collected information from calendar years 2008-2013 • Central year of study is July 1, 2010 – June 30, 2011 • Job category • Teachers: School teachers and college/university professors, excluding all other school/university staff • Safety: Police officers, firefighters, and correctional officers • General: All other public plan members not designated as Teachers or Safety

11. Data Collection • Geographic Region • Split U.S. into four census regions defined by Census Bureau • Status • Members identified as Active, Retiree, Disabled Retiree, Contingent Survivor • Elected not to attempt to study deferred vested members • Information collected to weigh mortality rates by amount • Salary (Actives) • Pension amount (Retirees, Disabled Retirees, Contingent Survivors) • Data received from 35 public pension systems covering 78 public pension plans

12. Data Processing • Four primary stages of data processing: • Initial review for reasonableness and completeness • Validation of individual records • Review of death counts by month • Review of mortality experience reasonableness by plan, status and job category • Each stage involved asking questions to contributors to attempt to correct or confirm the data provided • At each stage of the process, some data was excluded in situations when contributors could not resolve the issues • Further details in the Appendix

13. Data Processing – Reconciliation of Excluded Data

14. Summary of Exposures/Deaths in Final Dataset

15. Pivot Table Example: Male Retiree Safety

16. Multivariate Analysis

17. Multivariate Analysis¹ • The main objective of the multivariate analysis was to assess the relative effectiveness of different factors in predicting variations in mortality patterns • NIU team analyzed the following potentially predictive covariates • Job Category (Teachers, Public Safety, and General) • Amount Quartile (salary for actives and benefit amount for annuitants) • Geographic Region (Northeast, Midwest, South, West) • Duration (from hire for actives and from benefit commencement for annuitants) • Experience Year • Primary Retiree vs Contingent Survivor ¹ The multivariate analysis was performed by Michelle Xia, PhD and Lei Hua, ASA, PhD at Northern Illinois University (NIU)

18. Multivariate Analysis • Amount Quartile and Job Category had significantly greater predictive value than the other covariates • Retiree mortality experience was also determined to be significantly different from that of Contingent Survivors • Geographic Region and Duration had some predictive value – but each had other issues that limited their practicality • Slight hint of mortality improvement across Experience Years

19. Summary of Pub-2010 Tables • Each of the following tables was produced for each gender and “weighting” ($-weighted or #-weighted) combination ¹ The Teacher and General subpopulations were combined for the Disabled Retiree tables

20. Comparisons to Other SOA Mortality Tables

21. Comparison of Mortality Rates • Early indications were that Pub-2010 rates looked more like RP-2006 white collar (WC) than other tables in the aggregate • The RPEC made comparisons to prior SOA mortality tables as of July 1, 2018 • RP-2000 projected fully generationally with scale BB • RP-2006 projected fully generationally with scale MP-2017 • RP-2006 WC projected fully generationally with scale MP-2017 • Analysis here is based on amounts-based mortality rates • Pub-2010 rates by job classification are projected statically to 2018 with MP-2017 • A ratio below 1.0 on the following charts means Pub-2010 rates are lower than the comparable rate in the previously published table

22. Comparison of Mortality Rates - Annuitants • An important difference between Pub-2010 annuitant mortality rates and prior SOA mortality studies is the exclusion of beneficiaries • RP-2000 and RP-2006 “Healthy Annuitant” tables were developed based on mortality experience of retirees and surviving beneficiaries • Pub-2010 “Health Retiree” tables were developed based on mortality experience of retirees only • Pub-2010 “Contingent Survivor” tables were developed based on mortality experience of surviving beneficiaries • This affects comparison of Pub-2010 to prior rates • There were sufficient Contingent Survivor data to segregate Retiree and Contingent Survivor mortality

23. Healthy Retiree – Teachers (Female) • Observations about new rates • Generally lower than prior rates – even white collar • Largest difference among job classifications • Substantially lower prior to roughly age 75 • May be due in part to exclusion of contingent survivors • Rates above age 95 are higher than RP-2000 • Likely due to high improvement rates in scale BB at those ages

24. Healthy Retiree – Teachers (Male) • Observations about new rates • Generally lower than prior rates at all ages – even white collar • Largest difference among job classifications

25. Healthy Retiree – Safety (Female) Observations about new rates • Generally lower than projected RP-2000 and RP-2006 at younger ages • Generally closest to RP-2006 after age 65 • Higher than projected RP-2006 white after age 55 • Proportion of female safety retirees lower than other job classifications

26. Healthy Retiree – Safety (Male) Observations about new rates • Generally lower than projected RP-2000 and RP-2006 at younger ages • Generally closest to RP-2000 after age 65 • Higher than projected RP-2006 white after age 60

27. Healthy Retiree – General (Female) Observations about new rates • Generally lower than prior studies • Closest to the projected RP-2006 White Collar for the age range shown

28. Healthy Retiree – General (Male) Observations about new rates • Generally lower than RP-2000 and RP-2006 • Generally higher RP-2006 White Collar

29. Employee Mortality – Teachers • Employee mortality rates for Teachers lower than projected prior tables including white collar

30. Employee Mortality – Safety • Employee rates for Safety higher than projected RP-2006 white collar at younger ages (female Safety rates are higher than projected RP-2006)

31. Employee Mortality – General • Female rates are closest the projected RP-2006 White Collar rates • Male rates are generally closest to the projected RP-2006 rates before around age 50

32. Contingent Survivor Mortality Rates • Not separated by job classification • Rates are quite higher than projected RP-2006 and RP-2000 rates at younger ages, closer at older ages

33. Disabled Mortality Rates • Teachers and General experience were similar enough to warrant combining • Teachers and General rates are higher than projected RP-2000 and RP-2006 Disabled Retiree rates • Safety rates generally much lower than the projected RP-2000 and projected RP-2006 Disabled Retiree rates but are closer to the projected RP-2006 Healthy Annuitant rates

34. Disabled Mortality Rates • Disabled Retiree rates for Safety were also compared to RP-2006 Healthy Annuitant (yellow dotted line), in addition to prior Disabled Retiree tables

35. Comparisons of Annuities

36. Annuity Calculations • Monthly deferred-to-age-62 annuities • Calculated as of July 1, 2018 • Employee rates for ages less than 62 and Retiree / Healthy Annuitant rates for ages 62 and older • Discount rate of 7% before and 5% after age 62 • 7% broadly representative of discount rates • Difference intended to approximate 2% COLA • Mortality Projection • Scale MP-2017 fully generational projections for Pub-2010, RP-2006 and RP-2006 WC • Scale BB fully generational projections for RP-2000

37. Annuity Comparisons – Teachers Observations • Teacher annuities significantly higher than prior studies • Female annuities generally 4%+ higher than White Collar • Male annuities generally 3% higher than White Collar

38. Annuity Comparisons – Safety Observations • Safety annuities generally closest to RP-2000 • At higher ages, Safety annuities are between RP-2000 and RP-2006

39. Annuity Comparisons – General Observations • General female annuities generally higher than prior studies • Female annuities are closest to White Collar • Male annuities are between RP-2000 and RP-2006 White Collar

40. Observations and Other Comments

41. Observations and Other Comments • No “Combined” tables • Statistically significant different mortality patterns among the three job categories • Demographic makeup of the study’s total population is unlikely to match up well with that of any particular public retirement plan • Comments on Geographic Region • The explanatory power of geography was considerably lower than that of either job category or amount-based quartile • Data were often concentrated in particular areas and may not have been representative of an entire region • High statistical significance of Income as a predictor of mortality • The Above-Median and Below-Median tables should be considered as alternatives to the corresponding “total subpopulation” table, whenever appropriate

42. Observations and Other Comments • Treatment of Social Security Benefits • Analysis did not incorporate Social Security benefits • Difficult, if not impossible to collect this data at the member level • Broad indicators of Social Security coverage are not sufficient • High-level analysis showed no consistent pattern when comparing plans with probable Social Security coverage to plans without probable Social Security coverage • Benchmark nature of Pub-2010 Tables • Tables are not intended to be automatically applied as published without further testing for appropriateness • Relevant benchmark tables can be selected based on characteristics of the covered group • Recent mortality experience of the covered group can be used to determine whether the benchmark is appropriate or should be adjusted

43. Observations and Other Comments • In accordance with ASOP 35, Pub-2010 tables (including those for Disabled Retirees) should be projected with an appropriate mortality improvement scale • How to handle mortality improvement scales with calendar year factors? • Impact of separate Retiree and Contingent Survivor (CS) tables • Apply CS rates to all beneficiaries after the death of the primary Retiree • A number of possible approaches for calculating joint-and-survivor annuities • Use of weighted rates • “… it would not necessarily be inappropriate–or inconsistent–to use amount-weighted tables to measure pension obligations and the corresponding headcount-weighted tables to measure most postretirement medical obligations, even when the two covered populations are identical.”

44. Observations and Other Comments • Proposed (but not yet adopted) revision to section 4.1.2 of ASOP 35 • “If the mortality assumption is based on mortality tables that substantially predate more recently published relevant and generally available pension mortality tables and the actuary determines that the assumption is reasonable, the actuary should disclose the justification for the use of such tables.” • Actuaries should take into account appropriate experience from a specific plan in setting a mortality assumption, to the extent it is credible (see ASOP 25) • Effect of choosing to adopt Pub-2010 tables may vary from annuity value comparisons shown depending on plan’s use of own experience in assumption-setting

45. Observations and Other Comments In closing… • In accordance with ASOP 35, consider • All relevant covered population characteristics (including both Job Category and Income Level) when selecting base mortality rates • The use of different mortality assumptions for different participant subgroups • Appropriate mortality projection scales • Pub-2010 report and mortality tables can be found here: • https://www.soa.org/research-reports/2019/pub-2010-retirement-plans/ • Questions and comments should be sent to Patrick Nolan at pnolan@soa.org

46. Q & A

47. Thank you!

48. Appendix

49. Data Validation: Reasonableness and Completeness • Preliminary review to determine whether data could be processed • Confirm critical data fields populated with valid entries for most members • Unique identifiers provided to link records across years • Resolution of duplicate identifiers • SOA attempted to resolve issues with contributors • Submission discarded if deemed not usable • Approximately 99% of submitted life-years of data deemed suitable for processing • Some data excluded at a later stage…

50. Data Processing • Set up validation logic to review individual records • Issues reviewed included: missing gender or date of birth, unreasonable salary or pension amount, vanishing annuitants, odd status progressions • Detailed data questions sent to contributors to resolve anomalies and confirm treatment of records • Reviewed death counts by month • Allowed RPEC to catch several issues, including: • Defaulted dates of death • Reporting lag issues • Periods of time with anomalous death counts • Most problems were resolved with contributor • When contributors could not confirm or correct issues, some months of data were excluded