Longer Lives Hit Companies With Pension Plans Hard

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Longer Lives Hit Companies With Pension Plans Hard

Firms’ balance sheets will have to reflect higher costs
Business

By Michael Rapoport
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@rapoportwsj
Facebook: michael.rapoport.7

Feb. 23, 2015 8:49 p.m. ET

When General Motors Co.’s pension plan took a big hit earlier this month, it joined hundreds of companies facing growing pension shortfalls as Americans keep living longer.

Longevity has a downside for those paying the bills, and the higher costs now have to be reflected on corporate balance sheets because of new mortality estimates released in October. ... In its first revision of mortality assumptions since 2000, the Society of Actuaries estimated the average 65-year-old man today will live 86.6 years, up from the 84.6 it estimated a decade and a half ago. The average 65-year-old woman will live 88.8 years, up from 86.4.

The new estimates won’t affect many U.S. companies, which long ago shifted their employees to defined-contribution plans like 401(k)s, which leave workers on their own after retirement. But they are hitting other big companies with defined-benefit plans that have to make payments to some former employees for as long as they live. The changes may also prompt more companies to take steps to reduce the risks associated with their pension plans, experts say.

When GM announced fourth-quarter earnings Feb. 4, it said the mortality changes had caused the funding of its U.S. pension plans to fall short by an additional $2.2 billion and contributed to significant pension losses that will be filtered into its earnings over a period of years.