United States

Actuarial valuation: New mortality improvement scale released

FINANCIAL REPORTING INSIGHTS  | 

Professional associations of actuaries and actuarial companies occasionally develop and publish updated mortality tables to reflect changes in mortality conditions based on recent historical trends and other information. On October 20, 2016, the Society of Actuaries (SOA) released an updated new mortality improvement scale, Scale MP-2016, which plan sponsors will need to consider when measuring benefit costs and obligations of plans that provide benefits based on the life expectancy of participants. For financial statements that have not been issued, this new scale should be considered regardless of whether the benefit information is presented as of the beginning or end of the year, and regardless of the date of the valuation report.

According to the American Institute of Certified Public Accountants Technical Questions and Answers Section 3700.01, Effect of New Mortality Tables on Nongovernmental Employee Benefit Plans (EBPs) and Nongovernmental Entities that Sponsor EBPs, U.S. generally accepted accounting principles (GAAP) require each individual assumption used in valuing a plan’s obligation to represent the best estimate of the plan's future experience solely with respect to that individual assumption. In making this estimate, GAAP requires that all available information through the date the financial statements are available to be issued should be evaluated to determine whether the information provides additional evidence about conditions that existed at the balance sheet date.

The SOA has determined that Scale MP-2016 provides the best mortality estimate to be used in determining pension plan obligations, and therefore it generally should be used unless the plan can demonstrate that its mortality experience differs. If the related financial statements were not issued prior to October 20, 2016, GAAP requires the change in the mortality scale to be considered in the latest actuarial valuation, even if it is presented as of the beginning of the year or if the valuation was prepared prior to the release of Scale MP-2016.