American Benefits Council
Benefits Byte


July 28, 2014

The Benefits Byte is the American Benefits Council’s regular e-mail and online newsletter for members only, providing timely reports on legislative, regulatory and judicial developments, along with updates on the Council’s activities in support of employer-sponsored benefit plans.

The Benefits Byte is published by the American Benefits Council, based on staff reports and edited by Jason Hammersla, Council director of communications. Contact information for Council staff related to specific topics can be found at the end of each story.

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Defined Benefit Plan Mortality Tables to Be Issued in October

The Society of Actuaries (SOA) – a professional organization serving 24,000 actuarial members – announced on July 28 that updated mortality tables will likely be released by October 31, 2014. In recent months, there had been speculation that the final tables might not be released until 2015, so the news is somewhat unexpected. The 2014 release could have significant financial implications for defined benefit plan sponsors for 2014.

As we have previously reported, the SOA Retirement Plans Experience Committee (RPEC) released an exposure draft of the Mortality Improvement Scale MP-2014 and an exposure draft of the RP-2014 mortality tables in February. These documents, based on a comprehensive study of uninsured retirement plan mortality experience begun by the RPEC in late 2009, establish a new basis for mortality assumptions for retirement programs in the United States. For pension-related purposes, the mortality projection scale presented in this report, denoted MP-2014, replaces both Scale AA, which was released in 1995, and the interim Scale BB, which was released in 2012.

For accounting purposes, auditors may rely heavily on the assumptions published by the SOA. Thus, the 2014 release will mean that for accounting purposes, the new assumptions will be a factor for 2014, a year earlier than might have otherwise have been the case. For purposes of funding, benefit restrictions, PBGC premiums and other related purposes, the SOA’s assumptions are usually taken into account by the government in formulating updated mortality assumptions, though those updates may not take effect until at least 2016, and most likely 2017.

The Council sent a May 30 letter to the SOA expressing support for a cooperative and collaborative review of important mortality table standards put forth by the SOA earlier this year. The Council’s letter did not comment directly on the details or conclusions of these exposure drafts, instead highlighting certain matters of process for SOA’s consideration. Council members have shared two principal concerns:

  • Too much data may have been disregarded in compiling the Exposure Drafts and the excluded data could well have made a material difference in the conclusions.
  • The language of Mortality Improvement Scale MP 2014 may overemphasize the use of SOA’s projections and underemphasizes needed flexibility for actuaries to exercise their professional judgment regarding future mortality improvements.

The SOA said in its announcement that it will provide responses to submitted comments along with the revised final reports by October 31, 2014. “RPEC is committed to thoroughly addressing the comments; if at any point it becomes apparent that this cannot be accomplished within the targeted timeframe, RPEC will communicate an adjusted timeline,” the announcement said.

The Council held a Benefits Briefing webinar on mortality tables and retirement plans on June 25. A digital playback link remains available. For more information, contact Lynn Dudley, senior vice president, global retirement and compensation policy.

Council Urges Supreme Court to Adopt Predictable Rule for Vesting of Retiree Health Benefits

In an amicus (friend of the court) brief filed on July 24, the Council (joined by the ERISA Industry Committee) urged the U.S. Supreme Court to confirm that the benefits and burdens of a collective bargaining contract (such as provisions for retiree health coverage) do not survive the agreement’s expiration (and thus do not vest for life) without a clear and unequivocal statement to the contrary.

The case under consideration by the Supreme Court, M&G Polymers USA, LLC v. Tackett, concerns  how to interpret a collective bargaining agreement to determine whether the obligation to provide retiree health benefits survives the agreement’s expiration and vests for life.   The Court’s decision is expected to resolve a split among federal appeals courts regarding how to interpret collectively bargained agreements with respect to the duration of retiree health benefits.

In 2013, the U.S. Court of Appeals for the Sixth Circuit upheld a permanent injunction ordering that retirees be reinstated M&G Polymers health plan. The Sixth Circuit affirmed that the "retirees had [the] vested right to no-cost health care" under the prevailing collective bargaining agreement (CBA) and "certain side agreements between union and various employers that purported to limit retiree health care coverage did not apply to [the] plant that employed retirees." In this and similar cases, the Sixth Circuit has applied a presumption, known as the "Yard-man inference," that union retiree benefits are presumed to vest for life in the absence of specific plan or bargaining agreement language to the contrary. Other appeals courts, including the Second, Third and Seventh Circuits, have ruled that retiree health benefits are not vested without specific durational language.

“If there is one thing that employers, retirees, and labor unions need in this area of the law, it is certainty,” the brief said. “Unless clearly stated otherwise, the terms of a collective bargaining agreement pertaining to retiree healthcare benefits should apply only to those employees who retire during the term of the agreement and only for the duration of the agreement. “  A contrary rule, as discussed in the amicus brief, risks burdening employers with enormous healthcare costs for which they neither bargained nor anticipated. The amicus brief also highlights the dramatic improvement in access to health care coverage for retirees in the years since the Yard-man inference was established in 1983, as yet another reason to reject the presumption.  These improvements included expansion of Medicare programs to include Part D coverage, establishment of medical savings accounts, and reforms of the individual insurance market under the Affordable Care Act.

For more information, contact Kathryn Wilber, senior counsel, health policy, at (202) 289-6700.

Trustees Unveil Reports on Social Security, Medicare Trust Funds

After several months’ delay, the Social Security Board of Trustees released the 2014 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance (OASI) and Federal Disability Insurance (DI) Trust Funds and the 2014 Medicare Hospital Insurance (HI) Trust Fund report on July 28.

Overall, the cost of Social Security and Medicare was 8.4% of GDP in 2013 and the Trustees project an increase to 11.5% of GDP in 2035 and 13% of GDP by 2088. The Trustees again recommend that lawmakers address the financial challenges facing Social Security and Medicare as soon as possible, allowing more time to phase in changes so that the public has adequate time to prepare.  An official Summary of the 2014 Annual Reports is also available. 

Social Security

The combined retirement and disability trust funds are estimated to be completely exhausted by 2033, identical to the previous projection. Taken separately, the DI Trust Fund will become  insolvent in late  2016  and the OASI Trust Fund will remain solvent through 2034.After 2033, incoming revenue into the combined trust funds will be sufficient to pay only about three quarters of promised benefits.

The report said that “Under current law, the projected cost of Social Security increases faster than projected income through about 2035 primarily because of the aging of the baby-boom generation and relatively low fertility since the baby-boom period.” The report also notes that “there is a continuum of policies combining tax increases with benefit reductions that would maintain solvency at the point of trust fund depletion. Some strategies for achieving solvency would not be feasible if delayed until trust fund reserve depletion in 2033.”

One interesting development is that the two public trustees (Robert Reischauer and Chuck Blahous) identify the 2016 depletion of the DI Trust Fund as the most immediate financing threat.  They note that today’s situation is quite different from the 1994 DI reserve crisis, when Congress reallocated payroll tax revenues from the OAS Trust Fund into the DI Trust Fund.   Reischauer and Blahous emphasize that the current DI shortfalls result from problems that afflict both the OASI and DI Trust Funds and state that “the time has arrived for reforms that strengthen the financing outlooks for OASI and DI alike.”


The HI trust fund report projects that the fund will be exhausted by 2030, four years later than was estimated in last year’s report.

The Board of Trustees projects that total Medicare expenditures “will increase in most future years at a somewhat faster pace than either aggregate workers’ earnings or the economy overall. The excess increase is primarily due to growth in the number of beneficiaries, and partly due to growth in expenditures per beneficiary, which are projected to increase slightly faster than the per capita rate of growth of the economy overall.”

As with the Social Security program, the trustees urge “timely and effective action” to reform the Medicare program, noting that the 2014 report may be optimistic. “The improved results … depend in part on the long-range feasibility of the various cost-saving measures in the Affordable Care Act. … Actual future costs for Medicare could exceed those shown in this report.”

The Social Security Act requires the Board of Trustees to report to Congress on the status of the Social Security and Medicare Trust Funds no later than April 1 of each year. That deadline has rarely been met over the last decade, but this year’s Trustees reports are especially late. The Board of Trustees did not indicate why the report was late this year. The Council had speculated in a July 21 Benefits Byte story that the delay might have been the result of new life expectancy or economic assumptions, but that does not appear to have been the case.

As we reported earlier, CBO released its 2014 Long-Term Budget Outlook in early July. CBO’s demographic assumptions not only assume longer life expectancy, but also assume that future increases in life expectancy will be greater for people with higher lifetime earnings (i.e., individuals who will, as a result of those higher earnings, receive greater than average Social Security benefits). CBO estimates that the OASI Trust Fund will be exhausted three years earlier than projected in the Social Security Trustees report, a result that is at least in part attributable to CBO’s different longevity assumptions.

For more information, contact Jason Hammersla, senior director, communications, at 202-289-6700.

The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.

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