Client Service October 20, 2016

New Mortality Improvement Scale Could Reduce Pension Obligations

Based on the Society of Actuaries' preliminary estimates, the new scale may reduce pension plan clients' current liabilities by 1.5% to 2%, depending on the individual characteristics of the plan.
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The Society of Actuaries (SOA) released its annually-updated  mortality improvement scale for pension plans, MP-2016, incorporating three additional years of Social Security Administration (SSA) data on U.S. population mortality.

The updated improvement scale suggests U.S. mortality continues to improve, but at a slower average rate of improvement than previous years, which may decrease pension plan obligations slightly.

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MP-2016 incorporates SSA mortality data from 2012 to 2014 and a slight modification of two input values designed to improve the model’s year-over-year stability. The updated improvement scale indicates a slight decline in life expectancy as a result of the slower average rate of mortality improvement. For example, the life expectancy for a 65-year-old male declined to 85.8 years under the MP-2016 scale, compared to 86.2 years using the MP-2015 scale. Additionally, the life expectancy for a 65-year-old female is now 87.8 years under MP-2016, compared to 88.2 years based on the previous MP-2015 scale.

The updated scale can be used by pension plans to assist in making forward mortality assumptions in the valuation of pension payment obligations. Based on the SOA’s preliminary estimates, MP-2016 may reduce a pension plan’s current liabilities by 1.5% to 2%, depending on the individual characteristics of the plan.

“By releasing MP-2016, we are building on our commitment to regularly update the mortality improvement scale as new data becomes available,” says Dale Hall, managing director of research for the SOA. “The updated scale provides the latest information to help accurately measure pension obligations. However, it is up to pension plan sponsors, working with their plan actuaries, to determine how to incorporate emerging mortality improvement data into their plan valuations.”

The SOA conducted its analysis in full cooperation with the SSA, the Centers for Disease Control and Prevention (CDC) and the Centers for Medicare & Medicaid Services (CMS), and is releasing the 2014 mortality data publicly for the first time with the MP-2016 update.
Products October 20, 2016

RiXtrema Launches IRAFiduciaryOptimizer Software

A new software solution from RiXtrema addresses DOL fiduciary rule compliance for advisers finding themselves on a new regulatory playing field when it comes to rollover recommendations. 
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RiXtrema, a company that provides risk management tools and analysis to the financial advisory and broker/dealer community,  announced the launch of its IRAFiduciaryOptimizer tool to help financial advisers document clients’ best interests and ensure compliant rollovers.

According to the firm, the new fiduciary tool is “the first software to quantitatively compare and convert existing retirement portfolios into proposed new, compliant portfolios comprised of securities approved by the independent financial adviser or broker/dealer.” The comparison highlights a variety of measures such as fees, track record of the investments, risk versus risk tolerance, and best fiduciary practices, RiXtrema explains.

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“These might include investing in the best share class, as well as additional services provided by the adviser to the client,” the firm says.

The IRAFiduciaryOptimizer further produces a report summarizing why a rollover is in the best interest of the client based on the above-mentioned measures. Reports can be generated by individual advisers, or by a home office compliance team using an administrator portal to manage outcomes for all advisers/representatives with the firm.

RiXtreama adds that the service enables the adviser to quantify and document any savings, performance improvements, fiduciary best practices, as well as additional services available by switching from the existing portfolio to a portfolio comprised of the adviser’s suggested investments. Additionally, it allows the adviser to compare the risk/return profile of the original portfolio with the rollover recommendation, as well as show how it compares on metrics such as total fees, returns, risk, Sharpe ratio and fiduciary best practices. The IRAFiduciaryOptimizer is also fully integrated with the FinaMetrica risk tolerance system enabling compliance groups to create risk-appropriate portfolios, while fulfilling other fiduciary requirements.

The firm concludes that the IRAFiduciaryOptimizer can support such compliance work both at the individual adviser level and for an entire firm or broker/dealer, “with batch tools available to make thousands of portfolios compliant in a single process along with producing documentation that shows client’s best interest.”

More information about the fiduciary software solution is available online here. 

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