Grim COVID-19 Scenario Could Cut Pension Liabilities

Pension plan lifespan forecasters say the COVID-19 pandemic could pinch U.S. pension plan forecasters, by leading to enough improvements in public health to make retired workers live longer.

The pandemic could also slash pension plan sponsors’ liabilities, by making ordinary health care an expensive luxury — and driving up the U.S. death rate for decades to come.

Analysts at Club Vita US LLC have presented those scenarios in a look at the possible effects of the COVID-19 pandemic on three types of U.S. pension plans: defined benefit plans sponsored by single employers; defined benefit plans sponsored by multiple private-sector employers; and defined benefit plans sponsored by government employers.

The analysts’ work reflects the same kinds of effects that might affect blocks of life insurance policies, blocks of annuities, and life settlement portfolios.

The Methods

Analysts at the Hoboken, New Jersey-based branch of Club Vita started with U.S. Centers for Disease Control and Prevention (CDC) data showing that COVID-19 might have increased the actual number of U.S. deaths by about 14.8% over the expected levels in 2020.

The analysts then came up with four possible pandemic scenarios:

1. A brief increase in death counts, with no noticeable lasting positive or negative effects on how long pension plan participants live.
2. A long, slow climb back to normal economic growth and a normal rate of improvement in how long pension plan participants live.
3. A period in which U.S. society recovers quickly from the pandemic and works hard to get everyone access to decent health care, to reduce the effects of poverty, race, lack of health insurance and other factors on how long people live.
4. A world in which dangerous COVID-19 variants, failed vaccination campaigns and failed public efforts lead to COVID-19 increasing U.S. mortality rates throughout the 2020s and damaging the U.S. health care system.

The Predictions

The analysts found that, in the sunniest scenario, in which COVID-19 spurs the United States to reduce differences between the health care haves and have-nots, improving health could increase retired workers’ lifespans.

That increase could add 0.6% to multiemployer plans’ pension plan obligations, 1.1% to government employers’ obligations and 1.3% to single-employer plans’ obligations.