Tuesday, May 06, 2003

Fun With Actuarial Tables

That's probably the last time you'll see that headline. In any case, the House has just passed a bill which has lessened pension funding requirements for blue collar workers on the basis that blue collar workers don't live as long as white collar workers. Now, this could possibly be a reasonable step except for one thing - they aren't similarly increasing the funding requirements for white collar workers.

To explain this so that hopefully even your average House Republican can understand - let's suppose 50% are workers are white collar and are expected to live until age 80. Let's suppose 50% are blue collar and are expected to live until age 70. So, currently companies are required to fund pensions under the assumption that the average worker lives until he/she is 75. Now they want to require that pensions for blue collar workers are only funded for an expected lifespan of 70. Fair enough, but then pensions for white collar workers are only funded for workers living an average 75 years.

The net result is that a population with an average lifespan of 75 years will have pensions that are only funded for people who live an average of 72.5 years.

UPDATE: Oops, Bill hasn't passed. Just in the works. My bad.