Actuarial Costs of Protecting Retirees' Surviving Spouses

The growing popularity of private alternatives to joint-and-survivor annuity payouts for pension plans has important consequences for workers and for the pension plans covering them. This article summarizes the differing mortality assumptions used to price life insurance and pension annuities, simulates the impact of these differing assumptions on net premiums, and illustrates the sensitivity of those prices to the assumed interest rate. This article offers a link between actuarial theory and current sales practices that helps academics, pension administrators, and insurance agents to better understand why ‘pension maximization’ proposals can be attractive in some situations.