IRS proposes updated mortality tables

IRS180x

The Internal Revenue Service proposed rules to update the mortality tables that plan sponsors use to determine minimum contributions to defined benefit plans and to value current benefits, in a Federal Register notice posted Dec. 29.

Under the proposal, most plan sponsors could continue to choose one of two standard mortality tables, either generational or static, that would be updated with new base mortality rates and projection factors. The static tables would also have updated projection periods.

Plan sponsors that want to use plan-specific mortality tables would also have updated tables and more would be able to do so under the proposal. The current requirement that a plan have at least 1,000 participant deaths within two to five years in order to use custom tables would change to at least 100 deaths.

The IRS will address updating the mortality tables used to determine minimum lump sums after the funding tables are finalized.

The current rules have not been updated since 2000 despite a mandate to do so every 10 years, said Joshua Gotbaum, a guest scholar at Brookings Institution. “Treasury delayed its legally required update at the request of plan sponsors, who took advantage of the obsolete mortality tables to shed their pension obligations in discounted lump sums to unsuspecting participants. Not only did Treasury enable this undermining of pension rights of hundreds of thousands of people, they were an accomplice by not requiring employers to admit that the lump sums they offered were below fair market value,” Mr. Gotbaum said in an e-mail.

Part of the delay was attributed to new mortality assumptions recommended by the Society of Actuaries in October 2014, which generated controversy about some assumptions and methodology.

Comments are due March 29 on the proposed rules, which would apply for plan years beginning on or after Jan. 1, 2018. The proposal is available on the Federal Register.