Plan sponsor groups are urging the IRS and Treasury Department to do a more careful analysis before finalizing updated mortality tables that could become effective as early as January 2018.
In an Aug. 31 letter to the Office of Management and Budget's regulatory review section, officials from the Committee on Investment of Employee Benefit Assets and the American Benefits Council raised concerns about the regulatory process, arguing that further economic impact analysis was needed, in light of potentially significant increases in both plan liabilities and volatility.
The proposed regulations, which were sent to OMB for approval on Aug. 9, "would introduce an unprecedented new source of volatility into funding and premium obligations, clearly meriting close economic analysis," the letter said.
Industry experts told Treasury officials at an April 13 hearing on the updates proposed in December that not having the rules finalized by the end of summer would make 2018 implementation impossible, particularly for lump-sum calculations and communications, some of which have already started for 2018.
They also cited President Donald Trump's executive order calling for existing regulations to be cut before new regulations are issued, and for regulatory review of "significant" regulation.
Plan sponsors and consultants also met with IRS and OMB officials on Aug. 23 to urge further analysis.
"It would be very disappointing — and contrary to the law — if the regulation is finalized now, depriving the public of the opportunity to comment on the analysis underlying the regulation. It would be equally disappointing if the regulation is made effective for 2018, leaving companies across the country a tiny amount of time to prepare for billions of dollars of additional liabilities — hundreds of millions for some individual companies alone," said Kent Mason, American Benefits Council outside counsel, in an email.
"The pension mortality regulation from the Treasury Department will be a very interesting test case on the issue of regulatory reform," he added.
A Society of Actuaries report released April 26 projects that the proposed update to mortality tables will increase pension liabilities and reduce plans' funded status in the short term. Minimum required contributions will increase 11%, it said. For estimated aggregate funding targets in 2018, liabilities would increase 2.9%, or $65 billion, and the aggregate funded status would drop 1 percentage point to 96%, as calculated by the SOA. Premiums paid to the Pension Benefit Guaranty Corp., which are based on plan funding levels, would increase 12% to $9.6 billion, the SOA projects.
Annuities and lump-sum payments offered to plan participants have been below fair market value because of the outdated tables.
The proposed changes give plan sponsors the option of choosing between two standard mortality tables and using custom mortality tables for plans with at least 100 participants, which could require IRS approval.
The current mortality tables are 10 years old, and are based on older life expectancy assumptions that have only seen minor annual updates. Revisiting them was also required by the Pension Protection Act of 2006, which ordered a review by the Treasury secretary every decade.