Updated mortality tables expected this year from the IRS will increase defined benefit plan contribution budgets and other pension fund calculations by billions of dollars beginning in plan year 2018, a new analysis shows, unless a recent attempt to slow the agency's work gains traction.
A Society of Actuaries report released April 26 projects updated mortality tables will increase pension liabilities and reduce plans' funded status in the short term. Minimum required contributions will increase 11%.
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 study is based on 7,500 single-employer plans that represent 98% of all liabilities.
Despite those increases, adjusting to updated tables now is better than making expensive catch-up contributions later, SOA experts noted. It also will be better for plan participants, pension advocates said. Annuities and lump-sum payments offered to plan participants have been below fair market value because of the outdated tables, they added.
Sensitive to the controversy that arose when the society released 2014 mortality tables after a 14-year gap, SOA officials already are collecting data from sponsors and hope to release the next update by 2020, said Dale Hall, managing director of research for the Society of Actuaries, Schaumburg, Ill. “We want to make sure that happens on a more frequent basis.”
When the Internal Revenue Service in late December proposed the updates based on the SOA's latest mortality tables and mortality improvement scale, plan sponsors did gain some flexibility: the option of choosing between two standard mortality tables, generational or static. Sponsors wanting to use mortality tables specific to their plan's demographics and death rates — referred to as mortality experiences — would also have updated tables, and many more would be able to use them thanks to the proposal's lower requirements. The current requirement that a plan have at least 1,000 participant deaths within two to five years to use custom tables would change to at least 100 deaths.