IRS Issues Proposed Regulations to Update Mortality Tables for Pension Plans
May 10, 2022
The IRS recently released proposed regulations to update the mortality tables under Code Section 430 that apply to single-employer defined benefit pension plans. The regulations are proposed to be effective for plan years beginning in 2023.
Amongst other purposes, the Section 430 mortality tables are used to determine a pension plan’s minimum funding requirements and minimum lump sum distribution amounts. These tables must be updated at least every 10 years to incorporate the actual mortality experience of pension plan participants and projected future trends. The existing base mortality rates were released in 2017, but the IRS has provided annual mortality improvement scales that reflect adjustments based on recent and projected mortality experience.
If finalized, the proposed regulations would make certain changes to the base mortality rates and mandated mortality tables. The mortality tables in the proposed regulations are based on actuarial reports that incorporate large-scale studies of pension plan mortality experience from 2010 through 2014. The mortality experience is adjusted for improvements since 2012 and expected future improvements. For 2023, the mortality improvement rates are based on actual mortality experience from 2013 through 2019 and assumptions for later improvements in mortality.
Accordingly, the 2023 mortality improvement rates do not consider actual mortality experience in 2020 and 2021, the first years affected by the COVID-19 pandemic. Nor do the long-term mortality improvement rates reflect any adjustment for COVID-19 effects, although any long-term impact may be reflected in future mortality improvement scales and related guidance.
The proposed regulations would also restrict the use of static mortality tables to plans with 500 or less participants, multiemployer plans and cooperative and small employer charity pension plans. Currently, plans can choose to use either static mortality tables with a single set of factors for all birth years or generational mortality tables with different factors for each birth year. The IRS considers the generational mortality tables to be more accurate and believes most plans now have the capability and actuarial software to use such tables.
Additionally, the IRS issued Notice 2022-22, which provides mortality tables in accordance with existing Section 430 regulations. If the proposed regulations are adopted for 2023 plan years, the tables in Notice 2022-22 would only apply to calculations of minimum required contributions for plan years beginning in 2022 with valuation dates in 2023. The notice also provides an amended version of the mortality table used to determine the minimum amount of a lump-sum distribution under Section 417(e). This table will apply for 2023 even if the new regulations are finalized with a 2023 effective date.
Employers that sponsor defined benefit pension plans should be aware of the updated guidance and consult with their plan actuaries and consultants regarding any potential impact on plan costs. The deadline for submitting comments to the IRS on the proposed regulations is June 9, 2022. Additionally, a public hearing has been scheduled for June 28, 2022.
Proposed Regulations: Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans »
Notice 2022-22 »