Proposed Regulations Update Mortality Tables for Defined Benefit Pension Plans (NPRM REG-112324-15)

CCH Tax Day Report

The Treasury Department and IRS have issued proposed regulations that provide updated mortality tables to be used by most defined benefit pension plans to calculate the present value of a stream of expected future benefit payments for determining the plan’s minimum funding requirements. The proposed regulations also update the requirements that a plan sponsor must meet to obtain IRS approval to use substitute mortality tables that are specific to the plan, rather than the generally applicable mortality tables.

The changes are proposed to apply to plan years beginning on or after January 1, 2018. A plan sponsor can use a substitute mortality table for a plan year beginning on or after that date only if the IRS approves the substitute table.

Generally Applicable Mortality Tables

The proposed base mortality tables were derived from the tables contained in the RP-2014 Mortality Tables Report, the mortality study of private pension plan participants issued in October 2014 by the Retirement Plans Experience Committee (RPEC) of the Society of Actuaries. The Treasury and IRS determined that the experience study used to develop the RP-2014 mortality tables was the best available study of the actual mortality experience of pension plan participants other than disabled individuals.

The proposed regulations also update the mortality improvement rates from the projection factors that were set forth under the current general mortality table regulations. For valuation dates in 2018, the mortality tables must reflect the mortality improvement rates contained in RPEC’s Mortality Improvement Scale MP-2016 Report, an update to its 2014 companion study of mortality improvement, which the Treasury and IRS determined to be the most appropriate currently available mortality improvement rates.

The proposed generally applicable mortality tables apply to nonmultiemployer plans under Code Sec. 430. They also apply for determining the current liability of multiemployer plans under Code Sec. 431, and cooperative and small employer charity (CSEC) plans under Code Sec. 433.

Plan-specific Substitute Mortality Tables

The proposed regulations provide comprehensive rules on plan-specific substitute mortality tables and include several changes to the existing regulations on the development of substitute mortality tables. Specifically, the proposed regulations would require a substitute mortality table to be constructed by multiplying the mortality rates from a projected version of the generally applicable base mortality table by a ratio of the actual deaths for the plan population to expected deaths determined using the standard mortality tables for that population. The Treasury and IRS feel that using mortality ratios rather than providing for the graduation of raw mortality rates as under the existing rules will make it easier for plan sponsors to develop the substitute tables and easier for the IRS to review applications to use substitute mortality tables.

Further, the proposed regulations also permit the use of substitute mortality tables for a plan that has only partially credible mortality information. The Treasury and IRS expect significantly more plan sponsors to request the use of substitute mortality tables in light of these changes.

Comments and Public Hearing

The Treasury Department and the IRS request comments on all aspects of the proposed regulations. All comments will be available at or upon request. A public hearing has been scheduled for April 13, 2017, beginning at 10:00 a.m. in the Auditorium, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, D.C. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts.

Proposed Regulations, NPRM REG-112324-15, 2017FED ¶49,729

Other References:

Code Sec. 430

CCH Reference – 2016FED ¶20,154B

CCH Reference – 2016FED ¶20,155B

Code Sec. 431

CCH Reference – 2016FED ¶20,174B

Code Sec. 433

CCH Reference – 2016FED ¶20,203B

Tax Research Consultant

CCH Reference – TRC RETIRE: 30,556

CCH Reference – TRC RETIRE: 30,662



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