August 3, 2015
Last week, the Internal Revenue Service (IRS) published Notice 2015-53, which discusses its intention to update the mortality basis, primarily affecting single-employer defined benefit pension plans.
The notice announces that the current mortality basis, based on the prior Society of Actuaries (SOA) table (RP-2000), will continue for 2016 (with one additional year of projection), but the IRS intends to issue proposed regulations revising the mortality basis shortly. “However, in order to give time for notice and comment on the proposed regulations, the new regulations will not apply until 2017.”
Over the last few decades, there have been dramatic longevity increases in the United States. This improved longevity was recognized by the Society of Actuaries (SOA) last year in its release of RP-2014, a new series of pension mortality tables, and an accompanying mortality improvement scale, MP-2014. These and similar tables based on recent experience have already been reflected by many employers for accounting purposes.
In response to these developments, the IRS began the process of updating its mandated mortality basis by asking for comments two years ago, even before the SOA tables were published. The IRS, which is now reviewing those comments as well as comments received after the publication of the SOA tables, released Notice 2015-53 on July 31, 2015.
The IRS intends to update the mortality basis that is used for determining the minimum required level of contributions for single-employer pension plans, as well as the mortality basis that is used for determining minimum lump sums (and other accelerated forms of benefit that are subject to the requirements of Internal Revenue Code section 417(e)). At this point, the IRS is considering modifications to the SOA of Actuaries tables. Modifications are especially likely for the tables needed to determine lump sums, as the assumptions for this purpose need to be unisex and simple for plan administrators to use.
Plan sponsors should be prepared for liability increases and related increases in minimum required contributions in 2017 when the IRS implements new regulations.
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