IRS Adopts New Mortality Tables for Defined Benefit Plans

As required by the Pension Protection Act of 2006, the Internal Revenue Service (IRS) has finalized Regulations providing for new mortality tables which reflect that that people are living longer. While the issuance of new tables was expected, it was unclear whether the new effective date would be in 2018 or 2019. Under the final Regulations, the new morality tables generally become effective in 2018.

The approved table is RP2014 applying a projection scale MP2016 to project mortality improvement. These tables apply for purposes of plan funding requirements (including minimum required contributions and determining the maximum deductible contribution), lump sum payments subject to Internal Revenue Code Section 417(e), calculation of PBGC variable rate premium, and the Internal Revenue Code Section 415 maximum annual limit on defined benefit payments. The Regulations indicate that a plan with sufficient experience can apply for use of a substitute morality table that reflects the plan’s actual experience. An application to use a substitute mortality table for the 2018 plan year must be filed by February 28, 2018.

The IRS guidance provides for an exception to the effective date of 2018. For purposes of minimum funding requirements and PBGC variable rate premium calculations, the implementation of the morality table can be postponed to 2019 if either the change will be administratively impracticable or create a greater than de minimis adverse business impact. Informal statements from the IRS have indicated that an adverse business impact would be very generously interpreted. Therefore, many plan sponsors may be able to postpone the implementation for an additional year for minimum funding requirements and for PBGC premium calculations. The election of much of the delayed implementation date does not require a formal application but, rather notification of the plan actuary that the delay should be implemented. Note, there is no delay permitted for use of the new mortality tables for lump sum payments.

Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans, https://www.gpo.gov/fdsys/pkg/FR-2017-10-05/pdf/2017-21485.pdf; Updated Static Mortality Tables for Defined Benefit Pension Plans for 2018, Notice 2017-60, https://www.irs.gov/pub/irs-drop/n-17-60.pdf; Revenue Procedure 2017-5, https://www.irs.gov/pub/irs-drop/rp-17-55.pdf.