On October 20, 2023, the IRS published final regulations prescribing mortality tables under Code Section 430 that apply to defined benefit pension plans. The IRS also issued proposed regulations to update the requirements for a single-employer-defined benefit plan to use customized mortality tables as a substitute for the IRS-prescribed tables.
The mortality tables are used to calculate the present value of a stream of expected future benefit payments to determine the minimum funding requirements for a defined benefit plan and are also relevant to determining the minimum required amount of a lump-sum distribution from such a plan.
Although the tables must be updated at least every 10 years, the IRS generally provides annual mortality improvement scales that reflect adjustments based on recent and projected mortality experience. The last such adjustments were proposed in April of 2022 to take effect in 2023, but that was delayed in December 2022.
The final regulations adopt the April 2022 proposed regulations with some modifications to reflect the expected ongoing impact of COVID-19 on mortality rates and the 0.78% annual cap on mortality improvement rates as required by the SECURE 2.0 Act.
The final regulations apply to valuation dates occurring on or after January 1, 2024, and restrict the use of static mortality tables to plans with 500 or fewer participants, multiemployer plans and cooperative and small employer charity pension plans. All other plans must use the generational mortality tables.
The proposed regulations are intended to apply to plan years beginning on or after January 1, 2025, and allow any previously approved plan-specific substitute mortality tables to continue until amendments to the plan-specific substitute mortality regulations are finalized, and an updated revenue procedure that reflects those final regulations is issued.
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 December 19, 2023.
IRS Mortality Tables for Determining Present Value Under Defined Benefit Pension » IRS Plan-Specific Substitute Mortality Tables for Determining Present Value »
PPI Benefit Solutions does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.
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