The IRS has issued proposed regulations containing mortality tables for determining present values under defined benefit pension plans.
Code Sec. 412 prescribes minimum funding requirements for defined-benefit (DB) pension plans. Code Sec. 430 specifies the minimum funding requirements that apply generally to DB plans that aren’t multi-employer plans.
Code Sec. 430(a) defines the minimum required contribution by reference to a DB plan’s funding target for the plan year.
Generally, under Code Sec. 430(h)(3)(A), the IRS issues the mortality tables used to determine any present value or to make any computation under Code Sec. 430. These tables are based on the actual experience of pension plans and projected trends in that experience and must be revised at least every 10 years.
Reg §1.430(h)(3)-1 (TD 9826, the 2017 regs) revised the mortality tables used under Code Sec. 430(h)(3)(A) for plan years beginning on or after January 1, 2018. Reg. § 1.430 (h)(3)-1(a) permits plan sponsors to project mortality improvement in either of two ways: by using static tables that are updated annually to reflect expected improvements in mortality, or by using generational tables.
For valuation dates occurring in years after 2018, the IRS provides updated mortality improvement rates that take into account new data for mortality improvement trends of the general population, along with static mortality tables that reflect those updated mortality improvement rates, through guidance published in the Internal Revenue Bulletin. (Reg §1.430(h)(3)-1(a)(2)(i)(C))
The mortality improvement rates for valuation dates occurring during 2022 are the mortality improvement rates in the Mortality Improvement Scale MP-2019 Report, which is issued by the Retirement Plans Experience Committee (RPEC) of the Society of Actuaries.
Updated mortality tables.
The proposed regs would revise and replace the current Reg §1.430(h)(3)-1, making, among other things, the following changes:
- The base mortality tables proposed for use under Code Sec. 430(h)(3)(A) are derived from the tables set forth in the Pri-2012 Private Retirement Plans Mortality Tables Report (Pri-2012 Report) issued by the RPEC.
- These proposed regs set forth base tables that would be used to develop the mortality tables for future years. These base tables have a base year of 2012 (the central year of the experience study used to develop the mortality tables in the Pri-2012 Report). These base tables generally have the same mortality rates as the employee and non-disabled annuitant mortality rates that were released by RPEC in connection with the Pri-2012 Report. However, these base tables also include nonannuitant mortality rates for ages below age 18 and above age 80 and annuitant mortality rates for ages below age 50. This generally is the same approach that was used to develop the base mortality tables in the 2017 regs.
- The proposed regs would use the Scale MP-2021 Rates (the mortality improvement scale in the RPEC-issued Mortality Improvement Scale MP-2021 Report) for valuation dates in the 2023 calendar year.
- The proposed regs would eliminate the use of separate static non-annuitant and annuitant mortality tables and require the use of generational mortality tables for plans that are not considered small plans (plans with 500 or fewer participants). The proposed regs would continue to allow the use of static mortality tables for small plans, as well as for multi-employer and cooperative and small-employer charity (CSEC) plans. However, the static mortality tables that may be used for these plans are combined tables reflecting non-annuitant and annuitant mortality rates. These tables are constructed from a blend of non-annuitant and annuitant mortality rates based on the underlying data used in developing the Pri-2012 Report.
The proposed regs are proposed to apply to plan years beginning on or after January 1, 2023.
To continue your research on minimum funding of qualified plans, see FTC 2d/FIN ¶H-7600 et seq.
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