IRS Publishes Final Rule Regarding Mortality Tables

The Internal Revenue Service (IRS) has issued Notice 2017-60, which sets forth the mortality table that defined benefit (DB) plans—i.e., those under Section 417(e)(3) of the Internal Revenue Code (IRC) and Section 205(g)(3) of the Employee Retirement Income Security Act (ERISA)—will use to determine minimum present value for certain annuity distributions. The notice applies to annuities with starting dates occurring during stability periods beginning in the 2018 calendar year.

This mortality table is a modified unisex version of the mortality tables specified under IRC Section 430(h)(3)(A) for plan years beginning in 2018. The notice also provides updated static mortality tables that are determined using the methodology in Section 1.430(h)(3). These updated tables apply for plan years beginning this year, with respect to valuation dates occurring during 2018. They also apply for the plan year beginning during 2018 if the option under Section 1.430(h)(3)—available under certain circumstances for valuation dates in 2018—is to apply mortality tables determined in accordance with regulations previously in effect.

In addition, the agency issued Revenue Procedure 2017-55, which sets forth the procedure by which the sponsor of a DB plan subject to the funding requirements of IRC Section 430 may request the IRS’ approval to use plan-specific substitute mortality tables.

The IRS has issued final regulations prescribing mortality tables to be used by most DB plans. The tables specify the probability of survival, year-by-year, for an individual, based on age, gender and other factors. This information is used, together with other actuarial assumptions, to calculate the present value of a stream of expected future benefit payments for purposes of determining a DB plan’s minimum funding requirements. These mortality tables are also relevant in determining the minimum required amount of a lump-sum distribution from such a plan.

In addition, the document contains final regulations updating the requirements a plan sponsor must meet in order to obtain IRS approval to use plan-specific mortality tables, instead of the generally applicable tables, for minimum funding purposes.

In a statement, the ERISA Industry Committee (ERIC) said it is pleased the Treasury Department took into account a number of the requested changes listed in its comment letters, including flexibility for DB plan sponsors to potentially delay, for one year, using the new mortality tables to satisfy minimum funding standards.