IRS Updates Mortality Basis for Funding and Lump Sum Calculations

Vectra DigitalBlog

On April 28, 2022, the IRS released proposed regulations on the mortality tables used to determine present value for minimum funding purposes. The proposed regulation is an update to the current regulations under Section 1.430(h)(3)-1. The following are a few of the key provisions of the proposed regulations.

  • The base mortality tables would be derived from the tables set forth in the PRI-2012 Private Retirement Plans Mortality Report released by the Retirement Plan Experience Committee (RPEC) of the Society of Actuaries (SOA) in October of 2019. The current regulations are based on the mortality tables included in the RP-2014 Mortality Tables Report released by the RPEC in October of 2014.
  • The proposed regulations would continue to use the mortality improvement scales (MP-20xx) released annually by the RPEC.
  • The option to use static mortality projections rather than fully generational projections would no longer be allowed except for small plans (those with 500 or fewer participants on the valuation date).
  • Previously approved substitute mortality tables would still be allowed. Early termination of these tables would be required in the case of a significant change in the plan’s population. Unlike the current regulations, the plan actuary’s certification that these mortality tables continue to be accurately predictive of future mortality could not prevent the early termination of the substitute mortality tables.
  • A modified version of the new mortality tables would be used for purposes of IRC Section 417(e)(3)(B) for use in determining lump sums.
  • The proposed regulations would be effective for plan years on or after January 1, 2023.
  • A link to the full text of the proposed regulations can be found in the Federal Register here.

Note that on April 27, 2022, the IRS released Notice 2022-22, which provided the updated static mortality tables under IRC Section 430 for valuation dates in 2023 and under IRC Section 417(e)(3)(B) for lump sum distributions with annuity starting dates in 2023. Informal guidance from the IRS clarified that if the proposal outlined above is finalized with a 2023 effective date:

  • Static mortality tables from Notice 2022-22 will apply only for small plans with year-end valuation dates in 2023; all other plans will use the updated basis.
  • The lump sum basis provided in Notice 2022-22 will apply for 2023 calendar-year distributions.

Feel free to reach out to your Foster & Foster consultant with any questions you may have