IRS issues final rule on mortality tables for defined benefit plans

The Treasury Department and the IRS released a final rule updating the mortality assumptions that single-employer defined benefit (DB) pension plans must use to calculate the actuarial liabilities for minimum funding requirements, benefit restrictions, and the Pension Benefit Guaranty Corporation (PBGC) variable-rate premiums. The updated mortality tables are also used to calculate lump-sum distributions to plan participants in DB plans that offer such one-time payments. The final rule generally is applicable for plan years beginning on or after Jan. 1, 2018, but also provides a limited one-year transition period (to Jan. 1, 2019), in certain circumstances.

The IRS concurrently released Notice 2017-60, with two mortality tables. The first is a sex-distinct table for the above-mentioned one-year 2018 transition period. The second is a unisex table (blended as 50% female mortality rates and 50% male mortality rates) that must be used for the calculation of certain optional forms of payments, such as lump-sum distributions, beginning with the 2018 plan years. Also released was Revenue Procedure 2017-55, providing instructions to obtain IRS approval of plan-specific mortality tables.

Although the final rule is aimed at single-employer DB plans, its mortality assumptions are also used to determine “current liability” for multiemployer pension plans and cooperative and small employer charity (CSEC) plans. This Client Action Bulletin provides more perspective on the final rule.

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