One More Year Until New Mortality Tables Are in Place for Lump Sums

Written By Danielle Hutter

Retirees Having Some Fun

Plan sponsors who worried about seeing a spike in costs for 2016 were given a one-year reprieve by the IRS. On July 31, 2015, the IRS released Notice 2015-53: Updated Static Mortality Tables for DB Pension Plans for 2016. In the notice, the much anticipated topic of IRS 417(e)(3) mortality tables, which are used to calculate present values for single–sum distributions, was addressed.

IRS regulations control 417(e)(3), which defines the mortality and interest basis for determining a lump sum equivalence of a pension annuity. Mortality tables are defined by "applicable mortality tables," which was further clarified in Revenue Ruling 2007-67, for annuity starting dates with stability periods beginning in 2008. Notices 2008-85 and 2013-49 extended the applicability of these mortality tables used in 2009 through 2015.

Plan sponsors were a bit nervous in October 2014 when the Society of Actuaries released an updated set of mortality tables – called the RP-2014 tables. Actuaries speculated whether these new mortality tables were going to apply for 417(e)(3) purposes in 2016. After much anticipation, the latest IRS Notice 2015-53 has clarified that annuity starting dates with the stability period beginning in 2016 will follow the same procedures as those from 2008-2015.

The bad news? Actuaries are expecting a change to the RP-2014 mortality tables beginning in 2017. The good news? One more year before the new tables are in place and lump sum values increase. As this actuarial equivalence is at the heart of a significant part of the current de-risking movement, namely terminated vested cash outs, we would expect continued strong implementation of these programs in 2016. Talk to your actuary for details on the implications and strategies of de-risking before the RP-2014 mortality tables are implemented.

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