On July 31, 2015, IRS released Notice 2015-53, providing static mortality tables for 2016, updated for mortality improvements. The update in the notice is in line with expectations and reflects the current rules. Those rules use the RP-2000 Mortality Tables “adjusted for mortality improvement using Projection Scale AA.”
As we have discussed (see our article Society of Actuaries releases updated mortality tables), the Society of Actuaries has published new mortality tables (RP-2014) and a new mortality improvement scale (MP-2014) that increases participants’ assumed life expectancies across the board. Mortality improvements reflected in the SOA tables will not be effective for ERISA minimum funding and lump sum (including de-risking) calculations until they are adopted by IRS. The 2016 tables just published by IRS do not reflect the new SOA tables.
The new SOA mortality assumptions have generated some controversy, and we expect that there will be some pressure on IRS to modify them, together with some counter-pressure not to modify them. In any case, most believe that, whether IRS modifies the SOA tables or not, IRS will adopt new mortality assumptions that, for many plans, significantly increase life expectancies and the value of plan liabilities for minimum funding and lump sum calculations. Those increases will in turn, result in lower funding ratios, higher funding requirements, higher PBGC premiums, and an increase in the cost of de-risking compared to the current tables.
In that regard, Notice 2015-53 states:
Notice 2013-49 [which provided static mortality tables for 2014 and 2015] also requested comments regarding the publication of mortality tables for future years, and several comments were received. The Treasury Department and the IRS also received additional comments in response to the RP-2014 Mortality Tables Report and the Mortality Improvement Scale MP-2014 Report. The Treasury Department and the IRS are considering the comments received and expect to issue proposed regulations revising the base mortality rates and projection factors [under applicable regulations]. However, in order to give time for notice and comment on the proposed regulations, the new regulations will not apply until 2017.
Bottom line: for ERISA minimum funding and lump sum calculations, 2016 mortality assumptions are determined under current rules and don’t reflect the SOA MP-2014 increases; 2017 mortality assumptions, however, are likely to reflect those increases.
We will soon be publishing articles reviewing the possible effect on funding and de-risking of the new mortality assumptions and changes in interest rates.