In a recent move by the Internal Revenue Service (IRS), new regulations concerning mortality tables for most qualified defined benefit plans have been published. These new rules, detailed in the 88 Fed. Reg. 72,357 (Oct. 20, 2023) are slated to take effect from 2024.
On the same day, the IRS also put forth proposed regulations on the computation of substitute mortality tables for plans with adequately credible mortality experience, demonstrated in the 88 Fed Reg. 72409.
The new mortality tables will be applicable for calculating the present value of benefits under defined benefit plans and the minimal funding requirements for these plans. They aim to more accurately reflect the current estimates of future mortality and are integral in determining the total liabilities and yearly contributions of pension plans.
Transitions to these new tables will undoubtedly present fresh challenges for defined benefit plan administrators as they seek to assimilate the adjustments in their organizations. Meeting these new standards would require updates in actuarial software, recalibrations in valuation methodologies, and potentially, repapering of plan documents. All these alterations could potentially influence the timing and amount of required minimum funding contributions.
The proposed regulations for substitute mortality tables seek to address and provide contingencies for the varying impact of COVID-19 on mortality rates, which are used in specific circumstances by plans possessing sufficient data to develop customized mortality tables.
While the new regulations offer an updated framework for the calculation of liabilities and contributions, the proposed regulations present an avenue to ensure that calculations remain as fair and accurate as possible amidst the perturbations caused by the pandemic.
As these two sets of regulations will significantly affect the operations of pension plans, it is essential that legal professionals, pension consultants, actuaries, and plan administrators be prepared and well-versed with its implications.