United States

Proposed regulations prescribe mortality tables for payouts

FINANCIAL REPORTING INSIGHTS  | 

The Internal Revenue Service (IRS) has proposed regulations prescribing Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans. The tables specify the probability of survival year-by-year for an individual based on age, gender and other factors. This information is used, together with other actuarial assumptions, to calculate the present value of a stream of expected future benefit payments for purposes of determining the minimum funding requirements for the plan. These mortality tables are also relevant in determining the minimum required amount of a lump-sum distribution from such a plan. In addition, the proposed regulations would update the requirements that a plan sponsor must meet to obtain IRS approval to use mortality tables specific to the plan for minimum funding purposes, instead of the generally applicable mortality tables. The proposed regulations affect participants in, beneficiaries of, employers maintaining and administrators of certain retirement plans.

Although the IRS mortality tables affect the actual payouts of benefits, the tables do not impact the calculation of the plan benefit obligations in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 960, Plan Accounting – Defined Benefit Pension Plans, or Topic 715, Compensation – Retirement Benefits. Plan sponsors typically consider the mortality tables published by the Society of Actuaries (SOA) when measuring benefit costs and obligations of plans that provide benefits based on the life expectancy of participants. For financial statement presentation and disclosure, the most recent SOA table and improvement scale (RP-2014 and MP-2016) should continue to be used, unless management can support the use of different measures.  

The proposed IRS regulations are available for comment until March 29, 2017.