The American Benefits Council (ABC) recently sent a letter to the Internal Revenue Service requesting a meeting to discuss allowing for more time before the new mortality assumptions on defined benefit (DB) plans go into effect. In the letter, ABC says it “strongly supports” the effort to update the mortality tables, but has concerns about the date that they go into effect because of the significant changes that will have to be made.
According to ABC, making the new assumptions effective for plan years beginning after December 31, 2016, would cause three main problems: One, there would not be sufficient time for a robust policy discussion of this issue, including a public hearing. Two, the new assumptions would have an “enormous” effect on plan sponsors’ funding obligations. “Plan sponsors will generally need at least a 12-month period between publication of the final rules and the effective date in order to adjust business plans to take into account the new assumptions,” ABC writes in its letter. And three, significant changes to administration/pension calculation systems and valuation calculations and programs (e.g., new relative value regulation compliance systems and possible use of a two-dimensional mortality improvement scale) will likely be needed to comply with new rules, adding to the need for at least a 12-month period between finalization and effective date.
“For the large number of plans that offer lump sums and other payments subject to Section 417(e), updating systems, especially if two-dimensional mortality improvement scales are required, will be very time consuming, particularly in light of the need to certify the systems and to review the new rules with plan sponsors,” ABC says.
ABC listed general tasks that the Council members would need to conduct, especially for DB plan benefit certification. This includes developing a project scope and changing coding to meet any final regulation; preparing and checking test cases; complying with external industry professional requirements and more.
“This process cannot be squeezed into a short period of time in the case of very significant and complicated changes,” ABC writes. “At least a year is needed between the date of finalization and the effective date of the new assumptions.”
The full letter is available here.