Small Pension Plans and Mortality Tables

October 28, 2013 ( – The American Society of Pension Professionals & Actuaries (ASPPA) recently made several recommendations to the Internal Revenue Service (IRS) on static mortality tables and related actuarial software.

ASPPA, along with the ASPPA College of Pension Actuaries (ACOPA), sent a letter to the IRS in response to the request for comments about IRS Notice 2013-49, which was issued in July. The notice dealt with mortality tables to be used under Internal Revenue Code Sections 430(h)(3)(A) and 417(e)(3). The language of the notice generated questions that included:

  • Is actuarial software used by small pension plans capable of using separate mortality tables for annuitants and non-annuitants?
  • Is such software capable of using these tables on a fully generational basis?
  • Can this software use a two-dimensional mortality projection scale?

The ASPPA/ACOPA letter addressed these questions in two ways. First, it pointed out that most actuaries have the ability to separate mortality tables. However, small pension plans were noted as having a high incidence of lump sums that required using Section 417(e) mortality rates. As such, the letter recommended that the IRS permit the use of such rates throughout the valuation.

Second, the letter pointed out that actuarial software used by small pension plans usually doesn’t allow for the use of mortality tables on a fully generational basis. While the letter acknowledged that it was theoretically possible for software providers to created upgrades that would do so, the reprogramming and costs involved would be substantial.

The letter concluded that static tables work well in the small plan environment and suggested to the IRS that moving away from static tables for small plans would be “form over substance at substantial cost.”

The full text of the letter can be found here.