Substitute Mortality Table Proposal Unveiled

May 29, 2007 ( - The Treasury Department and Internal Revenue Service have issued proposed rules (REG-143601-06) and mortality tables, including substitute mortality tables, for determining present value and pension funding computations.

The proposed regulations reflect new Section 430, added to the Internal Revenue Code by the Pension Protection Act of 2006.   It specifies the minimum funding requirements and defines the minimum required contributions that apply to defined benefit plans that are not multiemployer plans subject to tax code Section 412.

The proposed rules:

  • base the mortality tables on expected mortality as of the year 2000, factoring in expected improvements in mortality;
  • permit plan sponsors to apply projected mortality improvements in annually updated static tables, or by using generational tables;
  • establish base tables for annuitants and non-annuitants, with projection data;
  • provide guidance on the permitted use of static mortality tables;  
  • provide guidance on the permitted use of substitute mortality tables.

Separate Tables

The mortality tables set forth in these proposed regulations would provide separate mortality rates for annuitants and non-annuitants, a distinction made since these two groups have significantly different mortality experience, “particularly true at typical ages for early retirees, where the number of health-induced early retirements results in a population that has higher mortality rates than the population of currently employed individuals,” according to the proposal.   Acknowledging that the use of separate mortality rates for these groups of individuals will likely entail changes in programming of actuarial software, the IRS and the Treasury Department said that they believe that “the improvement in accuracy resulting from the use of separate mortality tables for annuitants and non-annuitants more than offsets the added complexity.”

Under these proposed regulations, the annuitant mortality tables would be applied to determine the present value of benefits for annuitants. The annuitant mortality tables are also used for non-annuitants (active employees and terminated vested participants) for the periods beginning when the non-annuitants are projected to commence receiving benefits, while the non-annuitant mortality tables are applied for the periods before non-annuitants are projected to commence receiving benefits. For any period in which an annuitant is projected to be receiving benefits, the mortality table applicable to any beneficiary of that annuitant is the annuitant mortality table.

The RP-2000 Mortality Tables Report sets forth mortality tables that reflect expected mortality as of 2000, along with projection factors that are used to reflect the impact of expected improvements in mortality. Similarly, the mortality tables set forth in the proposed regulations are based on expected mortality as of 2000 and reflect the impact of expected improvements in mortality.

“The new mortality tables under [S]ection 430(h)(3)(A) would be based on the tables contained in the RP-2000 Mortality Tables Report,” the proposed rules stated. They would apply to plan years beginning on or after January 1, 2008.

Call for Comments

Written or electronic comments and requests for a public hearing must be received by August 27, 2007.

Submissions should be sent to: CC:PA:LPD:PR (REG-143601-06), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington. D.C. 20044, Hand deliveries may be addressed to: CC:PA:LPD:PR (REG-143601-06), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue N.W., Washington, D.C. 20224. Electronic submissions can be delivered via the Federal eRulemaking Portal at: (IRS-REG-143601-06).

According to background provided by the IRS, Section 430(a) defines the minimum required contribution for a defined benefit plan that is not a multiemployer plan by reference to the plan's funding target for the plan year. Under section 430(d)(1), a plan's funding target for a plan year generally is the present value of all benefits accrued or earned under the plan as of the beginning of the plan year, and Section 430(h)(3) provides rules regarding the mortality tables to be used under section 430.   

Under section 430(h)(3)(A), the Secretary of Labor ("the Secretary") is to prescribe by regulation mortality tables to be used in determining any present value or making any computation under section 430. Those tables are to be based on the actual experience of pension plans and projected trends in such experience. In prescribing those tables, the Secretary is required to take into account results of available independent studies of mortality of individuals covered by pension plans.

Section 430(h)(3)(C) provides rules for a plan sponsor's use of substitute mortality tables, and upon the request of a plan sponsor and approval by the Secretary, "mortality tables that meet the requirements for substitute mortality tables are used in determining present value or making any computation under section 430 during the period of consecutive plan years (not to exceed 10) specified in the request," according to the proposed rules.   It cautions that "substitute mortality tables cease to be in effect as of the earliest of the date on which there is a significant change in the participants in the plan by reason of a plan spin-off or merger or otherwise, or the date on which the plan actuary determines that those tables do not meet the requirements for substitute mortality tables." It also notes that the plan sponsor's request to use substitute mortality tables is to be made at least seven months before the first day of the first plan year for which substitute mortality tables are to apply. A request to use substitute mortality tables is deemed approved unless the Secretary denies approval for the use of those mortality tables within 180 days of the request (subject to extension of this period by mutual agreement).   

Mortality tables meet the requirements for substitute mortality tables if:

  • the pension plan has a sufficient number of plan participants, and
  • the plan has been maintained for a sufficient period of time in order to have credible mortality experience, and
  • such tables reflect the actual experience of the plan and projected trends in general mortality experience of participants in pension plans.

Except as provided by the Secretary, a plan sponsor cannot use substitute mortality tables for any plan unless substitute mortality tables are established and used for each other plan maintained by the plan sponsor and the plan sponsor's controlled group.