On October 20th, 2023, the IRS issued a proposed update to its rule regarding plan-specific substitute mortality tables for determining present value and an accompanying Request for Comment.
This proposed rule would “update the requirements that a plan sponsor of a single-employer defined benefit plan must meet to obtain IRS approval to use mortality tables specific to the plan in calculating present value for minimum funding purposes (as a substitute for the generally applicable mortality tables).” Given Club Vita’s expertise in this area, we responded to the proposal.
Our response can be read in full here: Club Vita’s response to proposed IRS rule update – December 2023
In summary:
- We recognize the need for guidance on the incorporation of pandemic era mortality experience in the creation of substitute mortality tables. Specifically, we recognize that full recognition of pandemic era plan experience, without adjustment, may yield mortality rates higher than those anticipated in subsequent years.
- We acknowledge the challenge faced by the IRS in striking a balance between achieving accuracy in these adjustments and avoiding undue complexity in the process.
- However, the pandemic has affected parts of the country and socio-economic groups in different ways, and we think a one-size-fits all approach to the adjustments of expected mortality in pandemic years is likely to yield some unintended consequences. The proposed approach will leave some plans unable to recognize their true mortality and others being able to recognize artificially high mortality rates in future assumptions.
We also have some concerns with setting an adjustment factor for 2023 before the full year of data is available.