Monthly LRA Update: June 2022

ACCOUNTING DEVELOPMENT

Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans

On April 28 the IRS published a Proposed Rule related to prescribed mortality tables to be used for defined benefit pension plans. The tables are used to calculate the present value of expected future benefit payments for purposes of determining the minimum funding requirements for the plan.

The base mortality rates proposed were derived from tables set forth in a 2012 report and include adjustments for “Mortality Improvement.” The Mortality Improvement scale was established based on data through 2019 and notably does not reflect increased mortality from 2020 or 2021.

According to the publication, the number of deaths in 2020 (starting March 22, 2020) and 2021 were approximately 120% and 110% of the expected number, respectively. The IRS and Treasury note that ongoing monitoring of COVID-related mortality could impact future adjustments to the prescribed mortality rates.

The mortality rates provided in these proposed regulations would apply starting in 2023. If the impact of COVID-19 on mortality experience is viewed as only a short-term phenomenon, the mere fact that the model in the MP-2021 Report (upon which these proposed regulations are based) did not reflect the actual mortality experience for 2020 through 2022 does not mean that the mortality rates in these proposed regulations are inappropriate because it is not clear to what extent the increased mortality associated with COVID-19 will continue for 2023 and later years. However, to the extent there is a long-term higher mortality rate from COVID-19, the Treasury Department and the IRS expect that RPEC will reflect the long-term impact of COVID-19 in future mortality improvement scales, which could be specified for use in future guidance. The Treasury Department and the IRS request comments about how the data for periods in which mortality experience for plan participants has been significantly affected by the COVID-19 pandemic should be taken into account in future mortality improvement rates under these regulations and future base mortality tables.

Comments on this proposed rule may be submitted through June 9.

Note: These mortality tables are not directly applicable to BOLI/COLI products.