IRS Issues Proposed Regulations to Determine Present Value in Defined-Benefit Plans

April 28, 2022

The IRS has recently issued proposed regulations and mortality tables (REG-106384-20) for determining present values under defined benefit pension plans. Generally, under Code Sec. 430(h)(3)(A), the IRS issues the mortality tables used to determine present value or make any computation under Code Sec. 430, and the tables must be revised at least every 10 years.

Reg §1.430(h)(3)-1 (TD 9826, the 2017 regulations) revised the mortality tables for plan years beginning on or after Jan. 1, 2018. Reg. §1.430 (h)(3)-1(a) permits plan sponsors to project mortality improvement by using static tables that are updated annually to show probable improvements in mortality or by using generational tables.

For valuation dates occurring in years after 2018, the IRS offers updated mortality improvement rates that take into consideration new data for mortality improvement trends of the general population, as well as static mortality tables that reflect those updated rates, through guidance published in the Internal Revenue Bulletin.

The mortality improvement rates for valuation dates occurring during 2022 are the rates in the Mortality Improvement Scale MP-2019 Report, issued by the Retirement Plans Experience Committee (RPEC) of the Society of Actuaries.

The proposed regulations would revise and replace Reg §1.430(h)(3)-1. The base mortality tables proposed for use under Code Sec. 430(h)(3)(A) are derived from the tables set forth in the Pri-2012 Private Retirement Plans Mortality Tables Report (Pri-2012 Report) issued by the RPEC.

The proposed regulations present base tables that would be used to develop the mortality tables for future years. The base tables have a base year of 2012, the central year of the experience study used to develop the mortality tables in the Pri-2012 Report. The base tables generally have the same mortality rates as the employee and non-disabled annuitant mortality rates that were published by RPEC in connection with the Pri-2012 Report. They also include non-annuitant mortality rates for ages below 18 and above 80 and annuitant mortality rates for ages below 50. This is generally the way the base mortality tables in the 2017 regulations were developed.

Additionally, the proposed regulations would remove the use of separate static non-annuitant and annuitant mortality tables and require the use of generational mortality tables for plans that are not considered small plans. The proposed regulations would continue to allow the use of static mortality tables for small plans, multi-employer, cooperative and small-employer charity (CSEC) plans, but the static mortality tables that may be used for these plans are combined tables reflecting non-annuitant and annuitant mortality rates. These tables are constructed from a mix of non-annuitant and annuitant mortality rates based on the underlying data used in the Pri-2012 Report.

The proposed regulations would also use the Scale MP-2021 Rates, the mortality improvement scale in the RPEC-issued Mortality Improvement Scale MP-2021 Report, for valuation dates in the 2023 calendar year.

The proposed regulations would apply to plan years beginning on or after Jan. 1, 2023.