Guest Article

(From the October 13, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Issues Static Mortality Tables for 2009 Through 2013

As a follow up to final mortality table regulations the IRS published in July, the IRS has issued Notice 2008-85 to provide the static mortality tables that many pension plans will use to calculate their minimum funding obligations for 2009 through 2013 plan years. The Notice also includes a modified "unisex" version of the mortality tables to be used for calculating lump sum distributions during that same period.

Background

The Pension Protection Act (PPA) of 2006 (P.L. 109-280) repealed the current minimum funding rules for single-employer defined benefit plans and replaced them with a new minimum funding regime effective for plan years beginning on or after January 1, 2008. Under the new rules -- which are codified in IRC § 430 -- a plan sponsor's minimum required contribution for a plan year is based on the plan's funding target for that year. Generally, a plan's funding target for a plan year is the present value of all benefits accrued or earned under the plan as of the beginning of the plan year.

Most plan sponsors use the generally applicable mortality tables prescribed by the Secretary of the Treasury for purposes of this and other present value calculations under IRC § 430. However, certain large plan sponsors can petition the IRS to use substitute mortality tables based on their own plans' actual experience. The final regulations explain the methodology the IRS uses to establish the generally applicable mortality tables, and the framework for plan sponsors to develop and use substitute mortality tables. Previously IRS issued Rev. Proc. 2007-37, 2007-1 CB 1433, to explain the procedures for a plan sponsor to apply to use substitute mortality tables.

Additionally, plan sponsors have the option of using separate Treasury-prescribed mortality tables to value liabilities for individuals entitled to benefits on account of disability. The special mortality tables for disabled individuals are addressed in Notice 2008-29, 2008-12 IRB 637, which IRS issued earlier this year.

Generally Applicable Mortality Tables

Under the final regulations the generally applicable mortality tables are based on the RP-2000 Mortality Tables Report. The mortality tables are gender distinct, and provide separate mortality rates for annuitants and nonannuitants.

The final mortality tables are based on expected mortality as of 2000 and reflect the impact of expected improvements in mortality. Plan sponsors have two options for applying the projected mortality improvements:

The final regulations included the static mortality tables that apply for 2008 valuation dates. As promised in the final regulations, the appendix to Notice 2008-52 includes a series of static mortality tables for valuation dates occurring during 2009 through 2013.

Mortality Assumptions for Lump Sum Distributions

The PPA also amended IRC § 417(e) to require plans to use a modified version of the mortality table used under IRC § 430 for purposes of determining the present value of lump sum distributions, effective for plan years beginning after December 31, 2007. The IRS issued Rev. Rul. 2007-67 to prescribe the applicable mortality table for lump sum calculations for 2008 plan years. Notice 2008-52 prescribes the applicable mortality tables for lump sum distributions with annuity starting dates that occur during stability periods beginning in calendar years 2009 through 2013.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.