Effect on Lump Sum Amount - New Mortality Table

[tuni88]

An employee is turning age 65 this summer and considering retirement. Our plan is frozen.  He says he'll choose a lump sum as his payment option. Now he sees something in the newspapers that his lump sum may be higher if he continues working into early 2018 and has asked me how much higher his lump sum will be. As a rough percentage what is the increase likely to be? The plan's actuary has told me what the 2017 lump sum will be but says he isn't ready to do 2018 calculations yet.  

If I wanted to read something in layman's language on this topic please direct me there.

 

 

[Effen]

There was a lot of talk about the IRS going to a generational table for lump sums in 2018, which may have pushed lump sums up by 5%-10%, but the final regs came out and they stuck with the same methodology they have been using.  I would expect the mortality change to be only 1% or 2%.

He really should be watching interest rates.  They are much more dynamic and have a much larger impact.  If rates are lower in 2018 his lump sum will be higher, if rates are higher, his lump sum will likely be lower, even with a mortality update.

 

[My 2 cents]

Based on what I read in the proposed regulations, it appears that the IRS has, for the years after PPA, been designing their static tables for minimum funding in a way to more or less duplicate the impact of a generational projection (and then basing the 417(e) table on the male/female rates from the funding tables).  They are continuing that in the new tables for next year.  The differences in the base rates and the projection factors added 3%+ to the liabilities for a plan with no retirees for the lower segment rates (i.e., for the PBGC and 417(e) rates).  It's a newer table with greater inherent longevity built in, so expect an increase.  As noted above, the level of the segment rates can easily have a greater impact.  They are one-month spot rates for 417(e), so would more immediately reflect movements in the market interest rates than those used for funding (even in the absence of the funding relief).