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IRS Adopts Updated Mortality Tables for Determining Minimum Required Contributions and Lump Sums

On December 29, 2016, the Internal Revenue Service proposed regulations regarding mortality tables for the purposes of determining the plan’s Minimum Required Contribution. The proposed rules are expected to go in effect for plan years beginning on January 1, 2018 and will also be used as a basis for lump sum calculations, which will be addressed through a separate IRS bulletin. The impact of the updated mortality tables will be an increase of about 3-5% to the plan’s minimum funding liability, depending on the specific features of the plan. As a result of this change, plan sponsors may want to review the impact on the following metrics. First, depending on the plan’s funded status, the minimum funding contribution is likely to increase for most plans. Second, the AFTAP ratio may get close to or breach the 60% and 80% levels, which may trigger certain restrictions. Third, the PBGC premiums may increase for plans that pay variable rate premiums due to the lower funded status. Lastly, the calculation of lump sum payments will also increase for most plans. Plan sponsors should review the impact on the plan’s funding metrics and consider the impact on the plan’s long-term objectives.