The IRS has released the 2024 mortality tables, which will be instrumental in funding, determining minimum lump-sum distributions, and various other calculations that affect the financial health of your pension plan. This update marks the first major revision to the base mortality rates since 2018 and includes adjustments to consider the impact of COVID-19.
The updated mortality tables provided under Internal Revenue Code (IRC) Section 430 are not just a regulatory requirement; they are a vital component in ensuring that your plan remains adequately funded, reflecting true longevity expectations. The adoption of the Pri-2012 base mortality rates, as suggested by the Society of Actuaries, and the modification of the mortality projection scale to include a COVID-19 adjustment, will likely result in a modest reduction in the plan's actuarial liabilities.
It's crucial to note that this adjustment pauses mortality improvement for the years 2020 through 2023 to better align with the pandemic's impact.
Moreover, the final rule introduces a cap on the annual mortality improvement rates, which must not exceed 0.78% for any age post-valuation date, as mandated by the SECURE 2.0 Act.
This will affect the projection of liabilities and the cost of providing benefits.
It is essential to understand that the IRS's shift to generational mortality tables, which apply different factors for each birth year, will require some changes in the way we have been calculating and projecting liabilities. However, for smaller plans, the IRS has maintained the option to use static tables.
For nonbinary participants, the IRS is showing inclusivity by allowing for a “reasonable approach” in liability determinations, signaling a move towards more personalized and potentially more equitable pension calculations.
Your Plan’s Liabilities
With the update, you can expect to see a reduction in liabilities by approximately 1% to 1.5% for typical plans. Similarly, the updated tables will generally result in lower minimum lump sums, especially for traditional plans with lump sums equating the present value of benefits deferred to age 65.
Importantly, for those utilizing plan-specific mortality tables based on your plan's experience, the IRS will allow continued reliance on these tables for 2024. This grants a level of continuity and stability in your funding strategies for the immediate future. However, looking ahead, the IRS has signaled a proposal that might require adjustments to the use of substitute mortality tables post-2024, particularly accounting for significant changes in plan coverage.
Furthermore, a proposal under consideration could impact how plan-specific mortality is assessed concerning COVID-19. The goal here is to ensure that mortality tables remain predictive of future experience, taking into account the unique mortality experiences of the plan during the pandemic years. If you feel your plan's experience deviates from the norm, this would be a crucial time to assess and potentially comment on the proposal.
In summary, it is imperative that you carefully examine these changes and adjust our actuarial assumptions accordingly. The IRS's recent moves underscore the importance of adaptability and the need for robust actuarial analysis. It may be beneficial to work closely with your financial professional to reassess your funding strategies and to help you manage your pension in light of evolving mortality trends. Remember, these are not just regulatory changes; they represent an opportunity to fine-tune your approach to pension risk management.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This article was prepared by FMeX.
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