IRS finalizes rules on DB plans’ substitute mortality tables 

August 6, 2024

Defined benefit (DB) plan sponsors interested in using plan-specific mortality tables for determining minimum funding requirements now have final IRS rules on how to reflect the impact of the COVID-19 pandemic. The rules are effective for 2025 and later plan-year valuations, but IRS is providing transition relief for some sponsors using previously approved substitute mortality tables. IRS also has extended the deadline for some sponsors to apply to use plan-specific mortality for 2025. A companion revenue procedure updates the process for submitting requests to IRS to reflect the new regulation. The revenue procedure also specifies the dates plans must stop using previously approved tables due to the change in generally applicable mortality tables under Internal Revenue Code Section 430.

Section 430 gives sponsors the option to use a plan-specific mortality table based partly or entirely on the plan’s own experience, subject to IRS approval. Sponsors with as few as 100 deaths in total over two to five years can create their own tables by blending their mortality experience with the otherwise prescribed tables. Because using substitute mortality tables is optional and involves undertaking a detailed mortality experience study, sponsors generally only take this approach if it reduces plan liabilities.

A 2023 IRS proposal aimed to address the thorny issue of how sponsors should reflect the COVID-19 pandemic’s impact on participant mortality when developing substitute tables. Using tables based on temporarily inflated mortality — that is, assuming participants won’t live as long and will receive their pensions for fewer years — would result in reduced funding requirements. To prevent this outcome, the proposal would have prescribed the use of a mortality adjustment factor (approximating the ratio of actual to expected deaths for the general population) for any year starting in 2020 through 2023.

The final rules closely track the proposal, with a key difference: In response to comments and a review of more recent data, IRS reduced the factor for 2022 and eliminated it altogether for 2023. This may help alleviate concerns for some plans that didn’t experience significantly inflated mortality during those years. However, sponsors will still have to reflect mortality adjustment factors for 2020, 2021 and 2022, even if their plans didn’t experience excess COVID-19-related mortality in those years. This may make it challenging for those plans to support a substitute table reflecting the same level of excess mortality as prior to the pandemic.

Rev. Proc. 2024-32 also addresses when sponsors must stop using previously approved mortality tables after the recent change in the generally applicable Section 430 mortality tables. When IRS approves a request to use a plan-specific mortality table, the sponsor must use the table for the number of years (up to 10) specified in the application, unless one of a limited number of exceptions triggers early termination. One exception is for a change in the Section 430 tables. When such a change occurs, IRS will specify the date by which a plan must stop using the substitute table.

Final 2023 regulations changed the Section 430 mortality tables for 2024 and later plan years. Rev. Proc. 2024-32 provides that a plan using substitute tables approved before 2025 must stop using the plan-specific table for any plan year starting after 2025 if the plan experienced a significant change in coverage — a more than 20% change in the average number of individuals covered under the plan relative to the number in the experience study supporting the substitute table. This is required even if the actuary certifies that the table remains accurately predictive of future experience. Plans that didn’t experience a significant change in coverage can continue to use previously approved tables after 2025, with one important exception: A table reflecting experience in any of the COVID years (2020, 2021 or 2022) cannot be used after 2025. Sponsors in that situation will need to apply to use a new plan-specific table that meets the final rules or revert to the regular prescribed tables.

Sponsors that want to apply to use a new substitute mortality ordinarily must do so no later than seven months before the start of the plan year for which the tables would apply — i.e., June 1, 2024, for 2025 calendar-year plans. Now IRS is giving sponsors until Oct. 31, 2024, to file applications for the 2025 plan year, but sponsors must also request a 90-day extension of the usual 180-day review period. (For plan years starting on or after June 1, 2025, the usual seven-month deadline applies.)

• Final rule on plan-specific substitute mortality tables for determining present value (Federal Register, July 31, 2024)
• Rev. Proc. 2024-32 (IRS, July 30, 2024)
• Proposed rule on plan-specific substitute mortality tables for determining present value (Federal Register, Oct. 20, 2023)
• Final rule on mortality tables for determining present value under DB pension plans (Federal Register, Oct. 20, 2023)

• IRS issues eagerly awaited 2024 defined benefit mortality tables (Oct. 27, 2023)