IRS issues eagerly awaited 2024 defined benefit mortality tables 

October 27, 2023

Defined benefit (DB) pension plan sponsors and administrators eager to update valuation and administration systems will welcome IRS’s release of 2024 mortality tables for funding, minimum lump sum and other calculations. The regulation reflects the first update to the base mortality rates since 2018 and has a surprise adjustment to the mortality projection scale to reflect the impact of COVID-19 for 2020 through 2023. The final rule lets most sponsors using plan-specific mortality tables continue relying on them for 2024, but another IRS proposal addresses substitute mortality tables for 2025 and later valuation years.

Mortality tables under Internal Revenue Code (IRC) Section 430 are used to determine DB plans’ minimum funding requirements and for other funding-related purposes, such as variable-rate premiums charged by the Pension Benefit Guaranty Corp. (PBGC), PBGC 4010 filing requirements, benefit restrictions under IRC Section 436 and a plan’s at-risk status. Modified versions of these tables are the basis of the 2024 unisex mortality rates for determining minimum lump sums under IRC Section 417(e). The IRC requires IRS to revise the Section 430 tables at least every 10 years to reflect the actual mortality experience of pension plans and projected mortality trends. Although not required to do so, IRS regularly updates the mortality projection scale — a set of factors that adjust the base rates to reflect recent and anticipated mortality experience.

Base mortality. The final rule adopts the base mortality rates from Pri-2012, the latest table for US private-employer DB plans from the Society of Actuaries’ Retirement Plans Experience Committee (RPEC). This is the same table as in the 2022 proposed regulations.

Projection scale. Like the proposal, the regulation relies on RPEC’s latest published mortality improvement scale (MP-2021). However, the final rule modifies the scale in two ways, neither of which were reflected in the proposal:

• Adjustment for COVID-19. The final projection scale reflects no mortality improvement for 2020 through 2023 to approximate the effect of the COVID-19 pandemic. The 2022 proposal would have used the unadjusted MP-2021 scale, which disregarded the impact of COVID-19, due to lack of consensus on the pandemic’s potential long-term effects on mortality rates. IRS has not adjusted the MP-2021 rates after 2023 but intends to consider new data on mortality trends as they becomes available.
• Cap on mortality improvement rates. The annual mortality improvement factor can’t exceed 0.78% for any age in any year after the valuation date. This cap is required by the SECURE 2.0 Act (Division T of Pub. L. No. 117-328), which was enacted after the 2022 proposal was published.

Use of static tables restricted. Like the proposal, the final rule requires that valuations for most plans use “generational” mortality tables with different factors for every birth year, instead of the computationally simpler “static” tables with a single set of factors for all birth years. Only small plans (with no more than 500 participants), multiemployer plans, and cooperative and small-employer charity (CSEC) plans will be able to use static tables. Plans using static tables will have to use combined tables with a single set of rates for annuitants and nonannuitants.

Provision for nonbinary participants. A new provision permits using a “reasonable approach” for participants who don’t identify as male or female or for whom gender information is not available. The regulation includes two possible reasonable approaches but says other approaches may be reasonable. The examples are:

• Determine the participant’s liability as the weighted average of the liability assuming the participant is male and the liability assuming the participant is female, with the weighting based on the gender distribution of participants whose gender is known.
• Randomly assign male or female status to participants in proportion to the gender distribution of participants whose gender is known.

Plan sponsors can expect to see modestly lower liabilities using the new tables and a similar decrease in the size of minimum lump sums.

Impact on liabilities. The changes to the mortality table and projection scale will generally decrease funding liabilities under Section 430 and other liabilities that rely on the same tables. The impact will vary by age, with larger decreases for older participants and smaller decreases (perhaps even small increases) for younger participants. The exact effect will vary by plan design and participant demographics. The effects will also depend on whether the plan was already using generational tables for Section 430 calculations. Overall, liabilities may decrease 1%–1.5% for a typical plan with an annuity-based formula.

Impact on Section 417(e) minimum lump sums. The new tables will generally decrease minimum lump sums. For traditional plans that pay a lump sum equal to the present value of the deferred-to-age-65 accrued benefit, the new table may decrease lump sums by around 1% relative to the 2023 tables, holding interest rates constant. For lump sums based on immediate benefits, the decrease will be more modest at ages before 65. This decrease in lump sums will be compounded by the effect of the rise in interest rates (which will likely dwarf the impact of the mortality change for plans using Section 417(e) interest rates).

The final rule clarifies that sponsors using plan-specific mortality tables based partly or entirely on the plan’s own experience will generally continue to use those tables in 2024. Under IRC Section 430, a sponsor must use the substitute table for the number of years (up to 10) specified in the application to IRS, subject to a limited list of exceptions in the IRC and regulations requiring early termination. One exception is for an update to the Section 430 mortality tables. The 2022 proposal said IRS wasn’t planning to force early termination for most plans after finalizing the regulation but did intend to require a change for plans that had 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), even if the actuary certified that the substitute table remained accurately predictive of future experience.

The final regulation takes a more relaxed approach. The preamble says that IRS will generally not require early termination of the use of substitute mortality tables solely due to the change in the Section 430 tables, even if the plan had a significant change in coverage. Instead, a separately released new proposal says IRS will not require early termination of the use of substitute mortality tables until the agency issues final rules and an updated revenue procedure. Plans that want to continue using a substitute mortality table after experiencing a significant change in coverage will still need an actuarial certification that the table remains accurately predictive of the plan’s future experience.

Proposed adjustment for plan-specific COVID-19 experience. The new proposal provides a method to adjust a plan’s mortality experience for developing a plan-specific mortality table that includes any year that starts in 2020 through 2023. Each year’s adjustment would approximate the ratio of actual to expected deaths for the general population to develop tables “more accurately predictive of future mortality experience” for the plan population. Most single-employer pension plans have not experienced the same increased mortality during this period as the general US population has. If this proposal is finalized, plan sponsors may have more difficultly using these years to support a table showing that a population has substandard mortality. Comments on the proposal are due Dec. 19.

• Final rule on mortality tables for determining present value under defined benefit pension plans (Federal Register, Oct. 20, 2023)
• Proposed rule on plan-specific substitute mortality tables for determining present value (Federal Register, Oct. 20, 2023)
• Notice 2023-73 (IRS, Oct. 19, 2023)
• Division T of Pub. L. No. 117-328, the SECURE 2.0 Act of 2022 (Congress, Dec. 29, 2022)

• User's guide to SECURE 2.0 (Aug. 7, 2023)
• IRS serves up a mortality triple shot (May 3, 2022)