A leading advocate for the largest sponsors of private-sector defined benefit plans is asking the Internal Revenue Service to delay the implementation of new mortality tables used to estimate pension liabilities.
In a letter to Treasury officials, including Mark Iwry, senior advisor to Treasury Secretary Jack Lew, the American Benefits Council argues that sponsors should have at least 12 months between the finalization of new mortality tables and their implementation.
Last September, the IRS announced it was delaying the application of new mortality tables, produced by the Society of Actuaries in 2014, to benefit plans beginning January 1, 2017.
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Those tables, which had not been updated since 2000, reflect the improved life expectations of baby boomers. Under the SOA's 2014 tables, the average 65-year old male is expected to live to 86.6 years of age, an increase of two years. The average woman is expected to live to be 88.8, an increase of 2.4 years.
The IRS's announcement delaying implementation of the tables to 2017 reflected questions that sponsors and other actuaries raised as to the completeness of the data the SOA used to arrive at its new projections.
In applying incomplete data, SOA's original estimates were inflated, argued critics of the estimates, meaning sponsors would be required to increase pension funding requirements at excessive rates.
Ultimately, the SOA responded, and released adjustments to its longevity table in October 2015, reflecting lower lifespan expectations: The average male's life span remained at 86.6, the females average mortality rate was adjusted lower to 88.2 percent.
Because the IRS has not officially finalized its new tables, the ABC is requesting another year delay for the implementation of the new tables.
If Treasury obliges that request, sponsors will have another windfall in the form of reduced funding obligations, albeit temporary.
When the IRS announced it was delaying application of the tables to 2017, analysts at Moody's estimated the companies it tracks saved $18 billion in funding requirements in 2016, and that was based on the original mortality tables issued by SOA, and not its downward adjustment.
In arguing for another 12-month grace period between the ultimate finalization of the tables and their implementation, the ABC said sponsors will need the time "in order to adjust business plans to take into account the new assumptions," according to the trade group's letter to Treasury.
It also suggested more time is needed for a "robust public policy discussion," including a public hearing.
Moreover, sponsors will need time to implement new calculation and valuation programs to account for the changes.
"This process cannot be squeezed into a short period of time in the case of very significant and complicated changes," ABC's letter said, which was penned by Lynn Dudley, senior vice president at the American Benefits Council.
"At least a year is needed between the date of finalization and the effective date of the new assumptions," added Dudley.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
