What You Need to Know
- Tax law requires the IRS to update the annuity valuation mortality tables every 10 years.
- The new tables are based on the 2010 census and replace tables based on the 2000 census.
- One implementation principle: You can have fun with extra decimal places.
The Internal Revenue Service is changing part of the financial machinery inside annuities, charitable giving and estate plans — in a friendly way.
The agency recently completed work on final regulations updating the official actuarial tables used to value annuities and other arrangements tied to how long people live, to reflect the results of the 2010 U.S. census. The final regulations will appear in the Federal Register Wednesday and apply to transactions completed after June 1, 2023.
For example, the life expectancy used in annuity valuations for a newborn, assuming an interest rate of 0.2%, will increase to 72.4320 years, from 70.9197 years in the current tables, which are based on the 2000 census.
For a 65-year-old, assuming an interest rate of 2.2%, life expectancy will increase to 14.9013 years, from 14.0065 years.
What It Means
Life insurers, accounting firms, software vendors and other firms will have to update any products or tools they offer that incorporate the IRS annuity valuation tables.
Because the new tables are based on data collected in 2010 — nine years before COVID-19 appeared — they will reflect a sunny world in which mortality was falling and life expectancy was increasing, rather than a world where COVID-19 pushed the death rate higher.
Internal Revenue Code Section 7520
The IRS is part of the U.S. Treasury Department.
Section 7520 of the Internal Revenue Code requires the Treasury secretary to use census data to update the annuity valuation mortality tables every 10 years.
The mortality tables based on the 2000 census have been in use since May 2009.
IRS Flexibility
The IRS put a draft version of the mortality table update regulation in the Federal Register in May 2022.