New IRS Mortality Tables Leave Out COVID-19

What You Need to Know

The new pension mortality tables are based on the work of the Retirement Plan Experience Committee at the Society of Actuaries.
The committee is so used to the idea that mortality will improve that it calls its updates mortality improvement scale reports.
Mortality has been at least 10% above expected levels since March 2020.

The Internal Revenue Service is struggling with the effects of the COVID-19 pandemic on long-range mortality forecasts.

The IRS talked about its uncertainty last week, when it posted a draft version of Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans.

“The mortality rates provided in these proposed regulations would apply starting in 2023,” the IRS says in the preamble, or official introduction, to the proposed regulations.

The current table, which is based on pre-pandemic data, might be appropriate, “because it is not clear to what extent the increased mortality associated with COVID-19 will continue for 2023 and later years,” officials say.

But, if COVID-19 continues to increase the U.S. mortality rate, then data flowing into the mortality tables would reflect that, officials add.

Officials asked for comments about how they should handle COVID-19-related mortality spikes in future mortality tables.

What It Means

The IRS comments about COVID-19 mortality and mortality tables reflect the kind of pandemic-related mortality uncertainty now affecting anyone with an interest in how long people will live, including Social Security program managers, pension plan managers and financial planners helping clients budget for retirement.

Overly pessimistic mortality forecasts could lead to clients or plans running out of money early.

Overly optimistic forecasts could lead to unnecessarily low levels of retirement income.

The Mortality Tables

The new IRS mortality tables are aimed at managers of defined benefit plans.

Plan managers will use the final version of the tables to calculate minimum plan funding levels and handle other administrative tasks.

The IRS bases the tables on the work of the Retirement Plan Experience Committee at the Society of Actuaries. The committee is so used to the idea that U.S. pension plan participant mortality levels will improve that it calls its reports “mortality improvement scale” reports.

The committee reviewed mortality from 2020 and 2021 in their latest report, but the latest figures they actually include in their mortality improvement scale reports come from 2019.

Substitute Tables

Plans that believe the standard IRS mortality tables are a poor fit can already ask to to use different tables.

If the effects of the COVID-19 pandemic on plan participant mortality are just temporary, and plans used substitute tables that assume temporary spikes in mortality are permanent, the plans could end up putting too little cash in their plans — because of the assumption that participants will die earlier than they actually do.

IRS officials asked for comments about whether the rules related to the development of substitute mortality tables should be modified to account for the possibility that the mortality levels occurring during COVID-19 spikes will not have much relationship to future mortality levels.