Updated IRS Mortality Tables

The IRS recently released Notice 2023-73, which contains a mortality table for use in determining minimum present value under IRC Section 417(e)(3) and Section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2024 calendar year. These tables are essentially used to determine the present value of a participant’s interest in a defined benefit pension plan (based on actual experience of plans and projected trends in those experiences). The IRS is directed to update these tables at least every ten years. The law also provides that the present value of certain accelerated forms of qualified pension plan benefits (including lump-sum distributions) must not be less than the present value of the accrued benefit using the applicable interest rates and the applicable mortality table provided by the IRS.

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the new IRS mortality tables will create an undue burden for plan participants.

Below is a summary of the debate that ensued between the two professors.

Their Votes:

Bloink

Byrnes

Their Reasons:

Bloink: These newly released mortality tables will result in a decrease in lump sum payout values for plan participants at a time when most retirees and near-retirees can ill-afford another loss when we’re considering both inflation rates that are higher than those experienced in decades and the stock market losses experienced by many in 2022 and 2023. In and of itself, that creates an undue burden for taxpayers who are already struggling in today’s difficult market.

Byrnes: The decrease in lump sum values will be minimal and will barely be felt by plan participants. Further, the impact of the changes to the mortality tables will disappear as bond rates rise (as they are expected to as we move into 2024). Asset values themselves are trending toward increasing when compared with 2023 rates which should, itself, keep lump sum payouts more stable than would otherwise be the case given the new table.

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Bloink: We're dealing with an environment where prices have risen across the board. Taxpayers are struggling to pay for essentials. Even a small decrease in the retirement plan lump sum payout rates that these individuals have been counting on--some for decades--will create an undue burden for participants.

Byrnes: These new mortality tables are merely a reflection of reality and the changing mortality rates that have actually been experienced in recent years in light of COVID. We can’t expect the IRS to continue using old tables merely because some defined benefit plan participants may receive a slightly reduced lump sum settlement using the updated tables. The IRS must stay current, and this is no time to be making moves that would only further fuel inflation.

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Bloink: Adopting the new mortality tables could easily be postponed past 2024 until a time when the impact of inflation is not being felt so acutely by taxpayers across the board. The IRS did not hesitate to provide relief during COVID and there’s no reason that it cannot act to provide relief now that we’re dealing with the aftermath.

Byrnes: These new mortality tables will only result in lower lump sum payments in the extremely limited cases where plan sponsors calculate lump sums based on minimum lump sum assumptions over a time period that is shorter than the plan participant’s life. We also have to remember that defined benefit plan participants always have the option of declining a lump sum payout offer in favor of receiving traditional annuity-style benefits over their lifetime. In the end, the impact of the update tables on plan participants is likely to be minimal, and there’s no reason to continue delaying implementing the new tables.