2023 Mortality Tables Update and Proposed Regulation Changes to Funding Mortality Tables

On April 27th, the IRS issued Notice 2022-22 announcing the 2023 mortality tables to be used in the calculations of the funding results under IRC 430(h)(3)(A) and associated 1.430(h)(3)-1 used to determine the minimum contribution and maximum deduction and the IRC Section 417(e) minimum lump sum (Applicable Mortality table or AMT). The notice published the static mortality tables for plans with valuation dates in 2023 and also referenced the generational mortality using the 2006 base tables (from the RP-2014 Mortality Tables Report, as revised in November 2014) with the MP-2021 projection scales for valuation dates in 2023.

April 28, 2022 Proposed Regulations

The proposed regulation includes a number of changes, including a change to the mortality tables that would be used for funding calculations for plan years beginning in 2023.

For funding calculation under IRC 430(h)(3)(A) and 1.430(h)(3)(1) purposes, the proposed regulations adopt the 2-D generational mortality projection method, which pairs a base mortality table and the projection of mortality improvement for any plan not considered to be a small plan (those with more than 500 participants).

  • The base mortality table proposed is from the Pri-2012 Report published by the Society of Actuaries (SOA), which presents sex-distinct tables for annuitants and non-annuitants. The base tables published in this proposed regulation are built differently than those prepared in the original SOA report. In addition, unlike the Pri-2012 Report, the proposed regulation does not provide for separate tables for annuitants who are retirees and annuitants who are contingent beneficiaries.
  • The MP-2021 projection scales would be used for valuation dates starting in 2023. The IRS and Treasury expect to take updates into account in selecting the projection scales to be used for funding purposes. Currently, the SOA has been issuing updates to the projection scales on an annual basis.

Small plans (those with 500 or fewer participants) may use static tables for funding calculation purposes. The proposed regulation provides that the static tables for small plans are the combined static tables. The combined static tables for small plans in the proposed regulation would also be based on the Pri-2012 report.

Analysis
There are 3 key observations to be considered with respect to the IRS Notice and the proposed regulation related to the mortality tables:
  • Funding Tables for 2023 May Change – The funding tables for 2023 included in IRS Notice 2022-22 were developed based on the Base Tables published in the SOA’s RP-2014 report, whereas the Base Tables in the proposed regulation were developed based on the Base Tables published in the SOA’s Pri-2012 report. As a result, if the proposed regulation is passed as written, the funding tables included in IRS Notice 2022-22 would be replaced. This change would apply for both small plans and large plans.
  • Base Tables for Generational Calculations Differ from Previous Versions – For plans required to use generational mortality projections (or small plans choosing to use them), the Base Tables (sourced from the underlying Pri-2012 SOA report) published in the proposed regulations were blended differently than previous published versions. As a result, plan sponsors should monitor activity to ensure the Base Table used in funding calculations match those published in final regulations.
  • AMT for 417(e)(3) Purposes Will Not Change – The Applicable Mortality Table for 417(e)(3) calculation purposes would not change since it was not explicitly mentioned in the proposed regulation. Based on informal IRS guidance provided at the 2022 Enrolled Actuaries conference, the Applicable Mortality Table for 417(e)(3) calculations that were published in Notice 2022-22 are not affected and would not change if the proposed regulations go into effect as written.

The comment period on the proposed regulation closes in late June and ASC’s actuaries will continue to monitor updates related to this issue.

ASC Resources

The 2023 static and applicable mortality tables published in Notice 2022-22, as well as the 2006 Base tables, are available for download on the ASC website by logging into the Client Support Center and accessing the Updates & Downloads tab. The MP-2021 projection scales are available to users who are current on patches and do not require a manual download to apply to your system. We recommend users also select to download and review the step-by-step instructions, PPA Mortality Tables Import Instructions.pdf, which provides an overview of the tables available for download. A second document available from the same section, DB Tables – Generational Mortality Projection Documentation.pdf, provides background on generational mortality tables.

Once the proposed regulations are published as final, ASC will make the following available for download from the Client Support Center:

  • The 2023 funding tables for small plans
  • The revised Pri-2012 static combined Base Tables for plans required to use generational mortality projections (or small plans opting to use them). Remember that the previously published Pri-2012 Base Tables from the SOA are currently available for download but differ from the combined static versions published in the proposed regulation.

We will post a notice on the Client Support Center log-in page announcing the availability of new tables.