Federal Agencies Update Mortality Tables

The Internal Revenue Service and the Pension Benefit Guaranty Corp. say they will be taking different approaches to replacing the 1983 Group Annuity Mortality Tables.[@@]

The IRS is writing a rule that will require defined benefit pension plan sponsors to use tables based largely on the RP-2000 Mortality Tables Report when computing minimum plan funding requirements, according to a notice .

The IRS will hear public comments on its proposed mortality table change April 19, 2006, in Washington.

In a separate action, the PBGC has issued a final rule requiring employers to use tables based largely on the 1994 Group Annuity Mortality Tables to value defined benefit plan benefits.

The PBGC shift, previously announced in a draft rule released in March, is scheduled to take effect Jan. 1, 2006.

The PBGC and IRS notices both appear today in the Federal Register.

Sticking with the 1983 tables could encourage employers to set too little cash aside for male pension plan members, because male mortality has improved considerably since then, according to Bruce Perlin and Linda Marshall, the main authors of the IRS rule-making notice.

Because men are living so much longer, comparisons of GAM-83 values with RP-2000 Combined Healthy Mortality Table values suggest that, assuming an interest rate of 6%, the present value of annuities has increased 12% for 35-year-old men with deferred annuities payable at age 65 and 5% for 55-year-old men with immediate annuities.

The picture is different for women.

Although the number of expected deaths for women has fallen 10% for 55-year-old women, the number has increased by 33% for 65-year-old women and 2% for 80-year-olds, Perlin and Marshall write.

Because of the deterioration in some women's life expectancies, the present value of annuities in a world with a 6% interest rate has fallen 3% for a 35-year-old woman with a deferred annuity payable at age 65 and 2% for a 55-year-old woman with an immediate annuity, Perlin and Marshall write.

The IRS rule-making notice is on the Web at //a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/E5-6742.pdf

The PBGC final rule is at //a257.g.akamaitech.net/7/257/2422/01jan20051800/edocket.access.gpo.gov/2005/pdf/05-23554.pdf