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Older IRS mortality tables predicted to save sponsors $18 billion next year


The IRS' decision to stick with 15-year-old mortality assumptions will save corporate defined benefit plan sponsors at least $18 billion in contributions in 2016 and be a credit positive for them, said a report from Moody's Investors Service.

Lump-sum payouts will also be cheaper for companies in 2016, Moody's said.

In October, the Society of Actuaries updated the life expectancy tables that are used to project pension benefit obligations, and the IRS was expected to adopt those in the coming months for 2016 calculations. The IRS announced July 31 it will use its current assumptions until 2017 while officials study the actuaries' tables. Once the new tables are adopted, they will also make lump-sum payouts more expensive, Moody's analysts said.

Based on a combined benefit obligation of $2.1 trillion, Moody's analysts calculated that the new tables would cause those obligations to increase 6%, or $126 billion, under new mortality assumptions. “Allocating $126 billion over seven years results in $18 billion of contributions deferred until 2017,” wrote Moody's analysts Wesley Smyth and Jeffrey Berg in the report released Tuesday. While that is a credit positive in terms of liquidity, “those who fund only the minimum required are simply kicking the can down the road,” Messrs. Smyth and Berg wrote.

Kent Mason, an attorney at law firm Davis & Harman who is outside counsel to the American Benefits Council, said the IRS' decision to not immediately adopt the new SOA mortality tables was not a surprise. The new tables “have been very controversial among pension actuaries and are widely viewed by many as overstating life expectancies,” Mr. Mason said. With recent Social Security Administration data issued confirming that view of overstated life expectancies, “the IRS' decision was absolutely the right decision,” he said.

Hazel Bradford writes for Pensions & Investments, a sister publication of Business Insurance.

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