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Mortality tables.

Proposed regulations (REG-12498805, 12/2/05) set out the methodology the IRS would use to establish mortality tables to be used under Sec. 412 (1)(7)(C)(ii) (and parallel Employee Retirement Income Security Act of 1974 Section 302(d)(7)(C)(ii)) to determine current liability for participants and beneficiaries (other than disabled participants) of defined-benefit plans for plan years beginning in 2007.

Background: Sec. 412 (1) establishes funding requirements for certain under-funded defined-benefit plans, generally based on a plan's unfunded current liability. In determining current liability, plans must use the mortality table prescribed by the Service. The IRS must periodically (i.e., at least every five years) review any mortality tables in use under that provision, and update them to reflect the plans' actual experience and the projected trends reflected therefrom. As part of that review, the Service has determined that updated mortality tables are needed.

New monthly tables: The proposed rules would provide new mortality tables based on the tables contained in the RP-2000 Mortality Tables Report, which the IRS has determined is the best available basis for predicting mortality of pension plan participants and beneficiaries (other than disabled participants), based on plan experience and expected trends. Accordingly, the proposed rules would change the mortality tables used to determine current liability from those based on the 1983 Group Annuity Mortality Table (as set out in Rev. Ruls. 92-19 and 95-28), to updated tables based on the RP-2000 mortality tables.

As in the currently used mortality tables, the new tables would be gender-distinct, because of significant differences between expected male and female mortality. The proposed regulations would also provide for separate sets of tables for annuitants and nonannuitants, because these two groups also have significantly different mortality experience (particularly true at typical ages for early retirees). The new mortality tables would be based on mortality improvements through the year of the actuarial valuation, and would reflect the effect of further expected improvements in mortality. For smaller plans (less than 500 total participants), there would be an option to use a single blended table for all healthy participants--instead of the separate tables for annuitants and nonannuitants--to simplify actuarial valuation for smaller plans.

Effective date: The new mortality tables would apply for the 2007 plan year. Mortality tables that would be used for later plan years would be published in the Internal Revenue Bulletin.

Lesli S. Laffie, J.D., LL.M.
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Title Annotation:conversion of defined benefit plans
Author:Laffie, Lesli S.
Publication:The Tax Adviser
Date:Feb 1, 2006
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