On December 29, 2016, the IRS issued a proposed rule on Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans to update the requirements that a plan sponsor must meet to obtain IRS approval when using mortality tables specific to the plan for minimum funding purposes instead of generally applicable tables. In response, the U.S. Chamber of Commerce and the National Association of Manufacturers submitted a joint comment letter on March 29, 2017.
March 29, 2017Internal Revenue ServiceCC:PA:LPD:PR (REG112324-15), Room 5203,PO Box 7604, Ben Franklin Station,Washington, DC 20044Re: Pension Mortality Table UpdateTo Whom It May Concern:The undersigned organizations represent employers of all sizes throughout the UnitedStates and across all industries that sponsor defined benefit (DB) pension plans. We appreciatethe opportunity to comment in response to the Internal Revenue Service (IRS) proposed rule onMortality Tables for Determining Present Value Under Defined Benefit Pension Plans. Theundersigned organizations appreciate that the IRS makes an effort to provide for some flexibilitywhen adopting updated tables to be used by these DB plans. However, we want to reiteratehow important it is for the IRS to be very flexible in allowing for the use of substitute mortalitytables for pension funding purposes and additional time for plan sponsors to adapt and plan forthese changes in its final rule.Many employers still provide DB pension plans to their employees, but this benefit is notwithout cost. In October 2014, the Society of Actuaries (SOA) released an update of theirpension plan mortality tables -- the RP-2014 base mortality tables and MP-2014 improvementscale -- intended to reflect the latest longevity data that people are living longer. As a result ofthe new table, the SOA estimated there could be a four to eight percent increase in privatepension plan liability, which translates to hundreds of millions of dollars in increased costs formany plan sponsors. While the IRS is using the SOA’s most updated scale, MP-2016 to reflecta somewhat smaller improvement in longevity, employers may still expect a significant increasein plan liabilities as a result of the updated tables. Requiring essentially immediate adoption of anew table resulting in such large increases in cost represents a significant burden on plansponsors. The significant additional cost of drawing more capital into the pension plan in theform of higher contributions rather than being available to invest this capital into theirbusinesses is extremely detrimental, not only for the company but also for economic growth.Since the change affects lump sum values, this change in tables will also affect pensionadministration systems resulting in additional plan administrative burdens in 2017 and mayresult in transition issues for lump sums paid in 2018. Plans providing lump sums based onstatutory mortality may have a significant change in the amount of available lump sum forparticipants commencing in the first month of the 2018 plan year.For these reasons, the undersigned organizations appreciate that the IRS proposalallows the expanded use of substitute mortality tables for pension funding purposes, rather thanrequiring the adoption of the SOA tables. Consistent with Congressional intent in the BipartisanBudget Act of 2015, the use of substitute tables would better allow for plan sponsors toconsider their unique populations and actual plan experience when developing longevity assumptions.In particular, the use of substitute tables will provide manufacturers and other plansponsors with greater flexibility, while also providing a more accurate actuarial reflection of theirpension plan population and aligning funding requirements more closely with US GAAPaccounting. Use of a plan-specific mortality table would more closely align the IRS methods fordetermining plan funding requirements to the methods that are used by companies in theiraudited financial statements.Some companies have also suggested that the IRS should consider allowing industrybasedmortality tables or similar pooled mortality experience if a plan does not have enoughparticipants to achieve full or partially credible experience to be able to construct a plan-specificmortality table. For example, grouping by broad existing classification codes, such as mining,metals, heavy manufacturing, etc., would also align with methods plan sponsors use forindustry-based mortality tables that have been acceptable to enrolled actuaries andindependent registered public accounting firms for audited financial statements. This approachrepresents one way to allow plans that do not have credible populations to use a table that iscloser to their own experience.Given the request to allow more flexibility in the implementation of the updated mortalitytables, the undersigned organizations also requests that the IRS delay implementation beyondthe 2018 calendar year to allow for further study and additional time for plan sponsors to plan forthe additional funding obligations. In addition, consideration should be given to relaxing the 180day request deadline for requesting approval of substitute mortality tables. Otherwise, plans withyears beginning on January 1, 2018 may not have time to submit the required information for asubstitute mortality table. Alternatively, plans could be allowed a one year transition period ifthey indicate the intent to submit a substitute table, and in this case a pension plan should beallowed to continue to use the same mortality table method in 2018 as it used in 2017.The IRS also should consider a multiple year phase-in option for funding andadministrative requirements, rather than having such a significant impact in a single year. This isvery important to plan sponsors who may need to otherwise contribute large sums of money toa plan to reach a certain funded percentage, such as an 80 percent level, to avoid benefitpayment restrictions. Other IRS method changes allow multiple years to completely settle thecash impacts of a change, and mortality changes should be treated similarly.Thank you in advance for considering our request for a more flexible approach to theimplementation of the updated mortality tables as well as additional time for plan sponsors toadapt and plan for these changes.Sincerely,National Association of ManufacturersU.S. Chamber of Commerce
