Taking Stock: What Do Revised Mortality Tables Mean for Terminated-Vested Lump Sum Payouts?

November 13, 2017 / by Lynda Dennen Costello, ASA, EA Senior Research Consultant, Asset Allocation


As widely anticipated, the IRS has issued final guidelines mandating the use of updated mortality tables used for calculating liabilities for minimum contributions and minimum lump-sum payments under PPA, and for calculating PBGC variable-rate premiums. The new tables, named RP-2014 with projection scale MP-2016, provide longer anticipated lifespans, thus increasing the length of pension annuity payments, and subsequent plan liabilities. Liability increases of approximately 3% to 5% are expected once the updated mortality tables kick in.

However, due to the late timing of this legislation, the regulations allow for a possible one-year delay in implementation for calculating minimum requirements if the implementation would be “administratively impracticable,” or have a significant business impact.  There is also the opportunity to obtain approval to use plan-specific substitute mortality tables.

The updated mortality tables will increase PBGC premiums for underfunded plans and also eliminate the potential arbitrage that some companies took advantage of by offering lump sums to terminated-vested participants prior to the longevity assumption increase. Therefore, we anticipate a significantly lower amount of lump sum offerings in 2018 and beyond.

In general, pension liabilities increased this quarter by 1.9%, totaling 9.4% year to date, as estimated by the Citigroup Pension Liability Index (CPLI). The CPLI has fallen steadily this year; it was at 3.83% at the end of the third quarter, down four basis points from the prior quarter. 

Topics: Corporate, Defined Benefit, Corporate Defined Benefit, Taking Stock

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