Pension Sponsors Would Reap Savings on Longevity Table Delay

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By David B. Brandolph

An IRS rule that would change life expectancy tables used by pension plan sponsors may be delayed, a prospect that could please many employers.

For plan sponsors, a delay could mean lower required plan contributions, reduced variable rate premiums owed to the federal Pension Benefit Guaranty Corporation, and an expanded opportunity to offer cheaper lump-sum payouts to employees. The new tables extend longevity projections for those participating in plans.

It’s uncertain whether the tables will in fact be delayed from their original Jan 1, 2018, effective date. However, the odds that they will have increased after the federal Office of Management and Budget recently designated the IRS rule as “economically significant.”

“Given the designation, an assessment of the costs and benefits of the regulatory action, as well as of certain identified alternatives, is required,” Dominic DeMatties, partner with Alston & Bird in Washington, told Bloomberg BNA Aug. 14. It’s unclear whether those assessments have been completed, but it wouldn’t be surprising if they have been, said DeMatties, who previously served as an attorney-adviser in Treasury’s Office of the Benefits Tax Counsel.

Although “it can’t be ruled out that an economic review has already been completed,” odds are the tables will be delayed, Lou Mazawey, principal with the Washington-based Groom Law Group, told Bloomberg BNA Aug. 14. Plan sponsors have been following this issue closely and would welcome the delay, he said.

Even if the rule isn’t held up by the need for further economic review, the tables may not be implemented on time if the rule is subject to a Trump administration executive order requiring federal agencies to eliminate two existing regulations for every new one they issue.

The impact of the two-for-one rule, if any, isn’t at all clear, DeMatties said. If the Treasury is prohibited from considering costs in the underlying statutory language providing for the mortality table update, then it’s possible that the two-for-one requirement won’t change anything for this particular regulation, he said.

Effect on Lump-Sums Uncertain

A delay in the implementation date of the tables would reduce required contributions for plan sponsors as well as variable rate premiums for those with underfunded plans. However, it’s less certain what a delay would mean for lump-sum payouts to plan participants.

Generally speaking, the delay would likely give sponsors an expanded opportunity to offer cheaper lump-sum payouts to groups of employees who haven’t already been offered them, Zorast Wadia, a principal and consulting actuary in the benefits consulting firm Milliman’s New York office, told Bloomberg BNA Aug. 14.

But that’s not always the case, because lump-sum payouts are also affected by interest rates. It’s possible that a change in interest rates could make lump-sum payouts more expensive for sponsors even without the new mortality tables, Mark E. Carolan, an associate at Groom, told Bloomberg BNA Aug. 14.

To contact the reporter on this story: David B. Brandolph in Washington at dbrandol@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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