Updating a table variable
To get a feel for the significance of this issue, if the new mortality tables/improvement scale as a whole will increase liabilities under an average plan by about 4 %, backing off of the proposed mortality improvement scale (with its “flat 1.0% rate to age 85” improvement assumption) to something like, e.g., Social Security’s 0.75% long-term rate would result in an increase of between 2%-3%.
(These numbers are very rough estimates, and there will be plans that will be affected more or less by IRS’s proposal.) With regard to the mortality improvement scale, the preamble to the proposed regulation states: Treasury and the IRS understand that RPEC [the Society of Actuaries’ Retirement Plans Experience Committee] expects to issue updated mortality improvement rates that reflect new data for mortality improvement trends for the general population on an annual basis.
As we discussed in our August 2017 Current outlook, on August 9, 2017, IRS sent a final regulation to the Office of Management and Budget.IRS’s December, 2016, proposal was itself largely based on the Society of Actuaries’ RP-2014 Mortality Tables and Mortality Improvement Scale MP-2014 and related reports.The SOA process was criticized in a number of respects, MP-2014 was “updated” in 20, and those updates are reflected in the IRS proposal.Generally, they bring IRS rules for “fully credible mortality information” into line with current actuarial practice.In that regard, they: [R]equire a substitute mortality table to be constructed by multiplying the mortality rates from a projected version of the generally applicable base mortality table by a mortality ratio (that is, a ratio of the actual deaths for the plan population to expected deaths determined using the standard mortality tables for that population).