Lump Sum Distribution Mortality Table Released

Tax officials used the guidance release to give more information about the Pension Protection Act (PPA) provision mandating use of an “applicable mortality table” (and an “applicable interest rate”) to determine the “present value” of a participant’s accrued benefit that may be paid in a lump sum following the termination of employment.  

The officials said a defined benefit plan must now provide that the present value of any accrued benefit and the amount (subject to §§ 411(c)(3) and 415) of any distribution, including a single sum, must not be less than the amount calculated using the applicable interest rate described in § 1.417(e)-1(d)(3) (determined for the month described in § 1.417(e)-1(d)(4)) and the applicable mortality table described in § 1.417(e)-1(d)(2).

That mortality table shall be based on the prevailing commissioners’ standard table (described in § 807(d)(5)(A)) used to determine group reserves for group annuity contracts issued on the date as of which the present value is determined, the IRS guidance indicated.

class=”CM4″> According to the agency, the table specified is based on the optional, combined static mortality table that small plans (with fewer than 500 active and inactive participants combined) may use under the IRS’s May 29, 2007, proposed rule. The guidance indicated the table is not a generational mortality table and is a blend of 50% male and 50% female mortality rates.

class=”CM4″> Tax officials also indicated that look-back months and stability periods established under the existing regulations under IRC §417(e) continue to apply for plan years beginning on or after January 1, 2008.

The officials said the applicable mortality table for subsequent years will be published at a later date and that plans may incorporate the 2008 and later mortality tables by reference. The IRS said plan sponsors have until the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011, in the case of government plans), to adopt a conforming plan amendment.

The new guidance is here .