n-03-62.pdf

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Part III – Administrative, Procedural, and Miscellaneous

Comments On Mortality Tables

Notice 2003–62

The Internal Revenue Service and the Treasury Department request comments
regarding the mortality tables used in determining current liability under § 412(l)(7)
of the Internal Revenue Code and § 302(d)(7) of the Employee Retirement
Income Security Act of 1974 (ERISA). The Service and Treasury anticipate that
in no event will there be any change in the mortality tables for plan years
beginning before January 1, 2005.

BACKGROUND

Section 412 of the Code and § 302 of ERISA provide minimum funding
requirements with respect to defined benefit and money purchase pension plans.
Section 412(l) of the Code and § 302(d) of ERISA provide additional funding
requirements for certain underfunded defined benefit pension plans, generally
based on a plan’s unfunded current liability, as defined in § 412(l)(8) of the Code
and § 302(d)(8) of ERISA.

Section 412(l)(7)(C)(ii) of the Code and § 302(d)(7)(C)(ii) of ERISA provide that,
for purposes of determining current liability, the mortality table used shall be the
table prescribed by the Secretary. These sections also set forth the basis for the
Secretary to use in prescribing a mortality table. Under § 412(l)(7)(C)(ii)(I) of the
Code and § 302(d)(7)(C)(ii)(I) of ERISA, the initial mortality table used in
determining current liability under § 412(l)(7) of the Code and § 302(d)(7) of
ERISA must be based on the prevailing commissioners’ standard table (described
in § 807(d)(5)(A) of the Code) used to determine reserves for group annuity
contracts issued on January 1, 1993. Rev. Rul. 95-28, 1995-1 C.B. 74, sets forth
two gender-specific mortality tables for this purpose.

Under § 412(l)(7)(C)(ii)(III) of the Code and § 302(d)(7)(C)(ii)(II) of ERISA, the
Secretary of the Treasury is instructed to periodically (at least every 5 years)
review any tables in effect under that subsection and, to the extent necessary, by
regulation update the tables to reflect the actual experience of pension plans and
projected trends in such experience. Section 412(l)(7)(C)(ii)(II) of the Code and §
302(d)(7)(C)(ii)(II) of ERISA further provide that such tables shall take into
account the results of available independent studies of mortality of individuals
covered by pension plans. Under § 412(l)(7)(C)(ii)(II) of the Code and §
302(d)(7)(C)(ii)(II) of ERISA, the earliest possible effective date for any new
mortality tables is plan years beginning after December 31, 1999.

Section 412(l)(7)(C)(iii)(I) of the Code and § 302(d)(7)(C)(iii)(I) of ERISA provide
that, in the case of plan years beginning after December 31, 1995, the Secretary
shall establish mortality tables which may be used (in lieu of the tables under
§ 412(l)(7)(C)(ii) of the Code and § 302(d)(7)(C)(ii) of ERISA) to determine current
liability under § 412(l)(7) of the Code and § 302(d)(7) of ERISA for individuals who
are entitled to benefits under the plan on account of disability. The Secretary
shall establish separate tables for individuals whose disabilities occur in plan
years beginning before January 1, 1995, and for individuals whose disabilities
occur in plan years beginning on or after such date.

Section 412(l)(7)(C)(iii)(II) of the Code and § 302(d)(7)(C)(iii)(II) of ERISA provide
that in the case of disabilities occurring in plan years beginning after December
31, 1994, the tables under § 412(l)(7)(C)(iii)(I) of the Code and
§ 302(d)(7)(C)(iii)(I) of ERISA shall apply only with respect to individuals
described in each subclause who are disabled within the meaning of title II of the
Social Security Act and the regulations thereunder. Rev. Rul. 96-7, 1996-1 C.B.
59, sets forth the mortality tables established under § 412(l)(7)(C)(iii).

In Rev. Rul. 95-28, the Service and Treasury requested comments regarding
mortality tables to be used for determining current liability for plan years beginning
after December 31, 1999.

In Announcement 2000-7, 2000-1 C.B. 586, the Service and Treasury also
requested comments regarding mortality tables to be used for determining current
liability for plan years beginning after December 31, 1999, but also indicated that
it was anticipated that in no event would there be any change in the mortality
tables for plan years beginning before January 1, 2001. To date, no change has
been made in the mortality tables issued in Rev. Rul. 95-28 or Rev. Rul. 96-7.

INDEPENDENT STUDIES OF MORTALITY OF INDIVIDUALS COVERED BY
PENSION PLANS

The Service and Treasury are aware of a number of reviews of mortality
experience for retirement plan participants undertaken by the Retirement Plans
Experience Committee of the Society of Actuaries. The most recent of these
studies, titled the RP-2000 Mortality Tables Report, published in 2002 and based
on pension plan experience for the years 1990-94, was submitted to the Secretary
in response to Announcement 2000-7. The Service and Treasury invite
commentators to submit any other independent studies of pension plan
experience.

REFLECTION OF MORTALITY TRENDS

As noted above, any updated mortality tables the Secretary issues are to reflect
projected trends in mortality experience. In that regard, the Service and Treasury
request the submission of studies regarding trends in mortality experience,
whether or not the studies are limited to individuals covered by pension plans.
However, to the extent that a study relating to mortality experience is not limited to
individuals covered by pension plans, comments are requested about how such
mortality trends might be modified to reflect the trends among individuals covered
by pension plans.

To the extent the Service and Treasury determine that it is appropriate to project
increased longevity in the future, it will be necessary to determine the
methodology to use in incorporating this increased longevity into the tables. The
Service and Treasury are aware that mortality trends may be reflected on an
ongoing basis through the use of the following types of mortality tables:

• generational (i.e., tables that are updated each year through the use of
prescribed projection factors. Thus, separate sets of mortality factors are
determined for each year of birth.)

• modified generational (i.e., generational tables that are applicable for
grouped calendar years of birth)

• sequentially static (i.e., tables that are applicable for all calendar years of
birth that are updated periodically through the use of prescribed projection
factors at prescribed times)

The Service and Treasury request comments on these methods and any other
methods commentators believe appropriately reflect mortality trends. In
particular, the Service and Treasury request comments on the relative
administrative complexities of the various methods of reflecting mortality trends.
In addition, with regard to modified generational tables, comments are
requested as to the size of the calendar year groupings, and with regard to
sequentially static tables, comments are requested as to how often such tables
should be updated.

OTHER FACTORS TO BE TAKEN INTO ACCOUNT

In addition to age and year of birth, there are other factors that have been
demonstrated to be relevant in predicting an individual’s mortality. For
example, as noted above, the current mortality tables used for purposes of
determining current liability are gender specific. Comments are requested as to
the extent that separate mortality tables should be prescribed that take into
account gender or other factors, with particular attention paid to the
administrative issues in applying such distinctions. Comments in this regard are
specifically requested as to the how it would be determined which category an

individual fits into, the extent to which an individual, once categorized, remains
in that same category, the classification of individuals for whom adequate
information is unavailable, whether distinctions are applicable to beneficiaries,
and the extent to which distinctions may overlap or work at cross purposes.
Some examples of factors that could be used to create separate mortality tables
are the following:

• gender (i.e., male versus female)

• tobacco use (i.e., smoker versus nonsmoker)

• job classification (e.g., blue collar versus white collar)

• annuity size (i.e., high annuity amount versus low annuity amount)

• Income (i.e., high income versus low income)

Comments are also requested with regard to whether classification systems, if
permitted, should be mandatory or optional.

COMMENTS REQUESTED

The Service and Treasury invite comments on the issues identified in this notice
and other issues related to the mortality tables used in the determination of
current liability. Comments should be submitted by December 31, 2003, and
should reference Notice 2003-62.

Comments may be submitted to CC:PA:RU (Notice 2003-62), room 5203, Internal
Revenue Service, Attention: SE:T:EP:RA:T:A1, POB 7604 Ben Franklin Station,
Washington, DC 20044. Comments may be hand delivered between the hours of
8 a.m. and 5 p.m. Monday to Friday to: CC:PA:RU (Notice 2003-62), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington,
D.C. Alternatively, comments may be submitted via the Internet at
Notice.Comments@irscounsel.treas.gov. All comments will be available for
public inspection and copying.

DRAFTING INFORMATION

The principal author of this notice is Lawrence Isaacs of the Employee Plans, Tax
Exempt and Government Entities Division. For further information regarding this
notice, please contact the Employee Plans’ taxpayer assistance telephone service
at 1-877-829-5500 (a toll-free number) between the hours of 8:00 a.m. and 6:30
p.m., Eastern Time, Monday through Friday. Mr. Isaacs can be reached at (202)
283-9888 (not a toll-free number).