Thursday, July 18, 2013
Will the IRS Revise the IRA/Pension Life Expectancy Tables in the Near Future?
We are awaiting an answer from the IRS. The IRS has recently updated various morality tables for defined benefit pension plan purposes. More Americans are living longer. This fact certainly affects pension plans and it also affects to IRAs. The IRS will inform the public in the near future whether the IRA/pension life expectancy tables have been or will be revised to reflect individuals living longer. If so, the RMDs of most individual RMDs would decrease slightly. This would be true for both accountholders and also inheriting beneficiaries.
Since smaller distributions means less tax dollars collected, it may be the IRS will not adjust the IRA life expectancy tables. As discussed below, there is no tax law requiring the IRS to make such an adjustment in 2013, but public policy would seem to support the adjustment. Most IRA accountholders age 70½ and older want to take only their required distribution and not a penny more.
Section 634 of EGTRRA (2001) instructed the Secretary of the Treasury to modify the life expectancy tables for purposes of the minimum distribution rules to reflect current life expectancies. In 2002-2003 the IRS in its final regulation adjusted these tables to reflect improvements in mortality from 2000-2003. The Uniform Lifetime table, the Joint Life Expectancy table, and the Single Life table were changed to reflect mortality improvement from 2000 to 2003. Earlier the IRS had adjusted various tables to create the Annuity 2000 mortality table. And such revised tables were created by combining on a basis of 50% male and 50% female. The mortality of females is superior to that of males as the tables demonstrate.
These mortality tables are of critical importance for administering defined benefit pension plans. An employer sponsoring a defined benefit plan will be required to make larger contributions if mortality improves. The plan benefit (i.e. amount) an employee is entitled to be paid at his or her normal retirement date will be larger if mortality has improved. The IRS has recently released Notice 2013-49. This Notice provides updated static mortality tables for the years 2014 and 2015.
Code section 430 does contain a provision providing that periodically (at least every 10 years) these mortality tables shall be revised to reflect the actual experiences of pension plans.
What about IRAs? 10 years or more have passed since the IRS last updated the IRA/pension life expectancy tables.
We expect the IRS will respond to CWF’s question within the next 2-6 weeks. We will let you know what we are told in a future newsletter. We hope the IRS will revise the life expectancy tales thereby allowing accountholders and inheriting beneficiaries to take slightly smaller required distributions.