In October 2014, the Society of Actuaries (SOA) released updated mortality tables that reflect increasing life expectancies with the belief that this trend will continue. Mortality tables help plan sponsors more accurately estimate the financial obligations associated with their plans. While living longer is great news for most of us, it is also important for plan sponsors of defined benefit plans to understand the implications of these new mortality tables as they prepare their 2014 financial statements.
It has been common practice for plan sponsors to use the same mortality table for their plan’s financial statements as is required for minimum funding purposes. However, the Internal Revenue Service (IRS) had already issued IRS Notice 2013-49, which established the mortality tables to be used for minimum funding purposes for 2014 and 2015, before the release of the new mortality tables. Accounting standards require a “best estimate” of a plan’s future experience that considers all information available as of the current measurement date.
The AICPA issued Technical Questions and Answers (TQA) in February 2015 to help plan sponsors understand their responsibilities related to these updated mortality tables. The TQA states that “all available information through the date the financial statements are available to be issued should be evaluated to determine if the information provides additional evidence about conditions that existed at the balance sheet date.”
Plan sponsors should consider the effect of these new mortality tables on the actuarial information to be used in their 2014 plan financial statements. Even if a plan sponsor elects to use beginning of year actuarial information (January 1, 2014) for the December 31, 2014 financial statements, the effect of these new tables should be taken into consideration. Plan sponsors should discuss this with their actuarial consultant so that revised actuarial information can be obtained, if needed.
Mark Blackburn, LBMC Employment Benefit Plan Segment Leader, can be reached at firstname.lastname@example.org or 615.377.4600 for further information