IRS PUBLISHES MORTALITY TABLE TO BE USED FOR PURPOSES OF ADJUSTING PENSION BENEFITS

Rev. Rul. 95-6

ISSUE

What mortality table is the applicable mortality table to be used under section 415(b)(2)(E)(v) and section 417(e)(3)(A)(ii)(I) of the Internal Revenue Code, as amended by section 767 of the Uruguay Round Agreements Act, P. Law 103-465 (GATT)?

LAW AND ANALYSIS

Section 415(b) of the Code provides for limitations on benefits payable under qualified pension plans. Section 415(b)(1) provides that the limitation on benefits, when expressed as an annual benefit (i.e., a benefit payable annually in the form of a straight life annuity with no ancillary benefits) is the lesser of (A) $90,000 (as adjusted for cost-of-living) or (B) 100 percent of the participant's average compensation for the high three years. Section 415(b)(2)(B) provides that if the benefit under the plan is payable in any form other than a straight life annuity, the determination of whether the limitation of section 415(b)(1) has been satisfied shall be made by adjusting such benefit so that it is equivalent to a straight life annuity. Sections 415(b)(2)(C) and (D) provide for adjustments to the $90,000 (as adjusted for cost-of-living) limit when benefits begin at an age other than at social security retirement age.

Section 767(b) of GATT added section 415(b)(2)(E)(v) to the Code. Section 415(b)(2)(E)(v) provides that, for purposes of adjusting any benefit or limitation under section 415(b)(2)(B), (C), or (D), the mortality table used shall be the table prescribed by the Secretary. The statute further provides that the table shall be based on the prevailing commissioners' standard table (described in section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date the adjustment is being made (without regard to any other subparagraph of section 807(d)(5)).

Section 417(e)(3) of the Code provides rules for the determination of the present value of plan benefits for purposes of section 417(e). Section 767(a) of GATT amended section 417(e)(3)(A)(i) to provide that (except for a transitional rule provided in subparagraph (B)) for purposes of paragraphs (1) and (2) of section 417(e), the present value shall not be less than the present value calculated by using the applicable mortality table and the applicable interest rate. In addition, GATT amended section 411(a)(11)(B) to provide that the determination of present value for purposes of section 411(a)(11)(A) shall be calculated in accordance with section 417(e)(3).

Section 417(e)(3)(A)(ii)(I) of the Code defines the term "applicable mortality table" as the table prescribed by the Secretary. The statute further provides that the table shall be based on the prevailing commissioners' standard table (described in section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date the adjustment is being made (without regard to any other subparagraph of section 807(d)(5)).

For purposes of section 807(d)(5) of the Code, Rev. Rul. 92-19, 1992-1 C.B. 227, sets forth the prevailing commissioners' standard table for group annuities as the 1983 Group Annuity Mortality Table (83 GAM).

The Supreme Court, in Arizona v. Norris, 463 U.S. 1073, 1084- 1086(1983), held that the application of sex distinct actuarial tables to employees based upon their gender in calculating the amount of retirement benefits violates Title VII of the Civil Rights Act of 1964.

This revenue ruling provides the applicable mortality table to be used for purposes of adjusting benefits or limitations under section 415(b)(2) and determining the present value of plan benefits under section 417(e)(3) of the Code.

HOLDING

The following mortality table, based upon a fixed blend of 50 percent of the male mortality rates and 50 percent of the female mortality rates from the 83 GAM, is the applicable mortality table for purposes of adjusting benefits or limitations under section 415(b)(2) and determining the present value of plan benefits under section 417(e)(3) of the Code. The table shows, for each age, the number living based upon a starting population of one million lives at age 5 (lx), and the annual rate of mortality (qx).

              Mortality Table for Sections 415 and 417(e)

The principal author of this revenue ruling is Donna Prestia of the Employee Plans Division. For further information regarding this revenue ruling, please contact the Employee Plans Division's taxpayer assistance telephone service at (202) 622-6076 between 2:30 and 4:00 Eastern time (not a toll free number) Monday thru Thursday. Ms. Prestia's number is (202) 622-7377 (also not a toll free number).