Defined Benefit Plans – Updated Mortality Tables

The Society of Actuaries (SOA) has issued updated mortality tables (RP-2014) which is the first update since 2000. As we all know, through medical technology and other factors, people continue to live longer and that is great news to all of us individually as life expectancies have increased by over 2 years to 86.6 years for men and 88.8 years for women. The downside is that the increased life expectancy means extended benefit periods for retirees resulting in an expected 5-10% adverse impact to retirement obligations in defined benefit plans, thus adversely impacting the balance sheets of companies sponsoring impacted plans.

The tables issued by the SOA are considered the best in class and companies will generally be expected to utilize the most current tables effective immediately in their actuarial calculations for financial reporting. However, from a minimum funding perspective, the IRS had previously issued their tables for the 2014 and 2015 tax years, thus delaying the impact on funding requirements until at least the 2016 tax year.

Additional detail on the revised tables and the process used to determine the amounts can be found at the SOA website.

Defined Contribution Plans – Missing Participants in a Terminated Plan

The Department of Labor (DOL) has issued Field Assist Bulletin No. 2014-01 which provides guidance on how fiduciaries should handle situations in which the plan is being terminated and participants are unable to be located. The guidance provides a list of required steps that should be taken at a minimum to find a missing participant which include: certified mail, checking related plan or employer records for updated information, contacting the participant’s beneficiaries, and using free online search tools (consider public record databases and social media in addition to standard search engines). The aforementioned list are the minimum required steps; the fiduciary should consider additional steps based on the size of the account and cost of further efforts (i.e. paid search tools, credit reporting agencies, locator services) before giving up on the effort. The IRS and SSA no longer provide letter-forwarding services which were previously used by fiduciaries.

The guidance provides further guidance on the distribution options once it has been determined that a participant cannot be located. The funds should be rolled over to an individual retirement account (IRA) set up in the participant’s name, unless there is a compelling reason not to in which case the fiduciary can consider using an interest bearing federally insured account or the state’s unclaimed property fund. In no situation should the funds be distributed with 100% tax withholding which has been the practice of some fiduciaries.

We recommend if you have missing or unresponsive participants, even in a plan that is not terminated, that you review your processes and verify that you are meeting your fiduciary duties in your attempts to locate the participants and in your disposal of their funds

The Barnes Dennig Employee Benefit Plan Audit Team is available to answer any questions you have.