Compliance December 13, 2019

2021 Pension Mortality Improvement Rates Published by IRS

IRS Notice 2019-67 specifies updated mortality improvement rates and static mortality tables to be used for defined benefit pension plans during 2021.

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The IRS has published Notice 2019-67, “Updated Mortality Improvement Rates and Static Mortality Tables for Defined Benefit Pension Plans for 2021,” and called for public comments on its methods for setting certain mortality assumptions. 

The Notice specifies updated mortality improvement rates and static mortality tables to be used for defined benefit pension plans under Section 430(h)(3)(A) of the Internal Revenue Code (Code) and Section 303(h)(3)(A) of the Employee Retirement Income Security Act (ERISA). These updated mortality improvement rates and static tables apply for purposes of calculating the funding target and other items for valuation dates occurring during the 2021 calendar year.

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The IRS Notice also includes a modified unisex version of the mortality tables for use in determining minimum present value figures under Section 417(e)(3) of the Code and Section 205(g)(3) of ERISA. The IRS explains that these will apply to distributions with annuity starting dates that occur during stability periods beginning in the 2021 calendar year.

By law, the Department of the Treasury is required to revise the mortality tables used under Section 430(h)(3)(A) at least every 10 years, “to reflect the actual mortality experience of pension plans and projected trends in that experience.”

A Call for Comments

As recounted in the IRS Notice, on October 23, 2019, an IRS committee released the “Pri-2012 Private Retirement Plans Mortality Tables Report.” The mortality tables in that report are based on a study of mortality experience of private-sector defined benefit pension plans in the United States covering calendar years 2010 through 2014.

Notice 2019-67 calls for new public comments as to whether there are other studies of the actual mortality experience of individuals covered by pension plans and projected trends in that experience that should be considered for use in developing mortality tables for future use under Section 430. For example, should the mortality tables under Section 430(h)(3)(A) be developed taking into account studies that examine the mortality experience of individuals covered by large public-sector pension plans, such as the IRS 2010 Public Retirement Plans Mortality Tables Report?

In addition, comments are requested as to which of the tables in the Pri-2012 Mortality Tables Report “should be used to develop Section 430(h)(3)(A) mortality tables, if the Pri-2012 Mortality Tables Report were to be used for that purpose. For example, should the Section 430(h)(3)(A) mortality tables include separate retiree and contingent survivor tables, as are provided in the Pri-2012 Mortality Tables Report?”

Comments must be received by February 28, 2020. Taxpayers may submit comments electronically via the Federal eRulemaking Portal at www.regulations.gov.

Compliance December 12, 2019

Proxy Voting Update on DOL Agenda

The DOL is aiming to "modernize fiduciary practices related to the voting rights associated with ERISA plan investments and harmonize those regulations with the requirements of other regulators.”

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A look at the Department of Labor’s (DOL)’s fall regulatory agenda reveals a planned notice of proposed rulemaking on proxy voting.

In April, the White House issued an executive order on the evolving topic of proxy voting and environmental, social and governance investing programs being put into practice by retirement plans subject to the Employee Retirement Income Security Act (ERISA). In the order, the Trump Administration says its intent is to “promote energy infrastructure and economic growth.”

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In its agenda, the DOL says: “This deregulatory action would modernize fiduciary practices related to the voting rights associated with ERISA plan investments and harmonize those regulations with the requirements of other regulators.”

On August 21, the Securities and Exchange Commission (SEC) issued an interpretive release titled “Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers,” directed at all advisers registered under the Investment Advisers Act of 1940. The SEC focused on three broad categories of Adviser Act compliance as to proxy voting activity: 1) when and to what extent the act applies; 2) the standard of conduct that applies to advisers who engage in proxy voting activities; and 3) the responsibilities of advisers who utilize the services of third-party proxy voting services.

The last the industry heard about guidance for plan fiduciaries in regards to proxy voting by employee benefits plans was in 2018. In a previous discussion with PLANSPONSOR, David Levine, principal with Groom Law Group, explained that the DOL’s Field Assistance Bulletin 2018-01 (issued under the Trump Administration) puts a new spin on the earlier and more legally significant Interpretive Bulletin 2016-01, in which the Obama Administration directed the DOL to operate under the assumption that proxy voting and shareholder engagement can be consistent with a fiduciary’s obligation under ERISA.

The new Trump-inspired spin, in essence, says that the DOL primarily characterized proxy voting and shareholder activism activities as permissible under ERISA because they typically do not involve a significant expenditure of funds, Levine explained. In other words, with President Trump in charge, the DOL now operates under the assumption that it is not always appropriate for retirement plan fiduciaries to routinely incur significant expenses and to engage in direct negotiations with the board or management of publicly held companies with respect to which the plan is just one of many investors.

In its regulatory agenda, the DOL says the goal of its notice of proposed rulemaking “would be to protect the interests of participants and beneficiaries by: (1) addressing practices that could present conflicts of interest associated with proxy advisory firm recommendations; (2) ensuring that proxy voting decisions are based on best information; and (3) ensuring that proxy voting decisions are solely in the interest of, and for the exclusive purpose of providing plan benefits to, participants and beneficiaries.”

Plan sponsors may not know what to do with proxy statements and a request for voting from one of the investments held in their ERISA plans. Michael A. Webb, vice president, Cammack Retirement Group, says it is not a requirement that the plan vote each proxy, and a number of factors, including the expense related to properly reviewing and voting the proxy, should generally be considered. Typically, the plan’s trustee is the one who votes the proxy.

Webb suggests that plans should vote the proxy in a manner consistent with their investment policy in general or the statement of proxy voting policy contained within the plan’s investment policy, in particular. “Proxies can be complicated, and if there is any doubt as to who should be voting the proxy, as well as the procedures that govern the manner in which the proxy should be voted, outside counsel with specific expertise in such matters should be consulted,” he says.

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