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Updated 417(e) Mortality Will Decrease 2024 Lump Sum Values in Most Defined Benefit Plans

The IRS released notice 2023-73 on October 19, 2023, providing 417(e) lump sum mortality for use with stability periods beginning during the 2024 calendar year. Prior notices and a limitation on future mortality improvement under Secure 2.0 suggested 2024 lump sum mortality would result in lower lump sums, at least in cases where plans rely strictly on the minimum lump sum assumptions to determine payments to participants distributed over a shorter horizon than the participants future lifetime.

Preliminary analysis shows that the new table will reduce lump sums by approximately 1.25% to 1.5% for participants in plans with a normal retirement age of 65. This reduction is significant, but may be lost in the effect of increasing corporate bond rates trending higher than those in place for 2023 lump sums.

For sponsors, the mortality update offers some relief against fixed asset losses that have occurred due to increasing rates. Participants obviously shoulder the burden, but the impact of the new tables will disappear in the very steep decreases participants have seen in lump sum payment values as bond rates rise.