PLANSPONSOR - December/January 2021 - 4

RULES & REGULATIONS
Mortality Tables Reflect Longer Life
B
arring the near-term effects on longevity
caused by COVID-19, generally,
Americans are living longer.
Therefore, it makes sense that many retirees
would rather leave their retirement
accounts untouched as long as possible.
One thing the pandemic has highlighted
is the effect of sequence of returns
(SOR) risk on retiree accounts. The market
crashed right before April 1, the date by
which individuals who turned 70.5 in 2019
were due to receive their first required
minimum distributions (RMDs). Congress
responded by passing the Coronavirus Aid,
Relief and Economic Security (CARES)
Act, which let individuals waive their
RMDs for the 2020 plan year.
Longevity was a factor in lawmakers'
decision to extend the RMD age to 72
in the Setting Every Community Up for
Retirement Enhancement (SECURE) Act.
And legislation has been introduced to
postpone the first withdrawal date even
further, to age 75. Media reports say the
Securing a Strong Retirement Act of
2020, the origin of this potential change,
has strong bipartisan support.
The IRS has issued final regulations
providing guidance relating to the life
expectancy and distribution period tables
used to calculate RMDs from qualified
retirement plans, individual retirement
accounts (IRAs), annuities and certain
other tax-favored employer-provided retirement
plans. The updates are to reflect
current mortality data and also stated,
" The purpose of any updates would be to
increase the effectiveness of tax-favored
retirement programs by allowing retirees
to retain sufficient retirement savings in
these programs for their later years. " So,
both longevity and SOR risk were factors in
the IRS' decision to update the tables.
The life expectancy tables and applicable
distribution period tables in the
regulations on the whole reflect longer life
expectancies than do the former tables.
For example, a 72-year-old IRA owner
4 PLANSPONSOR.COM December 2020 - January 2021 Art by Arina Shabanova
who applied the former Uniform Lifetime
Table to calculate RMD used a life expectancy
of 25.6 additional years. Applying
the new Uniform Lifetime Table, a
72-year-old IRA owner will add 27.4 years
to calculate RMD.
The effect of these changes is essentially
to reduce the number of RMDs,
which will allow workers to keep larger
amounts in their retirement plan to
account for the possibility they may live
longer, the IRS says.
The key word here is " possibility, " as
mortality assumptions reflect those. Some
people may not live to the age given in the
general tables. And studies have shown
that some retirees use RMDs as a guide for
withdrawing from their account. For those
not reaching the " average " life expectancy,
a smaller RMD may be too small, and 72,
or 75, may be too late to use their hardearned
savings-one reason offering advisory
help as participants enter the drawdown
phase matters. -Rebecca Moore
http://www.PLANSPONSOR.COM
PLANSPONSOR - December/January 2021

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