Most entities that sponsor defined benefit plans are aware that the Society of Actuaries released in October 2014 updated mortality tables to be considered in the calculation of the benefit liability for financial reporting purposes. However, the question being asked by many sponsors is, “When should these new tables be considered?”
The AICPA Financial Reporting Executive Committee (FinREC) with input by the Employee Benefit Plans Expert Panel issued Technical Questions and Answers (TIS) 3700.1, Pension Obligations, Effect of New Mortality Tables on Nongovernmental Employee Benefit Plans (EBPs) and Nongovernmental Entities that Sponsor EBPs, which provides nonauthoratative guidance for considering the new mortality tables. It addresses the GAAP requirement that management use a mortality assumption that reflects the best estimate of the plan's future experience for purposes of estimating the plan's obligation as of the current measurement date. In making this estimate, GAAP requires that all available information through the date the financial statements are available to be issued should be evaluated to determine if the information provides additional evidence about conditions that existed at the balance sheet date. Many defined benefit plans report their obligations as of the beginning of the year (as of January 1, 2014 for the 2014 plan year-ends); however, since these tables are currently available and 2014 statements are not yet issued, these tables should still be considered in order to reflect management’s best estimate of the plan’s obligation. Management should continue to document its evaluation and the basis for selecting the mortality tables it decided to use for its current financial reporting period.