[Federal Register Volume 64, Number 8 (Wednesday, January 13, 1999)]
[Proposed Rules]
[Pages 2164-2165]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-452]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-209103-89]
RIN 1545-AN54


Group-Term Insurance; Uniform Premiums

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations that revise the 
uniform premium table used to calculate the cost of group-term life 
insurance coverage provided to an employee by an employer. These 
proposed regulations provide guidance to employers who must use the 
uniform premium table to calculate the cost of group-term insurance 
includible in the gross income of their employees. This document also 
provides notice of a public hearing on these proposed regulations.

DATES: Comments must be received by April 13, 1999. Requests to speak 
and outlines of topics to be discussed at the public hearing scheduled 
for May 6, 1999, must be received by April 15, 1999. The IRS requests 
comments on the clarity of the proposed rule and how it may be made 
easier to read.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209103-89), room 
5228, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-209103-89), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., 
Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or by submitting comments directly to the IRS 
Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in Room 2615, Internal 
Revenue Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Betty J. 
Clary, (202) 622-6070; concerning submissions and the hearing, Michael 
Slaughter, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Income Tax 
Regulations under section 79 of the Internal Revenue Code. These 
proposed regulations revise the uniform premium rates used to calculate 
the cost of group-term life insurance provided to employees. Section 79 
generally permits an employee to exclude from gross income the cost of 
$50,000 of group-term life insurance coverage. The remaining cost of 
the group-term life insurance is included in the employee's gross 
income to the extent it exceeds the amount, if any, paid by the 
employee for the coverage. The cost of the group-term insurance is 
determined on the basis of five-year age brackets prescribed by 
regulations.
    The uniform premiums are set forth in the regulations in Table I 
entitled ``Uniform Premiums for $1,000 of Group-term Life Insurance 
Protection.'' Section 1.79-3(d)(2). A table was initially published on 
July 6, 1966 (31 FR 9199), and the table was revised on December 6, 
1983 (48 F R 54595). The December 6, 1983 revision was made to reflect 
changes in mortality since 1966, using 1975-1979 mortality experience 
reported by the Society of Actuaries. The December 6, 1983 revision 
extrapolated the reported mortality experience to 1982, and reflected a 
revised gender mix and load factor. For years after 1988, new factors 
were added to the table for ages above 64, pursuant to section 5013 of 
the Technical and Miscellaneous Revenue Act of 1988. See 57 F R 33635 
(July 30, 1992).
    The IRS and Treasury have concluded that the section 79 table 
should be revised because there has been a significant improvement in 
mortality since the 1975-1979 period (even after taking into account 
the projection to 1982). This conclusion is based on information on the 
group-term life mortality experience of 13 issuers covering the 1985-
1989 period, as compiled by the Society of Actuaries, as well as other 
data on mortality trends. The IRS and Treasury contemplate continuing 
to monitor future changes in mortality experience and would expect to 
update the section 79 table when a significant change in the cost of 
group-term life insurance is evidenced.

Summary of Regulations

    These proposed regulations revise the uniform premium table used to 
calculate the cost of group-term life insurance coverage provided to an 
employee by an employer. The proposed new table has been developed 
based on mortality experience for individuals covered by group-term 
life insurance during the 1985-1989 period, as reflected in a Society 
of Actuaries report. The mortality rates were adjusted for improvements 
in mortality from 1988 (the weighted midpoint for the data used in 
the1985-89 study) through 2000, based on the same rates of mortality 
improvement that were adopted by the Society of Actuaries Group Annuity 
Valuation Table Task Force for the period 1988-1994. Separate mortality 
rates were derived for males and females, and the section 79 table 
reflects a 50/50 blend of the male and female mortality rates. The 
resulting mortality projections have been adjusted to reflect a 10 
percent load factor. The uniform premium rates under the proposed 
revision would be lower in all age groups than the rates under the 
current section 79 regulations.
    Comments are requested regarding the proposed premium rates.

Proposed Effective Date

    These regulations are proposed to be effective July 1, 1999. A 
special effective date rule applies to any policy of life insurance 
issued under a plan in existence before the proposed general July 1, 
1999 effective date if the policy would not be treated as carried 
directly or indirectly by an employer under section 1.79-0 of the 
Income Tax Regulations using the current section 79 table. In this 
case, if the special rule applies, the policy would continue to be 
treated as not carried directly or indirectly by an employer until the 
first plan year that begins after July 1, 1999.
    Because income imputed under section 79 is generally subject to 
FICA tax which is withheld from the employee's pay, and because the 
withholding often is applied periodically from payrolls during the 
year, many employers will need to modify their payroll-based 
withholding systems and related information collection procedures 
before the effective date. The proposed July 1, 1999 effective date is 
intended to provide the benefits of having the lower income inclusions 
take effect as early as possible while avoiding the additional costs 
that would arise if employers did not have adequate time to implement

[[Page 2165]]

the changes before the effective date (which would necessitate special 
adjustments to correct overwithholding that would have occurred after 
the effective date and before implementation of the new table).
    Comments are requested regarding the proposed effective date.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 12866. Therefore, 
a regulatory assessment is not required. It also has been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) does not apply to these regulations and, because these 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this 
notice of proposed rulemaking will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Comment and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to electronic and written comments (a 
signed original and eight (8) copies) that are timely submitted to the 
IRS. The IRS and Treasury specifically request comments on the clarity 
of the proposed regulations and how it may be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled for Thursday, May 6, 1999, at 
10:00 a.m. in Room 2615, Internal Revenue Building, 1111 Constitution 
Avenue NW., Washington, DC. Due to building security procedures, 
visitors must enter the 10th Street entrance, located between 
Constitution and Pennsylvania Avenues, NW. In addition, all visitors 
must present photo identification to enter the building. Because of 
access restrictions, visitors will not be admitted beyond the immediate 
entrance area more than 15 minutes before the hearing starts. For 
information about having your name placed on the building access list 
to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section 
of this preamble.
    The rules of 26 CFR 601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written 
comments and an outline of the topics to be discussed and the time 
devoted to each topic (a signed original and eight (8) copies) by April 
15, 1999.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of these regulations is Betty J. Clary, Office 
of the Associate Chief Counsel (Employee Benefits and Exempt 
Organizations). However, other personnel from the IRS and the Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.79-3 is amended as follows:
    1. Paragraph (d)(2) is revised.
    2. Paragraphs (e) and (f) are redesignated as paragraphs (f) and 
(g), respectively.
    3. New paragraph (e) is added.
    The revision and addition read as follows:


Sec. 1.79-3  Determination of amount equal to cost of group-term life 
insurance.

* * * * *
    (d) * * *
    (2) For the cost of group-term life insurance provided after June 
30, 1999, the following table sets forth the cost of $1,000 of group-
term life insurance provided for one month, computed on the basis of 5-
year age brackets. See 26 CFR 1.79-3(d)(2) in effect prior to [DATE 
FINAL REGULATIONS ARE EFFECTIVE] and contained in the 26 CFR, part 1, 
edition revised as of April 1, 1998 for a table setting forth the cost 
of group-term life insurance provided before July 1, 1999. For purposes 
of Table I, the age of the employee is the employee's attained age on 
the last day of the employee's taxable year.

   TABLE I.--Uniform Premiums for $1,000 of Group-Term Life Insurance
                               Protection
------------------------------------------------------------------------
                                                               Cost per
                                                              $1,000 of
                     5-year age bracket                       protection
                                                               for one
                                                                month
------------------------------------------------------------------------
Under 25...................................................        $0.05
25 to 29...................................................          .06
30 to 34...................................................          .08
35 to 39...................................................          .09
40 to 44...................................................          .10
45 to 49...................................................          .15
50 to 54...................................................          .23
55 to 59...................................................          .43
60 to 64...................................................          .66
65 to 69...................................................         1.27
70 and above...............................................         2.06
------------------------------------------------------------------------

* * * * *
    (e) Effective date--(1) General effective date for table. Except as 
provided in paragraph (e)(2) of this section, the table in paragraph 
(d)(2) of this section is effective July 1, 1999.
    (2) Effective date for table for purposes of section 1.79-0. A 
policy of life insurance issued under a plan in existence on June 30, 
1999, which would not be treated as carried directly or indirectly by 
an employer under Sec. 1.79-0, taking into account the Table I in 
effect on that date, shall continue to be treated as a policy that is 
not carried directly or indirectly by the employer until the first plan 
year beginning after the general effective date in paragraph (e)(1) of 
this section.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 99-452 Filed 1-12-99; 8:45 am]
BILLING CODE 4830-01-U