[Federal Register Volume 88, Number 202 (Friday, October 20, 2023)]
[Proposed Rules]
[Pages 72409-72411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-23268]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-103525-23]
RIN 1545-BQ67
Plan-Specific Substitute Mortality Tables for Determining Present
Value
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document sets forth proposed regulations that would
update the requirements that a plan sponsor of a single-employer
defined benefit plan must meet to obtain IRS approval to use mortality
tables specific to the plan in calculating present value for minimum
funding purposes (as a substitute for the generally applicable
mortality tables). These regulations would affect participants in,
beneficiaries of, employers maintaining, and administrators of certain
retirement plans.
DATES: Written or electronic comments and requests for a public hearing
must be received by December 19, 2023.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-103525-
23) by following the online instructions for submitting comments.
Requests for a public hearing must be submitted as prescribed in the
``Comments and Requests for a Public Hearing'' section. Once submitted
to the Federal eRulemaking Portal, comments cannot be edited or
withdrawn. The Department of the Treasury (Treasury Department) and the
IRS will publish for public availability any comments submitted to the
IRS's public docket. Send paper submissions to: CC:PA:LPD:PR (REG-
103525-23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben
Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Arslan
Malik or Linda S. F. Marshall at (202) 317-6700 (not a toll-free
number); concerning submissions of comments and requests for a public
hearing, Vivian Hayes at (202) 317-6901 (not a toll-free number) or by
sending an email to [email protected] (preferred).
SUPPLEMENTARY INFORMATION:
Background
Section 412 of the Internal Revenue Code (Code) prescribes minimum
funding requirements for defined benefit pension plans. Section 430
specifies the minimum funding requirements that apply generally to
defined benefit plans that are single-employer plans (that is, not
multiemployer plans).\1\ For a plan subject to section 430, section
430(a) defines the minimum required contribution for a plan year by
reference to the plan's funding target for the plan year. Under section
430(d)(1), a plan's funding target for a plan year generally is the
present value of all benefits accrued or earned under the plan as of
the first day of that plan year.
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\1\ Section 302 of the Employee Retirement Income Security Act
of 1974, Public Law 93-406, 88 Stat. 829 (1974), as amended (ERISA),
sets forth funding rules that are parallel to those in section 412
of the Code, and section 303 of ERISA sets forth additional funding
rules for defined benefit plans (other than multiemployer plans)
that are parallel to those in section 430 of the Code. Pursuant to
section 101 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App., as
amended, the Secretary of the Treasury has interpretive jurisdiction
over the subject matter addressed in these proposed regulations for
purposes of ERISA, as well as the Code. Thus, these proposed
Treasury regulations issued under section 430 of the Code would also
apply for purposes of section 303 of ERISA.
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Section 430(h)(3) provides rules regarding the mortality tables to
be used under section 430. Under section 430(h)(3)(A), except as
provided in section 430(h)(3)(C) or (D), the Secretary is to prescribe
by regulation mortality tables to be used in determining any present
value or making any computation under section 430. Section 430(h)(3)(C)
prescribes rules for a plan sponsor's use of substitute mortality
tables reflecting the specific mortality experience of a plan's
population instead of using the generally applicable mortality tables.
Under section 430(h)(3)(C), the plan sponsor may request the
Secretary's approval to use plan-specific substitute mortality tables
that meet requirements specified in the statute. If the Secretary
determines that the proposed tables meet the statutory standards and
approves the request, the substitute mortality tables are used to
determine present values and make computations under section 430 during
the period of consecutive plan years (not to exceed 10) specified in
the request.
Under section 430(h)(3)(C)(iii), a substitute mortality table may
be used for a plan only if: (1) the plan has a sufficient number of
plan participants and has been maintained for a sufficient period of
time to have credible mortality information necessary to create a
substitute mortality table; and (2) the table reflects the actual
mortality experience of the plan's participants and projected trends in
general mortality experience. Except as provided by the Secretary, a
plan sponsor may not use substitute mortality tables for any plan
unless substitute mortality tables are established and used for each
plan maintained by the plan sponsor or a member of its controlled
group.
Final regulations (TD 9826) under section 430(h)(3) were published
in the Federal Register on October 5, 2017 (82 FR 46388). The final
regulations issued
[[Page 72410]]
in 2017 include rules regarding generally applicable mortality tables,
which are set forth in Sec. 1.430(h)(3)-1 (the 2017 general mortality
table regulations), as well as rules regarding substitute mortality
tables, which are set forth in Sec. 1.430(h)(3)-2 (the 2017 substitute
mortality table regulations). The 2017 substitute mortality table
regulations provide that any substitute mortality tables must be based
on the plan's mortality experience during an experience study period
that consists of 2, 3, 4, or 5 consecutive 12-month periods. In
conjunction with the 2017 substitute mortality table regulations, the
Department of the Treasury (Treasury Department) and the IRS issued
Rev. Proc. 2017-55, 2017-43 IRB 373, which sets forth the procedure by
which a plan sponsor of a defined benefit plan may request and obtain
approval for the use of plan-specific substitute mortality tables.
Beginning in 2020 and extending into 2023, for many pension plans,
the mortality experience of the plan participants was significantly
higher than expected due to the COVID-19 pandemic. The Treasury
Department and the IRS are concerned that, if a plan sponsor applied
for approval of plan-specific substitute mortality tables using an
experience study period that reflects the actual mortality experience
for the plan's population during those years, then the existing rules
and procedures used for generating those tables would result in plan-
specific substitute mortality tables that overstate the expected future
mortality for the plan's population. This is because substitute
mortality tables are constructed based on a mortality ratio calculated
for the plan's population, which is determined by dividing the actual
mortality experience for plan participants during the experience study
period by the expected mortality under the generally applicable
mortality tables. In the absence of any changes to the rules and
procedures for generating plan-specific substitute mortality tables, a
mortality ratio developed using an experience study period that
includes the period in which the COVID-19 pandemic occurred (COVID-19
pandemic period) will likely be unusually high, as the numerator of the
mortality ratio (the plan's actual experience) will reflect the actual
number of deaths during this period, while the denominator of that
ratio (the expected deaths for the plan population) will be based on
the expected number of deaths from the generally applicable mortality
tables (which reflect only a small fraction of the significant short-
term increase in mortality rates that occurred during the COVID-19
pandemic period).
The Treasury Department and the IRS are issuing final regulations
updating the generally applicable mortality tables under section
430(h)(3)(A) (TD 9983) in the Rules and Regulations section of this
issue of the Federal Register. Those final regulations adopt mortality
tables that are based on the mortality tables in the Pri-2012 Private
Retirement Plans Mortality Tables Report (Pri-2012),\2\ which were
developed using the mortality experience for private sector pension
plans during the period from 2010 to 2014. In light of the fact that
the Pri-2012 mortality tables did not reflect any mortality experience
from the COVID-19 pandemic period, the preamble to the proposed
regulations that preceded those final regulations asked for comments
about whether the rules and procedures relating to development of
substitute mortality tables should be modified to recognize the
potential that the mortality experience for the COVID-19 pandemic
period is not accurately predictive of the future mortality experience
for participants of a plan for which substitute mortality tables are
requested. In response, commenters suggested various solutions that
included: (1) excluding mortality data from the COVID-19 pandemic
period, (2) applying a reduced weight to the mortality data from the
COVID-19 pandemic period in developing the substitute mortality tables,
(3) extending the duration of the experience study period (which has a
similar effect of reducing the weight of the mortality data for that
period), and (4) computing the mortality ratio for a substitute
mortality table by comparing pre-2020 data to the Pri-2012 base
mortality table and post-2019 data to the Pri-2012 base mortality table
(as projected) with a specified load.
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\2\ The Pri-2012 Report can be found at: https://www.soa.org/49c106/globalassets/assets/files/resources/experience-studies/2019/pri-2012-mortality-tables-report.pdf.
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Explanation of Provisions
These proposed regulations would generally retain the methodology
for development of substitute mortality tables included in the 2017
substitute mortality table regulations but provide additional rules
regarding the use of mortality experience data for the COVID-19
pandemic period. In order to develop a mortality ratio that is more
accurately predictive of future mortality experience for a plan
population, these proposed regulations would provide that the expected
deaths for the plan population used in determining the denominator in
the mortality ratio are calculated by adjusting the mortality rates in
the generally applicable mortality tables. Specifically, the proposed
regulations would provide that, for each 12-month period that is
included in the experience study period and that begins after 2019 and
before 2024, the expected mortality rate for an individual is
determined by multiplying the expected mortality rate for that
individual from the standard mortality tables by an adjustment
factor.\3\ The adjustment factor for each of these years would
approximate the ratio (as reported by the National Center for Health
Statistics, which is part of the Centers for Disease Control and
Prevention) \4\ of (1) the actual number of deaths for the general
population for the year to (2) the expected number of deaths for the
general population for that year.
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\3\ This approach is similar to the fourth approach suggested by
commenters, as described in the Background section of this preamble
because a direct adjustment to the expected mortality rates during
the COVID-19 pandemic period would be more appropriate than
calculating mortality ratios using an approach that either ignores
the mortality experience during the COVID-19 pandemic period or
reduces the weighting of that experience.
\4\ https://www.cdc.gov/nchs/nvss/vsrr/covid19/excess_deaths.htm.
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Applicability Date
The proposed regulations are proposed to apply for plan years
beginning on or after January 1, 2025.
Statement of Availability of IRS Documents
IRS Revenue Rulings, Revenue Procedures, and Notices cited in this
document are published in the Internal Revenue Bulletin (or Cumulative
Bulletin) and are available from the Superintendent of Documents, U.S.
Government Publishing Office, Washington, DC 20402, or by visiting the
IRS website at www.irs.gov.
Special Analyses
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
It is hereby certified that this proposed rule will not have a
significant economic impact on a substantial number of small entities.
Small employers generally cannot use plan-specific substitute mortality
tables because their defined benefit pension
[[Page 72411]]
plans do not have credible mortality experience (which is defined as a
minimum number of deaths during the experience study period) as is
required to use substitute mortality tables. Therefore, a regulatory
flexibility analysis under the Regulatory Flexibility Act is not
required.
Pursuant to section 7805(f) of the Code, these proposed regulations
will be submitted to the Chief Counsel for Advocacy of the Small
Business Administration for comment on their impact on small business.
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. The proposed regulations do not propose any rule that would
include any Federal mandate that may result in expenditures by State,
local, or Tribal governments, or by the private sector in excess of
that threshold.
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. The proposed regulations do not
propose rules that would have federalism implications, impose
substantial direct compliance costs on State and local governments, or
preempt State law within the meaning of the Executive order.
Comments and Requests for a Public Hearing
Consideration will be given to comments that are submitted timely
to the IRS as prescribed in the preamble under the ADDRESSES section.
The Treasury Department and the IRS request comments on all aspects of
these proposed regulations. Any comments submitted will be made
available at www.regulations.gov or upon request.
A public hearing will be scheduled if requested in writing by any
person who timely submits electronic or written comments. Requests for
a public hearing are also encouraged to be made electronically. If a
public hearing is scheduled, notice of the date and time for the public
hearing will be published in the Federal Register.
Drafting Information
The principal authors of these regulations are Arslan Malik and
Linda S. F. Marshall of the Office of Associate Chief Counsel (Employee
Benefits, Exempt Organizations, and Employment Taxes). However, other
personnel from Treasury and the IRS participated in the development of
these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, the Treasury Department and the IRS propose to amend
26 CFR part 1 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.430(h)(3)-2 is amended by:
0
a. In paragraph (a) removing ``Sec. 601.601(d)(2)(ii)(b)'' and adding
in its place ``Sec. 601.601(d)'';
0
b. In paragraph (d)(2)(ii)(B) removing the text ``January 1, 2019 year
is'' and adding in its place the text ``January 1, 2019 is'';
0
c. Revising paragraph (d)(4)(iii)(A).
0
d. Redesignating paragraph (d)(4)(iii)(B) as paragraph (d)(4)(iii)(C)
and adding a new paragraph (d)(4)(iii)(B).
0
e. Revising paragraph (g).
The additions and revisions read as follows:
Sec. 1.430(h)(3)-2 Plan-specific substitute mortality tables used to
determine present value.
* * * * *
(d) * * *
(4) * * *
(iii) * * *
(A) Projection of base table. Except as otherwise provided in this
paragraph (d)(4)(iii), the standard mortality table for a year is the
mortality table determined by applying cumulative mortality improvement
factors determined under Sec. 1.430(h)(3)-1(b)(2)(ii) to the base
mortality table under Sec. 1.430(h)(3)-1(d) for the period beginning
with the base year for that mortality table and ending in the base year
for the base substitute mortality table determined under paragraph
(c)(3)(ii) of this section. For purposes of the preceding sentence, the
cumulative mortality improvement factors are determined using the
mortality improvement rates described in Sec. 1.430(h)(3)-1(b)(1)(iii)
that apply for the calendar year during which the plan sponsor submits
the request for approval to use substitute mortality tables.
(B) Adjustments to standard mortality table for 2020, 2021, 2022,
and 2023. If a 12-month period in the experience study period begins
after December 31, 2019, and before January 1, 2024, the probability of
death for an individual under paragraph (d)(4)(ii)(A)(2)(i) of this
section is determined as the mortality rate for the individual's age
(at the beginning of the year) and gender from the standard mortality
table determined under paragraph (d)(4)(iii) of this section multiplied
by the adjustment factor in Table 1 for the calendar year that includes
the first day of the 12-month period. For example, for an experience
study period that begins April 1, 2019, and ends March 31, 2023, the
probability of death for the year beginning April 1, 2022, for a male
annuitant who is age 65 as of that date is the probability of death
from the base mortality table (0.01087), multiplied by the cumulative
mortality improvement factor for the period from 2012 to 2021 (1.02292)
and by the adjustment factor for the 2022 calendar year of 1.10,
resulting in a probability of death of 0.01223.
Table 1 to Paragraph (d)(4)(iii)(B)
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Adjustment
Calendar year factor
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2020.................................................... 1.15
2021.................................................... 1.15
2022.................................................... 1.10
2023.................................................... 1.05
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* * * * *
(g) Applicability date--(1) General rule. This section applies for
plan years beginning on or after January 1, 2025. Except as provided in
paragraph (g)(2) of this section, the substitute mortality table used
for a plan for such a plan year must comply with the rules of
paragraphs (a) through (f) of this section.
(2) Transition rule for previously approved substitute mortality
tables. If a plan sponsor has received approval from the Commissioner
to use substitute mortality tables for a plan year beginning in 2025,
then the plan's base substitute mortality tables that were approved are
treated as satisfying the requirements of paragraph (d) or (e) of this
section, as applicable.
Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2023-23268 Filed 10-19-23; 8:45 am]
BILLING CODE 4830-01-P