[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withdrawn.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