[Federal Register Volume 89, Number 147 (Wednesday, July 31, 2024)]
[Rules and Regulations]
[Pages 61343-61346]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-16520]



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 Rules and Regulations
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
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  Federal Register / Vol. 89, No. 147 / Wednesday, July 31, 2024 / 
Rules and Regulations  

[[Page 61343]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 10005]
RIN 1545-BQ67


Plan-Specific Substitute Mortality Tables for Determining Present 
Value

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document sets forth final regulations that 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 affect participants in, and beneficiaries of, certain 
retirement plans and employers maintaining those plans.

DATES: 
    Effective date: These regulations are effective July 31, 2024.
    Applicability date: These regulations apply for plan years 
beginning on or after January 1, 2025.

FOR FURTHER INFORMATION CONTACT: Arslan Malik or Linda S.F. Marshall, 
Office of Associate Chief Counsel (Employee Benefits, Exempt 
Organizations, and Employment Taxes) at (202) 317-6700 (not a toll-free 
number).

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 regulations for purposes 
of ERISA, as well as the Code. Thus, these regulations issued under 
section 430 of the Code 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 section 430(h)(3)(C)(iii). 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 in 2017 include rules regarding generally applicable 
mortality tables under section 430(h)(3)(A), which are set forth in 
Sec.  1.430(h)(3)-1, as well as rules regarding substitute mortality 
tables under section 430(h)(3)(C), which are set forth in Sec.  
1.430(h)(3)-2. Section 1.430(h)(3)-2(d)(2) provides that 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 issuance of 
Sec.  1.430(h)(3)-2, 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 the first part of 2023, for 
many defined benefit 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 unless there is a change in the rules that are 
used for generating those tables, the resulting plan-specific 
substitute mortality tables would overstate the expected future 
mortality for the plan's population. This is because Sec.  1.430(h)(3)-
2(d)(4)(i) provides that substitute mortality tables are constructed 
using a mortality ratio calculated for the plan's population, which is 
determined by dividing the amounts-weighted number of actual deaths for 
plan participants during the experience study period by the amounts-
weighted number of expected

[[Page 61344]]

deaths for those participants 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 will 
reflect the actual number of deaths for the plan population during this 
period, while the denominator of that ratio 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 concerned 
that if a substitute mortality table constructed using that mortality 
ratio is used for a plan's actuarial valuation, then the plan's 
liabilities will be understated.
    To address this concern, proposed regulations that provide rules 
regarding the use of mortality experience data for the COVID-19 
pandemic period in the construction of substitute mortality tables were 
published in the Federal Register on October 20, 2023 (88 FR 72409) 
(the proposed regulations). On the same date that the proposed 
regulations were issued, the Treasury Department and the IRS issued 
final regulations amending Sec.  1.430(h)(3)-1 to update the generally 
applicable mortality tables under section 430(h)(3)(A) (88 FR 72357) 
(2023 final mortality regulations).
    Under Sec.  1.430(h)(3)-2(c)(6)(ii)(E), approval to use a 
previously approved substitute mortality table terminates in 
conjunction with the replacement of the generally applicable mortality 
tables under section 430(h)(3)(A) and Sec.  1.430(h)(3)-1 as of the 
date specified in guidance published in the Internal Revenue Bulletin. 
The preamble to the 2023 final mortality regulations indicated that the 
Treasury Department and the IRS will not require that the use of any 
previously approved plan-specific substitute mortality tables be 
terminated in conjunction with the replacement of the generally 
applicable mortality tables until amendments to the substitute 
mortality regulations are finalized and an updated revenue procedure 
that reflects those final regulations is issued.
    Four comments on the proposed regulations were received. No 
commenters requested to speak at a public hearing. The Treasury 
Department and IRS considered the comments that were received and are 
finalizing the proposed regulations with certain revisions, as 
explained in the following summary of comments and explanation of 
revisions. In addition, the Treasury Department and IRS are issuing 
Rev. Proc. 2024-32, 2024-34 IRB __, which updates the procedures set 
forth in Rev. Proc. 2017-55 to reflect the amendments to Sec.  
1.430(h)(3)-2 made by this Treasury decision.

Summary of Comments and Explanation of Revisions

    These regulations provide rules regarding the use of mortality 
experience data for the COVID-19 pandemic period that supplement the 
methodology for developing substitute mortality tables provided in 
Sec.  1.430(h)(3)-2. These rules have the same structure as the rules 
that were included in the proposed regulations (under which the 
expected probability of death must be adjusted to reflect the generally 
higher mortality that occurred during the COVID-19 pandemic period) but 
eliminate the adjustment for 2023 and provide for a different 
adjustment for 2022.
    To develop a mortality ratio that is more accurately predictive of 
future mortality experience for a plan population, these regulations 
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 regulations provide that, for each 12-month 
period that is included in the experience study period and that begins 
after 2019 and before 2023, 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.
    The proposed regulations provided for an adjustment factor for each 
12-month period that is included in the experience study period and 
that began after 2019 and before 2024. The proposed adjustment factor 
for each of those years approximated the ratio (as reported by the 
National Center for Health Statistics, which is part of the Centers for 
Disease Control and Prevention) 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.\2\ Under the proposed 
regulations, the adjustment factor for a 12-month period beginning in 
2020 or 2021 was 1.15, for a 12-month period beginning in 2022 was 
1.10, and for a 12-month period beginning in 2023 was 1.05.
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    \2\ See Excess Deaths Associated with Covid-19 at https://www.cdc.gov/nchs/nvss/vsrr/covid19/excess_deaths.htm.
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    The Treasury Department and IRS received four comments regarding 
the adjustment factors set forth in the proposed regulations. The four 
commenters stated that a single adjustment factor for each year 
inadequately captured the age, gender, and regional variances in excess 
mortality during the COVID-19 pandemic. In addition, three commenters 
suggested that the adjustment factor for 2023 be eliminated (because 
preliminary data from 2023 showed a decline in excess mortality such 
that no adjustment may be needed for 2023), and that the adjustment 
factor for 2022 be reduced. After considering these comments and the 
most recent mortality data available, the Treasury Department and IRS 
are eliminating the adjustment for 2023 and reducing the adjustment for 
2022. However, the Treasury Department and IRS concluded that providing 
adjustment factors based on age would be inconsistent with the overall 
model for developing substitute mortality tables, and that providing 
separate adjustment factors based on gender or geography would add a 
degree of complexity that would outweigh any potential increase in 
precision that these adjustment factors may provide.
    The four commenters also suggested that, as an alternative to 
applying the adjustment factors, plan sponsors be permitted to 
construct substitute mortality tables without taking into account any 
mortality experience from the COVID-19 pandemic period. The Treasury 
Department and IRS have considered this approach but rejected it 
because providing for such an approach would mean that the mortality 
experience used to construct the substitute mortality table could be so 
out of date that it would be less reliable in predicting future 
mortality for the plan population. For example, if a plan sponsor was 
applying for approval of a substitute mortality table in 2024 using 
calendar year mortality experience without taking into account 
mortality experience for 2020, 2021, and 2022, the most recent 
mortality experience would be from 2019, which is more than 4 years 
prior to the application for approval.
    Under a transition rule in the proposed regulations, substitute 
mortality tables that were previously approved for use for a plan year 
beginning in 2025 would be treated as satisfying the rules for 
developing

[[Page 61345]]

substitute mortality tables that apply for that plan year. This 
transition rule, which is included in these regulations, addresses 
plans with previously approved substitute mortality tables that were 
based on a mortality experience study that included data from the 
COVID-19 pandemic period (and therefore do not satisfy the requirements 
specified in these regulations).
    One commenter requested clarification as to the extent to which 
other previously approved substitute mortality tables may continue to 
be used for the remainder of their approval period even if that 
approval period extends beyond 2025. The Treasury Department and IRS 
considered this comment and decided to continue to allow the use of 
previously approved substitute mortality tables that were developed 
based on an experience study that did not include data from the COVID-
19 pandemic period for the original duration of the approval, provided 
that there has not been a significant change in plan coverage, as 
described in the first sentence of Sec.  1.430(h)(3)-
2(c)(6)(iii)(A).\3\ Thus, if the experience study for a substitute 
mortality table that has been approved for use for a plan year 
beginning in 2025 includes mortality data from 2020, 2021, or 2022 (or 
the number of individuals covered by the substitute mortality table is 
less than 80 percent or more than 120 percent of the average number of 
individuals in that population over the years covered by the experience 
study), then the substitute mortality table may be used for a plan year 
beginning in 2025 (but may not be used for later years).
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    \3\ The termination of the use of previously approved substitute 
mortality tables is described in section 12 of Rev. Proc. 2024-32. 
Under that revenue procedure, if there has been a significant change 
in plan coverage, a previously approved substitute mortality table 
cannot be used for a plan year that begins on or after January 1, 
2026, even if the plan actuary certifies that the table continues to 
be accurately predictive of future mortality of the plan population.
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    These regulations also include a transition rule that applies to 
requests for approval to use substitute mortality tables for a plan 
year beginning in 2025. Under that rule, a request for approval to use 
substitute mortality tables for that plan year will be considered 
timely if it is submitted on or before October 31, 2024, provided that 
the plan sponsor agrees to a 90-day extension under Sec.  1.430(h)(3)-
2(b)(2)(iv) of the 180-day review period under Sec.  1.430(h)(3)-
2(b)(2)(iii).

Applicability Date

    These regulations 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

I. Regulatory Planning and Review

    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.

II. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it 
is hereby certified that this 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 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), the notice of proposed rulemaking 
preceding these regulations was submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small business, and no comments were received.

III. Unfunded Mandates Reform Act

    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. These regulations do not include any rule that 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.

IV. Executive Order 13132: Federalism

    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. These regulations do not include 
rules that have federalism implications, impose substantial direct 
compliance costs on State and local governments, or preempt State law 
within the meaning of the Executive order.

V. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

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.

Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS 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 the language ``Sec.  
601.601(d)(2)(ii)(b)'' and adding the language ``Sec.  601.601(d)(2)'' 
in its place;
0
b. In paragraph (d)(2)(ii)(B), removing the language ``January 1, 2019 
year is'' and adding the language ``January 1, 2019 is'' in its place;
0
c. Revising paragraphs (d)(4)(iii) and (g).
    The revisions read as follows:


Sec.  1.430(h)(3)-2  Plan-specific substitute mortality tables used to 
determine present value.

* * * * *
    (d) * * *

[[Page 61346]]

    (4) * * *
    (iii) Standard mortality table--(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, and 
2022. If a 12-month period in the experience study period begins after 
December 31, 2019, and before January 1, 2023, 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)(A) 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 1.075, 
resulting in a probability of death of 0.01195.

                   Table 1 to Paragraph (d)(4)(iii)(B)
------------------------------------------------------------------------
                                                              Adjustment
                       Calendar year                            factor
------------------------------------------------------------------------
2020.......................................................         1.15
2021.......................................................         1.15
2022.......................................................        1.075
------------------------------------------------------------------------

    (C) Selection of base table. If the population consists solely of 
annuitants, the annuitant base mortality table set forth in Sec.  
1.430(h)(3)-1(d) must be used for purposes of paragraph (d)(4)(iii)(A) 
of this section. If the population consists solely of nonannuitants, 
the nonannuitant base mortality table set forth in Sec.  1.430(h)(3)-
1(d) must be used for that purpose. If the population includes both 
annuitants and nonannuitants, a combination of the annuitant and 
nonannuitant base tables set forth in Sec.  1.430(h)(3)-1(d) must be 
used for that purpose. The combined table is constructed using the 
weighting factors for small plans that are set forth in Sec.  
1.430(h)(3)-1(d). The weighting factors are applied to develop the 
combined table using the following equation:

Combined mortality rate = [nonannuitant rate * (1-weighting factor)] + 
[annuitant rate * weighting factor].
* * * * *
    (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) or (3) 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, for that plan year.
    (3) Transition rule for requests for approval to use substitute 
mortality tables. A written request described in paragraph (b)(1)(i) of 
this section to use substitute mortality tables for a plan year that 
begins during 2025 does not fail to satisfy the timing requirement of 
paragraph (b)(1)(ii) of this section if it is submitted no later than 
October 31, 2024, provided that the plan sponsor agrees to a 90-day 
extension of the 180-day review period in accordance with paragraph 
(b)(2)(iv) of this section.

Douglas W. O'Donnell,
Deputy Commissioner.
    Approved: July 8, 2024
Aviva R. Aron-Dine,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-16520 Filed 7-30-24; 8:45 am]
BILLING CODE 4830-01-P