Rule2024-16520
Plan-Specific Substitute Mortality Tables for Determining Present Value
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 31, 2024
Effective
July 31, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
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.
Full Text
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<title>Federal Register, Volume 89 Issue 147 (Wednesday, July 31, 2024)</title>
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[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 [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-16520]
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Rules and Regulations
Federal Register
________________________________________________________________________
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
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
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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 <a href="https://www.cdc.gov/nchs/nvss/vsrr/covid19/excess_deaths.htm">https://www.cdc.gov/nchs/nvss/vsrr/covid19/excess_deaths.htm</a>.
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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 <a href="http://www.irs.gov">www.irs.gov</a>.
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
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2020....................................................... 1.15
2021....................................................... 1.15
2022....................................................... 1.075
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(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
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