Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans, 95911-95929 [2016-30906]
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95911
Proposed Rules
Federal Register
Vol. 81, No. 250
Thursday, December 29, 2016
This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–112324–15]
RIN 1545–BM71
Mortality Tables for Determining
Present Value Under Defined Benefit
Pension Plans
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
AGENCY:
This document contains
proposed regulations prescribing
mortality tables to be used by most
defined benefit pension plans. The
tables specify the probability of survival
year-by-year for an individual based on
age, gender, and other factors. This
information is used (together with other
actuarial assumptions) to calculate the
present value of a stream of expected
future benefit payments for purposes of
determining the minimum funding
requirements for the plan. These
mortality tables are also relevant to
determining the minimum required
amount of a lump-sum distribution from
such a plan. In addition, this document
contains proposed regulations to update
the requirements that a plan sponsor
must meet in order to obtain IRS
approval to use mortality tables specific
to the plan for minimum funding
purposes (instead of the generally
applicable mortality tables). These
regulations affect participants in,
beneficiaries of, employers maintaining,
and administrators of certain retirement
plans.
DATES: Comments and outlines of topics
to be discussed at the public hearing
scheduled for April 13, 2017 must be
received by March 29, 2017.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–112324–15), Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
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SUMMARY:
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may be hand-delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–112324–
15), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW.,
Washington, DC 20224, or sent
electronically, via the Federal
eRulemaking Portal at
www.regulations.gov (IRS REG–112324–
15). The public hearing will be held in
the IRS Auditorium, Internal Revenue
Building, 1111 Constitution Avenue
NW., Washington, DC 20224.
FOR FURTHER INFORMATION CONTACT:
Concerning the regulations, Thomas
Morgan at (202) 317–6700; concerning
the construction of the base mortality
tables and the static mortality tables for
2018, Michael Spaid at (206) 946–3480;
concerning submission of comments,
the hearing, and/or to be placed on the
building access list to attend the
hearing, Regina Johnson at (202) 317–
6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
A. Generally applicable mortality tables
Section 412 of the Internal Revenue
Code (Code) prescribes minimum
funding requirements for defined
benefit pension plans. Section 430,
which was added to the Code by the
Pension Protection Act of 1996, Public
Law 109–280 (120 Stat. 780 (2006)),
specifies the minimum funding
requirements that apply generally to
defined benefit plans that are not
multiemployer plans.1 Section 430(a)
defines the minimum required
contribution 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.
1 Section 302 of the Employee Retirement Income
Security Act of 1974, Public Law 93–406, 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. Under section 101 of
Reorganization Plan No. 4 of 1978 (43 FR 47713)
and section 302 of ERISA, 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 apply as well
for purposes of section 303 of ERISA.
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Section 430(h)(3) contains 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. Those
mortality tables are to be based on the
actual mortality experience of pension
plan participants and projected trends
in that experience. In prescribing those
mortality tables, the Secretary is
required to take into account results of
available independent studies of
mortality of individuals covered by
pension plans.2 Under section
430(h)(3)(B), the Secretary is required to
revise any mortality table in effect under
section 430(h)(3)(A) at least every 10
years to reflect actual mortality
experience of pension plan participants
and projected trends in that experience.
Section 430(h)(3)(D) provides for the
use of separate mortality tables with
respect to certain individuals who are
entitled to benefits on account of
disability. These separate mortality
tables are permitted to be used with
respect to disabled individuals in lieu of
the generally applicable mortality tables
provided pursuant to section
430(h)(3)(A) or the substitute mortality
tables under section 430(h)(3)(C). The
Secretary is to establish separate tables
for individuals with disabilities
occurring in plan years beginning before
January 1, 1995, and in later plan years,
with the mortality tables for individuals
with disabilities occurring in those later
plan years applying only to individuals
who are disabled within the meaning of
Title II of the Social Security Act.
Section 417(e)(3) generally provides
that the present value of certain benefits
under a qualified pension plan
(including single-sum distributions)
must not be less than the present value
of the accrued benefit using applicable
interest rates and the applicable
mortality table. Section 417(e)(3)(B)
2 The standards prescribed for developing these
mortality tables are the same as the standards that
are prescribed for developing mortality tables for
multiemployer plans under section
431(c)(6)(D)(iv)(II) (which are used determine
current liability in order to determine the minimum
full funding limitation under section 431(c)(6)(B)).
These standards also apply for purposes of
determining current liability in order to determine
the minimum full funding limitation under section
433(c)(2)(C) for a CSEC plan (as defined in section
414(y)).
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defines the term ‘‘applicable mortality
table’’ as the mortality table specified
for the plan year for minimum funding
purposes under section 430(h)(3)(A)
(without regard to the rules for
substitute mortality tables under section
430(h)(3)(C) or mortality tables for
disabled individuals under section
430(h)(3)(D)), modified as appropriate
by the Secretary. The modifications
made by the Secretary to the section
430(h)(3)(A) mortality table to
determine the section 417(e)(3)(B)
applicable mortality table are not
addressed in these proposed
regulations. Revenue Ruling 2007–67,
2007–2 CB 1047, describes the
modifications that are currently applied
to determine the section 417(e)(3)(B)
applicable mortality table.
Final regulations under section
430(h)(3) were published in the Federal
Register on July 31, 2008 in TD 9419,
73 FR 44632. The final regulations
issued in 2008 include rules regarding
generally applicable mortality tables,
which are set forth in § 1.430(h)(3)–1
(the 2008 general mortality table
regulations). The final regulations
issued in 2008 also include rules
regarding substitute mortality tables,
which are set forth in § 1.430(h)(3)–2
(the 2008 substitute mortality table
regulations).
The 2008 general mortality table
regulations prescribe a base mortality
table and a set of mortality improvement
rates, which may be reflected through
the use of either generational mortality
tables or static mortality tables.
Generational mortality tables are a series
of mortality tables, one for each year of
birth, each of which fully reflects
projected trends in mortality rates. The
static mortality tables (which are
updated annually) use a single mortality
table for all years of birth to
approximate the present value that
would be determined using the
generational morality tables. Section
1.430(h)(3)–1 includes static mortality
tables for valuation dates occurring in
2008 and provides that static mortality
tables for valuation dates occurring in
later years are to be published in the
Internal Revenue Bulletin.
The mortality tables included in
§ 1.430(h)(3)–1 are based on the
mortality tables included in the RP–
2000 Mortality Tables Report (referred
to in this preamble as the RP–2000
mortality tables) released by the Society
of Actuaries in July 2000 (updated in
May 2001) and a set of mortality
improvement projection factors (the
Scale AA Projection Factors) that was
also included in the RP–2000 Mortality
Tables Report.
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Section 1.431(c)(6)–1 provides that
the same mortality assumptions that
apply for purposes of section
430(h)(3)(A) and § 1.430(h)(3)–1(a)(2)
are used to determine a multiemployer
plan’s current liability for purposes of
applying the full-funding rules of
section 431(c)(6). For this purpose, a
multiemployer plan is permitted to
apply either the annually-adjusted static
mortality tables or the generational
mortality tables.
Static mortality tables for valuation
dates occurring during 2009–2013 were
published in Notice 2008–85, 2008–42
IRB 905. Updated static mortality tables
for valuation dates occurring during
2014 and 2015 were published in Notice
2013–49, 2013–32 IRB 127. Updated
static mortality tables for valuation
dates occurring in 2016 were published
in Notice 2015–53, 2015–33 IRB 190.
Updated static mortality tables for
valuation dates occurring in 2017 were
published in Notice 2016–50, 2016–38
IRB 371.
Notice 2013–49 requested comments
on whether it continues to be necessary
to provide multiple alternative versions
of the mortality tables in order to
accommodate limitations in some
actuarial software. Notice 2013–49 also
requested comments on whether a
separate disability mortality table is still
warranted with respect to participants
who became disabled before 1995.
Finally, Notice 2013–49 noted that the
Treasury Department (Treasury) and the
IRS were aware that the Society of
Actuaries was conducting a mortality
study of pension plan participants and
specifically requested comments on
whether other studies of actual
mortality experience of pension plan
participants and projected trends of that
experience are available that should be
considered for use in developing
mortality tables for future use under
section 430(h)(3).
In October 2014, the Retirement Plans
Experience Committee (RPEC) of the
Society of Actuaries issued a new
mortality study of participants in
private pension plans, referred to as the
RP–2014 Mortality Tables Report
(which sets forth mortality tables that
are referred to as the RP–2014 mortality
tables). The RP–2014 Mortality Tables
Report, as revised November 2014, is
available at www.soa.org/Research/
Experience-Study/pension/research2014-rp.aspx. At the same time, RPEC
issued a companion study of mortality
improvement, referred to as the
Mortality Improvement Scale MP–2014
Report (which sets forth mortality
improvement rates that are referred to as
Scale MP–2014 Rates). As described in
the Mortality Improvement Scale MP–
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2014 Report, (available at www.soa.org/
Research/Experience-Study/pension/
research-2014-mp.aspx), the Scale MP–
2014 rates were based on mortality
improvement experience for the general
population through 2009.
In October 2015, RPEC released an
update to the Scale MP–2014 Rates. The
updated rates, referred to as Scale MP–
2015 Rates, were released as part of the
Mortality Improvement Scale MP–2015
Report (which is available at https://
www.soa.org/Research/ExperienceStudy/Pension/research-2015-mp.aspx).
The Scale MP–2015 Rates were created
using historical data for mortality
improvement for the general population
through 2011, and the same model and
parameters that were used to produce
Scale MP–2014 Rates. In conjunction
with the release of the updated rates,
RPEC indicated the intent to reflect the
latest data available by providing future
annual updates to the model as soon as
practicable following the public release
of updated data upon which the model
is constructed.
In October 2016, RPEC released a
further update to the Scale MP–2014
Rates, which are referred to as the Scale
MP–2016 Rates. The Scale MP–2016
Rates take into account data for
mortality improvement for the general
population for years 2012 and 2013,
along with an estimate of mortality rates
for 2014. As described in the Mortality
Improvement Scale MP–2016 Report
(which is available at www.soa.org/
Research/Experience-Study/Pension/
research-2016-mp.aspx), in developing
the Scale MP–2016 rates, RPEC changed
some of the parameters from those that
were used in developing the Scale MP–
2014 Rates.
B. Plan-Specific Substitute Mortality
Tables
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 approved,
these 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. In order for a plan sponsor to
use a substitute mortality table for a
plan, the statute requires that: (1) The
plan has a sufficient number of plan
participants and has been maintained
for a sufficient period of time in order
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to have credible mortality information
necessary to create a substitute mortality
table; and (2) the tables reflect the actual
mortality experience of the plan’s
participants and projected trends in
general mortality experience of
participants in pension plans. Except as
provided by the Secretary, a plan
sponsor must not use substitute
mortality tables for any plan unless
substitute mortality tables are
established and used for each plan
maintained by the plan sponsor and its
controlled group.
Regulations issued in 2008 set forth
rules regarding the use of substitute
mortality tables. Under § 1.430(h)(3)–
2(b), in order to use substitute mortality
tables with respect to a plan, a plan
sponsor must submit a written request
to the Commissioner that demonstrates
that those substitute mortality tables
comply with applicable requirements. A
request to use substitute mortality tables
must specify the first plan year, and the
term of years (not more than 10), for
which the tables are requested to be
used. In general, substitute mortality
tables may not be used for a plan year
unless the plan sponsor submits the
request at least 7 months prior to the
first day of the first plan year for which
the substitute mortality tables are to
apply.
The Commissioner has a 180-day
period to review a request for the use of
substitute mortality tables. If the
Commissioner does not issue a denial
within this 180-day period, the request
is deemed to have been approved unless
the Commissioner and the plan sponsor
have agreed to extend that period. The
Commissioner may request additional
information with respect to a
submission. Failure to provide that
information on a timely basis is grounds
for denial of the plan sponsor’s request.
In addition, the Commissioner will deny
a request if the request fails to meet the
requirements to use substitute mortality
tables or if the Commissioner
determines that a substitute mortality
table does not sufficiently reflect the
mortality experience of the applicable
plan population.
Under § 1.430(h)(3)–2(c)(1)(i),
substitute mortality tables must reflect
the actual mortality experience of the
pension plan for which the tables are to
be used. Separate mortality tables must
be established for each gender under the
plan, and a substitute mortality table
may be established for a gender only if
the plan has credible mortality
experience with respect to that gender.
If the mortality experience for one
gender is credible but the mortality
experience for the other gender is not
credible, the substitute mortality tables
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are used for the gender that has credible
mortality experience, and the mortality
tables under § 1.430(h)(3)–1 are used for
the gender that does not have credible
mortality experience.
Section 1.430(h)(3)–2(c)(1)(ii)
provides that, for purposes of
determining whether substitute
mortality tables may be used, there is
credible mortality experience for a
gender within a plan if and only if, over
the period covered by the experience
study, there are at least 1,000 deaths
within that gender.3 Pursuant to
§ 1.430(h)(3)–2(c)(2)(ii), the minimum
length of the experience study period is
2 years and the maximum length of the
experience study period is 5 years (and
can be lengthened in published
guidance). Furthermore, under that
provision, the last day of the final year
reflected in the experience data must be
less than three years before the first day
of the first plan year for which the
substitute mortality tables are to apply.
Under § 1.430(h)(3)–2(c)(2),
development of a substitute mortality
table under the regulations requires
creation of a base table and
identification of a base year, which are
then used to determine a substitute
mortality table. The base table must be
developed from a study of the mortality
experience of the plan using amountsweighted data.
Under § 1.430(h)(3)–2(c)(3), a plan’s
substitute mortality tables must be
generational mortality tables. Substitute
mortality tables are determined using
the base mortality tables developed from
the experience study and the Scale AA
Projection Factors, which are also used
for the generally applicable mortality
tables.
Under § 1.430(h)(3)–2(c)(4), separate
substitute mortality tables are permitted
(but not required) to be established for
separate populations within a gender,
such as annuitants and nonannuitants
or hourly and salaried individuals.
Under that provision, separate
substitute mortality tables generally are
permitted to be used for a separate
population within a gender under a plan
only if all individuals of that gender in
the plan are divided into separate
populations, each separate population
has credible mortality experience
(determined in the same manner as
determining whether a gender has
3 The 1,000-death threshold for credible mortality
experience under the regulations was intended to
provide a high degree of confidence that the plan’s
past mortality experience will be predictive of its
future mortality, and is consistent with relevant
actuarial literature (see, for example, Thomas N.
Herzog, Introduction to Credibility Theory (1999);
Stuart A. Klugman, et. al., Loss Models: From Data
to Decisions (2004)).
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credible mortality experience), and the
separate substitute mortality table for
each separate population is developed
using mortality experience data for that
population.
Section 1.430(h)(3)–2(d)(3) prescribes
rules for aggregating plans for purposes
of using substitute mortality tables.
Under § 1.430(h)(3)–2(d)(3), in order to
use a set of substitute mortality tables
for two or more plans, the rules set forth
in the regulations must be applied by
treating those plans as a single plan. In
such a case, the substitute mortality
tables must be used for all such plans
and must be based on data collected
with respect to all such plans.
Section 1.430(h)(3)–2(d)(4) provides
for the early termination of the use of
substitute mortality tables in certain
specified circumstances, including
pursuant to a replacement of the
mortality tables specified in
§ 1.430(h)(3)–1. The early termination
pursuant to such a replacement must be
effective as of a date specified in
guidance published in the Internal
Revenue Bulletin.
Rev. Proc. 2008–62, 2008–2 CB 935,
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 in accordance with section
430(h)(3)(C). The revenue procedure
specifies the information that must be
provided in order to request the use of
substitute mortality tables and specifies
two alternative acceptable methods of
construction for base substitute
mortality tables. Under section 11 of
Rev. Proc. 2008–62, a base table for a
population can be created from the
unadjusted base table for the population
through the application of a graduation
method generally used by the actuarial
profession in the United States (for
example, the Whittaker-Henderson Type
B graduation method or the Karup-King
graduation method). Section 12 of Rev.
Proc. 2008–62 provides for an
alternative method of constructing a
base table through the application of a
fixed percentage to the mortality rates of
a standard mortality table, projected to
the base year. This alternative method
can be used only if the IRS determines
that the resulting base table sufficiently
reflects the mortality experience of the
applicable plan population. In general,
the standard mortality table that is used
under this alternative method is a
projection of the base mortality table
that applies for the population under
§ 1.430(h)(3)–1; however, the IRS will
consider requests for the approval of
base tables constructed through the
application of a fixed percentage to the
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mortality rates of other published
generally accepted mortality tables.
Section 503 of the Bipartisan Budget
Act of 2015, Public Law 114–74, 129
Stat. 584, which was enacted November
2, 2015, provides for changes to the
rules on the use of substitute mortality
tables. Under that section, the
determination of whether a plan has
credible information that can be used to
develop a substitute mortality table
must be made in accordance with
established actuarial credibility theory,
which (1) is materially different from
the rules for using substitute mortality
tables (including Revenue Procedure
2007–37) 4 that are in effect on
November 2, 2015; and (2) permits the
use of mortality tables that reflect
adjustments to the generally applicable
mortality tables, if those adjustments are
based on the actual experience of the
pension plan maintained by the plan
sponsor. This provision applies to plan
years beginning after December 31,
2015.
has credible information be made in
accordance with established actuarial
credibility theory. Pursuant to that
requirement, Treasury and the IRS
undertook a review of actuarial
literature regarding credibility theory
and consulted with experts on that topic
from the Society of Actuaries. Based on
that review and analysis, the proposed
regulations set forth a method for
developing substitute mortality tables
that is materially different from the
method that is required under the 2008
substitute mortality table regulations
and the associated revenue procedure.
The method for developing substitute
mortality tables that is set forth in the
proposed regulations is simpler than the
method that applies under the 2008
substitute mortality table regulations,
and also accommodates the use of
substitute mortality tables by plans with
smaller populations that have partially
credible mortality experience.
Comments are requested regarding
additional simplifications that might be
appropriate for use in developing
substitute mortality tables.
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Explanation of Provisions
These proposed regulations set forth
the methodology Treasury and the IRS
would use to update the generally
applicable mortality tables that are used
to determine present value or make any
computation under section 430.
Pursuant to section 417(e)(3)(B), a
modified version of these updated tables
would be used for purposes of
determining the amount of a single-sum
distribution (or another accelerated form
of distribution).5 This methodology for
developing updated tables under section
430(h)(3)(A) is being proposed pursuant
to the requirement under section
430(h)(3)(B) to revise the mortality
tables used under section 430 to reflect
the actual mortality experience of
pension plan participants and projected
trends in that experience. As under the
2008 general mortality table regulations,
the methodology involves the separate
determination of base tables and the
projection of mortality improvement.
These proposed regulations also set
forth rules for the use of substitute
mortality tables. The rules on substitute
mortality tables are being proposed
pursuant to section 503 of the Bipartisan
Budget Act of 2015, which requires that
the determination of whether the plan
A. Base mortality tables
The base mortality tables proposed for
use under section 430(h)(3)(A) are
derived from the tables contained in the
RP–2014 Mortality Tables Report. In
response to Notice 2013–49,
commentators generally recommended
that the RP–2014 mortality tables form
the basis for the mortality tables used
under section 430.6 After reviewing the
RP–2014 mortality tables, the
accompanying report published by the
Society of Actuaries, and related public
comments, Treasury and the IRS have
determined that the experience study
used to develop the RP–2014 mortality
tables is the best available study of the
actual mortality experience of pension
plan participants (other than disabled
individuals). Accordingly, the RP–2014
mortality tables are the foundation for
the base mortality tables used to project
the mortality of pension plan
participants under these proposed
regulations.7
Like the mortality tables provided in
the 2008 general mortality table
4 Rev. Proc. 2007–37, 2007–1 CB 1433, was not
in effect on November 2, 2015. It was issued in 2007
in conjunction with proposed regulations regarding
substitute mortality tables (REG–143601–06, 72 FR
29456), and was replaced by Rev. Proc. 2008–62
when those regulations were finalized in 2008.
5 After these regulations are finalized, the section
417(e)(3)(B) applicable mortality table will be
specified in guidance published in the Internal
Revenue Bulletin. See § 601.601(d)(2)(ii)(b) of this
chapter.
6 These proposed regulations also apply the new
generally applicable mortality tables under section
430 for purposes of determining the current liability
of a multiemployer plan pursuant to section
431(c)(6)(D)(iv)(II) or a CSEC plan pursuant to
section 433(h)(3).
7 Mortality tables that may be used as an
alternative to the tables provided in these
regulations with respect to certain disabled
individuals are provided in Rev. Rul. 96–7,
1996–1 CB 59.
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I. Generally Applicable Mortality
Tables
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regulations, the mortality tables set forth
in these proposed regulations are
gender-distinct because of significant
differences between expected male
mortality and expected female
mortality. In addition, as under the 2008
general mortality table regulations, these
proposed regulations set forth separate
mortality rates for annuitants and
nonannuitants. This distinction has
been made because these two groups
have significantly different mortality
experience. See chapter 3 of the RP–
2000 Mortality Tables Report, available
at www.soa.org/research/experiencestudy/pension/research-rp-2000mortality-tables.aspx.
Under these proposed regulations, the
annuitant mortality tables are applied to
determine the present value of benefits
for an annuitant. For a nonannuitant,
the nonannuitant mortality tables are
applied for the periods before the
participant is projected to commence
receiving benefits, and the annuitant
mortality tables are used for later
periods. With respect to a beneficiary of
a participant, the annuitant mortality
table applies for the period beginning
with each assumed commencement of
benefits for the participant. If the
participant has died (or to the extent the
participant is assumed to die before
commencing benefits), the annuitant
mortality table applies with respect to
the beneficiary for the period beginning
with each assumed commencement of
benefits for the beneficiary.
The proposed regulations set forth
base tables that are to be used to
develop the mortality tables for future
years. These base tables have a base year
of 2006 (the central year of the
experience study used to develop the
mortality tables in the RP–2014
Mortality Tables Report). These base
tables generally have the same rates as
the RP–2014 mortality tables after
factoring out the mortality
improvements from 2007 to 2014
(calculated using the Scale MP–2014
Rates). However, these base tables also
include nonannuitant rates for ages
below age 18 and above age 80 and
annuitant rates for ages below age 50.
This generally is the same approach that
was used to develop the base tables
included in the 2008 general mortality
table regulations.
The nonannuitant rates for ages above
age 80 were developed by (1) using the
annuitant rates from the base tables for
ages 90 and older and (2) interpolating
between the rates for age 80 and age 90
in order to produce a smooth transition
between the age 80 rates from the
nonannuitant tables to the age 90 rates
from the annuitant tables. The
interpolation uses increasing fractions
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with a denominator of 55 to allocate the
total difference between the rates at ages
80 and 90 over those 10 years. Thus, the
rate at age 81 is set equal to the rate at
age 80 plus 1⁄55 of the total difference,
the age 82 rate is equal to the rate at age
81 plus 2⁄55 of the total difference (so
that the age 82 rate is equal to the rate
at age 80 plus 3⁄55 of the total
difference), and so on for other ages.
A similar approach was used to
develop annuitant rates for ages below
age 50. The annuitant rates for ages
under age 50 were determined by (1)
using the nonannuitant rates from the
base tables for ages 18 to 40, and (2)
interpolating between the rates for age
40 and age 50, using the same
methodology described in the prior
paragraph. This method produces a
smooth transition between the age 40
rates from the nonannuitant table and
the age 50 rates from the annuitant
table. For ages below age 18, both the
annuitant and nonannuitant rates
incorporate the juvenile rates from the
RP–2014 Mortality Tables Report, after
factoring out the mortality
improvements from 2007 to 2014
(calculated using the Scale MP–2014
Rates).
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B. Reflection of Mortality Improvement
The proposed regulations provide that
expected trends in mortality experience
must be taken into account through the
use of either generational or annually
updated static mortality tables. In
accordance with section 430(h)(3)(B),
the proposed regulations update the
mortality improvement rates from the
Scale AA Projection Factors that were
set forth under the 2008 general
mortality table regulations.
In order to select up-to-date mortality
improvement rates, Treasury and the
IRS reviewed the Mortality
Improvement Scale MP–2014 Report,
related public comments, the data
sources cited in those comments, the
Mortality Improvement Scale MP–2015
Report, the Mortality Improvement
Scale MP–2016 Report, and other
published data sources.8 Pursuant to
this review, Treasury and the IRS
determined that the procedures that
RPEC used to develop the Scale MP–
2016 Rates generate the most
appropriate currently available
8 See the August 2013 Literature Review and
Assessment of Mortality Improvement Rates in the
U.S. Population: Past Experience and Future LongTerm Trends, available at www.soa.org/Files/
Research/Exp-Study/research-2013-lit-review.pdf;
and the 2015 Technical Panel on Assumptions and
Methods Report to the Social Security Advisory
Board, available at www.ssab.gov/Details-Page/
ArticleID/656/2015-Technical-Panel-onAssumptions-and-Methods-A-Report-to-the-BoardSeptember-2015.
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mortality improvement rates.
Accordingly, the proposed regulations
provide that, for valuation dates in
2018, the mortality tables for use under
section 430(h)(3)(A) must reflect the
mortality improvement rates contained
in the Mortality Improvement Scale
MP–2016 Report.
The Scale MP–2016 Rates are
structured as two-dimensional tables
that contain mortality improvement
rates that vary according to both age and
calendar year (so that the mortality
improvement rate for someone who is
age 72 in 2020 is different than the
mortality improvement rate for someone
who is age 72 in 2030). RPEC provided
for two-dimensional tables of mortality
improvement rates in order to reflect
differences in mortality improvement at
different ages as well as mortality
improvement trends that vary for
different age cohorts. The proposed
regulations include numerical examples
illustrating how to apply these twodimensional mortality improvement
rates.
As under the current regulations, the
proposed regulations take into account
the limitations of some current actuarial
software that is not designed to use
generational mortality tables.
Accordingly, the proposed regulations
continue to permit the use of static
mortality tables. These static tables
consist of a single table for each gender,
updated annually, that approximates the
effect of projected mortality
improvement under the generational
mortality tables. The static mortality
tables that would be used for 2018 are
included in these proposed regulations.
For later years, updated static mortality
tables will be set forth in guidance
published in the Internal Revenue
Bulletin. See § 601.601(d)(2)(ii)(b) of
this chapter.
The static mortality tables that would
be permitted to be used under the
proposed regulations are constructed
from the base tables that are used for
purposes of the generational mortality
tables. For each calendar year, the static
mortality tables are based on a
projection of mortality improvement
applied to the mortality rates in the base
tables for the period beginning with
2006 and ending with the year of the
table, with a further projection from that
year for a specified projection period.
The rates in the static mortality tables
are not the expected mortality rates for
the current plan year, nor are they the
mortality rates under the generational
mortality tables that would apply for
any current age. Instead, the projection
period has been selected so that the use
of the static mortality tables to calculate
present values produces approximately
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95915
the same results as would be calculated
using the generational tables. Based on
modeling of annuity values at different
ages, Treasury and the IRS have selected
a projection period of 8 years for males
and 9 years for females, with a further
adjustment based on age. For ages below
80, the projection period is increased by
1 year for each year below 80. For ages
above 80, the projection period is
reduced (but not below zero) by 1⁄3 year
for each year above 80.
These proposed regulations provide
an option for smaller plans (plans for
which the total number of active and
inactive participants and beneficiaries
of deceased participants is not more
than 500 on the valuation date for the
plan year) to use gender distinct
blended static tables for all participants
and beneficiaries—in lieu of the
separate static tables for annuitants and
nonannuitants—in order to simplify the
actuarial valuation for these plans.
These blended tables are constructed
from the separate nonannuitant and
annuitant static mortality tables using
the same nonannuitant and annuitant
weighting factors as in the 2008 general
mortality table regulations.
Treasury and the IRS understand that
RPEC expects to issue updated mortality
improvement rates that reflect new data
for mortality improvement trends for the
general population on an annual basis.
Treasury and the IRS expect to take
those updates into account in
determining the mortality rates to be
used under section 430(h)(3) for
valuation dates in years after 2018.
Those rates will be specified in
guidance to be published in the Internal
Revenue Bulletin. See
§ 601.601(d)(2)(ii)(b) of this chapter.
II. Plan-Specific Substitute Mortality
Tables
A. Overview
These proposed regulations contain a
comprehensive set of rules regarding
plan-specific substitute mortality tables.
The proposed regulations contain many
of the rules regarding substitute
mortality tables from the 2008 substitute
mortality table regulations. However,
after analyzing the actuarial literature
regarding credibility theory, Treasury
and the IRS propose to make a number
of changes to the regulations relating to
the development of substitute mortality
tables. Specifically, the proposed
regulations would require a substitute
mortality table to be constructed by
multiplying the mortality rates from a
projected version of the generally
applicable base mortality table by a
mortality ratio (that is, a ratio of the
actual deaths for the plan population to
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expected deaths determined using the
standard mortality tables for that
population).
Use of mortality ratios (rather than
providing for the graduation of raw
mortality rates as under the 2008
substitute mortality table regulations)
should make it easier for plan sponsors
to develop the substitute tables, because
it would eliminate the need to apply a
graduation technique. It would also
make it easier for the IRS to review
applications to use substitute mortality
tables. This simplification is
particularly important in light of the
other major change made in the
proposed regulations, which would
permit the use of substitute mortality
tables for a plan that has only partially
credible mortality information. Treasury
and the IRS expect significantly more
plan sponsors to request the use of
substitute mortality tables after this
change becomes effective.
B. Development of Substitute Mortality
Tables for Plans With Full Credibility
The substitute mortality table for a
population with full credibility would
be determined by applying projected
mortality improvement to a base
substitute mortality table which is
developed using an experience study of
the population. The proposed
regulations would use the same
requirements for an experience study as
under the 2008 substitute mortality
table regulations. Specifically, the
experience study would have to cover a
period of at least 2 years (and no more
than 5 years) that ends less than 3 years
before the first day of the first plan year
for which the substitute mortality tables
are to apply. As under the 2008
substitute mortality table regulations,
the calendar year that contains the day
before the midpoint of the experience
study is the base year for the base
substitute mortality table. In addition,
the proposed regulations include the
rule in the 2008 substitute mortality
table regulations that requires an
additional demonstration that the
experience study results are predictive
of future mortality for a plan population
if the number of individuals in that
population has changed by more than
20 percent compared to the average
number of individuals in that
population during the experience study
period.
The base substitute mortality table is
determined by multiplying the mortality
rates from the standard mortality table
(that is, the generally applicable base
mortality table projected with mortality
improvement to the base year for the
base substitute mortality table) by the
plan’s mortality ratio. For this purpose,
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the mortality improvement rates that
apply for the calendar year during
which the plan sponsor submits the
request to use substitute mortality tables
are used to project the generally
applicable base mortality table to the
base year for the base substitute
mortality table.9 The mortality ratio is
determined as a fraction, the numerator
of which is the number of actual deaths
during the experience study period
(with each death weighted by the
amount of benefit) and the denominator
of which is the number of expected
deaths during that period (determined
using the standard mortality table)
weighted by the amount of the benefit.
For this purpose, the amount of benefit
is the accrued benefit (substituting the
current periodic payment in the case of
individuals in pay status). Consistent
with section 503 of the Bipartisan
Budget Act of 2015 (and unlike
§ 1.430(h)(3)–2(c)(2)(ii)(D) of the 2008
substitute mortality table regulations,
which provides that the Commissioner
may permit the use of other recognized
mortality tables to construct the base
substitute mortality table), these
proposed regulations provide that the
standard mortality table that must be
used for this purpose is the generally
applicable base mortality table projected
with mortality improvement to the base
year for the base substitute mortality
table.
C. Standards for Full Credibility
The proposed regulations revise the
standard for full credibility of a
population under the 2008 substitute
mortality table regulations (which is
1,000 actual deaths for the relevant
population during the experience study
period). This is because, under
established actuarial credibility theory,
that threshold (which is a rounding
down of the 1,082 actual deaths that
would be needed for a 90% confidence
level that the measured rate is within
5% of the underlying rate of mortality)
should apply to the credibility for a
single rate of mortality and not an entire
mortality table.10 Moreover, the 1,000
death threshold did not take into
account the well-established actuarial
principle that mortality experience
within a population will vary
predictably based on the amount of the
annuity (or life insurance, as
9 If the plan sponsor submits such a request
during 2017, then the cumulative mortality
improvement factors are determined using the Scale
MP–2016 Rates.
10 Note, however, the use of a graduation
technique set forth in Rev. Proc. 2008–62 enables
a plan to have credible mortality experience in
order to establish a substitute mortality table even
though there are fewer than 1000 deaths at each age.
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applicable). The base tables for the
generally applicable mortality tables
were constructed on an amountsweighted basis (under which the
individuals with higher benefit amounts
have a greater weight in the
computation of the mortality rate for a
particular age); accordingly, substitute
mortality tables should be constructed
using the same principle.
The variability of benefit amounts for
different individuals in different
populations within a plan means that a
single 1,000 actual-death standard that
would apply to all populations is not
appropriate. Instead, established
actuarial credibility theory would
require a plan-specific calculation of the
full-credibility standard that takes into
account the dispersion of benefits
within the plan.
Under the proposed regulations, the
number of deaths that are needed for the
population within a plan to have fully
credible mortality information is
determined as the product of 1,082 and
the benefit dispersion factor for the
population.11 The benefit dispersion
factor for a population is equal to the
number of expected deaths for the
population during the experience study
period, times the sum of the mortalityweighted square of the benefits, divided
by the square of the mortality-weighted
benefits.12
D. Partial Credibility
The proposed regulations permit
substitute mortality tables to be used for
a plan that does not have sufficient
deaths to have fully credible mortality
information. In accordance with
established actuarial credibility theory,
such a plan would use a weighted
average of the standard mortality table
(projected with mortality improvement
to the base year of the base substitute
mortality table) and the mortality table
that would be developed for the plan if
it were to have fully credible mortality
information. The weight for the
mortality table that would apply if the
plan were to have fully credible
mortality information is the square-root
of a fraction, the numerator of which is
the actual number of deaths for the
population within the experience study
period and the denominator of which is
the number of deaths needed for the
11 This is based on the assumption that the
distribution of releases from liability due to deaths
follows a compound Poisson model. See
www.actuaries.ca/members/publications/2002/
202037e.pdf.
12 See Gavin Benjamin, Selecting Mortality
Tables: A Credibility Approach, available at
www.soa.org/Files/Research/Projects/research2008-benjamin.pdf.
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plan to have fully credible mortality
information.
In order to avoid the need to create a
substitute mortality table for a plan with
a relatively small population, the
proposed regulations provide that a
population does not have credible
mortality information if the actual
number of deaths for that population
during the experience study period is
less than 100. For this purpose, the
length of the experience study period
must be the same length as the longest
experience study period for any plan in
the controlled group.
Treasury and the IRS chose the
threshold of 100 deaths as a result of
balancing the burdens of developing
substitute mortality tables and the
benefit of the use of those tables, in light
of the requirement under section
430(h)(3)(C)(iv) that substitute mortality
tables be used for all plans within a
controlled group (and the exception to
this requirement for plans that lack fully
or partially credible mortality
information). Comments are requested
regarding whether this is the
appropriate threshold or whether a
different number of deaths should be
used for this purpose.
E. Mortality Improvement Rates
As required under the 2008 substitute
mortality table regulations, the proposed
regulations provide that substitute
mortality tables must be generational
mortality tables. These proposed
regulations require that the mortality
improvement rates that are used for the
generally applicable mortality tables
also be applied beginning with the base
year of the base substitute mortality
tables.
F. Other Rules Relating to the Use of
Substitute Mortality Tables
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1. Use of Separate Subpopulations
Within a Gender Under Plan
The proposed regulations continue to
apply the rules under the 2008
substitute mortality table regulations
regarding the applicability of substitute
mortality tables for separate populations
within a plan. Specifically, separate
substitute mortality tables must be
developed for each gender under the
plan. In addition, the regulations permit
separate substitute mortality tables to be
developed for separate subpopulations
(such as hourly and salaried
participants) within a gender under the
plan in certain circumstances.
As under the 2008 substitute
mortality table regulations, permission
to separate a gender into separate
subpopulations is generally limited to
situations in which each of the
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subpopulations have fully credible
mortality information. However, that
requirement does not apply if the
separate subpopulations are annuitants
and non-annuitants. Comments are
requested on whether there should be
other exceptions to this rule. For
example:
• Should the regulations allow
separate sub-populations to be used if
one subpopulation has full credibility
while the other one has only partial
credibility?
• Should the regulations provide for
the use of separate sub-populations
based on age, even if those groups have
only partial credibility?
• Should there be a rule to
‘‘normalize’’ the mortality tables for
separate sub-populations (so that the
total number of expected deaths for the
separate subpopulations is the same as
the total number of expected deaths for
the entire population without regard to
the separation)?
2. Requirement To Use Substitute
Mortality Tables for All Plans With
Credible Mortality Information
As under the 2008 substitute
mortality table regulations, the proposed
regulations provide that substitute
mortality tables are permitted to be used
for a plan for a plan year only if, for that
plan year, substitute mortality tables are
also approved and used for each other
pension plan subject to the
requirements of section 430 that is
maintained by the plan sponsor or by a
member of the sponsor’s controlled
group. However, this rule does not
prohibit the use of substitute mortality
tables for one plan if the only other plan
or plans maintained by the plan sponsor
(or by a member of the plan sponsor’s
controlled group) for which substitute
mortality tables are not used are too
small to have fully or partially credible
mortality information for the plan year.
Thus, if a sponsor’s controlled group
contains two pension plans that are
subject to section 430, each of which
has fully or partially credible mortality
information for at least one gender,
either the plan sponsors of both plans
must obtain approval from the
Commissioner to use substitute
mortality tables or substitute mortality
tables may not be used for either plan.
In contrast, if for one of those plans
neither males nor females have fully or
partially credible mortality information,
then the plan without credible mortality
information will not prevent the use of
substitute mortality tables for the plan
with credible mortality information.
As under the 2008 substitute
mortality table regulations, the proposed
regulations provide that the requirement
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95917
that the plan sponsor demonstrate the
lack of credible mortality information
for both the male and female
populations in other plans maintained
by the plan sponsor (and by members of
the plan sponsor’s controlled group) for
which substitute mortality tables are not
used must be satisfied for each plan year
for which substitute mortality tables are
used. This demonstration is made for a
plan population by showing that the
population has not experienced at least
100 deaths over a time period that
satisfies the requirements set forth in
the regulations. In general, for each plan
year in which substitute mortality tables
are used for a plan, in order to
demonstrate that a gender within a plan
does not have credible mortality
information for a plan year, the
demonstration that the gender within
the plan has fewer than 100 deaths must
be made by analyzing the actual number
of deaths over a period that is the same
length as the period for the experience
study on which the substitute mortality
tables are based and that ends less than
three years before the first day of the
plan year.
3. Permitted Aggregation of Plans
The proposed regulations retain the
rules contained in the 2008 substitute
mortality table regulations regarding
aggregation of plans for purposes of
using substitute mortality tables. Under
these rules, in order for a plan sponsor
to use the same substitute mortality
tables for two or more plans, the rules
set forth in the regulations are applied
by treating those plans as a single plan.
In such a case, the substitute mortality
tables must be used for all such plans
and must be based on data collected
with respect to all such plans. Although
plans generally are not required to be
aggregated for purposes of substitute
mortality tables, the regulations require
a plan to be aggregated with any plan
that was previously spun off from that
plan if the Commissioner determines
that one purpose of the spinoff was to
avoid the use of substitute mortality
tables for any of the plans involved in
the spinoff.
4. Special Rules for Newly-Acquired
Plans
If substitute mortality tables are used
for at least one plan within a controlled
group, in order for the plan sponsor to
continue to use substitute mortality
tables for that plan after a plan joins the
controlled group, substitute mortality
tables must be used for the newly
affiliated plan unless the newly
affiliated plan demonstrates that it lacks
credible mortality information.
However, the proposed regulations
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provide for a transition period during
which the standard mortality table is
permitted to be used for a newly
affiliated plan (without affecting the use
of substitute mortality tables for other
plans within the controlled group) even
if the newly affiliated plan fails to
demonstrate a lack of credible mortality
information. Similarly, the use of
substitute mortality tables for a newly
affiliated plan is not affected during the
transition period merely because the
standard mortality tables are used for
another plan within the controlled
group despite the failure of that other
plan to demonstrate a lack of credible
mortality information. Notably, these
rules do not change the requirement that
the continued use of substitute mortality
tables for any plan within the controlled
group is permitted only if the other preaffiliation plans within the controlled
group for which substitute mortality
tables are not used demonstrate a lack
of credible mortality information.
Like the 2008 substitute mortality
table regulations, the proposed
regulations do not require the use of
pre-affiliation experience in order to
establish whether a newly-affiliated
plan has credible mortality information.
If the pre-affiliation data is excluded
and substitute mortality tables will be
used for the plan, then the experience
study period may be as short as one year
(instead of two years). If the preaffiliation data is excluded and
substitute mortality tables will not be
used for the plan, then the experience
study period used to demonstrate that
the plan does not have credible
mortality information may also be
shortened, provided that the period
ends not more than one year and one
day before the first day of the plan year.
5. Treatment of Mortality Experience
With Respect to Disabled Individuals
As under the 2008 substitute
mortality table regulations, if separate
mortality tables under section
430(h)(3)(D) are used for certain
disabled individuals under a plan, then
those individuals are disregarded for all
purposes with respect to substitute
mortality tables under section
430(h)(3)(C). Thus, if the mortality
tables under section 430(h)(3)(D) are
used for certain disabled individuals
under a plan, mortality experience with
respect to those individuals must be
excluded in determining mortality rates
for substitute mortality tables with
respect to a plan.
6. Early Termination of Use of
Substitute Mortality Tables
The proposed regulations retain the
rules from the 2008 substitute mortality
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table regulations regarding the early
termination of use of substitute
mortality tables. Under those rules, a
plan’s substitute mortality tables may
not be used beginning with the earliest
of: (1) For a plan for which substitute
mortality tables are used for only one
gender because of a lack of credible
mortality information with respect to
the other gender, the first plan year for
which there is credible mortality
information with respect to the gender
that had lacked credible mortality
information (unless the plan receives
approval to use a substitute mortality
table for that other gender); (2) the first
plan year for which the requirements
regarding use of substitute mortality
tables by controlled group members are
not satisfied; (3) the second plan year
following the plan year for which there
is a significant change in individuals
covered by the plan (unless the plan’s
actuary certifies in writing to the
satisfaction of the Commissioner that
the substitute mortality tables used for
the plan population continue to be
accurately predictive of future mortality
of that population (taking into account
the effect of the change in the
population)); (4) the first plan year
following the plan year for which a
substitute mortality table used for a plan
population is no longer accurately
predictive of future mortality of that
population, as determined by the
Commissioner or as certified by the
plan’s actuary to the satisfaction of the
Commissioner; or (5) the date specified
in guidance published in the Internal
Revenue Bulletin in conjunction with a
replacement of generally applicable
mortality tables (other than annual
updates to the static mortality tables or
changes to the mortality improvement
rates).
G. Procedures for Requesting Approval
of Substitute Mortality Tables
As under the 2008 substitute
mortality table regulations, the proposed
regulations provide that a plan sponsor
that wishes to use substitute mortality
tables for a plan must submit a request
to the IRS for approval to use the
proposed tables. In general, the request
must be submitted at least 7 months
before the first day of the plan year for
which the proposed substitute tables
would be used. If the IRS does not deny
the request within 180 days (which may
be extended as agreed to by the IRS and
the plan sponsor), the request is deemed
to have been approved.
The IRS intends to issue an updated
version of Rev. Proc. 2008–62 after final
regulations regarding substitute
mortality tables are issued. If the timing
of the release of those final regulations
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and the associated revenue procedure
does not leave adequate time to submit
an application to use substitute
mortality tables for the plan year
beginning in 2018, Treasury and the IRS
expect that they would provide a
transition rule that would permit extra
time to submit such an application
Before final regulations adopting the
provisions set forth in these proposed
regulations are issued, plan sponsors
requesting the use of substitute
mortality tables should continue to use
the procedures set forth in Rev. Proc.
2008–62. During that period, the IRS
will not evaluate whether a substitute
mortality table for a population with
only partially credible mortality
information is appropriate.
Applicability Date
These regulations are proposed to
apply to plan years beginning on or after
January 1, 2018. Under the proposed
regulations, a plan sponsor may use a
substitute mortality table for a plan year
beginning on or after January 1, 2018
only if that substitute mortality table is
approved as provided in these proposed
regulations.
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 Printing Office,
Washington, DC 20402, or by visiting
the IRS Web site at www.irs.gov.
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. Therefore, a
regulatory assessment is not required.
The regulations do not impose a
collection of information on small
entities, therefore the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, this notice
of proposed rulemaking will be
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
comments that are submitted timely to
Treasury and the IRS as prescribed in
this preamble in the ADDRESSES section.
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Treasury and the IRS request comments
on all aspects of these proposed
regulations. All comments will be
available for public inspection and
copying at www.regulations.gov or upon
request.
A public hearing on these proposed
regulations has been scheduled for April
13, 2017 beginning at 10 a.m. in the
Auditorium, Internal Revenue Service,
1111 Constitution Avenue NW.,
Washington, DC 20224. Due to building
security procedures, visitors must enter
at the Constitution Avenue entrance. In
addition, all visitors must present photo
identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the
immediate entrance area more than 30
minutes before the hearing starts. For
information about having your name
placed on the building access list to
attend the hearing, see the FOR FURTHER
INFORMATION CONTACT section of this
preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments at the hearing
must submit written or electronic
comments by March 29, 2017, and an
outline of topics to be discussed and the
amount of time to be devoted to each
topic by March 29, 2017. A period of 10
minutes will be allotted to each person
for making comments. An agenda
showing the scheduling of the speakers
will be prepared after the deadline for
receiving outlines has passed. Copies of
the agenda will be available free of
charge at the hearing.
Drafting Information
The principal authors of these
regulations are Thomas Morgan and
Linda S. F. Marshall of Office of
Associate Chief Counsel (Tax Exempt
and Government Entities). However,
other personnel from Treasury and the
IRS participated in the development of
these regulations.
List of Subjects in 26 CFR Part 1
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
Income taxes, Reporting and
recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
VerDate Sep<11>2014
16:34 Dec 28, 2016
Jkt 241001
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read, in part, as
follows:
■
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.430(h)(3)–1 is
revised to read as follows:
■
§ 1.430(h)(3)–1 Mortality tables used to
determine present value.
(a) Basis for mortality tables—(1) In
general. This section sets forth rules for
the mortality tables to be used in
determining present value or making
any computation under section 430.
Generally applicable mortality tables for
participants and beneficiaries are set
forth in this section pursuant to section
430(h)(3)(A). In general, either the
generational mortality tables set forth in
paragraph (a)(2) of this section or the
static mortality tables set forth in
paragraph (a)(3) of this section must be
used for a plan. In lieu of using the
mortality tables provided under this
section with respect to participants and
beneficiaries, plan-specific substitute
mortality tables are permitted to be used
for this purpose pursuant to section
430(h)(3)(C), provided that the
requirements of § 1.430(h)(3)-2 are
satisfied. Mortality tables that may be
used with respect to disabled
individuals are to be provided in
guidance published in the Internal
Revenue Bulletin. See
§ 601.601(d)(2)(ii)(b) of this chapter.
(2) Generational mortality tables—(i)
In general—(A) Use of generational
mortality tables. The generational
mortality tables that are permitted to be
used under section 430(h)(3)(A) and
paragraph (a)(1) of this section are
determined using the base mortality
tables described in paragraph (a)(2)(i)(B)
of this section and the mortality
improvement rates described in
paragraph (a)(2)(i)(C) of this section.
(B) Base mortality tables. The base
mortality tables are set forth in
paragraph (d) of this section. The base
year for those tables is 2006.
(C) Mortality improvement rates. The
mortality improvement rates for
valuation dates occurring during 2018
are the mortality improvement rates
contained in the Mortality Improvement
Scale MP–2016 Report (issued by the
Retirement Plans Experience Committee
(RPEC) of the Society of Actuaries and
available at www.soa.org/Research/
PO 00000
Frm 00009
Fmt 4702
Sfmt 4702
95919
Experience-Study/Pension/research2016-mp.aspx). For later years, updated
mortality improvement rates that take
into account new data for mortality
improvement trends of the general
population are to be provided in
guidance published in the Internal
Revenue Bulletin. See
§ 601.601(d)(2)(ii)(b) of this chapter.
(D) Application of mortality
improvement rates. Under the
generational mortality tables described
in this paragraph (a)(2), the probability
of an individual’s death at a particular
age in the future is determined as the
individual’s base mortality rate that
applies at that age (that is, the
applicable mortality rate from the table
set forth in paragraph (d) of this section
for that age, gender, and status as an
annuitant or a nonannuitant) multiplied
by the cumulative mortality
improvement factor for the individual’s
gender and for that age for the period
from 2006 through the calendar year in
which the individual is projected to
reach the particular age. Paragraph
(a)(2)(ii) of this section shows how the
base mortality tables in paragraph (d) of
this section and the mortality
improvement rates for valuation dates
occurring during 2018 are combined to
determine projected mortality rates.
(E) Cumulative mortality
improvement factor. The cumulative
mortality improvement factor for an age
and gender for a period is the product
of the annual mortality improvement
factors for that age and gender for each
year within that period.
(F) Annual mortality improvement
factor. The annual mortality
improvement factor for an age and
gender for a year is 1 minus the
mortality improvement rate that applies
for that age and gender for that year.
(ii) Example of calculation—(A)
Calculation of mortality rate. The
mortality rate for 2018 that is applied to
male annuitants who are age 66 in 2018
is equal to the product of the mortality
rate for 2006 that applied to male
annuitants who were age 66 in 2006
(0.013855) and the cumulative mortality
improvement factor for age 66 males
from 2006 to 2018. The cumulative
mortality improvement factor for age 66
males for the period from 2006 to 2018
is 0.8929, and the mortality rate for 2018
for male annuitants who are age 66 in
that year would be 0.012371, as shown
in the following table.
E:\FR\FM\29DEP1.SGM
29DEP1
95920
Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Proposed Rules
Scale MP–
2016 mortality
improvement
rate
Calendar year
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Annual
mortality
improvement
factor (1-scale
MP–2016 rate)
n/a
0.0237
0.0211
0.0180
0.0142
0.0099
0.0053
0.0043
0.0035
0.0030
0.0028
0.0030
0.0036
n/a
0.9763
0.9789
0.9820
0.9858
0.9901
0.9947
0.9957
0.9965
0.9970
0.9972
0.9970
0.9964
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
(B) Probability of survival for an
individual. After the projected mortality
rates are derived for each age for each
year, the rates are used to calculate the
present value of a benefit stream that
depends on the probability of survival
year-by-year. For example, for purposes
of calculating the present value (for a
2018 valuation date) of future payments
in a benefit stream payable for a male
annuitant who is age 66 in 2018, the
probability of survival for the annuitant
is based on the mortality rate for a male
annuitant who is age 66 in 2018
(0.012371), and the projected mortality
rate for a male annuitant who will be
age 67 in 2019 (0.013302), age 68 in
2020 (0.014321), and so on.
(3) Static mortality tables. The static
mortality tables that are permitted to be
used under section 430(h)(3)(A) and
paragraph (a)(1) of this section are
updated annually by the IRS according
to the methodology described in
paragraph (c)(2) of this section.
Paragraph (e) of this section sets forth
static tables that are permitted to be
used for valuation dates in 2018. For
valuation dates in later years, static
mortality tables are to be provided in
guidance published in the Internal
Revenue Bulletin. See
§ 601.601(d)(2)(ii)(b) of this chapter.
(b) Use of the tables—(1) Separate
tables for annuitants and
nonannuitants—(i) In general. Separate
tables are provided for use for
annuitants and nonannuitants. The
nonannuitant mortality table is applied
to determine the probability of survival
for a nonannuitant for the period before
the nonannuitant is projected to
commence receiving benefits. The
annuitant mortality table is applied to
determine the present value of benefits
for each annuitant. In addition, the
annuitant mortality table is applied for
each nonannuitant with respect to each
assumed commencement of benefits for
VerDate Sep<11>2014
16:34 Dec 28, 2016
Jkt 241001
the period beginning with that assumed
commencement. For purposes of this
section, an annuitant means a plan
participant who has commenced
receiving benefits and a nonannuitant
means a plan participant who has not
yet commenced receiving benefits (for
example, an active employee or a
terminated vested participant). A
participant whose benefit has partially
commenced is treated as an annuitant
with respect to the portion of the benefit
that has commenced and treated as a
nonannuitant with respect to the
balance of the benefit. In addition, with
respect to a beneficiary of a participant,
the annuitant mortality table applies for
the period beginning with each assumed
commencement of benefits for the
participant. If the participant has died
(or to the extent the participant is
assumed to die before commencing
benefits), the annuitant mortality table
applies with respect to the beneficiary
for the period beginning with each
assumed commencement of benefits for
the beneficiary.
(ii) Examples of calculation using
separate annuitant and nonannuitant
tables. With respect to a 45-year-old
active participant who is projected to
commence receiving an annuity at age
55, the funding target is determined
using the nonannuitant mortality table
for the period before the participant
attains age 55 (so that, if the static
mortality tables are used pursuant to
paragraph (a)(3) of this section, the
probability of an active male participant
living from age 45 to age 55 using the
table that applies for a valuation date in
2018 is 0.988857) and using the
annuitant mortality table for the period
ages 55 and above. Similarly, for a 45year-old terminated vested participant
who is projected to commence an
annuity at age 65, the funding target is
determined using the nonannuitant
mortality table for the period before the
PO 00000
Frm 00010
Fmt 4702
Sfmt 4702
Cumulative
mortality
improvement
factor
n/a
0.9763
0.9557
0.9385
0.9252
0.9160
0.9112
0.9072
0.9041
0.9014
0.8988
0.8961
0.8929
Mortality rate
0.013855
0.012371
participant attains age 65 and using the
annuitant mortality table for ages 65 and
above.
(2) Small plan tables. If static
mortality tables are used pursuant to
paragraph (a)(3) of this section, as an
alternative to the separate static tables
specified for annuitants and
nonannuitants pursuant to paragraph
(b)(1) of this section, combined static
tables that apply the same mortality
rates to both annuitants and
nonannuitants are permitted to be used
for a small plan. For this purpose, a
small plan is defined as a plan with 500
or fewer total participants (including
both active and inactive participants
and beneficiaries of deceased
participants) on the valuation date. The
combined static tables that are
permitted to be used for small plans
pursuant to this paragraph (b)(2) are
constructed from the separate
nonannuitant and annuitant static
mortality tables using the weighting
factors for small plans that are set forth
in paragraph (d) of this section. The
weighting factors are applied to develop
these combined static tables using the
following equation: Combined mortality
rate = [nonannuitant rate * (1- weighting
factor)] + [annuitant rate * weighting
factor].
(c) Static tables—(1) Source of rates.
The static mortality tables that are used
pursuant to paragraph (a)(3) of this
section are determined using the base
mortality tables described in paragraph
(a)(2)(i)(B) of this section taking into
account the mortality improvement
rates described in paragraph (a)(2)(i)(C)
of this section, in accordance with the
rules set forth in paragraph (c)(3) of this
section.
(2) Selection of static tables. The
static mortality tables that are used for
a valuation date are the static mortality
tables for the calendar year that contains
the valuation date.
E:\FR\FM\29DEP1.SGM
29DEP1
Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Proposed Rules
(3) Projection of mortality
improvements—(i) General rule. Except
as provided in paragraph (c)(3)(iii) of
this section, the static mortality tables
for a calendar year are determined by
multiplying the applicable mortality
rate for each age from the base mortality
tables by both—
(A) The cumulative mortality
improvement factor (determined under
the rules of paragraph (a)(2) of this
section) for the period from 2006
through that calendar year; and
(B) The cumulative mortality
improvement factor (determined under
the rules of paragraph (a)(2) of this
section) for the period beginning in that
calendar year and continuing beyond
that calendar year for the number of
years in the projection period described
in paragraph (c)(3)(ii) of this section.
(ii) Projection period for static
mortality tables—(A) In general. The
projection period is 8 years for males
and 9 years for females, as adjusted
based on age as provided in paragraph
(c)(3)(ii)(B) of this section.
(B) Age adjustment. For ages below
80, the projection period is increased by
1 year for each year below age 80. For
ages above 80, the projection period is
reduced (but not below zero) by 1⁄3 year
for each year above 80.
(iii) Fractional projection periods. If
for an age the number of years in the
projection period determined under this
paragraph (c)(3) is not a whole number,
then the mortality rate for that age is
determined by using linear interpolation
between—
(A) The mortality rate for that age that
would be determined under paragraph
(c)(3)(i) of this section if the number of
years in the projection period were the
next lower whole number; and
(B) The mortality rate for that age that
would be determined under paragraph
(c)(3)(i) of this section if the number of
years in the projection period were the
next higher whole number.
(iv) Example. For example, at age 85
the projection period for a male is 61⁄3
years (8 years minus 1⁄3 year for each of
the 5 years above age 80). For a
valuation date in 2018, the mortality
rate in the static mortality table for an
85-year-old male is based on a
projection of mortality improvement for
61⁄3 years beyond 2018. Under
paragraph (c)(3)(iii) of this section, the
mortality rate for an 85-year-old male
annuitant in the static mortality table for
2018 is 2⁄3 times the projected mortality
rate for a male annuitant that age in
2024 plus 1⁄3 times the projected
mortality rate for a male annuitant that
age in 2025. Accordingly, the mortality
rate for an 85-year-old male annuitant in
the static mortality table for 2018 is
0.075196 (2⁄3 times the projected
mortality rate for an 85-year old male
annuitant in 2024 (0.075447) plus 1⁄3
times the projected mortality rate for an
85-year old male annuitant in 2025
(0.074693)).
(d) Base mortality tables. The
following are the base mortality tables.
The base year for these tables is 2006.
Males
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
Age
0 ........
1 ........
2 ........
3 ........
4 ........
5 ........
6 ........
7 ........
8 ........
9 ........
10 ......
11 ......
12 ......
13 ......
14 ......
15 ......
16 ......
17 ......
18 ......
19 ......
20 ......
21 ......
22 ......
23 ......
24 ......
25 ......
26 ......
27 ......
28 ......
29 ......
30 ......
31 ......
32 ......
33 ......
34 ......
35 ......
36 ......
37 ......
38 ......
39 ......
40 ......
VerDate Sep<11>2014
Non-annuitant
Females
Weighting factor
for small plans
Annuitant
0.008878
0.000515
0.000348
0.000289
0.000225
0.000197
0.000177
0.000156
0.000132
0.000107
0.000090
0.000095
0.000142
0.000187
0.000230
0.000274
0.000318
0.000364
0.000412
0.000463
0.000510
0.000552
0.000587
0.000599
0.000594
0.000545
0.000510
0.000486
0.000472
0.000468
0.000470
0.000480
0.000495
0.000514
0.000534
0.000557
0.000581
0.000611
0.000648
0.000694
0.000750
16:34 Dec 28, 2016
95921
0.008878
0.000515
0.000348
0.000289
0.000225
0.000197
0.000177
0.000156
0.000132
0.000107
0.000090
0.000095
0.000142
0.000187
0.000230
0.000274
0.000318
0.000364
0.000412
0.000463
0.000510
0.000552
0.000587
0.000599
0.000594
0.000545
0.000510
0.000486
0.000472
0.000468
0.000470
0.000480
0.000495
0.000514
0.000534
0.000557
0.000581
0.000611
0.000648
0.000694
0.000750
Jkt 241001
PO 00000
Frm 00011
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Fmt 4702
Sfmt 4702
Non-annuitant
Annuitant
0.007278
0.000451
0.000295
0.000220
0.000165
0.000149
0.000137
0.000127
0.000117
0.000109
0.000102
0.000105
0.000121
0.000137
0.000151
0.000165
0.000177
0.000187
0.000196
0.000202
0.000202
0.000197
0.000191
0.000190
0.000188
0.000186
0.000186
0.000188
0.000192
0.000198
0.000209
0.000222
0.000238
0.000257
0.000278
0.000301
0.000325
0.000355
0.000389
0.000428
0.000471
E:\FR\FM\29DEP1.SGM
0.007278
0.000451
0.000295
0.000220
0.000165
0.000149
0.000137
0.000127
0.000117
0.000109
0.000102
0.000105
0.000121
0.000137
0.000151
0.000165
0.000177
0.000187
0.000196
0.000202
0.000202
0.000197
0.000191
0.000190
0.000188
0.000186
0.000186
0.000188
0.000192
0.000198
0.000209
0.000222
0.000238
0.000257
0.000278
0.000301
0.000325
0.000355
0.000389
0.000428
0.000471
29DEP1
Weighting factor
for small plans
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
95922
Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Proposed Rules
Males
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
Age
41 ......
42 ......
43 ......
44 ......
45 ......
46 ......
47 ......
48 ......
49 ......
50 ......
51 ......
52 ......
53 ......
54 ......
55 ......
56 ......
57 ......
58 ......
59 ......
60 ......
61 ......
62 ......
63 ......
64 ......
65 ......
66 ......
67 ......
68 ......
69 ......
70 ......
71 ......
72 ......
73 ......
74 ......
75 ......
76 ......
77 ......
78 ......
79 ......
80 ......
81 ......
82 ......
83 ......
84 ......
85 ......
86 ......
87 ......
88 ......
89 ......
90 ......
91 ......
92 ......
93 ......
94 ......
95 ......
96 ......
97 ......
98 ......
99 ......
100 ....
101 ....
102 ....
103 ....
104 ....
105 ....
106 ....
107 ....
108 ....
109 ....
110 ....
111 ....
VerDate Sep<11>2014
Non-annuitant
Females
0.000814
0.000890
0.000982
0.001088
0.001207
0.001342
0.001487
0.001643
0.001807
0.001979
0.002159
0.002351
0.002539
0.002741
0.002967
0.003231
0.003548
0.003932
0.004396
0.004954
0.005616
0.006392
0.007291
0.008320
0.009486
0.010668
0.011973
0.013414
0.015006
0.016761
0.018690
0.020824
0.023176
0.025770
0.028623
0.031761
0.035214
0.039007
0.043169
0.047750
0.049804
0.053911
0.060072
0.068286
0.078554
0.090876
0.105251
0.121680
0.140162
0.160698
0.177741
0.195154
0.212642
0.230055
0.247257
0.265940
0.284940
0.304432
0.324272
0.344364
0.364420
0.384058
0.403188
0.421533
0.438903
0.455492
0.470810
0.484965
0.498023
0.509768
0.512472
16:34 Dec 28, 2016
Weighting factor
for small plans
Annuitant
0.000823
0.000969
0.001188
0.001480
0.001846
0.002285
0.002797
0.003382
0.004040
0.004771
0.005059
0.005343
0.005592
0.005839
0.006102
0.006399
0.006746
0.007155
0.007639
0.008211
0.008878
0.009646
0.010523
0.011514
0.012621
0.013855
0.015221
0.016736
0.018421
0.020288
0.022348
0.024638
0.027176
0.029992
0.033113
0.036585
0.040457
0.044778
0.049605
0.055022
0.061087
0.067902
0.075550
0.084162
0.093775
0.104507
0.116487
0.129770
0.144470
0.160698
0.177741
0.195154
0.212642
0.230055
0.247257
0.265940
0.284940
0.304432
0.324272
0.344364
0.364420
0.384058
0.403188
0.421533
0.438903
0.455492
0.470810
0.484965
0.498023
0.509768
0.512472
Jkt 241001
PO 00000
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.0045
.0091
.0136
.0181
.0226
.0272
.0317
.0362
.0407
.0453
.0498
.0686
.0953
.1288
.2066
.3173
.3780
.4401
.4986
.5633
.6338
.7103
.7902
.8355
.8832
.9321
.9510
.9639
.9714
.9740
.9766
.9792
.9818
.9844
.9870
.9896
.9922
.9948
.9974
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
Fmt 4702
Sfmt 4702
Non-annuitant
Annuitant
0.000518
0.000570
0.000628
0.000691
0.000758
0.000831
0.000908
0.000986
0.001065
0.001151
0.001242
0.001344
0.001458
0.001588
0.001735
0.001902
0.002091
0.002302
0.002537
0.002795
0.003080
0.003388
0.003724
0.004089
0.004482
0.005004
0.005575
0.006205
0.006898
0.007662
0.008507
0.009438
0.010470
0.011615
0.012887
0.014301
0.015885
0.017656
0.019639
0.021859
0.023791
0.027655
0.033451
0.041179
0.050838
0.062429
0.075952
0.091407
0.108794
0.128113
0.142619
0.157939
0.173886
0.190319
0.207191
0.225057
0.243507
0.262587
0.282171
0.302162
0.322282
0.342371
0.362210
0.381534
0.400321
0.418418
0.435390
0.451459
0.466408
0.480123
0.492664
E:\FR\FM\29DEP1.SGM
0.000515
0.000603
0.000735
0.000911
0.001131
0.001395
0.001703
0.002055
0.002451
0.002891
0.002993
0.003124
0.003291
0.003499
0.003755
0.004065
0.004435
0.004869
0.005373
0.005942
0.006581
0.007283
0.008043
0.008870
0.009760
0.010731
0.011790
0.012952
0.014226
0.015628
0.017170
0.018861
0.020723
0.022780
0.025057
0.027590
0.030438
0.033653
0.037296
0.041440
0.046181
0.051564
0.057714
0.064709
0.072601
0.081490
0.091444
0.102470
0.114635
0.128113
0.142619
0.157939
0.173886
0.190319
0.207191
0.225057
0.243507
0.262587
0.282171
0.302162
0.322282
0.342371
0.362210
0.381534
0.400321
0.418418
0.435390
0.451459
0.466408
0.480123
0.492664
29DEP1
Weighting factor
for small plans
0
0
0
0
.0084
.0167
.0251
.0335
.0419
.0502
.0586
.0744
.0947
.1189
.1897
.2857
.3403
.3878
.4360
.4954
.5805
.6598
.7520
.8043
.8552
.9118
.9367
.9523
.9627
.9661
.9695
.9729
.9763
.9797
.9830
.9864
.9898
.9932
.9966
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Proposed Rules
Males
Age
112
113
114
115
116
117
118
119
120
....
....
....
....
....
....
....
....
....
Non-annuitant
Females
Weighting factor
for small plans
Annuitant
0.509296
0.506193
0.503061
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
0.509296
0.506193
0.503061
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
(e) Static tables for 2018. The
following static mortality tables are used
pursuant to paragraph (a)(3) of this
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
Non-annuitant
0.503970
0.507361
0.503564
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
section for determining present value or
making any computation under section
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
0 ........
1 ........
2 ........
3 ........
4 ........
5 ........
6 ........
7 ........
8 ........
9 ........
10 ......
11 ......
12 ......
13 ......
14 ......
15 ......
16 ......
17 ......
18 ......
19 ......
20 ......
21 ......
22 ......
23 ......
24 ......
25 ......
26 ......
27 ......
28 ......
29 ......
30 ......
31 ......
32 ......
33 ......
34 ......
35 ......
36 ......
37 ......
38 ......
39 ......
40 ......
41 ......
42 ......
43 ......
44 ......
45 ......
46 ......
47 ......
48 ......
49 ......
50 ......
VerDate Sep<11>2014
Nonannuitant
Annuitant
0.002420
0.000142
0.000097
0.000081
0.000064
0.000056
0.000051
0.000046
0.000039
0.000032
0.000027
0.000029
0.000044
0.000058
0.000072
0.000087
0.000102
0.000118
0.000135
0.000153
0.000170
0.000192
0.000214
0.000229
0.000238
0.000230
0.000226
0.000226
0.000230
0.000238
0.000249
0.000263
0.000278
0.000294
0.000309
0.000323
0.000336
0.000350
0.000366
0.000385
0.000410
0.000438
0.000474
0.000518
0.000573
0.000636
0.000712
0.000798
0.000896
0.001005
0.001128
16:34 Dec 28, 2016
PO 00000
0.503970
0.507361
0.503564
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
1.0
430 with respect to valuation dates
occurring during 2018.
Females
Optional combined
table for small plans
0.002420
0.000142
0.000097
0.000081
0.000064
0.000056
0.000051
0.000046
0.000039
0.000032
0.000027
0.000029
0.000044
0.000058
0.000072
0.000087
0.000102
0.000118
0.000135
0.000153
0.000170
0.000192
0.000214
0.000229
0.000238
0.000230
0.000226
0.000226
0.000230
0.000238
0.000249
0.000263
0.000278
0.000294
0.000309
0.000323
0.000336
0.000350
0.000366
0.000385
0.000410
0.000443
0.000516
0.000627
0.000779
0.000973
0.001213
0.001502
0.001844
0.002248
0.002719
Jkt 241001
Weighting factor
for small plans
Annuitant
Males
Age
95923
0.002420
0.000142
0.000097
0.000081
0.000064
0.000056
0.000051
0.000046
0.000039
0.000032
0.000027
0.000029
0.000044
0.000058
0.000072
0.000087
0.000102
0.000118
0.000135
0.000153
0.000170
0.000192
0.000214
0.000229
0.000238
0.000230
0.000226
0.000226
0.000230
0.000238
0.000249
0.000263
0.000278
0.000294
0.000309
0.000323
0.000336
0.000350
0.000366
0.000385
0.000410
0.000438
0.000474
0.000519
0.000577
0.000644
0.000726
0.000820
0.000930
0.001056
0.001200
Frm 00013
Fmt 4702
Sfmt 4702
Nonannuitant
Annuitant
0.002234
0.000140
0.000092
0.000070
0.000053
0.000048
0.000045
0.000042
0.000039
0.000037
0.000035
0.000036
0.000042
0.000048
0.000053
0.000059
0.000064
0.000068
0.000072
0.000075
0.000076
0.000078
0.000080
0.000084
0.000087
0.000090
0.000094
0.000099
0.000105
0.000111
0.000120
0.000130
0.000142
0.000155
0.000168
0.000182
0.000196
0.000213
0.000231
0.000251
0.000273
0.000298
0.000326
0.000358
0.000395
0.000436
0.000484
0.000538
0.000597
0.000661
0.000734
E:\FR\FM\29DEP1.SGM
0.002234
0.000140
0.000092
0.000070
0.000053
0.000048
0.000045
0.000042
0.000039
0.000037
0.000035
0.000036
0.000042
0.000048
0.000053
0.000059
0.000064
0.000068
0.000072
0.000075
0.000076
0.000078
0.000080
0.000084
0.000087
0.000090
0.000094
0.000099
0.000105
0.000111
0.000120
0.000130
0.000142
0.000155
0.000168
0.000182
0.000196
0.000213
0.000231
0.000251
0.000273
0.000296
0.000344
0.000419
0.000520
0.000651
0.000813
0.001010
0.001245
0.001522
0.001844
29DEP1
Optional combined
table for small plans
0.002234
0.000140
0.000092
0.000070
0.000053
0.000048
0.000045
0.000042
0.000039
0.000037
0.000035
0.000036
0.000042
0.000048
0.000053
0.000059
0.000064
0.000068
0.000072
0.000075
0.000076
0.000078
0.000080
0.000084
0.000087
0.000090
0.000094
0.000099
0.000105
0.000111
0.000120
0.000130
0.000142
0.000155
0.000168
0.000182
0.000196
0.000213
0.000231
0.000251
0.000273
0.000298
0.000326
0.000358
0.000395
0.000438
0.000489
0.000550
0.000619
0.000697
0.000790
95924
Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Proposed Rules
Males
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
Age
51 ......
52 ......
53 ......
54 ......
55 ......
56 ......
57 ......
58 ......
59 ......
60 ......
61 ......
62 ......
63 ......
64 ......
65 ......
66 ......
67 ......
68 ......
69 ......
70 ......
71 ......
72 ......
73 ......
74 ......
75 ......
76 ......
77 ......
78 ......
79 ......
80 ......
81 ......
82 ......
83 ......
84 ......
85 ......
86 ......
87 ......
88 ......
89 ......
90 ......
91 ......
92 ......
93 ......
94 ......
95 ......
96 ......
97 ......
98 ......
99 ......
100 ....
101 ....
102 ....
103 ....
104 ....
105 ....
106 ....
107 ....
108 ....
109 ....
110 ....
111 ....
112 ....
113 ....
114 ....
115 ....
116 ....
117 ....
118 ....
119 ....
120 ....
VerDate Sep<11>2014
Nonannuitant
Annuitant
0.001265
0.001418
0.001580
0.001761
0.001964
0.002200
0.002474
0.002796
0.003174
0.003613
0.004122
0.004705
0.005364
0.006111
0.006940
0.007779
0.008697
0.009709
0.010836
0.012093
0.013486
0.015044
0.016794
0.018751
0.020950
0.023428
0.026183
0.029308
0.032774
0.036705
0.038556
0.042087
0.047283
0.054248
0.062990
0.073605
0.086115
0.100513
0.116840
0.135087
0.150610
0.166534
0.182546
0.198598
0.214442
0.232944
0.251903
0.271612
0.291889
0.312680
0.333720
0.354570
0.375136
0.395172
0.413945
0.432145
0.449197
0.465497
0.480869
0.495080
0.500557
0.500454
0.500352
0.500201
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
16:34 Dec 28, 2016
Females
Optional combined
table for small plans
0.002963
0.003224
0.003481
0.003751
0.004040
0.004357
0.004704
0.005088
0.005515
0.005989
0.006516
0.007100
0.007742
0.008457
0.009234
0.010103
0.011056
0.012114
0.013302
0.014637
0.016126
0.017799
0.019693
0.021823
0.024237
0.026986
0.030081
0.033645
0.037661
0.042295
0.047291
0.053009
0.059466
0.066860
0.075196
0.084646
0.095308
0.107196
0.120431
0.135087
0.150610
0.166534
0.182546
0.198598
0.214442
0.232944
0.251903
0.271612
0.291889
0.312680
0.333720
0.354570
0.375136
0.395172
0.413945
0.432145
0.449197
0.465497
0.480869
0.495080
0.500557
0.500454
0.500352
0.500201
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
Jkt 241001
PO 00000
0.001350
0.001542
0.001761
0.002017
0.002393
0.002884
0.003317
0.003805
0.004341
0.004951
0.005639
0.006406
0.007243
0.008071
0.008966
0.009945
0.010940
0.012027
0.013231
0.014571
0.016064
0.017742
0.019640
0.021775
0.024194
0.026949
0.030051
0.033622
0.037648
0.042295
0.047291
0.053009
0.059466
0.066860
0.075196
0.084646
0.095308
0.107196
0.120431
0.135087
0.150610
0.166534
0.182546
0.198598
0.214442
0.232944
0.251903
0.271612
0.291889
0.312680
0.333720
0.354570
0.375136
0.395172
0.413945
0.432145
0.449197
0.465497
0.480869
0.495080
0.500557
0.500454
0.500352
0.500201
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
Frm 00014
Fmt 4702
Sfmt 4702
Nonannuitant
Annuitant
0.000814
0.000903
0.001003
0.001114
0.001235
0.001367
0.001509
0.001661
0.001823
0.001994
0.002181
0.002381
0.002600
0.002842
0.003107
0.003465
0.003863
0.004308
0.004806
0.005366
0.006001
0.006711
0.007521
0.008439
0.009485
0.010678
0.012035
0.013582
0.015347
0.017347
0.019058
0.022345
0.027251
0.033811
0.042053
0.052009
0.063725
0.077205
0.092462
0.109484
0.122541
0.136397
0.150811
0.165818
0.181360
0.198746
0.216930
0.235921
0.255617
0.275938
0.296628
0.317471
0.338385
0.358868
0.379183
0.398878
0.417703
0.435384
0.452108
0.467928
0.482562
0.496164
0.502110
0.500952
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
E:\FR\FM\29DEP1.SGM
0.001961
0.002099
0.002263
0.002454
0.002673
0.002921
0.003200
0.003512
0.003860
0.004238
0.004659
0.005119
0.005616
0.006165
0.006766
0.007430
0.008170
0.008993
0.009912
0.010945
0.012111
0.013412
0.014886
0.016552
0.018443
0.020600
0.023061
0.025888
0.029144
0.032886
0.036992
0.041662
0.047017
0.053130
0.060056
0.067888
0.076724
0.086549
0.097426
0.109484
0.122541
0.136397
0.150811
0.165818
0.181360
0.198746
0.216930
0.235921
0.255617
0.275938
0.296628
0.317471
0.338385
0.358868
0.379183
0.398878
0.417703
0.435384
0.452108
0.467928
0.482562
0.496164
0.502110
0.500952
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
29DEP1
Optional combined
table for small plans
0.000881
0.000992
0.001122
0.001273
0.001508
0.001811
0.002084
0.002379
0.002711
0.003106
0.003619
0.004188
0.004868
0.005515
0.006236
0.007080
0.007897
0.008770
0.009722
0.010756
0.011925
0.013230
0.014711
0.016387
0.018291
0.020465
0.022949
0.025804
0.029097
0.032886
0.036992
0.041662
0.047017
0.053130
0.060056
0.067888
0.076724
0.086549
0.097426
0.109484
0.122541
0.136397
0.150811
0.165818
0.181360
0.198746
0.216930
0.235921
0.255617
0.275938
0.296628
0.317471
0.338385
0.358868
0.379183
0.398878
0.417703
0.435384
0.452108
0.467928
0.482562
0.496164
0.502110
0.500952
0.500000
0.500000
0.500000
0.500000
0.500000
1.000000
Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 / Proposed Rules
Par. 3. Section 1.430(h)(3)–2 is
revised to read as follows:
■
asabaliauskas on DSK3SPTVN1PROD with PROPOSALS
§ 1.430(h)(3)–2 Plan-specific substitute
mortality tables used to determine present
value.
(a) In general. This section sets forth
rules for the use of substitute mortality
tables under section 430(h)(3)(C) in
determining any present value or
making any computation under section
430 in accordance with § 1.430(h)(3)–
1(a)(1). In order to use substitute
mortality tables, a plan sponsor must
obtain approval to use substitute
mortality tables for the plan in
accordance with the procedures set
forth in paragraph (b) of this section.
Paragraph (c) of this section sets forth
rules for the development of substitute
mortality tables, including guidelines
providing that a plan must have either
full or partial credibility in order to
have sufficient credible mortality
information to use substitute mortality
tables. Paragraph (d) of this section
describes the requirements for full
credibility. Paragraph (e) of this section
describes the requirements for partial
credibility. Paragraph (f) of this section
provides special rules for newly
affiliated plans not using substitute
mortality tables. Paragraph (g) of this
section specifies the effective date and
applicability date of this section. The
Commissioner may, in revenue rulings
and procedures, notices or other
guidance published in the Internal
Revenue Bulletin (see
§ 601.601(d)(2)(ii)(b) of this chapter),
provide additional guidance regarding
approval and use of substitute mortality
tables under section 430(h)(3)(C) and
related matters.
(b) Procedures for obtaining approval
to use substitute mortality tables—(1)
Written request to use substitute
mortality tables—(i) General
requirements. In order to use substitute
mortality tables, a plan sponsor must
submit a written request to the
Commissioner that demonstrates that
those substitute mortality tables meet
the requirements of section 430(h)(3)(C)
and this section. This request must
specify the first plan year and the term
of years (not more than 10) for which
the tables are to apply.
(ii) Time for written request.
Substitute mortality tables may not be
used for a plan year unless the plan
sponsor submits the written request
described in paragraph (b)(1)(i) of this
section at least 7 months prior to the
first day of the first plan year for which
the substitute mortality tables are to
apply.
(2) Commissioner’s review of
request—(i) In general. During the 180-
VerDate Sep<11>2014
16:34 Dec 28, 2016
Jkt 241001
day period that begins on the date the
plan sponsor submits a request to use
substitute mortality tables for a plan
pursuant to this section, the
Commissioner will determine whether
the request to use substitute mortality
tables satisfies the requirements of this
section (including any published
guidance issued pursuant to paragraph
(a) of this section), and will either
approve or deny the request. The
Commissioner will deny a request if the
request fails to meet the requirements of
this section or if the Commissioner
determines that a substitute mortality
table does not sufficiently reflect the
mortality experience of the applicable
plan population.
(ii) Request for additional
information. The Commissioner may
request additional information with
respect to the submission. Failure to
provide that information on a timely
basis constitutes grounds for denial of
the request.
(iii) Deemed approval. Except as
provided in paragraph (b)(2)(iv) of this
section, if the Commissioner does not
issue a denial within the 180-day review
period, the request is deemed to have
been approved.
(iv) Extension of time permitted. The
Commissioner and a plan sponsor may,
before the expiration of the 180-day
review period, agree in writing to
extend that period, provided that any
such agreement also specifies any
revisions in the plan sponsor’s request,
including any change in the requested
term of use of the substitute mortality
tables.
(c) Development of substitute
mortality tables—(1) Substitute
mortality tables must be used for all
plans in controlled group—(i) General
rule. Except as otherwise provided in
this paragraph (c), substitute mortality
tables are permitted to be used for a
plan for a plan year only if, for that plan
year (or any portion of that plan year),
substitute mortality tables are also
approved and used for each other
pension plan subject to the
requirements of section 430 that is
maintained by the plan sponsor and by
each member of the plan sponsor’s
controlled group. For purposes of this
section, the term controlled group
means any group treated as a single
employer under paragraph (b), (c), (m),
or (o) of section 414.
(ii) Treatment of plans without
credible mortality information. The rule
of paragraph (c)(1)(i) of this section does
not prohibit use of substitute mortality
tables for one plan for a plan year if the
only other plan or plans maintained by
the plan sponsor (or by a member of the
plan sponsor’s controlled group) for
PO 00000
Frm 00015
Fmt 4702
Sfmt 4702
95925
which substitute mortality tables are not
used are too small to have fully or
partially credible mortality information
for the plan year. For purposes of
demonstrating that neither males nor
females under a plan have credible
mortality information for a plan year,
the length of the experience study
period must be the same length as the
longest experience study period used for
any plan within the controlled group.
(2) Mortality experience
requirements—(i) In general. Substitute
mortality tables must reflect the actual
mortality experience of the pension plan
for which the tables are to be used and
that mortality experience must be
credible mortality information as
described in paragraph (c)(2)(ii) of this
section. Separate mortality tables must
be established for each gender under the
plan, and a substitute mortality table is
permitted to be established for a gender
only if the plan has credible mortality
information with respect to that gender.
See paragraph (d)(5) of this section for
rules permitting the use of substitute
mortality tables for populations within
a gender that have full credibility.
(ii) Credible mortality information—
(A) In general. There is credible
mortality information for a gender
within a plan if and only if the mortality
experience with respect to that gender
satisfies the requirement for either—
(1) Full credibility (as described in
paragraph (d) of this section); or
(2) Partial credibility (as described in
paragraph (e) of this section).
(B) Simplified rule. Whether there is
credible mortality information for a
gender may be determined by only
taking into account people who are at
least age 50 and less than age 100. If
there is credible mortality information
for a gender when applying this
simplified rule, the entire gender (not
just those who are at least age 50 and
less than age 100) has credible mortality
information.
(iii) Gender without credible mortality
information—(A) In general. If for a
plan, one gender has credible mortality
information but for a plan year the other
gender does not have credible mortality
information, then the substitute
mortality tables are established for the
gender that does have credible mortality
information and the mortality tables
under § 1.430(h)(3)–1 are used for the
gender that does not have credible
mortality information.
(B) Demonstration of lack of credible
mortality information for a gender. In
general, in order to demonstrate that a
gender within a plan does not have
credible mortality information for a plan
year, the demonstration that the gender
within the plan has fewer than the
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minimum number of actual deaths to
have partial credibility, as described in
paragraph (e)(1) of this section, must be
made by analyzing the actual number of
deaths over a period that is the same
length as the period for the experience
study on which the substitute mortality
tables are based and that ends less than
three years before the first day of the
plan year.
(3) Determination of substitute
mortality tables—(i) Requirement to use
generational mortality table. A plan’s
substitute mortality tables must be
generational mortality tables. A plan’s
substitute mortality tables are
determined using the plan’s base
substitute mortality tables developed
pursuant to paragraph (d) or (e) of this
section and the mortality improvement
factors described in paragraph (c)(3)(ii)
of this section.
(ii) Determination of mortality
improvement factors. The mortality
improvement factor for an age and a
gender is the cumulative mortality
improvement factor determined under
§ 1.430(h)(3)–1(a)(2)(i)(E) for the
applicable period. The applicable
period is the period beginning with the
base year of the base substitute mortality
table determined under paragraph (d) or
(e) of this section and ending in the
calendar year in which the individual
attains the age for which the probability
of death is being determined. The base
year for the base substitute mortality
table is the calendar year that contains
the day before the midpoint of the
experience study period.
(4) Disabled individuals. Under
section 430(h)(3)(D), separate mortality
tables are permitted to be used for
certain disabled individuals. If such
separate mortality tables are used for
those disabled individuals, then those
individuals are disregarded for all
purposes under this section. Thus, if the
mortality tables under section
430(h)(3)(D) are used for disabled
individuals under a plan, mortality
experience with respect to those
individuals must be excluded in
developing mortality rates for substitute
mortality tables under this section.
(5) Aggregation—(i) Permissive
aggregation of plans. A plan sponsor
may use a set of substitute mortality
tables for two or more its plans provided
that the rules of this section are applied
by treating those plans as a single plan.
In such a case, the substitute mortality
tables must be used for the aggregated
plans and must be based on data
collected with respect to those
aggregated plans.
(ii) Required aggregation of plans. In
general, plans are not required to be
aggregated for purposes of applying the
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rules of this section. However, for
purposes of this section, a plan is
required to be aggregated with any plan
that was previously spun off from that
plan if a purpose of the spinoff is to
avoid the use of substitute mortality
tables for any of the plans that were
involved in the spinoff.
(6) Duration of use of tables—(i)
General rule. Except as provided in this
paragraph (c)(6), substitute mortality
tables are used for a plan for the term
of consecutive plan years specified in
the plan sponsor’s written request to use
such tables under paragraph (b)(1) of
this section and approved by the
Commissioner, or a shorter period
prescribed by the Commissioner in the
approval to use substitute mortality
tables. Following the end of the
approved term of use, or following any
early termination of use described in
this paragraph (c)(6), the mortality
tables specified in § 1.430(h)(3)–1 are
used for the plan unless approval under
paragraph (b)(1) of this section has been
received by the plan sponsor to use
substitute mortality tables for a further
term.
(ii) Early termination of use of tables.
A plan’s substitute mortality tables must
not be used beginning with the earliest
of—
(A) For a plan using a substitute
mortality table for only one gender
because of a lack of credible mortality
information with respect to the other
gender, the first plan year for which
there is credible mortality information
with respect to the gender that had
lacked credible mortality information
(unless an approved substitute mortality
table is used for that gender);
(B) The first plan year for which the
plan fails to satisfy the requirements of
paragraph (c)(1) of this section
(regarding use of substitute mortality
tables by controlled group members);
(C) The second plan year following
the plan year for which there is a
significant change in individuals
covered by the plan as described in
paragraph (c)(6)(iii) of this section;
(D) The first plan year following the
plan year for which a substitute
mortality table used for a plan
population is no longer accurately
predictive of future mortality of that
population, as determined by the
Commissioner or as certified by the
plan’s actuary to the satisfaction of the
Commissioner; or
(E) The date specified in guidance
published in the Internal Revenue
Bulletin (see § 601.601(d)(2)(ii)(b) of this
chapter) in conjunction with a
replacement of mortality tables
specified under section 430(h)(3)(A) and
§ 1.430(h)(3)–1 (other than annual
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updates to the static mortality tables
issued pursuant to § 1.430(h)(3)–1(a)(3)
or changes to the mortality
improvement rates pursuant to
§ 1.430(h)(3)–1(a)(2)(i)(C)).
(iii) Significant change in coverage—
(A) Change in coverage from time of
experience study. For purposes of
applying the rules of paragraph
(c)(6)(ii)(C) of this section, a significant
change in the individuals covered by a
substitute mortality table occurs if there
is an increase or decrease in the number
of individuals of at least 20 percent
compared to the average number of
individuals in that population over the
years covered by the experience study
on which the substitute mortality tables
are based. However, a change in
coverage is not treated as significant if
the plan’s actuary certifies in writing to
the satisfaction of the Commissioner
that the substitute mortality tables used
for the plan population continue to be
accurately predictive of future mortality
of that population (taking into account
the effect of the change in the
population).
(B) Change in coverage from time of
certification. For purposes of applying
the rules of paragraph (c)(6)(ii)(C) of this
section, a significant change in the
individuals covered by a substitute
mortality table occurs if there is an
increase or decrease in the number of
individuals covered by a substitute
mortality table of at least 20 percent
compared to the number of individuals
in a plan year for which a certification
described in paragraph (c)(6)(iii)(A) of
this section was made on account of a
prior change in coverage. However, a
change in coverage is not treated as
significant if the plan’s actuary certifies
in writing to the satisfaction of the
Commissioner that the substitute
mortality tables used by the plan with
respect to the covered population
continue to be accurately predictive of
future mortality of that population
(taking into account the effect of the
change in the plan population).
(d) Full credibility—(1) In general.
The mortality experience with respect to
a gender or other population within a
plan has full credibility if the actual
number of deaths for that population
during the experience study period
described in paragraph (d)(2) of this
section is at least the full credibility
threshold described in paragraph (d)(3)
of this section. Paragraph (d)(4) of this
section provides rules for the creation of
a base substitute mortality table from
the experience study, which apply if the
mortality experience for the population
has full credibility.
(2) Experience study period
requirements. The base substitute
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mortality table for a gender or other
population within a plan must be
developed from an experience study of
the mortality experience of that
population that is collected over an
experience study period. The length of
the experience study period must be at
least 2 years and no more than 5 years.
The last day of the final year reflected
in the experience data must be less than
3 years before the first day of the first
plan year for which the substitute
mortality tables are to apply. For
example, if July 1, 2019, is the first day
of the first plan year for which the
substitute mortality tables will be used,
then an experience study using calendar
year data must include data collected
for a period that ends no earlier than
December 31, 2016.
(3) Full credibility threshold—(i)
Threshold number of deaths. The full
credibility threshold for a gender or
other population within a plan is the
product of 1,082 and the population’s
benefit dispersion factor. In calculating
the population’s benefit dispersion
factor, for purposes of paragraphs
(d)(3)(iii), (iv), and (v) of this section,
the population is adjusted, as
appropriate, for people who leave on
account of reason other than death.
(ii) Population’s benefit dispersion
factor. The population’s benefit
dispersion factor is equal to—
(A) The number of expected deaths
for the population during the experience
study period (as defined in paragraph
(d)(3)(iii) of this section); multiplied by
(B) The mortality-weighted square of
the benefits (as defined in paragraph
(d)(3)(iv) of this section); divided by
(C) The square of the mortalityweighted benefits (as defined in
paragraph (d)(3)(v) of this section).
(iii) Number of expected deaths. The
number of expected deaths for a
population during the experience study
period is equal to the sum, for each year
in the experience study period, of the
expected number of deaths in the
population during the year using the
mortality rates from the standard
mortality tables set forth in paragraph
(d)(4)(iii) of this section.
(iv) Mortality-weighted square of the
benefits. The mortality-weighted square
of the benefits for a population is the
sum, for each year in the experience
study period, for all individuals for each
age in the population at the beginning
of the year, of the product of—
(A) The probability of death of those
individuals using the mortality rate for
that age from the standard mortality
table set forth in paragraph (d)(4)(iii) of
this section; and
(B) The sum of the square of the
accrued benefits (substituting the
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current periodic payment in the case of
individuals in pay status) for those
individuals.
(v) Square of the mortality-weighted
benefits. The square of the mortalityweighted benefits is equal to the square
of the sum, for each year in the
experience study period, for all
individuals for each age in the
population at the beginning of the year,
of the product of—
(A) The probability of death of those
individuals using the mortality rate for
that age from the standard mortality
table set forth in paragraph (d)(4)(iii) of
this section; and
(B) The sum of the accrued benefits
(substituting the current periodic
payment in the case of individuals in
pay status) for those individuals.
(4) Development of mortality rates—
(i) In general. The mortality rates
derived from the experience study must
be amounts-weighted mortality rates
that are derived by multiplying the
mortality rate from the standard
mortality table described in paragraph
(d)(4)(iii) of this section by the mortality
ratio determined under paragraph
(d)(4)(ii) of this section. If the simplified
rule of paragraph (c)(2)(ii)(B) of this
section is used for the population, then
the mortality ratio is determined only
taking into account people who are at
least 50 years old and less than 100
years old, but the mortality ratio is
applied to all ages. Because amountsweighted mortality rates for a plan
cannot be determined without benefit
amounts, the mortality experience study
used to develop a base table must not
include periods before the plan was
established.
(ii) Mortality ratio. The mortality ratio
for a gender or other population within
a plan is equal to the quotient
determined by dividing—
(A) The sum, for each year in the
experience study period, of the accrued
benefits (substituting the current
periodic payment in the case of
individuals in pay status) for all
individuals in the population at the
beginning of the year who died during
the year, by
(B) The sum, for each year in the
experience study period, for all
individuals for each age in the
population at the beginning of the year
(adjusted, as appropriate, for people
who leave on account of reason other
than death), of the product of—
(1) The probability of death of those
individuals using the mortality rate for
that age from the standard mortality
table set forth in paragraph (d)(4)(iii) of
this section; and
(2) The sum of the accrued benefits
(substituting the current periodic
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95927
payment in the case of individuals in
pay status) for those individuals.
(iii) Standard mortality table—(A)
Projection of base table. The standard
mortality table for a year is the mortality
table determined by applying
cumulative mortality improvement
factors determined under § 1.430(h)(3)–
1(a)(2)(i)(E) to the base mortality table
under § 1.430(h)(3)–1(d) for the period
beginning with 2006 and ending in the
base year for the base substitute
mortality table determined under
paragraph (d) or (e) of this section. For
purposes of the previous sentence, the
cumulative mortality improvement
factors are determined using the
mortality improvement rates described
in § 1.430(h)(3)–1(a)(2)(i)(C) that apply
for the calendar year during which the
plan sponsor submits the request to use
substitute mortality tables. If the plan
sponsor submits such a request during
2017, then the cumulative mortality
improvement factors are determined
using the mortality improvement rates
contained in the Mortality Improvement
Scale MP–2016 Report (issued by the
Retirement Plans Experience Committee
(RPEC) of the Society of Actuaries and
available at www.soa.org/Research/
Experience-Study/Pension/research2016-mp.aspx).
(B) Selection of base table. If the
population consists solely of annuitants,
the annuitant base mortality table under
§ 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 under
§ 1.430(h)(3)–1(d) must be used for that
purpose. If the population includes both
annuitants and non-annuitants, a
combination of the annuitant and
nonannuitant base tables under
§ 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
§ 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].
(iv) Change in number of individuals
covered by table. Experience data may
not be used to develop a base table if the
number of individuals in the population
covered by the table (for example, the
male annuitant population) as of the last
day of the plan year before the year the
request to use substitute mortality tables
is made, compared to the average
number of individuals in that
population over the years covered by
the experience study on which the
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substitute mortality tables are based,
reflects a difference of 20 percent or
more, unless it is demonstrated to the
satisfaction of the Commissioner that
the experience data is accurately
predictive of future mortality of that
plan population (taking into account the
effect of the change in individuals) after
appropriate adjustments to the data are
made (for example, excluding data from
individuals with respect to a spun-off
portion of the plan). For this purpose, a
reasonable estimate of the number of
individuals in the population covered
by the table may be used.
(5) Separate tables for specified
populations—(i) In general. Except as
provided in this paragraph (d)(5),
separate substitute mortality tables are
permitted to be used for separate
populations within a gender under a
plan only if—
(A) All individuals of that gender in
the plan are divided into separate
populations;
(B) Each separate population has
mortality experience that has full
credibility as determined under the
rules of paragraph (d)(5)(iii) of this
section; and
(C) The separate base substitute
mortality table for each separate
population is developed applying the
rules of paragraphs (d)(1) through (4) of
this section using an experience study
that takes into account solely members
of that population.
(ii) Annuitant and nonannuitant
separate populations. Notwithstanding
paragraph (d)(5)(i)(B) of this section,
substitute mortality tables for separate
populations of annuitants and
nonannuitants within a gender may be
used even if only one of those separate
populations has credible mortality
information. Similarly, if separate
populations that satisfy paragraph
(d)(5)(i)(B) of this section are
established, then any of those
populations may be further subdivided
into separate annuitant and
nonannuitant subpopulations, provided
that at least one of the two resulting
subpopulations has credible mortality
experience. The standard mortality
tables under § 1.430(h)(3)–1 are used for
a resulting subpopulation that does not
have credible mortality information. For
example, in the case of a plan with
mortality experience for both its male
hourly and salaried individuals that has
full credibility, if the male salaried
annuitant population has credible
mortality information, substitute
mortality tables may be used for the
plan with respect to that population
even if the standard mortality tables
under § 1.430(h)(3)–1 are used with
respect to the male salaried
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nonannuitant population (because that
nonannuitant population does not have
credible mortality information).
(iii) Credible mortality experience for
separate populations. In determining
whether the mortality experience for a
separate population within a gender has
full credibility, the requirements of
paragraph (d)(1) of this section must be
satisfied but, in applying that paragraph
(d)(1), the separate population should be
substituted for the particular gender. In
demonstrating that an annuitant or
nonannuitant population within a
gender or within a separate population
does not have credible mortality
information, the requirements of
paragraph (c)(2)(iii)(B) of this section
must be satisfied but, in applying that
paragraph, the annuitant (or
nonannuitant) population should be
substituted for the particular gender.
(e) Partial credibility—(1) In general.
The mortality experience with respect to
a population has partial credibility if the
actual number of deaths for that
population during the experience study
period described in paragraph (d)(2) of
this section is at least equal to the
partial credibility threshold of 100 and
is less than the full credibility threshold
described for the population in
paragraph (d)(3) of this section. If the
mortality experience for the population
has partial credibility, then in lieu of
creating a base substitute mortality table
as described in paragraph (d) of this
section, the base substitute mortality
table is created as the sum of—
(i) The product of—
(A) The partial credibility weighting
factor determined under paragraph
(e)(2) of this section; and
(B) The mortality rates that are
derived from the experience study
determined under paragraph (d)(4)(i) of
this section, and
(ii) The product of—
(A) One minus the partial credibility
weighting factor described in paragraph
(e)(2) of this section; and
(B) The mortality rate from the
standard mortality tables described in
paragraph (d)(4)(iii) of this section.
(2) Partial credibility weighting factor.
The partial credibility weighting factor
is equal to the square root of the
fraction—
(i) The numerator of which is the
actual number of deaths for the
population during the experience study
period, and
(ii) The denominator of which is the
full credibility threshold for the
population described in paragraph (d)(3)
of this section.
(f) Special rules for newly affiliated
plans—(1) In general. This paragraph (f)
provides special rules that provide
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temporary relief from certain rules in
this section in the case of a controlled
group that includes a newly affiliated
plan. Paragraph (f)(2) of this section
provides a transition period during
which the requirement in paragraph
(c)(1) of this section (that is, the
requirement that all plans within the
controlled group that have credible
mortality information must use
substitute mortality tables) is not
applicable. Paragraph (f)(3) of this
section provides special rules that
permit the use of a shorter experience
study period in the case of a newly
affiliated plan that excludes the
mortality experience data for the period
prior to the date the plan sponsor
becomes maintained by a member of the
new plan sponsor’s controlled group.
Paragraph (f)(4) of this section defines
newly affiliated plan.
(2) Transition period for newly
affiliated plans. The use of substitute
mortality tables for a plan within a
controlled group is not prohibited
merely because substitute mortality
tables are not used during the transition
period for a newly affiliated plan that
fails to demonstrate a lack of credible
mortality information during the that
period. Similarly, during the transition
period, the use of substitute mortality
tables for a newly affiliated plan is not
prohibited merely because substitute
mortality tables are not used for another
plan within the controlled group that
fails to demonstrate a lack of credible
mortality information during that
period. The transition period runs
through the last day of the plan year that
contains the last day of the period
described in section 410(b)(6)(C)(ii) for
either of the plans, whichever is later.
(3) Experience study period for newly
affiliated plan—(i) In general. The
mortality experience data for a newly
affiliated plan may either include or
exclude mortality experience data for
the period prior to the date the plan
becomes maintained by a member of the
new plan sponsor’s controlled group. If
a plan sponsor excludes mortality
experience data for the period prior to
the date the plan becomes maintained
within the new plan sponsor’s
controlled group, the exclusion must
apply for all populations within the
plan.
(ii) Demonstration relating to lack of
credible mortality experience. If the
experience study for a newly affiliated
plan excludes mortality experience data
for the period prior to the date the plan
becomes maintained by a member of the
new plan sponsor’s controlled group,
then the demonstration that the plan
does not have credible mortality
information for a plan year that begins
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after the transition period can be made
using a shorter experience study period
than would otherwise be permitted
under paragraph (c)(2)(iii)(B) of this
section, provided that the experience
study period begins with the date the
plan becomes maintained within the
sponsor’s controlled group and ends not
more than one year and one day before
the first day of the plan year.
(iii) Demonstration relating to credible
mortality experience. If the experience
study for a newly affiliated plan
excludes mortality experience data for
the period prior to the date the plan
becomes maintained by a member of the
new plan sponsor’s controlled group
and the plan fails to demonstrate that it
does not have credible mortality
information for the plan year under the
rules of paragraph (f)(3)(ii) of this
section, then other plans within the
controlled group can continue to use
substitute mortality tables only if
substitute mortality tables are used for
the newly affiliated plan the plan year.
In such a case, the experience study
period can be a shorter period than the
period in paragraph (d)(2) of this
section, provided that the period is at
least one year.
(4) Definition of newly affiliated plan.
For purposes of this paragraph (f), a
plan is treated as a newly affiliated plan
if it becomes maintained by the plan
sponsor (or by a member of the plan
sponsor’s controlled group) in
connection with a merger, acquisition,
or similar transaction described in
§ 1.410(b)–2(f). A plan also is treated as
a newly affiliated plan for purposes of
this section if the plan is established in
connection with a transfer of assets and
liabilities from another employer’s plan
in connection with a merger,
acquisition, or similar transaction
described in § 1.410(b)–2(f).
(g) Effective/applicability date. This
section applies for plan years beginning
on or after January 1, 2018, and any
substitute mortality table used for a plan
for such a plan year must comply with
the rules of this section.
■ Par. 4. Section 1.431(c)(6)–1 is revised
to read as follows:
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§ 1.431(c)(6)–1 Mortality tables used to
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§ 1.433(h)(3)–1 Mortality tables used to
determine current liability.
(a) Mortality tables used to determine
current liability. In accordance with
section 433(h)(3)(B), the mortality
assumptions that apply to a defined
benefit plan for the plan year pursuant
to section 430(h)(3)(A) and
§ 1.430(h)(3)–1(a) are used to determine
a CSEC plan’s current liability for
purposes of applying the rules of section
433(c)(7)(C). Either the static mortality
tables used pursuant to § 1.430(h)(3)–
1(a)(3) or generational mortality tables
used pursuant to § 1.430(h)(3)–1(a)(2)
are permitted to be used for a CSEC plan
for this purpose, but substitute mortality
tables under § 1.430(h)(3)–2 are not
permitted to be used for this purpose.
(b) Effective/applicability date. This
section applies for plan years beginning
on or after January 1, 2018.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2016–30906 Filed 12–28–16; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–112800–16]
RIN 1545–BN42
Nuclear Decommissioning Funds
(a) Mortality tables used to determine
current liability. The mortality
assumptions that apply to a defined
benefit plan for the plan year pursuant
to section 430(h)(3)(A) and
§ 1.430(h)(3)–1(a) are used to determine
a multiemployer plan’s current liability
for purposes of applying the rules of
section 431(c)(6). Either the generational
mortality tables used pursuant to
§ 1.430(h)(3)–1(a)(2) or the static
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mortality tables used pursuant to
§ 1.430(h)(3)–1(a)(3) are permitted to be
used for a multiemployer plan for this
purpose. However, for this purpose,
substitute mortality tables under
§ 1.430(h)(3)–2 are not permitted to be
used for a multiemployer plan.
(b) Effective/applicability date. This
section applies for plan years beginning
on or after January 1, 2018. For rules
that apply to plan years beginning
before January 1, 2018 and on or after
January 1, 2008, see § 1.431(c)(6)–1 (as
contained in 26 CFR part 1 revised April
1, 2015).
■ Par. 5. Section 1.433(h)(3)–1 is added
to read as follows:
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
This document provides
proposed changes to the regulations
under section 468A of the Internal
Revenue Code of 1986 (Code) relating to
deductions for contributions to trusts
maintained for decommissioning
nuclear power plants and the use of the
SUMMARY:
PO 00000
Frm 00019
Fmt 4702
Sfmt 4702
95929
amounts in those trusts to
decommission nuclear plants. The
proposed regulations revise certain
provisions to: Address issues that have
arisen as more nuclear plants have
begun the decommissioning process;
and clarify provisions in the current
regulations regarding self-dealing and
the definition of substantial completion
of decommissioning.
DATES: Written or electronic comments
and requests for a public hearing must
be received by March 29, 2017.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–112800–16), Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to: CC:PA:LPD:PR (REG–112800–
16), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW.,
Washington, DC, or sent electronically,
via the Federal eRulemaking Portal at
http://www.regulations.gov/ (IRS REG–
112800–16).
FOR FURTHER INFORMATION CONTACT:
Concerning the regulations, Jennifer C.
Bernardini, (202) 317–6853; concerning
submissions and to request a hearing,
Regina Johnson, (202) 317–6901 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
There is no new collection of
information contained in this notice of
proposed rulemaking. The collection of
information contained in the regulations
under section 468A has been reviewed
and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545–2091. Responses to these
collections of information are required
to obtain a tax benefit.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by section
6103 of the Code.
Background
This proposed rulemaking consists of
several amendments to the existing
regulations under section 468A. Section
468A was originally enacted by section
E:\FR\FM\29DEP1.SGM
29DEP1
]]>Agencies
[Federal Register Volume 81, Number 250 (Thursday, December 29, 2016)]
[Proposed Rules]
[Pages 95911-95929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30906]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 81, No. 250 / Thursday, December 29, 2016 /
Proposed Rules
[[Page 95911]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-112324-15]
RIN 1545-BM71
Mortality Tables for Determining Present Value Under Defined
Benefit Pension Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations prescribing
mortality tables to be used by most defined benefit pension plans. The
tables specify the probability of survival year-by-year for an
individual based on age, gender, and other factors. This information is
used (together with other actuarial assumptions) to calculate the
present value of a stream of expected future benefit payments for
purposes of determining the minimum funding requirements for the plan.
These mortality tables are also relevant to determining the minimum
required amount of a lump-sum distribution from such a plan. In
addition, this document contains proposed regulations to update the
requirements that a plan sponsor must meet in order to obtain IRS
approval to use mortality tables specific to the plan for minimum
funding purposes (instead of the generally applicable mortality
tables). These regulations affect participants in, beneficiaries of,
employers maintaining, and administrators of certain retirement plans.
DATES: Comments and outlines of topics to be discussed at the public
hearing scheduled for April 13, 2017 must be received by March 29,
2017.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-112324-15), Room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
112324-15), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC 20224, or sent electronically, via the
Federal eRulemaking Portal at www.regulations.gov (IRS REG-112324-15).
The public hearing will be held in the IRS Auditorium, Internal Revenue
Building, 1111 Constitution Avenue NW., Washington, DC 20224.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Thomas
Morgan at (202) 317-6700; concerning the construction of the base
mortality tables and the static mortality tables for 2018, Michael
Spaid at (206) 946-3480; concerning submission of comments, the
hearing, and/or to be placed on the building access list to attend the
hearing, Regina Johnson at (202) 317-6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
A. Generally applicable mortality tables
Section 412 of the Internal Revenue Code (Code) prescribes minimum
funding requirements for defined benefit pension plans. Section 430,
which was added to the Code by the Pension Protection Act of 1996,
Public Law 109-280 (120 Stat. 780 (2006)), specifies the minimum
funding requirements that apply generally to defined benefit plans that
are not multiemployer plans.\1\ Section 430(a) defines the minimum
required contribution 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.
---------------------------------------------------------------------------
\1\ Section 302 of the Employee Retirement Income Security Act
of 1974, Public Law 93-406, 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. Under section 101 of
Reorganization Plan No. 4 of 1978 (43 FR 47713) and section 302 of
ERISA, 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 apply as
well for purposes of section 303 of ERISA.
---------------------------------------------------------------------------
Section 430(h)(3) contains 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. Those mortality
tables are to be based on the actual mortality experience of pension
plan participants and projected trends in that experience. In
prescribing those mortality tables, the Secretary is required to take
into account results of available independent studies of mortality of
individuals covered by pension plans.\2\ Under section 430(h)(3)(B),
the Secretary is required to revise any mortality table in effect under
section 430(h)(3)(A) at least every 10 years to reflect actual
mortality experience of pension plan participants and projected trends
in that experience.
---------------------------------------------------------------------------
\2\ The standards prescribed for developing these mortality
tables are the same as the standards that are prescribed for
developing mortality tables for multiemployer plans under section
431(c)(6)(D)(iv)(II) (which are used determine current liability in
order to determine the minimum full funding limitation under section
431(c)(6)(B)). These standards also apply for purposes of
determining current liability in order to determine the minimum full
funding limitation under section 433(c)(2)(C) for a CSEC plan (as
defined in section 414(y)).
---------------------------------------------------------------------------
Section 430(h)(3)(D) provides for the use of separate mortality
tables with respect to certain individuals who are entitled to benefits
on account of disability. These separate mortality tables are permitted
to be used with respect to disabled individuals in lieu of the
generally applicable mortality tables provided pursuant to section
430(h)(3)(A) or the substitute mortality tables under section
430(h)(3)(C). The Secretary is to establish separate tables for
individuals with disabilities occurring in plan years beginning before
January 1, 1995, and in later plan years, with the mortality tables for
individuals with disabilities occurring in those later plan years
applying only to individuals who are disabled within the meaning of
Title II of the Social Security Act.
Section 417(e)(3) generally provides that the present value of
certain benefits under a qualified pension plan (including single-sum
distributions) must not be less than the present value of the accrued
benefit using applicable interest rates and the applicable mortality
table. Section 417(e)(3)(B)
[[Page 95912]]
defines the term ``applicable mortality table'' as the mortality table
specified for the plan year for minimum funding purposes under section
430(h)(3)(A) (without regard to the rules for substitute mortality
tables under section 430(h)(3)(C) or mortality tables for disabled
individuals under section 430(h)(3)(D)), modified as appropriate by the
Secretary. The modifications made by the Secretary to the section
430(h)(3)(A) mortality table to determine the section 417(e)(3)(B)
applicable mortality table are not addressed in these proposed
regulations. Revenue Ruling 2007-67, 2007-2 CB 1047, describes the
modifications that are currently applied to determine the section
417(e)(3)(B) applicable mortality table.
Final regulations under section 430(h)(3) were published in the
Federal Register on July 31, 2008 in TD 9419, 73 FR 44632. The final
regulations issued in 2008 include rules regarding generally applicable
mortality tables, which are set forth in Sec. 1.430(h)(3)-1 (the 2008
general mortality table regulations). The final regulations issued in
2008 also include rules regarding substitute mortality tables, which
are set forth in Sec. 1.430(h)(3)-2 (the 2008 substitute mortality
table regulations).
The 2008 general mortality table regulations prescribe a base
mortality table and a set of mortality improvement rates, which may be
reflected through the use of either generational mortality tables or
static mortality tables. Generational mortality tables are a series of
mortality tables, one for each year of birth, each of which fully
reflects projected trends in mortality rates. The static mortality
tables (which are updated annually) use a single mortality table for
all years of birth to approximate the present value that would be
determined using the generational morality tables. Section 1.430(h)(3)-
1 includes static mortality tables for valuation dates occurring in
2008 and provides that static mortality tables for valuation dates
occurring in later years are to be published in the Internal Revenue
Bulletin.
The mortality tables included in Sec. 1.430(h)(3)-1 are based on
the mortality tables included in the RP-2000 Mortality Tables Report
(referred to in this preamble as the RP-2000 mortality tables) released
by the Society of Actuaries in July 2000 (updated in May 2001) and a
set of mortality improvement projection factors (the Scale AA
Projection Factors) that was also included in the RP-2000 Mortality
Tables Report.
Section 1.431(c)(6)-1 provides that the same mortality assumptions
that apply for purposes of section 430(h)(3)(A) and Sec. 1.430(h)(3)-
1(a)(2) are used to determine a multiemployer plan's current liability
for purposes of applying the full-funding rules of section 431(c)(6).
For this purpose, a multiemployer plan is permitted to apply either the
annually-adjusted static mortality tables or the generational mortality
tables.
Static mortality tables for valuation dates occurring during 2009-
2013 were published in Notice 2008-85, 2008-42 IRB 905. Updated static
mortality tables for valuation dates occurring during 2014 and 2015
were published in Notice 2013-49, 2013-32 IRB 127. Updated static
mortality tables for valuation dates occurring in 2016 were published
in Notice 2015-53, 2015-33 IRB 190. Updated static mortality tables for
valuation dates occurring in 2017 were published in Notice 2016-50,
2016-38 IRB 371.
Notice 2013-49 requested comments on whether it continues to be
necessary to provide multiple alternative versions of the mortality
tables in order to accommodate limitations in some actuarial software.
Notice 2013-49 also requested comments on whether a separate disability
mortality table is still warranted with respect to participants who
became disabled before 1995. Finally, Notice 2013-49 noted that the
Treasury Department (Treasury) and the IRS were aware that the Society
of Actuaries was conducting a mortality study of pension plan
participants and specifically requested comments on whether other
studies of actual mortality experience of pension plan participants and
projected trends of that experience are available that should be
considered for use in developing mortality tables for future use under
section 430(h)(3).
In October 2014, the Retirement Plans Experience Committee (RPEC)
of the Society of Actuaries issued a new mortality study of
participants in private pension plans, referred to as the RP-2014
Mortality Tables Report (which sets forth mortality tables that are
referred to as the RP-2014 mortality tables). The RP-2014 Mortality
Tables Report, as revised November 2014, is available at www.soa.org/Research/Experience-Study/pension/research-2014-rp.aspx. At the same
time, RPEC issued a companion study of mortality improvement, referred
to as the Mortality Improvement Scale MP-2014 Report (which sets forth
mortality improvement rates that are referred to as Scale MP-2014
Rates). As described in the Mortality Improvement Scale MP-2014 Report,
(available at www.soa.org/Research/Experience-Study/pension/research-2014-mp.aspx), the Scale MP-2014 rates were based on mortality
improvement experience for the general population through 2009.
In October 2015, RPEC released an update to the Scale MP-2014
Rates. The updated rates, referred to as Scale MP-2015 Rates, were
released as part of the Mortality Improvement Scale MP-2015 Report
(which is available at https://www.soa.org/Research/Experience-Study/Pension/research-2015-mp.aspx). The Scale MP-2015 Rates were created
using historical data for mortality improvement for the general
population through 2011, and the same model and parameters that were
used to produce Scale MP-2014 Rates. In conjunction with the release of
the updated rates, RPEC indicated the intent to reflect the latest data
available by providing future annual updates to the model as soon as
practicable following the public release of updated data upon which the
model is constructed.
In October 2016, RPEC released a further update to the Scale MP-
2014 Rates, which are referred to as the Scale MP-2016 Rates. The Scale
MP-2016 Rates take into account data for mortality improvement for the
general population for years 2012 and 2013, along with an estimate of
mortality rates for 2014. As described in the Mortality Improvement
Scale MP-2016 Report (which is available at www.soa.org/Research/Experience-Study/Pension/research-2016-mp.aspx), in developing the
Scale MP-2016 rates, RPEC changed some of the parameters from those
that were used in developing the Scale MP-2014 Rates.
B. Plan-Specific Substitute Mortality Tables
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 approved, these 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. In order for a plan sponsor to use a substitute mortality
table for a plan, the statute requires that: (1) The plan has a
sufficient number of plan participants and has been maintained for a
sufficient period of time in order
[[Page 95913]]
to have credible mortality information necessary to create a substitute
mortality table; and (2) the tables reflect the actual mortality
experience of the plan's participants and projected trends in general
mortality experience of participants in pension plans. Except as
provided by the Secretary, a plan sponsor must not use substitute
mortality tables for any plan unless substitute mortality tables are
established and used for each plan maintained by the plan sponsor and
its controlled group.
Regulations issued in 2008 set forth rules regarding the use of
substitute mortality tables. Under Sec. 1.430(h)(3)-2(b), in order to
use substitute mortality tables with respect to a plan, a plan sponsor
must submit a written request to the Commissioner that demonstrates
that those substitute mortality tables comply with applicable
requirements. A request to use substitute mortality tables must specify
the first plan year, and the term of years (not more than 10), for
which the tables are requested to be used. In general, substitute
mortality tables may not be used for a plan year unless the plan
sponsor submits the request at least 7 months prior to the first day of
the first plan year for which the substitute mortality tables are to
apply.
The Commissioner has a 180-day period to review a request for the
use of substitute mortality tables. If the Commissioner does not issue
a denial within this 180-day period, the request is deemed to have been
approved unless the Commissioner and the plan sponsor have agreed to
extend that period. The Commissioner may request additional information
with respect to a submission. Failure to provide that information on a
timely basis is grounds for denial of the plan sponsor's request. In
addition, the Commissioner will deny a request if the request fails to
meet the requirements to use substitute mortality tables or if the
Commissioner determines that a substitute mortality table does not
sufficiently reflect the mortality experience of the applicable plan
population.
Under Sec. 1.430(h)(3)-2(c)(1)(i), substitute mortality tables
must reflect the actual mortality experience of the pension plan for
which the tables are to be used. Separate mortality tables must be
established for each gender under the plan, and a substitute mortality
table may be established for a gender only if the plan has credible
mortality experience with respect to that gender. If the mortality
experience for one gender is credible but the mortality experience for
the other gender is not credible, the substitute mortality tables are
used for the gender that has credible mortality experience, and the
mortality tables under Sec. 1.430(h)(3)-1 are used for the gender that
does not have credible mortality experience.
Section 1.430(h)(3)-2(c)(1)(ii) provides that, for purposes of
determining whether substitute mortality tables may be used, there is
credible mortality experience for a gender within a plan if and only
if, over the period covered by the experience study, there are at least
1,000 deaths within that gender.\3\ Pursuant to Sec. 1.430(h)(3)-
2(c)(2)(ii), the minimum length of the experience study period is 2
years and the maximum length of the experience study period is 5 years
(and can be lengthened in published guidance). Furthermore, under that
provision, the last day of the final year reflected in the experience
data must be less than three years before the first day of the first
plan year for which the substitute mortality tables are to apply.
---------------------------------------------------------------------------
\3\ The 1,000-death threshold for credible mortality experience
under the regulations was intended to provide a high degree of
confidence that the plan's past mortality experience will be
predictive of its future mortality, and is consistent with relevant
actuarial literature (see, for example, Thomas N. Herzog,
Introduction to Credibility Theory (1999); Stuart A. Klugman, et.
al., Loss Models: From Data to Decisions (2004)).
---------------------------------------------------------------------------
Under Sec. 1.430(h)(3)-2(c)(2), development of a substitute
mortality table under the regulations requires creation of a base table
and identification of a base year, which are then used to determine a
substitute mortality table. The base table must be developed from a
study of the mortality experience of the plan using amounts-weighted
data.
Under Sec. 1.430(h)(3)-2(c)(3), a plan's substitute mortality
tables must be generational mortality tables. Substitute mortality
tables are determined using the base mortality tables developed from
the experience study and the Scale AA Projection Factors, which are
also used for the generally applicable mortality tables.
Under Sec. 1.430(h)(3)-2(c)(4), separate substitute mortality
tables are permitted (but not required) to be established for separate
populations within a gender, such as annuitants and nonannuitants or
hourly and salaried individuals. Under that provision, separate
substitute mortality tables generally are permitted to be used for a
separate population within a gender under a plan only if all
individuals of that gender in the plan are divided into separate
populations, each separate population has credible mortality experience
(determined in the same manner as determining whether a gender has
credible mortality experience), and the separate substitute mortality
table for each separate population is developed using mortality
experience data for that population.
Section 1.430(h)(3)-2(d)(3) prescribes rules for aggregating plans
for purposes of using substitute mortality tables. Under Sec.
1.430(h)(3)-2(d)(3), in order to use a set of substitute mortality
tables for two or more plans, the rules set forth in the regulations
must be applied by treating those plans as a single plan. In such a
case, the substitute mortality tables must be used for all such plans
and must be based on data collected with respect to all such plans.
Section 1.430(h)(3)-2(d)(4) provides for the early termination of
the use of substitute mortality tables in certain specified
circumstances, including pursuant to a replacement of the mortality
tables specified in Sec. 1.430(h)(3)-1. The early termination pursuant
to such a replacement must be effective as of a date specified in
guidance published in the Internal Revenue Bulletin.
Rev. Proc. 2008-62, 2008-2 CB 935, 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 in
accordance with section 430(h)(3)(C). The revenue procedure specifies
the information that must be provided in order to request the use of
substitute mortality tables and specifies two alternative acceptable
methods of construction for base substitute mortality tables. Under
section 11 of Rev. Proc. 2008-62, a base table for a population can be
created from the unadjusted base table for the population through the
application of a graduation method generally used by the actuarial
profession in the United States (for example, the Whittaker-Henderson
Type B graduation method or the Karup-King graduation method). Section
12 of Rev. Proc. 2008-62 provides for an alternative method of
constructing a base table through the application of a fixed percentage
to the mortality rates of a standard mortality table, projected to the
base year. This alternative method can be used only if the IRS
determines that the resulting base table sufficiently reflects the
mortality experience of the applicable plan population. In general, the
standard mortality table that is used under this alternative method is
a projection of the base mortality table that applies for the
population under Sec. 1.430(h)(3)-1; however, the IRS will consider
requests for the approval of base tables constructed through the
application of a fixed percentage to the
[[Page 95914]]
mortality rates of other published generally accepted mortality tables.
Section 503 of the Bipartisan Budget Act of 2015, Public Law 114-
74, 129 Stat. 584, which was enacted November 2, 2015, provides for
changes to the rules on the use of substitute mortality tables. Under
that section, the determination of whether a plan has credible
information that can be used to develop a substitute mortality table
must be made in accordance with established actuarial credibility
theory, which (1) is materially different from the rules for using
substitute mortality tables (including Revenue Procedure 2007-37) \4\
that are in effect on November 2, 2015; and (2) permits the use of
mortality tables that reflect adjustments to the generally applicable
mortality tables, if those adjustments are based on the actual
experience of the pension plan maintained by the plan sponsor. This
provision applies to plan years beginning after December 31, 2015.
---------------------------------------------------------------------------
\4\ Rev. Proc. 2007-37, 2007-1 CB 1433, was not in effect on
November 2, 2015. It was issued in 2007 in conjunction with proposed
regulations regarding substitute mortality tables (REG-143601-06, 72
FR 29456), and was replaced by Rev. Proc. 2008-62 when those
regulations were finalized in 2008.
---------------------------------------------------------------------------
Explanation of Provisions
These proposed regulations set forth the methodology Treasury and
the IRS would use to update the generally applicable mortality tables
that are used to determine present value or make any computation under
section 430. Pursuant to section 417(e)(3)(B), a modified version of
these updated tables would be used for purposes of determining the
amount of a single-sum distribution (or another accelerated form of
distribution).\5\ This methodology for developing updated tables under
section 430(h)(3)(A) is being proposed pursuant to the requirement
under section 430(h)(3)(B) to revise the mortality tables used under
section 430 to reflect the actual mortality experience of pension plan
participants and projected trends in that experience. As under the 2008
general mortality table regulations, the methodology involves the
separate determination of base tables and the projection of mortality
improvement.
---------------------------------------------------------------------------
\5\ After these regulations are finalized, the section
417(e)(3)(B) applicable mortality table will be specified in
guidance published in the Internal Revenue Bulletin. See Sec.
601.601(d)(2)(ii)(b) of this chapter.
---------------------------------------------------------------------------
These proposed regulations also set forth rules for the use of
substitute mortality tables. The rules on substitute mortality tables
are being proposed pursuant to section 503 of the Bipartisan Budget Act
of 2015, which requires that the determination of whether the plan has
credible information be made in accordance with established actuarial
credibility theory. Pursuant to that requirement, Treasury and the IRS
undertook a review of actuarial literature regarding credibility theory
and consulted with experts on that topic from the Society of Actuaries.
Based on that review and analysis, the proposed regulations set forth a
method for developing substitute mortality tables that is materially
different from the method that is required under the 2008 substitute
mortality table regulations and the associated revenue procedure.
The method for developing substitute mortality tables that is set
forth in the proposed regulations is simpler than the method that
applies under the 2008 substitute mortality table regulations, and also
accommodates the use of substitute mortality tables by plans with
smaller populations that have partially credible mortality experience.
Comments are requested regarding additional simplifications that might
be appropriate for use in developing substitute mortality tables.
I. Generally Applicable Mortality Tables
A. Base mortality tables
The base mortality tables proposed for use under section
430(h)(3)(A) are derived from the tables contained in the RP-2014
Mortality Tables Report. In response to Notice 2013-49, commentators
generally recommended that the RP-2014 mortality tables form the basis
for the mortality tables used under section 430.\6\ After reviewing the
RP-2014 mortality tables, the accompanying report published by the
Society of Actuaries, and related public comments, Treasury and the IRS
have determined that the experience study used to develop the RP-2014
mortality tables is the best available study of the actual mortality
experience of pension plan participants (other than disabled
individuals). Accordingly, the RP-2014 mortality tables are the
foundation for the base mortality tables used to project the mortality
of pension plan participants under these proposed regulations.\7\
---------------------------------------------------------------------------
\6\ These proposed regulations also apply the new generally
applicable mortality tables under section 430 for purposes of
determining the current liability of a multiemployer plan pursuant
to section 431(c)(6)(D)(iv)(II) or a CSEC plan pursuant to section
433(h)(3).
\7\ Mortality tables that may be used as an alternative to the
tables provided in these regulations with respect to certain
disabled individuals are provided in Rev. Rul. 96-7, 1996-1 CB 59.
---------------------------------------------------------------------------
Like the mortality tables provided in the 2008 general mortality
table regulations, the mortality tables set forth in these proposed
regulations are gender-distinct because of significant differences
between expected male mortality and expected female mortality. In
addition, as under the 2008 general mortality table regulations, these
proposed regulations set forth separate mortality rates for annuitants
and nonannuitants. This distinction has been made because these two
groups have significantly different mortality experience. See chapter 3
of the RP-2000 Mortality Tables Report, available at www.soa.org/research/experience-study/pension/research-rp-2000-mortality-tables.aspx.
Under these proposed regulations, the annuitant mortality tables
are applied to determine the present value of benefits for an
annuitant. For a nonannuitant, the nonannuitant mortality tables are
applied for the periods before the participant is projected to commence
receiving benefits, and the annuitant mortality tables are used for
later periods. With respect to a beneficiary of a participant, the
annuitant mortality table applies for the period beginning with each
assumed commencement of benefits for the participant. If the
participant has died (or to the extent the participant is assumed to
die before commencing benefits), the annuitant mortality table applies
with respect to the beneficiary for the period beginning with each
assumed commencement of benefits for the beneficiary.
The proposed regulations set forth base tables that are to be used
to develop the mortality tables for future years. These base tables
have a base year of 2006 (the central year of the experience study used
to develop the mortality tables in the RP-2014 Mortality Tables
Report). These base tables generally have the same rates as the RP-2014
mortality tables after factoring out the mortality improvements from
2007 to 2014 (calculated using the Scale MP-2014 Rates). However, these
base tables also include nonannuitant rates for ages below age 18 and
above age 80 and annuitant rates for ages below age 50. This generally
is the same approach that was used to develop the base tables included
in the 2008 general mortality table regulations.
The nonannuitant rates for ages above age 80 were developed by (1)
using the annuitant rates from the base tables for ages 90 and older
and (2) interpolating between the rates for age 80 and age 90 in order
to produce a smooth transition between the age 80 rates from the
nonannuitant tables to the age 90 rates from the annuitant tables. The
interpolation uses increasing fractions
[[Page 95915]]
with a denominator of 55 to allocate the total difference between the
rates at ages 80 and 90 over those 10 years. Thus, the rate at age 81
is set equal to the rate at age 80 plus \1/55\ of the total difference,
the age 82 rate is equal to the rate at age 81 plus \2/55\ of the total
difference (so that the age 82 rate is equal to the rate at age 80 plus
\3/55\ of the total difference), and so on for other ages.
A similar approach was used to develop annuitant rates for ages
below age 50. The annuitant rates for ages under age 50 were determined
by (1) using the nonannuitant rates from the base tables for ages 18 to
40, and (2) interpolating between the rates for age 40 and age 50,
using the same methodology described in the prior paragraph. This
method produces a smooth transition between the age 40 rates from the
nonannuitant table and the age 50 rates from the annuitant table. For
ages below age 18, both the annuitant and nonannuitant rates
incorporate the juvenile rates from the RP-2014 Mortality Tables
Report, after factoring out the mortality improvements from 2007 to
2014 (calculated using the Scale MP-2014 Rates).
B. Reflection of Mortality Improvement
The proposed regulations provide that expected trends in mortality
experience must be taken into account through the use of either
generational or annually updated static mortality tables. In accordance
with section 430(h)(3)(B), the proposed regulations update the
mortality improvement rates from the Scale AA Projection Factors that
were set forth under the 2008 general mortality table regulations.
In order to select up-to-date mortality improvement rates, Treasury
and the IRS reviewed the Mortality Improvement Scale MP-2014 Report,
related public comments, the data sources cited in those comments, the
Mortality Improvement Scale MP-2015 Report, the Mortality Improvement
Scale MP-2016 Report, and other published data sources.\8\ Pursuant to
this review, Treasury and the IRS determined that the procedures that
RPEC used to develop the Scale MP-2016 Rates generate the most
appropriate currently available mortality improvement rates.
Accordingly, the proposed regulations provide that, for valuation dates
in 2018, the mortality tables for use under section 430(h)(3)(A) must
reflect the mortality improvement rates contained in the Mortality
Improvement Scale MP-2016 Report.
---------------------------------------------------------------------------
\8\ See the August 2013 Literature Review and Assessment of
Mortality Improvement Rates in the U.S. Population: Past Experience
and Future Long-Term Trends, available at www.soa.org/Files/Research/Exp-Study/research-2013-lit-review.pdf; and the 2015
Technical Panel on Assumptions and Methods Report to the Social
Security Advisory Board, available at www.ssab.gov/Details-Page/ArticleID/656/2015-Technical-Panel-on-Assumptions-and-Methods-A-Report-to-the-Board-September-2015.
---------------------------------------------------------------------------
The Scale MP-2016 Rates are structured as two-dimensional tables
that contain mortality improvement rates that vary according to both
age and calendar year (so that the mortality improvement rate for
someone who is age 72 in 2020 is different than the mortality
improvement rate for someone who is age 72 in 2030). RPEC provided for
two-dimensional tables of mortality improvement rates in order to
reflect differences in mortality improvement at different ages as well
as mortality improvement trends that vary for different age cohorts.
The proposed regulations include numerical examples illustrating how to
apply these two-dimensional mortality improvement rates.
As under the current regulations, the proposed regulations take
into account the limitations of some current actuarial software that is
not designed to use generational mortality tables. Accordingly, the
proposed regulations continue to permit the use of static mortality
tables. These static tables consist of a single table for each gender,
updated annually, that approximates the effect of projected mortality
improvement under the generational mortality tables. The static
mortality tables that would be used for 2018 are included in these
proposed regulations. For later years, updated static mortality tables
will be set forth in guidance published in the Internal Revenue
Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this chapter.
The static mortality tables that would be permitted to be used
under the proposed regulations are constructed from the base tables
that are used for purposes of the generational mortality tables. For
each calendar year, the static mortality tables are based on a
projection of mortality improvement applied to the mortality rates in
the base tables for the period beginning with 2006 and ending with the
year of the table, with a further projection from that year for a
specified projection period. The rates in the static mortality tables
are not the expected mortality rates for the current plan year, nor are
they the mortality rates under the generational mortality tables that
would apply for any current age. Instead, the projection period has
been selected so that the use of the static mortality tables to
calculate present values produces approximately the same results as
would be calculated using the generational tables. Based on modeling of
annuity values at different ages, Treasury and the IRS have selected a
projection period of 8 years for males and 9 years for females, with a
further adjustment based on age. For ages below 80, the projection
period is increased by 1 year for each year below 80. For ages above
80, the projection period is reduced (but not below zero) by \1/3\ year
for each year above 80.
These proposed regulations provide an option for smaller plans
(plans for which the total number of active and inactive participants
and beneficiaries of deceased participants is not more than 500 on the
valuation date for the plan year) to use gender distinct blended static
tables for all participants and beneficiaries--in lieu of the separate
static tables for annuitants and nonannuitants--in order to simplify
the actuarial valuation for these plans. These blended tables are
constructed from the separate nonannuitant and annuitant static
mortality tables using the same nonannuitant and annuitant weighting
factors as in the 2008 general mortality table regulations.
Treasury and the IRS understand that RPEC expects to issue updated
mortality improvement rates that reflect new data for mortality
improvement trends for the general population on an annual basis.
Treasury and the IRS expect to take those updates into account in
determining the mortality rates to be used under section 430(h)(3) for
valuation dates in years after 2018. Those rates will be specified in
guidance to be published in the Internal Revenue Bulletin. See Sec.
601.601(d)(2)(ii)(b) of this chapter.
II. Plan-Specific Substitute Mortality Tables
A. Overview
These proposed regulations contain a comprehensive set of rules
regarding plan-specific substitute mortality tables. The proposed
regulations contain many of the rules regarding substitute mortality
tables from the 2008 substitute mortality table regulations. However,
after analyzing the actuarial literature regarding credibility theory,
Treasury and the IRS propose to make a number of changes to the
regulations relating to the development of substitute mortality tables.
Specifically, the proposed regulations would require a substitute
mortality table to be constructed by multiplying the mortality rates
from a projected version of the generally applicable base mortality
table by a mortality ratio (that is, a ratio of the actual deaths for
the plan population to
[[Page 95916]]
expected deaths determined using the standard mortality tables for that
population).
Use of mortality ratios (rather than providing for the graduation
of raw mortality rates as under the 2008 substitute mortality table
regulations) should make it easier for plan sponsors to develop the
substitute tables, because it would eliminate the need to apply a
graduation technique. It would also make it easier for the IRS to
review applications to use substitute mortality tables. This
simplification is particularly important in light of the other major
change made in the proposed regulations, which would permit the use of
substitute mortality tables for a plan that has only partially credible
mortality information. Treasury and the IRS expect significantly more
plan sponsors to request the use of substitute mortality tables after
this change becomes effective.
B. Development of Substitute Mortality Tables for Plans With Full
Credibility
The substitute mortality table for a population with full
credibility would be determined by applying projected mortality
improvement to a base substitute mortality table which is developed
using an experience study of the population. The proposed regulations
would use the same requirements for an experience study as under the
2008 substitute mortality table regulations. Specifically, the
experience study would have to cover a period of at least 2 years (and
no more than 5 years) that ends less than 3 years before the first day
of the first plan year for which the substitute mortality tables are to
apply. As under the 2008 substitute mortality table regulations, the
calendar year that contains the day before the midpoint of the
experience study is the base year for the base substitute mortality
table. In addition, the proposed regulations include the rule in the
2008 substitute mortality table regulations that requires an additional
demonstration that the experience study results are predictive of
future mortality for a plan population if the number of individuals in
that population has changed by more than 20 percent compared to the
average number of individuals in that population during the experience
study period.
The base substitute mortality table is determined by multiplying
the mortality rates from the standard mortality table (that is, the
generally applicable base mortality table projected with mortality
improvement to the base year for the base substitute mortality table)
by the plan's mortality ratio. For this purpose, the mortality
improvement rates that apply for the calendar year during which the
plan sponsor submits the request to use substitute mortality tables are
used to project the generally applicable base mortality table to the
base year for the base substitute mortality table.\9\ The mortality
ratio is determined as a fraction, the numerator of which is the number
of actual deaths during the experience study period (with each death
weighted by the amount of benefit) and the denominator of which is the
number of expected deaths during that period (determined using the
standard mortality table) weighted by the amount of the benefit. For
this purpose, the amount of benefit is the accrued benefit
(substituting the current periodic payment in the case of individuals
in pay status). Consistent with section 503 of the Bipartisan Budget
Act of 2015 (and unlike Sec. 1.430(h)(3)-2(c)(2)(ii)(D) of the 2008
substitute mortality table regulations, which provides that the
Commissioner may permit the use of other recognized mortality tables to
construct the base substitute mortality table), these proposed
regulations provide that the standard mortality table that must be used
for this purpose is the generally applicable base mortality table
projected with mortality improvement to the base year for the base
substitute mortality table.
---------------------------------------------------------------------------
\9\ If the plan sponsor submits such a request during 2017, then
the cumulative mortality improvement factors are determined using
the Scale MP-2016 Rates.
---------------------------------------------------------------------------
C. Standards for Full Credibility
The proposed regulations revise the standard for full credibility
of a population under the 2008 substitute mortality table regulations
(which is 1,000 actual deaths for the relevant population during the
experience study period). This is because, under established actuarial
credibility theory, that threshold (which is a rounding down of the
1,082 actual deaths that would be needed for a 90% confidence level
that the measured rate is within 5% of the underlying rate of
mortality) should apply to the credibility for a single rate of
mortality and not an entire mortality table.\10\ Moreover, the 1,000
death threshold did not take into account the well-established
actuarial principle that mortality experience within a population will
vary predictably based on the amount of the annuity (or life insurance,
as applicable). The base tables for the generally applicable mortality
tables were constructed on an amounts-weighted basis (under which the
individuals with higher benefit amounts have a greater weight in the
computation of the mortality rate for a particular age); accordingly,
substitute mortality tables should be constructed using the same
principle.
---------------------------------------------------------------------------
\10\ Note, however, the use of a graduation technique set forth
in Rev. Proc. 2008-62 enables a plan to have credible mortality
experience in order to establish a substitute mortality table even
though there are fewer than 1000 deaths at each age.
---------------------------------------------------------------------------
The variability of benefit amounts for different individuals in
different populations within a plan means that a single 1,000 actual-
death standard that would apply to all populations is not appropriate.
Instead, established actuarial credibility theory would require a plan-
specific calculation of the full-credibility standard that takes into
account the dispersion of benefits within the plan.
Under the proposed regulations, the number of deaths that are
needed for the population within a plan to have fully credible
mortality information is determined as the product of 1,082 and the
benefit dispersion factor for the population.\11\ The benefit
dispersion factor for a population is equal to the number of expected
deaths for the population during the experience study period, times the
sum of the mortality-weighted square of the benefits, divided by the
square of the mortality-weighted benefits.\12\
---------------------------------------------------------------------------
\11\ This is based on the assumption that the distribution of
releases from liability due to deaths follows a compound Poisson
model. See www.actuaries.ca/members/publications/2002/202037e.pdf.
\12\ See Gavin Benjamin, Selecting Mortality Tables: A
Credibility Approach, available at www.soa.org/Files/Research/Projects/research-2008-benjamin.pdf.
---------------------------------------------------------------------------
D. Partial Credibility
The proposed regulations permit substitute mortality tables to be
used for a plan that does not have sufficient deaths to have fully
credible mortality information. In accordance with established
actuarial credibility theory, such a plan would use a weighted average
of the standard mortality table (projected with mortality improvement
to the base year of the base substitute mortality table) and the
mortality table that would be developed for the plan if it were to have
fully credible mortality information. The weight for the mortality
table that would apply if the plan were to have fully credible
mortality information is the square-root of a fraction, the numerator
of which is the actual number of deaths for the population within the
experience study period and the denominator of which is the number of
deaths needed for the
[[Page 95917]]
plan to have fully credible mortality information.
In order to avoid the need to create a substitute mortality table
for a plan with a relatively small population, the proposed regulations
provide that a population does not have credible mortality information
if the actual number of deaths for that population during the
experience study period is less than 100. For this purpose, the length
of the experience study period must be the same length as the longest
experience study period for any plan in the controlled group.
Treasury and the IRS chose the threshold of 100 deaths as a result
of balancing the burdens of developing substitute mortality tables and
the benefit of the use of those tables, in light of the requirement
under section 430(h)(3)(C)(iv) that substitute mortality tables be used
for all plans within a controlled group (and the exception to this
requirement for plans that lack fully or partially credible mortality
information). Comments are requested regarding whether this is the
appropriate threshold or whether a different number of deaths should be
used for this purpose.
E. Mortality Improvement Rates
As required under the 2008 substitute mortality table regulations,
the proposed regulations provide that substitute mortality tables must
be generational mortality tables. These proposed regulations require
that the mortality improvement rates that are used for the generally
applicable mortality tables also be applied beginning with the base
year of the base substitute mortality tables.
F. Other Rules Relating to the Use of Substitute Mortality Tables
1. Use of Separate Subpopulations Within a Gender Under Plan
The proposed regulations continue to apply the rules under the 2008
substitute mortality table regulations regarding the applicability of
substitute mortality tables for separate populations within a plan.
Specifically, separate substitute mortality tables must be developed
for each gender under the plan. In addition, the regulations permit
separate substitute mortality tables to be developed for separate
subpopulations (such as hourly and salaried participants) within a
gender under the plan in certain circumstances.
As under the 2008 substitute mortality table regulations,
permission to separate a gender into separate subpopulations is
generally limited to situations in which each of the subpopulations
have fully credible mortality information. However, that requirement
does not apply if the separate subpopulations are annuitants and non-
annuitants. Comments are requested on whether there should be other
exceptions to this rule. For example:
Should the regulations allow separate sub-populations to
be used if one subpopulation has full credibility while the other one
has only partial credibility?
Should the regulations provide for the use of separate
sub-populations based on age, even if those groups have only partial
credibility?
Should there be a rule to ``normalize'' the mortality
tables for separate sub-populations (so that the total number of
expected deaths for the separate subpopulations is the same as the
total number of expected deaths for the entire population without
regard to the separation)?
2. Requirement To Use Substitute Mortality Tables for All Plans With
Credible Mortality Information
As under the 2008 substitute mortality table regulations, the
proposed regulations provide that substitute mortality tables are
permitted to be used for a plan for a plan year only if, for that plan
year, substitute mortality tables are also approved and used for each
other pension plan subject to the requirements of section 430 that is
maintained by the plan sponsor or by a member of the sponsor's
controlled group. However, this rule does not prohibit the use of
substitute mortality tables for one plan if the only other plan or
plans maintained by the plan sponsor (or by a member of the plan
sponsor's controlled group) for which substitute mortality tables are
not used are too small to have fully or partially credible mortality
information for the plan year. Thus, if a sponsor's controlled group
contains two pension plans that are subject to section 430, each of
which has fully or partially credible mortality information for at
least one gender, either the plan sponsors of both plans must obtain
approval from the Commissioner to use substitute mortality tables or
substitute mortality tables may not be used for either plan. In
contrast, if for one of those plans neither males nor females have
fully or partially credible mortality information, then the plan
without credible mortality information will not prevent the use of
substitute mortality tables for the plan with credible mortality
information.
As under the 2008 substitute mortality table regulations, the
proposed regulations provide that the requirement that the plan sponsor
demonstrate the lack of credible mortality information for both the
male and female populations in other plans maintained by the plan
sponsor (and by members of the plan sponsor's controlled group) for
which substitute mortality tables are not used must be satisfied for
each plan year for which substitute mortality tables are used. This
demonstration is made for a plan population by showing that the
population has not experienced at least 100 deaths over a time period
that satisfies the requirements set forth in the regulations. In
general, for each plan year in which substitute mortality tables are
used for a plan, in order to demonstrate that a gender within a plan
does not have credible mortality information for a plan year, the
demonstration that the gender within the plan has fewer than 100 deaths
must be made by analyzing the actual number of deaths over a period
that is the same length as the period for the experience study on which
the substitute mortality tables are based and that ends less than three
years before the first day of the plan year.
3. Permitted Aggregation of Plans
The proposed regulations retain the rules contained in the 2008
substitute mortality table regulations regarding aggregation of plans
for purposes of using substitute mortality tables. Under these rules,
in order for a plan sponsor to use the same substitute mortality tables
for two or more plans, the rules set forth in the regulations are
applied by treating those plans as a single plan. In such a case, the
substitute mortality tables must be used for all such plans and must be
based on data collected with respect to all such plans. Although plans
generally are not required to be aggregated for purposes of substitute
mortality tables, the regulations require a plan to be aggregated with
any plan that was previously spun off from that plan if the
Commissioner determines that one purpose of the spinoff was to avoid
the use of substitute mortality tables for any of the plans involved in
the spinoff.
4. Special Rules for Newly-Acquired Plans
If substitute mortality tables are used for at least one plan
within a controlled group, in order for the plan sponsor to continue to
use substitute mortality tables for that plan after a plan joins the
controlled group, substitute mortality tables must be used for the
newly affiliated plan unless the newly affiliated plan demonstrates
that it lacks credible mortality information. However, the proposed
regulations
[[Page 95918]]
provide for a transition period during which the standard mortality
table is permitted to be used for a newly affiliated plan (without
affecting the use of substitute mortality tables for other plans within
the controlled group) even if the newly affiliated plan fails to
demonstrate a lack of credible mortality information. Similarly, the
use of substitute mortality tables for a newly affiliated plan is not
affected during the transition period merely because the standard
mortality tables are used for another plan within the controlled group
despite the failure of that other plan to demonstrate a lack of
credible mortality information. Notably, these rules do not change the
requirement that the continued use of substitute mortality tables for
any plan within the controlled group is permitted only if the other
pre-affiliation plans within the controlled group for which substitute
mortality tables are not used demonstrate a lack of credible mortality
information.
Like the 2008 substitute mortality table regulations, the proposed
regulations do not require the use of pre-affiliation experience in
order to establish whether a newly-affiliated plan has credible
mortality information. If the pre-affiliation data is excluded and
substitute mortality tables will be used for the plan, then the
experience study period may be as short as one year (instead of two
years). If the pre-affiliation data is excluded and substitute
mortality tables will not be used for the plan, then the experience
study period used to demonstrate that the plan does not have credible
mortality information may also be shortened, provided that the period
ends not more than one year and one day before the first day of the
plan year.
5. Treatment of Mortality Experience With Respect to Disabled
Individuals
As under the 2008 substitute mortality table regulations, if
separate mortality tables under section 430(h)(3)(D) are used for
certain disabled individuals under a plan, then those individuals are
disregarded for all purposes with respect to substitute mortality
tables under section 430(h)(3)(C). Thus, if the mortality tables under
section 430(h)(3)(D) are used for certain disabled individuals under a
plan, mortality experience with respect to those individuals must be
excluded in determining mortality rates for substitute mortality tables
with respect to a plan.
6. Early Termination of Use of Substitute Mortality Tables
The proposed regulations retain the rules from the 2008 substitute
mortality table regulations regarding the early termination of use of
substitute mortality tables. Under those rules, a plan's substitute
mortality tables may not be used beginning with the earliest of: (1)
For a plan for which substitute mortality tables are used for only one
gender because of a lack of credible mortality information with respect
to the other gender, the first plan year for which there is credible
mortality information with respect to the gender that had lacked
credible mortality information (unless the plan receives approval to
use a substitute mortality table for that other gender); (2) the first
plan year for which the requirements regarding use of substitute
mortality tables by controlled group members are not satisfied; (3) the
second plan year following the plan year for which there is a
significant change in individuals covered by the plan (unless the
plan's actuary certifies in writing to the satisfaction of the
Commissioner that the substitute mortality tables used for the plan
population continue to be accurately predictive of future mortality of
that population (taking into account the effect of the change in the
population)); (4) the first plan year following the plan year for which
a substitute mortality table used for a plan population is no longer
accurately predictive of future mortality of that population, as
determined by the Commissioner or as certified by the plan's actuary to
the satisfaction of the Commissioner; or (5) the date specified in
guidance published in the Internal Revenue Bulletin in conjunction with
a replacement of generally applicable mortality tables (other than
annual updates to the static mortality tables or changes to the
mortality improvement rates).
G. Procedures for Requesting Approval of Substitute Mortality Tables
As under the 2008 substitute mortality table regulations, the
proposed regulations provide that a plan sponsor that wishes to use
substitute mortality tables for a plan must submit a request to the IRS
for approval to use the proposed tables. In general, the request must
be submitted at least 7 months before the first day of the plan year
for which the proposed substitute tables would be used. If the IRS does
not deny the request within 180 days (which may be extended as agreed
to by the IRS and the plan sponsor), the request is deemed to have been
approved.
The IRS intends to issue an updated version of Rev. Proc. 2008-62
after final regulations regarding substitute mortality tables are
issued. If the timing of the release of those final regulations and the
associated revenue procedure does not leave adequate time to submit an
application to use substitute mortality tables for the plan year
beginning in 2018, Treasury and the IRS expect that they would provide
a transition rule that would permit extra time to submit such an
application
Before final regulations adopting the provisions set forth in these
proposed regulations are issued, plan sponsors requesting the use of
substitute mortality tables should continue to use the procedures set
forth in Rev. Proc. 2008-62. During that period, the IRS will not
evaluate whether a substitute mortality table for a population with
only partially credible mortality information is appropriate.
Applicability Date
These regulations are proposed to apply to plan years beginning on
or after January 1, 2018. Under the proposed regulations, a plan
sponsor may use a substitute mortality table for a plan year beginning
on or after January 1, 2018 only if that substitute mortality table is
approved as provided in these proposed regulations.
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 Printing Office, Washington, DC 20402, or by visiting the
IRS Web site at www.irs.gov.
Special Analyses
Certain IRS regulations, including this one, are exempt from the
requirements of Executive Order 12866, as supplemented and reaffirmed
by Executive Order 13563. Therefore, a regulatory assessment is not
required. The regulations do not impose a collection of information on
small entities, therefore the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to section 7805(f) of the Internal
Revenue Code, this notice of proposed rulemaking will be submitted to
the Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to Treasury and the IRS as prescribed in this preamble in the ADDRESSES
section.
[[Page 95919]]
Treasury and the IRS request comments on all aspects of these proposed
regulations. All comments will be available for public inspection and
copying at www.regulations.gov or upon request.
A public hearing on these proposed regulations has been scheduled
for April 13, 2017 beginning at 10 a.m. in the Auditorium, Internal
Revenue Service, 1111 Constitution Avenue NW., Washington, DC 20224.
Due to building security procedures, visitors must enter at the
Constitution Avenue entrance. In addition, all visitors must present
photo identification to enter the building. Because of access
restrictions, visitors will not be admitted beyond the immediate
entrance area more than 30 minutes before the hearing starts. For
information about having your name placed on the building access list
to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section
of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments at the hearing must submit written or
electronic comments by March 29, 2017, and an outline of topics to be
discussed and the amount of time to be devoted to each topic by March
29, 2017. A period of 10 minutes will be allotted to each person for
making comments. An agenda showing the scheduling of the speakers will
be prepared after the deadline for receiving outlines has passed.
Copies of the agenda will be available free of charge at the hearing.
Drafting Information
The principal authors of these regulations are Thomas Morgan and
Linda S. F. Marshall of Office of Associate Chief Counsel (Tax Exempt
and Government Entities). 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, 26 CFR part 1 is proposed to be amended 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)-1 is revised to read as follows:
Sec. 1.430(h)(3)-1 Mortality tables used to determine present value.
(a) Basis for mortality tables--(1) In general. This section sets
forth rules for the mortality tables to be used in determining present
value or making any computation under section 430. Generally applicable
mortality tables for participants and beneficiaries are set forth in
this section pursuant to section 430(h)(3)(A). In general, either the
generational mortality tables set forth in paragraph (a)(2) of this
section or the static mortality tables set forth in paragraph (a)(3) of
this section must be used for a plan. In lieu of using the mortality
tables provided under this section with respect to participants and
beneficiaries, plan-specific substitute mortality tables are permitted
to be used for this purpose pursuant to section 430(h)(3)(C), provided
that the requirements of Sec. 1.430(h)(3)-2 are satisfied. Mortality
tables that may be used with respect to disabled individuals are to be
provided in guidance published in the Internal Revenue Bulletin. See
Sec. 601.601(d)(2)(ii)(b) of this chapter.
(2) Generational mortality tables--(i) In general--(A) Use of
generational mortality tables. The generational mortality tables that
are permitted to be used under section 430(h)(3)(A) and paragraph
(a)(1) of this section are determined using the base mortality tables
described in paragraph (a)(2)(i)(B) of this section and the mortality
improvement rates described in paragraph (a)(2)(i)(C) of this section.
(B) Base mortality tables. The base mortality tables are set forth
in paragraph (d) of this section. The base year for those tables is
2006.
(C) Mortality improvement rates. The mortality improvement rates
for valuation dates occurring during 2018 are the mortality improvement
rates contained in the Mortality Improvement Scale MP-2016 Report
(issued by the Retirement Plans Experience Committee (RPEC) of the
Society of Actuaries and available at www.soa.org/Research/Experience-Study/Pension/research-2016-mp.aspx). For later years, updated
mortality improvement rates that take into account new data for
mortality improvement trends of the general population are to be
provided in guidance published in the Internal Revenue Bulletin. See
Sec. 601.601(d)(2)(ii)(b) of this chapter.
(D) Application of mortality improvement rates. Under the
generational mortality tables described in this paragraph (a)(2), the
probability of an individual's death at a particular age in the future
is determined as the individual's base mortality rate that applies at
that age (that is, the applicable mortality rate from the table set
forth in paragraph (d) of this section for that age, gender, and status
as an annuitant or a nonannuitant) multiplied by the cumulative
mortality improvement factor for the individual's gender and for that
age for the period from 2006 through the calendar year in which the
individual is projected to reach the particular age. Paragraph
(a)(2)(ii) of this section shows how the base mortality tables in
paragraph (d) of this section and the mortality improvement rates for
valuation dates occurring during 2018 are combined to determine
projected mortality rates.
(E) Cumulative mortality improvement factor. The cumulative
mortality improvement factor for an age and gender for a period is the
product of the annual mortality improvement factors for that age and
gender for each year within that period.
(F) Annual mortality improvement factor. The annual mortality
improvement factor for an age and gender for a year is 1 minus the
mortality improvement rate that applies for that age and gender for
that year.
(ii) Example of calculation--(A) Calculation of mortality rate. The
mortality rate for 2018 that is applied to male annuitants who are age
66 in 2018 is equal to the product of the mortality rate for 2006 that
applied to male annuitants who were age 66 in 2006 (0.013855) and the
cumulative mortality improvement factor for age 66 males from 2006 to
2018. The cumulative mortality improvement factor for age 66 males for
the period from 2006 to 2018 is 0.8929, and the mortality rate for 2018
for male annuitants who are age 66 in that year would be 0.012371, as
shown in the following table.
[[Page 95920]]
----------------------------------------------------------------------------------------------------------------
Annual
Scale MP-2016 mortality Cumulative
mortality improvement mortality
Calendar year improvement factor (1- improvement Mortality rate
rate scale MP-2016 factor
rate)
----------------------------------------------------------------------------------------------------------------
2006............................................ n/a n/a n/a 0.013855
2007............................................ 0.0237 0.9763 0.9763
2008............................................ 0.0211 0.9789 0.9557
2009............................................ 0.0180 0.9820 0.9385
2010............................................ 0.0142 0.9858 0.9252
2011............................................ 0.0099 0.9901 0.9160
2012............................................ 0.0053 0.9947 0.9112
2013............................................ 0.0043 0.9957 0.9072
2014............................................ 0.0035 0.9965 0.9041
2015............................................ 0.0030 0.9970 0.9014
2016............................................ 0.0028 0.9972 0.8988
2017............................................ 0.0030 0.9970 0.8961
2018............................................ 0.0036 0.9964 0.8929 0.012371
----------------------------------------------------------------------------------------------------------------
(B) Probability of survival for an individual. After the projected
mortality rates are derived for each age for each year, the rates are
used to calculate the present value of a benefit stream that depends on
the probability of survival year-by-year. For example, for purposes of
calculating the present value (for a 2018 valuation date) of future
payments in a benefit stream payable for a male annuitant who is age 66
in 2018, the probability of survival for the annuitant is based on the
mortality rate for a male annuitant who is age 66 in 2018 (0.012371),
and the projected mortality rate for a male annuitant who will be age
67 in 2019 (0.013302), age 68 in 2020 (0.014321), and so on.
(3) Static mortality tables. The static mortality tables that are
permitted to be used under section 430(h)(3)(A) and paragraph (a)(1) of
this section are updated annually by the IRS according to the
methodology described in paragraph (c)(2) of this section. Paragraph
(e) of this section sets forth static tables that are permitted to be
used for valuation dates in 2018. For valuation dates in later years,
static mortality tables are to be provided in guidance published in the
Internal Revenue Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this
chapter.
(b) Use of the tables--(1) Separate tables for annuitants and
nonannuitants--(i) In general. Separate tables are provided for use for
annuitants and nonannuitants. The nonannuitant mortality table is
applied to determine the probability of survival for a nonannuitant for
the period before the nonannuitant is projected to commence receiving
benefits. The annuitant mortality table is applied to determine the
present value of benefits for each annuitant. In addition, the
annuitant mortality table is applied for each nonannuitant with respect
to each assumed commencement of benefits for the period beginning with
that assumed commencement. For purposes of this section, an annuitant
means a plan participant who has commenced receiving benefits and a
nonannuitant means a plan participant who has not yet commenced
receiving benefits (for example, an active employee or a terminated
vested participant). A participant whose benefit has partially
commenced is treated as an annuitant with respect to the portion of the
benefit that has commenced and treated as a nonannuitant with respect
to the balance of the benefit. In addition, with respect to a
beneficiary of a participant, the annuitant mortality table applies for
the period beginning with each assumed commencement of benefits for the
participant. If the participant has died (or to the extent the
participant is assumed to die before commencing benefits), the
annuitant mortality table applies with respect to the beneficiary for
the period beginning with each assumed commencement of benefits for the
beneficiary.
(ii) Examples of calculation using separate annuitant and
nonannuitant tables. With respect to a 45-year-old active participant
who is projected to commence receiving an annuity at age 55, the
funding target is determined using the nonannuitant mortality table for
the period before the participant attains age 55 (so that, if the
static mortality tables are used pursuant to paragraph (a)(3) of this
section, the probability of an active male participant living from age
45 to age 55 using the table that applies for a valuation date in 2018
is 0.988857) and using the annuitant mortality table for the period
ages 55 and above. Similarly, for a 45-year-old terminated vested
participant who is projected to commence an annuity at age 65, the
funding target is determined using the nonannuitant mortality table for
the period before the participant attains age 65 and using the
annuitant mortality table for ages 65 and above.
(2) Small plan tables. If static mortality tables are used pursuant
to paragraph (a)(3) of this section, as an alternative to the separate
static tables specified for annuitants and nonannuitants pursuant to
paragraph (b)(1) of this section, combined static tables that apply the
same mortality rates to both annuitants and nonannuitants are permitted
to be used for a small plan. For this purpose, a small plan is defined
as a plan with 500 or fewer total participants (including both active
and inactive participants and beneficiaries of deceased participants)
on the valuation date. The combined static tables that are permitted to
be used for small plans pursuant to this paragraph (b)(2) are
constructed from the separate nonannuitant and annuitant static
mortality tables using the weighting factors for small plans that are
set forth in paragraph (d) of this section. The weighting factors are
applied to develop these combined static tables using the following
equation: Combined mortality rate = [nonannuitant rate * (1- weighting
factor)] + [annuitant rate * weighting factor].
(c) Static tables--(1) Source of rates. The static mortality tables
that are used pursuant to paragraph (a)(3) of this section are
determined using the base mortality tables described in paragraph
(a)(2)(i)(B) of this section taking into account the mortality
improvement rates described in paragraph (a)(2)(i)(C) of this section,
in accordance with the rules set forth in paragraph (c)(3) of this
section.
(2) Selection of static tables. The static mortality tables that
are used for a valuation date are the static mortality tables for the
calendar year that contains the valuation date.
[[Page 95921]]
(3) Projection of mortality improvements--(i) General rule. Except
as provided in paragraph (c)(3)(iii) of this section, the static
mortality tables for a calendar year are determined by multiplying the
applicable mortality rate for each age from the base mortality tables
by both--
(A) The cumulative mortality improvement factor (determined under
the rules of paragraph (a)(2) of this section) for the period from 2006
through that calendar year; and
(B) The cumulative mortality improvement factor (determined under
the rules of paragraph (a)(2) of this section) for the period beginning
in that calendar year and continuing beyond that calendar year for the
number of years in the projection period described in paragraph
(c)(3)(ii) of this section.
(ii) Projection period for static mortality tables--(A) In general.
The projection period is 8 years for males and 9 years for females, as
adjusted based on age as provided in paragraph (c)(3)(ii)(B) of this
section.
(B) Age adjustment. For ages below 80, the projection period is
increased by 1 year for each year below age 80. For ages above 80, the
projection period is reduced (but not below zero) by \1/3\ year for
each year above 80.
(iii) Fractional projection periods. If for an age the number of
years in the projection period determined under this paragraph (c)(3)
is not a whole number, then the mortality rate for that age is
determined by using linear interpolation between--
(A) The mortality rate for that age that would be determined under
paragraph (c)(3)(i) of this section if the number of years in the
projection period were the next lower whole number; and
(B) The mortality rate for that age that would be determined under
paragraph (c)(3)(i) of this section if the number of years in the
projection period were the next higher whole number.
(iv) Example. For example, at age 85 the projection period for a
male is 6\1/3\ years (8 years minus \1/3\ year for each of the 5 years
above age 80). For a valuation date in 2018, the mortality rate in the
static mortality table for an 85-year-old male is based on a projection
of mortality improvement for 6\1/3\ years beyond 2018. Under paragraph
(c)(3)(iii) of this section, the mortality rate for an 85-year-old male
annuitant in the static mortality table for 2018 is \2/3\ times the
projected mortality rate for a male annuitant that age in 2024 plus \1/
3\ times the projected mortality rate for a male annuitant that age in
2025. Accordingly, the mortality rate for an 85-year-old male annuitant
in the static mortality table for 2018 is 0.075196 (\2/3\ times the
projected mortality rate for an 85-year old male annuitant in 2024
(0.075447) plus \1/3\ times the projected mortality rate for an 85-year
old male annuitant in 2025 (0.074693)).
(d) Base mortality tables. The following are the base mortality
tables. The base year for these tables is 2006.
----------------------------------------------------------------------------------------------------------------
Males Females
----------------------------------------------------------------------------------------------------------------
Weighting Weighting
Non- factor Non- factor
Age annuitant Annuitant for small annuitant Annuitant for small
plans plans
----------------------------------------------------------------------------------------------------------------
0..................................... 0.008878 0.008878 0 0.007278 0.007278 0
1..................................... 0.000515 0.000515 0 0.000451 0.000451 0
2..................................... 0.000348 0.000348 0 0.000295 0.000295 0
3..................................... 0.000289 0.000289 0 0.000220 0.000220 0
4..................................... 0.000225 0.000225 0 0.000165 0.000165 0
5..................................... 0.000197 0.000197 0 0.000149 0.000149 0
6..................................... 0.000177 0.000177 0 0.000137 0.000137 0
7..................................... 0.000156 0.000156 0 0.000127 0.000127 0
8..................................... 0.000132 0.000132 0 0.000117 0.000117 0
9..................................... 0.000107 0.000107 0 0.000109 0.000109 0
10.................................... 0.000090 0.000090 0 0.000102 0.000102 0
11.................................... 0.000095 0.000095 0 0.000105 0.000105 0
12.................................... 0.000142 0.000142 0 0.000121 0.000121 0
13.................................... 0.000187 0.000187 0 0.000137 0.000137 0
14.................................... 0.000230 0.000230 0 0.000151 0.000151 0
15.................................... 0.000274 0.000274 0 0.000165 0.000165 0
16.................................... 0.000318 0.000318 0 0.000177 0.000177 0
17.................................... 0.000364 0.000364 0 0.000187 0.000187 0
18.................................... 0.000412 0.000412 0 0.000196 0.000196 0
19.................................... 0.000463 0.000463 0 0.000202 0.000202 0
20.................................... 0.000510 0.000510 0 0.000202 0.000202 0
21.................................... 0.000552 0.000552 0 0.000197 0.000197 0
22.................................... 0.000587 0.000587 0 0.000191 0.000191 0
23.................................... 0.000599 0.000599 0 0.000190 0.000190 0
24.................................... 0.000594 0.000594 0 0.000188 0.000188 0
25.................................... 0.000545 0.000545 0 0.000186 0.000186 0
26.................................... 0.000510 0.000510 0 0.000186 0.000186 0
27.................................... 0.000486 0.000486 0 0.000188 0.000188 0
28.................................... 0.000472 0.000472 0 0.000192 0.000192 0
29.................................... 0.000468 0.000468 0 0.000198 0.000198 0
30.................................... 0.000470 0.000470 0 0.000209 0.000209 0
31.................................... 0.000480 0.000480 0 0.000222 0.000222 0
32.................................... 0.000495 0.000495 0 0.000238 0.000238 0
33.................................... 0.000514 0.000514 0 0.000257 0.000257 0
34.................................... 0.000534 0.000534 0 0.000278 0.000278 0
35.................................... 0.000557 0.000557 0 0.000301 0.000301 0
36.................................... 0.000581 0.000581 0 0.000325 0.000325 0
37.................................... 0.000611 0.000611 0 0.000355 0.000355 0
38.................................... 0.000648 0.000648 0 0.000389 0.000389 0
39.................................... 0.000694 0.000694 0 0.000428 0.000428 0
40.................................... 0.000750 0.000750 0 0.000471 0.000471 0
[[Page 95922]]
41.................................... 0.000814 0.000823 .0045 0.000518 0.000515 0
42.................................... 0.000890 0.000969 .0091 0.000570 0.000603 0
43.................................... 0.000982 0.001188 .0136 0.000628 0.000735 0
44.................................... 0.001088 0.001480 .0181 0.000691 0.000911 0
45.................................... 0.001207 0.001846 .0226 0.000758 0.001131 .0084
46.................................... 0.001342 0.002285 .0272 0.000831 0.001395 .0167
47.................................... 0.001487 0.002797 .0317 0.000908 0.001703 .0251
48.................................... 0.001643 0.003382 .0362 0.000986 0.002055 .0335
49.................................... 0.001807 0.004040 .0407 0.001065 0.002451 .0419
50.................................... 0.001979 0.004771 .0453 0.001151 0.002891 .0502
51.................................... 0.002159 0.005059 .0498 0.001242 0.002993 .0586
52.................................... 0.002351 0.005343 .0686 0.001344 0.003124 .0744
53.................................... 0.002539 0.005592 .0953 0.001458 0.003291 .0947
54.................................... 0.002741 0.005839 .1288 0.001588 0.003499 .1189
55.................................... 0.002967 0.006102 .2066 0.001735 0.003755 .1897
56.................................... 0.003231 0.006399 .3173 0.001902 0.004065 .2857
57.................................... 0.003548 0.006746 .3780 0.002091 0.004435 .3403
58.................................... 0.003932 0.007155 .4401 0.002302 0.004869 .3878
59.................................... 0.004396 0.007639 .4986 0.002537 0.005373 .4360
60.................................... 0.004954 0.008211 .5633 0.002795 0.005942 .4954
61.................................... 0.005616 0.008878 .6338 0.003080 0.006581 .5805
62.................................... 0.006392 0.009646 .7103 0.003388 0.007283 .6598
63.................................... 0.007291 0.010523 .7902 0.003724 0.008043 .7520
64.................................... 0.008320 0.011514 .8355 0.004089 0.008870 .8043
65.................................... 0.009486 0.012621 .8832 0.004482 0.009760 .8552
66.................................... 0.010668 0.013855 .9321 0.005004 0.010731 .9118
67.................................... 0.011973 0.015221 .9510 0.005575 0.011790 .9367
68.................................... 0.013414 0.016736 .9639 0.006205 0.012952 .9523
69.................................... 0.015006 0.018421 .9714 0.006898 0.014226 .9627
70.................................... 0.016761 0.020288 .9740 0.007662 0.015628 .9661
71.................................... 0.018690 0.022348 .9766 0.008507 0.017170 .9695
72.................................... 0.020824 0.024638 .9792 0.009438 0.018861 .9729
73.................................... 0.023176 0.027176 .9818 0.010470 0.020723 .9763
74.................................... 0.025770 0.029992 .9844 0.011615 0.022780 .9797
75.................................... 0.028623 0.033113 .9870 0.012887 0.025057 .9830
76.................................... 0.031761 0.036585 .9896 0.014301 0.027590 .9864
77.................................... 0.035214 0.040457 .9922 0.015885 0.030438 .9898
78.................................... 0.039007 0.044778 .9948 0.017656 0.033653 .9932
79.................................... 0.043169 0.049605 .9974 0.019639 0.037296 .9966
80.................................... 0.047750 0.055022 1.0 0.021859 0.041440 1.0
81.................................... 0.049804 0.061087 1.0 0.023791 0.046181 1.0
82.................................... 0.053911 0.067902 1.0 0.027655 0.051564 1.0
83.................................... 0.060072 0.075550 1.0 0.033451 0.057714 1.0
84.................................... 0.068286 0.084162 1.0 0.041179 0.064709 1.0
85.................................... 0.078554 0.093775 1.0 0.050838 0.072601 1.0
86.................................... 0.090876 0.104507 1.0 0.062429 0.081490 1.0
87.................................... 0.105251 0.116487 1.0 0.075952 0.091444 1.0
88.................................... 0.121680 0.129770 1.0 0.091407 0.102470 1.0
89.................................... 0.140162 0.144470 1.0 0.108794 0.114635 1.0
90.................................... 0.160698 0.160698 1.0 0.128113 0.128113 1.0
91.................................... 0.177741 0.177741 1.0 0.142619 0.142619 1.0
92.................................... 0.195154 0.195154 1.0 0.157939 0.157939 1.0
93.................................... 0.212642 0.212642 1.0 0.173886 0.173886 1.0
94.................................... 0.230055 0.230055 1.0 0.190319 0.190319 1.0
95.................................... 0.247257 0.247257 1.0 0.207191 0.207191 1.0
96.................................... 0.265940 0.265940 1.0 0.225057 0.225057 1.0
97.................................... 0.284940 0.284940 1.0 0.243507 0.243507 1.0
98.................................... 0.304432 0.304432 1.0 0.262587 0.262587 1.0
99.................................... 0.324272 0.324272 1.0 0.282171 0.282171 1.0
100................................... 0.344364 0.344364 1.0 0.302162 0.302162 1.0
101................................... 0.364420 0.364420 1.0 0.322282 0.322282 1.0
102................................... 0.384058 0.384058 1.0 0.342371 0.342371 1.0
103................................... 0.403188 0.403188 1.0 0.362210 0.362210 1.0
104................................... 0.421533 0.421533 1.0 0.381534 0.381534 1.0
105................................... 0.438903 0.438903 1.0 0.400321 0.400321 1.0
106................................... 0.455492 0.455492 1.0 0.418418 0.418418 1.0
107................................... 0.470810 0.470810 1.0 0.435390 0.435390 1.0
108................................... 0.484965 0.484965 1.0 0.451459 0.451459 1.0
109................................... 0.498023 0.498023 1.0 0.466408 0.466408 1.0
110................................... 0.509768 0.509768 1.0 0.480123 0.480123 1.0
111................................... 0.512472 0.512472 1.0 0.492664 0.492664 1.0
[[Page 95923]]
112................................... 0.509296 0.509296 1.0 0.503970 0.503970 1.0
113................................... 0.506193 0.506193 1.0 0.507361 0.507361 1.0
114................................... 0.503061 0.503061 1.0 0.503564 0.503564 1.0
115................................... 0.500000 0.500000 1.0 0.500000 0.500000 1.0
116................................... 0.500000 0.500000 1.0 0.500000 0.500000 1.0
117................................... 0.500000 0.500000 1.0 0.500000 0.500000 1.0
118................................... 0.500000 0.500000 1.0 0.500000 0.500000 1.0
119................................... 0.500000 0.500000 1.0 0.500000 0.500000 1.0
120................................... 1.000000 1.000000 1.0 1.000000 1.000000 1.0
----------------------------------------------------------------------------------------------------------------
(e) Static tables for 2018. The following static mortality tables
are used pursuant to paragraph (a)(3) of this section for determining
present value or making any computation under section 430 with respect
to valuation dates occurring during 2018.
----------------------------------------------------------------------------------------------------------------
Males Females
----------------------------------------------------------------------------------------------------------------
Optional Optional
Non- combined Non- combined
Age annuitant Annuitant table for annuitant Annuitant table for
small plans small plans
----------------------------------------------------------------------------------------------------------------
0................................. 0.002420 0.002420 0.002420 0.002234 0.002234 0.002234
1................................. 0.000142 0.000142 0.000142 0.000140 0.000140 0.000140
2................................. 0.000097 0.000097 0.000097 0.000092 0.000092 0.000092
3................................. 0.000081 0.000081 0.000081 0.000070 0.000070 0.000070
4................................. 0.000064 0.000064 0.000064 0.000053 0.000053 0.000053
5................................. 0.000056 0.000056 0.000056 0.000048 0.000048 0.000048
6................................. 0.000051 0.000051 0.000051 0.000045 0.000045 0.000045
7................................. 0.000046 0.000046 0.000046 0.000042 0.000042 0.000042
8................................. 0.000039 0.000039 0.000039 0.000039 0.000039 0.000039
9................................. 0.000032 0.000032 0.000032 0.000037 0.000037 0.000037
10................................ 0.000027 0.000027 0.000027 0.000035 0.000035 0.000035
11................................ 0.000029 0.000029 0.000029 0.000036 0.000036 0.000036
12................................ 0.000044 0.000044 0.000044 0.000042 0.000042 0.000042
13................................ 0.000058 0.000058 0.000058 0.000048 0.000048 0.000048
14................................ 0.000072 0.000072 0.000072 0.000053 0.000053 0.000053
15................................ 0.000087 0.000087 0.000087 0.000059 0.000059 0.000059
16................................ 0.000102 0.000102 0.000102 0.000064 0.000064 0.000064
17................................ 0.000118 0.000118 0.000118 0.000068 0.000068 0.000068
18................................ 0.000135 0.000135 0.000135 0.000072 0.000072 0.000072
19................................ 0.000153 0.000153 0.000153 0.000075 0.000075 0.000075
20................................ 0.000170 0.000170 0.000170 0.000076 0.000076 0.000076
21................................ 0.000192 0.000192 0.000192 0.000078 0.000078 0.000078
22................................ 0.000214 0.000214 0.000214 0.000080 0.000080 0.000080
23................................ 0.000229 0.000229 0.000229 0.000084 0.000084 0.000084
24................................ 0.000238 0.000238 0.000238 0.000087 0.000087 0.000087
25................................ 0.000230 0.000230 0.000230 0.000090 0.000090 0.000090
26................................ 0.000226 0.000226 0.000226 0.000094 0.000094 0.000094
27................................ 0.000226 0.000226 0.000226 0.000099 0.000099 0.000099
28................................ 0.000230 0.000230 0.000230 0.000105 0.000105 0.000105
29................................ 0.000238 0.000238 0.000238 0.000111 0.000111 0.000111
30................................ 0.000249 0.000249 0.000249 0.000120 0.000120 0.000120
31................................ 0.000263 0.000263 0.000263 0.000130 0.000130 0.000130
32................................ 0.000278 0.000278 0.000278 0.000142 0.000142 0.000142
33................................ 0.000294 0.000294 0.000294 0.000155 0.000155 0.000155
34................................ 0.000309 0.000309 0.000309 0.000168 0.000168 0.000168
35................................ 0.000323 0.000323 0.000323 0.000182 0.000182 0.000182
36................................ 0.000336 0.000336 0.000336 0.000196 0.000196 0.000196
37................................ 0.000350 0.000350 0.000350 0.000213 0.000213 0.000213
38................................ 0.000366 0.000366 0.000366 0.000231 0.000231 0.000231
39................................ 0.000385 0.000385 0.000385 0.000251 0.000251 0.000251
40................................ 0.000410 0.000410 0.000410 0.000273 0.000273 0.000273
41................................ 0.000438 0.000443 0.000438 0.000298 0.000296 0.000298
42................................ 0.000474 0.000516 0.000474 0.000326 0.000344 0.000326
43................................ 0.000518 0.000627 0.000519 0.000358 0.000419 0.000358
44................................ 0.000573 0.000779 0.000577 0.000395 0.000520 0.000395
45................................ 0.000636 0.000973 0.000644 0.000436 0.000651 0.000438
46................................ 0.000712 0.001213 0.000726 0.000484 0.000813 0.000489
47................................ 0.000798 0.001502 0.000820 0.000538 0.001010 0.000550
48................................ 0.000896 0.001844 0.000930 0.000597 0.001245 0.000619
49................................ 0.001005 0.002248 0.001056 0.000661 0.001522 0.000697
50................................ 0.001128 0.002719 0.001200 0.000734 0.001844 0.000790
[[Page 95924]]
51................................ 0.001265 0.002963 0.001350 0.000814 0.001961 0.000881
52................................ 0.001418 0.003224 0.001542 0.000903 0.002099 0.000992
53................................ 0.001580 0.003481 0.001761 0.001003 0.002263 0.001122
54................................ 0.001761 0.003751 0.002017 0.001114 0.002454 0.001273
55................................ 0.001964 0.004040 0.002393 0.001235 0.002673 0.001508
56................................ 0.002200 0.004357 0.002884 0.001367 0.002921 0.001811
57................................ 0.002474 0.004704 0.003317 0.001509 0.003200 0.002084
58................................ 0.002796 0.005088 0.003805 0.001661 0.003512 0.002379
59................................ 0.003174 0.005515 0.004341 0.001823 0.003860 0.002711
60................................ 0.003613 0.005989 0.004951 0.001994 0.004238 0.003106
61................................ 0.004122 0.006516 0.005639 0.002181 0.004659 0.003619
62................................ 0.004705 0.007100 0.006406 0.002381 0.005119 0.004188
63................................ 0.005364 0.007742 0.007243 0.002600 0.005616 0.004868
64................................ 0.006111 0.008457 0.008071 0.002842 0.006165 0.005515
65................................ 0.006940 0.009234 0.008966 0.003107 0.006766 0.006236
66................................ 0.007779 0.010103 0.009945 0.003465 0.007430 0.007080
67................................ 0.008697 0.011056 0.010940 0.003863 0.008170 0.007897
68................................ 0.009709 0.012114 0.012027 0.004308 0.008993 0.008770
69................................ 0.010836 0.013302 0.013231 0.004806 0.009912 0.009722
70................................ 0.012093 0.014637 0.014571 0.005366 0.010945 0.010756
71................................ 0.013486 0.016126 0.016064 0.006001 0.012111 0.011925
72................................ 0.015044 0.017799 0.017742 0.006711 0.013412 0.013230
73................................ 0.016794 0.019693 0.019640 0.007521 0.014886 0.014711
74................................ 0.018751 0.021823 0.021775 0.008439 0.016552 0.016387
75................................ 0.020950 0.024237 0.024194 0.009485 0.018443 0.018291
76................................ 0.023428 0.026986 0.026949 0.010678 0.020600 0.020465
77................................ 0.026183 0.030081 0.030051 0.012035 0.023061 0.022949
78................................ 0.029308 0.033645 0.033622 0.013582 0.025888 0.025804
79................................ 0.032774 0.037661 0.037648 0.015347 0.029144 0.029097
80................................ 0.036705 0.042295 0.042295 0.017347 0.032886 0.032886
81................................ 0.038556 0.047291 0.047291 0.019058 0.036992 0.036992
82................................ 0.042087 0.053009 0.053009 0.022345 0.041662 0.041662
83................................ 0.047283 0.059466 0.059466 0.027251 0.047017 0.047017
84................................ 0.054248 0.066860 0.066860 0.033811 0.053130 0.053130
85................................ 0.062990 0.075196 0.075196 0.042053 0.060056 0.060056
86................................ 0.073605 0.084646 0.084646 0.052009 0.067888 0.067888
87................................ 0.086115 0.095308 0.095308 0.063725 0.076724 0.076724
88................................ 0.100513 0.107196 0.107196 0.077205 0.086549 0.086549
89................................ 0.116840 0.120431 0.120431 0.092462 0.097426 0.097426
90................................ 0.135087 0.135087 0.135087 0.109484 0.109484 0.109484
91................................ 0.150610 0.150610 0.150610 0.122541 0.122541 0.122541
92................................ 0.166534 0.166534 0.166534 0.136397 0.136397 0.136397
93................................ 0.182546 0.182546 0.182546 0.150811 0.150811 0.150811
94................................ 0.198598 0.198598 0.198598 0.165818 0.165818 0.165818
95................................ 0.214442 0.214442 0.214442 0.181360 0.181360 0.181360
96................................ 0.232944 0.232944 0.232944 0.198746 0.198746 0.198746
97................................ 0.251903 0.251903 0.251903 0.216930 0.216930 0.216930
98................................ 0.271612 0.271612 0.271612 0.235921 0.235921 0.235921
99................................ 0.291889 0.291889 0.291889 0.255617 0.255617 0.255617
100............................... 0.312680 0.312680 0.312680 0.275938 0.275938 0.275938
101............................... 0.333720 0.333720 0.333720 0.296628 0.296628 0.296628
102............................... 0.354570 0.354570 0.354570 0.317471 0.317471 0.317471
103............................... 0.375136 0.375136 0.375136 0.338385 0.338385 0.338385
104............................... 0.395172 0.395172 0.395172 0.358868 0.358868 0.358868
105............................... 0.413945 0.413945 0.413945 0.379183 0.379183 0.379183
106............................... 0.432145 0.432145 0.432145 0.398878 0.398878 0.398878
107............................... 0.449197 0.449197 0.449197 0.417703 0.417703 0.417703
108............................... 0.465497 0.465497 0.465497 0.435384 0.435384 0.435384
109............................... 0.480869 0.480869 0.480869 0.452108 0.452108 0.452108
110............................... 0.495080 0.495080 0.495080 0.467928 0.467928 0.467928
111............................... 0.500557 0.500557 0.500557 0.482562 0.482562 0.482562
112............................... 0.500454 0.500454 0.500454 0.496164 0.496164 0.496164
113............................... 0.500352 0.500352 0.500352 0.502110 0.502110 0.502110
114............................... 0.500201 0.500201 0.500201 0.500952 0.500952 0.500952
115............................... 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000
116............................... 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000
117............................... 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000
118............................... 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000
119............................... 0.500000 0.500000 0.500000 0.500000 0.500000 0.500000
120............................... 1.000000 1.000000 1.000000 1.000000 1.000000 1.000000
----------------------------------------------------------------------------------------------------------------
[[Page 95925]]
0
Par. 3. Section 1.430(h)(3)-2 is revised to read as follows:
Sec. 1.430(h)(3)-2 Plan-specific substitute mortality tables used to
determine present value.
(a) In general. This section sets forth rules for the use of
substitute mortality tables under section 430(h)(3)(C) in determining
any present value or making any computation under section 430 in
accordance with Sec. 1.430(h)(3)-1(a)(1). In order to use substitute
mortality tables, a plan sponsor must obtain approval to use substitute
mortality tables for the plan in accordance with the procedures set
forth in paragraph (b) of this section. Paragraph (c) of this section
sets forth rules for the development of substitute mortality tables,
including guidelines providing that a plan must have either full or
partial credibility in order to have sufficient credible mortality
information to use substitute mortality tables. Paragraph (d) of this
section describes the requirements for full credibility. Paragraph (e)
of this section describes the requirements for partial credibility.
Paragraph (f) of this section provides special rules for newly
affiliated plans not using substitute mortality tables. Paragraph (g)
of this section specifies the effective date and applicability date of
this section. The Commissioner may, in revenue rulings and procedures,
notices or other guidance published in the Internal Revenue Bulletin
(see Sec. 601.601(d)(2)(ii)(b) of this chapter), provide additional
guidance regarding approval and use of substitute mortality tables
under section 430(h)(3)(C) and related matters.
(b) Procedures for obtaining approval to use substitute mortality
tables--(1) Written request to use substitute mortality tables--(i)
General requirements. In order to use substitute mortality tables, a
plan sponsor must submit a written request to the Commissioner that
demonstrates that those substitute mortality tables meet the
requirements of section 430(h)(3)(C) and this section. This request
must specify the first plan year and the term of years (not more than
10) for which the tables are to apply.
(ii) Time for written request. Substitute mortality tables may not
be used for a plan year unless the plan sponsor submits the written
request described in paragraph (b)(1)(i) of this section at least 7
months prior to the first day of the first plan year for which the
substitute mortality tables are to apply.
(2) Commissioner's review of request--(i) In general. During the
180-day period that begins on the date the plan sponsor submits a
request to use substitute mortality tables for a plan pursuant to this
section, the Commissioner will determine whether the request to use
substitute mortality tables satisfies the requirements of this section
(including any published guidance issued pursuant to paragraph (a) of
this section), and will either approve or deny the request. The
Commissioner will deny a request if the request fails to meet the
requirements of this section or if the Commissioner determines that a
substitute mortality table does not sufficiently reflect the mortality
experience of the applicable plan population.
(ii) Request for additional information. The Commissioner may
request additional information with respect to the submission. Failure
to provide that information on a timely basis constitutes grounds for
denial of the request.
(iii) Deemed approval. Except as provided in paragraph (b)(2)(iv)
of this section, if the Commissioner does not issue a denial within the
180-day review period, the request is deemed to have been approved.
(iv) Extension of time permitted. The Commissioner and a plan
sponsor may, before the expiration of the 180-day review period, agree
in writing to extend that period, provided that any such agreement also
specifies any revisions in the plan sponsor's request, including any
change in the requested term of use of the substitute mortality tables.
(c) Development of substitute mortality tables--(1) Substitute
mortality tables must be used for all plans in controlled group--(i)
General rule. Except as otherwise provided in this paragraph (c),
substitute mortality tables are permitted to be used for a plan for a
plan year only if, for that plan year (or any portion of that plan
year), substitute mortality tables are also approved and used for each
other pension plan subject to the requirements of section 430 that is
maintained by the plan sponsor and by each member of the plan sponsor's
controlled group. For purposes of this section, the term controlled
group means any group treated as a single employer under paragraph (b),
(c), (m), or (o) of section 414.
(ii) Treatment of plans without credible mortality information. The
rule of paragraph (c)(1)(i) of this section does not prohibit use of
substitute mortality tables for one plan for a plan year if the only
other plan or plans maintained by the plan sponsor (or by a member of
the plan sponsor's controlled group) for which substitute mortality
tables are not used are too small to have fully or partially credible
mortality information for the plan year. For purposes of demonstrating
that neither males nor females under a plan have credible mortality
information for a plan year, the length of the experience study period
must be the same length as the longest experience study period used for
any plan within the controlled group.
(2) Mortality experience requirements--(i) In general. Substitute
mortality tables must reflect the actual mortality experience of the
pension plan for which the tables are to be used and that mortality
experience must be credible mortality information as described in
paragraph (c)(2)(ii) of this section. Separate mortality tables must be
established for each gender under the plan, and a substitute mortality
table is permitted to be established for a gender only if the plan has
credible mortality information with respect to that gender. See
paragraph (d)(5) of this section for rules permitting the use of
substitute mortality tables for populations within a gender that have
full credibility.
(ii) Credible mortality information--(A) In general. There is
credible mortality information for a gender within a plan if and only
if the mortality experience with respect to that gender satisfies the
requirement for either--
(1) Full credibility (as described in paragraph (d) of this
section); or
(2) Partial credibility (as described in paragraph (e) of this
section).
(B) Simplified rule. Whether there is credible mortality
information for a gender may be determined by only taking into account
people who are at least age 50 and less than age 100. If there is
credible mortality information for a gender when applying this
simplified rule, the entire gender (not just those who are at least age
50 and less than age 100) has credible mortality information.
(iii) Gender without credible mortality information--(A) In
general. If for a plan, one gender has credible mortality information
but for a plan year the other gender does not have credible mortality
information, then the substitute mortality tables are established for
the gender that does have credible mortality information and the
mortality tables under Sec. 1.430(h)(3)-1 are used for the gender that
does not have credible mortality information.
(B) Demonstration of lack of credible mortality information for a
gender. In general, in order to demonstrate that a gender within a plan
does not have credible mortality information for a plan year, the
demonstration that the gender within the plan has fewer than the
[[Page 95926]]
minimum number of actual deaths to have partial credibility, as
described in paragraph (e)(1) of this section, must be made by
analyzing the actual number of deaths over a period that is the same
length as the period for the experience study on which the substitute
mortality tables are based and that ends less than three years before
the first day of the plan year.
(3) Determination of substitute mortality tables--(i) Requirement
to use generational mortality table. A plan's substitute mortality
tables must be generational mortality tables. A plan's substitute
mortality tables are determined using the plan's base substitute
mortality tables developed pursuant to paragraph (d) or (e) of this
section and the mortality improvement factors described in paragraph
(c)(3)(ii) of this section.
(ii) Determination of mortality improvement factors. The mortality
improvement factor for an age and a gender is the cumulative mortality
improvement factor determined under Sec. 1.430(h)(3)-1(a)(2)(i)(E) for
the applicable period. The applicable period is the period beginning
with the base year of the base substitute mortality table determined
under paragraph (d) or (e) of this section and ending in the calendar
year in which the individual attains the age for which the probability
of death is being determined. The base year for the base substitute
mortality table is the calendar year that contains the day before the
midpoint of the experience study period.
(4) Disabled individuals. Under section 430(h)(3)(D), separate
mortality tables are permitted to be used for certain disabled
individuals. If such separate mortality tables are used for those
disabled individuals, then those individuals are disregarded for all
purposes under this section. Thus, if the mortality tables under
section 430(h)(3)(D) are used for disabled individuals under a plan,
mortality experience with respect to those individuals must be excluded
in developing mortality rates for substitute mortality tables under
this section.
(5) Aggregation--(i) Permissive aggregation of plans. A plan
sponsor may use a set of substitute mortality tables for two or more
its plans provided that the rules of this section are applied by
treating those plans as a single plan. In such a case, the substitute
mortality tables must be used for the aggregated plans and must be
based on data collected with respect to those aggregated plans.
(ii) Required aggregation of plans. In general, plans are not
required to be aggregated for purposes of applying the rules of this
section. However, for purposes of this section, a plan is required to
be aggregated with any plan that was previously spun off from that plan
if a purpose of the spinoff is to avoid the use of substitute mortality
tables for any of the plans that were involved in the spinoff.
(6) Duration of use of tables--(i) General rule. Except as provided
in this paragraph (c)(6), substitute mortality tables are used for a
plan for the term of consecutive plan years specified in the plan
sponsor's written request to use such tables under paragraph (b)(1) of
this section and approved by the Commissioner, or a shorter period
prescribed by the Commissioner in the approval to use substitute
mortality tables. Following the end of the approved term of use, or
following any early termination of use described in this paragraph
(c)(6), the mortality tables specified in Sec. 1.430(h)(3)-1 are used
for the plan unless approval under paragraph (b)(1) of this section has
been received by the plan sponsor to use substitute mortality tables
for a further term.
(ii) Early termination of use of tables. A plan's substitute
mortality tables must not be used beginning with the earliest of--
(A) For a plan using a substitute mortality table for only one
gender because of a lack of credible mortality information with respect
to the other gender, the first plan year for which there is credible
mortality information with respect to the gender that had lacked
credible mortality information (unless an approved substitute mortality
table is used for that gender);
(B) The first plan year for which the plan fails to satisfy the
requirements of paragraph (c)(1) of this section (regarding use of
substitute mortality tables by controlled group members);
(C) The second plan year following the plan year for which there is
a significant change in individuals covered by the plan as described in
paragraph (c)(6)(iii) of this section;
(D) The first plan year following the plan year for which a
substitute mortality table used for a plan population is no longer
accurately predictive of future mortality of that population, as
determined by the Commissioner or as certified by the plan's actuary to
the satisfaction of the Commissioner; or
(E) The date specified in guidance published in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter) in
conjunction with a replacement of mortality tables specified under
section 430(h)(3)(A) and Sec. 1.430(h)(3)-1 (other than annual updates
to the static mortality tables issued pursuant to Sec. 1.430(h)(3)-
1(a)(3) or changes to the mortality improvement rates pursuant to Sec.
1.430(h)(3)-1(a)(2)(i)(C)).
(iii) Significant change in coverage--(A) Change in coverage from
time of experience study. For purposes of applying the rules of
paragraph (c)(6)(ii)(C) of this section, a significant change in the
individuals covered by a substitute mortality table occurs if there is
an increase or decrease in the number of individuals of at least 20
percent compared to the average number of individuals in that
population over the years covered by the experience study on which the
substitute mortality tables are based. However, a change in coverage is
not treated as significant if the plan's actuary certifies in writing
to the satisfaction of the Commissioner that the substitute mortality
tables used for the plan population continue to be accurately
predictive of future mortality of that population (taking into account
the effect of the change in the population).
(B) Change in coverage from time of certification. For purposes of
applying the rules of paragraph (c)(6)(ii)(C) of this section, a
significant change in the individuals covered by a substitute mortality
table occurs if there is an increase or decrease in the number of
individuals covered by a substitute mortality table of at least 20
percent compared to the number of individuals in a plan year for which
a certification described in paragraph (c)(6)(iii)(A) of this section
was made on account of a prior change in coverage. However, a change in
coverage is not treated as significant if the plan's actuary certifies
in writing to the satisfaction of the Commissioner that the substitute
mortality tables used by the plan with respect to the covered
population continue to be accurately predictive of future mortality of
that population (taking into account the effect of the change in the
plan population).
(d) Full credibility--(1) In general. The mortality experience with
respect to a gender or other population within a plan has full
credibility if the actual number of deaths for that population during
the experience study period described in paragraph (d)(2) of this
section is at least the full credibility threshold described in
paragraph (d)(3) of this section. Paragraph (d)(4) of this section
provides rules for the creation of a base substitute mortality table
from the experience study, which apply if the mortality experience for
the population has full credibility.
(2) Experience study period requirements. The base substitute
[[Page 95927]]
mortality table for a gender or other population within a plan must be
developed from an experience study of the mortality experience of that
population that is collected over an experience study period. The
length of the experience study period must be at least 2 years and no
more than 5 years. The last day of the final year reflected in the
experience data must be less than 3 years before the first day of the
first plan year for which the substitute mortality tables are to apply.
For example, if July 1, 2019, is the first day of the first plan year
for which the substitute mortality tables will be used, then an
experience study using calendar year data must include data collected
for a period that ends no earlier than December 31, 2016.
(3) Full credibility threshold--(i) Threshold number of deaths. The
full credibility threshold for a gender or other population within a
plan is the product of 1,082 and the population's benefit dispersion
factor. In calculating the population's benefit dispersion factor, for
purposes of paragraphs (d)(3)(iii), (iv), and (v) of this section, the
population is adjusted, as appropriate, for people who leave on account
of reason other than death.
(ii) Population's benefit dispersion factor. The population's
benefit dispersion factor is equal to--
(A) The number of expected deaths for the population during the
experience study period (as defined in paragraph (d)(3)(iii) of this
section); multiplied by
(B) The mortality-weighted square of the benefits (as defined in
paragraph (d)(3)(iv) of this section); divided by
(C) The square of the mortality-weighted benefits (as defined in
paragraph (d)(3)(v) of this section).
(iii) Number of expected deaths. The number of expected deaths for
a population during the experience study period is equal to the sum,
for each year in the experience study period, of the expected number of
deaths in the population during the year using the mortality rates from
the standard mortality tables set forth in paragraph (d)(4)(iii) of
this section.
(iv) Mortality-weighted square of the benefits. The mortality-
weighted square of the benefits for a population is the sum, for each
year in the experience study period, for all individuals for each age
in the population at the beginning of the year, of the product of--
(A) The probability of death of those individuals using the
mortality rate for that age from the standard mortality table set forth
in paragraph (d)(4)(iii) of this section; and
(B) The sum of the square of the accrued benefits (substituting the
current periodic payment in the case of individuals in pay status) for
those individuals.
(v) Square of the mortality-weighted benefits. The square of the
mortality-weighted benefits is equal to the square of the sum, for each
year in the experience study period, for all individuals for each age
in the population at the beginning of the year, of the product of--
(A) The probability of death of those individuals using the
mortality rate for that age from the standard mortality table set forth
in paragraph (d)(4)(iii) of this section; and
(B) The sum of the accrued benefits (substituting the current
periodic payment in the case of individuals in pay status) for those
individuals.
(4) Development of mortality rates--(i) In general. The mortality
rates derived from the experience study must be amounts-weighted
mortality rates that are derived by multiplying the mortality rate from
the standard mortality table described in paragraph (d)(4)(iii) of this
section by the mortality ratio determined under paragraph (d)(4)(ii) of
this section. If the simplified rule of paragraph (c)(2)(ii)(B) of this
section is used for the population, then the mortality ratio is
determined only taking into account people who are at least 50 years
old and less than 100 years old, but the mortality ratio is applied to
all ages. Because amounts-weighted mortality rates for a plan cannot be
determined without benefit amounts, the mortality experience study used
to develop a base table must not include periods before the plan was
established.
(ii) Mortality ratio. The mortality ratio for a gender or other
population within a plan is equal to the quotient determined by
dividing--
(A) The sum, for each year in the experience study period, of the
accrued benefits (substituting the current periodic payment in the case
of individuals in pay status) for all individuals in the population at
the beginning of the year who died during the year, by
(B) The sum, for each year in the experience study period, for all
individuals for each age in the population at the beginning of the year
(adjusted, as appropriate, for people who leave on account of reason
other than death), of the product of--
(1) The probability of death of those individuals using the
mortality rate for that age from the standard mortality table set forth
in paragraph (d)(4)(iii) of this section; and
(2) The sum of the accrued benefits (substituting the current
periodic payment in the case of individuals in pay status) for those
individuals.
(iii) Standard mortality table--(A) Projection of base table. 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(a)(2)(i)(E) to the base mortality table under Sec.
1.430(h)(3)-1(d) for the period beginning with 2006 and ending in the
base year for the base substitute mortality table determined under
paragraph (d) or (e) of this section. For purposes of the previous
sentence, the cumulative mortality improvement factors are determined
using the mortality improvement rates described in Sec. 1.430(h)(3)-
1(a)(2)(i)(C) that apply for the calendar year during which the plan
sponsor submits the request to use substitute mortality tables. If the
plan sponsor submits such a request during 2017, then the cumulative
mortality improvement factors are determined using the mortality
improvement rates contained in the Mortality Improvement Scale MP-2016
Report (issued by the Retirement Plans Experience Committee (RPEC) of
the Society of Actuaries and available at www.soa.org/Research/Experience-Study/Pension/research-2016-mp.aspx).
(B) Selection of base table. If the population consists solely of
annuitants, the annuitant base mortality table under 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 under Sec. 1.430(h)(3)-1(d) must be
used for that purpose. If the population includes both annuitants and
non-annuitants, a combination of the annuitant and nonannuitant base
tables under 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].
(iv) Change in number of individuals covered by table. Experience
data may not be used to develop a base table if the number of
individuals in the population covered by the table (for example, the
male annuitant population) as of the last day of the plan year before
the year the request to use substitute mortality tables is made,
compared to the average number of individuals in that population over
the years covered by the experience study on which the
[[Page 95928]]
substitute mortality tables are based, reflects a difference of 20
percent or more, unless it is demonstrated to the satisfaction of the
Commissioner that the experience data is accurately predictive of
future mortality of that plan population (taking into account the
effect of the change in individuals) after appropriate adjustments to
the data are made (for example, excluding data from individuals with
respect to a spun-off portion of the plan). For this purpose, a
reasonable estimate of the number of individuals in the population
covered by the table may be used.
(5) Separate tables for specified populations--(i) In general.
Except as provided in this paragraph (d)(5), separate substitute
mortality tables are permitted to be used for separate populations
within a gender under a plan only if--
(A) All individuals of that gender in the plan are divided into
separate populations;
(B) Each separate population has mortality experience that has full
credibility as determined under the rules of paragraph (d)(5)(iii) of
this section; and
(C) The separate base substitute mortality table for each separate
population is developed applying the rules of paragraphs (d)(1) through
(4) of this section using an experience study that takes into account
solely members of that population.
(ii) Annuitant and nonannuitant separate populations.
Notwithstanding paragraph (d)(5)(i)(B) of this section, substitute
mortality tables for separate populations of annuitants and
nonannuitants within a gender may be used even if only one of those
separate populations has credible mortality information. Similarly, if
separate populations that satisfy paragraph (d)(5)(i)(B) of this
section are established, then any of those populations may be further
subdivided into separate annuitant and nonannuitant subpopulations,
provided that at least one of the two resulting subpopulations has
credible mortality experience. The standard mortality tables under
Sec. 1.430(h)(3)-1 are used for a resulting subpopulation that does
not have credible mortality information. For example, in the case of a
plan with mortality experience for both its male hourly and salaried
individuals that has full credibility, if the male salaried annuitant
population has credible mortality information, substitute mortality
tables may be used for the plan with respect to that population even if
the standard mortality tables under Sec. 1.430(h)(3)-1 are used with
respect to the male salaried nonannuitant population (because that
nonannuitant population does not have credible mortality information).
(iii) Credible mortality experience for separate populations. In
determining whether the mortality experience for a separate population
within a gender has full credibility, the requirements of paragraph
(d)(1) of this section must be satisfied but, in applying that
paragraph (d)(1), the separate population should be substituted for the
particular gender. In demonstrating that an annuitant or nonannuitant
population within a gender or within a separate population does not
have credible mortality information, the requirements of paragraph
(c)(2)(iii)(B) of this section must be satisfied but, in applying that
paragraph, the annuitant (or nonannuitant) population should be
substituted for the particular gender.
(e) Partial credibility--(1) In general. The mortality experience
with respect to a population has partial credibility if the actual
number of deaths for that population during the experience study period
described in paragraph (d)(2) of this section is at least equal to the
partial credibility threshold of 100 and is less than the full
credibility threshold described for the population in paragraph (d)(3)
of this section. If the mortality experience for the population has
partial credibility, then in lieu of creating a base substitute
mortality table as described in paragraph (d) of this section, the base
substitute mortality table is created as the sum of--
(i) The product of--
(A) The partial credibility weighting factor determined under
paragraph (e)(2) of this section; and
(B) The mortality rates that are derived from the experience study
determined under paragraph (d)(4)(i) of this section, and
(ii) The product of--
(A) One minus the partial credibility weighting factor described in
paragraph (e)(2) of this section; and
(B) The mortality rate from the standard mortality tables described
in paragraph (d)(4)(iii) of this section.
(2) Partial credibility weighting factor. The partial credibility
weighting factor is equal to the square root of the fraction--
(i) The numerator of which is the actual number of deaths for the
population during the experience study period, and
(ii) The denominator of which is the full credibility threshold for
the population described in paragraph (d)(3) of this section.
(f) Special rules for newly affiliated plans--(1) In general. This
paragraph (f) provides special rules that provide temporary relief from
certain rules in this section in the case of a controlled group that
includes a newly affiliated plan. Paragraph (f)(2) of this section
provides a transition period during which the requirement in paragraph
(c)(1) of this section (that is, the requirement that all plans within
the controlled group that have credible mortality information must use
substitute mortality tables) is not applicable. Paragraph (f)(3) of
this section provides special rules that permit the use of a shorter
experience study period in the case of a newly affiliated plan that
excludes the mortality experience data for the period prior to the date
the plan sponsor becomes maintained by a member of the new plan
sponsor's controlled group. Paragraph (f)(4) of this section defines
newly affiliated plan.
(2) Transition period for newly affiliated plans. The use of
substitute mortality tables for a plan within a controlled group is not
prohibited merely because substitute mortality tables are not used
during the transition period for a newly affiliated plan that fails to
demonstrate a lack of credible mortality information during the that
period. Similarly, during the transition period, the use of substitute
mortality tables for a newly affiliated plan is not prohibited merely
because substitute mortality tables are not used for another plan
within the controlled group that fails to demonstrate a lack of
credible mortality information during that period. The transition
period runs through the last day of the plan year that contains the
last day of the period described in section 410(b)(6)(C)(ii) for either
of the plans, whichever is later.
(3) Experience study period for newly affiliated plan--(i) In
general. The mortality experience data for a newly affiliated plan may
either include or exclude mortality experience data for the period
prior to the date the plan becomes maintained by a member of the new
plan sponsor's controlled group. If a plan sponsor excludes mortality
experience data for the period prior to the date the plan becomes
maintained within the new plan sponsor's controlled group, the
exclusion must apply for all populations within the plan.
(ii) Demonstration relating to lack of credible mortality
experience. If the experience study for a newly affiliated plan
excludes mortality experience data for the period prior to the date the
plan becomes maintained by a member of the new plan sponsor's
controlled group, then the demonstration that the plan does not have
credible mortality information for a plan year that begins
[[Page 95929]]
after the transition period can be made using a shorter experience
study period than would otherwise be permitted under paragraph
(c)(2)(iii)(B) of this section, provided that the experience study
period begins with the date the plan becomes maintained within the
sponsor's controlled group and ends not more than one year and one day
before the first day of the plan year.
(iii) Demonstration relating to credible mortality experience. If
the experience study for a newly affiliated plan excludes mortality
experience data for the period prior to the date the plan becomes
maintained by a member of the new plan sponsor's controlled group and
the plan fails to demonstrate that it does not have credible mortality
information for the plan year under the rules of paragraph (f)(3)(ii)
of this section, then other plans within the controlled group can
continue to use substitute mortality tables only if substitute
mortality tables are used for the newly affiliated plan the plan year.
In such a case, the experience study period can be a shorter period
than the period in paragraph (d)(2) of this section, provided that the
period is at least one year.
(4) Definition of newly affiliated plan. For purposes of this
paragraph (f), a plan is treated as a newly affiliated plan if it
becomes maintained by the plan sponsor (or by a member of the plan
sponsor's controlled group) in connection with a merger, acquisition,
or similar transaction described in Sec. 1.410(b)-2(f). A plan also is
treated as a newly affiliated plan for purposes of this section if the
plan is established in connection with a transfer of assets and
liabilities from another employer's plan in connection with a merger,
acquisition, or similar transaction described in Sec. 1.410(b)-2(f).
(g) Effective/applicability date. This section applies for plan
years beginning on or after January 1, 2018, and any substitute
mortality table used for a plan for such a plan year must comply with
the rules of this section.
0
Par. 4. Section 1.431(c)(6)-1 is revised to read as follows:
Sec. 1.431(c)(6)-1 Mortality tables used to determine current
liability.
(a) Mortality tables used to determine current liability. The
mortality assumptions that apply to a defined benefit plan for the plan
year pursuant to section 430(h)(3)(A) and Sec. 1.430(h)(3)-1(a) are
used to determine a multiemployer plan's current liability for purposes
of applying the rules of section 431(c)(6). Either the generational
mortality tables used pursuant to Sec. 1.430(h)(3)-1(a)(2) or the
static mortality tables used pursuant to Sec. 1.430(h)(3)-1(a)(3) are
permitted to be used for a multiemployer plan for this purpose.
However, for this purpose, substitute mortality tables under Sec.
1.430(h)(3)-2 are not permitted to be used for a multiemployer plan.
(b) Effective/applicability date. This section applies for plan
years beginning on or after January 1, 2018. For rules that apply to
plan years beginning before January 1, 2018 and on or after January 1,
2008, see Sec. 1.431(c)(6)-1 (as contained in 26 CFR part 1 revised
April 1, 2015).
0
Par. 5. Section 1.433(h)(3)-1 is added to read as follows:
Sec. 1.433(h)(3)-1 Mortality tables used to determine current
liability.
(a) Mortality tables used to determine current liability. In
accordance with section 433(h)(3)(B), the mortality assumptions that
apply to a defined benefit plan for the plan year pursuant to section
430(h)(3)(A) and Sec. 1.430(h)(3)-1(a) are used to determine a CSEC
plan's current liability for purposes of applying the rules of section
433(c)(7)(C). Either the static mortality tables used pursuant to Sec.
1.430(h)(3)-1(a)(3) or generational mortality tables used pursuant to
Sec. 1.430(h)(3)-1(a)(2) are permitted to be used for a CSEC plan for
this purpose, but substitute mortality tables under Sec. 1.430(h)(3)-2
are not permitted to be used for this purpose.
(b) Effective/applicability date. This section applies for plan
years beginning on or after January 1, 2018.
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-30906 Filed 12-28-16; 8:45 am]
BILLING CODE 4830-01-P
