[Federal Register Volume 82, Number 192 (Thursday, October 5, 2017)]
[Rules and Regulations]
[Pages 46388-46411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-21485]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD9826]
RIN 1545-BM71
Mortality Tables for Determining Present Value Under Defined
Benefit Pension Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final 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 a defined benefit
plan. These mortality tables are also relevant in determining the
minimum required amount of a lump-sum distribution from such a plan. In
addition, this document contains final regulations updating the
requirements that a plan sponsor must meet to obtain IRS approval to
use mortality tables specific to the plan for minimum funding purposes
(instead of using the generally applicable mortality tables). These
regulations affect participants in, beneficiaries of, employers
maintaining, and administrators of certain retirement plans.
DATES:
Effective date: These regulations are effective on October 5, 2017.
Applicability date: These regulations apply to plan years beginning
on or after January 1, 2018.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Arslan
Malik 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.
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
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 for a plan year by
reference to the plan's funding target for the plan year. Under section
430(d)(1), a plan's funding target for a plan year generally is the
present value of all benefits accrued or earned under the plan as of
the first day of that plan year.
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\1\ Section 302 of the Employee Retirement Income Security Act
of 1974, Public Law 93-406, 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 regulations for purposes
of ERISA, as well as the Code. Thus, these Treasury regulations
issued under section 430 of the Code also apply for purposes of
section 303 of ERISA.
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Section 430(h)(3) 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 must 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
[[Page 46389]]
430(h)(3)(B), the Secretary is required to make revisions to any 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.
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\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 to determine current liability
as part of the calculation of the minimum full funding limitation
under section 431(c)(6)(B)). These standards also apply for purposes
of determining current liability as part of the calculation of the
minimum full funding limitation under section 433(c)(7)(C) for a
CSEC plan (as defined in section 414(y)).
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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.
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.
Final regulations (TD 9419) under section 430(h)(3) were published
in the Federal Register for July 31, 2008 (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), as well as 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 that are used
to project mortality rates for years after the year 2000. The mortality
tables included in those regulations are based on the mortality tables
included in the RP-2000 Mortality Tables Report (based on an experience
study for the period 1990-1994 and referred to in this preamble as the
RP-2000 mortality tables) released by the Society of Actuaries in July
2000 (updated in May 2001). The mortality improvement rates included in
those regulations are the Scale AA Projection Factors (which are based
on mortality improvement for the period 1977 through 1993), which were
included in the RP-2000 Mortality Tables Report for use in conjunction
with the RP-2000 mortality tables.\3\
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\3\ The RP-2000 Mortality Tables Report is available at https://www.soa.org/experience-studies/2000-2004/research-rp-2000-mortality-tables/.
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The 2008 general mortality table regulations prescribe the use of
generational mortality tables,\4\ but include an option for plans to
use static mortality tables. 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 mortality tables. The 2008 general mortality table
regulations set forth static mortality tables for valuation dates
occurring in 2008 and provide that static mortality tables for
valuation dates occurring in later years will be published in the
Internal Revenue Bulletin. Static mortality tables for valuation dates
occurring during 2009-2013 were published in Notice 2008-85 (2008-1
C.B. 747 (March 28, 2008)). Updated static mortality tables for
valuation dates occurring during 2014 and 2015 were published in Notice
2013-49 (2013-32 I.R.B. 127 (July 10, 2013)). Updated static mortality
tables for valuation dates occurring in 2016 and 2017 were published in
Notice 2015-53 (2015-33 I.R.B. 190 (July 31, 2015)) and Notice 2016-50
(2016-38 I.R.B. 371 (September 2, 2016)), respectively.
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\4\ Generational mortality tables are a series of mortality
tables, one for each year of birth, each of which fully reflects
projected trends in mortality for individuals who are born in a
particular year.
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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. In addition, 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 were 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. The study, which is based on
mortality experience for the years 2004 to 2008, is referred to as the
RP-2014 Mortality Tables Report (and 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 the 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 the Scale MP-2015 rates, were
released as part of the Mortality Improvement Scale MP-2015 Report
(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 the 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 2012 and 2013, along with an estimate of
mortality rates for 2014. As described in the Mortality Improvement
Scale MP-2016 Report (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) permits a plan sponsor to request approval by
the Secretary to use plan-specific substitute mortality tables in lieu
of the generally applicable mortality tables. If the Secretary
determines that the proposed
[[Page 46390]]
tables meet the statutory standards and approves the request, the
substitute mortality tables are used to determine present values and
make computations under section 430 during the period of consecutive
plan years (not to exceed 10) specified in the request. Under the
statute, a substitute mortality table may be used for a plan, only if:
(1) The plan has a sufficient number of plan participants and has been
maintained for a sufficient period of time to have credible mortality
information necessary to create a substitute mortality table; and (2)
the table reflects the actual mortality experience of the plan's
participants and projected trends in general mortality experience.
Except as provided by the Secretary, a plan sponsor may not use
substitute mortality tables for any plan unless substitute mortality
tables are established and used for each plan maintained by the plan
sponsor or a member of its controlled group.
The 2008 substitute mortality table regulations provide for review
by the Commissioner of a plan sponsor's request for approval to use
substitute mortality tables. Under those regulations, 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 for approval to use substitute mortality tables must specify
the first plan year and the term of years for which the tables are
requested to be used.
Substitute mortality tables may not be used for a plan year unless
the plan sponsor submits the request at least 7 months before the first
day of the first plan year for which the substitute mortality tables
are to apply. The Commissioner has 180 days to review a request for
approval to use substitute mortality tables. If the Commissioner does
not deny the request 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.
Under the 2008 substitute mortality table regulations, substitute
mortality tables for a plan must be established separately for each
gender, and a substitute mortality table may be established for a
gender only if there is 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 generally applicable mortality tables are
used for the gender that does not have credible mortality experience.
Under the 2008 substitute mortality table regulations, there is
credible mortality experience with respect to a gender if and only if,
over the period covered by the experience study, there are at least
1,000 deaths of individuals of that gender.\5\ For this purpose, the
minimum length of the experience study period is 2 years and the
maximum length of the experience study period generally is 5 years.
Furthermore, 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.
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\5\ 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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Under the 2008 substitute mortality table regulations, development
of substitute mortality tables for a plan requires creation of a base
table and identification of a base year, which are then used to
determine the substitute mortality tables. The base table must be
developed from a study of the mortality experience of the plan using
amounts-weighted data. Under those regulations, a plan's substitute
mortality tables must be generational mortality tables that are
determined using the base mortality tables developed from the
experience study and the Scale AA Projection Factors (that is, using
the same basis for mortality improvement that is used under 2008
general mortality table regulations).
Under the 2008 substitute mortality table regulations, the use of
substitute mortality tables is terminated early in certain
circumstances, including pursuant to a replacement of the generally
applicable mortality tables. 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 C.B. I.R.B. 935) sets forth the
procedure by which a plan sponsor of a defined benefit plan may request
and obtain approval to use plan-specific substitute mortality tables in
accordance with section 430(h)(3)(C). The revenue procedure specifies
the information that must be provided in a request for approval to use
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 may 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.\6\ 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.
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\6\ The revenue procedure identifies the Whittaker-Henderson
Type B graduation method or the Karup-King graduation method as
acceptable methods.
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Section 503 of the Bipartisan Budget Act of 2015, Public Law 114-74
(129 Stat. 584 (2015)), 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 plans have credible
information shall be made in accordance with established actuarial
credibility theory, which (1) is materially different from the rules
under [section 430(h)(3)(C)], including Revenue Procedure 2007-37,\7\
that are in effect on [November 2, 2015]; and (2) permits the use of
tables that reflect adjustments to the tables described in [section
430(h)(3)(A) and (B)]'' if those adjustments are based on the actual
experience of the pension plan maintained by the plan sponsor.
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\7\ 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.
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Proposed regulations regarding revisions to mortality tables under
section 430(h)(3) (REG-112324-15) were published in the Federal
Register on December 29, 2016 (81 FR 95911). The proposed regulations
contain revisions to the generally applicable mortality tables (based
on the RP-2014 Mortality Tables Report), as well as new rules regarding
substitute mortality tables that reflect section 503 of the Bipartisan
Budget Act of 2015. Comments were received on the proposed regulations,
and a public hearing was held on April 13, 2017. After consideration of
the comments, the proposed regulations are adopted by this Treasury
decision subject to certain changes, the most significant of which are
described in this preamble under the heading Explanation of Provisions.
Explanation of Provisions
I. Overview
These final regulations revise the methodology for developing the
[[Page 46391]]
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 tables will be used
for purposes of determining the amount of a single-sum distribution (or
another accelerated form of distribution). This revised methodology for
developing tables under section 430(h)(3)(A) is being issued pursuant
to the requirement under section 430(h)(3)(B) to revise the mortality
tables used under section 430 at least every 10 years 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 regulations also revise the rules regarding substitute
mortality tables. This revision is being made pursuant to section 503
of the Bipartisan Budget Act of 2015, which requires that the
determination of whether a plan has credible information be made in
accordance with established actuarial credibility theory. Following
enactment of 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, these 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 final
regulations is simpler than the graduation method that applies under
the 2008 substitute mortality table regulations and also accommodates
the use of substitute mortality tables for plans with smaller
populations that have only partially credible mortality experience.
II. Generally Applicable Mortality Tables
A. Base Mortality Tables
Under these regulations, the generally applicable base mortality
tables are derived from the tables contained in the RP-2014 Mortality
Tables Report. In response to Notice 2013-49, commenters generally
recommended that the RP-2014 mortality tables form the basis for the
mortality tables used under section 430. After reviewing the RP-2014
mortality tables, the accompanying report published by the Society of
Actuaries, and related public comments, Treasury and the IRS 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). As a
result, Treasury and the IRS issued proposed regulations that use the
RP-2014 mortality tables as the foundation for the base mortality
tables used to project the mortality rates of pension plan participants
(other than disabled individuals).\8\
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\8\ 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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Most commenters supported the selection of the base mortality
tables in the proposed regulations. One commenter opposed this
selection but did not suggest any alternative. Accordingly, the base
mortality tables under these final regulations are the same as in the
proposed regulations. Like the mortality tables provided in the 2008
general mortality table regulations, the mortality tables under these
final 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 regulations set forth separate mortality rates for
annuitants and nonannuitants.
The base tables that are set forth in these final regulations are
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 mortality
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 mortality
rates for ages below age 18 and above age 80 and annuitant mortality
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.
B. Mortality Improvement and Static Mortality Tables
The proposed regulations, like the 2008 general mortality table
regulations, provided 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 updated the mortality
improvement rates used under the 2008 general mortality table
regulations. 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.\9\ After that
review, Treasury and the IRS issued proposed regulations that applied
the MP-2016 rates to develop mortality tables for use in 2018.
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\9\ 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.
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Some commenters supported the selection of the mortality
improvement rates in the proposed regulations, while other commenters
expressed concerns about the selection of those rates. Those commenters
who expressed concern about the mortality improvement rates noted that
the selection of a long-term mortality improvement rate assumption is
inherently speculative and cautioned against using the assumptions
regarding the rate of long-term mortality improvement that were used by
RPEC (which are a long-term rate of 1.0 percent per year for ages 85
and younger, grading down to 0.85 percent at age 95, and further
grading down to 0 at age 115). Instead of the RPEC assumptions, these
commenters suggested that Treasury and the IRS use assumptions
regarding the rate of long-term mortality improvement that are closer
to the rates that are used by the Office of the Actuary within the
Social Security Administration. Those rates also vary by age group, and
the documentation accompanying the 2017 report of the Board of Trustees
of the Federal Old-Age, Survivors Insurance and Disability Insurance
Trust Funds indicates that, under the intermediate assumptions (which
reflect the Trustees' best estimates of future experience), the
weighted average over all ages of those assumed long-term mortality
improvement rates is 0.72 percent per year.\10\
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\10\ See ``The Long-Range Demographic Assumptions for the 2017
Trustees Report,'' Office of the Chief Actuary, Social Security
Administration (July 13, 2017), at Mortality, page 17 (available at
https://www.ssa.gov/OACT/TR/2017/2017_Long-Range_Demographic_Assumptions.pdf).
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Treasury and the IRS carefully considered the assumptions used by
Office of the Actuary within the Social Security Administration and
compared it with the long-term assumptions
[[Page 46392]]
currently recommended by RPEC. In evaluating the merits of each,
Treasury and the IRS took into consideration the views of the Technical
Panel of the Social Security Advisory Board. The Social Security
Advisory Board is an independent federal government agency, and the
Technical Panel, which is comprised of actuaries, economists and
demographers, is charged by the Advisory Board with reviewing the
assumptions and methods used in the annual report of the Board of
Trustees of the Federal Old-Age, Survivors Insurance and Disability
Insurance Trust Funds. The Technical Panel, which issues a report every
4 years, has consistently recommended that the mortality improvement
assumption used by the Office of the Actuary be increased.\11\ In
addition, the Congressional Budget Office uses a faster rate of
mortality improvement in evaluating Social Security solvency than the
Office of the Actuary.\12\
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\11\ See ``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.
\12\ See Comparing CBO's Long-Term Projections with Those of the
Social Security Trustees: Hearing before the Subcommittee on Social
Security, Committee on Ways and Means, U.S. House of
Representatives, 114th Cong. September 21, 2016 (Testimony of Keith
Hall), available at https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51988-socialsecuritytestimony.pdf.
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After review and consideration of the comments, the documentation
accompanying the Trustees' Report, and the views of the Technical Panel
of the Social Security Advisory Board, Treasury and the IRS have
concluded that the procedures that RPEC used to develop the Scale MP-
2016 rates generate mortality improvement rates that currently are the
appropriate rates for use in developing mortality tables to be used for
purposes of pension funding. Accordingly, these regulations provide
that the mortality improvement rates for valuation dates in 2018 are
the Scale MP-2016 rates.
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. As
noted by the commenters, while the rate of mortality improvement has
fluctuated significantly on a year-to-year basis, there has been a
significant reduction in the rate of improvement over the past few
years compared to the rate of improvement for the past 25 years. RPEC
has indicated the intent to continually review the methodology used in
its mortality improvement model in an effort to improve the overall
effectiveness of the model, especially with respect to year-over-year
stability and forecast accuracy, and it has identified the assumed
long-term rate of mortality improvement and graduation techniques as
two of the items included in this review. In establishing the mortality
improvement rates to be used under section 430(h)(3) for valuation
dates in years after 2018, Treasury and the IRS will continue to take
into account RPEC's updates (including any modifications to RPEC's
methodology), as well as other sources of data or analyses regarding
mortality improvement. These regulations provide that the mortality
improvement rates applicable for those future valuation dates will be
specified in guidance to be published in the Internal Revenue Bulletin.
See Sec. 601.601(d)(2)(ii)(b) of this chapter. If Treasury and the IRS
determine that significant revisions to the mortality improvement rates
are appropriate, the revisions may first be proposed in a new
rulemaking in order to allow for public comment before the rule is
finalized.
Some commenters asked that Treasury and the IRS commit to providing
the mortality improvement rates for a calendar year at least 12 months
before the start of that year. Treasury and the IRS understand that a
significant motivation for this request is to avoid the issuance of new
mortality improvement rates in the early part of a calendar year
(because issuance of new mortality improvement rates at that time could
result in the need to revise calculations that have already been made
in the course of preparing a plan sponsor's financial statement as of
the previous December 31). While Treasury and the IRS intend that the
mortality improvement rates for a calendar year generally will be
issued more than 12 months in advance of that year, the final
regulations do not include a provision requiring that the mortality
improvement rates for a calendar year be issued within this timeframe.
Retaining the flexibility to issue mortality improvement rates closer
to the date they would become effective will allow additional time for
the possibility that certain revisions to the mortality improvement
rates will first be published in proposed form.
Other commenters requested that Treasury and the IRS consider
updating the mortality tables on a less frequent basis than annually.
Although the RPEC indicated its intent to issue updated mortality
improvement rates on an annual basis, the final regulations do not
require the mortality improvement rates under section 430(h)(3) to be
updated annually. However, to minimize the discontinuities in mortality
rates that could arise from infrequent updates, Treasury and the IRS
contemplate that generally the rates will be updated annually. If the
changes from one year to the next are minimal, Treasury and the IRS may
choose not to update the rates for that year.
As under the 2008 general mortality table regulations, the proposed
regulations take into account the limitations of some current actuarial
software that is not designed to use generational mortality tables and
continue to permit the use of static mortality tables. These static
mortality tables, when used to determine the present value of an
annuity, approximate the present value that would be determined using
the generational mortality tables. All but one commenter supported the
option to use static mortality tables, and these final regulations
provide for this option. These static tables consist of separate
gender-specific tables, which are updated annually. The static
mortality tables that will be used for 2018 are included in these
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.
C. Use of Section 430 Mortality Tables for Other Provisions
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) 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 to the
section 430(h)(3)(A) mortality table used to determine the section
417(e)(3)(B) applicable mortality table are not addressed in these
regulations and are currently provided in Revenue Ruling 2007-67 (2007-
2 C.B. 1047).
As under the proposed regulations, the final regulations provide
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
plan's current liability for purposes of applying the full-funding
[[Page 46393]]
rules of section 431(c)(6) (in the case of a multiemployer plan) and
section 433(c)(7)(C) (in the case of a CSEC plan). For this purpose, a
multiemployer plan or CSEC plan is permitted to apply either the
annually-adjusted static mortality tables or the generational mortality
tables.
D. Effective Date
The proposed regulations provide that the regulations will be
effective beginning in 2018. Some commenters expressed concern that
this effective date would not allow adequate time for compliance. One
commenter requested that the effective date of the regulations be no
sooner than 18 months after the regulations are finalized in order to
give plan sponsors adequate time to plan for the higher level of
contributions that will be required under the new mortality
assumptions. Treasury and the IRS understand that most employers have
been planning for the issuance of updated mortality tables for the
purposes of section 430 since the RP-2014 Mortality Tables Report was
issued in 2014 and many of those employers are already using updated
mortality tables for financial reporting purposes. Furthermore, any
additional required contributions for a plan resulting from the
adoption of the new tables will not be due before September 15, 2019.
For a plan with a calendar plan year, this date is 8\1/2\ months after
the end of the first plan year for which the regulations apply.\13\
---------------------------------------------------------------------------
\13\ However, new mortality tables may affect plan operations
relating to the requirements of section 436 during the 2018 plan
year.
---------------------------------------------------------------------------
Moreover, as described in section II.C of this Explanation of
Provisions, the amount of a single-sum distribution computed as the
present value of an annuity is determined using a mortality table that
is based on the generally applicable mortality tables used for minimum
funding purposes. Thus, retaining the mortality tables under existing
regulations for the 2018 plan year, as requested by some commenters,
would result in inappropriately depressing the amount of single-sum
distributions payable to affected participants during the 2018 plan
year (resulting in a permanent loss of retirement assets for those
participants). A 2013 study indicates that approximately 56 percent of
retiring participants in a traditional defined benefit plan with an
unlimited single-sum option choose that option.\14\ In addition, the
Government Accountability Office recently issued a study examining the
increase in ``lump-sum window'' offers--typically, limited time offers
to participants who are no longer employed by the sponsor but still
waiting for their pension benefit to begin in the future, or retirees
already receiving their pension annuity payments.\15\ Similarly, Willis
Towers Watson reported significant risk transferring activity in recent
years through lump sum windows and other means.\16\
---------------------------------------------------------------------------
\14\ Sudipto Banerjee, Ph.D., Employee Benefits Research
Institute, Issue Brief: Annuity and Lump-Sum Decisions in Defined
Benefit Plans: The Role of Plan Rules, January 2013, available at
https://www.ebri.org/pdf/briefspdf/EBRI_IB_01-13.No381.LSDs2.pdf.
\15\ U.S. Government Accountability Office, GAO 15-74,
Participants Need Better Information When Offered Lump Sums That
Replace Their Lifetime Benefits (January 2015). This report also
notes the substantial financial advantages that exist for plan
sponsors implementing lump sum windows and attributes the recent
increase in lump-sum window offers, in part, to the outdated
mortality tables in the current regulations, which result in reduced
payments to plan participants. Id. at pp. 16-17.
\16\ Brendan McFarland, After a few ups and downs, corporate
pension funding levels showed little change in 2016: Late-year rise
in interest rates and stock market performance mitigate earlier
downturn in funded status, Willis Towers Watson Insider, Vol. 27,
No. 2 (February 2017) at p. 3, available at https://www.towerswatson.com/en-US/Insights/Newsletters/Americas/insider.
---------------------------------------------------------------------------
Because these rules were proposed in December of 2016 to be
applicable as final regulations for plan years beginning on and after
January 1, 2018, the Treasury Department and the IRS believe that many
plan sponsors have had adequate time to set aside funds needed for
additional pension contributions for the 2018 plan year. Furthermore,
because the steps that plan sponsors will need to take to update their
administrative systems in response to these final regulations are not
significantly different from the steps they would need to take in
response to the annual update of mortality tables that has previously
occurred at this time of the year, the Treasury Department and the IRS
believe that plan sponsors generally will have sufficient time to make
any needed changes to these administrative systems.\17\
---------------------------------------------------------------------------
\17\ See section 4. of the Regulatory Impact Assessment provided
under the heading Special Analyses, Regulatory Planning and Review
(Executive Orders 12866 and 13563) in this preamble for a discussion
of needed changes in administrative systems.
---------------------------------------------------------------------------
The final regulations generally retain the effective date that was
proposed, and apply to plan years beginning on or after January 1,
2018. In response to comments indicating that this effective date may
create certain administrative or financial difficulties, the final
regulations provide an option that may be used in certain circumstances
for the 2018 plan year to apply the regulations that were formerly in
effect. Specifically, for a plan for which substitute mortality tables
are not used for the 2018 plan year, mortality tables determined in
accordance with regulations previously in effect may be used for
purposes of applying the rules of section 430 for a valuation date
occurring during 2018 if the plan sponsor (1) concludes that the use of
mortality tables determined in accordance with the final regulations
for the plan year would be administratively impracticable or would
result in an adverse business impact that is greater than de minimis,
and (2) informs the actuary of the intent to apply this option. While
this option provides significant flexibility to plan sponsors, the use
of the option will not affect the mortality table used to determine
minimum present value for distributions with annuity starting dates in
stability periods that begin during 2018 (which is based on the
generally applicable mortality tables under section 430(h)(3)(A) that
apply if this option is not used). Therefore, the lump-sum
distributions received by participants retiring in 2018 will
appropriately reflect their expected longevity.
III. Plan-Specific Substitute Mortality Tables
A. Application of Established Actuarial Credibility Theory
These final regulations contain a comprehensive revision of the
rules regarding plan-specific substitute mortality tables for plans
that are subject to the rules of section 430.\18\ These regulations
carry over 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 made a number of changes to the rules relating to
the development of substitute mortality tables. Specifically, these
final regulations, like the proposed regulations, generally require
that a substitute mortality table be constructed by multiplying the
mortality rates from a projected version of the generally applicable
base mortality table by a mortality ratio (that
[[Page 46394]]
is, a ratio of the actual deaths for the population to the expected
deaths determined using the standard mortality tables for that
population).
---------------------------------------------------------------------------
\18\ There is no provision for defined benefit plans that are
not subject to the requirements of section 430 (such as
multiemployer plans) to request approval to use of substitute
mortality tables. However, the mortality tables under section
430(h)(3) are required to be used for those plans only for very
limited purposes (and the mortality tables used for those plans for
most purposes, while subject to the requirements of section
431(c)(3) or 433(c)(3), are not tables specified by statute or
regulations).
---------------------------------------------------------------------------
Use of mortality ratios (rather than providing for the graduation
of raw mortality rates as under the 2008 substitute mortality table
regulations) will make it easier for plan sponsors to develop
substitute mortality tables because it eliminates the need to apply a
complex graduation technique. It also facilitates efficient IRS review
of applications for approval to use substitute mortality tables, which
is particularly important in light of the other major change made in
the regulations (permitting the use of substitute mortality tables for
a plan that has mortality experience that is only partially credible).
As a result of the changes made in these regulations, Treasury and the
IRS expect that significantly more plan sponsors will request approval
to use substitute mortality tables.
B. Development of Substitute Mortality Tables for Plans With Full
Credibility
The substitute mortality table for a population with full
credibility must be determined by applying projected mortality
improvement to a base substitute mortality table developed using an
experience study of the population. Like the proposed regulations, the
final regulations use the same general requirements for an experience
study as under the 2008 substitute mortality table regulations but
reflect certain changes from the proposed regulations in response to
comments. Specifically, the experience study generally must cover a
period of at least 2 (and no more than 5) consecutive 12-month periods
that ends less than 3 years before the first day of the first plan year
for which the substitute mortality tables are to apply, and must cover
the same period for all populations within a plan.\19\ However the
final regulations include an exception that permits the use of an
earlier study period if the submission is made more than 1 year (and
less than 2 years) before the first day of the first plan year for
which the substitute mortality tables are proposed to apply. Under this
exception, the last day of the experience study period is permitted to
be 3 years or more before the first day of the first plan year for
which the substitute mortality tables are proposed to apply, provided
that the last day of the experience study period is less than 2 years
before the application is submitted.
---------------------------------------------------------------------------
\19\ As under the 2008 regulations and the proposed regulations,
the final regulations provide for permissive aggregation of plans of
a plan sponsor for purposes of developing and using substitute
mortality tables. The final regulations clarify that if two or more
plans with different plan years are aggregated, the experience study
may consist of data that is collected over different periods for
plans with different plan years, subject to certain conditions.
---------------------------------------------------------------------------
A base substitute mortality table generally is determined by
multiplying the mortality rates from the corresponding standard
mortality table (that is, the generally applicable base mortality table
for the population, projected with mortality improvement to the base
year for the base substitute mortality table) by the mortality ratio
for the population. For this purpose, the mortality improvement rates
that apply for the calendar year during which the plan sponsor submits
the request for approval 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.\20\ 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 benefit amount) and the denominator of which is the
number of expected deaths during that period (determined using the
standard mortality table) weighted by the benefit amount. An
individual's benefit amount (which is used to determine amounts-
weighted mortality rates and for other purposes in the construction of
base substitute mortality tables) is the individual's accrued benefit
expressed in the form of an annual benefit commencing at normal
retirement age (or at the current age, if later) if the individual has
not commenced benefits, and the individual's annual payment if the
individual has commenced benefits. 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), the 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.
---------------------------------------------------------------------------
\20\ If the plan sponsor submits such a request during 2017,
then mortality improvement is reflected using the mortality
improvement rates that generally apply for use for 2018, which are
the Scale MP-2016 rates.
---------------------------------------------------------------------------
Some commenters pointed out that multiplying mortality ratios for a
population by the mortality rates in the applicable standard mortality
table could yield inappropriate results at extremely old ages. In
response to those comments, the final regulations provide that
mortality rates under the base substitute mortality tables must be the
same as the mortality rates under the standard mortality table for ages
above 109 and that a modified mortality ratio is used for ages from 96
through 109 (to accomplish a gradual transition to the standard
mortality table while avoiding inappropriate results). If the mortality
ratio for the population is greater than 1.0, the modified mortality
ratio for an age within this range is equal to the mortality ratio for
the population reduced by 1/15th of the excess of the mortality ratio
over 1.0 for each year by which the age exceeds 95. If the mortality
ratio for the population is less than 1.0, the modified mortality ratio
for an age within this range is equal to the mortality ratio for the
population increased by 1/15th of the excess of 1.0 over the mortality
ratio for each year by which the age exceeds 95.
C. Standards for Full Credibility
The proposed regulations revised 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) to better reflect established actuarial
credibility theory. Under established actuarial credibility theory, the
1,000-death 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 mortality rate) should
apply to the credibility for a single mortality rate and not an entire
mortality table.\21\ 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
[[Page 46395]]
particular age); accordingly, substitute mortality tables should be
constructed using the same principle.
---------------------------------------------------------------------------
\21\ Although the use of a graduation technique under Rev. Proc.
2008-62 enables a plan with fewer than 1,000 deaths at each age to
have credible mortality experience that may be used to establish a
substitute mortality table, the statutory instruction providing that
the determination of whether a plan has credible mortality
information be made in accordance with established actuarial
credibility theory which is materially different than the rules in
effect on November 2, 2015, led to the elimination of that
technique.
---------------------------------------------------------------------------
Using established actuarial credibility theory to evaluate whether
a population has fully credible mortality experience entails the use of
a threshold that takes into account the dispersion of benefits within
the population. Accordingly, under the proposed regulations, the number
of deaths that are needed for a population within a plan to have fully
credible mortality experience is determined as the product of 1,082 and
the benefit dispersion factor for the population.\22\ The benefit
dispersion factor for a population is equal to the number of expected
deaths for the population during the experience study period,
multiplied by the sum of the mortality-weighted squares of the
benefits, divided by the square of the sum of the mortality-weighted
benefits.\23\
---------------------------------------------------------------------------
\22\ This formula for the number of deaths needed for full
credibility 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.
\23\ See Gavin Benjamin, Selecting Mortality Tables: A
Credibility Approach, available at www.soa.org/Files/Research/Projects/research-2008-benjamin.pdf.
---------------------------------------------------------------------------
Commenters supported the actuarial soundness of the standard for
fully credible mortality information under the proposed regulations,
and the final regulations adopt the provisions of the proposed
regulations regarding full credibility. At the request of commenters,
the regulations include expressions of various formulas in mathematical
notation to assist actuaries in making computations under the
regulations.\24\
---------------------------------------------------------------------------
\24\ In the proposed regulations, these formulas were stated as
amounts to be computed separately for each age and then summed for
the population. The final regulations instead state these formulas
more concisely as amounts to be computed for the entire population.
These two approaches yield mathematically identical results.
---------------------------------------------------------------------------
One commenter noted that the increase of the threshold for full
credibility (together with the inability to reflect the pattern of the
plan's mortality experience at different ages) may produce substitute
mortality tables that are substantially different than those that are
currently in use. To address this concern, in part, the final
regulations include an option to increase the credibility of a plan's
mortality experience by basing it on the combined mortality experience
of both genders.\25\
---------------------------------------------------------------------------
\25\ This option is described in section III.F.2 of this
Explanation of Provisions (Option to use combined male and female
mortality experience).
---------------------------------------------------------------------------
D. Partial Credibility
As under the proposed regulations, the final 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, the
substitute mortality table used for such a plan is the weighted average
of the standard mortality table and the substitute mortality table that
would be developed for the plan if it were to have fully credible
mortality information. The weight for the substitute mortality table
that would be developed for the plan 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 plan to have fully credible mortality
information.
E. Controlled Group Consistency Requirement
Under section 430(h)(3)(iv) there is a general consistency
requirement for the use of substitute mortality tables with respect to
all plans within a controlled group. Thus, use of substitute mortality
tables for a plan is generally permitted only if substitute mortality
tables are used for all plans subject to section 430 that are
maintained within the controlled group of the plan sponsor.
The 2008 substitute mortality table regulations set forth an
exception from this consistency requirement for plans that did not have
credible mortality experience. As a result of the change permitting the
use of substitute mortality tables for plans that have only partially
credible mortality information, Treasury and the IRS concluded that the
exception should be modified so that it only applies to plans with a
relatively small population. Accordingly, the regulations provide that
a population does not have credible mortality information (and so a
substitute mortality table is neither permitted nor required to be used
for that population) 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 \26\ and must end less than 3 years before the first day of the
first plan year for which the substitute mortality tables are to apply.
Treasury and the IRS proposed the use of a threshold of 100 deaths to
balance the benefit of the use of substitute mortality tables for a
plan with a relatively small population (which would be small, given
the relatively low weight assigned to that plan's partially credible
mortality experience) against the burden of developing substitute
mortality tables for that plan (which would be required to comply with
the controlled group consistency requirement). No comments were
received objecting to this threshold or recommending a different
threshold. As a result, the final regulations adopt the proposed 100-
death threshold.
---------------------------------------------------------------------------
\26\ If a plan has credible mortality information for one gender
but not for the other gender, the length of the period of this
demonstration is the length of the experience study for that plan.
---------------------------------------------------------------------------
F. Other Rules Relating to the Use of Substitute Mortality Tables
1. Multiple-Employer Plans
In response to comments, the final regulations provide rules
regarding the use of substitute mortality tables in connection with
multiple-employer plans. Under the final regulations, the application
for use of substitute mortality tables in the case of a multiple-
employer plan must be made by the plan administrator, and the
substitute mortality tables must apply on a plan-wide basis (even if
the plan is subject to the rules of section 413(c)(4)(A)).
In addition, the final regulations provide special rules for the
application of the controlled group consistency rule in the case of a
multiple-employer plan. Under this special rule, an employer
participating in a multiple-employer plan is treated as maintaining
that plan if and only if the proportion of the plan's funding target
attributable to the employees and former employees of the employer and
members of the employer's controlled group is greater than 50 percent.
Thus, such an employer is subject to the controlled group consistency
rule with respect to the multiple-employer plan and any other plans
subject to section 430 maintained by that employer (or any member of
that employer's controlled group). By contrast, if the proportion of
the multiple-employer plan's funding target attributable to the
employees and former employees of the employer and members of the
employer's controlled group is less than or equal to 50 percent, then
that employer is not subject to the controlled group consistency rule
with respect to the multiple-employer plan and any other plans subject
to section 430 maintained by that employer (and any member of that
employer's controlled group).
[[Page 46396]]
2. Option To Use Combined Male and Female Mortality Experience
Some commenters requested the ability to develop and use substitute
mortality tables based on the combined experience of both males and
females in the plan, to increase the credibility of mortality
experience for a smaller population. Treasury and the IRS have
determined that this approach is consistent with established actuarial
credibility theory. Accordingly, the final regulations provide that a
single mortality ratio may be developed for both genders and then used
to construct separate gender-specific base substitute mortality tables
for the plan. If this option is applied for a plan, then substitute
mortality tables used for all plans in the plan sponsor's controlled
group must be constructed in this manner (except for plans for which
both the male and female populations, considered separately, have
mortality experience with full credibility). In addition, if this
option is applied for a plan, then the mortality experience for both
genders must be combined for all other purposes under the regulations,
including the determination of: (1) Whether a plan has credible
mortality information for purposes of the controlled group consistency
requirement; (2) whether the mortality experience for a plan has full
credibility; and (3) the partial credibility weighting factor.
3. Special Rules for Newly-Affiliated Plans
The proposed regulations provide for a transition period during
which the controlled group consistency requirement does not apply with
respect to a newly-affiliated plan (that is, a plan that has become
maintained within the new controlled group in connection with a
transaction described in Sec. 1.410(b)-2(f)). In response to comments,
the final regulations extend the transition period during which the
controlled group consistency requirement does not apply with respect to
a newly-affiliated plan so that it ends on the last day of the plan
year that immediately follows the period described in section
410(b)(6)(C)(ii) for any of the plans in the controlled group
(whichever ends latest). For example, if all of the plans involved have
a plan year that is the calendar year and a corporate transaction
occurs during 2017, then the transition period during which the
controlled group consistency requirement does not apply ends on
December 31, 2019 (the end of the plan year that immediately follows
December 31, 2018, which is the end of the period described in section
410(b)(6)(C)(ii)). This longer transition period will ensure that the
plan sponsor has adequate time to complete an experience study covering
the newly-affiliated plan for use in its submission for approval of
substitute mortality tables for a plan year beginning January 1, 2020.
As under the proposed regulations, the final regulations provide that
this experience study may exclude the pre-affiliation data and the
experience study period may be as short as 1 year (instead of 2 years).
Therefore, under the facts of this example, the experience study used
to develop substitute mortality tables for the plan may cover only
calendar year 2018.\27\
---------------------------------------------------------------------------
\27\ However, if the experience study is used to demonstrate a
lack of credible mortality information, the experience study period
may be shorter than required under the otherwise applicable rules
only if it starts on the date the plan becomes a newly-affiliated
plan.
---------------------------------------------------------------------------
4. Early Termination of Use of Substitute Mortality Tables and
Transition Rule
The final regulations retain the rules from the 2008 substitute
mortality table regulations regarding the termination of use of
substitute mortality tables before their originally scheduled
expiration. Among the circumstances that lead to early termination is
the replacement of the generally applicable mortality tables (other
than annual updates to the static mortality tables or changes to the
mortality improvement rates).
In response to comments, the final regulations include a transition
rule under which previously approved base substitute mortality tables
continue to apply for plan years beginning in 2018 (assuming that plan
year is covered by the original approval and that substitute mortality
tables are used by all of the plans within the controlled group that
have credible mortality experience under the standards in the 2008
substitute mortality table regulations). In addition, previously
approved base substitute mortality tables continue to apply to later
plan years during the term of their original approval, provided that
the plan sponsor satisfies the requirement that substitute mortality
tables be used for all plans in the controlled group that have credible
mortality information under the standards in these regulations.
However, the mortality improvement rates under the final regulations,
rather than the Scale AA Projection Factors (which were used under the
2008 substitute mortality table regulations), must be applied to
previously approved base substitute mortality tables beginning in 2019.
G. Effective Date
These regulations regarding substitute mortality tables apply to
plan years beginning on or after January 1, 2018, subject to certain
transition relief. In addition to the transition relief for previously
approved base mortality tables described in section III.F.4 of the
Explanation of Provisions portion of this preamble, the requirement
that a plan sponsor apply for approval to use substitute mortality
tables at least 7 months before the beginning of the plan year will be
treated as satisfied if the plan sponsor's application is submitted on
or before February 28, 2018, provided that the plan sponsor agrees to a
90-day extension of the 180-day review period.
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
Regulatory Planning and Review (Executive Orders 12866 and 13563)
It has been determined that these regulations constitute a
significant regulatory action as defined in Executive Order 12866, as
supplemented by Executive Order 13563. Accordingly, these rules have
been reviewed by the Office of Management and Budget. The Regulatory
Impact Assessment prepared by Treasury for these regulations is
provided below. This rule is not subject to the requirements of
Executive Order 13771 because this rule results in no more than de
minimis costs.
1. Description of Need for the Regulations
Section 430 of the Internal Revenue Code specifies the minimum
funding requirements that apply generally to defined benefit plans that
are not multiemployer plans. Section 430(h)(3) contains rules regarding
the mortality tables to be used under section 430. Under section
430(h)(3)(A), the Secretary is to prescribe by regulation mortality
tables to be used in determining any present value or making any
computation under section 430.\28\ Under section 430(h)(3)(B), the
[[Page 46397]]
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.
---------------------------------------------------------------------------
\28\ Those mortality tables must 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.
---------------------------------------------------------------------------
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. Section 503 of the Bipartisan Budget
Act of 2015 requires certain changes in the rules for developing a
plan's substitute mortality tables.
The existing regulations regarding mortality tables were issued in
2008, for use beginning in 2008. Those tables were based on a study of
mortality experience of pension plan participants covering the years
1990-1994 that was published in 2000. Since that time, studies have
shown that people are living longer. For example, a study that RPEC
published in 2014 indicates that the mortality tables issued under the
2008 general mortality table regulations no longer reflect the actual
mortality experience of pension plan participants and projected trends
in that experience. In accordance with section 430(h)(3)(B), the
Secretary is required to revise the mortality tables in the existing
regulations as a result of these changes in the actual mortality
experience and projected trends in that experience. In addition,
changes in the existing regulations regarding substitute mortality
tables are required under the provisions of the Bipartisan Budget Act
of 2015.
2. Affected Population
The final regulations affect participants in private-sector defined
benefit plans and employers sponsoring those plans.
3. Baseline and Summary of Impacts
As required by OMB Circular A-4, the following table summarizes the
estimated economic impact of the final regulations. The baseline for
this estimate is the mortality tables issued under the existing
regulations. Because the new tables reflect the fact that participants
are living longer, the primary impact of the final regulations is to
increase the reported liability for future benefit payments from
pension plans; this higher reported liability will result in higher
pension contributions. The higher liability will also result in an
increase in PBGC premiums, which are a function of a plan's funded
status. Because pension contributions and premiums are deductible from
firms' incomes, tax revenues will fall.
As described in the effective date discussion in section II.D of
the Explanation of Provisions portion of this preamble, these
regulations include an option for a plan sponsor that is not using
plan-specific mortality tables to delay the application of the new
tables in certain circumstances. Because it is difficult to predict how
many plan sponsors will utilize this option, the following tables
provide a range of estimates of the economic impact of these
regulations. The first row of numbers in the tables, labeled ``full
take-up amount,'' is based on the assumption that all plan sponsors
will use the option to delay the application of the new mortality
tables; the second row of numbers, labeled ``no take-up amount,'' is
based on the assumption that no plan sponsors will use the option to
delay application of the new mortality tables. As noted in the
effective date discussion in section II.D of the Explanation of
Provisions portion of this preamble, the use of this option will not
affect the mortality table used to determine minimum present value
under section 417(e).
---------------------------------------------------------------------------
\29\ The present values are discounted to the beginning of 2019.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated change in tax revenue (in millions of 2017 dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Full take-up amount....................... 0 -123 -499 -914 -1,170 -1,278 -1,216 -1,081 -807 -353
No take-up amount......................... -84 -362 -717 -1,025 -1,241 -1,314 -1,238 -1,042 -604 -228
--------------------------------------------------------------------------------------------------------------------------------------------------------
Present Value \29\ with full take-up of delay option (3% Discount Rate): -$6,372 million
Present Value with no take-up of delay option (3% Discount Rate): -$6,821 million
Present Value with full take-up of delay option (7% Discount Rate): -$5,245 million
Present Value with no take-up of delay option (7% Discount Rate): -$5,718 million
Annualized Estimate with full take-up of delay option (3% Discount Rate): -$747 million
Annualized Estimate with no take-up of delay option (3% Discount Rate): -$800 million
Annualized Estimate with full take-up of delay option (7% Discount Rate): -$747 million
Annualized Estimate with no take-up of delay option (7% Discount Rate): -$814 million
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated change in contributions (in millions of 2017 dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Full take-up amount....................... 0 2,933 4,873 6,071 6,574 6,069 5,322 3,667 750 407
No take-up amount......................... 2,151 3,631 5,418 6,391 6,694 6,194 5.373 1,751 815 797
--------------------------------------------------------------------------------------------------------------------------------------------------------
Present Value with full take-up of delay option (3% Discount Rate): $32,417 million
Present Value with no take-up of delay option (3% Discount Rate): $35,100 million
Present Value with full take-up of delay option (7% Discount Rate): $27,784 million
Present Value with no take-up of delay option (7% Discount Rate): $30,595 million
Annualized Estimate with full take-up of delay option (3% Discount Rate): $3,800 million
Annualized Estimate with no take-up of delay option (3% Discount Rate): $4,115 million
Annualized Estimate with full take-up of delay option (7% Discount Rate): $3,956 million
Annualized Estimate with no take-up of delay option (7% Discount Rate): $4,356 million
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated change in PBGC premiums (in millions of 2017 dollars)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Full take-up amount....................... 0 293 287 187 91 0 0 0 0 81
No take-up amount......................... 293 287 280 183 89 0 0 0 0 80
--------------------------------------------------------------------------------------------------------------------------------------------------------
Present Value with full take-up of delay option (3% Discount Rate): 869 million
Present Value with no take-up of delay option (3% Discount Rate): 1,143 million
Present Value with full take-up of delay option (7% Discount Rate): $791 million
Present Value with no take-up of delay option (7% Discount Rate): $1,067 million
Annualized Estimate with full take-up of delay option (3% Discount Rate): $102 million
[[Page 46398]]
Annualized Estimate with no take-up of delay option (3% Discount Rate): $134 million
Annualized Estimate with full take-up of delay option (7% Discount Rate): $113 million
Annualized Estimate with no take-up of delay option (7% Discount Rate): $152 million
--------------------------------------------------------------------------------------------------------------------------------------------------------
For pension payments that are paid over a retiree's lifetime, the
actual liability will depend on how long the retiree actually lives,
and the impact of reflecting longer life expectancies in the
calculation of present values under these regulations will merely
accelerate the time when additional contributions attributable to
longer lifetimes will need to be made. For pension payments that are
lump-sum settlements in lieu of lifetime payments, the new tables will
increase the amount of the lump sum. If the plan has a lump sum-based
benefit formula, such as a cash balance plan, there will be no impact
on the amount of a lump sum, but the optional annuity may be
smaller.\30\ However, it is difficult to quantify the impact of these
changes.
---------------------------------------------------------------------------
\30\ The optional annuity may be smaller because, when
converting the lump sum in which the participant's benefit is stated
under the plan to an stream of annuity payments for the life of the
participant (and the life of the participant's spouse if
applicable), the lifetime(s) over which the payments must be paid
will generally be assumed to be longer if the new tables are used
for this purpose rather than the prior tables. To pay a fixed sum
over a longer period, the amount of the periodic payments must be
reduced. However, a plan is not required to use these tables for
this purpose and a recent study indicates that relatively few
participants take an annuity distribution from plans with lump sum
based benefit formulas See Sudipto Banerjee, Ph.D., Employee
Benefits Research Institute, Issue Brief: Annuity and Lump-Sum
Decisions in Defined Benefit Plans: The Role of Plan Rules, January
2013, available at https://www.ebri.org/pdf/briefspdf/EBRI_IB_01-13.No381.LSDs2.pdf.
---------------------------------------------------------------------------
4. Cost Associated With the Regulation
Substantially all of the amounts involved (decreased tax revenue,
increased plan contributions and PBGC premiums) constitute transfer
payments, rather than costs. This is because these amounts are monetary
payments from one entity to another that do not affect total resources
available to society.
We believe that the incremental administrative costs to implement
this regulation are negligible, because plan sponsors would have to
incur the same costs to update their plan administration software to
reflect the new mortality tables under these regulations as they would
incur in implementing the annual update to the mortality tables that
would apply in the absence of these regulations. Moreover, the specific
mortality rates used to calculate benefits for individuals normally are
not provided to individual plan participants, so there will be no need
to distribute information about the new mortality tables. Rather, plan
sponsors and administrators provide individual participants who are
considering retiring in the near future with individualized estimates
of their benefits and that process is not dependent on the specific
mortality rates used to determine benefits under the plan. Furthermore,
Treasury and the IRS are issuing these regulations at a similar time of
year as mortality tables were issued in prior years (and close in time
to the issuance of the earliest interest rates that may be used in
calculating the amount of a lump sum benefit to be distributed during a
plan year beginning in 2018). In other words, these costs are included
in the baseline of the analysis, not as new incremental costs
associated with this rulemaking.
In terms of the use of the mortality tables for purposes of
applying the funding requirements of section 430, these regulations
(like the current regulations) permit actuaries to use static mortality
tables that approximate the present value determined using the
generational mortality tables. Even if a plan's actuary chooses to use
generational mortality tables (including plan-specific mortality
tables) instead of the static mortality tables, actuarial software
capable of applying that approach (including generational mortality
tables determined using mortality improvement rates that vary by both
age and calendar year) should be readily available, as such
generational mortality tables determined using varying mortality
improvement rates have been used routinely for financial reporting
purposes by large employers since the Mortality Improvement Scale MP-
2014 Report was issued in 2014. In addition, these regulations permit
any previously approved plan-specific mortality tables to continue to
be used for the duration of the original approval period. Accordingly,
any additional cost as a result of the issuance of these regulations
should be negligible.
Regulatory Flexibility Act (5 U.S.C. Chapter 6)
It is hereby certified that this rule will not have a significant
economic impact on a substantial number of small entities. This rule
applies to all employers that sponsor defined benefit plans regardless
of size. As stated above, this rule implements the statutorily-required
updates and any compliance costs related to this rule are small and are
consistent with previously issued annual updates.
Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations was submitted
to the Chief Counsel for Advocacy of the Small Business Administration
for comment on its impact on small business.
Drafting Information
The principal authors of these regulations are Arslan Malik and
Linda S.F. Marshall of the 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.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is 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. Pursuant to section
430(h)(3)(A), this section provides generally applicable mortality
tables that are used to determine present value for purposes of section
430, and rules regarding the use of those mortality tables. Either the
generational mortality tables under paragraph (a)(2) of this section or
the static mortality tables under paragraph (a)(3) of this section may
be used for a plan. In lieu of using the mortality tables provided
under this section, plan-specific substitute mortality tables may be
used 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
[[Page 46399]]
individuals are 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 will 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.
----------------------------------------------------------------------------------------------------------------
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 will 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
[[Page 46400]]
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 of 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.
(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. The following example illustrates how the mortality
rates in the static mortality tables issued under the provisions of
this paragraph (c) are calculated:
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
-----------------------------------------------------------------------------------------------
Age Weighting Weighting
Non-annuitant Annuitant factor for Non-annuitant Annuitant factor for
small plans small 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
[[Page 46401]]
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
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
[[Page 46402]]
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
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
Age combined table combined table
Non-annuitant Annuitant for small Non-annuitant Annuitant for small
plans 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
[[Page 46403]]
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
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
[[Page 46404]]
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
--------------------------------------------------------------------------------------------------------------------------------------------------------
(f) Effective/applicability date--(1) In general. Except as
provided in paragraph (f)(2) of this section, this section applies to
plan years beginning or after January 1, 2018.
(2) Option to apply prior regulations in certain circumstances. For
a plan for which substitute mortality tables are not used pursuant to
Sec. 1.430(h)(3)-2 for a plan year beginning during 2018, mortality
tables determined in accordance with Sec. 1.430(h)(3)-1 as in effect
on December 31, 2017 (as contained in 26 CFR part 1 revised April 1,
2017) may be used for purposes of applying the rules of section 430 for
a valuation date occurring during 2018 if the plan sponsor--
(i) Concludes that the use of mortality tables determined in
accordance with this section for the plan year would be
administratively impracticable or would result in an adverse business
impact that is greater than de minimis; and
(ii) Informs the actuary of the intent to apply the option under
this paragraph (f)(2).
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 provides 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). To use substitute mortality
tables for a plan, a plan sponsor must first obtain approval to use the
tables in accordance with the procedures described in paragraph (b) of
this section. Paragraph (c) of this section provides rules for the
development of substitute mortality tables, including guidelines
providing that a plan must have either fully or partially credible
mortality information in order 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. 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
[[Page 46405]]
tables under section 430(h)(3)(C) and related matters.
(b) Procedures for obtaining approval to use substitute mortality
tables--(1) Written request for approval to use substitute mortality
tables--(i) General requirements. To use substitute mortality tables, a
plan sponsor must first submit a written request to the Commissioner
demonstrating 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 before 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 for approval to use substitute mortality tables for a plan
pursuant to this section, the Commissioner will determine whether the
request for approval 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 reflect the
actual mortality experience of the applicable population.
(ii) Request for additional information. The Commissioner may
request additional information with respect to the submission and deny
a request to use substitute mortality tables if the additional
information is not provided in a timely manner.
(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.
(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 that is treated as a single employer under
paragraph (b), (c), (m), or (o) of section 414. See paragraph (c)(7) of
this section for special rules applicable to multiple-employer plans.
(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 this purpose, the
demonstration that neither males nor females under a plan have credible
mortality information for a plan year must be made by analyzing the
actual number of deaths over a period that is the same length as the
longest experience study period used for any plan within the controlled
group and that ends less than three years before the first day of the
plan year.
(2) Mortality experience requirements--(i) In general. Substitute
mortality tables must reflect the actual mortality experience of the
pension plan for which the tables will be used, and that mortality
experience must consist of credible mortality information as described
in paragraph (c)(2)(ii) of this section. Separate substitute mortality
tables must be established for each gender and, except as provided in
paragraph (d)(6) of this section, a substitute mortality table is
permitted to be established for a gender only if the plan has credible
mortality information for that gender. See paragraph (d)(5) of this
section for rules permitting the use of substitute mortality tables for
separate populations within a gender in certain circumstances.
(ii) Credible mortality information--(A) In general. A plan has
credible mortality information for a gender if and only if the
mortality experience with respect to that gender satisfies the
requirement for either full credibility (as described in paragraph (d)
of this section) or 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 using 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 the first plan year substitute mortality tables will
be used for a plan, one gender has credible mortality information but
the other gender does not have credible mortality information, then
substitute mortality tables are established for the gender that has
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. For a subsequent plan year, the plan sponsor may
continue to use substitute mortality tables for the gender with
credible mortality information without using substitute mortality
tables for the other gender only if the other gender continues to lack
credible mortality information for that subsequent plan year.
(B) Demonstration of lack of credible mortality information for a
gender. The demonstration that a gender does not have credible
mortality information (that is, the individuals of that gender had
fewer than the minimum number of actual deaths to have partial
credibility, as described in paragraph (e)(1) of this section) for a
plan year 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 gender is the cumulative mortality
improvement factor determined under Sec. 1.430(h)(3)-1(a)(2)(i)(E) for
that age and gender for the applicable period. The applicable period is
the period beginning with the base year for the
[[Page 46406]]
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 the separate mortality tables issued under section
430(h)(3)(D) for certain disabled individuals are used, then those
disabled 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 the same substitute mortality tables for two or more of
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 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.
(iii) Special rule regarding experience study if aggregated plans
have different plan years. If two or more plans are aggregated pursuant
to this paragraph (c)(5) and not all of the plans have the same plan
year, then the experience study period may be a period that is not a
multiple of 12 months, provided that--
(A) The period over which mortality experience is collected for
each plan (the data study period) is a multiple of 12 months and is
based on the plan year for that plan;
(B) The data study periods for all of the plans consist of the same
number of years;
(C) The data study periods for all of the plans satisfy the
experience study period requirements of paragraph (d)(2)(ii) of this
section; and
(D) The data study periods for all of the plans have been selected
to minimize the total period of time covered by the experience study
period by overlapping (to the greatest extent possible) those data
study periods.
(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 for approval 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
must be 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 based on an updated experience study 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 for all plans in the controlled group),
taking into account the rules of paragraph (f)(3) of this section
(regarding the transition period for newly-affiliated plans);
(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 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 for a plan year
occurs if the number of individuals covered by the substitute mortality
table for the plan year is less than 80 percent or more than 120
percent of the average number of individuals in that population over
the years covered by the experience study 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 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 for a plan year occurs if the number of individuals covered by
the substitute mortality table for the plan year is less than 80
percent or more than 120 percent of the number of individuals covered
by the substitute mortality table 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
population).
(7) Multiple-employer plans--(i) General rule. In the case of a
multiple-employer plan described in section 413(c), the plan
administrator (as described in section 414(g)) is treated as the plan
sponsor for purposes of this section. If approval is received to use
substitute mortality tables by a plan, those tables must apply on a
plan-wide basis (even if the plan is subject to the rules of section
413(c)(4)(A)).
(ii) Application of controlled group consistency rules. In the case
of an
[[Page 46407]]
employer that participates in a multiple-employer plan, if the
proportion of the plan's funding target attributable to the employees
and former employees of the employer and members of its controlled
group represents more than 50 percent of the plan's funding target,
then the employer is treated as maintaining the plan for purposes of
paragraph (c)(1) of this section. Thus, for a multiple-employer plan
with credible mortality information that is treated as maintained by an
employer under this paragraph (c)(7), unless substitute mortality
tables are used for that plan, substitute mortality tables may not be
used for any plan maintained by that employer or a member of its
controlled group (and if substitute mortality tables are used for any
other plan maintained by any member of the employer's controlled group,
they must be used for the multiple-employer plan). By contrast, if the
proportion of the plan's funding target attributable to the employees
and former employees of the employer and members of its controlled
group represents 50 percent or less of the funding target for a
multiple-employer plan in which it participates, then the employer is
not treated as maintaining the plan for purposes of paragraph (c)(1) of
this section. Accordingly, whether substitute mortality tables may be
used for other plans in such an employer's controlled group is
independent of whether substitute mortality tables are used for the
multiple-employer plan.
(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. Paragraph (d)(5) of this section
provides rules regarding the use of separate substitute mortality
tables for plan populations within a gender. Paragraph (d)(6) of this
section provides an option to use the combined mortality experience of
both genders to determine the existence and extent of credible
mortality information and to develop a single mortality ratio for use
in constructing substitute mortality tables.
(2) Experience study period requirements--(i) General rule. The
base substitute mortality table for a gender or other population must
be developed from an experience study of the mortality experience of
that population that is collected over an experience study period. The
experience study period must consist of 2, 3, 4, or 5 consecutive 12-
month periods, and must be the same period for all populations except
as provided in paragraph (c)(5)(iii) of this section.
(ii) Requirement to use recent experience data--(A) General rule.
Except as provided in paragraph (d)(2)(ii)(B) of this section, the last
day of the experience study period 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 January 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 generally
must include data collected for a period that ends no earlier than
December 31, 2016.
(B) Exception for submission between 1 and 2 years before effective
date of table. If the plan sponsor submits a request for approval to
use of substitute mortality tables more than 1 year (and less than 2
years) before the first day of the first plan year for which the
substitute mortality tables are to apply, then the experience study is
not treated as failing to satisfy the rule in paragraph (d)(2)(ii)(A)
of this section if the last day of the final year reflected in the
experience data is less than 2 years before the date of submission. For
example, if an application for approval to use of substitute mortality
tables that would apply for plan years beginning on or after January 1,
2019 year is submitted in 2017, then an experience study using calendar
year data may be based on data collected for a period that ends as
early as December 31, 2015.
(iii) Experience study based on benefit amount. As provided in
paragraph (d)(4)(i) of this section, the mortality rates under the base
substitute mortality tables are amounts-weighted mortality rates that
are derived from the experience study. An individual's benefit amount
(which is used to determine amounts-weighted mortality rates and for
other purposes under this paragraph (d)) is the individual's accrued
benefit expressed in the form of an annual benefit commencing at normal
retirement age (or at the current age, if later) if an individual has
not commenced benefits and the individual's annual payment if the
individual has commenced benefits. Because amounts-weighted mortality
rates for a plan are determined using benefit amounts, the experience
study used to develop a base substitute mortality table may not include
periods before the plan was established.
(3) Full credibility threshold--(i) Threshold number of deaths. The
full credibility threshold for a gender or other population 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 individuals who leave the population
on account of a 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 sum of the mortality-weighted squares of the benefits (as
defined in paragraph (d)(3)(iv) of this section); divided by
(C) The square of the sum of the mortality-weighted benefits (as
defined in paragraph (d)(3)(v) of this section).
(iii) Number of expected deaths. For a population, the number of
expected deaths during the experience study period is equal to the sum,
for all years 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 determined under paragraph (d)(4)(iii) of
this section. This amount is equal to:
[GRAPHIC] [TIFF OMITTED] TR05OC17.000
Where E is equal to the number of years in the experience study period,
t represents each year during the experience study period, x represents
an individual in the population during year t, qxt is the
mortality rate for that individual's age and gender for the calendar
year in which year t begins under the applicable standard mortality
table determined under paragraph (d)(4)(iii) of this section, and
Nt is equal to the number of individuals in the population
in year t.
(iv) Sum of the mortality-weighted squares of the benefits--(A)
Determination. For a population, the sum of the mortality-weighted
squares of the benefits is the sum, for all years in the experience
study period, for all individuals in the population at the beginning of
the year, of the product of--
(1) The probability of death for the individual using the mortality
rate for
[[Page 46408]]
the individual's age and gender from the standard mortality table
determined under paragraph (d)(4)(iii) of this section; and
(2) The square of the benefit amount for the individual.
(B) Expression as formula. The sum of the mortality-weighted
squares of the benefits for a population determined pursuant to
paragraph (d)(3)(iv)(A) of this section is equal to:
[GRAPHIC] [TIFF OMITTED] TR05OC17.001
Where E is equal to the number of years in the experience study period,
t represents each year during the experience study period, x represents
an individual in the population during year t, qxt is the
mortality rate for that individual's age and gender for the calendar
year in which year t begins under the applicable standard mortality
table determined under paragraph (d)(4)(iii) of this section,
bxt is equal to the benefit amount for that individual for
year t, and Nt is equal to the number of individuals in the
population in year t.
(v) Square of the sum of the mortality-weighted benefits--(A)
Determination. For a population, the square of the sum of the
mortality-weighted benefits is equal to the square of the sum, for all
years in the experience study period, for all individuals in the
population at the beginning of the year, of the product of--
(1) The probability of death of the individual using the mortality
rate for the individual's age and gender from the standard mortality
table determined under paragraph (d)(4)(iii) of this section; and
(2) The benefit amount for the individual.
(B) Expression as formula. The square of the sum of the mortality-
weighted benefits for a population determined pursuant to paragraph
(d)(3)(v)(A) of this section is equal to:
[GRAPHIC] [TIFF OMITTED] TR05OC17.002
Where E is equal to the number of years in the experience study period,
t represents each year during the experience study period, x represents
an individual in the population during year t, qxt is the
mortality rate for that individual's age and gender for the calendar
year in which t begins under the applicable standard mortality table
determined under paragraph (d)(4)(iii) of this section, bxt
is equal to the benefit amount for that individual for year t, and
Nt is equal to the number of individuals in the population
in year t.
(4) Development of mortality rates--(i) In general. The mortality
rates under the base substitute mortality tables must be amounts-
weighted mortality rates that are derived from the experience study.
Except as provided in paragraph (d)(4)(iv) of this section, the
mortality rate for an age and gender is determined by multiplying the
mortality rate for that age and gender from the standard mortality
table determined under 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.
(ii) Mortality ratio--(A) In general. Except as provided in
paragraph (d)(6) of this section, a mortality ratio is determined for a
gender or other population within a gender, and is equal to the
quotient determined by dividing--
(1) The sum, for all years in the experience study period, of the
benefit amount for all individuals in the population at the beginning
of the year who died during the year, by
(2) The sum, for all years in the experience study period, for all
individuals in the population at the beginning of the year (adjusted,
as appropriate, for individuals who leave on account of reason other
than death), of the product of--
(i) The probability of death of the individual using the mortality
rate for the individual's age and gender from the standard mortality
table determined under paragraph (d)(4)(iii) of this section; and
(ii) The benefit amount for the individual.
(B) Expression as formula. For purposes of determining a mortality
ratio as described in paragraph (d)(4)(ii)(A) of this section, the
amount described in paragraph (d)(4)(ii)(A)(2) of this section is equal
to:
[GRAPHIC] [TIFF OMITTED] TR05OC17.003
Where E is equal to the number of years in the experience study period,
t represents each year during the experience study period, x represents
an individual in the population during year t, qxt is the
mortality rate for that individual's age and gender for the calendar
year in which t begins under the applicable standard mortality table
determined under paragraph (d)(4)(iii) of this section, bxt
is equal to the benefit amount for that individual for year t, and
Nt is equal to the number of individuals in the population
in year t.
(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 (c)(3)(ii) 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 for approval 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 set forth in Sec.
1.430(h)(3)-1(d) must be used for purposes of paragraph (d)(4)(iii)(A)
of this section. If the population consists solely of nonannuitants,
the nonannuitant base mortality table set forth in Sec. 1.430(h)(3)-
1(d) must be used for that purpose. If the population includes both
annuitants and nonannuitants, a combination of the annuitant and
nonannuitant base tables set forth in Sec. 1.430(h)(3)-1(d) must be
used for that purpose. The combined table is constructed using the
weighting factors for small plans that are set forth in Sec.
1.430(h)(3)-1(d). The weighting factors are applied to develop the
combined table using the following equation: Combined mortality rate =
[nonannuitant rate * (1 - weighting
[[Page 46409]]
factor)] + [annuitant rate * weighting factor].
(iv) Modification for ages 96 and older. Mortality rates for ages
96 and older under the base substitute mortality table are determined
using the rules of paragraph (d)(4)(i) of this section but substituting
a modified mortality ratio for the mortality ratio determined under
paragraph (d)(4)(ii) of this section. The modified mortality ratio is
determined as follows--
(A) For ages 96 through 109, if the mortality ratio is greater than
1.0, the modified mortality ratio is equal to the mortality ratio for
the population reduced by 1/15th of the excess of the mortality ratio
over 1.0 for each year that the age exceeds 95.
(B) For ages 96 through 109, if the mortality ratio is less than
1.0, the modified mortality ratio is equal to the mortality ratio for
the population increased by 1/15th of the excess of 1.0 over the
mortality ratio for each year that the age exceeds 95.
(C) For ages 110 and older, the modified mortality ratio is equal
to 1.0.
(v) 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 for approval to use the substitute mortality table
is made is less than 80 percent or more than 120 percent of the average
number of individuals in that population over the years covered by the
experience study on which the substitute mortality tables are based,
unless it is demonstrated to the satisfaction of the Commissioner that
the experience data is accurately predictive of future mortality of
that 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 only if--
(A) All individuals of that gender 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, a gender may be
separated into separate populations of annuitants and nonannuitants for
the purpose of developing and using substitute mortality tables, 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 information. 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, if the male hourly and salaried populations
under a plan each have mortality experience with full credibility and
the male salaried annuitant population has credible mortality
information, then substitute mortality tables may be used for the plan
with respect to the male salaried annuitant 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 information for separate populations. In
determining whether the mortality experience for a separate population
within a gender has full credibility, the rules of paragraph (d)(1) of
this section must be applied to that separate population. In
demonstrating that an annuitant (or nonannuitant) population within a
gender or within a separate population does not have credible mortality
information, the rules of paragraph (c)(2)(iii)(B) of this section are
applied by substituting the annuitant (or nonannuitant) population for
the gender.
(6) Option to determine a single mortality ratio for both genders.
Base substitute mortality tables for a plan may be constructed by
developing and applying a single mortality ratio for both genders, but
only if the substitute mortality tables used for all plans maintained
by members of the plan sponsor's controlled group (except for plans for
which both the male and female populations, considered separately, have
mortality experience with full credibility) are constructed in this
manner. If the option under this paragraph (d)(6) is applied for a plan
then, for all plans maintained by members of the plan sponsor's
controlled group, whether both the male and female populations within
the plan have credible mortality information (and, if that combined
population's mortality experience does not have full credibility, the
partial credibility weighting factor for the plan) is determined using
the combined mortality experience for both genders.
(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 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 (as defined in paragraph (f)(2) of
this section). Paragraph (f)(3) of this section provides a transition
period
[[Page 46410]]
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)(4) 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 before the date the plan becomes a
newly-affiliated plan.
(2) Definition of newly-affiliated plan. For purposes of this
paragraph (f), a plan is a newly-affiliated plan if the plan sponsor
becomes a member of the new 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).
(3) Transition period for newly-affiliated plans. The use of
substitute mortality tables for a plan within a controlled group is not
prohibited merely because, during the transition period, substitute
mortality tables are not used for a newly-affiliated plan that fails to
demonstrate a lack of credible mortality information during 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 begins on the date of the transaction that results in the plan
becoming a newly-affiliated plan and ends on the last day of the plan
year that immediately follows the latest ending period described in
section 410(b)(6)(C)(ii) with respect to that transaction for any of
the plans in the controlled group.
(4) 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
before the date the plan becomes a newly-affiliated plan. If a plan
sponsor excludes mortality experience data for the period before the
date the plan becomes a newly-affiliated plan, the exclusion must apply
for all populations within the plan.
(ii) Demonstration relating to lack of credible mortality
information. If the experience study for a newly-affiliated plan
excludes mortality experience data for the period prior to the date the
plan becomes a newly-affiliated plan, then the demonstration that the
plan does not have credible mortality information for a plan year that
begins 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 a newly-affiliated
plan and ends not more than one year and one day before the first day
of the plan year.
(iii) Demonstration relating to credible mortality information. If
the experience study for a newly-affiliated plan excludes mortality
experience data for the period before the date the plan becomes a
newly-affiliated plan and the plan fails to demonstrate that it does
not have credible mortality information for the plan year under the
rules of paragraph (f)(4)(ii) of this section, then other plans within
the controlled group may continue to use substitute mortality tables
only if substitute mortality tables are used for the newly-affiliated
plan for the plan year. In such a case, the experience study period for
the newly-affiliated plan may consist of a 12-month period.
(g) Effective/applicability date--(1) General rule. This section
applies for plan years beginning on or after January 1, 2018. Except as
provided in paragraph (g)(2) of this section, the substitute mortality
table used for a plan for such a plan year must comply with the rules
of paragraphs (a) through (f) of this section.
(2) Transition rule for previously approved substitute mortality
tables--(i) Applicability for 2018. If a plan sponsor has received
approval from the Commissioner to use substitute mortality tables for a
plan year beginning in 2017, then that previous approval applies to a
plan year beginning in 2018 provided that--
(A) The previous approval period had not ended;
(B) Substitute mortality tables are used for all plans in the plan
sponsor's controlled group in accordance with the terms of that
approval; and
(C) The projection factors provided in Projection Scale AA, as set
forth in Sec. 1.430(h)(3)-1(d) as in effect on December 31, 2017 (as
contained in 26 CFR part 1 revised April 1, 2017) are applied to the
base substitute mortality table.
(ii) Applicability for later plan years. If a plan sponsor is
described in paragraph (g)(2)(i) of this section, then that previous
approval applies to a later plan year provided that--
(A) The previous approval period had not ended;
(B) Substitute mortality tables are used for all plans in the plan
sponsor's controlled group that have credible mortality information
within the meaning of paragraph (c)(2)(ii) of this section; and
(C) The mortality improvement factors described in paragraph
(c)(3)(ii) of this section are applied to the base substitute mortality
table.
(3) Transition rule for requests for approval to use substitute
mortality tables. A written request described in paragraph (b)(1)(i) of
this section to use substitute mortality tables for a plan year that
begins during 2018 does not fail to satisfy the timing requirement of
paragraph (b)(1)(ii) of this section if it is submitted no later than
February 28, 2018, provided that the plan sponsor agrees to a 90-day
extension of the 180-day review period in accordance with paragraph
(b)(2)(iv) of this section.
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) may
be used for a multiemployer plan for this purpose. However, for this
purpose, substitute mortality tables under Sec. 1.430(h)(3)-2 may not
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
[[Page 46411]]
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) may be used for a CSEC plan for this purpose, but
substitute mortality tables under Sec. 1.430(h)(3)-2 may not be used
for this purpose.
(b) Effective/applicability date. This section applies for plan
years beginning on or after January 1, 2018.
Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
Approved: August 21, 2017.
David Kautter,
Assistant Secretary of the Treasury for Tax Policy.
[FR Doc. 2017-21485 Filed 10-3-17; 4:15 pm]
BILLING CODE 4830-01-P