§430 — Minimum funding standards for single-employer defined benefit pension plans
13 citing cases
Statute Text — 26 U.S.C. §430
For purposes of this section and section 412(a)(2)(A), except as provided in subsection (f), the term “minimum required contribution” means, with respect to any plan year of a defined benefit plan which is not a multiemployer plan—
in any case in which the value of plan assets of the plan (as reduced under subsection (f)(4)(B)) is less than the funding target of the plan for the plan year, the sum of—
the target normal cost of the plan for the plan year,
the shortfall amortization charge (if any) for the plan for the plan year determined under subsection (c), and
the waiver amortization charge (if any) for the plan for the plan year as determined under subsection (e);
in any case in which the value of plan assets of the plan (as reduced under subsection (f)(4)(B)) equals or exceeds the funding target of the plan for the plan year, the target normal cost of the plan for the plan year reduced (but not below zero) by such excess.
For purposes of this section:
Except as provided in subsection (i)(2) with respect to plans in at-risk status, the term “target normal cost” means, for any plan year, the excess of—
the sum of—
the present value of all benefits which are expected to accrue or to be earned under the plan during the plan year, plus
the amount of plan-related expenses expected to be paid from plan assets during the plan year, over
the amount of mandatory employee contributions expected to be made during the plan year.
For purposes of this subsection, if any benefit attributable to services performed in a preceding plan year is increased by reason of any increase in compensation during the current plan year, the increase in such benefit shall be treated as having accrued during the current plan year.
For purposes of this section, the shortfall amortization charge for a plan for any plan year is the aggregate total (not less than zero) of the shortfall amortization installments for such plan year with respect to any shortfall amortization base which has not been fully amortized under this subsection.
For purposes of paragraph (1)—
The shortfall amortization installments are the amounts necessary to amortize the shortfall amortization base of the plan for any plan year in level annual installments over the 7-plan-year period beginning with such plan year.
The shortfall amortization installment for any plan year in the 7-plan-year period under subparagraph (A) with respect to any shortfall amortization base is the annual installment determined under subparagraph (A) for that year for that base.
In determining any shortfall amortization installment under this paragraph, the plan sponsor shall use the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2).
If a plan sponsor elects to apply this subparagraph with respect to the shortfall amortization base of a plan for any eligible plan year (in this subparagraph and paragraph (7) referred to as an “election year”), then, notwithstanding subparagraphs (A) and (B)—
the shortfall amortization installments with respect to such base shall be determined under clause (ii) or (iii), whichever is specified in the election, and
the shortfall amortization installment for any plan year in the 9-plan-year period described in clause (ii) or the 15-plan-year period described in clause (iii), respectively, with respect to such shortfall amortization base is the annual installment determined under the applicable clause for that year for that base.
The shortfall amortization installments determined under this clause are—
in the case of the first 2 plan years in the 9-plan-year period beginning with the election year, interest on the shortfall amortization base of the plan for the election year (determined using the effective interest rate for the plan for the election year), and
in the case of the last 7 plan years in such 9-plan-year period, the amounts necessary to amortize the remaining balance of the shortfall amortization base of the plan for the election year in level annual installments over such last 7 plan years (using the segment rates under subparagraph (C) for the election year).
The shortfall amortization installments determined under this subparagraph are the amounts necessary to amortize the shortfall amortization base of the plan for the election year in level annual installments over the 15-plan-year period beginning with the election year (using the segment rates under subparagraph (C) for the election year).
The plan sponsor of a plan may elect to have this subparagraph apply to not more than 2 eligible plan years with respect to the plan, except that in the case of a plan described in section 106 of the Pension Protection Act of 2006, the plan sponsor may only elect to have this subparagraph apply to a plan year beginning in 2011.
Such election shall specify whether the amortization schedule under clause (ii) or (iii) shall apply to an election year, except that if a plan sponsor elects to have this subparagraph apply to 2 eligible plan years, the plan sponsor must elect the same schedule for both years.
Such election shall be made at such time, and in such form and manner, as shall be prescribed by the Secretary, and may be revoked only with the consent of the Secretary. The Secretary shall, before granting a revocation request, provide the Pension Benefit Guaranty Corporation an opportunity to comment on the conditions applicable to the treatment of any portion of the election year shortfall amortization base that remains unamortized as of the revocation date.
For purposes of this subparagraph, the term “eligible plan year” means any plan year beginning in 2008, 2009, 2010, or 2011, except that a plan year shall only be treated as an eligible plan year if the due date under subsection (j)(1) for the payment of the minimum required contribution for such plan year occurs on or after the date of the enactment of this subparagraph.
A plan sponsor of a plan who makes an election under clause (i) shall—
give notice of the election to participants and beneficiaries of the plan, and
inform the Pension Benefit Guaranty Corporation of such election in such form and manner as the Director of the Pension Benefit Guaranty Corporation may prescribe.
For increases in required contributions in cases of excess compensation or extraordinary dividends or stock redemptions, see paragraph (7).
For purposes of this section, the shortfall amortization base of a plan for a plan year is—
the funding shortfall of such plan for such plan year, minus
the present value (determined using the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2)) of the aggregate total of the shortfall amortization installments and waiver amortization installments which have been determined for such plan year and any succeeding plan year with respect to the shortfall amortization bases and waiver amortization bases of the plan for any plan year preceding such plan year.
For purposes of this section, the funding shortfall of a plan for any plan year is the excess (if any) of—
the funding target of the plan for the plan year, over
the value of plan assets of the plan (as reduced under subsection (f)(4)(B)) for the plan year which are held by the plan on the valuation date.
In any case in which the value of plan assets of the plan (as reduced under subsection (f)(4)(A)) is equal to or greater than the funding target of the plan for the plan year, the shortfall amortization base of the plan for such plan year shall be zero.
In any case in which the funding shortfall of a plan for a plan year is zero, for purposes of determining the shortfall amortization charge for such plan year and succeeding plan years, the shortfall amortization bases for all preceding plan years (and all shortfall amortization installments determined with respect to such bases) shall be reduced to zero.
If there is an installment acceleration amount with respect to a plan for any plan year in the restriction period with respect to an election year under paragraph (2)(D), then the shortfall amortization installment otherwise determined and payable under such paragraph for such plan year shall, subject to the limitation under subparagraph (B), be increased by such amount.
Subject to rules prescribed by the Secretary, if a shortfall amortization installment with respect to any shortfall amortization base for an election year is required to be increased for any plan year under subparagraph (A)—
such increase shall not result in the amount of such installment exceeding the present value of such installment and all succeeding installments with respect to such base (determined without regard to such increase but after application of clause (ii)), and
subsequent shortfall amortization installments with respect to such base shall, in reverse order of the otherwise required installments, be reduced to the extent necessary to limit the present value of such subsequent shortfall amortization installments (after application of this paragraph) to the present value of the remaining unamortized shortfall amortization base.
For purposes of this paragraph—
The term “installment acceleration amount” means, with respect to any plan year in a restriction period with respect to an election year, the sum of—
the aggregate amount of excess employee compensation determined under subparagraph (D) with respect to all employees for the plan year, plus
the aggregate amount of extraordinary dividends and redemptions determined under subparagraph (E) for the plan year.
The installment acceleration amount for any plan year shall not exceed the excess (if any) of—
the sum of the shortfall amortization installments for the plan year and all preceding plan years in the amortization period elected under paragraph (2)(D) with respect to the shortfall amortization base with respect to an election year, determined without regard to paragraph (2)(D) and this paragraph, over
the sum of the shortfall amortization installments for such plan year and all such preceding plan years, determined after application of paragraph (2)(D) (and in the case of any preceding plan year, after application of this paragraph).
If the installment acceleration amount for any plan year (determined without regard to clause (ii)) exceeds the limitation under clause (ii), then, subject to subclause (II), such excess shall be treated as an installment acceleration amount with respect to the succeeding plan year.
If any amount treated as an installment acceleration amount under subclause (I) or this subclause with respect any succeeding plan year, when added to other installment acceleration amounts (determined without regard to clause (ii)) with respect to the plan year, exceeds the limitation under clause (ii), the portion of such amount representing such excess shall be treated as an installment acceleration amount with respect to the next succeeding plan year.
No amount shall be carried under subclause (I) or (II) to a plan year which begins after the first plan year following the last plan year in the restriction period (or after the second plan year following such last plan year in the case of an election year with respect to which 15-year amortization was elected under paragraph (2)(D)).
For purposes of applying subclause (II), installment acceleration amounts for the plan year (determined without regard to any carryover under this clause) shall be applied first against the limitation under clause (ii) and then carryovers to such plan year shall be applied against such limitation on a first-in, first-out basis.
For purposes of this paragraph—
The term “excess employee compensation” means, with respect to any employee for any plan year, the excess (if any) of—
the aggregate amount includible in income under this chapter for remuneration during the calendar year in which such plan year begins for services performed by the employee for the plan sponsor (whether or not performed during such calendar year), over
$1,000,000.
If during any calendar year assets are set aside or reserved (directly or indirectly) in a trust (or other arrangement as determined by the Secretary), or transferred to such a trust or other arrangement, by a plan sponsor for purposes of paying deferred compensation of an employee under a nonqualified deferred compensation plan (as defined in section 409A) of the plan sponsor, then, for purposes of clause (i), the amount of such assets shall be treated as remuneration of the employee includible in income for the calendar year unless such amount is otherwise includible in income for such year. An amount to which the preceding sentence applies shall not be taken into account under this paragraph for any subsequent calendar year.
Remuneration shall be taken into account under clause (i) only to the extent attributable to services performed by the employee for the plan sponsor after February 28, 2010.
There shall not be taken into account under clause (i)(I) any amount includible in income with respect to the granting after February 28, 2010, of service recipient stock (within the meaning of section 409A) that, upon such grant, is subject to a substantial risk of forfeiture (as defined under section 83(c)(1)) for at least 5 years from the date of such grant.
The Secretary may by regulation provide for the application of this clause in the case of a person other than a corporation.
The following amounts includible in income shall not be taken into account under clause (i)(I):
Any remuneration payable on a commission basis solely on account of income directly generated by the individual performance of the individual to whom such remuneration is payable.
Any remuneration consisting of nonqualified deferred compensation, restricted stock, stock options, or stock appreciation rights payable or granted under a written binding contract that was in effect on March 1, 2010, and which was not modified in any material respect before such remuneration is paid.
The term “employee” includes, with respect to a calendar year, a self-employed individual who is treated as an employee under section 401(c) for the taxable year ending during such calendar year, and the term “compensation” shall include earned income of such individual with respect to such self-employment.
In the case of any calendar year beginning after 2010, the dollar amount under clause (i)(II) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(f)(3) for the calendar year, determined by substituting “calendar year 2009” for “calendar year 2016” in subparagraph (A)(ii) thereof.
If the amount of any increase under clause (i) is not a multiple of $1,000, such increase shall be rounded to the next lowest multiple of $1,000.
The amount determined under this subparagraph for any plan year is the excess (if any) of the sum of the dividends declared during the plan year by the plan sponsor plus the aggregate amount paid for the redemption of stock of the plan sponsor redeemed during the plan year over the greater of—
the adjusted net income (within the meaning of section 4043 of the Employee Retirement Income Security Act of 1974) of the plan sponsor for the preceding plan year, determined without regard to any reduction by reason of interest, taxes, depreciation, or amortization, or
in the case of a plan sponsor that determined and declared dividends in the same manner for at least 5 consecutive years immediately preceding such plan year, the aggregate amount of dividends determined and declared for such plan year using such manner.
For purposes of clause (i), there shall only be taken into account dividends declared, and redemptions occurring, after February 28, 2010.
Dividends paid by one member of a controlled group (as defined in section 412(d)(3)) to another member of such group shall not be taken into account under clause (i).
Redemptions that are made pursuant to a plan maintained with respect to employees, or that are made on account of the death, disability, or termination of employment of an employee or shareholder, shall not be taken into account under clause (i).
Dividends and redemptions with respect to applicable preferred stock shall not be taken into account under clause (i) to the extent that dividends accrue with respect to such stock at a specified rate in all events and without regard to the plan sponsor’s income, and interest accrues on any unpaid dividends with respect to such stock.
For purposes of subclause (I), the term “applicable preferred stock” means preferred stock which was issued before March 1, 2010 (or which was issued after such date and is held by an employee benefit plan subject to the provisions of title I of the Employee Retirement Income Security Act of 1974).
For purposes of this paragraph—
The term “plan sponsor” includes any member of the plan sponsor’s controlled group (as defined in section 412(d)(3)).
The term “restriction period” means, with respect to any election year—
except as provided in subclause (II), the 3-year period beginning with the election year (or, if later, the first plan year beginning after
December 31, 2009
), and
if the plan sponsor elects 15-year amortization for the shortfall amortization base for the election year, the 5-year period beginning with the election year (or, if later, the first plan year beginning after
December 31, 2009
).
If a plan sponsor makes elections under paragraph (2)(D) with respect to 2 or more plans, the Secretary shall provide rules for the application of this paragraph to such plans, including rules for the ratable allocation of any installment acceleration amount among such plans on the basis of each plan’s relative reduction in the plan’s shortfall amortization installment for the first plan year in the amortization period described in subparagraph (A) (determined without regard to this paragraph).
The Secretary shall prescribe rules for the application of paragraph (2)(D) and this paragraph in any case where there is a merger or acquisition involving a plan sponsor making the election under paragraph (2)(D).
With respect to plan years beginning after
December 31, 2021
(or, at the election of the plan sponsor, plan years beginning after
December 31, 2018
,
December 31, 2019
, or
December 31, 2020
)—
the shortfall amortization bases for all plan years preceding the first plan year beginning after
December 31, 2021
(or after whichever earlier date is elected pursuant to this paragraph), and all shortfall amortization installments determined with respect to such bases, shall be reduced to zero, and
subparagraphs (A) and (B) of paragraph (2) shall each be applied by substituting “15-plan-year period” for “7-plan-year period”.
For purposes of this section—
Except as provided in subsection (i)(1) with respect to plans in at-risk status, the funding target of a plan for a plan year is the present value of all benefits accrued or earned under the plan as of the beginning of the plan year.
The “funding target attainment percentage” of a plan for a plan year is the ratio (expressed as a percentage) which—
the value of plan assets for the plan year (as reduced under subsection (f)(4)(B)), bears to
the funding target of the plan for the plan year (determined without regard to subsection (i)(1)).
The waiver amortization charge (if any) for a plan for any plan year is the aggregate total of the waiver amortization installments for such plan year with respect to the waiver amortization bases for each of the 5 preceding plan years.
For purposes of paragraph (1)—
The waiver amortization installments are the amounts necessary to amortize the waiver amortization base of the plan for any plan year in level annual installments over a period of 5 plan years beginning with the succeeding plan year.
The waiver amortization installment for any plan year in the 5-year period under subparagraph (A) with respect to any waiver amortization base is the annual installment determined under subparagraph (A) for that year for that base.
In determining any waiver amortization installment under this subsection, the plan sponsor shall use the segment rates determined under subparagraph (C) of subsection (h)(2), applied under rules similar to the rules of subparagraph (B) of subsection (h)(2).
The waiver amortization base of a plan for a plan year is the amount of the waived funding deficiency (if any) for such plan year under section 412(c).
In any case in which the funding shortfall of a plan for a plan year is zero, for purposes of determining the waiver amortization charge for such plan year and succeeding plan years, the waiver amortization bases for all preceding plan years (and all waiver amortization installments determined with respect to such bases) shall be reduced to zero.
The plan sponsor of a defined benefit plan which is not a multiemployer plan may elect to maintain a prefunding balance.
In the case of a defined benefit plan (other than a multiemployer plan) described in clause (ii), the plan sponsor may elect to maintain a funding standard carryover balance, until such balance is reduced to zero.
A plan is described in this clause if the plan—
was in effect for a plan year beginning in 2007, and
had a positive balance in the funding standard account under section 412(b) as in effect for such plan year and determined as of the end of such plan year.
A prefunding balance and a funding standard carryover balance maintained pursuant to this paragraph—
shall be available for crediting against the minimum required contribution, pursuant to an election under paragraph (3),
shall be applied as a reduction in the amount treated as the value of plan assets for purposes of this section, to the extent provided in paragraph (4), and
may be reduced at any time, pursuant to an election under paragraph (5).
Except as provided in subparagraphs (B) and (C), in the case of any plan year in which the plan sponsor elects to credit against the minimum required contribution for the current plan year all or a portion of the prefunding balance or the funding standard carryover balance for the current plan year (not in excess of such minimum required contribution), the minimum required contribution for the plan year shall be reduced as of the first day of the plan year by the amount so credited by the plan sponsor. For purposes of the preceding sentence, the minimum required contribution shall be determined after taking into account any waiver under section 412(c).
To the extent that any plan has a funding standard carryover balance greater than zero, no amount of the prefunding balance of such plan may be credited under this paragraph in reducing the minimum required contribution.
The preceding provisions of this paragraph shall not apply for any plan year if the ratio (expressed as a percentage) which—
the value of plan assets for the preceding plan year (as reduced under paragraph (4)(C)), bears to
the funding target of the plan for the preceding plan year (determined without regard to subsection (i)(1)),
is less than 80 percent. In the case of plan years beginning in 2008, the ratio under this subparagraph may be determined using such methods of estimation as the Secretary may prescribe.
For purposes of applying subparagraph (C) for plan years beginning after
August 31, 2009
, and before
September 1, 2011
, the ratio determined under such subparagraph for the preceding plan year of a plan shall be the greater of—
such ratio, as determined without regard to this subsection, or
the ratio for such plan for the plan year beginning after
August 31, 2007
and before
September 1, 2008
, as determined under rules prescribed by the Secretary.
In the case of a plan for which the valuation date is not the first day of the plan year—
clause (i) shall apply to plan years beginning after
December 31, 2007
, and before
January 1, 2010
, and
clause (i)(II) shall apply based on the last plan year beginning before
September 1, 2007
, as determined under rules prescribed by the Secretary.
This subparagraph shall not apply to any plan unless such plan is maintained exclusively by one or more organizations described in section 501(c)(3).
In the case of any plan maintaining a prefunding balance or a funding standard carryover balance pursuant to this subsection, the amount treated as the value of plan assets shall be deemed to be such amount, reduced as provided in the following subparagraphs:
For purposes of subsection (c)(5), the value of plan assets is deemed to be such amount, reduced by the amount of the prefunding balance, but only if an election under paragraph (3) applying any portion of the prefunding balance in reducing the minimum required contribution is in effect for the plan year.
For purposes of subsections (a), (c)(4)(B), and (d)(2)(A), the value of plan assets is deemed to be such amount, reduced by the amount of the prefunding balance and the funding standard carryover balance.
For purposes of subsection (c)(4)(B), the value of plan assets shall not be deemed to be reduced for a plan year by the amount of the specified balance if, with respect to such balance, there is in effect for a plan year a binding written agreement with the Pension Benefit Guaranty Corporation which provides that such balance is not available to reduce the minimum required contribution for the plan year. For purposes of the preceding sentence, the term “specified balance” means the prefunding balance or the funding standard carryover balance, as the case may be.
For purposes of paragraph (3)(C)(i) of this subsection, the value of plan assets is deemed to be such amount, reduced by the amount of the prefunding balance.
The plan sponsor may elect to reduce by any amount the balance of the prefunding balance and the funding standard carryover balance for any plan year (but not below zero). Such reduction shall be effective prior to any determination of the value of plan assets for such plan year under this section and application of the balance in reducing the minimum required contribution for such plan for such plan year pursuant to an election under paragraph (2).
To the extent that any plan has a funding standard carryover balance greater than zero, no election may be made under subparagraph (A) with respect to the prefunding balance.
A prefunding balance maintained by a plan shall consist of a beginning balance of zero, increased and decreased to the extent provided in subparagraphs (B) and (C), and adjusted further as provided in paragraph (8).
As of the first day of each plan year beginning after 2008, the prefunding balance of a plan shall be increased by the amount elected by the plan sponsor for the plan year. Such amount shall not exceed the excess (if any) of—
the aggregate total of employer contributions to the plan for the preceding plan year, over—
the minimum required contribution for such preceding plan year.
Any excess contributions under clause (i) shall be properly adjusted for interest accruing for the periods between the first day of the current plan year and the dates on which the excess contributions were made, determined by using the effective interest rate for the preceding plan year and by treating contributions as being first used to satisfy the minimum required contribution.
The excess described in clause (i) with respect to any preceding plan year shall be reduced (but not below zero) by the amount of contributions an employer would be required to make under subsection (b), (c), or (e) of section 436 to avoid a benefit limitation which would otherwise be imposed under such paragraph for the preceding plan year. Any contribution which may be taken into account in satisfying the requirements of more than 1 of such paragraphs shall be taken into account only once for purposes of this clause.
The prefunding balance of a plan shall be decreased (but not below zero) by—
as of the first day of each plan year after 2008, the amount of such balance credited under paragraph (2) (if any) in reducing the minimum required contribution of the plan for the preceding plan year, and
as of the time specified in paragraph (5)(A), any reduction in such balance elected under paragraph (5).
A funding standard carryover balance maintained by a plan shall consist of a beginning balance determined under subparagraph (B), decreased to the extent provided in subparagraph (C), and adjusted further as provided in paragraph (8).
The beginning balance of the funding standard carryover balance shall be the positive balance described in paragraph (1)(B)(ii)(II).
The funding standard carryover balance of a plan shall be decreased (but not below zero) by—
as of the first day of each plan year after 2008, the amount of such balance credited under paragraph (2) (if any) in reducing the minimum required contribution of the plan for the preceding plan year, and
as of the time specified in paragraph (5)(A), any reduction in such balance elected under paragraph (5).
In determining the prefunding balance or the funding standard carryover balance of a plan as of the first day of the plan year, the plan sponsor shall, in accordance with regulations prescribed by the Secretary, adjust such balance to reflect the rate of return on plan assets for the preceding plan year. Notwithstanding subsection (g)(3), such rate of return shall be determined on the basis of fair market value and shall properly take into account, in accordance with such regulations, all contributions, distributions, and other plan payments made during such period.
Elections under this subsection shall be made at such times, and in such form and manner, as shall be prescribed in regulations of the Secretary.
Except as otherwise provided under this subsection, all determinations under this section for a plan year shall be made as of the valuation date of the plan for such plan year.
For purposes of this section—
Except as provided in subparagraph (B), the valuation date of a plan for any plan year shall be the first day of the plan year.
If, on each day during the preceding plan year, a plan had 100 or fewer participants, the plan may designate any day during the plan year as its valuation date for such plan year and succeeding plan years. For purposes of this subparagraph, all defined benefit plans (other than multiemployer plans) maintained by the same employer (or any member of such employer’s controlled group) shall be treated as 1 plan, but only participants with respect to such employer or member shall be taken into account.
For purposes of this paragraph—
In the case of the first plan year of any plan, subparagraph (B) shall apply to such plan by taking into account the number of participants that the plan is reasonably expected to have on days during such first plan year.
Any reference in subparagraph (B) to an employer shall include a reference to any predecessor of such employer.
For purposes of this section—
Except as provided in subparagraph (B), the value of plan assets shall be the fair market value of the assets.
A plan may determine the value of plan assets on the basis of the averaging of fair market values, but only if such method—
is permitted under regulations prescribed by the Secretary,
does not provide for averaging of such values over more than the period beginning on the last day of the 25th month preceding the month in which the valuation date occurs and ending on the valuation date (or a similar period in the case of a valuation date which is not the 1st day of a month), and
does not result in a determination of the value of plan assets which, at any time, is lower than 90 percent or greater than 110 percent of the fair market value of such assets at such time.
Any such averaging shall be adjusted for contributions, distributions, and expected earnings (as determined by the plan’s actuary on the basis of an assumed earnings rate specified by the actuary but not in excess of the third segment rate applicable under subsection (h)(2)(C)(iii)), as specified by the Secretary.
For purposes of determining the value of assets under paragraph (3)—
If—
an employer makes any contribution to the plan after the valuation date for the plan year in which the contribution is made, and
the contribution is for a preceding plan year,
the contribution shall be taken into account as an asset of the plan as of the valuation date, except that in the case of any plan year beginning after 2008, only the present value (determined as of the valuation date) of such contribution may be taken into account. For purposes of the preceding sentence, present value shall be determined using the effective interest rate for the preceding plan year to which the contribution is properly allocable.
If any contributions for any plan year are made to or under the plan during the plan year but before the valuation date for the plan year, the assets of the plan as of the valuation date shall not include—
such contributions, and
interest on such contributions for the period between the date of the contributions and the valuation date, determined by using the effective interest rate for the plan year.
Subject to this subsection, the determination of any present value or other computation under this section shall be made on the basis of actuarial assumptions and methods—
each of which is reasonable (taking into account the experience of the plan and reasonable expectations), and
which, in combination, offer the actuary’s best estimate of anticipated experience under the plan.
For purposes of this section, the term “effective interest rate” means, with respect to any plan for any plan year, the single rate of interest which, if used to determine the present value of the plan’s accrued or earned benefits referred to in subsection (d)(1), would result in an amount equal to the funding target of the plan for such plan year.
For purposes of determining the funding target and target normal cost of a plan for any plan year, the interest rate used in determining the present value of the benefits of the plan shall be—
in the case of benefits reasonably determined to be payable during the 5-year period beginning on the valuation date for the plan year, the first segment rate with respect to the applicable month,
in the case of benefits reasonably determined to be payable during the 15-year period beginning at the end of the period described in clause (i), the second segment rate with respect to the applicable month, and
in the case of benefits reasonably determined to be payable after the period described in clause (ii), the third segment rate with respect to the applicable month.
For purposes of this paragraph—
The term “first segment rate” means, with respect to any month, the single rate of interest which shall be determined by the Secretary for such month on the basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is based on bonds maturing during the 5-year period commencing with such month.
The term “second segment rate” means, with respect to any month, the single rate of interest which shall be determined by the Secretary for such month on the basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is based on bonds maturing during the 15-year period beginning at the end of the period described in clause (i).
The term “third segment rate” means, with respect to any month, the single rate of interest which shall be determined by the Secretary for such month on the basis of the corporate bond yield curve for such month, taking into account only that portion of such yield curve which is based on bonds maturing during periods beginning after the period described in clause (ii).
If a segment rate described in clause (i), (ii), or (iii) with respect to any applicable month (determined without regard to this clause) is less than the applicable minimum percentage, or more than the applicable maximum percentage, of the average of the segment rates described in such clause for years in the 25-year period ending with September 30 of the calendar year preceding the calendar year in which the plan year begins, then the segment rate described in such clause with respect to the applicable month shall be equal to the applicable minimum percentage or the applicable maximum percentage of such average, whichever is closest. The Secretary shall determine such average on an annual basis and may prescribe equivalent rates for years in any such 25-year period for which the rates described in any such clause are not available. Notwithstanding anything in this subclause, if the average of the first, second, or third segment rate for any 25-year period is less than 5 percent, such average shall be deemed to be 5 percent.
For purposes of subclause (I), the applicable minimum percentage and the applicable maximum percentage for a plan year beginning in a calendar year shall be determined in accordance with the following table:
| If the calendar year is: | Theapplicable minimum percentage is: | Theapplicable maximum percentage is: |
|---|---|---|
| Any year in the period starting in 2012 and ending in 2019 | 90% | 110% |
| Any year in the period starting in 2020 and ending in 2030 | 95% | 105% |
| 2031 | 90% | 110% |
| 2032 | 85% | 115% |
| 2033 | 80% | 120% |
| 2034 | 75% | 125% |
| After 2034 | 70% | 130%. |
For purposes of this paragraph—
The term “corporate bond yield curve” means, with respect to any month, a yield curve which is prescribed by the Secretary for such month and which reflects the average, for the 24-month period ending with the month preceding such month, of monthly yields on investment grade corporate bonds with varying maturities and that are in the top 3 quality levels available.
Solely for purposes of determining the minimum required contribution under this section, the plan sponsor may, in lieu of the segment rates determined under subparagraph (C), elect to use interest rates under the corporate bond yield curve. For purposes of the preceding sentence such curve shall be determined without regard to the 24-month averaging described in clause (i). Such election, once made, may be revoked only with the consent of the Secretary.
For purposes of this paragraph, the term “applicable month” means, with respect to any plan for any plan year, the month which includes the valuation date of such plan for such plan year or, at the election of the plan sponsor, any of the 4 months which precede such month. Any election made under this subparagraph shall apply to the plan year for which the election is made and all succeeding plan years, unless the election is revoked with the consent of the Secretary.
The Secretary shall publish for each month the corporate bond yield curve (and the corporate bond yield curve reflecting the modification described in section 417(e)(3)(D) for such month) and each of the rates determined under subparagraph (C) and the averages determined under subparagraph (C)(iv) for such month. The Secretary shall also publish a description of the methodology used to determine such yield curve and such rates which is sufficiently detailed to enable plans to make reasonable projections regarding the yield curve and such rates for future months based on the plan’s projection of future interest rates.
Except as provided in subparagraph (C) or (D), the Secretary shall by regulation prescribe mortality tables to be used in determining any present value or making any computation under this section. Such tables shall be based on the actual experience of pension plans and projected trends in such experience. In prescribing such tables, the Secretary shall take into account results of available independent studies of mortality of individuals covered by pension plans.
The Secretary shall (at least every 10 years) make revisions in any table in effect under subparagraph (A) to reflect the actual experience of pension plans and projected trends in such experience.
Upon request by the plan sponsor and approval by the Secretary, a mortality table which meets the requirements of clause (iii) shall be used in determining any present value or making any computation under this section during the period of consecutive plan years (not to exceed 10) specified in the request.
Notwithstanding clause (i), a mortality table described in clause (i) shall cease to be in effect as of the earliest of—
the date on which there is a significant change in the participants in the plan by reason of a plan spinoff or merger or otherwise, or
the date on which the plan actuary determines that such table does not meet the requirements of clause (iii).
A mortality table meets the requirements of this clause if—
there is a sufficient number of plan participants, and the pension plans have been maintained for a sufficient period of time, to have credible information necessary for purposes of subclause (II), and
such table reflects the actual experience of the pension plans maintained by the sponsor and projected trends in general mortality experience.
Except as provided by the Secretary, a plan sponsor may not use a mortality table under this subparagraph for any plan maintained by the plan sponsor unless—
a separate mortality table is established and used under this subparagraph for each other plan maintained by the plan sponsor and if the plan sponsor is a member of a controlled group, each member of the controlled group, and
the requirements of clause (iii) are met separately with respect to the table so established for each such plan, determined by only taking into account the participants of such plan, the time such plan has been in existence, and the actual experience of such plan.
The plan sponsor shall submit a mortality table to the Secretary for approval under this subparagraph at least 7 months before the 1st day of the period described in clause (i).
Any mortality table submitted to the Secretary for approval under this subparagraph shall be treated as in effect as of the 1st day of the period described in clause (i) unless the Secretary, during the 180-day period beginning on the date of such submission, disapproves of such table and provides the reasons that such table fails to meet the requirements of clause (iii). The 180-day period shall be extended upon mutual agreement of the Secretary and the plan sponsor.
Notwithstanding subparagraph (A)—
The Secretary shall establish mortality tables which may be used (in lieu of the tables under subparagraph (A)) under this subsection for individuals who are entitled to benefits under the plan on account of disability. The Secretary shall establish separate tables for individuals whose disabilities occur in plan years beginning before January 1, 1995, and for individuals whose disabilities occur in plan years beginning on or after such date.
In the case of disabilities occurring in plan years beginning after December 31, 1994, the tables under clause (i) shall apply only with respect to individuals described in such subclause who are disabled within the meaning of title II of the Social Security Act and the regulations thereunder.
The Secretary shall (at least every 10 years) make revisions in any table in effect under clause (i) to reflect the actual experience of pension plans and projected trends in such experience.
For purposes of determining any present value or making any computation under this section, there shall be taken into account—
the probability that future benefit payments under the plan will be made in the form of optional forms of benefits provided under the plan (including lump sum distributions, determined on the basis of the plan’s experience and other related assumptions), and
any difference in the present value of such future benefit payments resulting from the use of actuarial assumptions, in determining benefit payments in any such optional form of benefits, which are different from those specified in this subsection.
No actuarial assumption used to determine the funding target for a plan to which this paragraph applies may be changed without the approval of the Secretary.
This paragraph shall apply to a plan only if—
the plan is a defined benefit plan (other than a multiemployer plan) to which title IV of the Employee Retirement Income Security Act of 1974 applies,
the aggregate unfunded vested benefits as of the close of the preceding plan year (as determined under section 4006(a)(3)(E)(iii) of the Employee Retirement Income Security Act of 1974) of such plan and all other plans maintained by the contributing sponsors (as defined in section 4001(a)(13) of such Act) and members of such sponsors’ controlled groups (as defined in section 4001(a)(14) of such Act) which are covered by title IV (disregarding plans with no unfunded vested benefits) exceed $50,000,000, and
the change in assumptions (determined after taking into account any changes in interest rate and mortality table) results in a decrease in the funding shortfall of the plan for the current plan year that exceeds $50,000,000, or that exceeds $5,000,000 and that is 5 percent or more of the funding target of the plan before such change.
In the case of a plan which is in at-risk status for a plan year, the funding target of the plan for the plan year shall be equal to the sum of—
the present value of all benefits accrued or earned under the plan as of the beginning of the plan year, as determined by using the additional actuarial assumptions described in subparagraph (B), and
in the case of a plan which also has been in at-risk status for at least 2 of the 4 preceding plan years, a loading factor determined under subparagraph (C).
The actuarial assumptions described in this subparagraph are as follows:
All employees who are not otherwise assumed to retire as of the valuation date but who will be eligible to elect benefits during the plan year and the 10 succeeding plan years shall be assumed to retire at the earliest retirement date under the plan but not before the end of the plan year for which the at-risk funding target and at-risk target normal cost are being determined.
All employees shall be assumed to elect the retirement benefit available under the plan at the assumed retirement age (determined after application of clause (i)) which would result in the highest present value of benefits.
The loading factor applied with respect to a plan under this paragraph for any plan year is the sum of—
$700, times the number of participants in the plan, plus
4 percent of the funding target (determined without regard to this paragraph) of the plan for the plan year.
In the case of a plan which is in at-risk status for a plan year, the target normal cost of the plan for such plan year shall be equal to the sum of—
the excess of—
the sum of—
the present value of all benefits which are expected to accrue or to be earned under the plan during the plan year, determined using the additional actuarial assumptions described in paragraph (1)(B), plus
the amount of plan-related expenses expected to be paid from plan assets during the plan year, over
the amount of mandatory employee contributions expected to be made during the plan year, plus
in the case of a plan which also has been in at-risk status for at least 2 of the 4 preceding plan years, a loading factor equal to 4 percent of the amount determined under subsection (b)(1)(A)(i) with respect to the plan for the plan year.
In no event shall—
the at-risk funding target be less than the funding target, as determined without regard to this subsection, or
the at-risk target normal cost be less than the target normal cost, as determined without regard to this subsection.
For purposes of this subsection—
A plan is in at-risk status for a plan year if—
the funding target attainment percentage for the preceding plan year (determined under this section without regard to this subsection) is less than 80 percent, and
the funding target attainment percentage for the preceding plan year (determined under this section by using the additional actuarial assumptions described in paragraph (1)(B) in computing the funding target) is less than 70 percent.
In the case of plan years beginning in 2008, 2009, and 2010, subparagraph (A)(i) shall be applied by substituting the following percentages for “80 percent”:
65 percent in the case of 2008.
70 percent in the case of 2009.
75 percent in the case of 2010.
In the case of plan years beginning in 2008, the funding target attainment percentage for the preceding plan year under subparagraph (A) may be determined using such methods of estimation as the Secretary may provide.
For purposes of subparagraph (A)(ii), the additional actuarial assumptions described in paragraph (1)(B) shall not be taken into account with respect to any employee if—
such employee is employed by a specified automobile manufacturer,
such employee is offered a substantial amount of additional cash compensation, substantially enhanced retirement benefits under the plan, or materially reduced employment duties on the condition that by a specified date (not later than
December 31, 2010
) the employee retires (as defined under the terms of the plan),
such offer is made during 2006 and pursuant to a bona fide retirement incentive program and requires, by the terms of the offer, that such offer can be accepted not later than a specified date (not later than
December 31, 2006
), and
such employee does not elect to accept such offer before the specified date on which the offer expires.
For purposes of clause (i), the term “specified automobile manufacturer” means—
any manufacturer of automobiles, and
any manufacturer of automobile parts which supplies such parts directly to a manufacturer of automobiles and which, after a transaction or series of transactions ending in 1999, ceased to be a member of a controlled group which included such manufacturer of automobiles.
In any case in which a plan which is in at-risk status for a plan year has been in such status for a consecutive period of fewer than 5 plan years, the applicable amount of the funding target and of the target normal cost shall be, in lieu of the amount determined without regard to this paragraph, the sum of—
the amount determined under this section without regard to this subsection, plus
the transition percentage for such plan year of the excess of the amount determined under this subsection (without regard to this paragraph) over the amount determined under this section without regard to this subsection.
For purposes of subparagraph (A), the transition percentage shall be determined in accordance with the following table:
| If the consecutive number of years (including the plan year) the plan is in at-risk status is— | The transitionpercentage is— |
|---|---|
| 1 | 20 |
| 2 | 40 |
| 3 | 60 |
| 4 | 80. |
For purposes of this paragraph, plan years beginning before 2008 shall not be taken into account.
If, on each day during the preceding plan year, a plan had 500 or fewer participants, the plan shall not be treated as in at-risk status for the plan year. For purposes of this paragraph, all defined benefit plans (other than multiemployer plans) maintained by the same employer (or any member of such employer’s controlled group) shall be treated as 1 plan, but only participants with respect to such employer or member shall be taken into account and the rules of subsection (g)(2)(C) shall apply.
For purposes of this section, the due date for any payment of any minimum required contribution for any plan year shall be 8½ months after the close of the plan year.
Any payment required under paragraph (1) for a plan year that is made on a date other than the valuation date for such plan year shall be adjusted for interest accruing for the period between the valuation date and the payment date, at the effective rate of interest for the plan for such plan year.
In any case in which the plan has a funding shortfall for the preceding plan year, the employer maintaining the plan shall make the required installments under this paragraph and if the employer fails to pay the full amount of a required installment for the plan year, then the amount of interest charged under paragraph (2) on the underpayment for the period of underpayment shall be determined by using a rate of interest equal to the rate otherwise used under paragraph (2) plus 5 percentage points. In the case of plan years beginning in 2008, the funding shortfall for the preceding plan year may be determined using such methods of estimation as the Secretary may provide.
For purposes of subparagraph (A)—
The amount of the underpayment shall be the excess of—
the required installment, over
the amount (if any) of the installment contributed to or under the plan on or before the due date for the installment.
The period for which any interest is charged under this paragraph with respect to any portion of the underpayment shall run from the due date for the installment to the date on which such portion is contributed to or under the plan.
For purposes of clause (i)(II), contributions shall be credited against unpaid required installments in the order in which such installments are required to be paid.
For purposes of this paragraph—
There shall be 4 required installments for each plan year.
The due dates for required installments are set forth in the following table:
| In the case of the following required installment: | The due date is: | |
|---|---|---|
| 1st | April 15 | |
| 2nd | July 15 | |
| 3rd | October 15 | |
| 4th | January 15 of the following year. |
For purposes of this paragraph—
The amount of any required installment shall be 25 percent of the required annual payment.
For purposes of clause (i), the term “required annual payment” means the lesser of—
90 percent of the minimum required contribution (determined without regard to this subsection) to the plan for the plan year under this section, or
100 percent of the minimum required contribution (determined without regard to this subsection or to any waiver under section 412(c)) to the plan for the preceding plan year.
Subclause (II) shall not apply if the preceding plan year referred to in such clause was not a year of 12 months.
In applying this paragraph to a plan year beginning on any date other than January 1, there shall be substituted for the months specified in this paragraph, the months which correspond thereto.
This subparagraph shall be applied to plan years of less than 12 months in accordance with regulations prescribed by the Secretary.
The Secretary shall prescribe regulations for the application of this paragraph in the case of a plan which has a valuation date other than the first day of the plan year.
Subparagraph (D) shall be applied without regard to any increase under subsection (c)(7).
A plan to which this paragraph applies shall be treated as failing to pay the full amount of any required installment under paragraph (3) to the extent that the value of the liquid assets paid in such installment is less than the liquidity shortfall (whether or not such liquidity shortfall exceeds the amount of such installment required to be paid but for this paragraph).
This paragraph shall apply to a plan (other than a plan described in subsection (g)(2)(B)) which—
is required to pay installments under paragraph (3) for a plan year, and
has a liquidity shortfall for any quarter during such plan year.
For purposes of paragraph (3)(A), any portion of an installment that is treated as not paid under subparagraph (A) shall continue to be treated as unpaid until the close of the quarter in which the due date for such installment occurs.
If the amount of any required installment is increased by reason of subparagraph (A), in no event shall such increase exceed the amount which, when added to prior installments for the plan year, is necessary to increase the funding target attainment percentage of the plan for the plan year (taking into account the expected increase in funding target due to benefits accruing or earned during the plan year) to 100 percent.
For purposes of this paragraph—
The term “liquidity shortfall” means, with respect to any required installment, an amount equal to the excess (as of the last day of the quarter for which such installment is made) of—
the base amount with respect to such quarter, over
the value (as of such last day) of the plan’s liquid assets.
The term “base amount” means, with respect to any quarter, an amount equal to 3 times the sum of the adjusted disbursements from the plan for the 12 months ending on the last day of such quarter.
If the amount determined under subclause (I) exceeds an amount equal to 2 times the sum of the adjusted disbursements from the plan for the 36 months ending on the last day of the quarter and an enrolled actuary certifies to the satisfaction of the Secretary that such excess is the result of nonrecurring circumstances, the base amount with respect to such quarter shall be determined without regard to amounts related to those nonrecurring circumstances.
The term “disbursements from the plan” means all disbursements from the trust, including purchases of annuities, payments of single sums and other benefits, and administrative expenses.
The term “adjusted disbursements” means disbursements from the plan reduced by the product of—
the plan’s funding target attainment percentage for the plan year, and
the sum of the purchases of annuities, payments of single sums, and such other disbursements as the Secretary shall provide in regulations.
The term “liquid assets” means cash, marketable securities, and such other assets as specified by the Secretary in regulations.
The term “quarter” means, with respect to any required installment, the 3-month period preceding the month in which the due date for such installment occurs.
The Secretary may prescribe such regulations as are necessary to carry out this paragraph.
In the case of a plan to which this subsection applies (as provided under paragraph (2)), if—
any person fails to make a contribution payment required by section 412 and this section before the due date for such payment, and
the unpaid balance of such payment (including interest), when added to the aggregate unpaid balance of all preceding such payments for which payment was not made before the due date (including interest), exceeds $1,000,000,
then there shall be a lien in favor of the plan in the amount determined under paragraph (3) upon all property and rights to property, whether real or personal, belonging to such person and any other person who is a member of the same controlled group of which such person is a member.
This subsection shall apply to a defined benefit plan (other than a multiemployer plan) covered under section 4021 of the Employee Retirement Income Security Act of 1974 for any plan year for which the funding target attainment percentage (as defined in subsection (d)(2)) of such plan is less than 100 percent.
For purposes of paragraph (1), the amount of the lien shall be equal to the aggregate unpaid balance of contribution payments required under this section and section 412 for which payment has not been made before the due date.
A person committing a failure described in paragraph (1) shall notify the Pension Benefit Guaranty Corporation of such failure within 10 days of the due date for the required contribution payment.
The lien imposed by paragraph (1) shall arise on the due date for the required contribution payment and shall continue until the last day of the first plan year in which the plan ceases to be described in paragraph (1)(B). Such lien shall continue to run without regard to whether such plan continues to be described in paragraph (2) during the period referred to in the preceding sentence.
Any amount with respect to which a lien is imposed under paragraph (1) shall be treated as taxes due and owing the United States and rules similar to the rules of subsections (c), (d), and (e) of section 4068 of the Employee Retirement Income Security Act of 1974 shall apply with respect to a lien imposed by subsection (a) and the amount with respect to such lien.
Any lien created under paragraph (1) may be perfected and enforced only by the Pension Benefit Guaranty Corporation, or at the direction of the Pension Benefit Guaranty Corporation, by the contributing sponsor (or any member of the controlled group of the contributing sponsor).
For purposes of this subsection—
The term “contribution payment” means, in connection with a plan, a contribution payment required to be made to the plan, including any required installment under paragraphs (3) and (4) of subsection (j).
The terms “due date” and “required installment” have the meanings given such terms by subsection (j).
The term “controlled group” means any group treated as a single employer under subsections (b), (c), (m), and (o) of section 414.
In the case of a qualified transfer (as defined in section 420), any assets so transferred shall not, for purposes of this section, be treated as assets in the plan.
An eligible newspaper plan sponsor of a plan under which no participant has had the participant’s accrued benefit increased (whether because of service or compensation) after April 2, 2019, may elect to have the alternative standards described in paragraph (4) apply to such plan.
The term “eligible newspaper plan sponsor” means the plan sponsor of—
any community newspaper plan, or
any other plan sponsored, as of
April 2, 2019
, by a member of the same controlled group of a plan sponsor of a community newspaper plan if such member is in the trade or business of publishing 1 or more newspapers.
An election under paragraph (1) shall be made at such time and in such manner as prescribed by the Secretary. Such election, once made with respect to a plan year, shall apply to all subsequent plan years unless revoked with the consent of the Secretary.
The alternative standards described in this paragraph are the following:
Notwithstanding subsection (h)(2)(C) and except as provided in clause (ii), the first, second, and third segment rates in effect for any month for purposes of this section shall be 8 percent.
Notwithstanding subsection (h)(2), for purposes of determining the funding target and normal cost of a plan for any plan year, the present value of any benefits accrued or earned under the plan for a plan year with respect to which an election under paragraph (1) is in effect shall be determined on the basis of the United States Treasury obligation yield curve for the day that is the valuation date of such plan for such plan year.
For purposes of this subsection, the term “United States Treasury obligation yield curve” means, with respect to any day, a yield curve which shall be prescribed by the Secretary for such day on interest-bearing obligations of the United States.
The shortfall amortization bases determined under subsection (c)(3) for all plan years preceding the first plan year to which the election under paragraph (1) applies (and all shortfall amortization installments determined with respect to such bases) shall be reduced to zero under rules similar to the rules of subsection (c)(6).
Notwithstanding subsection (c)(3), the shortfall amortization base for the first plan year to which the election under paragraph (1) applies shall be the funding shortfall of such plan for such plan year (determined using the interest rates as modified under subparagraph (A)).
Subparagraphs (A) and (B) of subsection (c)(2) shall be applied by substituting “30-plan-year” for “7-plan-year” each place it appears.
The election under subparagraph (D) of subsection (c)(2) shall not apply to any plan year to which the election under paragraph (1) applies.
Subsection (i) shall not apply.
For purposes of this subsection—
The term “community newspaper plan” means any plan to which this section applies maintained as of
December 31, 2018
, by an employer which—
maintains the plan on behalf of participants and beneficiaries with respect to employment in the trade or business of publishing 1 or more newspapers which were published by the employer at any time during the 11-year period ending on
December 20, 2019
,
is not a company the stock of which is publicly traded (on a stock exchange or in an over-the-counter market), and is not controlled, directly or indirectly, by such a company, or
is controlled, directly or indirectly, during the entire 30-year period ending on
December 20, 2019
, by individuals who are members of the same family, and does not publish or distribute a daily newspaper that is carrier-distributed in printed form in more than 5 States, and
is controlled, directly or indirectly—
by 1 or more persons residing primarily in a State in which the community newspaper has been published on newsprint or carrier-distributed,
during the entire 30-year period ending on
December 20, 2019
, by individuals who are members of the same family,
by 1 or more trusts, the sole trustees of which are persons described in subclause (I) or (II), or
by a combination of persons described in subclause (I), (II), or (III).
The term “newspaper” does not include any newspaper (determined without regard to this subparagraph) to which any of the following apply:
Is not in general circulation.
Is published (on newsprint or electronically) less frequently than 3 times per week.
Has not ever been regularly published on newsprint.
Does not have a bona fide list of paid subscribers.
A person shall be treated as controlled by another person if such other person possesses, directly or indirectly, the power to direct or cause the direction and management of such person (including the power to elect a majority of the members of the board of directors of such person) through the ownership of voting securities.
For purposes of this subsection, the term “controlled group” means all persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 as of December 20, 2019.
Treasury Regulations
-
Treas. Reg. §1.430(h)(2)-1Interest rates used to determine present value
(a) In general—(1) Overview. This section provides rules relating to the interest rates to be applied for a plan year under section 430(h)(2). Section 430(h)(2) and this section apply to single employer defined benefit plans (including multiple employer plans as defined in section 413(c)) that are subject to section 412 but do not apply to multiemployer plans (as defined in section 414(f)). Paragraph (b) of this section describes how the segment interest rates are used for a plan year. Paragraph (c) of this section describes those segment rates. Paragraph (d) of this section describes the monthly corporate bond yield curve that is used to develop the segment rates. Paragraph (e) of this section describes certain elections that are permitted to be made under this section. Paragraph (f) of this section describes other rules related to interest rates. Paragraph (g) of this section contains examples. Paragraph (h) of this section contains effective/applicability dates.
(2) Special rules for multiple employer plans. In the case of a multiple employer plan to which section 413(c)(4)(A) applies, the rules of section 430 and this section are applied separately for each employer under the plan as if each employer maintained a separate plan. Thus, each employer under such a multiple employer plan may make elections with respect to the interest rate rules under this section that are independent of the elections of other employers under the plan. In the case of a multiple employer plan to which section 413(c)(4)(A) does not apply (that is, a plan described in section 413(c)(4)(B) that has not made the election for section 413(c)(4)(A) to apply), the rules of section 430 and this section are applied as if all participants in the plan were employed by a single employer.
(b) Interest rates for determining plan liabilities—(1) In general. The interest rates used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan for a plan year are determined as set forth in this paragraph (b).
(2) Benefits payable within 5 years. In the case of benefits expected to be payable during the 5-year period beginning on the valuation date for the plan year, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the first segment rate with respect to the applicable month, as described in paragraph (c)(2)(i) of this section.
(3) Benefits payable after 5 years and within 20 years. In the case of benefits expected to be payable during the 15-year period beginning after the end of the period described in paragraph (b)(2) of this section, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the second segment rate with respect to the applicable month, as described in paragraph (c)(2)(ii) of this section.
(4) Benefits payable after 20 years. In the case of benefits expected to be payable after the period described in paragraph (b)(3) of this section, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the third segment rate with respect to the applicable month, as described in paragraph (c)(2)(iii) of this section.
(5) Applicable month. Except as otherwise provided in paragraph (e) of this section, the term applicable month for purposes of this paragraph (b) means the month that includes the valuation date of the plan for the plan year.
(6) Special rule for certain airlines—(i) In general. Pursuant to section 6615 of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, Public Law 110-28 (121 Stat. 112), for a plan sponsor that makes the election described in section 402(a)(2) of the Pension Protection Act of 2006 (PPA '06), Public Law 109-280 (120 Stat. 780), the interest rate required to be used to determine the plan's funding target for each of the 10 years under that election is 8.25 percent (rather than the segment rates otherwise described in this paragraph (b) or the full yield curve as permitted under paragraph (e)(4) of this section).
(ii) Special interest rate not applicable for other purposes. The special interest rate described in paragraph (b)(6)(i) of this section does not apply for other purposes such as the determination of the plan's target normal cost.
(c) Segment rates—(1) Overview. This paragraph (c) sets forth rules for determining the first, second, and third segment rates for purposes of paragraph (b) of this section. The first, second, and third segment rates are set forth in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2) relating to objectives and standards for publishing regulations, revenue rulings and revenue procedures in the Internal Revenue Bulletin.
(2) Definition of segment rates—(i) First segment rate. For purposes of this section, except as otherwise provided under the interest rate stabilization rules in section 430(h)(2)(C)(iv), the first segment rate is, with respect to any month, the single rate of interest determined by the Commissioner on the basis of the average of the monthly corporate bond yield curves (described in paragraph (d) of this section) for the 24-month period ending with the month preceding that month, taking into account only the first 5 years of each of those yield curves.
(ii) Second segment rate. For purposes of this section, except as otherwise provided under the interest rate stabilization rules in section 430(h)(2)(C)(iv), the second segment rate is, with respect to any month, the single rate of interest determined by the Commissioner on the basis of the average of the monthly corporate bond yield curves (described in paragraph (d) of this section) for the 24-month period ending with the month preceding that month, taking into account only the portion of each of those yield curves corresponding to the 15-year period that follows the end of the 5-year period described in paragraph (c)(2)(i) of this section.
(iii) Third segment rate. For purposes of this section, except as otherwise provided under the interest rate stabilization rules in section 430(h)(2)(C)(iv), the third segment rate is, with respect to any month, the single rate of interest determined by the Commissioner on the basis of the average of the monthly corporate bond yield curves (described in paragraph (d) of this section) for the 24-month period ending with the month preceding that month, taking into account only the portion of each of those yield curves corresponding to the 40-year period that follows the end of the 15-year period described in paragraph (c)(2)(ii) of this section.
(d) Monthly corporate bond yield curve—(1) In general—(i) Construction of monthly corporate bond yield curve. For purposes of this section, the monthly corporate bond yield curve for a month is defined as the set of spot rates at specified durations. The specified durations are at 6-month intervals ranging from 6 months through 100 years and the spot rate at a duration is the yield (when compounded semiannually) for a bond that matures at that duration with a single payment at maturity. The monthly corporate bond yield curve is constructed as the average of the spot rates from the set of daily corporate bond yield curves as specified in paragraph (d)(1)(ii) of this section. Each daily corporate bond yield curve is constructed using the methodology set forth in paragraph (d)(2) of this section based on the data described in paragraph (d)(3) of this section. The yield curve for each month will be published in the Internal Revenue Bulletin. See § 601.601(d) of this chapter.
(ii) Monthly corporate bond yield curve constructed through averaging. Each spot rate at a specified duration on the monthly corporate bond yield curve for a month is equal to the arithmetic average, for each business day of that month, of the spot rates at that duration on the daily corporate bond yield curves.
(2) Construction of the daily corporate bond yield curve—(i) In general—(A) Calculation of spot rates. The spot rate at duration of
1/2 year on the daily corporate bond yield curve is set equal to the yield at maturity of
1/2 year from the daily par yield curve described in paragraph (d)(2)(i)(B) of this section. The spot rate for any later duration on the daily corporate bond yield curve is determined by applying an iterative process based on the spot rates at earlier durations and the daily par yield curve.
(B) Calculation of par yield curve. The daily par yield curve (that is, the curve in which the rate at maturity t on the curve is equal to the yield for a bond with maturity of t for which the price is the same as the principal amount) is calculated from the discount function described in paragraph (d)(2)(i)(C) of this section and the hump adjustment variable described in paragraph (d)(2)(iii)(D) of this section.
(C) Derivation of discount function. The discount function for a day at duration t (denoted d(t)) is derived from the forward interest rate function as described in paragraph (d)(2)(ii) of this section (denoted f(z)) using the following equation:
(ii) Determination of forward interest rates—(A) In general. The forward interest rate function used to derive the discount function is determined as a series of cubic polynomials (referred to as a cubic spline) that have a smooth junction at specified knot points (maturities of 0, 1.5, 3, 7, 15, and 30 years). The requirement that the polynomials have a smooth junction at a knot point is satisfied if the two polynomials that are meeting at the knot have the same value, the same derivative, and the same second derivative at that knot point.
(B) Constraints on the forward interest function. The following three constraints are placed on the forward interest rate function—
(1) The second derivative of the function is set to 0 at maturity 0.
(2) The value of the forward interest rate function at and after 30 years is constrained to equal its average value from 15 to 30 years.
(3) The derivative of the forward interest rate function is set to 0 at maturity 30 years.
(iii) Parameters for daily bond price model—(A) B-spline coefficients. The assumed cubic spline for the forward interest rate function can be described as a linear combination of B-splines, with five parameters, which are determined taking into account the two coefficients for the bond-quality adjustment variables described in paragraphs (d)(2)(iii)(B) and (C) of this section and the coefficient for the hump adjustment variable described in paragraph (d)(2)(iii)(D) of this section. The five parameters and three coefficients are determined using the bond data weighted as described in paragraph (d)(2)(iv) of this section. After this weighting of the bond data, the five parameters and three coefficients are chosen to minimize the sum of the squared differences between the bid price for each of the bonds (or ask price for commercial paper) and the price estimated for each of those bonds determined using the specified parameters and coefficients, and taking into account the bond's coupon rate, number of years until maturity, and rating.
(B) Adjustment factor for share of bonds that are AA-rated. The first adjustment variable is based on the proportion of bonds that are rated AA within the universe of bonds in the data set that are rated AA or AAA, weighted by par value. In the case of an AAA-rated bond the adjustment variable described in this paragraph (d)(2)(iii)(B) is equal to the product of the proportion described in the preceding sentence and the number of years until maturity for the bond. In the case of an AA-rated bond the adjustment variable described in this paragraph (d)(2)(iii)(B) is equal to the product of (1- that proportion) and the number of years until maturity for the bond. In the case of an A-rated bond, the adjustment variable described in this paragraph (d)(2)(iii)(B) is 0.
(C) Adjustment factor for share of bonds that are A-rated. The second adjustment variable is based on the proportion of bonds rated A within the universe of bonds in the data set, weighted by par value. In the case of an AAA-rated bond or an AA-rated bond, the adjustment variable described in this paragraph (d)(2)(iii)(C) is equal to the product of the proportion described in the preceding sentence and the number of years until maturity for the bond. In the case of an A-rated bond, the adjustment variable described in this paragraph (d)(2)(iii)(C) is equal to the product of (1- that proportion) and the number of years until maturity for the bond.
(D) Hump adjustment variable. The hump adjustment variable is a mathematical function that is a cubic spline in the interval from 10 years maturity through 30 years maturity made up of two polynomials with a smooth junction (as described in paragraph (d)(2)(ii)(A) of this section) at 20 years maturity. The spline rises from 0 at 10 years maturity to 1.0 at 20 years maturity, then falls back down to 0 at 30 years maturity. The hump adjustment variable is 0 for maturities less than 10 years and maturities greater than 30 years.
(iv) Weighting of bond data. The bond data are weighted in three steps. In the first step, equal weights are assigned to the commercial paper rates at the short end of the curve, and the par amounts outstanding of all the bonds are rescaled so that their sum equals the sum of the weights for commercial paper. In the second step, the squared price difference for each commercial paper rate is multiplied by the commercial paper weight, and the squared price difference for each bond is multiplied by the bond's rescaled par amount outstanding. In the third step, applicable for bonds with duration greater than 1, the weighted squared price difference for each bond from the second step is divided by the bond's duration.
(3) Data used—(i) In general. Except as otherwise provided in this paragraph (d)(3), the bonds that are used to construct the daily corporate bond yield curve for a business day are bonds with maturities longer than
1/2 year, with at least two payment dates, and that:
(A) Are designated as corporate;
(B) Have high quality ratings (AAA, AA, or A) as of that business day from the nationally recognized statistical rating organizations;
(C) Have at least $250 million in par amount outstanding on at least one day during the month;
(D) Pay fixed nominal semiannual coupons and the principal amount at maturity; and
(E) Mature not later than 30 years after that business day.
(ii) Excluded bonds. The following types of bonds are not used to construct the daily corporate bond yield curve for a date:
(A) Bonds not denominated in U.S. dollars;
(B) Bonds not issued by U.S. corporations;
(C) Bonds that are capital securities (sometimes referred to as hybrid preferred stock);
(D) Bonds with variable coupon rates;
(E) Convertible bonds;
(F) Bonds issued by a government-sponsored enterprise (such as the Federal National Mortgage Association);
(G) Asset-backed bonds;
(H) Callable bonds, unless the call feature is make-whole or the call feature is exercisable only during the last year before maturity;
(I) Putable bonds;
(J) Bonds with sinking funds; and
(K) Bonds with an outstanding par amount below $250 million for the day for which the daily yield curve is constructed.
(iii) Durations equal to or below
1/2 year. The data for durations equal to or below
1/2 year that is used to construct the daily corporate bond yield curve consists of AA financial and AA nonfinancial commercial paper rates, as reported by the Federal Reserve Board.
(e) Elections—(1) In general. This paragraph (e) describes elections for a plan year that a plan sponsor can make to use alternative interest rates under this section. Any election under this paragraph (e) must be made by providing written notification of the election to the plan's enrolled actuary. Any election in this paragraph (e) may be adopted for a plan year without obtaining the consent of the Commissioner, but, once adopted, that election will apply for that plan year and all future plan years and may be changed only with the consent of the Commissioner.
(2) Election for alternative applicable month. As an alternative to defining the applicable month as the month that includes the valuation date for the plan year, a plan sponsor that is using segment rates as provided under paragraph (b) of this section may elect to use one of the 4 months preceding that month as the applicable month.
(3) Election to use full yield curve—(i) In general. For purposes of determining the plan's funding target and target normal cost, and for all other purposes under section 430 (including the determination of shortfall amortization installments, waiver installments, and the present values of those installments as described in paragraph (f)(2) of this section), the plan sponsor may elect to use interest rates under the monthly corporate bond yield curve described in paragraph (d) of this section for the month preceding the month that includes the valuation date in lieu of the segment rates determined under paragraph (c) of this section. In order to address the timing of benefit payments during a year, reasonable approximations are permitted to be used to value benefit payments that are expected to be made during a plan year.
(ii) Reasonable techniques permitted. In the case of a plan sponsor using the monthly corporate bond yield curve under this paragraph (e)(3), if with respect to a decrement the benefit is only expected to be paid for one-half of a year (because the decrement was assumed to occur in the middle of the year), the interest rate for that year can be determined as if the benefit were being paid for the entire year. See § 1.430(d)-1(f)(7) for additional reasonable techniques that can be used in determining present value.
(4) Plan sponsor. For purposes of the elections described in this section, any reference to the plan sponsor generally means the employer or employers responsible for making contributions to or under the plan. In the case of plans that are multiple employer plans to which section 413(c)(4)(A) does not apply, any reference to the plan sponsor means the plan administrator within the meaning of section 414(g).
(f) Interest rates used for other purposes—(1) Effective interest rate—(i) In general. Except as otherwise provided in paragraph (f)(2) of this section, the effective interest rate determined under section 430(h)(2)(A) for the plan year is the single interest rate that, if used to determine the present value of the benefits that are taken into account in determining the plan's funding target for the plan year, would result in an amount equal to the plan's funding target determined for the plan year under section 430(d) as described in § 1.430(d)-1(b)(2) (without regard to calculations for plans in at-risk status under section 430(i)).
(ii) Zero funding target. If, for the plan year, the plan's funding target is equal to zero, then the effective interest rate determined under section 430(h)(2)(A) for the plan year is the single interest rate that, if used to determine the present value of the benefits that are taken into account in determining the plan's target normal cost for the plan year, would result in an amount equal to the plan's target normal cost determined for the plan year under section 430(b) as described in § 1.430(d)-1(b)(1) (without regard to calculations for plans in at-risk status under section 430(i)).
(2) Interest rates used for determining shortfall amortization installments and waiver amortization installments. The interest rates used to determine the amount of shortfall amortization installments and waiver amortization installments and the present value of those installments are determined based on the dates those installments are assumed to be paid, using the same timing rules that apply in determining target normal cost as described in paragraph (b) of this section. Thus, for a plan that uses the segment rates described in paragraph (c) of this section, the first segment rate applies to the installments assumed to be paid during the first 5-year period beginning on the valuation date for the plan year, and the second segment rate applies to the installments assumed to be paid during the subsequent 15-year period. For purposes of this paragraph (f)(2), the shortfall amortization installments for a plan year are assumed to be paid on the valuation date for that plan year. For example, for a plan that uses the segment rates described in paragraph (c) of this section, the shortfall amortization installment for the fifth plan year following the current plan year (the sixth installment) is assumed to be paid on the valuation date for that year so that such shortfall amortization installment will be determined using the second segment rate.
(g) Examples. The following examples illustrate the rules of this section:
(h) Applicability date. This section applies for months that begin on or after February 1, 2024. For rules that apply for earlier periods, see 26 CFR 1.430(h)(2)-1 revised as of April 1, 2023.
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Treas. Reg. §1.430(h)(2)-1(a)In general—(1) Overview.
In general—(1) Overview. This section provides rules relating to the interest rates to be applied for a plan year under section 430(h)(2). Section 430(h)(2) and this section apply to single employer defined benefit plans (including multiple employer plans as defined in section 413(c)) that are subject to section 412 but do not apply to multiemployer plans (as defined in section 414(f)). Paragraph (b) of this section describes how the segment interest rates are used for a plan year. Paragraph (c) of this section describes those segment rates. Paragraph (d) of this section describes the monthly corporate bond yield curve that is used to develop the segment rates. Paragraph (e) of this section describes certain elections that are permitted to be made under this section. Paragraph (f) of this section describes other rules related to interest rates. Paragraph (g) of this section contains examples. Paragraph (h) of this section contains effective/applicability dates.
(2) Special rules for multiple employer plans. In the case of a multiple employer plan to which section 413(c)(4)(A) applies, the rules of section 430 and this section are applied separately for each employer under the plan as if each employer maintained a separate plan. Thus, each employer under such a multiple employer plan may make elections with respect to the interest rate rules under this section that are independent of the elections of other employers under the plan. In the case of a multiple employer plan to which section 413(c)(4)(A) does not apply (that is, a plan described in section 413(c)(4)(B) that has not made the election for section 413(c)(4)(A) to apply), the rules of section 430 and this section are applied as if all participants in the plan were employed by a single employer.
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Treas. Reg. §1.430(h)(2)-1(b)Interest rates for determining plan liabilities—(1) In general.
Interest rates for determining plan liabilities—(1) In general. The interest rates used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan for a plan year are determined as set forth in this paragraph (b).
(2) Benefits payable within 5 years. In the case of benefits expected to be payable during the 5-year period beginning on the valuation date for the plan year, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the first segment rate with respect to the applicable month, as described in paragraph (c)(2)(i) of this section.
(3) Benefits payable after 5 years and within 20 years. In the case of benefits expected to be payable during the 15-year period beginning after the end of the period described in paragraph (b)(2) of this section, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the second segment rate with respect to the applicable month, as described in paragraph (c)(2)(ii) of this section.
(4) Benefits payable after 20 years. In the case of benefits expected to be payable after the period described in paragraph (b)(3) of this section, the interest rate used in determining the present value of the benefits that are included in the target normal cost and the funding target for the plan is the third segment rate with respect to the applicable month, as described in paragraph (c)(2)(iii) of this section.
(5) Applicable month. Except as otherwise provided in paragraph (e) of this section, the term applicable month for purposes of this paragraph (b) means the month that includes the valuation date of the plan for the plan year.
(6) Special rule for certain airlines—(i) In general. Pursuant to section 6615 of the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, Public Law 110-28 (121 Stat. 112), for a plan sponsor that makes the election described in section 402(a)(2) of the Pension Protection Act of 2006 (PPA '06), Public Law 109-280 (120 Stat. 780), the interest rate required to be used to determine the plan's funding target for each of the 10 years under that election is 8.25 percent (rather than the segment rates otherwise described in this paragraph (b) or the full yield curve as permitted under paragraph (e)(4) of this section).
(ii) Special interest rate not applicable for other purposes. The special interest rate described in paragraph (b)(6)(i) of this section does not apply for other purposes such as the determination of the plan's target normal cost.
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Treas. Reg. §1.430(h)(2)-1(c)Segment rates—(1) Overview.
Segment rates—(1) Overview. This paragraph (c) sets forth rules for determining the first, second, and third segment rates for purposes of paragraph (b) of this section. The first, second, and third segment rates are set forth in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2) relating to objectives and standards for publishing regulations, revenue rulings and revenue procedures in the Internal Revenue Bulletin.
(2) Definition of segment rates—(i) First segment rate. For purposes of this section, except as otherwise provided under the interest rate stabilization rules in section 430(h)(2)(C)(iv), the first segment rate is, with respect to any month, the single rate of interest determined by the Commissioner on the basis of the average of the monthly corporate bond yield curves (described in paragraph (d) of this section) for the 24-month period ending with the month preceding that month, taking into account only the first 5 years of each of those yield curves.
(ii) Second segment rate. For purposes of this section, except as otherwise provided under the interest rate stabilization rules in section 430(h)(2)(C)(iv), the second segment rate is, with respect to any month, the single rate of interest determined by the Commissioner on the basis of the average of the monthly corporate bond yield curves (described in paragraph (d) of this section) for the 24-month period ending with the month preceding that month, taking into account only the portion of each of those yield curves corresponding to the 15-year period that follows the end of the 5-year period described in paragraph (c)(2)(i) of this section.
(iii) Third segment rate. For purposes of this section, except as otherwise provided under the interest rate stabilization rules in section 430(h)(2)(C)(iv), the third segment rate is, with respect to any month, the single rate of interest determined by the Commissioner on the basis of the average of the monthly corporate bond yield curves (described in paragraph (d) of this section) for the 24-month period ending with the month preceding that month, taking into account only the portion of each of those yield curves corresponding to the 40-year period that follows the end of the 15-year period described in paragraph (c)(2)(ii) of this section.
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Treas. Reg. §1.430(h)(2)-1(d)Monthly corporate bond yield curve—(1) In general—(i) Construction of monthly corporate bond yield curve.
Monthly corporate bond yield curve—(1) In general—(i) Construction of monthly corporate bond yield curve. For purposes of this section, the monthly corporate bond yield curve for a month is defined as the set of spot rates at specified durations. The specified durations are at 6-month intervals ranging from 6 months through 100 years and the spot rate at a duration is the yield (when compounded semiannually) for a bond that matures at that duration with a single payment at maturity. The monthly corporate bond yield curve is constructed as the average of the spot rates from the set of daily corporate bond yield curves as specified in paragraph (d)(1)(ii) of this section. Each daily corporate bond yield curve is constructed using the methodology set forth in paragraph (d)(2) of this section based on the data described in paragraph (d)(3) of this section. The yield curve for each month will be published in the Internal Revenue Bulletin. See § 601.601(d) of this chapter.
(ii) Monthly corporate bond yield curve constructed through averaging. Each spot rate at a specified duration on the monthly corporate bond yield curve for a month is equal to the arithmetic average, for each business day of that month, of the spot rates at that duration on the daily corporate bond yield curves.
(2) Construction of the daily corporate bond yield curve—(i) In general—(A) Calculation of spot rates. The spot rate at duration of
1/2 year on the daily corporate bond yield curve is set equal to the yield at maturity of
1/2 year from the daily par yield curve described in paragraph (d)(2)(i)(B) of this section. The spot rate for any later duration on the daily corporate bond yield curve is determined by applying an iterative process based on the spot rates at earlier durations and the daily par yield curve.
(B) Calculation of par yield curve. The daily par yield curve (that is, the curve in which the rate at maturity t on the curve is equal to the yield for a bond with maturity of t for which the price is the same as the principal amount) is calculated from the discount function described in paragraph (d)(2)(i)(C) of this section and the hump adjustment variable described in paragraph (d)(2)(iii)(D) of this section.
(C) Derivation of discount function. The discount function for a day at duration t (denoted d(t)) is derived from the forward interest rate function as described in paragraph (d)(2)(ii) of this section (denoted f(z)) using the following equation:
(ii) Determination of forward interest rates—(A) In general. The forward interest rate function used to derive the discount function is determined as a series of cubic polynomials (referred to as a cubic spline) that have a smooth junction at specified knot points (maturities of 0, 1.5, 3, 7, 15, and 30 years). The requirement that the polynomials have a smooth junction at a knot point is satisfied if the two polynomials that are meeting at the knot have the same value, the same derivative, and the same second derivative at that knot point.
(B) Constraints on the forward interest function. The following three constraints are placed on the forward interest rate function—
(1) The second derivative of the function is set to 0 at maturity 0.
(2) The value of the forward interest rate function at and after 30 years is constrained to equal its average value from 15 to 30 years.
(3) The derivative of the forward interest rate function is set to 0 at maturity 30 years.
(iii) Parameters for daily bond price model—(A) B-spline coefficients. The assumed cubic spline for the forward interest rate function can be described as a linear combination of B-splines, with five parameters, which are determined taking into account the two coefficients for the bond-quality adjustment variables described in paragraphs (d)(2)(iii)(B) and (C) of this section and the coefficient for the hump adjustment variable described in paragraph (d)(2)(iii)(D) of this section. The five parameters and three coefficients are determined using the bond data weighted as described in paragraph (d)(2)(iv) of this section. After this weighting of the bond data, the five parameters and three coefficients are chosen to minimize the sum of the squared differences between the bid price for each of the bonds (or ask price for commercial paper) and the price estimated for each of those bonds determined using the specified parameters and coefficients, and taking into account the bond's coupon rate, number of years until maturity, and rating.
(B) Adjustment factor for share of bonds that are AA-rated. The first adjustment variable is based on the proportion of bonds that are rated AA within the universe of bonds in the data set that are rated AA or AAA, weighted by par value. In the case of an AAA-rated bond the adjustment variable described in this paragraph (d)(2)(iii)(B) is equal to the product of the proportion described in the preceding sentence and the number of years until maturity for the bond. In the case of an AA-rated bond the adjustment variable described in this paragraph (d)(2)(iii)(B) is equal to the product of (1- that proportion) and the number of years until maturity for the bond. In the case of an A-rated bond, the adjustment variable described in this paragraph (d)(2)(iii)(B) is 0.
(C) Adjustment factor for share of bonds that are A-rated. The second adjustment variable is based on the proportion of bonds rated A within the universe of bonds in the data set, weighted by par value. In the case of an AAA-rated bond or an AA-rated bond, the adjustment variable described in this paragraph (d)(2)(iii)(C) is equal to the product of the proportion described in the preceding sentence and the number of years until maturity for the bond. In the case of an A-rated bond, the adjustment variable described in this paragraph (d)(2)(iii)(C) is equal to the product of (1- that proportion) and the number of years until maturity for the bond.
(D) Hump adjustment variable. The hump adjustment variable is a mathematical function that is a cubic spline in the interval from 10 years maturity through 30 years maturity made up of two polynomials with a smooth junction (as described in paragraph (d)(2)(ii)(A) of this section) at 20 years maturity. The spline rises from 0 at 10 years maturity to 1.0 at 20 years maturity, then falls back down to 0 at 30 years maturity. The hump adjustment variable is 0 for maturities less than 10 years and maturities greater than 30 years.
(iv) Weighting of bond data. The bond data are weighted in three steps. In the first step, equal weights are assigned to the commercial paper rates at the short end of the curve, and the par amounts outstanding of all the bonds are rescaled so that their sum equals the sum of the weights for commercial paper. In the second step, the squared price difference for each commercial paper rate is multiplied by the commercial paper weight, and the squared price difference for each bond is multiplied by the bond's rescaled par amount outstanding. In the third step, applicable for bonds with duration greater than 1, the weighted squared price difference for each bond from the second step is divided by the bond's duration.
(3) Data used—(i) In general. Except as otherwise provided in this paragraph (d)(3), the bonds that are used to construct the daily corporate bond yield curve for a business day are bonds with maturities longer than
1/2 year, with at least two payment dates, and that:
(A) Are designated as corporate;
(B) Have high quality ratings (AAA, AA, or A) as of that business day from the nationally recognized statistical rating organizations;
(C) Have at least $250 million in par amount outstanding on at least one day during the month;
(D) Pay fixed nominal semiannual coupons and the principal amount at maturity; and
(E) Mature not later than 30 years after that business day.
(ii) Excluded bonds. The following types of bonds are not used to construct the daily corporate bond yield curve for a date:
(A) Bonds not denominated in U.S. dollars;
(B) Bonds not issued by U.S. corporations;
(C) Bonds that are capital securities (sometimes referred to as hybrid preferred stock);
(D) Bonds with variable coupon rates;
(E) Convertible bonds;
(F) Bonds issued by a government-sponsored enterprise (such as the Federal National Mortgage Association);
(G) Asset-backed bonds;
(H) Callable bonds, unless the call feature is make-whole or the call feature is exercisable only during the last year before maturity;
(I) Putable bonds;
(J) Bonds with sinking funds; and
(K) Bonds with an outstanding par amount below $250 million for the day for which the daily yield curve is constructed.
(iii) Durations equal to or below
1/2 year. The data for durations equal to or below
1/2 year that is used to construct the daily corporate bond yield curve consists of AA financial and AA nonfinancial commercial paper rates, as reported by the Federal Reserve Board.
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Treas. Reg. §1.430(h)(2)-1(e)Elections—(1) In general.
Elections—(1) In general. This paragraph (e) describes elections for a plan year that a plan sponsor can make to use alternative interest rates under this section. Any election under this paragraph (e) must be made by providing written notification of the election to the plan's enrolled actuary. Any election in this paragraph (e) may be adopted for a plan year without obtaining the consent of the Commissioner, but, once adopted, that election will apply for that plan year and all future plan years and may be changed only with the consent of the Commissioner.
(2) Election for alternative applicable month. As an alternative to defining the applicable month as the month that includes the valuation date for the plan year, a plan sponsor that is using segment rates as provided under paragraph (b) of this section may elect to use one of the 4 months preceding that month as the applicable month.
(3) Election to use full yield curve—(i) In general. For purposes of determining the plan's funding target and target normal cost, and for all other purposes under section 430 (including the determination of shortfall amortization installments, waiver installments, and the present values of those installments as described in paragraph (f)(2) of this section), the plan sponsor may elect to use interest rates under the monthly corporate bond yield curve described in paragraph (d) of this section for the month preceding the month that includes the valuation date in lieu of the segment rates determined under paragraph (c) of this section. In order to address the timing of benefit payments during a year, reasonable approximations are permitted to be used to value benefit payments that are expected to be made during a plan year.
(ii) Reasonable techniques permitted. In the case of a plan sponsor using the monthly corporate bond yield curve under this paragraph (e)(3), if with respect to a decrement the benefit is only expected to be paid for one-half of a year (because the decrement was assumed to occur in the middle of the year), the interest rate for that year can be determined as if the benefit were being paid for the entire year. See § 1.430(d)-1(f)(7) for additional reasonable techniques that can be used in determining present value.
(4) Plan sponsor. For purposes of the elections described in this section, any reference to the plan sponsor generally means the employer or employers responsible for making contributions to or under the plan. In the case of plans that are multiple employer plans to which section 413(c)(4)(A) does not apply, any reference to the plan sponsor means the plan administrator within the meaning of section 414(g).
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Treas. Reg. §1.430(h)(2)-1(f)Interest rates used for other purposes—(1) Effective interest rate—(i) In general.
Interest rates used for other purposes—(1) Effective interest rate—(i) In general. Except as otherwise provided in paragraph (f)(2) of this section, the effective interest rate determined under section 430(h)(2)(A) for the plan year is the single interest rate that, if used to determine the present value of the benefits that are taken into account in determining the plan's funding target for the plan year, would result in an amount equal to the plan's funding target determined for the plan year under section 430(d) as described in § 1.430(d)-1(b)(2) (without regard to calculations for plans in at-risk status under section 430(i)).
(ii) Zero funding target. If, for the plan year, the plan's funding target is equal to zero, then the effective interest rate determined under section 430(h)(2)(A) for the plan year is the single interest rate that, if used to determine the present value of the benefits that are taken into account in determining the plan's target normal cost for the plan year, would result in an amount equal to the plan's target normal cost determined for the plan year under section 430(b) as described in § 1.430(d)-1(b)(1) (without regard to calculations for plans in at-risk status under section 430(i)).
(2) Interest rates used for determining shortfall amortization installments and waiver amortization installments. The interest rates used to determine the amount of shortfall amortization installments and waiver amortization installments and the present value of those installments are determined based on the dates those installments are assumed to be paid, using the same timing rules that apply in determining target normal cost as described in paragraph (b) of this section. Thus, for a plan that uses the segment rates described in paragraph (c) of this section, the first segment rate applies to the installments assumed to be paid during the first 5-year period beginning on the valuation date for the plan year, and the second segment rate applies to the installments assumed to be paid during the subsequent 15-year period. For purposes of this paragraph (f)(2), the shortfall amortization installments for a plan year are assumed to be paid on the valuation date for that plan year. For example, for a plan that uses the segment rates described in paragraph (c) of this section, the shortfall amortization installment for the fifth plan year following the current plan year (the sixth installment) is assumed to be paid on the valuation date for that year so that such shortfall amortization installment will be determined using the second segment rate.
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Treas. Reg. §1.430(h)(2)-1(g)Examples.
Examples. The following examples illustrate the rules of this section:
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Treas. Reg. §1.430(h)(2)-1(h)Applicability date.
Applicability date. This section applies for months that begin on or after February 1, 2024. For rules that apply for earlier periods, see 26 CFR 1.430(h)(2)-1 revised as of April 1, 2023.
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Treas. Reg. §1.430(h)(3)-1Mortality tables used to determine present value
(a) Overview—(1) Standard mortality tables. This section sets forth rules for the mortality tables to be used in determining present value or making any computation under section 430. These mortality tables include—
(i) Generational mortality tables described in paragraph (b) of this section; and
(ii) Static mortality tables for small plans described in paragraph (c) of this section.
(2) Alternative tables—(i) Plan-specific mortality tables. In lieu of using the mortality tables provided under this section, plan-specific substitute mortality tables are permitted to be used for purposes of section 430 pursuant to section 430(h)(3)(C), provided that the requirements of § 1.430(h)(3)-2 are satisfied.
(ii) Disabled individuals. In lieu of using the mortality tables provided under this section, mortality tables for disabled individuals are permitted to be used pursuant to section 430(h)(3)(D). These tables are provided in guidance published in the Internal Revenue Bulletin. See § 601.601(d) of this chapter.
(3) Individuals not identified as either male or female. The mortality tables in this section are applied for an individual based on the individual's gender. With respect to the portion of a plan's population for which male or female gender is not identified (for example, because an individual identifies as nonbinary or because the gender information for an individual is not available), the plan's actuary must use a reasonable approach for determining liability. Some reasonable approaches for these individuals include—
(i) Determining the liability for an individual for whom male or female gender is not identified as the weighted average of the liability calculated as if the individual were male and the liability calculated as if the individual were female, with an appropriate weighting that takes into account the distribution of gender for individuals in the plan's population for whom gender is identified; and
(ii) Assigning either male or female status randomly to an individual for whom male or female gender is not identified in a manner that is expected to result in an appropriate proportion of males and females for the plan's population that takes into account the distribution of gender for individuals in the plan's population for whom gender is identified.
(b) Generational mortality tables—(1) In general—(i) Construction of generational mortality tables. The generational mortality tables that are permitted to be used under section 430(h)(3)(A) and paragraph (a)(1)(i) of this section are constructed from the base mortality tables described in paragraph (b)(1)(ii) of this section and the mortality improvement rates described in paragraph (b)(1)(iii) of this section, as adjusted in accordance with paragraph (b)(1)(v) of this section.
(ii) Base mortality tables. The base mortality tables are set forth in paragraph (d) of this section.
(iii) Mortality improvement rates—(A) Mortality improvement rates for valuation dates occurring on or after January 1, 2024. Except as otherwise provided in this paragraph (b)(1)(iii), the mortality improvement rates for valuation dates occurring on or after January 1, 2024, are the 2024 Adjusted Scale MP-2021 Rates as incorporated by reference pursuant to paragraph (b)(1)(iv)(A) of this section.
(B) [Reserved.]
(iv) Incorporation by reference. The material listed in this paragraph (b)(1)(iv) is incorporated by reference into this section with the approval of the Director of the Federal Register under 5 U.S.C. 552(a) and 1 CFR part 51. This material is available for inspection at the IRS and at the National Archives and Records Administration (NARA). Contact IRS at: IRS Office of Chief Counsel, Qualified Plans Branch 1, CC:EEE:EB:QP1, 1111 Constitution Avenue NW, Washington, DC 20224; (202) 317-6700; www.irs.gov/retirement-plans/pension-plan-mortality-tables. For information on the availability of this material at NARA, visit www.archives.gov/federal-register/cfr/ibr-locations or email fr.inspection@nara.gov. The material may be obtained from IRS: www.irs.gov/retirement-plans/pension-plan-mortality-tables.
(A) 2024 Adjusted Scale MP-2021 Rates, dated August 11, 2023.
(B) [Reserved]
(2) Application of mortality improvement rates—(i) In general. Under the generational mortality tables described in this paragraph (b), 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 tables set forth in paragraph (d) of this section for that age, gender, and status as an annuitant or a non-annuitant) multiplied by the cumulative mortality improvement factor for the individual's gender and for that age for the period from the base year for those mortality tables through the calendar year in which the individual is projected to reach the particular age. Paragraph (b)(3) of this section provides an example that shows how the base mortality tables in paragraph (d) of this section and the mortality improvement rates for valuation dates occurring during 2024 are combined to determine projected mortality rates.
(ii) 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.
(iii) 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. If that annual mortality improvement rate is greater than 1 (corresponding to a negative mortality improvement rate), then the projected mortality rate for that age and gender for that year is greater than the projected mortality rate for the same age and gender for the preceding year.
(3) Example of calculation—(i) Calculation of mortality rate. The mortality rate for 2024 that is applied to a male annuitant who is age 68 in 2024 is equal to the product of the mortality rate under paragraph (d) of this section for a male annuitant who was age 68 in 2012 (0.01418) and the cumulative mortality improvement factor calculated from the 2024 Adjusted Scale MP-2021 Rates for an age 68 male from 2012 to 2024. The cumulative mortality improvement factor for age 68 males for the period from 2012 to 2024 is 0.9827, and the mortality rate for 2024 for male annuitants who are age 68 in that year is 0.01393, as shown in the following table.
(ii) 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 2024 valuation date) of future payments in a benefit stream payable for a male annuitant who is age 68 in 2024, the probability of survival for the annuitant is based on the mortality rate for a male annuitant who is age 68 in 2024 (0.01393), and the projected mortality rate for a male annuitant who will be age 69 in 2025 (0.01507), age 70 in 2026 (0.01635), and so on.
(4) Use of the tables—(i) Separate tables for annuitants and non-annuitants. Separate mortality tables are provided for use with respect to annuitants and non-annuitants. The non-annuitant mortality tables are applied to determine the probability of survival for a non-annuitant for the period before the non-annuitant is projected to commence receiving benefits. The annuitant mortality tables are applied to determine the present value of benefits for each annuitant. In addition, the annuitant mortality tables are applied for each non-annuitant with respect to each assumed commencement of benefits for the period beginning with that assumed commencement. For purposes of this section, an annuitant means a plan participant who has commenced receiving benefits and a non-annuitant 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 non-annuitant with respect to the balance of the benefit. In addition, with respect to a beneficiary of a participant, the annuitant mortality tables apply 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 tables apply with respect to the beneficiary for the period beginning with each assumed commencement of benefits for the beneficiary.
(ii) Examples of calculation using separate non-annuitant and annuitant 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 non-annuitant mortality tables for the period before the participant attains age 55 and using the annuitant mortality tables 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 non-annuitant mortality tables for the period before the participant attains age 65 and using the annuitant mortality tables for ages 65 and above.
(c) Static mortality tables—(1) Availability of alternative tables for small plans—(i) In general. As an alternative to the generational mortality tables defined in paragraph (b) of this section, static mortality tables may be used for a small plan. The static mortality tables described in this paragraph (c) are constructed from the separate non-annuitant and annuitant static mortality tables described in paragraph (c)(2)(i) of this section, combined using the procedure described in paragraph (c)(2)(ii) of this section.
(ii) Definition of small plan. For purposes of this paragraph (c), 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.
(iii) Use of static mortality tables. The static mortality tables that are used for a valuation date are the static mortality tables for the calendar year that includes the valuation date.
(iv) Publication of mortality tables. The static mortality tables for the 2024 calendar year are set forth in paragraph (e) of this section.
(2) Development of static mortality tables—(i) Non-annuitant and annuitant mortality tables. The non-annuitant and annuitant static mortality tables are determined using the base mortality tables described in paragraph (b)(1)(ii) of this section. The rates in those base mortality tables are adjusted using the mortality improvement rates described in paragraph (b)(1)(iii) of this section, in accordance with the rules set forth in paragraph (c)(3) of this section.
(ii) Combined static mortality tables. The static mortality tables described in this paragraph (c) are constructed from the separate non-annuitant and annuitant static mortality tables pursuant to paragraph (c)(2)(i) of this section, blended using the weighting factors in paragraph (d) of this section. The weighting factors are applied to develop these combined static tables using the following equation: Combined mortality rate = [non-annuitant rate * (1 − weighting factor)] + [annuitant rate * weighting factor].
(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 paragraph (b)(2)(ii) of this section) for the period from 2012 through that calendar year; and
(B) The cumulative mortality improvement factor (determined under paragraph (b)(2)(ii) 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 paragraph (c)(3)(ii) of this section is not a whole number, then the mortality rate for that age is determined by using linear interpolation between—
(A) The mortality rate for that age that would be determined under paragraph (c)(3)(i) of this section if the number of years in the projection period were the next lower whole number; and
(B) The mortality rate for that age that would be determined under paragraph (c)(3)(i) of this section if the number of years in the projection period were the next higher whole number.
(iv) Example. For example, at age 85 the projection period for a male is 6
1/3 years (8 years minus
1/3 year for each of the 5 years above age 80). For a valuation date in 2024, 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 2024. Under paragraph (c)(3)(iii) of this section, the mortality rate for an 85-year-old male annuitant in the static mortality table for 2024 is
2/3 times the projected mortality rate for a male annuitant that age in 2030 plus
1/3 times the projected mortality rate for a male annuitant that age in 2031. Accordingly, the mortality rate for an 85-year-old male annuitant in the static mortality table for 2024 is 0.08126 (
2/3 times the projected mortality rate for an 85-year-old male annuitant in 2030 (0.08146) plus
1/3 times the projected mortality rate for an 85-year-old male annuitant in 2031 (0.08086)).
(d) Base mortality tables. The following are the base mortality tables. The base year for these tables is 2012.
(e) Static tables for 2024. The following static mortality tables are used pursuant to paragraph (a)(1)(ii) of this section for determining present value or making any computation under section 430 with respect to valuation dates occurring during 2024.
(f) Applicability date. This section applies for valuation dates occurring on or after January 1, 2024.
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Treas. Reg. §1.430(h)(3)-1(a)Overview—(1) Standard mortality tables.
Overview—(1) Standard mortality tables. This section sets forth rules for the mortality tables to be used in determining present value or making any computation under section 430. These mortality tables include—
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Treas. Reg. §1.430(h)(3)-1(b)Generational mortality tables—(1) In general—(i) Construction of generational mortality tables.
Generational mortality tables—(1) In general—(i) Construction of generational mortality tables. The generational mortality tables that are permitted to be used under section 430(h)(3)(A) and paragraph (a)(1)(i) of this section are constructed from the base mortality tables described in paragraph (b)(1)(ii) of this section and the mortality improvement rates described in paragraph (b)(1)(iii) of this section, as adjusted in accordance with paragraph (b)(1)(v) of this section.
(ii) Base mortality tables. The base mortality tables are set forth in paragraph (d) of this section.
(iii) Mortality improvement rates—(A) Mortality improvement rates for valuation dates occurring on or after January 1, 2024. Except as otherwise provided in this paragraph (b)(1)(iii), the mortality improvement rates for valuation dates occurring on or after January 1, 2024, are the 2024 Adjusted Scale MP-2021 Rates as incorporated by reference pursuant to paragraph (b)(1)(iv)(A) of this section.
(B) [Reserved.]
(iv) Incorporation by reference. The material listed in this paragraph (b)(1)(iv) is incorporated by reference into this section with the approval of the Director of the Federal Register under 5 U.S.C. 552(a) and 1 CFR part 51. This material is available for inspection at the IRS and at the National Archives and Records Administration (NARA). Contact IRS at: IRS Office of Chief Counsel, Qualified Plans Branch 1, CC:EEE:EB:QP1, 1111 Constitution Avenue NW, Washington, DC 20224; (202) 317-6700; www.irs.gov/retirement-plans/pension-plan-mortality-tables. For information on the availability of this material at NARA, visit www.archives.gov/federal-register/cfr/ibr-locations or email fr.inspection@nara.gov. The material may be obtained from IRS: www.irs.gov/retirement-plans/pension-plan-mortality-tables.
(A) 2024 Adjusted Scale MP-2021 Rates, dated August 11, 2023.
(B) [Reserved]
(2) Application of mortality improvement rates—(i) In general. Under the generational mortality tables described in this paragraph (b), 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 tables set forth in paragraph (d) of this section for that age, gender, and status as an annuitant or a non-annuitant) multiplied by the cumulative mortality improvement factor for the individual's gender and for that age for the period from the base year for those mortality tables through the calendar year in which the individual is projected to reach the particular age. Paragraph (b)(3) of this section provides an example that shows how the base mortality tables in paragraph (d) of this section and the mortality improvement rates for valuation dates occurring during 2024 are combined to determine projected mortality rates.
(ii) 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.
(iii) 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. If that annual mortality improvement rate is greater than 1 (corresponding to a negative mortality improvement rate), then the projected mortality rate for that age and gender for that year is greater than the projected mortality rate for the same age and gender for the preceding year.
(3) Example of calculation—(i) Calculation of mortality rate. The mortality rate for 2024 that is applied to a male annuitant who is age 68 in 2024 is equal to the product of the mortality rate under paragraph (d) of this section for a male annuitant who was age 68 in 2012 (0.01418) and the cumulative mortality improvement factor calculated from the 2024 Adjusted Scale MP-2021 Rates for an age 68 male from 2012 to 2024. The cumulative mortality improvement factor for age 68 males for the period from 2012 to 2024 is 0.9827, and the mortality rate for 2024 for male annuitants who are age 68 in that year is 0.01393, as shown in the following table.
(ii) 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 2024 valuation date) of future payments in a benefit stream payable for a male annuitant who is age 68 in 2024, the probability of survival for the annuitant is based on the mortality rate for a male annuitant who is age 68 in 2024 (0.01393), and the projected mortality rate for a male annuitant who will be age 69 in 2025 (0.01507), age 70 in 2026 (0.01635), and so on.
(4) Use of the tables—(i) Separate tables for annuitants and non-annuitants. Separate mortality tables are provided for use with respect to annuitants and non-annuitants. The non-annuitant mortality tables are applied to determine the probability of survival for a non-annuitant for the period before the non-annuitant is projected to commence receiving benefits. The annuitant mortality tables are applied to determine the present value of benefits for each annuitant. In addition, the annuitant mortality tables are applied for each non-annuitant with respect to each assumed commencement of benefits for the period beginning with that assumed commencement. For purposes of this section, an annuitant means a plan participant who has commenced receiving benefits and a non-annuitant 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 non-annuitant with respect to the balance of the benefit. In addition, with respect to a beneficiary of a participant, the annuitant mortality tables apply 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 tables apply with respect to the beneficiary for the period beginning with each assumed commencement of benefits for the beneficiary.
(ii) Examples of calculation using separate non-annuitant and annuitant 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 non-annuitant mortality tables for the period before the participant attains age 55 and using the annuitant mortality tables 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 non-annuitant mortality tables for the period before the participant attains age 65 and using the annuitant mortality tables for ages 65 and above.
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Treas. Reg. §1.430(h)(3)-1(c)Static mortality tables—(1) Availability of alternative tables for small plans—(i) In general.
Static mortality tables—(1) Availability of alternative tables for small plans—(i) In general. As an alternative to the generational mortality tables defined in paragraph (b) of this section, static mortality tables may be used for a small plan. The static mortality tables described in this paragraph (c) are constructed from the separate non-annuitant and annuitant static mortality tables described in paragraph (c)(2)(i) of this section, combined using the procedure described in paragraph (c)(2)(ii) of this section.
(ii) Definition of small plan. For purposes of this paragraph (c), 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.
(iii) Use of static mortality tables. The static mortality tables that are used for a valuation date are the static mortality tables for the calendar year that includes the valuation date.
(iv) Publication of mortality tables. The static mortality tables for the 2024 calendar year are set forth in paragraph (e) of this section.
(2) Development of static mortality tables—(i) Non-annuitant and annuitant mortality tables. The non-annuitant and annuitant static mortality tables are determined using the base mortality tables described in paragraph (b)(1)(ii) of this section. The rates in those base mortality tables are adjusted using the mortality improvement rates described in paragraph (b)(1)(iii) of this section, in accordance with the rules set forth in paragraph (c)(3) of this section.
(ii) Combined static mortality tables. The static mortality tables described in this paragraph (c) are constructed from the separate non-annuitant and annuitant static mortality tables pursuant to paragraph (c)(2)(i) of this section, blended using the weighting factors in paragraph (d) of this section. The weighting factors are applied to develop these combined static tables using the following equation: Combined mortality rate = [non-annuitant rate * (1 − weighting factor)] + [annuitant rate * weighting factor].
(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 paragraph (b)(2)(ii) of this section) for the period from 2012 through that calendar year; and
(B) The cumulative mortality improvement factor (determined under paragraph (b)(2)(ii) 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 paragraph (c)(3)(ii) of this section is not a whole number, then the mortality rate for that age is determined by using linear interpolation between—
(A) The mortality rate for that age that would be determined under paragraph (c)(3)(i) of this section if the number of years in the projection period were the next lower whole number; and
(B) The mortality rate for that age that would be determined under paragraph (c)(3)(i) of this section if the number of years in the projection period were the next higher whole number.
(iv) Example. For example, at age 85 the projection period for a male is 6
1/3 years (8 years minus
1/3 year for each of the 5 years above age 80). For a valuation date in 2024, 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 2024. Under paragraph (c)(3)(iii) of this section, the mortality rate for an 85-year-old male annuitant in the static mortality table for 2024 is
2/3 times the projected mortality rate for a male annuitant that age in 2030 plus
1/3 times the projected mortality rate for a male annuitant that age in 2031. Accordingly, the mortality rate for an 85-year-old male annuitant in the static mortality table for 2024 is 0.08126 (
2/3 times the projected mortality rate for an 85-year-old male annuitant in 2030 (0.08146) plus
1/3 times the projected mortality rate for an 85-year-old male annuitant in 2031 (0.08086)).
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Treas. Reg. §1.430(h)(3)-1(d)Base mortality tables.
Base mortality tables. The following are the base mortality tables. The base year for these tables is 2012.
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Treas. Reg. §1.430(h)(3)-1(e)Static tables for 2024.
Static tables for 2024. The following static mortality tables are used pursuant to paragraph (a)(1)(ii) of this section for determining present value or making any computation under section 430 with respect to valuation dates occurring during 2024.
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Treas. Reg. §1.430(h)(3)-1(f)Applicability date.
Applicability date. This section applies for valuation dates occurring on or after January 1, 2024.
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Treas. Reg. §1.430(h)(3)-1(i)§1.430(h)(3)-1(i)
Determining the liability for an individual for whom male or female gender is not identified as the weighted average of the liability calculated as if the individual were male and the liability calculated as if the individual were female, with an appropriate weighting that takes into account the distribution of gender for individuals in the plan's population for whom gender is identified; and
(ii) Assigning either male or female status randomly to an individual for whom male or female gender is not identified in a manner that is expected to result in an appropriate proportion of males and females for the plan's population that takes into account the distribution of gender for individuals in the plan's population for whom gender is identified.
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Treas. Reg. §1.430(h)(3)-2Plan-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 § 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 § 601.601(d)(2) of this chapter), provide additional guidance regarding approval and use of substitute mortality tables under section 430(h)(3)(C) and related matters.
(b) Procedures for obtaining approval to use substitute mortality tables—(1) Written request 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 § 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 § 1.430(h)(3)-1(b)(2)(ii) for that age and gender for the applicable period. The applicable period is the period beginning with the base year for the base substitute mortality table determined under paragraph (d) or (e) of this section and ending in the calendar year in which the individual attains the age for which the probability of death is being determined. The base year for the base substitute mortality table is the calendar year that contains the day before the midpoint of the experience study period.
(4) Disabled individuals. Under section 430(h)(3)(D), separate mortality tables are permitted to be used for certain disabled individuals. If 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 § 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 § 601.601(d) of this chapter) in conjunction with a replacement of mortality tables specified under section 430(h)(3)(A) and § 1.430(h)(3)-1 (other than changes to the mortality improvement rates under § 1.430(h)(3)-1(b)(1)(iii) or annual updates to the static mortality tables issued as noted in § 1.430(h)(3)-1(c)(1)(iv)).
(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 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 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:
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 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:
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:
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:
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. Except as otherwise provided in this paragraph (d)(4)(iii), the standard mortality table for a year is the mortality table determined by applying cumulative mortality improvement factors determined under § 1.430(h)(3)-1(b)(2)(ii) to the base mortality table under § 1.430(h)(3)-1(d) for the period beginning with the base year for that mortality table and ending in the base year for the base substitute mortality table determined under paragraph (c)(3)(ii) of this section. For purposes of the preceding sentence, the cumulative mortality improvement factors are determined using the mortality improvement rates described in § 1.430(h)(3)-1(b)(1)(iii) that apply for the calendar year during which the plan sponsor submits the request for approval to use substitute mortality tables.
(B) Adjustments to standard mortality table for 2020, 2021, and 2022. If a 12-month period in the experience study period begins after December 31, 2019, and before January 1, 2023, the probability of death for an individual under paragraph (d)(4)(ii)(A)(2)(i) of this section is determined as the mortality rate for the individual's age (at the beginning of the year) and gender from the standard mortality table determined under paragraph (d)(4)(iii)(A) of this section multiplied by the adjustment factor in Table 1 for the calendar year that includes the first day of the 12-month period. For example, for an experience study period that begins April 1, 2019, and ends March 31, 2023, the probability of death for the year beginning April 1, 2022, for a male annuitant who is age 65 as of that date is the probability of death from the base mortality table (0.01087), multiplied by the cumulative mortality improvement factor for the period from 2012 to 2021 (1.02292) and by the adjustment factor for the 2022 calendar year of 1.075, resulting in a probability of death of 0.01195.
(C) Selection of base table. If the population consists solely of annuitants, the annuitant base mortality table set forth in § 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 § 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 § 1.430(h)(3)-1(d) must be used for that purpose. The combined table is constructed using the weighting factors for small plans that are set forth in § 1.430(h)(3)-1(d). The weighting factors are applied to develop the combined table using the following equation:
(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 § 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 § 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 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 § 1.410(b)-2(f). A plan also is treated as a newly-affiliated plan for purposes of this section if the plan is established in connection with a transfer of assets and liabilities from another employer's plan in connection with a merger, acquisition, or similar transaction described in § 1.410(b)-2(f).
(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) Applicability date—(1) General rule. This section applies for plan years beginning on or after January 1, 2025. Except as provided in paragraph (g)(2) or (3) of this section, the substitute mortality table used for a plan for such a plan year must comply with the rules of paragraphs (a) through (f) of this section.
(2) Transition rule for previously approved substitute mortality tables. If a plan sponsor has received approval from the Commissioner to use substitute mortality tables for a plan year beginning in 2025, then the plan's base substitute mortality tables that were approved are treated as satisfying the requirements of paragraph (d) or (e) of this section, as applicable, for that plan year.
(3) Transition rule for requests for approval to use substitute mortality tables. A written request described in paragraph (b)(1)(i) of this section to use substitute mortality tables for a plan year that begins during 2025 does not fail to satisfy the timing requirement of paragraph (b)(1)(ii) of this section if it is submitted no later than October 31, 2024, provided that the plan sponsor agrees to a 90-day extension of the 180-day review period in accordance with paragraph (b)(2)(iv) of this section.
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Treas. Reg. §1.430(h)(3)-2(a)In general.
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 § 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 § 601.601(d)(2) of this chapter), provide additional guidance regarding approval and use of substitute mortality tables under section 430(h)(3)(C) and related matters.
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Treas. Reg. §1.430(h)(3)-2(b)Procedures for obtaining approval to use substitute mortality tables—(1) Written request for approval to use substitute mortality tables—(i) General requirements.
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.
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Treas. Reg. §1.430(h)(3)-2(c)Development of substitute mortality tables—(1) Substitute mortality tables must be used for all plans in controlled group—(i) General rule.
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 § 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 § 1.430(h)(3)-1(b)(2)(ii) for that age and gender for the applicable period. The applicable period is the period beginning with the base year for the base substitute mortality table determined under paragraph (d) or (e) of this section and ending in the calendar year in which the individual attains the age for which the probability of death is being determined. The base year for the base substitute mortality table is the calendar year that contains the day before the midpoint of the experience study period.
(4) Disabled individuals. Under section 430(h)(3)(D), separate mortality tables are permitted to be used for certain disabled individuals. If 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 § 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 § 601.601(d) of this chapter) in conjunction with a replacement of mortality tables specified under section 430(h)(3)(A) and § 1.430(h)(3)-1 (other than changes to the mortality improvement rates under § 1.430(h)(3)-1(b)(1)(iii) or annual updates to the static mortality tables issued as noted in § 1.430(h)(3)-1(c)(1)(iv)).
(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 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.
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Treas. Reg. §1.430(h)(3)-2(d)Full credibility—(1) In general.
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 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:
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 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:
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.
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Treas. Reg. §1.430(h)(3)-2(e)Partial credibility—(1) In general.
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—
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Treas. Reg. §1.430(h)(3)-2(f)Special rules for newly-affiliated plans—(1) In general.
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 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 § 1.410(b)-2(f). A plan also is treated as a newly-affiliated plan for purposes of this section if the plan is established in connection with a transfer of assets and liabilities from another employer's plan in connection with a merger, acquisition, or similar transaction described in § 1.410(b)-2(f).
(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.
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Treas. Reg. §1.430(h)(3)-2(g)Applicability date—(1) General rule.
Applicability date—(1) General rule. This section applies for plan years beginning on or after January 1, 2025. Except as provided in paragraph (g)(2) or (3) of this section, the substitute mortality table used for a plan for such a plan year must comply with the rules of paragraphs (a) through (f) of this section.
(2) Transition rule for previously approved substitute mortality tables. If a plan sponsor has received approval from the Commissioner to use substitute mortality tables for a plan year beginning in 2025, then the plan's base substitute mortality tables that were approved are treated as satisfying the requirements of paragraph (d) or (e) of this section, as applicable, for that plan year.
(3) Transition rule for requests for approval to use substitute mortality tables. A written request described in paragraph (b)(1)(i) of this section to use substitute mortality tables for a plan year that begins during 2025 does not fail to satisfy the timing requirement of paragraph (b)(1)(ii) of this section if it is submitted no later than October 31, 2024, provided that the plan sponsor agrees to a 90-day extension of the 180-day review period in accordance with paragraph (b)(2)(iv) of this section.
13 Citing Cases
MDIA argued that despite not satisfying the minimum funding requirements under section 430, the highly competitive nature of its field, its continuing contributions to the Plan (MDIA asserted that no Plan payments were missed), and the subsequent standard termination of the Plan constituted special circumstances that justified the acceptance of MDIA’s Revised Offer.
plans at new section 404(o), which capped the deduction at the greater ofeither (1) the excess ofthe funding target, target normal cost, and cushion amount over the value ofthe plan's assets or (2) the sum ofthe minimum required contributions under section 430. During the years at issue, section 412(a) provided that a plan satisfied the minimum funding standard if, at the end ofthe plan year, the plan did not have an accumulated funding deficiency--that is, the plan should not have an excess of
430 (1988), for that year. Sec. 1402(b). “Net earnings from self-employment” generally are defined as the gross income from any trade or business carried on by the individual, less allowable deductions attributable to the trade or business. Sec. 1402(a). Petitioner bears the burden of establishing error in respondent’s determination that he is