Mortality Tables for Determining Present Value Under Defined Benefit Pension Plans

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations.

SUMMARY:

This document sets forth final regulations prescribing mortality tables to be used for most defined benefit pension plans. The tables specify the probability of survival year-by-year for an individual based on age, gender, and other factors. The tables are used (together with other actuarial assumptions) to calculate the present value of a stream of expected future benefit payments for purposes of determining the minimum funding requirements for the plan. These mortality tables are also relevant for determining the minimum required amount of a lump-sum distribution from such a plan. These regulations affect participants in, beneficiaries of, employers maintaining, and administrators of certain defined benefit pension plans.

DATES:

Effective date: These regulations are effective October 20, 2023.

Applicability date: These regulations apply to valuation dates occurring on or after January 1, 2024.

Incorporation by reference: The incorporation by reference of certain publications listed in the rule is approved by the Director of the Federal Register as of October 20, 2023.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Arslan Malik or Linda Marshall at (202) 317–6700; concerning the construction of the base mortality tables and the static mortality tables for 2024, Christopher Denning at (202) 317–5755 (not toll free).

SUPPLEMENTARY INFORMATION:

Background

Section 412 of the Internal Revenue Code (Code) prescribes minimum funding requirements for defined benefit pension plans, and section 430 specifies the minimum funding requirements that apply generally to defined benefit plans that are not multiemployer plans. Section 430(a) defines the minimum required contribution for a plan by reference to the plan's funding target for the plan year. Under section 430(d)(1), a plan's funding target for a plan year generally is the present value of all benefits accrued or earned under the plan as of the first day of that plan year.

Section 430(h)(3) provides rules regarding the mortality tables to be used under section 430. Under section 430(h)(3)(A), except as provided in section 430(h)(3)(C) or (D), the Secretary is to prescribe by regulation mortality tables to be used in determining any present value or making any computation under section 430. Those mortality tables are to be based on the actual mortality experience of pension plan participants and projected trends in that experience. In prescribing those mortality tables, the Secretary is required to take into account results of available independent studies of mortality of individuals covered by pension plans. Under section 430(h)(3)(B), the Secretary is required to revise any mortality table in effect under section 430(h)(3)(A) at least every 10 years to reflect actual mortality experience of pension plan participants and projected trends in that experience. Under section 430(h)(3)(C), a plan sponsor may request the Secretary's approval to use plan-specific substitute mortality tables that meet requirements specified in the statute rather than the generally applicable mortality tables. If approved, the substitute mortality tables are used to determine present values and make computations under section 430 during the period of consecutive plan years (not to exceed 10) specified in the request.

Section 430(h)(3)(D) provides for the use of separate mortality tables with respect to certain individuals who are entitled to benefits on account of disability. These separate mortality tables are permitted to be used with respect to disabled individuals in lieu of the generally applicable mortality tables provided pursuant to section 430(h)(3)(A). The Secretary is to establish separate tables for individuals with disabilities occurring in plan years beginning before January 1, 1995, and for individuals with disabilities occurring in later plan years, with the mortality tables for individuals with disabilities occurring in those later plan years applying only to individuals who are disabled within the meaning of Title II of the Social Security Act.

Section 417(e)(3) generally provides that the present value of certain benefits under a qualified pension plan (including single-sum distributions) must not be less than the present value of the accrued benefit using applicable interest rates and the applicable mortality table. Section 417(e)(3)(B) defines the term “applicable mortality table” as the mortality table specified for the plan year for minimum funding purposes under section 430(h)(3)(A) (without regard to the rules for substitute mortality tables under section 430(h)(3)(C) or mortality tables for disabled individuals under section 430(h)(3)(D)), modified as appropriate by the Secretary. The modifications made by the Secretary to the section 430(h)(3)(A) mortality table to determine the section 417(e)(3)(B) applicable mortality table are not addressed in these regulations. Revenue Ruling 2007–67, 2007–2 CB 1047, describes the modifications that are currently applied to determine the section 417(e)(3)(B) applicable mortality table.

Final regulations under section 430(h)(3) were published in the Federal Register on October 5, 2017, in TD 9826, 82 FR 46388 (the 2017 regulations). Section 1.430(h)(3)–1 prescribes base mortality tables and a set of mortality improvement rates, which may be reflected through the use of either generational mortality tables or static mortality tables. The generational mortality tables are a series of mortality tables, one for each year of birth, each of which fully reflects projected trends in mortality rates. The static mortality tables (which are updated annually ) use a single mortality table for all years of birth to approximate the present value that would be determined using the generational mortality tables.

The mortality tables included in the 2017 regulations are based on the mortality tables included in the RP–2014 Mortality Tables Report (referred to in this preamble as the RP–2014 mortality tables), which was released by the Retirement Plan Experience Committee (RPEC) of the Society of Actuaries (SOA) in October 2014 (as revised in November 2014), and a set of mortality improvement rates as released by RPEC in the Mortality Improvement Scale MP–2016 Report. In 2016, RPEC initiated a study of private-sector retirement plans in the U.S. in order to provide an update to the RP–2014 mortality tables, and in 2019, RPEC issued the Pri-2012 Private Retirement Plans Mortality Tables Report (Pri-2012 Report). In October 2021, RPEC published the Mortality Improvement Scale MP–2021 Report (MP–2021 Report), which includes the latest mortality improvement scale issued by RPEC.

The standards prescribed for developing the mortality tables under section 430(h)(3)(A) are the same as the standards that are prescribed for developing mortality tables for multiemployer plans under section 431(c)(6)(D)(iv)(II) (which are used to determine current liability in order to determine the minimum full funding limitation under section 431(c)(6)(B)). These standards also apply for CSEC plans described in section 414(y) for purposes of developing mortality tables that are used for purposes of section 433(h)(3)(B)(i) (to determine current liability in order to determine the minimum full funding limitation under section 433(c)(2)(C) and the funded current liability percentage under section 433(i)).

Proposed regulations to update the mortality tables issued under section 430(h)(3) and make certain other changes regarding those tables were published in the Federal Register on April 28, 2022 (87 FR 25161) (the proposed regulations). Five comments on the proposed regulations were received. No commenters requested to speak at the scheduled public hearing; accordingly, the public hearing was canceled.

On October 27, 2022, RPEC released a report titled the “RPEC 2022 Mortality Improvement Update.” Unlike RPEC's previously issued reports regarding mortality improvement, this report does not include a new mortality improvement scale. RPEC noted that, as of the date of that report, the most recent year for which full-year mortality data was available was 2020, which was severely affected by the COVID–19 pandemic. RPEC concluded that it would not be appropriate to incorporate, without adjustment, the substantially higher rates of mortality experience from 2020 into the models RPEC had previously used to project future mortality. Therefore, RPEC chose not to release a new mortality improvement scale in 2022. Instead, RPEC recommended the use of an assumed increase in mortality rates to reflect the impact of the COVID–19 pandemic, which would be phased out after an appropriate period. RPEC did not recommend a specific level for this assumed increase but provided data about mortality rates for 2020 through the first half of 2022 and provided examples of assumed increases that could be used (including the assumed increase used in the 2022 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds).

Section 335 of the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), which was enacted on December 29, 2022 as Division T of the Consolidated Appropriations Act, 2023, Public Law 117–328 (136 Stat. 4459), instructs the Secretary or the Secretary's delegate to amend the regulations under section 430(h)(3)(A) no later than June 30, 2024. Under this provision, for valuation dates occurring during or after 2024, the mortality improvement rates specified in those regulations must not assume for years beyond the valuation date mortality improvements at any age that are greater than 0.78 percent. Section 335 of the SECURE 2.0 Act also instructs the Secretary (or delegate) to modify the 0.78 percent limitation to reflect material changes in the overall rate of improvement projected by the Social Security Administration.

After consideration of public comments received on the proposed regulations (and taking into account section 335 of the SECURE 2.0 Act), the proposed regulations are adopted by this Treasury decision, with certain changes. These changes include: (1) a delay in the applicability date; (2) modifications in the mortality improvement rates to reflect the expected ongoing impact of COVID–19 on mortality rates and to reflect the 0.78 percent annual cap on mortality improvement rates as required by section 335 of the SECURE 2.0 Act; and (3) a minor change related to the treatment of individuals who are not identified as male or female.

Summary of Comments and Explanation of Revisions

These regulations set forth the updated methodology for determining the generally applicable mortality tables that are used to calculate present value under section 430 of the Code. Pursuant to section 417(e)(3)(B), a modified version of these tables is used for purposes of determining the amount of a single-sum distribution (or another accelerated form of distribution). In addition, these tables are used to determine current liability for multiemployer plans under section 431(c)(6) and CSEC plans under section 433(h).

The updated methodology for determining the generally applicable mortality tables under section 430(h)(3)(A) is issued pursuant to the requirement under section 430(h)(3)(B) to revise the mortality tables used under section 430 to reflect the actual mortality experience of pension plan participants and projected trends in that experience as well as the requirement under section 335 of the SECURE 2.0 Act that mortality improvement rates provided under the regulations for years after the year that includes the applicable valuation date may not exceed 0.78 percent per year. As under the 2017 regulations and the proposed regulations, the methodology for determining generally applicable mortality tables involves the separate determination of base mortality tables and the projection of mortality improvement.

A. Base Mortality Tables

These regulations adopt the base mortality tables set forth in the proposed regulations for use under section 430(h)(3)(A) of the Code, which are derived from the tables set forth in the Pri-2012 Report. No commenter suggested any alternative source for base mortality tables.

Like the base mortality tables provided in the 2017 regulations, the base mortality tables set forth in these regulations are gender-distinct and provide separate non-annuitant and annuitant mortality rates. The base mortality tables have a base year of 2012 (the central year of the experience study used to develop the mortality tables in the Pri-2012 Report). These base tables generally have the same mortality rates as the employee and non-disabled annuitant mortality rates (amounts weighted) that were released by RPEC in connection with the Pri-2012 Report. However, these base tables also include non-annuitant mortality rates for ages below 18 and above 80 and annuitant mortality rates for ages below age 50. This generally is the same approach that was used to develop the base mortality tables in the 2017 regulations. The preamble to the proposed regulations describes the methodology that was used to develop non-annuitant mortality rates for ages below age 18 and above age 80 and annuitant mortality rates for ages below age 50. See 87 FR 25161, 25163.

B. Mortality Improvement

These regulations adopt the methodology set forth in the proposed regulations regarding the adjustment of the base mortality tables to reflect expected trends in mortality improvement but use different mortality improvement rates. The proposed regulations applied the Scale MP–2021 Rates (the mortality improvement scale in the MP–2021 Report) for valuation dates in the 2023 calendar year. This mortality improvement scale was developed using the same underlying methodology used to develop earlier mortality improvement scales but reflects historical population data through 2019 and the change to the RPEC-selected assumptions for the long-term rate of mortality improvement that was first incorporated in the Mortality Improvement Scale MP–2020 Report.

One commenter expressed concern that the expected long-term improvements in longevity reflected in the MP–2021 Report may be overly optimistic and suggested that regulations apply a cap on the long-term mortality improvement rates used. Another commenter recommended that future mortality rates be increased to reflect the long-term impact of COVID–19.

After considering all the comments and the RPEC 2022 Mortality Improvement Update, the Department of the Treasury (Treasury Department) and the IRS have decided to adopt a modified version of the MP–2021 Mortality Improvement Scale for valuation dates occurring on or after January 1, 2024. The mortality improvement scale applicable for valuation dates occurring on or after January 1, 2024, which is referred to as the 2024 Adjusted Scale MP–2021 Rates, is based on the Scale MP–2021 Rates. However, the 2024 Adjusted Scale MP–2021 Rates reflect a modification to the Scale MP–2021 Rates that eliminates any mortality improvement during 2020, 2021, 2022, and 2023 (while retaining any projected mortality deterioration for those years under the MP–2021 Mortality Improvement Scale). In addition, in response to the statutory instruction in section 335 of the SECURE 2.0 Act, the 2024 Adjusted Scale MP–2021 incorporates a cap on mortality improvement rates of 0.78 percent per year for years after 2024. This cap on mortality improvement rates is statutorily required by a clear statutory instruction, and public comment on the cap rate is unnecessary.

The Treasury Department and the IRS intend to consider new data regarding mortality trends of the general population as it becomes available (including future reports and mortality improvement scales issued by RPEC, as well as projections of mortality improvement issued by the Social Security Administration) and to specify new mortality improvement rates that reflect updated data when future modifications become appropriate. Those new mortality improvement rates will incorporate the cap on mortality improvement rates described in section 335 of the SECURE 2.0 Act (including a change to the level of the 0.78 percent cap on annual mortality improvement rates as a result of any material changes in the overall rate of improvement projected by the Social Security Administration).

C. Use of Static Tables for Small Plans

The 2017 regulations provide for the use of separate generational non-annuitant and annuitant mortality tables and separate static non-annuitant and annuitant mortality tables. However, the proposed regulations provided for the elimination of the use of static mortality tables other than for small plans. This change was proposed because the Treasury Department and the IRS believe that there was no longer a need to allow the use of static mortality tables for larger plans (as most actuarial firms have the capability to use generational mortality tables) and to minimize anti-selection by plan sponsors who determine that the use of static mortality tables results in lower minimum funding requirements. No commenters objected to this change, and these regulations adopt that change.

D. Individuals Not Identified as Male or Female

One commenter requested that final regulations clarify how the mortality tables under section 430(h)(3)(A) are applied in the case of a participant or beneficiary who identifies as nonbinary. To address this issue, and to clarify how these tables should be applied for the portion of a plan's population for whom gender data is not available, the regulations provide that the plan's actuary must use a reasonable approach in applying the section 430(h)(3)(A) mortality tables with respect to the portion of a plan's population whose gender is not identified as male or female (for example, a plan participant who identifies as nonbinary or for whom gender is not known). The regulations include two examples of reasonable approaches that may be used for this purpose. These two approaches are merely two reasonable methods for determining liabilities with respect to individuals for whom male or female gender is not identified, and other reasonable approaches may be appropriate.

Under the first approach, the liability for an individual is determined as the weighted average of the liability calculated as if the individual were male and the liability calculated as if the individual were female, using an appropriate weighting that takes into account the distribution of gender in the plan's population for individuals for whom gender is identified. For example, if the gender distribution in a plan's population for whom the gender is identified is 2/3 male and 1/3 female, the liability calculated for the individual would be equal to 2/3 of the liability calculated as if the individual were male and 1/3 of the liability calculated as if the individual were female.

The second approach might be used in connection with actuarial software that is not able to apply a weight to individuals in the plan census. Under the second approach, either male or female status is assigned 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 population that takes into account the distribution of gender for individuals in the plan's population for whom gender is identified. For example, if the gender distribution in a plan population for whom the gender is identified is 2/3 male and 1/3 female, a gender may be assigned to an individual for whom gender is not identified based on the individual's birthdate, with someone born in the first 8 months of the year assigned male gender and someone born in the last 4 months of the year assigned female gender.

Applicability Date

These regulations apply for valuation dates occurring on or after January 1, 2024.

Effect of Regulations on Previously Approved Substitute Mortality Tables

The 2017 regulations also included rules regarding the use of plan-specific substitute mortality tables under section 430(h)(3)(C), which are set forth in § 1.430(h)(3)–2. Section 1.430(h)(3)–2(c)(6)(ii) provides for the early termination of the use of substitute mortality tables in certain circumstances, including in conjunction with a replacement of the mortality tables specified in § 1.430(h)(3)–1. Under § 1.430(h)(3)–2(c)(6)(ii)(E), the early termination in conjunction with a replacement of the generally applicable mortality tables will apply as of a date specified in guidance published in the Internal Revenue Bulletin. As stated in the preamble to the proposed regulations, the Treasury Department and the IRS generally will not require that the use of previously approved substitute mortality tables be terminated solely as a result of replacement of the generally applicable mortality tables.

Proposed regulations modifying the rules for approving plan-specific substitute mortality tables are being published in the proposed rules section of this issue of the Federal Register . Those regulations are proposed to apply to plan years beginning on or after January 1, 2025. Until amendments to the plan-specific substitute mortality regulations are finalized—and an updated revenue procedure that reflects the final regulations is issued—the Treasury Department and the IRS will not require that any previously approved plan-specific substitute mortality tables be terminated pursuant to § 1.430(h)(3)–2(c)(6)(ii)(E).

Incorporation by Reference

Section 1.430(h)(3)–1(b)(1)(iii) of these regulations provides that the mortality improvement rates used to construct generational tables to be used for valuation dates occurring on or after January 1, 2024, are the 2024 Adjusted Scale MP–2021 Rates as described in the third paragraph of section B of the Summary of Comments and Explanation of Revisions in this preamble. The Office of the Federal Register (OFR) has regulations concerning incorporation by reference. 1 CFR part 51. These regulations require that agencies must discuss in the preamble to a rule or proposed rule the way in which materials that the agency incorporates by reference are reasonably available to interested persons, and how interested parties can obtain the materials. 1 CFR 51.5(b). The 2024 Adjusted Scale MP–2021 Rates may be found at www.irs.gov/retirement-plans/pension-plan-mortality-tables.

Statement of Availability of IRS Documents

IRS Revenue Rulings, Revenue Procedures, and Notices cited in this document are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or by visiting the IRS website at www.irs.gov.

Special Analyses

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that the regulations will not have a significant economic impact on a substantial number of small entities. The only provision that increases regulatory burden is § 1.430(h)(3)–1(b), which generally requires the use of generational mortality tables. However, under § 1.430(h)(3)–1(c), small entities are not required to use generational mortality tables. Therefore, these regulations will not have a significant economic impact on a substantial number of small entities.

Section 202 of the Unfunded Mandates Reform Act of 1995 requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. These regulations do not include any Federal mandate that may result in expenditures by State, local, or tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (Federalism) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These regulations do not have federalism implications, impose substantial direct compliance costs on State and local governments, or preempt State law within the meaning of the Executive order.

Pursuant to section 7805(f) of the Code, the proposed regulations that preceded these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

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

Drafting Information

The principal authors of these regulations are Arslan Malik and Linda S.F. Marshall of the Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Taxes). However, other personnel from the Treasury Department and the IRS participated in the development of these regulations.

List of Subjects in 26 CFR Part 1

• Income taxes
• Incorporation by reference
• Reporting and recordkeeping requirements

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.430(h)(3)–1 is revised to read as follows:

Par. 3. Section 1.430(h)(3)–2 is amended by:

a. In paragraph (c)(3)(ii) deleting the text “§ 1.430(h)(3)–1(a)(2)(i)(E)” and adding in its place “§ 1.430(h)(3)–1(b)(2)(ii)”;

b. Revising paragraph (c)(6)(ii)(E); and

c. In paragraph (d)(4)(iii)(A):

i. Deleting the text “§ 1.430(h)(3)–1(a)(2)(i)(E)” and adding in its place “§ 1.430(h)(3)–1(b)(2)(ii)”;

ii. Deleting “2006” and adding in its place “2012”; and

iii. Deleting the text “§ 1.430(h)(3)–1(a)(2)(i)(C)” and adding in its place “§ 1.430(h)(3)–1(b)(1)(iii).”

The revision reads as follows:

Par. 4. Section 1.431(c)(6)–1 is revised to read as follows:

Par. 5. Section 1.433(h)(3)–1 is revised to read as follows: