Prop. Treas. Reg. § 1.430 (h)(3)-1 Mortality tables used to determine present value.

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

(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.

(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.

(ii) Base mortality tables. The base mortality tables are set forth in paragraph (d) of this section. The base year for those tables is 2012.

(iii) Mortality improvement rates. The mortality improvement rates for valuation dates occurring during 2023 are the Scale MP-2021 Rates.

Note 1 to paragraph (b)(1)(iii):

For later years, updated mortality improvement rates that take into account new data for mortality improvement trends of the general population will also be incorporated by reference.

(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: Qualified Plans Branch 1, CC:EEE:QP1, 1111 Constitution Avenue NW, Washington, DC 20224; (202) 317-6700; www.irs.gov/retirement-plans/interest-rates-tables. For information on the availability of this material at NARA, email: fr.inspection@nara.gov, or go to: www.archives.gov/federal-register/cfr/ibr-locations.html. The material is available from the Society of Actuaries at: Society of Actuaries, 475 N. Martingale Rd., Suite 600, Schaumburg, IL 60173; (847) 706-3500; https://www.soa.org/resources/experience-studies/2021/mortality-improvement-scale-mp-2021/.

(A) The Scale MP-2021 Rates.

(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 2012 through the calendar year in which the individual is projected to reach the particular age. Paragraph (b)(3) of this section shows how the base mortality tables in paragraph (d) of this section and the mortality improvement rates for valuation dates occurring during 2023 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 2023 that is applied to male annuitants who are age 67 in 2023 is equal to the product of the mortality rate for 2012 that applied to male annuitants who were age 67 in 2012 (0.01288) and the cumulative mortality improvement factor for age 67 males from 2012 to 2023. The cumulative mortality improvement factor for age 67 males for the period from 2012 to 2023 is 0.9919, and the mortality rate for 2023 for male annuitants who are age 67 in that year would be 0.01278, 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 2023 valuation date) of future payments in a benefit stream payable for a male annuitant who is age 67 in 2023, the probability of survival for the annuitant is based on the mortality rate for a male annuitant who is age 67 in 2023 (0.01278), and the projected mortality rate for a male annuitant who will be age 68 in 2024 (0.01378), age 69 in 2025 (0.01489), and so on.

(4) Use of the tables —(i) Separate tables for annuitants and non-annuitants. Separate mortality tables are provided for use for 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 2023 calendar year are set forth in paragraph (e) of this section.

Note 2 to paragraph (c)(1)(iv):

The static mortality tables for valuation dates for later calendar years will be published in the Internal Revenue Bulletin. See § 601.601(d) of this chapter.

(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 2023, 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 2023. Under paragraph (c)(3)(iii) of this section, the mortality rate for an 85-year-old male annuitant in the static mortality table for 2023 is 2/3 times the projected mortality rate for a male annuitant that age in 2029 plus 1/3 times the projected mortality rate for a male annuitant that age in 2030. Accordingly, the mortality rate for an 85-year-old male annuitant in the static mortality table for 2023 is 0.07967 ( 2/3 times the projected mortality rate for an 85-year-old male annuitant in 2029 (0.07986) plus 1/3 times the projected mortality rate for an 85-year-old male annuitant in 2030 (0.07928)).

(d) Base mortality tables. The following are the base mortality tables. The base year for these tables is 2012.

(e) Static tables for 2023. 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 2023.

(f) Applicability date. This section applies for plan years beginning on or after January 1, 2023.