rr-07-67.pdf

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Part I

Section 417. -- Definitions and Special Rules For Purposes of Minimum Survivor Annuity
Requirements

26 CFR 1.417(e)-1: Restrictions and valuations of distributions from plans subject to
sections 401(a)(11) and 417.

Rev. Rul. 2007-67

ISSUES

1. Do the timing rules for the determination of the applicable interest rate under
§§ 1.417(e)-1(d)(4) and 1.417(e)-1(d)(10)(ii) of the Income Tax Regulations continue to
apply for distributions with annuity starting dates occurring during plan years beginning on
or after January 1, 2008?

2. What mortality table is the applicable mortality table under § 417(e)(3)(B) of the Internal
Revenue Code (“Code”) for distributions with annuity starting dates occurring during plan
years beginning on or after January 1, 2008?

3. Does an amendment that implements the new interest rates and mortality table under
§ 417(e)(3) violate the requirements of § 411(d)(6)?

LAW AND ANALYSIS

Section 417(e)(3) provides rules for the determination of the present value of plan benefits
for purposes of § 417(e). Section 417(e)(3)(A) generally provides that for purposes of
§ 417(e)(1) and (e)(2), the present value is not permitted to be less than the present value
calculated by using the applicable mortality table and the applicable interest rate as
defined in § 417(e)(3)(B) and (C) respectively. In addition, § 411(a)(11)(B) provides that
the determination of present value for purposes of § 411(a)(11)(A) is calculated in
accordance with § 417(e)(3). Sections 203(e)(1), 203(e)(2), and 205(g)(3) of the
Employee Retirement Income Security Act of 1974 (ERISA) provide corresponding
provisions to §§ 411(a)(11)(A), 411(a)(11)(B), and 417(e)(3) of the Code.

Section 1.417(e)-1(d)(1) provides that a defined benefit plan must provide that the present
value of any accrued benefit and the amount (subject to §§ 411(c)(3) and 415) of any
distribution, including a single sum, must not be less than the amount calculated using the
applicable interest rate described in § 1.417(e)-1(d)(3) (determined for the month
described in § 1.417(e)-1(d)(4)) and the applicable mortality table described in § 1.417(e)-
1(d)(2). The present value of any optional form of benefit cannot be less than the present

2
value of the normal retirement benefit determined in accordance with the rules described in
the preceding sentence. Under § 1.417(e)-1(d)(1), these rules must also be used to
compute the present value of the benefit for purposes of determining whether consent for a
distribution is required. Section 1.417(e)-1(d)(6) sets forth exceptions from the otherwise
applicable minimum present value requirements of § 1.417(e)-1(d)(1). In addition,
§ 411(a)(13)(A) provides an exception for certain applicable defined benefit plans
described in § 411(a)(13)(C).

The U.S. Supreme Court, in Arizona v. Norris
, 463 U.S. 1073, 1084-1086 (1983), held that
the application of sex-distinct actuarial tables to employees based upon their gender in
calculating the amount of retirement benefits violates Title VII of the Civil Rights Act of
1964.

For plan years beginning prior to January 1, 2008, § 417(e)(3)(A)(ii)(II) defines the term
“applicable interest rate” as the annual rate of interest on 30-year Treasury securities for
the month before the date of distribution or such other time as the Secretary may by
regulations prescribe. Section 1.417(e)-1(d)(4) generally provides that a plan must provide
for the applicable interest rate to be held constant for a stability period of one calendar
month, one plan quarter, one calendar quarter, one plan year, or one calendar year, and
that the applicable interest rate for each stability period is the annual rate of interest on 30-
year Treasury constant maturities for a specified lookback month that is the first, second,
third, fourth, or fifth full calendar month preceding the first day of the stability period.

For plan years beginning prior to January 1, 2008, § 417(e)(3)(A)(ii)(I) defines the term
"applicable mortality table" as the mortality table prescribed by the Secretary and provides
that such table shall be based on the prevailing commissioners’ standard table (described
in § 807(d)(5)(A)) used to determine group reserves for group annuity contracts issued on
the date as of which the present value is determined. Rev. Rul. 2001-62, 2001-2 C.B. 632,
provided the applicable mortality table for plan years beginning prior to January 1, 2008,
for distributions with annuity starting dates on or after December 31, 2002. Rev. Rul.
2001-62 also permitted a plan to specify any earlier date in 2002 for the required use of the
mortality table set forth in that revenue ruling. Rev. Rul. 95-6, 1995-1 C.B. 80 provided the
applicable mortality table for distributions with annuity starting dates prior to the application
of Rev. Rul. 2001-62.

For plan years beginning on or after January 1, 2008, section 302 of the Pension
Protection Act of 2006, Public Law 109-280 (PPA ‘06), changed the present value
determination under § 417(e)(3) of the Code. For such plan years, § 417(e)(3)(C) defines
the term “applicable interest rate” as the adjusted first, second, and third segment rates
applied under rules similar to the rules of § 430(h)(2)(C) for the month before the date of
the distribution or such other time as the Secretary may by regulations prescribe. For this
purpose, the adjusted first, second, and third segment rates are determined without regard
to the 24-month averaging provided under § 430(h)(2)(D)(i), and § 417(e)(3)(D)(ii) provides
a transition rule that phases in the use of the segment rates over five years.

3
In addition, for plan years beginning on or after January 1, 2008, § 417(e)(3)(B) defines
the term "applicable mortality table" as a mortality table, modified as appropriate by the
Secretary, based on the mortality table specified for the plan year under subparagraph (A)
of § 430(h)(3) (without regard to subparagraph (C) or (D) of such section). In contrast to
the phase in of the use of the segment rates with regard to the applicable interest rate,
there is no transition rule with regard to the applicable mortality table. In addition, PPA ’06
left unchanged the mortality table which generally must be used for the purposes of
adjusting any benefit or limitation under § 415(b)(2)(B), (C), or (D).

Notice 2007-81, 2007-44 I.R.B. 899, specifies how the adjusted segment rates that are
used to determine minimum present values pursuant to § 417(e)(3) are determined, and
specifies those rates for August 2007.

Section § 1.430(h)(3)-1 of the proposed Income Tax Regulations (72 FR 29456) proposes
rules for the mortality tables to be used in determining present value or making any
computation under § 430. The proposed regulation provides for separate mortality tables
for male and females and for annuitants and nonannuitants. The proposed regulation also
provides an option for smaller plans to use male and female blended static tables for all
participants – in lieu of separate tables for annuitants and nonannuitants. Under the
proposed regulation, expected improvements in mortality would be taken into account
through the use of static tables that are updated annually, or through the use of
generational tables. The proposed regulation provides the static mortality tables that are
to be used with respect to valuation dates occurring during 2008. The static mortality
tables that are to be used with respect to valuation dates occurring in later years are to be
published in the Internal Revenue Bulletin.

Section 411(d)(6)(A) generally prohibits a plan amendment that decreases a participant’s
accrued benefit. Section 411(d)(6)(B) provides that an amendment that eliminates an
optional form of benefit is treated as reducing a participant’s accrued benefit, but permits
the Secretary of Treasury to provide for the elimination of certain optional forms of benefits
under regulations. Section 1.411(d)-3(a)(1) provides that under § 411(d)(6)(A), a plan is
not a qualified plan (and a trust forming part of such plan is not a qualified trust) if a plan
amendment decreases the accrued benefit of any plan participant, except as provided
under § 412(c)(8)
1
of the Code, section 4281 of the ERISA, or other applicable law.

Under section 1107 of PPA ’06, a plan sponsor is permitted to delay adopting a plan
amendment pursuant to statutory provisions under PPA ’06 (or pursuant to any regulation
issued under PPA ’06) until the last day of the first plan year beginning on or after January
1, 2009 (January 1, 2011 in the case of governmental plans). This amendment deadline
applies to both interim and discretionary amendments that are made pursuant to PPA ’06
statutory provisions or any regulation issued under PPA ‘06. If section 1107 of PPA ’06
applies to an amendment of a plan, the plan does not fail to satisfy the requirements of
§ 411(d)(6) of the Code by reason of the amendment except as provided by the Secretary
of the Treasury.

1
Changed to § 412(d)(2) by amendments made by PPA ’06.

4

HOLDING

Issue 1

Pursuant to this revenue ruling, the rules of §§ 1.417(e)-1(d)(4) and 1.417(e)-1(d)(10)(ii)
regarding the time for determining the applicable interest rate continue to apply for plan
years beginning on or after January 1, 2008, without regard to the change in the basis for
determining the applicable interest rate. If the first day of the first plan year beginning on
or after January 1, 2008, does not coincide with the first day of a stability period for a plan,
the applicable interest rate for distributions with annuity starting dates during the stability
period that contains the first day of the plan year will change during that period. For
distributions with annuity starting dates within that period that are before the effective date
of the PPA ’06 statutory change, the applicable interest rate is determined without regard
to the statutory change, and for distributions with annuity starting dates within that period
that are on or after the effective date of the statutory change, the applicable interest rate is
determined reflecting the statutory change.

Issue 2

The § 417(e)(3) applicable mortality table for 2008 is published in the Appendix to this
revenue ruling (the “2008 Applicable Mortality Table”). This mortality table is based upon a
fixed blend of 50 percent of the static male combined mortality rates and 50 percent of the
static female combined mortality rates published in § 1.430(h)(3)-1 of the proposed
regulations for valuation dates occurring in 2008. The table shows, for each age, the
number living based upon a starting population of one million lives at age 1 (l
x
), and the
annual rate of mortality (q
x
).

The § 417(e)(3) applicable mortality table for each subsequent year will be published in the
future (the “Subsequent Applicable Mortality Tables”). Except as otherwise stated in future
guidance, the applicable mortality table for each subsequent year will be determined from
the § 430(h)(3)(A) mortality tables on the same basis as the applicable mortality table for
2008.

In general, the applicable mortality table for a year applies to distributions with annuity
starting dates that occur during stability periods that begin during the calendar year to
which the applicable mortality table applies. However, pursuant to the effective date rules
of PPA’ 06, the 2008 Applicable Mortality Table does not apply before the first day of the
first plan year beginning in 2008. Thus, for example, in the case of a plan with a
September 1 to August 31 plan year, and a calendar year stability period, the 2008
Applicable Mortality Table (as well as the applicable interest rates that are based on the
§ 430(h)(2)(C) segment rates) would not apply to distributions with annuity starting dates
prior to September 1, 2008, but would apply to distributions with annuity starting dates
beginning on or after September 1, 2008.

5
A reference in a plan to the applicable § 417(e)(3) mortality table will, as of a particular
date, be treated as a reference to the table that applies to distributions with annuity starting
dates (other than a retroactive annuity starting date) on that date. Such a reference will
mean the 2008 Applicable Mortality Table for annuity starting dates to which that mortality
table applies, and each Subsequent Applicable Mortality Table for annuity starting dates to
which the Subsequent Applicable Mortality Table applies. Such a reference would not
have to be amended each year to reflect changes in the applicable mortality table. By
contrast, a plan provision that specifically refers to an annual applicable mortality table
(such as the 2008 Applicable Mortality Table) would have to be amended each year to
reflect Subsequent Applicable Mortality Tables, and such amendments would have to
satisfy § 411(d)(6).

Issue 3

Pursuant to section 1107 of PPA ’06, an amendment to determine the applicable interest
rate under the § 417(e)(3) rules in effect for plan years beginning on or after January 1,
2008, will not violate § 411(d)(6) of the Code or the corresponding provision of ERISA
solely because of a reduction in accrued benefits or a reduction in the amount of any
distribution with an annuity starting date occurring during a plan year beginning in 2008 or
in a subsequent year if the cause of such reduction is the substitution of the modified
segment rates for the 30-year Treasury rate for the same period. However, if the
amendment changes the time for determining the interest rate, the requirements of
§ 1.417(e)-1(d)(10)(ii) must be satisfied. In addition, if the cause of the reduction is an
amendment to substitute the modified segment rates for a rate that is not the 30-year
Treasury rate, the amendment must satisfy § 411(d)(6).

Pursuant to section 1107 of PPA ’06, a plan amendment to incorporate by reference the
applicable mortality table under § 417(e)(3) that is prescribed by this revenue ruling and by
subsequent guidance issued by the Commissioner will not violate § 411(d)(6) of the Code
or the corresponding provision of ERISA solely because of a reduction in accrued benefits
or a reduction in the amount of any distribution with an annuity starting date occurring
during a plan year beginning in 2008 or in a subsequent year if the cause of such reduction
is the substitution of the applicable § 417(e)(3) mortality table for the prior applicable
mortality table under § 417(e)(3).

EFFECTIVE DATE

This revenue ruling is effective for plan years that begin on or after January 1, 2008.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 2001-62 is modified.

DRAFTING INFORMATION

6
The principal author of this revenue ruling is Lawrence Isaacs of the Employee Plans, Tax
Exempt and Government Entities Division. However, other personnel from the Service
and the Treasury Department participated in preparing this revenue ruling. For further
information regarding this revenue ruling, please contact the Employee Plans’ taxpayer
assistance telephone service at 1-877-829-5500 between the hours of 8:30 a.m. and 4:30
p.m. Eastern time, Monday through Friday (a toll-free number). Mr. Isaacs may be e-
mailed at RetirementPlanQuestions@irs.gov
.

7

APPENDIX

2008 Applicable Mortality Table

Age
l
x
q
x

1 1,000,000.00 0.000380
2 999,620.00 0.000252
3 999,368.10 0.000200
4 999,168.23 0.000153
5 999,015.36 0.000139
6 998,876.50 0.000132
7 998,744.65 0.000126
8 998,618.81 0.000114
9 998,504.97 0.000110
10 998,395.13 0.000111
11 998,284.31 0.000114
12 998,170.51 0.000118
13 998,052.73 0.000124
14 997,928.97 0.000135
15 997,794.25 0.000145
16 997,649.57 0.000154
17 997,495.93 0.000164
18 997,332.34 0.000170
19 997,162.79 0.000174
20 996,989.28 0.000177
21 996,812.81 0.000182
22 996,631.39 0.000189
23 996,443.03 0.000200
24 996,243.74 0.000210
25 996,034.53 0.000224
26 995,811.42 0.000246
27 995,566.45 0.000255
28 995,312.58 0.000264
29 995,049.82 0.000278
30 994,773.20 0.000303
31 994,471.78 0.000350
32 994,123.71 0.000396
33 993,730.04 0.000441
34 993,291.81 0.000486
35 992,809.07 0.000529
36 992,283.87 0.000569
37 991,719.26 0.000608
38 991,116.29 0.000636
39 990,485.94 0.000664
40 989,828.26 0.000698
41 989,137.36 0.000738
42 988,407.38 0.000784
43 987,632.47 0.000836
44 986,806.81 0.000897
45 985,921.64 0.000954

8
46 984,981.07 0.001010
47 983,986.24 0.001072
48 982,931.41 0.001150
49 981,801.04 0.001237
50 980,586.55 0.001347
51 979,265.70 0.001449
52 977,846.74 0.001597
53 976,285.12 0.001793
54 974,534.64 0.002020
55 972,566.08 0.002378
56 970,253.32 0.002853
57 967,485.19 0.003279
58 964,312.81 0.003746
59 960,700.49 0.004251
60 956,616.55 0.004856
61 951,971.22 0.005634
62 946,607.81 0.006471
63 940,482.31 0.007518
64 933,411.76 0.008493
65 925,484.29 0.009602
66 916,597.79 0.010968
67 906,544.55 0.012222
68 895,464.76 0.013448
69 883,422.55 0.014889
70 870,269.27 0.016329
71 856,058.64 0.017998
72 840,651.30 0.020050
73 823,796.24 0.022220
74 805,491.49 0.024781
75 785,530.61 0.027627
76 763,828.76 0.030695
77 740,383.04 0.034561
78 714,794.66 0.038635
79 687,178.57 0.043206
80 657,488.33 0.048326
81 625,714.55 0.054304
82 591,735.75 0.061007
83 555,635.73 0.067895
84 517,910.84 0.076183
85 478,454.84 0.085221
86 437,680.44 0.095318
87 395,961.62 0.107508
88 353,392.58 0.120363
89 310,857.19 0.134135
90 269,160.36 0.149293
91 228,976.60 0.163173
92 191,613.80 0.178866
93 157,340.61 0.194378
94 126,757.06 0.208519
95 100,325.80 0.224167
96 77,836.07 0.237405
97 59,357.40 0.251508

9
98 44,428.54 0.265606
99 32,628.05 0.276614
100 23,602.67 0.286677
101 16,836.33 0.301731
102 11,756.29 0.313092
103 8,075.49 0.324542
104 5,454.65 0.335529
105 3,624.46 0.345501
106 2,372.21 0.353906
107 1,532.67 0.361363
108 978.82 0.368721
109 617.91 0.375772
110 385.72 0.382309
111 238.26 0.388123
112 145.79 0.393008
113 88.49 0.396754
114 53.38 0.399154
115 32.07 0.400000
116 19.24 0.400000
117 11.54 0.400000
118 6.92 0.400000
119 4.15 0.400000
120 2.49 1.000000