Notice 2007-81 also — Internal Revenue Bulletin 2023-30

bonds (unless the call feature is makewhole) from the bond data set used to construct the daily corporate bond yield curve. The proposed regulations generally retain this exclusion but narrow it. Under the proposed regulations, this exclusion does not apply if the call feature is exercisable only during the last year before maturity. This type of call feature has recently become more widely used, and the inclusion of bonds with this feature in the data set will result in a significantly larger pool of bonds that more accurately reflects the market for high quality corporate bonds.

Proposed Applicability Date

The rules in the proposed regulations are proposed to apply for months that begin more than 15 days after the date final regulations specifying the methodology for constructing the corporate bond yield curve are published in the Federal Register .

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

Regulatory Planning and Review (Executive Orders 12866 and 13563)

These regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.

Regulatory Flexibility Act (5 U.S.C. chapter 6).

It is hereby certified that this rule will not have a significant economic impact on a substantial number of small entities. The vast majority of plan sponsors of defined benefit plans that are subject to section 430 choose to use the segment rates under section 430(h)(2)(C), rather than the corporate bond yield curve under section 430(h)(2)(D), to determine minimum required contributions. Furthermore, most of the plan sponsors who choose to use the corporate bond yield curve for this purpose are not small employers. Therefore, the methodology set forth in the proposed regulations for constructing the corporate bond yield curve will not have a significant effect on minimum required contributions for small employers. In addition, the insurance companies that are required to use a modified version of the corporate bond yield curve to discount unpaid losses are typically not small employers. Accordingly, a regulatory flexibility

4 Although section 939A(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376, generally prohibits federal agencies from issuing regulations that apply a standard that is based on credit ratings from statistical rating organizations, this prohibition does not apply to the construction of the daily corporate bond yield curve because the use of those credit ratings is required by section 430(h)(2)(D) of the Code.

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deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing. If no outline of the topics to be discussed at the hearing is received by August 22, 2023, the public hearing will be cancelled. If the public hearing is cancelled, a notice of cancellation of the public hearing will be published in the Federal Register .

Individuals who want to testify in person at the public hearing must send an email to publichearings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG124123-22 and the language TESTIFY In Person. For example, the subject line may say: Request to TESTIFY In Person at Hearing for REG-124123-22.

Individuals who want to testify by telephone at the public hearing must send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG-124123-22 and the language TESTIFY Telephonically. For example, the subject line may say: Request to TESTIFY Telephonically at Hearing for REG-124123-22.

Individuals who want to attend the public hearing in person without testifying must also send an email to publichear- ings@irs.gov to have your name added to the building access list. The subject line of the email must contain the regulation number REG-124123-22 and the language ATTEND In Person. For example, the subject line may say: Request to ATTEND Hearing In Person for REG-124123-22. Requests to attend the public hearing must be received by 5:00 p.m. EST on August 28, 2023. Individuals who want to attend the public hearing by telephone without testifying must also send an email to publichearings@irs.gov to receive the telephone number and access code for the hearing. The subject line of the email must contain the regulation number REG124123-22 and the language ATTEND Hearing Telephonically. For example, the subject line may say: Request to ATTEND Hearing Telephonically for REG-12412322. Requests to attend the public hearing must be received by 5:00 p.m. EST on August 28, 2023.

Hearings will be made accessible to people with disabilities. To request special assistance during a hearing please contact the Publications and Regulations Branch of the Office of Associate Chief Counsel (Procedure and Administration) by sending an email to publichearings@irs. gov (preferred) or by telephone at (202) 317-6901 (not a toll-free number) at least August 25, 2023.

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, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

Accordingly, the Treasury Department and the IRS propose to amend 26 CFR part 1 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. Amend § 1.430(h)(2)-1 as follows:

Amend paragraph (a)(1) by removing the phrase “and transition rules” in the last sentence.
Revise paragraph (b)(2).
Amend paragraph (c)(1) by removing the last sentence.
Amend paragraphs (c)(2)(i), (c)(2) (ii), and (c)(2)(iii) by removing the phrase “under the transition rule of paragraph (h) (4) of this section” and adding the phrase “under the interest rate stabilization rules in section 430(h)(2)(C)(iv)” in its place.
Revise paragraph (d).
Remove paragraph (e)(3) and redesignate paragraph (e)(4) as paragraph (e)

(3) and paragraph (e)(5) as paragraph (e) (4).

In newly redesignated paragraph (e) (3)(ii), remove the phrase “this paragraph (e)(4)” and add the phrase “this paragraph (e)(3)” in its place.
Revise paragraph (h). The revisions and additions read as follows:

§1.430(h)(2)-1 Interest rates used to determine present value.

(b) * * * (2) 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.

(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. Note 1 to paragraph (d)(1) 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

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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 . Each spot rate at duration t on a daily corporate bond yield curve is calculated from the discount function described in paragraph (d)(2)(i) (B) of this section and the hump adjustment variable described in paragraph (d) (2)(iii)(D) of this section.

(B) Derivation of discount function . The discount function for a day at duration 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:

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 zero at 10 years maturity to 1.0 at 20 years maturity, then falls back down to zero at 30 years maturity. The hump adjustment variable is zero for maturities less than 10 years and maturities greater than 30 years.

(iv) Weighting of bond data . The bond data are weighted in two steps. First, 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. Then, the squared price difference for each bond is multiplied by the bond’s rescaled par amount outstanding, and the squared difference for each commercial paper rate is multiplied by the commercial paper weight. In the second stage, applicable for bonds with duration greater than 1, the weighted squared price difference for each bond from the first stage 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 a ½ 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;

(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;

t d ( t ) = exp - f ( z ) dz

f ( z ) dz