MINIMUM RATE OF INTEREST FOR CERTAIN DETERMINATIONS RELATED TO LIFE INSURANCE CONTRACTS.

SEC. 205. MINIMUM RATE OF INTEREST FOR CERTAIN DETERMINATIONS RELATED TO LIFE INSURANCE CONTRACTS. (a) Modification of Minimum Rate for Purposes of Cash Value Accumulation Test.— (1) [26 U.S.C. 7702] In general.—Section 7702(b)(2)(A) is amended by striking “an annual effective rate of 4 percent” and inserting “the applicable accumulation test minimum rate”. (2) Applicable accumulation test minimum rate.—Section 7702(b) is amended by adding at the end the following new paragraph: “(3) Applicable accumulation test minimum rate.—For purposes of paragraph (2)(A), the term ‘applicable accumulation test minimum rate’ means the lesser of— “(A) an annual effective rate of 4 percent, or “(B) the insurance interest rate (as defined in subsection (f)(11)) in effect at the time the contract is issued.” . (b) Modification of Minimum Rate for Purposes of Guideline Premium Requirements.— (1) In general.—Section 7702(c)(3)(B)(iii) is amended by striking “an annual effective rate of 6 percent” and inserting “the applicable guideline premium minimum rate”. (2) Applicable guideline premium minimum rate.—Section 7702(c)(3) is amended by adding at the end the following new subparagraph: “(E) Applicable guideline premium minimum rate.—For purposes of subparagraph (B)(iii), the term ‘applicable guideline premium minimum rate’ means the applicable accumulation test minimum rate (as defined in subsection (b)(3)) plus 2 percentage points.” . (c) Application of Modified Minimum Rates to Determination of Guideline Level Premium.—Section 7702(c)(4) is amended— (1) by striking “4 percent” and inserting “the applicable accumulation test minimum rate”, and (2) by striking “6 percent” and inserting “the applicable guideline premium minimum rate”. (d) Insurance Interest Rate.—Section 7702(f) is amended by adding at the end the following new paragraph: “(11) Insurance interest rate.—For purposes of this section— “(A) In general.—The term ‘insurance interest rate’ means, with respect to any contract issued in any calendar year, the lesser of— “(i) the section 7702 valuation interest rate for such calendar year (or, if such calendar year is not an adjustment year, the most recent adjustment year), or “(ii) the section 7702 applicable Federal interest rate for such calendar year (or, if such calendar year is not an adjustment year, the most recent adjustment year). “(B) Section 7702 valuation interest rate.—The term ‘section 7702 valuation interest rate’ means, with respect to any adjustment year, the prescribed U.S. valuation interest rate for life insurance with guaranteed durations of more than 20 years (as defined in the National Association of Insurance Commissioners’ Standard Valuation Law) as effective in the calendar year immediately preceding such adjustment year. “(C) Section 7702 applicable federal interest rate.—The term ‘section 7702 applicable Federal interest rate’ means, with respect to any adjustment year, the average (rounded to the nearest whole percentage point) of the applicable Federal mid-term rates (as defined in section 1274(d) but based on annual compounding) effective as of the beginning of each of the calendar months in the most recent 60-month period ending before the second calendar year prior to such adjustment year. “(D) Adjustment year.—The term ‘adjustment year’ means the calendar year following any calendar year that includes the effective date of a change in the prescribed U.S. valuation interest rate for life insurance with guaranteed durations of more than 20 years (as defined in the National Association of Insurance Commissioners’ Standard Valuation Law). “(E) Transition rule.—Notwithstanding subparagraph (A), the insurance interest rate shall be 2 percent in the case of any contract which is issued during the period that— “(i) begins on January 1, 2021, and “(ii) ends immediately before the beginning of the first adjustment year that beings after December 31, 2021.” . (e) [26 U.S.C. 7702 note] Effective Date.—The amendments made by this section shall apply to contracts issued after December 31, 2020.