IRS approves a pension plan's change to its retirement and withdrawal assumptions

Plain-English summary

A single-employer pension plan must set aside enough money each year to fund the benefits it promises, and its required contribution depends on actuarial assumptions such as how likely workers are to retire or quit at each age. For certain large plans, Internal Revenue Code § 430(h)(5) bars changing most of those assumptions (other than interest and mortality) without advance approval from the IRS. Here the plan sponsor wanted to update its rates of retirement and rates of withdrawal for its male and female employees to better match how participants actually behave, based on an experience study, and asked the IRS to sign off before using the new numbers. The IRS approved the change for the specified plan year. Its review was narrow: it looked only at whether the proposed assumptions and the method behind them were acceptable, and it took no position on the accuracy of any underlying calculations the sponsor submitted. The plan must flag the change on its Form 5500 (Schedule SB, line 24) and attach a copy of this letter. The practical effect is that the plan can measure its liabilities, and its required funding, using assumptions that better reflect its own workforce.

Ruling snapshot

• Question: Should the IRS approve the plan's proposed change to its non-prescribed actuarial assumptions (rates of retirement and rates of withdrawal) under § 430(h)(5)?
• Outcome: Approved (for the specified plan year; approval limited to the acceptability of the assumptions and methodology only)
• Key authorities: IRC § 430(h)(5); ERISA § 303(h)(5)

Full text (IRS public release)

Significant Index No. 0430.00-00

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION

Date: AUG 08 2018

Number: 201844015

Re: Change in Actuarial Assumptions

Taxpayer = [redacted]
Authorized Representative = [redacted]
Plan = [redacted]

Dear [redacted]:

This letter constitutes notice that approval has been granted for the change in
assumptions as described below. This approval applies for the plan year beginning
[redacted].

The approval has been granted in accordance with section 430(h)(5) of the Internal
Revenue Code (Code) and section 303(h)(5) of the Employee Retirement Income
Security Act of 1974.

In granting this approval, we have considered only the acceptability of the proposed
assumptions and, as necessary, the methodology by which they were determined. We
are not expressing any opinion as to the accuracy or acceptability of any calculation or
other material submitted with your request.

Section 430(h)(5) of the Code provides that, for certain plans, no actuarial assumption
(other than interest rates and mortality assumptions) used to determine the funding
target may be changed without approval from the Secretary. According to information
submitted with the request, Section 430(h)(5) applies to the Plan. Therefore, Taxpayer
is requesting approval before these proposed changes in assumptions are
implemented.

Taxpayer represents that the proposed changes in assumptions are necessary to better
reflect expected future behavior of the Plan participants and thus enable the liabilities
of the Plan to be more accurately measured. These proposed changes are based on an
experience study period [redacted].

This approval applies to the change of the following assumptions: rates of retirement for
male employees, rates of retirement for female employees, rates of retirement for male
[redacted] employees, rates of retirement for female [redacted] employees, rates of
withdrawal for [redacted] employees, and rates of withdrawal for [redacted] employees.
The Authorized Representative has confirmed in writing and under penalty of perjury that
each of the assumptions contained in this ruling are the actual rates that Taxpayer
seeks to apply to the Plan.

[The letter reproduces tables of the approved assumptions -- Annual Rates of
Retirement (Male Employees and Female Employees, for two plan populations) and
Annual Rates of Withdrawal (Males and Females) -- broken out by age and years of
service. The numeric rate values are not legible in the scanned public release and are
not reproduced here. -- transcriber]

When filing Form 5500 for the plan year beginning [redacted], indicate that a
change in non-prescribed assumptions has been made for the current year on line 24 of
the Schedule SB by checking the "Yes" box. You should also include a copy of this
letter as an attachment to the Schedule SB labeled: "Schedule SB, line 24 -- Change
in Non-Prescribed Actuarial Assumptions."

This ruling is directed only to the taxpayer that requested it. Section 6110(k)(3) of the
Code provides that it may not be used or cited by others as precedent.

This ruling is intended to solely address the issues specifically described above. For
any issue not specifically addressed in this ruling, the Plan must satisfy all applicable
sections of the Code and/or regulations as in effect for the relevant plan year(s).

A copy of this letter is being sent to the Manager of EP Compliance and the Manager of
EP Classification. A copy of this letter is also being sent to your authorized
representative pursuant to a power of attorney (Form 2848) on file in this office. If you
have any questions regarding this matter, please contact [redacted] (ID# [redacted])
at [redacted].

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

cc: