Two pension plans may use substitute mortality tables for annuitants

Plain-English summary

A pension plan sponsor asked to use plan-specific substitute mortality tables for two plans when computing minimum funding under IRC § 430. The IRS approved the tables for the plans' aggregated male and female annuitant populations for five plan years beginning on a redacted January 1 date. Standard mortality tables remain required for the plans' nonannuitants and for all participants in four other controlled-group plans because those populations lacked credible mortality experience. The IRS determined only that the rates were correctly developed under Treasury Regulation § 1.430(h)(3)-2 and Revenue Ruling 2017-55, without validating the submitted calculations or other materials. The approved rates must be applied on a generational basis and remain subject to specified early-termination rules. The sponsor was specifically told to monitor the male nonannuitant population, which had 93 deaths and would reach credible mortality experience at 100 deaths during a four-year period.

Ruling snapshot

• Question: May the sponsor use plan-specific substitute mortality tables for the aggregated male and female annuitants of two defined benefit plans?
• Outcome: Approved for five plan years, while standard tables continue for the other populations
• Key authorities: IRC § 430(h)(3); ERISA § 303(h)(3); Treas. Reg. §§ 1.430(h)(3)-1, 1.430(h)(3)-2; Rev. Rul. 2017-55

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 OCT 16 2018

DIVISION


SE:T:EP:RA:A2

Re:

Taxpayer =
EIN: -

Plans for which substitute mortality tables were requested:

Plan 1 =
EIN: -

Plan 2 =
EIN: -

Other plans in the Taxpayer’s controlled group:

Plan 3 =
EIN: -

Plan 4 =
EIN: -

Plan 5 =
EIN: -

Plan 6 =
EIN: -

Dear

This letter is to inform you that your request to use substitute mortality tables for making
computations under section 430 of the Internal Revenue Code (the “Code”) for Plans 1
and 2 has been granted with respect to the populations specified in this letter, effective
for a period of 5 plan years beginning with the plan year commencing January 1,

Your request has been granted in accordance with section 430(h)(3) of the Code and
section 303(h)(3) of the Employee Retirement Income Security Act of 1974.


Specifically, this approval applies to the following populations (the “Included Group”):

• Aggregated Plans 1 and 2 — Male Annuitants
• Aggregated Plans 1 and 2 — Female Annuitants

Based on the information provided by the Taxpayer, the following populations do not
have credible mortality experience, and therefore the standard mortality tables will be
used for calculations under section 430 of the Code:

• Aggregated Plans 1 and 2 - Male and Female Nonannuitants
• Plan 3 - All participants
• Plan 4 - All participants
• Plan 5 - All participants
• Plan 6 - All participants

In granting this approval, we have only considered whether the substitute mortality rates
were developed correctly in accordance with section 1.430(h)(3)-2 of the Treasury
Regulations (“Regulations”) and Revenue Ruling 2017-55. Accordingly, we are not
expressing any opinion as to the accuracy or acceptability of any calculations or other
material submitted with your request.

Permission is hereby granted to use the substitute mortality rates shown in the table
below for the Included Group:

Substitute Mortality Tables
Approved for use beginning with the plan year commencing January 1,

Base year
Male Female Male Female
Annuitant Annuitant Annuitant Annuitant
Age Rate Rate Age Rate Rate
15 68
16 69
17 70
18 71
19 72
20 73
21 74
22 75
23 76
24 77



Male Female Male Female
Annuitant Annuitant Annuitant Annuitant

Age Rate Rate Age Rate Rate
25 78
26 79
27 80
28 81
29 82
30 83
31 84
32 85
33 86
34 87
35 88
36 89
37 90
38 91
39 92
40 93
41 94
42 95
43 96
44 97
45 98
46 99
47 100
48 101
49 102
50 103
51 104
52 105
53 106
54 107
55 108
56 109
57 110
58 111
59 112
60 113



Male Female Male Female
Annuitant Annuitant Annuitant Annuitant
Age Rate Rate Age Rate Rate

61 114
62 115
63 116
64 117
65 118
66 119
67 120

The above rates were developed based on an experience study period from January 1,

through December 31, with a base year of . The rates were calculated
by adjusting the applicable standard mortality tables in section 1.430(h)(3)-1(d) of the
Regulations indicated in the table below, using the mortality ratio and credibility
weighting factor individually determined for each separate population, as shown in the
table below:

Included
Group Mortality Credibility
Population Standard Base Mortality Table Ratio Factor
Male Annuitants Male Annuitant Mortality 1.247721 1.000000
Female Annuitants Female Annuitant Mortality 1.196610 0.788811

The Internal Revenue Service has reviewed the substitute mortality rates and
supporting information, and has determined that based on the information submitted,
the rates were correctly developed in accordance with section 1.430(h)(3)-2 of the
Regulations and Revenue Ruling 2017-55.

The above rates must be applied on a generational basis, as provided in section
1.430(h)(3)-2(c)(3) of the Regulations.

Your attention is called to section 430(h)(3)(C)(ii) of the Code and section 1.430(h)(3)-
2(d)(6) of the Regulations, which describe the circumstances in which the use of the
substitute mortality table will terminate before the end of the 10-year period described
above. In general, the substitute mortality tables can no longer be used as of the
earliest of:


(1) For a plan using a substitute mortality table for only one gender, the first plan
year for which there is full or partial credible mortality information with respect to
the other gender that had lacked credible mortality information (unless an
approved substitute mortality table is used for that gender),

(2) The first plan year in which the plan fails to satisfy the requirements of
paragraph 1.430(h)(3)-2(c)(1) of the Regulations, regarding the requirement that
other plans and populations in the controlled group must also use substitute
mortality tables unless it can be demonstrated that they do not have credible
mortality information (taking into account the transition period for newly affiliated
companies in section 1.430(h)(3)-2(f)(3) of the Regulations),

(3) The second plan year following the plan year for which there is a significant
change in individuals covered by the plan as described in section
1.430(h)(3)-2(c)(6)(iii) of the Regulations,

(4) The plan year following the plan year in which a substitute mortality table used
for a plan population is no longer accurately predictive of future mortality of that
population, as determined by the Commissioner or as certified by the Plan’s
actuary to the satisfaction of the Commissioner, or

(5) The date specified in guidance published in the Internal Revenue Bulletin
pursuant to a replacement of mortality tables specified under section
430(h)(3)(A) of the Code and 1.430(h)(3)-1 of the Regulations, other than
annual updates to the static mortality tables issued pursuant to 1.430(h)(3)-
1(a)(3) of the regulations or changes to the mortality improvement rates
pursuant to section 1.430(h)(3)-1(a)(2)(i)(C) of the Regulations.

We draw your attention to the fact that the aggregated Plan 1 and Plan 2 male
nonannuitants experienced 93 deaths during the experience study period (using the
simplified rule described in section 1.430(h)(3)-2(c)(2)(ii)(B) of the Regulations). Note
that this population will have credible mortality experience if it experiences at least 100
deaths during a 4-year period (corresponding to the length of the experience study used
to construct the substitute mortality tables for the other populations). It will be important
to monitor this population to ensure that appropriate action is taken if this occurs, to
avoid violating paragraph (2) above.

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.

When filing Form 5500 for the plan years for which the substitute mortality tables are
used, please note the information that is required to be attached to Schedule SB
(Actuarial Information) in accordance with the instructions to that form.


We have sent a copy of this letter to your authorized representative pursuant to a power
of attorney (Form 2848) on file in this office and to the Manager, EP Classification in
Columbus, Ohio and to the Manager, EP Compliance Unit in Chicago, Illinois.

If you require further assistance in this matter, please contact
(ID# ) at

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

cc: