Pension plan received substitute mortality tables for annuitants

Plain-English summary

A pension plan requested substitute mortality tables for an included group of participants. The IRS approved tables for male and female annuitants, including disabled participants, for ten plan years. Male and female nonannuitants lacked credible mortality experience, so the standard tables applied to those groups. The combined nonannuitant population had experienced 95 deaths during the study period, close to the 100-death credibility threshold, so the IRS instructed the taxpayer to monitor that population.

Ruling snapshot

• Question: Could the plan use substitute mortality tables for male and female annuitants in the included group?
• Outcome: Approved for ten plan years for annuitants; standard tables required for nonannuitants.
• Key authorities: IRC § 430(h)(3); ERISA § 303(h)(3); Treas. Reg. §§ 1.430(h)(3)-1 and 1.430(h)(3)-2; Rev. Proc. 2017-55

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR against all seven page images. Obvious scan misreads were corrected. Redacted values are marked [redacted], and the redacted mortality-rate columns are described in a transcriber note. Wording is otherwise verbatim.

Significant Index No. 0430.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

NOV 08 2018

201905011

SE:T:EP:RA:A2

Re: Substitute Mortality Table Ruling

Taxpayer = [redacted]

Plan for which substitute mortality tables are requested (Included Group):

Plan = [redacted]

Dear [redacted]:

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 the
Included Group has been granted with respect to the populations specified in this letter,
effective for a period of 10 plan years beginning with the plan year commencing
January 1, [redacted]. 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:

• Male annuitants, including disabled participants
• Female annuitants, including disabled participants

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:

• Male nonannuitants
• Female nonannuitants

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 (the “Regulations”) and Revenue Procedure 2017-55. Accordingly, we are

2 201905011

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, [redacted]
Base year [redacted]

Age
Male Annuitants
Female Annuitants
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32

3 201905011

Age
Male Annuitants
Female Annuitants
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74

4 201905011

Age
Male Annuitants
Female Annuitants
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116

5 201905011

Age
Male Annuitants
Female Annuitants
117
118
119
120

[The individual male and female mortality rates were redacted in the IRS release. -- transcriber]

The above rates were developed based on an experience study period from
January 1, [redacted], through December 31, [redacted], with a base year of [redacted]. 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 determined by aggregating male and female experience, as
shown in the table below.

Male Annuitants
Female Annuitants

Mortality ratio [redacted] [redacted]
Credibility Weighting Factor [redacted] [redacted]

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 Procedure 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 section
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),

6 201905011

(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 section
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 combined nonannuitant male and
nonannuitant female population experienced 95 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 5-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 on file in this office and to the Manager, EP Classification in Columbus, Ohio
and to the Manager, EP Compliance Unit in Chicago, Illinois.

7 201905011

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

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

cc: