Pension plan received conditional substitute mortality-table approval

Plain-English summary

A pension plan requested substitute mortality tables for all male and female participants, including disabled participants. The IRS conditionally approved the tables for ten plan years. Because the covered population had changed significantly since the experience study and further changes were expected, the plan had to submit annual mortality, participation, benefit-distribution, demographic, and actuarial-certification information. Missing an annual deadline would require the plan to use the standard mortality tables beginning with that plan year.

Ruling snapshot

• Question: Could the plan use substitute mortality tables for all male and female participants despite significant population changes?
• Outcome: Conditionally approved for ten plan years, with annual reporting and actuarial-certification requirements.
• Key authorities: IRC § 430(h)(3); ERISA § 303(h)(3); Treas. Reg. § 1.430(h)(3)-2; Rev. Proc. 2017-55

Full text (IRS public release)

Scanned document; transcription proofread from IRS OCR against all eight 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 14 2018

201906017

T:EP:RA:A2

Re: Substitute Mortality Table Ruling

Taxpayer = [redacted]

Plan = [redacted]
EIN: [redacted] (Plan No. [redacted])

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 the Plan
has been granted with respect to the populations specified in this letter, subject to the
conditions outlined below. This ruling is effective for a period of 10 plan years beginning
with the plan year commencing January 1, [redacted]. Your request has been conditionally
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 participants (annuitants and nonannuitants), including disabled participants
• Female participants (annuitants and nonannuitants), including disabled
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 Procedure 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.

2 201906017

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

Substitute Mortality Tables
Approved for use beginning with the plan year commencing January 1, [redacted]
Base year [redacted]

Age
Male Annuitants and Nonannuitants
Female Annuitants and Nonannuitants
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
33
34

3 201906017

Age
Male Annuitants and Nonannuitants
Female Annuitants and Nonannuitants
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
75

4 201906017

Age
Male Annuitants and Nonannuitants
Female Annuitants and Nonannuitants
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 201906017

Age
Male Annuitants and Nonannuitants
Female Annuitants and Nonannuitants
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 and
annuitant and nonannuitant experience, as shown in the table below.

Male and Female,
Annuitants and
Nonannuitants

Mortality ratio [redacted]
Credibility Weighting Factor [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.

In order to continue using the substitute mortality tables for making computations under
section 430(h) of the Code, the following information must be provided by
October 15 after the end of each plan year, beginning with the [redacted] plan year (due
October 15, [redacted]), in addition to any other information required under section
1.430(h)(3)-2 of the Regulations. The reason for this requirement is that the population
has changed significantly from that during the experience study period and further
changes can be expected.

(1) The number of actual deaths during the experience study period used to develop
the substitute mortality tables and the beginning and ending dates of the
experience study period.

6 201906017

(2) A table showing the number of expected deaths and actual deaths, reported
separately for each year beginning with deaths during [redacted] through the year
preceding the most recent actuarial valuation, and in total.

(3) A table similar to the stability demonstration required under section 8 of
Revenue Procedure 2017-55, showing the average number of participants in the
population included in the experience study and the number of participants in
the population as of the end of each plan year, beginning with
December 31, [redacted] through the date immediately preceding the most recent
actuarial valuation, expressed both as a headcount and as a percentage of the
average number of participants in the experience study.

(4) A table showing a comparison of (i) the average ages and (ii) percentage of the
population, by the following monthly single life annuity brackets: under $[redacted],
between $[redacted] and $[redacted], between $[redacted] to $[redacted], between $[redacted] to $[redacted],
between $[redacted] and $[redacted], and $[redacted] and over, for the population in the
experience study and at the end of each plan year, beginning with December
31, [redacted] through the date immediately preceding the most recent actuarial
valuation. The table should also show the average age and average benefit
amount for the population in total, for both the experience study data and at the
end of each plan year, beginning with December 31, [redacted] through the date
immediately preceding the most recent actuarial valuation.

(5) An explanation of any material changes in the population and a certification by
the enrolled actuary for the Plan as to whether the substitute mortality table is
accurately predictive, along with any additional demographic or other
information to substantiate this claim.

(6) A certification, signed by the enrolled actuary, stating that:

a. The enrolled actuary is current with educational requirements set forth by the
JBEA as well as any other actuarial designations asserted;

b. The enrolled actuary was personally involved in the determination that the
substitute mortality table is still accurately predictive and provides the
actuary’s best estimate for the Plan;

c. In determining that the substitute mortality table is still his or her best
estimate, the enrolled actuary took into consideration the effect of business
combinations, plan mergers or spinoffs and settlements/other risk transfers,
and other events that would have similar effects on the relevant populations;
and

d. The enrolled actuary has the specific knowledge and experience to make the
judgements set forth above and attests to these representations.

This information must be provided to David M. Ziegler (or to another individual
designated by the Service), by Fax at (202) 317-8811, or to the following address:

7 201906017

Internal Revenue Service
Attn: Mr. David M. Ziegler
TE/GE: SE:T:EP:RA:T:A2
NCA-629
1111 Constitution Ave. NW
Washington DC 20224-0002

Failure to provide the required information by the due date will mean that the standard
mortality tables must be used for purposes of section 430 of the Code, beginning with
the plan year during which the deadline for providing this information is missed.

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),

(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 section 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.

8 201906017

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 representatives 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.

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

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