Pension plan received conditional substitute mortality-table approval

Plain-English summary

A pension plan requested substitute mortality tables for four participant populations. The IRS approved tables for male annuitants, female annuitants, and male nonannuitants for ten plan years, but required standard tables for female nonannuitants because that group lacked credible experience. Because the covered population had changed significantly, continued use depended on annual submissions detailing deaths, participant counts, benefit and age distributions, demographic changes, and an enrolled actuary's predictive-accuracy certification. Missing the annual deadline would require use of the standard tables beginning with that plan year.

Ruling snapshot

• Question: Could the plan use substitute mortality tables for three populations despite significant population changes?
• Outcome: Conditionally approved for ten plan years, with annual reporting and certification requirements.
• Key authorities: IRC §§ 412 and 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. 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 15 2018

201906022

T:EP:RA:A2

Re: Substitute Mortality Table Ruling

Taxpayer = [redacted]
Plan 1 = [redacted]

Other Plan in controlled group:

Plan 2 = [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 Plan 1
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:
• Plan 1 — Male Annuitants;

• Plan 1 — Female Annuitants; and
• Plan 1 — Male Nonannuitants.


2 201906022


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

• Plan 1 — Female Nonannuitants

According to information submitted with your request, Plan 2 is maintained under
section 412(e)(3) of the Code and is therefore not subject to section 412 or section 430
of the Code.

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.

Permission is hereby granted to use the substitute mortality rates shown in the table
below for Plan 1:

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

Age
Male Annuitant
Female Annuitant
Male Nonannuitant
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

3 201906022

Age
Male Annuitant
Female Annuitant
Male Nonannuitant
23
24
25
26
27
28
29
30
31
32
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

4 201906022

Age
Male Annuitant
Female Annuitant
Male Nonannuitant
70
71
72
73
74
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 201906022

Age
Male Annuitant
Female Annuitant
Male Nonannuitant
117
118
119
120

[The individual mortality rates for the three approved populations 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 individually determined for each separate population, as
shown in the table below.

Population | Standard base mortality table | Mortality ratio | Credibility factor
Plan 1 Male Annuitants | Male Annuitant Mortality | [redacted] | [redacted]
Plan 1 Female Annuitants | Female Annuitant Mortality | [redacted] | [redacted]
Plan 1 Male Nonannuitants | Male Nonannuitant Mortality | [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.

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. This information was discussed with your representative by telephone on
October 25, [redacted].

(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.

(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


6 201906022

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 Plan 1 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:

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



7 201906022

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
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 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.

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 not sent a copy of this letter to your authorized representatives pursuant to a
power of attorney on file in this office. We have sent a copy of this letter to the
Manager, EP Classification in Columbus, Ohio and to the Manager, EP Compliance Unit
in Chicago, Illinois.



8 201906022

If you have any questions concerning this matter, please contact [redacted]
(ID# [redacted]) at [redacted]

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

CC: