Aggregated pension plans may use substitute mortality tables for annuitants

Plain-English summary

A taxpayer requested substitute mortality tables for the combined male and female annuitants of three pension plans. The IRS approved the tables, including their application to disabled participants, for five plan years beginning with the redacted effective year. The combined male and female nonannuitant populations lacked credible mortality experience and therefore had to use the standard mortality tables. The approved rates were based on aggregated male and female experience and must be applied on a generational basis. The approval can terminate early under the listed statutory and regulatory conditions.

Ruling snapshot

• Question: Could three aggregated plans use substitute mortality tables for their male and female annuitants?
• Outcome: Approved for five plan years; nonannuitants must use standard mortality tables.
• 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. Obvious scan misreads were corrected. Numeric mortality rates were redacted in the IRS release; wording is otherwise verbatim.

Significant Index No. 0430.00-00

DEPARTMENT OF THE TREASURY                                      201907015
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND

GOVERNMENT ENTITIES                                      NOV 20 2018

DIVISION

Re: Substitute Mortality Table Ruling

Taxpayer =
          (EIN:          )

Plan 1 =
          (EIN:          ; Plan No.          )

Plan 2 =
          (EIN:          ; Plan No.          )

Plan 3 =
          (EIN:          ; Plan No.          )

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

• Aggregated Plans 1 through 3 – Male Annuitants
• Aggregated Plans 1 through 3 – Female Annuitants

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
Included Group 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:

• Plans 1 through 3 combined– Male Annuitants, including disabled participants
• Plans 1 through 3 combined– 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:

• Aggregated Plans 1 through 3 – Male Nonannuitants
• Aggregated Plans 1 through 3 – 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 (“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 the Included Group:

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

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

Age  Male Annuitants  Female Annuitants

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

70

Age  Male Annuitants  Female Annuitants

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

Age  Male Annuitants  Female Annuitants

114

115

116

117

118

119

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 determined by aggregating male and female experience, as shown in
the table below.

                         Male and Female
                         Annuitants
Mortality ratio
Credibility Weighting Factor

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 5-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.

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 (Form 2848) in this office and to the Manager, EP Classification in
Columbus, Ohio and to the Manager, EP Compliance Unit in Chicago, Illinois.

If you have any questions concerning this matter, please contact                    (ID#
          ) at (          )          -          .

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

cc: