Substitute mortality tables approved for a defined benefit pension plan under § 430(h)(3)

Plain-English summary

Employers that sponsor single-employer defined benefit pension plans must
calculate their minimum funding obligations under Internal Revenue Code § 430
using mortality tables (assumptions about how long participants will live).
Section 430(h)(3) lets a plan use its own "substitute" mortality tables built
from the plan's actual experience instead of the IRS standard tables, but only
with advance IRS approval. Here the plan sponsor asked to use substitute tables
for one plan (Plan E, formed by merging several related plans) covering male
annuitants, female annuitants, and male nonannuitants. The IRS granted the
request for a 10-plan-year period, having checked only that the substitute
rates were developed according to Treasury Regulation § 1.430(h)(3)-2 and
Revenue Procedure 2017-55; it expressed no opinion on the underlying
calculations. The approval carries conditions, most notably annual reporting on
deaths and population changes (because the male nonannuitant group had shifted
significantly), and the letter spells out the circumstances under which the
substitute tables would stop being usable before the 10 years run out.

Ruling snapshot

• Question: May the plan use its own substitute mortality tables for § 430
  minimum funding calculations?
• Outcome: Approved (granted for 10 plan years, subject to annual reporting
  conditions)
• Key authorities: IRC § 430(h)(3); Treas. Reg. §§ 1.430(h)(3)-1 and
  1.430(h)(3)-2; Rev. Proc. 2017-55; ERISA § 303(h)(3)

Full text (IRS public release)

Significant Index No. 0430.00-00

DEPARTMENT OF THE TREASURY 9 () 1 9 08026

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND

SE! TEP. PA Ag.

Re: Substitute Mortality Table Ruling

Taxpayer =
(EIN: )

Plan A=

(EIN: ; Plan No. )
Plan B =

(EIN: : Plan No. )
Plan C =

(EIN: ; Plan No. )
Plan D =

(EIN: ; Plan No. )
Plan E =

(EIN: ; Plan No. )

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 E has been granted with respect to the populations specified in this letter, subject
to the conditions outlined herein. This ruling is effective for a period of 10 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.

201908026

This approval applies to the following specific populations. The substitute mortality
tables will also apply to the disabled participants in these populations.

• Male annuitants
• Female annuitants
• Male nonannuitants

In granting this approval, we have only considered whether the substitute mortality rates
were developed 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 populations in the Plan E.

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

Age    |    Male Annuitants    |    Female Annuitants    |    Male Nonannuitants

[Proofreader's note: The scanned document reproduces the approved substitute
mortality rate tables at this point. The per-age rate values for each of the
three populations (male annuitants, female annuitants, and male nonannuitants),
covering ages 1 through 120, were redacted by the IRS before release and the
remaining table grid did not survive scanning in legible form. The readable
text of the ruling resumes below.]

During the study period, Plans A through E existed separately and were aggregated in
accordance with section 1.430(h)(3)-2(c)(5) of the Regulations. Plans A through D were
subsequently merged into Plan E. A request seeking approval to change one or more
funding methods has not been received by the Internal Revenue Service.

The above rates were developed using a 2-year experience study period, 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
population, as shown in the table below.

Population Mortality ratio Credibility factor
Male Annuitants
Female Annuitants
Male Nonannuitants

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 developed in accordance with section 1.430(h)(3)-2 of the Regulations
and Revenue Procedure 2017-55.


2019080 26

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

This ruling has been granted subject to the following condition. 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 the October 15th

immediately following the end of each plan year, beginning with the plan year (due
October 15, ). This condition is required because certain segments of the
population have changed significantly from the population that existed during the
experience study period, most notable male nonannuitants, 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.

(2) A table showing the number of expected deaths and actual deaths, reported
separately for each year beginning with deaths during 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, 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$ ___,
between$  and$_ . between $. $! between $ $ :
between $_ and $ ,and$ —_—_ and over, for the population in the
experience study and at the end of each plan year, beginning with December
31, ‘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, 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.

2019080 26

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

a. The enrolled actuary is current with educational requirements set forth by the
Joint Board for the Enrollment of Actuaries 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-630

1111 Constitution Ave. NW
Washington DC 20224-0002

Failure to provide this information by the due date may result in the requirement 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

201908026

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.

We draw your attention to the fact that the female nonannuitants experienced = 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 deaths during a 2-year period
(corresponding to the length of the experience study used to construct the substitute
mortality tables for the other populations). It is important to monitor this population to
ensure that appropriate action is taken should this occur, 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.

901908026

If you require further assistance in this matter, please contact
(ID# yat( ) =.

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

cc.