Pension plan substitute mortality tables approved

Plain-English summary

A pension plan requested permission to use substitute mortality tables for its male and female annuitants and nonannuitants, including disabled participants. The IRS found that the submitted rates were developed under the section 430 regulations and Revenue Procedure 2017-55 and approved their use for ten plan years beginning January 1, 2019. Because the nonannuitant population was already below the regulation's 80 percent stability threshold, the approval required annual actuarial certifications and detailed population, death, benefit, and demographic reporting. Missing a reporting deadline could require the plan to return to the standard mortality tables.

Ruling snapshot

• Question: Could the plan use its proposed substitute mortality tables for section 430 funding calculations?
• Outcome: Yes, for ten plan years beginning in 2019, subject to annual certification and 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

Full text (IRS public release)

Transcriber's note: this document is an eight-page scan. All page images were checked. Obvious OCR errors were corrected, repeated page numbers and stamped document numbers were omitted, and redacted identifying text is marked where needed. The mortality-rate, mortality-ratio, and credibility-factor cells are blank in the IRS release; the complete age rows are preserved without supplying values. Original grammatical and citation irregularities are preserved. The 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

201924020

MAR 13 2019

[handwritten: T:EP:RA:A2]

Re: Substitute Mortality Table Ruling

Taxpayer = [redacted]
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 Plan
has been granted with respect to the populations specified in this letter. This ruling is
effective for a period of 10 plan years beginning with the plan year commencing January
1, 2019. 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.

This approval applies to the following specific populations:

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

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 Plan:

Substitute Mortality Tables
Approved for use beginning with the plan year commencing January 1, 2019
Base year 2015

Age | Male Annuitants | Female Annuitants | Male NonAnnuitants | Female NonAnnuitants
1 |  |  |  | 
2 |  |  |  | 
3 |  |  |  | 
4 |  |  |  | 
5 |  |  |  | 
6 |  |  |  | 
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115 |  |  |  | 
116 |  |  |  | 
117 |  |  |  | 
118 |  |  |  | 
119 |  |  |  | 
120 |  |  |  | 

The above rates were developed based on an experience study period from January 1,
2013 through December 31, 2017, with a base year of 2015. 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 | Male and Female Nonannuitants
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 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),

(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.

In particular, section 1.430(h)(3)-2(c)(6)(iii) provides that the use of substitute mortality
tables must be discontinued after a significant change in coverage unless the plan’s
actuary certifies in writing to the satisfaction of the Commissioner that the substitute
mortality tables used for the population continue to be accurately predictive of future
mortality of the population (taking tino account the effect of the change in the
population). For this purpose, a significant change in coverage occurs if the number of
individuals covered by the substitute mortality table for a plan year is less than 80
percent or more than 120 percent of either (1) the average number of individuals in that
population over the years covered by the experience study on which the substitute
mortality table is based, or (2) the number of individuals covered by the substitute
mortality table in a plan year for which a certification described in section 1.430(h)(3)-
2(6)(c)(iii)(A) of the Regulations was made.

The number of nonannuitants as of December 31, 2017 was already less than 80% of
the average number of individuals covered during the experience study. Accordingly,
this certification is needed each year that (1) the number of nonannuitants remains less
80% (or becomes greater than 120%) of the average number of nonannuitants included
in the experience study or (2) becomes less than 80% or more than 120% of the
number of nonannuitants as of December 31, 2017, the date of the most recent
certification that the mortality tables are accurately predictive of the mortality of the
remaining population.

So that the Service can review these certifications, the following information must be
provided by the October 15th immediately following the end of each plan year, beginning
with the 2019 plan year (due October 15, 2020):

(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 2019 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, 2018 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 $100,
between $100 and $250, between $250 to $500, between $500 to $1,000,
between $1,000 and $1,500, and $1,500 and over, for the population in the
experience study and at the end of each plan year, beginning with December
31, 2018 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, 2018 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
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.

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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