Two pension plans may use substitute annuitant mortality tables

Plain-English summary

A taxpayer requested substitute mortality tables for two pension plans treated as a combined group. The IRS approved plan-specific tables for male and female annuitants other than disabled participants for up to 10 plan years. Male and female nonannuitants lacked credible mortality experience, so the standard tables continued to apply to those populations. The IRS found only that the substitute rates were developed under the governing regulations and Revenue Procedure 2017-55, not that every submitted calculation was accurate. Continued use was subject to early-termination rules involving credibility, controlled-group coverage, significant population changes, predictive accuracy, and replacement guidance.

Ruling snapshot

• Question: Could two combined pension plans use substitute mortality tables for male and female annuitants?
• Outcome: Approved for up to 10 plan years; standard tables continued to apply to nonannuitants.
• 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)

Transcriber's note: this document is a seven-page scan. All page images were checked. Obvious OCR errors in the stamped date, document number, bullets, section citations, and words were corrected by comparison with the images; repeated page numbers and document-number stamps were omitted. The IRS redacted the mortality-rate entries for ages 1 through 120, the experience-study dates, the base year, the mortality ratio, and the credibility weighting factor. Those redactions are identified below rather than reconstructed. 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

APR 03 2019

Re:

Taxpayer = [redacted]

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

Plan 1 = [redacted]

Plan 2 = [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
Included Group 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, [redacted]. 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 and 2 combined – Male annuitants, excluding disabled participants
• Plans 1 and 2 combined – Female annuitants, excluding 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:

• Plan 1 and 2 combined - Male nonannuitants
• Plan 1 and 2 combined - Female 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 Included Group:

Substitute Mortality Tables

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

Age   Male Annuitants   Female Annuitants

[The scanned IRS release lists ages 1 through 120. All male and female annuitant mortality-rate entries are redacted. -- 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, 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                       [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 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) of the Regulations 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 into 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.

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 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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