Hourly pension plan received substitute mortality table approval

Plain-English summary

A taxpayer requested substitute mortality tables for all male and female annuitant and nonannuitant populations in an hourly pension plan, including disabled participants. A separate ruling would address the salaried plan's annuitants, while its nonannuitants lacked credible mortality experience and would continue using standard tables. The IRS approved the hourly plan's tables for ten plan years because the submitted rates were developed under Treasury Regulation section 1.430(h)(3)-2 and Revenue Procedure 2017-55. The rates had to be applied generationally and could terminate early under the credibility, controlled-group, coverage-change, predictive-accuracy, or replacement-table rules described in the letter. The IRS did not opine on the accuracy of other calculations or materials submitted with the request.

Ruling snapshot

• Question: Could the hourly plan use substitute mortality tables for all annuitant and nonannuitant populations?
• Outcome: approved for ten plan years, subject to the early-termination rules
• Key authorities: IRC § 430(h)(3); ERISA § 303(h)(3); Treas. Reg. §§ 1.430(h)(3)-1, 1.430(h)(3)-2; Rev. Proc. 2017-55

Full text (IRS public release)

Significant Index No. 0430.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

APR 23 2019

Re: Substitute Mortality Table Ruling

Taxpayer = [redacted]

Hourly Plan = [redacted]

Salaried Plan = [redacted]

Populations for which substitute mortality tables are requested:

• Hourly Plan — Male Annuitants
• Hourly Plan — Female Annuitants
• Hourly Plan — Male Nonannuitants
• Hourly Plan — Female Nonannuitants

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
Hourly Plan has been granted with respect to the populations specified in this letter,
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.

This approval applies to the following specific populations:

• Hourly Plan — Male Annuitants (including disabled participants)
• Hourly Plan — Female Annuitants (including disabled participants)
• Hourly Plan — Male Nonannuitants (including disabled participants)
• Hourly Plan — Female Nonannuitants (including disabled participants)

The Taxpayer is also requesting approval for substitute mortality tables for the Salaried
Plan’s male and female annuitant populations, which will be addressed in a separate
ruling letter.

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

• Salaried Plan — Male and 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 Hourly Plan:

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

Age   Male Annuitants   Female Annuitants   Male Nonannuitants   Female Nonannuitants
[The scanned table lists ages 1 through 120. All four columns of mortality rate values 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, using the mortality ratio and credibility weighting factor determined by
aggregating male and female experience, as shown in the table below:

Population   Mortality Ratio   Credibility Factor
Hourly Plan - Annuitants   [redacted]   [redacted]
Hourly Plan - Nonannuitants   [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 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 not sent a copy of this letter to your authorized representatives, pursuant to a
power of attorney (Form 2848) 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.

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

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

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