Two pension plans may use substitute mortality tables for annuitants

Plain-English summary

A taxpayer asked to use plan-specific substitute mortality tables for the combined male and female annuitants of two defined benefit pension plans, excluding disabled participants. The IRS found that the rates were developed under the applicable regulations and Revenue Procedure 2017-55 and approved their use for a redacted number of plan years. The tables must be applied on a generational basis and can terminate early if other populations develop credible mortality data, controlled-group requirements fail, coverage changes significantly, the tables lose predictive accuracy, or the standard tables are replaced. The plans also must monitor their male nonannuitant population because it was approaching the credible-experience threshold.

Ruling snapshot

• Question: May two pension plans use substitute mortality tables for their combined male and female annuitants, excluding disabled participants?
• Outcome: approved for the specified annuitant populations, subject to early-termination rules
• 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 scan. Obvious OCR errors in the agency heading, date stamp, bullets, page-number stamps, punctuation, and regulation citations were corrected by comparison with all seven page images. White areas covering identifying details, dates, table values, counts, and percentages are marked [redacted]. The mortality-rate table is described rather than reproducing more than 100 rows whose values were entirely redacted. The wording is otherwise preserved verbatim.

Significant Index No. 0430.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

OCT 30 2019

202004022

T:EP:RA:A2

Re: Substitute Mortality Table Ruling

Taxpayer = [redacted]

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 Plan 1
and Plan 2 has been granted with respect to the populations specified in this letter. This
ruling is effective for a period of [redacted] plan years beginning with the plan year commencing
January 1, 20[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:

• Aggregated Plan 1 and Plan 2 male annuitants, excluding disabled participants

• Aggregated Plan 1 and Plan 2 female annuitants, excluding 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 Income Tax
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.

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Permission is hereby granted to use the substitute mortality rates shown in the table
below for Plan 1 and Plan 2:

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 table lists ages 15 through 120 in separate male-annuitant and female-annuitant columns. All mortality-rate values were redacted in the IRS release. -- transcriber]

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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 Plan 1 and Plan 2 experience, but separate
male and female experience, as shown in the table on the next page.

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                                                   Credibility
                                  Mortality Ratio   Weighting Factor

Aggregated Plan 1 and Plan 2 male annuitants,
excluding disabled participants   [redacted]         [redacted]

Aggregated Plan 1 and Plan 2 female annuitants,
excluding disabled participants   [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(c)(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

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(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 male nonannuitants experienced [redacted] 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 [redacted] deaths during a [redacted] 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.

Also note that 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 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 [redacted]
percent or more than [redacted] 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 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.

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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

cc: