Pension plan may use substitute mortality tables for all populations

Plain-English summary

A pension plan asked to use plan-specific substitute mortality tables for its male and female annuitants and nonannuitants, including disabled participants. The IRS found that the rates were developed under the applicable regulations and Revenue Procedure 2017-55 and approved them for up to 10 plan years. The letter stated that no qualified plan or population would continue using standard mortality tables. Continued use is subject to early termination if coverage or predictive accuracy changes. The plan must provide annual actuarial certifications when the specified coverage thresholds apply, together with supporting mortality and participant data.

Ruling snapshot

• Question: May the pension plan use substitute mortality tables for all male and female annuitant and nonannuitant populations, including disabled participants?
• Outcome: Approved for all specified populations for up to 10 plan years.
• 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)

Significant Index No. 0430.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JAN 25 2021

Number: 202116013
Release Date: 4/23/2021

Re: Substitute Mortality Table Ruling
Taxpayer = [redacted]

Plan for which substitute mortality tables are requested:

EIN: [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
above Plan has been granted with respect to the populations specified in this letter. This
ruling is effective for a period of up to 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:

• Male annuitants (including disabled annuitants)
• Female annuitants (including disabled annuitants)
• Male nonannuitants (including disabled nonannuitants)
• Female nonannuitants (including disabled nonannuitants)

Based on the information you provided, there are no qualified pension plans or
populations for which standard mortality tables will be used.

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 described above:

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 per-age substitute mortality rates for ages 1 through 120 in four columns: male annuitants, female annuitants, male nonannuitants, and female nonannuitants. The individual 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 factors determined by
aggregating male and female experience, as shown in the table below.

Male and Female Annuitants Male and Female Nonannuitants

Mortality ratio
[redacted] [redacted]

Credibility Weighting Factor
[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

(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 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(c)(6)(iii)(A) of the Regulations was made.

The number of nonannuitants as of December 31, [redacted], was already more than
[redacted]% of the average number of nonannuitants covered during the period of the
experience study. Accordingly, this certification is needed each year, if and when the
number of nonannuitants (1) remains greater than [redacted]% of the average number of
nonannuitants during the experience study period or (2) becomes less than [redacted]%
or more than [redacted]% of the number of nonannuitants as of December 31,
[redacted], the date of the most recent certification that the mortality tables are accurately
predictive of the mortality of the remaining population. Similarly, this certification would
be needed for the annuitant population starting with any year in which the number of
annuitants becomes less than [redacted]% or more than [redacted]% of the average
number of annuitants during the period covered by the experience study on which the
substitute mortality tables for annuitants was based.

For reference, the average number of the male and female participants of the Plan
during the experience study period, as well as the number of male and female
participants as of December 31, [redacted], are as follows:

                     Male and Female Annuitants   Male and Female Nonannuitants

Average during the
experience study period* [redacted] [redacted]
Number as of 12/31/
[redacted] [redacted] [redacted]

A certification must be provided each year that it is required under the Regulations, as
described above, signed by the enrolled actuary for the plan and stating that the
substitute mortality tables continue to be accurately predictive of the expected future
mortality for the plan. The certification must also contain a statement 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 accurately predictive,
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.

All required certifications must be provided on or before the date Form 5500 is filed for
each plan year for which the certification is required and must be accompanied by the
supporting information relied upon by the enrolled actuary to make that certification. To
the extent possible, please also provide the following supporting information:

(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 plan year beginning with deaths during the plan year ending
December 31, [redacted] through the plan year immediately 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 during the experience study period and the number of participants in
the population as of the end of each plan year, beginning with December 31,
[redacted] through the plan year immediately preceding the most recent actuarial
valuation, expressed both as a headcount and as a percentage of the average
number of participants during the experience study period.

(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 $ [redacted],
between $ [redacted] and $ [redacted], between $ [redacted] to $ [redacted], between
$ [redacted] to $ [redacted], between $ [redacted] and $ [redacted], and $ [redacted]
and over, along with the average age and average benefit amount for the population in
total. This information should be provided for the population in the experience study
(i.e., those between the ages of [redacted] and [redacted] as of December 31,
[redacted]) and at the end of each plan year beginning with December 31, [redacted],
through the date immediately preceding the most recent actuarial valuation at the time
the information is reported.

(5) An explanation of any material changes in the population.

This information must be provided to me (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 a requirement that the
standard mortality tables must be used for purposes of section 430 of the Code,
beginning with the earlier of (1) the plan year for which the deadline for providing this
information is missed or (2) the date required for early termination of the use of the
substitute mortality tables pursuant to section 1.430(h)(3)-2(c)(6)(ii) of the Regulations.

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
[redacted].

If you require further assistance in this matter, please contact [redacted]
(ID# [redacted]) at ([redacted]) [redacted].

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

cc: