Pension plan may keep using its substitute mortality tables after a change in plan sponsor

Plain-English summary

A company's pension plans had been approved to use their own experience-based
"substitute" mortality tables (instead of the IRS standard tables) for funding
calculations under IRC § 430. A problem arose: one plan (Plan 1) had been left
out of the original 2018 request because the company's finance staff did not know
it existed, which potentially invalidated that ruling; the IRS later approved
continued use in 2021. The company then moved Plan 1's sponsorship from one
controlled-group member to another for legal, tax, and administrative efficiency.
Because the plan populations, experience study, and actuarial data behind the
tables did not change, the company asked to keep using the previously approved
substitute tables despite the sponsorship change. The IRS granted permission to
continue using the tables for annuitants (including disabled annuitants) of Plans
1, 2, and 3 for up to five plan years. The nonannuitant population lacked credible
experience, so it must keep using standard tables. The approval can end early
under the regulations, and the plan must file annual actuarial certifications. The
specific rate values and identifying details were redacted by the IRS.

Ruling snapshot

• Question: May the plans keep using their previously approved substitute mortality tables after Plan 1's sponsor changed within the controlled group?
• Outcome: Approved (continued use for up to five plan years, annuitants only)
• 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                                 MAY 25 2022
DIVISION

Re: Substitute Mortality Table Ruling

Taxpayer =
EIN: -

Plans for which substitute mortality tables are requested:

Plan 1 =
EIN: - (Plan No. )

Formerly:

EIN: - (Plan No. )
Plan 2 =
EIN: - (Plan No. )
Plan 3 =
EIN: - (Plan No. )

Other relevant information:

Merging Plan =
EIN: (Plan No. )
Merger Date =
Plan Sponsor 1 =
EIN: -
Plan Sponsor 2 =
EIN: -
Plan Sponsor 3 =
EIN: -

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Dear

This letter is response Taxpayer's request dated December 15, 2021, along with
supplemental information provided by Taxpayer's authorized representatives via
telephone on March 2, 2022.

The following facts and representations have been submitted under penalties of perjury
in support of the ruling requested.

Plan 1 became part of Taxpayer's controlled group in 20__. However, under the original
submission for the ruling issued on November 20, 2018, Plan 1 was not disclosed as a
part of Taxpayer's controlled group. The existence of Plan 1 was unknown to
Taxpayer's corporate finance staff at that time, and therefore, was omitted from the
original submission. As such, this potentially invalidated the ruling issued on
November 20, 2018.

Upon discovering the material omission of Plan 1 from the facts of the case on which a
ruling was issued on November 20, 2018, Taxpayer submitted a ruling request asking
for permission to continue to use the substitute mortality tables for Plan 1, Plan 2, and
Plan 3. In that submission, Taxpayer stated that Merging Plan was going to merge into
Plan 1 and would be renamed on Merger Date. An approval for Plan 1, Plan 2, and
Plan 3 to continue to rely on the substitute mortality tables that were approved on
November 20, 2018 was granted on July 22, 2021.

On November 22, 20__ Taxpayer decided to change the plan sponsor of Plan 1 (from
Plan Sponsor 2 to Plan Sponsor 3). Upon the change in sponsorship of Plan 1 (from
Plan Sponsor 2 to Plan Sponsor 3), Plan 1 changed its employer identification number
and plan number (shown above). There was no change in plan sponsor for Plan 2 or
Plan 3 and all three plans (Plan 1, Plan 2, and Plan 3) remain in the controlled group of
Taxpayer. The rationale for the intra-controlled group Plan 1 sponsorship change (from
Plan Sponsor 2 to Plan Sponsor 3) is described below:

• In connection with bankruptcy proceedings of Plan Sponsor 1 in early 20__ a
determination was made, based on facts and circumstances of that time, that
Plan Sponsor 2 was an acceptable controlled group member to assume
sponsorship of Plan 1. Part of the rationale for that determination centered on
Taxpayer's existing credit facility, of which Plan Sponsor 2 is a borrower, being a
potential funding source of Plan 1, if needed.

• When the previous plan merger of Merging Plan merging into Plan 1 occurred on
Merger Date, Plan Sponsor 2 remained the plan sponsor of surviving Plan 1,
essentially by default.

• After further review in 20__ Taxpayer determined that Plan 1 sponsorship should
have been transferred to Plan Sponsor 3 with the plan merger of Merging Plan
merging into Plan 1 on Merger Date.

• In particular, Taxpayer determined that transferring Plan 1 sponsorship would
help Taxpayer to mitigate various legal, tax, accounting, and human resource

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administrative burdens, while also increasing efficiencies. Plan Sponsor 3 had
been the plan sponsor of Merging Plan in the previous plan merger of Merging
Plan merging into Plan 1 on Merger Date for over __ years and had more
established and efficient processes for carrying out its plan sponsorship role.
Taxpayer also determined that Plan Sponsor 3, as Plan 1's sponsor, could
access Taxpayer's credit facility as a funding source, if needed.

• Based on this review and analysis, Plan 1's sponsorship was transferred from
Plan Sponsor 2 to Plan Sponsor 3.

With respect to the substantive data and information underlying the substitute mortality
tables rulings dated November 20, 2018 and July 22, 2021, the above-described
change in Plan 1 sponsorship (from Plan Sponsor 2 to Plan Sponsor 3) has no impact.
The plan populations, experience study, and actuarial certifications underlying the
substitute mortality table rulings dated November 20, 2018 and July 22, 2021 remain
unchanged by the fact that sponsorship of Plan 1 (from Plan Sponsor 1 to Plan
Sponsor 3) was transferred.

Based on the above facts and representations, Taxpayer requests a ruling to continue
to use the substitute mortality tables originally approved on November 20, 2018, and
further approved for continued use for the remainder of the originally approved period
on July 22, 2021, for making computations under section 430 of the Internal Revenue
Code ("Code"). This ruling is effective for a period of up to 5 plan year beginning with
the plan year commencing January 1, 20__.

This request to continue to use the substitute mortality tables approved on
November 20, 2018, which were further approved for continued use for the remainder of
the 5-year period on July 22, 2021, stems solely from the change in plan sponsor for
Plan 1 (from Plan Sponsor 2 to Plan Sponsor 3), noted above.

This request is made in accordance with section 430(h)(3)(C) of the Code,
section 303(h)(3) of the Employee Retirement Income Security Act of 1974,
section 1.430(h)(3)-2 of the Treasury Regulations ("Regulations"), and Revenue
Procedure 2017-55.

Section 430(h)(3)(A) of the Code states, in relevant part, that the Secretary shall by
regulation prescribe mortality tables to be used in determining any present value or
making any computation under section 430 of the Code.

Section 430(h)(3)(C) of the Code states, in relevant part, that upon request by the plan
sponsor and approval by the Secretary, a mortality table shall be used in determining
any present value or making any computation under section 430 of the Code during the
period of consecutive plan years (not to exceed 10) specified in the request.
Additionally, a substitute mortality table shall cease to be in effect as of the earliest of:
• the date on which there is a significant change in the participants in the plan by
reason of a plan spinoff or merger or otherwise, or

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• the date on which the plan actuary determines that such substitute mortality table
does not meet the following requirements:

o there is a sufficient number of plan participants, and the pension plans
have been maintained for a sufficient period of time, to have credible
information necessary, and

o such substitute mortality table reflects the actual experience of the
pension plans maintained by the sponsor and projected trends in general
mortality experience.

Section 1.430(h)(3)-2(c)(3) of the Regulations states, in relevant part, that the base year
for the base substitute mortality table is the calendar year that contains the day before
the midpoint of the experience study period. Additionally, a plan's substitute mortality
tables must be generational mortality tables.

Section 1.430(h)(3)-2(c)(6) of the Regulations states, in relevant part, that a plan's
substitute mortality tables must not be used beginning with the earliest of:

• 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),

• The first plan year in which the plan fails to satisfy 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),

• The second plan year following the plan year for which there is a significant
change in individuals covered by the plan (described below),

o A significant change in the individuals covered by a substitute mortality
table for a plan year occurs if the number of individuals covered by the
substitute mortality table for the plan year is less than 80% or more than
120% of either the average number of individuals in that population over
the years covered by the experience study on which the substitute
mortality tables are based, or the number of individuals covered by the
substitute mortality table in a plan year for which a certification (described
below) was made on account of a prior change in coverage.

▪ A change in coverage is not treated as significant if 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 that population
(taking into account the effect of the change in the population).

• 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

• The date specified in guidance published in the Internal Revenue Bulletin
pursuant to a replacement of mortality tables specified under

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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.

Section 1.430(h)(3)-2(d)(2) of the Regulations states, in relevant part, that the
experience study period must consist of 2, 3, 4, or 5 consecutive 12-month periods, and
must be the same period for all populations. The last day of the experience study period
must be less than 3 years before the first day of the first plan year for which the
substitute mortality tables are to apply.

Section 1.430(h)(3)-2(d)(4) of the Regulations states, in relevant part, that the base
mortality rates are determined by multiplying the mortality rate from the standard
mortality table by the mortality ratio.

Section 1.430(h)(3)-2(e)(1) of the Regulations states, in relevant part, that if the actual
number of deaths is less than the full credibility threshold, then the base mortality rates
are determined using a partial credibility weighting factor.

The substitute mortality tables were developed based on an experience study period
from January 1, 20__ through December 31, 20__ with a base year of 20__. This
satisfies the requirements under sections 1.430(h)(3)-2(c)(3) and (d)(2) of the
Regulations.

The substitute mortality tables were developed by adjusting the applicable standard
mortality tables in section 1.430(h)(3)-1(d) of the Regulations, using the following
mortality ratio and credibility weighting factor determined by aggregating male and
female annuitant experience (including disabled annuitants). These adjustments are
required under sections 1.430(h)(3)-2(d)(4) and (e)(1) of the Regulations.

Aggregated Male and Female Annuitants,
Including Disabled Annuitants

Mortality Ratio                    [redacted]
Credibility Weighting Factor       [redacted]

[The mortality ratio and credibility weighting factor values were redacted in the IRS release. -- transcriber]

Permission is hereby granted to continue to use the substitute mortality tables that were
approved on November 20, 2018, and further approved for continued use for the
remainder of the 5-year period on July 22, 2021, as shown in the table below for the
Plan 1, Plan 2, and Plan 3, for male and female annuitants (including disabled
annuitants). This approval is effective for a period of up to 5 plan year beginning with
the plan year commencing January 1, 20__.

Continued approval for use beginning with the plan year commencing
January 1, 20__
Base year 20__

Substitute Mortality Tables

Age   Male Annuitants, Including Disabled Annuitants   Female Annuitants, Including Disabled Annuitants
[The scanned table lists per-age substitute mortality rates for ages 1 through 120 in two columns (male annuitants and female annuitants, each including disabled annuitants). The individual rate values were redacted in the IRS release. -- transcriber]

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This approval applies to the following specific populations.

• Male and female annuitants, including disabled annuitants

Based on the information provided, the following population does not have credible
mortality experience, and therefore, the standard mortality tables under
section 430(h)(3)(A) of the Code will be used for calculations under section 430 of the
Code:

• Male and female nonannuitants, including disabled nonannuitants

Your attention is called to the early termination rules under section 430(h)(3)(C) of the
Code and section 1.430(h)(3)-2(c)(6) of the Regulations.

We also draw your attention to the fact that the aggregated male and female
nonannuitants (including disabled nonannuitants) experienced __ deaths during the
experience study period. Note that this population will have credible mortality
experience if it experiences at least __ deaths during a 5-year period (corresponding to
the length of the experience study used to construct the substitute mortality tables for
the male and female annuitant population). It is important to monitor the aggregated
male and female nonannuitant population (including disabled nonannuitants) to ensure
that appropriate action is taken should this occur, to avoid violating the early termination
rules under section 1.430(h)(3)-2(c)(6) of the Regulations.

For purposes of a significant change in coverage under section 1.430(h)(3)-2(c)(6) of
the Regulations, the average number of aggregated male and female annuitants
(including disabled annuitants) over the years covered by the experience study, as well
as the most recent number of aggregated male and female annuitants (including
disabled annuitants) in the submission, are as follows:

Aggregated Male and
Female Annuitants,
Including Disabled Annuitants

Average during the experience study period    [redacted]
As of January 1, 20__                          [redacted]
As of January 1, 20__                          [redacted]

A certification must be provided each year that is required under the Regulations, as
described above, to avoid the early termination rules due to a significant change in
coverage under section 1.430(h)(3)-2(c)(6) of the Regulations. The certification must
state 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:

• 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;

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• 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;

• 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, settlements/other risk transfers, and other events that
would have similar effects on the relevant populations; and,

• The enrolled actuary has the specific knowledge and experience to make the
judgements set forth above and attests to these representations.

All 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:

• 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.

• 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, 20__ through the plan year immediately preceding the most
recent actuarial valuation, and in total.

• A table showing the mortality gains/losses, reported separately for each plan
year beginning with the plan year beginning on January 1, 20__ through the
plan year immediately preceding the most recent actuarial valuation.

• 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, 20__ 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 in the experience study.

• 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 $1,600 and over, along with the average age
and average benefit amount for the population in total. This information should
also be provided for the population in the experience study and at the end of
each plan year, beginning with the valuation date for the first plan year that the
certification is required, through the date immediately preceding the most recent
actuarial valuation at the time the information is reported.

• An explanation of any material changes in the population.

This information must be provided to Mr. David M. Ziegler (or to another individual
designated by the IRS), by efax at (855) 300-3321, or to the following address:

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Internal Revenue Service
Attn: Mr. David M. Ziegler
TE/GE: SE:T:EP:RA:T:A2
IR-6213
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) of the Regulations.

No opinion is expressed as to the tax treatment of the transaction described herein
under the provisions of any other section of either the Code or Regulations which may
be applicable thereto, as appropriate.

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 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.

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.

Pursuant to a power of attorney on file with this office, a copy of this letter ruling is being
sent to your authorized representatives.

Additionally, a copy of this letter ruling is being sent to the Manager, EP Classification in
Houston, Texas and to the Manager, EP Compliance Unit in Chicago, Illinois.

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If you wish to inquire about this ruling, please contact          (ID Badge
Number          ) at (          )          -          . Please address all correspondence to
SE:T:EP:RA:T:A2.

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

Enclosures

Notice 437, Notice of Intention to Disclose (Rulings)
A deleted copy of the ruling

CC: