Pension plan receives ten-year substitute mortality table approval

Plain-English summary

A pension plan asked to use experience-based substitute mortality tables for male and female annuitants, including disabled participants, beginning November 1, 2022. The plan added 2019 experience to an earlier study, producing a three-year study period with full credibility for the annuitant population. The IRS approved the substitute tables for up to ten plan years. Male and female nonannuitants lacked credible mortality experience and therefore had to continue using standard tables. The approval can end early if regulatory conditions change, including a significant population change or credible mortality experience developing for the nonannuitants. The plan also must provide actuarial certifications and supporting information when required.

Ruling snapshot

• Question: Could the plan use substitute mortality tables for its male and female annuitants, including disabled participants?
• Outcome: approved for up to ten plan years beginning November 1, 2022
• 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)

202249023
Significant Index No. 0430.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SEP 12 2022
T:EP::RA:A2

Re: Substitute Mortality Table Ruling

Taxpayer =

Plan for which substitute mortality tables are requested:

Plan =
EIN: - , (Plan No. )

Other Plan in the controlled group for which substitute mortality tables are not requested:

Newly-Affiliated Plan =
EIN: - , (Plan No. )

Dear

This letter is to inform you that your request to use substitute mortality tables for making
computations under section 430 of 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 November 1, 2022. 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 and female annuitants, including disabled participants
The Plan previously received a ruling, dated January 11, 2021, granting the use of a substitute
mortality table for the same population, effective for a period up to a 10 years beginning with
the plan year commencing November 1, 2020. The study period used to construct that table
was based on the calendar years 2017 and 2018.

The Taxpayer submitted this new request for a ruling to use a substitute mortality table for the
plan year beginning November 1, 2022. The Taxpayer represented they wanted to reflect an


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additional year of experience (calendar year 2019) and that reflecting the additional year would
give the Plan full credibility and a more accurate assessment of the Plan’s mortality experience.

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.

The Taxpayer represented that the Newly-Affiliated Plan became part of the controlled group
belonging to the Taxpayer on February 3, 2020. During the study period, it had approximately
20 participants and fewer than 100 deaths. As such, the Newly-Affiliated Plan is exempt from
the requirement that all members of the controlled group must use the same substitute
mortality table.

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 of making any
computation under section 430 of the Code.

Section 430(h)(3)(C) of the Code states, 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.

Section 430(h)(3)(C)(ii) of the Code states, in relevant part, a substitute mortality table shall
cease to be in effect as of the earliest of:

(1) 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

(2) the date on which the plan actuary determines that such substitute mortality table does
not meet the following requirements of Section 430(h)(3)(C)(iii) of the Code.

Section 430(h)(3)(C)(iii) of the Code states, in relevant part, that a mortality table meets the
requirements of this section if:

(1) 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

(II) 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)(ii) of the Regulations states, in relevant part, that a plan’s substitute
mortality tables must not be used beginning with the earliest of:


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(A) 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),

(B) 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),

(C) 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.

(D) 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

(E) 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.

Section 1.430(h)(3)-2(c)(6)(iii) of the Regulations states, in relevant part, 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. However,
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).

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.


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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.

Section 1.430(h)(3)-2(f) of the Regulations provides special rules for newly-affiliated plans - a
plan is a newly-affiliated plan if the plan sponsor becomes a member of the new controlled
group in connection with a merger, acquisition, or similar transaction described in § 1.410(b)-
2(f). A plan also is treated as a newly-affiliated plan for purposes of this section if the plan is
established in connection with a transfer of assets and liabilities from another employer's plan
in connection with a merger, acquisition, or similar transaction described in § 1.410(b)-2(f).

The use of substitute mortality tables for a plan within a controlled group is not prohibited
merely because, during the transition period, substitute mortality tables are not used for a
newly-affiliated plan that fails to demonstrate a lack of credible mortality information during that
period. Similarly, during the transition period, the use of substitute mortality tables for a newly-
affiliated plan is not prohibited merely because substitute mortality tables are not used for
another plan within the controlled group that fails to demonstrate a lack of credible mortality
information during that period. The transition period begins on the date of the transaction that
results in the plan becoming a newly-affiliated plan and ends on the last day of the plan year
that immediately follows the latest ending period described in section 410(b)(6)(C)(ii) with
respect to that transaction for any of the plans in the controlled group.

The substitute mortality tables were developed based on an experience study period from
January 1, 2017 through December 31, 2019, with a base year of 2018. 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 with the mortality ratio and credibility
weighting factors shown below.

Mortality Ratio and Credibility Weighting Factor Table

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]

These were 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.

Because the information submitted demonstrates that the Plan's annuitant population has
credible mortality experience and the Plan’s nonannuitant population has a lack of credible


202249023

mortality experience, the Plan meets the requirement for applying substitute mortality tables for
annuitants without applying substitute mortality table to nonannuitants. On this basis,
application of the substitute mortality mortality table to the plan population will be as follows:

This approval applies to the following specific populations:
• Male annuitants and female annuitants, including 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:

• 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 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 Plan.

Substitute Mortality Tables
Approved for use beginning with the plan year commencing November 1, 2022
Base year 2018

Age   Male Annuitants   Female Annuitants
[The scanned table lists per-age mortality rates for ages 15 through 120. The individual rate values were redacted in the IRS release. -- transcriber]

The above mortality rates were developed based on an experience study period from January
1, 2017 through December 31, 2019, with a base year of 2018.

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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.

We draw your attention to the fact that the nonannuitants experienced 62 deaths during the
experience study period. Note that this population will have credible mortality experience if it
experiences at least 100 deaths during a 3-year period (corresponding to the length of the
experience study used to construct the substitute mortality tables for the other populations). It


202249023

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

For reference, the average number of the combined male and female annuitants in the Plan
over the years covered by the experience study, as well as the most recent number of
combined male and female annuitants in the submission, are as follows:

Combined Male and Female Annuitants

Average during the experience study period       [redacted]
Most recent data in the submission
(October 31, 2021)                                [redacted]

[The population counts were redacted in the IRS release. -- transcriber]

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.

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10

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
as of December 31, 2019 and for each plan year beginning with deaths during the plan
year ending October 31, 2022 through calendar 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
covered by the substitute mortality table during the experience study period and the
number of participants in that population as of the end of each plan year, beginning with
October 31, 2022through 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.

(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 $100, between
$100 and $250, between $250 to $500, between $500 to $1,000, between $1,000 and
$1,500, and $1,500 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.

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

This information must be provided to David M. Ziegler (or to another individual designated by
the Service) to the following address..

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

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ll

(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.

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.
If you require further assistance in this matter, please contact [redacted].
Sincerely,
David M. Ziegler, Manager
Employee Plans Actuarial Group 2
Enclosures

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

Manager, EP Classification
Houston, TX

Manager, EP Compliance Unit
Chicago, Illinois