PLR 200823024: Pension plans approved to use substitute mortality tables

Plain-English summary

A plan sponsor asked to use its own male and female mortality tables when making pension funding calculations for a specified group of plans. The IRS approved the substitute rates for up to ten years beginning with the 2008 plan year. The rates apply to annuitants, other participants, and disabled participants in the approved group and were based on mortality experience from 2002 through 2005. The IRS concluded that the rates sufficiently reflected the plan populations' experience but did not approve the accuracy of other submitted calculations. Permission can end early if the plans cease to meet credibility or group coverage requirements, the covered population changes substantially, the tables lose predictive value, or replacement table guidance applies.

Ruling snapshot

• Question: Could the specified pension plans use substitute male and female mortality tables for funding calculations?
• Outcome: Yes, for up to ten years from 2008, subject to early termination conditions.
• Key authorities: IRC § 430(h)(3); ERISA § 303(h)(3); proposed Treas. Reg. § 1.430(h)(3)-2.

Full text (IRS public release)

Significant Index No. 0430.00-00

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE 200823024

WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAR 1 3 2008

[illegible]

In re: Request to use substitute mortality tables

Plans for which substitute mortality tables are requested (“Permissive Group”) =

Plans for which substitute mortality tables are not requested (“Excluded Group”)=

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 plans in the above Permissive Group has been granted, effective for a period of up to 10 years beginning with the 2008 plan year. Your request has been granted in accordance with section 430(h)(3) of the Internal Revenue Code and section 303(h)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”).

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In granting this approval, we have considered only the development of the substitute mortality rates and whether they sufficiently reflect the mortality experience of the applicable plan populations. 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 herby granted to use the male and female substitute mortality rates shown in the tables below:

Male Mortality Rates

Age Male Age Male Age Male

1 0.000600 | 41 0.001941 | 81 | 0.086387
2 0.000405 | 42 | 0.002042 | 82 | 0.097665

3 0.000336 | 43 | 0.002162 | 83 | 0.108917

4 0.000262 | 44 | 0.002290 | 84 | 0.119569

5 0.000240 | 45 | 0.002417 | 85 | 0.129962

6 0.000230 | 46 | 0.002557 | 86 | 0.140952

7 0.000220 | 47 | 0.002727 | 87 | 0.153395

8 0.000203 | 48 | 0.002942 | 88 | 0.168148

9 0.000197 | 49 | 0.003213 | 89 | 0.184970

10 | 0.000200 | 50 | 0.003532 | 90 | 0.203289

11 0.000206 | 51 0.003878 | 91 0.223468

12 | 0.000215 | 52 | 0.004232 | 92 | 0.245869

13 | 0.000226 | 53 | 0.004574 | 93 | 0.270852

|
14 | 0.000240 | 54 | 0.004812 | 94 | 0.298417 |

15 | 0.000254 | 55 | 0.004958 | 95 | 0.321752

16 | 0.000268 | 56 | 0.005152 | 96 | 0.341208

17 | 0.000284 | 57 | 0.005534 | 97 | 0.357137
18 | 0.000298 | 58 | 0.006242 | 98 | 0.369894

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3
19 | 0.000312 ; 59 0.007386 99 | 0.379829
20 | 0.000326 | 60 | 0.008875 | 100 | 0.387296
21 0.000338 | 61 0.010543 | 101 | 0.392647
22 | 0.000348 | 62 | 0.012223 | 102 | 0.396234
23 | 0.000356 | 63 | 0.013752 | 103 | 0.398411
24 | 0.000362 | 64 | 0.014979 | 104 | 0.399529
25 | 0.000365 | 65 | 0.016015 | 105 | 0.399941
26 | 0.000371 | 66 | 0.017083 | 106 | 0.400000
27 | 0.000376 | 67 | 0.018409 | 107 | 0.400000
28 | 0.000387 | 68 | 0.020216 | 108 | 0.400000
29 | 0.000404 | 69 | 0.022514 | 109 | 0.400000
30 | 0.000434 | 70 | 0.025153 | 110 | 0.400000
31 0.000485 | 71 0.028120 | 111 | 0.400000

32. | 0.000570 | 72 | 0.031400 | 112 | 0.400000
    33 | 0.000696 | 73 | 0.034980 | 113 | 0.400000
    34 | 0.000870 | 74 | 0.038519 | 114 | 0.400000
    35 =| 0.001072 75 0.042028 | 115 | 0.400000
    36 | 0.001278 | 76 | 0.046016 | 116 | 0.400000
    37 | 0.001465 | 77 | 0.050993 | 117 | 0.400000
    38 | 0.001608 | 78 | 0.057467 | 118 | 0.400000
    39 | 0.001738 | 79 | 0.065779 | 119 | 0.400000
    40 | 0.001844 | 80 | 0.075588 | 120 | 1.000000

Female Mortality Rates

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Age | Female | Age; Female | Age | Female

1 0.000537 | 41 0.000740 | 81 0.065033
2 0.000350 | 42 | 0.000814 | 82 0.070280
3 0.000262 | 43 0.000895 | 83 0.077642
4 0.000196 | 44 | 0.001514 | 84 | 0.087071
5 0.000177 | 45 | 0.002573 | 85 | 0.097972
6 0.000166 | 46 | 0.003856 | 86 | 0.110413
7 0.000155 | 47 | 0.005148 | 87 0.124462
8 0.000138 | 48 | 0.006232 | 88 0.140186
9 0.000132 | 49 | 0.006950 | 89 0.159192
10 | 0.000133 | 50 | 0.007367 | 90 | 0.181436
11 0.000135 | 51 0.007609 | 91 0.204506
12 0.000139 | 52 0.007798 | 92 0.225992
13 0.000146 | 53 0.008057 | 93 0.243482
14 | 0.000153 | 54 | 0.008686 | 94 | 0.255618
15 | 0.000162 | 55 | 0.009420 | 95 0.264008
16 | 0.000169 | 56 | 0.010220 | 96 0.270688
17 | 0.000176 | 57 | 0.011048 | 97 | 0.277696
18 0.000180 | 58 0.011864 | 98 0.287068
19 0.000182 | 59 0.012629 | 99 0.298804
20 0.000182 | 60 0.013368 | 100 | 0.311546
21 0.000182 | 61 0.014142 | 101 | 0.325295
22 | 0.000184 | 62 | 0.015012 | 102 | 0.340049

5
23 =| 0.000188 | 63 | 0.016039 | 103 | 0.355810
24 | 0.000192 | 64 | 0.017288 | 104 | 0.369212
25 | 0.000198 |} 65 | 0.018717 | 105 | 0.380232
26 | 0.000206 | 66 | 0.020231 | 106 | 0.388844
27 =| 0.000215 | 67 | 0.021732 | 107 | 0.395026
28 . 0.000227 | 68 | 0.023122 | 108 | 0.398752
29 | 0.000239 | 69 | 0.024096 | 109 | 0.400000
30 | 0.000256 | 70 | 0.024718 | 110 | 0.400000
31 0.000300 | 71 0.025449 | 111 | 0.400000

32. | 0.000342 | 72 | 0.026746 | 112 | 0.400000
    33 | 0.000383 | 73 | 0.029070 | 113 | 0.400000
    34 | 0.000422 | 74 | 0.032698 | 114 | 0.400000
    35 | 0.000459 | 75 | 0.037324 | 115 | 0.400000
    36 0.000496 76 =| 0.042532 | 116 | 0.400000
    37 | 0.000533 | 77 ‘| 0.047904 | 117 | 0.400000
    38 | 0.000573 | 78 | 0.053026 | 118 | 0.400000
    39 | 0.000619 | 79 | 0.057300 | 119 | 0.400000
    40 | 0.000675 | 80 | 0.061004 | 120 | 1.000000

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These tables will be used for all male and female participants in the Permissive Group, respectively, including annuitants, nonannuitants and disabled participants. The rates were developed based on an experience study period from January 1, 2002, through December 31, 2005, and were graduated using the Karup-King graduation method. The Service has reviewed the substitute mortality rates and supporting information, and has determined that based on the information submitted, the rates sufficiently reflect the mortality experience of the applicable plan populations.

Your attention is called to section 430(h)(3)(C)(ii) of the Code, section 303(h)(3)(C)(ii) of ERISA, and section 1.430(h)(3)-2(d)(4) of the proposed regulations, which describe the circumstances in which the use of the substitute mortality table will terminate before the

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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) The plan year in which the plan fails to satisfy the requirements of paragraph 1.430(h)(3)-2(c)(1) of the proposed regulations, requiring that the groups for which substitute mortality tables is used must have credible mortality experience,

(2) The plan year in which the plan fails to satisfy the requirements of paragraph 1.430(h)(3)-2(d)(1) of the proposed regulations, regarding the requirement that other plans and populations in the controlled group must use substitute mortality tables unless it can be demonstrated that they do not have credible mortality experience,

(3) The second plan year following the plan year in which there is a significant change in individuals covered by the plan as described in paragraph 1.430(h)(3)-2(d)(4)(ii) of the proposed regulations (generally applicable when there is a change of 20% or more in the number of individuals in the population for which the substitute mortality table is used),

(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 Service or as certified by the enrolled actuary to the satisfaction of the Service, and

(5) The date specified in guidance published in the Internal Revenue Bulletin regarding any replacement mortality tables specified under section 430(h)(3)(A) and 1.430(h)(3)-1, other than annual updates to the static mortality tables issued pursuant to 1.430(h)(3)-1(a)(3) of the proposed 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 B (Actuarial Information) in accordance with the instructions to that form.

We have sent a copy of this letter to the .
to the and to your

authorized representative pursuant to a power of attorney on file in this office.

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If you require further assistance in this matter, please contact

Sincerely,

David M. Ziegler, Acting Manager
Employee Plans Actuarial Group 2