Determination 1035046: Revised pension-plan assumptions approved

Plain-English summary

The IRS approved revised actuarial assumptions for a pension plan for the plan year beginning January 1, 2006. The approval covered retirement, disability, termination, and form-of-payment assumptions, after an experience study showed that the proposed rates reflected the plan's actual experience. The change was submitted because it would decrease the plan's current liability by more than $50 million. The approval was limited to whether the proposed assumptions were acceptable and did not approve the calculations or address requirements under other Code sections. The employer was instructed to attach the approval date to the plan's Schedule B when filing Form 5500.

Ruling snapshot

• Question: May the plan use the proposed revised actuarial assumptions for its minimum funding calculations?
• Outcome: Approved
• Key authorities: IRC § 412(c)(5)(B); ERISA § 302(c)(5)(B)

Full text (IRS public release)

+Significant Index No. 0412.03-00 6

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

[illegible] on JUN 10 2010

[illegible]

Re:

Employer =
Dear

This letter constitutes notice that approval has been granted for the change in
assumptions as described below. This approval applies for the plan year beginning on
January 1, 2006, and has been granted in accordance with section 412(c)(5)(B) of the
Internal Revenue Code and section 302(c)(5)(B) of the Employee Retirement Income
Security Act of 1974 (ERISA), both prior to amendment by the Pension Protection Act
of 2006 (“PPA ‘06").

In granting this approval, we have considered only the acceptability of the proposed
assumptions. Accordingly, we are not expressing any opinion as to the accuracy or
acceptability of any calculations or other material submitted with your request. Please
note that this letter addresses only issues arising under section 412 of the Code and
the approval granted herein should not be read to imply that the Plan as it stands
satisfies the requirements of other sections of the Code.

The Employer conducted an experience study from January 1, 2002, through January
1, 2005. According to the information provided by the enrolled actuary for the Plan, the
proposed rates are consistent with the actual experience of the Plan during the
experience study period. Although the current assumptions differ for various legacy
groups under the Plan, it is reasonable to believe that as participants earn benefits
under a benefit structure that is consistent across the groups, and as employees are
assimilated into the Company’s culture, that the differences between the groups would

become less distinct.

The proposed changes in assumptions would impact the unfunded actuarial accrued
liability and the current liability of the Plan, which form the basis for determining the
Plan’s minimum funding requirements. IRS approval of the proposed assumptions was

requested because the proposed change in assumptions would decrease the Plan’s
current liability by more than $50 million.

This approval applies to the following revised assumptions used under the plan.

Retirement
According to information submitted by the actuary, all participants are covered by cash

balance plan formulas, except for a small group comprising about 2 to 3 percent of the
active population. The difference in the past benefit structures of the various legacy
groups have largely worn away as employees earn benefits under a formula that is
consistent across the current employee population. The experience data does not
indicate noticeable increases in rates of retirement at ages where subsidized benefits
existed under the prior benefit structures.

The proposed rates of retirement applicable to all participant groups are shown in Table
below:

Table I — Rates of Retirement

Age Rate
55 .125
56 125
57 125
58 .125
59 .125
60 .125
61 125
62 175
63 175
64 .150
65 .250
66 .150
67 .200
68 .300
69 .550
70 1.000

Disability

Information submitted by the Plan’s actuary shows that actual rates of disability during
the experience study period were significantly higher than the current assumed rates.
All groups are covered by the same Long Term Disability program, and the experience
data shows little difference among the legacy groups. Accordingly, the proposed rates
are higher than the current rates, and one set of rates is proposed for all participants.

The proposed rates of disability applicable to all participant groups are shown in Table
Il below:

Table II -- Rates of Disability per 1,000 Participants

Age Rate Age Rate
17 0.67 49 3.92
18 0.64 50 5.29
19 0.63 51 5.29
20 0.63 52 5.29
21 0.63 53 5.29
22 0.63 54 5.29
23 0.63 55 8.99
24 0.63 56 9.00
25 0.76 57 9.01
26 0.76 58 9.01
27 0.76 59 9.02
28 0.76 60 12.78
29 0.76 61 12.85
30 1.05 62 12.83
31 1.05 63 12.83
32 1.05 64 12.90
33 1.05 65 15.99
34 1.04 66 16.22
35 1.58 67 16.42
36 1.58 68 16.62
37 1.58 69 16.83
38 1.59 70 18.70
39 1.59 71 18.61
40 2.31 72 18.95
41 2.31 73 19.00
42 2.32 74 18.80
43 2.32 75 19.26
44 2.31 76 19.28
45 3.92 77 19.53
46 3.91 78 19.94
47 3.91 79 19.76
48 3.92 80 19.69

Termination
According to information submitted by the Plan’s actuary, the actual rates of termination

before eligibility for retirement were generally consistent across all participant groups,
with higher rates of termination for those with less than 5 years of service. The actual

termination rates during the experience study period were generally higher than those
expected using the current assumptions

The proposed assumed rates of termination are the same for all participant groups, with
higher rates assumed for participants with less than 5 years of service. The proposed
rates of termination are shown in Table III below:

Table III -- Rates of Termination
Year of Employment
Fifth
Age First Second Third Fourth and later

15 0.28 0.26 0.24 0.22 0.18
16 0.28 0.26 0.24 0.22 0.18
17 0.28 0.26 0.24 0.22 0.18
18 0.28 0.26 0.24 0.22 0.18
19 0.28 0.26 0.24 0.22 0.18
20 0.28 0.26 0.24 0.22 0.18
21 0.28 0.26 0.24 0.22 0.18
22 0.28 0.26 0.24 0.22 0.18
23 0.28 0.26 0.24 0.22 0.18
24 0.28 0.26 0.24 0.22 0.18
25 0.28 0.26 0.24 0.22 0.18
26 0.28 0.26 0.24 0.22 0.17
27 0.28 0.26 0.23 0.21 0.17
28 0.27 0.25 0.23 0.21 0.16
29 0.27 0.25 0.23 0.20 0.16
30 0.27 0.24 0.22 0.20 0.15
31 0.27 0.24 0.22 0.19 0.14
32 0.26 0.24 0.21 0.19 0.14
33 0.26 0.23 0.21 0.18 0.13
34 0.26 0.23 0.21 0.18 0.13
35 0.25 0.23 0.20 0.18 0.13
36 0.25 0.22 0.20 0.17 0.12
37 0.25 0.22 0.20 0.17 0.12
38 0.25 0.22 0.19 0.17 0.11
39 0.24 0.22 0.19 0.16 0.11
40 0.24 0.21 0.19 0.16 0.10
41 0.24 0.21 0.18 0.16 0.10
42 0.23 0.21 0.18 0.15 0.10

43 0.23 0.20 0.18 0.15 0.09
44 0.23 0.20 0.17 0.15 0.09

45 0.23 0.20 0.17 0.14 0.09
46 0.22 0.20 0.17 0.14 0.08

a Se ae

Table III -- Rates of Termination (continued)
Year of Employment
Fifth
Age First Second Third Fourth and later

47 0.22 0.19 0.17 0.14 0.08
48 0.22 0.19 0.16 0.13 0.08
49 0.22 0.19 0.16 0.13 0.08
50 0.21 0.19 0.16 0.13 0.07
51 0.21 0.18 0.16 0.13 0.07
52 0.21 0.18 0.15 0.12 0.07
53 0.21 0.18 0.15 0.12 0.07
54 0.20 0.18 0.15 0.12 0.06

Form of payment

Information submitted by the actuary shows that a significant number of participants
tend to defer receipt of their benefits after termination of employment. In addition, the
information indicates that during the experience study period, the percentage of eligible
employees who elect to take their distributions in the form of a lump sum has increased

and is approaching 100%.

The proposed assumptions assume that 100% of eligible participants will elect a lump
sum payment. Grandfathered benefits will continue to be assumed to be paid in the

form of an annuity.

When filing Form 5500 for the plan year beginning on January [illegible], enter on an
attachment to the Schedule B (Actuarial Information) the date of this letter and label the
attachment “Schedule B, line 11 — Change in Actuarial Assumptions Approval

Date.”

If you have any questions regarding this matter, please contact [illegible] of our
Office.

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

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