Airline plan's revised actuarial assumptions approved

Plain-English summary

An employer with a frozen airline pension plan asked to change actuarial assumptions after federal law allowed pilots to continue flying until age 65 and later experience showed different retirement behavior. The proposed assumptions covered retirement payment forms and retirement rates by age. Because the changes would reduce the plan's funding shortfall by more than $50 million, IRC § 430(h)(5) required IRS approval. The IRS approved the specified assumptions for the 2013 plan year but did not approve the employer's calculations or decide whether the plan satisfied other Code requirements.

Ruling snapshot

• Question: Could the airline pension plan use revised payment-form and pilot-retirement assumptions for its 2013 funding calculations?
• Outcome: Approved for the specified assumptions only
• Key authorities: IRC §§ 412(c)(5)(B), 430(c)(4), 430(d), 430(h)(5); ERISA §§ 302(c)(5)(B), 303(h)(5)

Full text (IRS public release)

Significant Index No. 0430.00-00

DEPARTMENT OF THE TREASURY 201538029

INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 24 2015

Re: ( ) ( )
EIN:
Employer =

Plan Year Beginning in 2013 =
Dear [redacted]:

This letter constitutes notice that approval has been granted for the change in
assumptions described below. This approval applies for the Plan Year Beginning in
2013 and has been granted in accordance with section 430(h)(5)¹ of the Internal
Revenue Code (the “Code”) and section 303(h)(5) of the Employee Retirement Income
Security Act of 1974 (“ERISA”)².

In granting this approval, we have considered only the acceptability of the new
assumptions and, as necessary, the method by which the transition is to be made
between the prior and the new method. 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
430 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.

Effective with the plan year that began in 2006, the Employer elected frozen airline plan
funding relief under section 402(a)(1) of the Pension Protection Act of 2006 (“PPA ’06”).
Then on December 13, 2007, a law was enacted that allowed all pilots who reach age
60 on or after that date to continue flying until age 65. The proposed change in
assumptions are in response to a subsequent study of pilot demographic experience
from 2008 through 2012 completed in September 2013 by the plan's actuary, further
supplemented with pilot retirement rates for 2013. These proposed changes in
assumptions would reduce the Plan's funding shortfall by more than $50 million,
consequently approval is required pursuant to section 430(h)(5) of the Code.

¹ Similar provisions appear in 412(c)(5)(B) of the Code prior to amendment by the PPA ’06.
² Similar provisions appear in 302(c)(5)(B) of ERISA prior to amendment by the PPA ’06.

201538029

Section 430(h)(5) of the Code, provides that no actuarial assumption may be changed
that results in a decrease in the funding shortfall³ of the plan for the current plan year
that exceeds $50 million, or that exceeds $5 million and is 5 percent or more of the
funding target⁴ of the plan before such change, without approval from the Secretary.

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

(1) The revised form of payment for retirement-eligible active participants
assumptions are as follows:

95.00% elect a lump sum form of payment
3.25% elect a life annuity
0.75% elect a 50% joint and survivor annuity
1.00% elect a 100% joint and survivor annuity

(2) The revised rates of retirement are shown in the following table:

Age Rate
50 — 54 1%
55 — 59 1%

60 10%
61 5%
62 — 64 5%
65 100%

When filing Form 5500 for the Plan Year Beginning in 2013, 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.”

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.

If you have any questions regarding this matter, please contact of our
office (ID# )at() -

Sincerely yours,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

³ As defined in section 430(c)(4) of the Code.
⁴ As defined in section 430(d) of the Code.