Pension plan receives conditional approval to change actuarial assumptions

Plain-English summary

A single-employer defined benefit pension plan requested approval to change actuarial assumptions beyond the limits that could be changed without IRS consent. The proposed changes covered retirement rates, termination rates, assumed payment forms, and marriage rates and were based on an experience study. The IRS conditionally approved the changes under section 430(h)(5). Approval requires the plan to measure gains and losses annually by decrement to test the accuracy of each assumption, and the ruling does not approve other calculations or submitted material.

Ruling snapshot

• Question: Could the plan change its non-prescribed actuarial assumptions beyond the statutory limits?
• Outcome: approved conditionally, with annual gain-and-loss measurement by decrement
• Key authorities: IRC § 430(h)(5); ERISA § 303(h)(5)

Full text (IRS public release)

Significant Index No: 430.00-00

201716053

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JAN 26 2017

TEP:RA:A2

RE:     Change in Actuarial Assumptions

        Taxpayer =

        Plan =
                 EIN:     -        / PN:

Dear                    :

This letter constitutes notice that conditional approval has been granted for the change
in assumptions as described below. The approval applies for the plan year beginning
January 1,          . This approval has been granted in accordance with section 430(h)(5)
of the Internal Revenue Code (Code) and section 303(h)(5) of the Employee
Retirement Income Security Act of 1974. Approval is conditioned on gains and losses
being measured annually, by decrement, to assure the accuracy of each Plan
assumption.

In granting this approval, we have considered only the acceptability of the proposed
assumptions and, as necessary, the methodology by which they were determined. We
are not expressing any opinion as to the accuracy or acceptability of any calculation or
other material submitted with your request.

Section 430(h)(5) of the Code provides that, subject to certain limits, no actuarial
assumption (other than interest rates and mortality assumptions) used to determine the
funding target may be changed without approval from the Secretary. According to
information submitted with the request, implementing the proposed changes in
assumptions exceed the limits provided in section 430(h)(5)(B)(ii) of the Code.
Therefore, the Taxpayer is requesting approval before these proposed changes in
assumptions are implemented.

The Taxpayer represents that the proposed changes in assumptions are necessary to
better reflect expected future behavior and thus enable the liabilities of the Plan to be
more accurately measured. The proposed changes are based on an experience study

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201716053

period spanning             through             . The Plan did not engage in lump sum window or
annuity purchase activities during, or subsequent to, the experience study period used
to develop the proposed changes in assumptions.

This approval applies to the following changes in assumptions: the revision of the rates
of retirement, the revision of the rates of termination, the frequency of the assumed
form of payment, and the assumed rates of marriage.

                    Retirement
                  Age    Proposed
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                   Termination
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                   Termination
                  Age     Proposed
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Proposed Form of Payment and Marriage Assumptions

•     % of non-cash balance participants are assumed to elect a single life annuity.

•     % of non-cash balance participants are assumed to elect a joint and survivor
      annuity. Eighty five percent of these will receive a Joint and 50% survivor annuity,
      and fifteen percent of these will receive a Joint and 100% survivor annuity.

•     % of participants with a cash balance benefit will elect a single sum distribution
      of their cash balance benefit.

•     % of participants are assumed to be married.

When filing Form 5500 for the plan year beginning January 1, 2015; indicate on line 24
of the Schedule SB by checking the “Yes” box that a change in non-prescribed
assumptions has been made for the current year. You should also include a copy of
this letter as an attachment to the Schedule SB labeled: “Schedule SB, line 24 —
Change in Non-Prescribed Actuarial Assumptions.”

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.

This ruling is intended to solely address the issues specifically described above. For
any issue not specifically addressed in this ruling, the Plan must satisfy any and all
applicable sections of the Code and/or regulations as in effect for the relevant plan
year(s).

A copy of this letter is being sent to the Manager of EP Compliance, Manager of EP
Classification. If you have any questions regarding this matter, please contact
                 (ID#             ) at (             )

                                              Sincerely yours,



                                              David M. Ziegler, Manager
                                              Employee Plans Actuarial Group 2

Cc:     Manager, EP Compliance
        Manager, EP Classification