Two plans may use substitute mortality tables for annuitants but not nonannuitants

Plain-English summary

A taxpayer requested permission for two defined benefit pension plans to use plan-specific substitute mortality tables. The IRS approved substitute rates for the plans' combined male and female annuitants, including disabled participants, for 10 plan years. It found that the combined nonannuitant population did not have credible mortality experience, so the plans must use the standard tables for that group. The IRS determined only that the approved rates were developed correctly under the regulations and Revenue Ruling 2017-55, not that every submitted calculation was accurate. The substitute rates must be applied generationally and can terminate early if one of the listed regulatory events occurs.

Ruling snapshot

• Question: May two related pension plans use substitute mortality tables for their combined annuitant and nonannuitant populations?
• Outcome: Mixed (approved for annuitants; standard tables required for nonannuitants)
• Key authorities: IRC § 430(h)(3); Treas. Reg. §§ 1.430(h)(3)-1, 1.430(h)(3)-2; Rev. Rul. 2017-55

Full text (IRS public release)

Significant Index No. 0430.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

SEP 11 2018

SE:T:EP:RA:A2

Number: 201849016
Release Date: 12/7/2018

Re: Request for the use of plan-specific substitute mortality tables for:

Taxpayer = [redacted]

Plan 1 = [redacted]
EIN [redacted]; (Plan No. [redacted])

Plan 2 = [redacted]
EIN [redacted]; (Plan No. [redacted])

Dear [redacted]:

This letter is to inform you that your request to use substitute mortality tables for making
computations under section 430 of the Internal Revenue Code (the “Code”) for Plan 1
and Plan 2 has been granted with respect to the populations specified in this letter,
effective for a period of 10 plan years beginning with the plan year commencing January
1, [redacted]. 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.

Specifically, this approval applies to the following population:

• Plans 1 and 2 combined – Male and female annuitants, including disabled
participants

Based on the information provided by the Taxpayer, the following population does not
have credible mortality experience, and therefore the standard mortality tables will be
used for calculations under section 430 of the Code:

• Plans 1 and 2 combined - male and female nonannuitants

In granting this approval, we have only considered whether the substitute mortality rates
were developed correctly in accordance with section 1.430(h)(3)-2 of the Treasury
Regulations (“Regulations”) and Revenue Ruling 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 tables
below for the Plans 1 and 2:

Substitute Mortality Tables
Approved for use beginning with the plan year commencing January 1, [redacted].
Base year [redacted]

Age | Male Annuitants | Female Annuitants
1 | [redacted] | [redacted]
2 | [redacted] | [redacted]
3 | [redacted] | [redacted]
4 | [redacted] | [redacted]
5 | [redacted] | [redacted]
6 | [redacted] | [redacted]
7 | [redacted] | [redacted]
8 | [redacted] | [redacted]
9 | [redacted] | [redacted]
10 | [redacted] | [redacted]
11 | [redacted] | [redacted]
12 | [redacted] | [redacted]
13 | [redacted] | [redacted]
14 | [redacted] | [redacted]
15 | [redacted] | [redacted]
16 | [redacted] | [redacted]
17 | [redacted] | [redacted]
18 | [redacted] | [redacted]
19 | [redacted] | [redacted]
20 | [redacted] | [redacted]
21 | [redacted] | [redacted]
22 | [redacted] | [redacted]
23 | [redacted] | [redacted]
24 | [redacted] | [redacted]
25 | [redacted] | [redacted]
26 | [redacted] | [redacted]
27 | [redacted] | [redacted]
28 | [redacted] | [redacted]
29 | [redacted] | [redacted]
30 | [redacted] | [redacted]
31 | [redacted] | [redacted]
32 | [redacted] | [redacted]
33 | [redacted] | [redacted]
34 | [redacted] | [redacted]
35 | [redacted] | [redacted]
36 | [redacted] | [redacted]
37 | [redacted] | [redacted]
38 | [redacted] | [redacted]
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40 | [redacted] | [redacted]
41 | [redacted] | [redacted]
42 | [redacted] | [redacted]
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44 | [redacted] | [redacted]
45 | [redacted] | [redacted]
46 | [redacted] | [redacted]
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48 | [redacted] | [redacted]
49 | [redacted] | [redacted]
50 | [redacted] | [redacted]
51 | [redacted] | [redacted]
52 | [redacted] | [redacted]
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54 | [redacted] | [redacted]
55 | [redacted] | [redacted]
56 | [redacted] | [redacted]
57 | [redacted] | [redacted]
58 | [redacted] | [redacted]
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60 | [redacted] | [redacted]
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62 | [redacted] | [redacted]
63 | [redacted] | [redacted]
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65 | [redacted] | [redacted]
66 | [redacted] | [redacted]
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68 | [redacted] | [redacted]
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70 | [redacted] | [redacted]
71 | [redacted] | [redacted]
72 | [redacted] | [redacted]
73 | [redacted] | [redacted]
74 | [redacted] | [redacted]
75 | [redacted] | [redacted]
76 | [redacted] | [redacted]
77 | [redacted] | [redacted]
78 | [redacted] | [redacted]
79 | [redacted] | [redacted]
80 | [redacted] | [redacted]
81 | [redacted] | [redacted]
82 | [redacted] | [redacted]
83 | [redacted] | [redacted]
84 | [redacted] | [redacted]
85 | [redacted] | [redacted]
86 | [redacted] | [redacted]
87 | [redacted] | [redacted]
88 | [redacted] | [redacted]
89 | [redacted] | [redacted]
90 | [redacted] | [redacted]
91 | [redacted] | [redacted]
92 | [redacted] | [redacted]
93 | [redacted] | [redacted]
94 | [redacted] | [redacted]
95 | [redacted] | [redacted]
96 | [redacted] | [redacted]
97 | [redacted] | [redacted]
98 | [redacted] | [redacted]
99 | [redacted] | [redacted]
100 | [redacted] | [redacted]
101 | [redacted] | [redacted]
102 | [redacted] | [redacted]
103 | [redacted] | [redacted]
104 | [redacted] | [redacted]
105 | [redacted] | [redacted]
106 | [redacted] | [redacted]
107 | [redacted] | [redacted]
108 | [redacted] | [redacted]
109 | [redacted] | [redacted]
110 | [redacted] | [redacted]
111 | [redacted] | [redacted]
112 | [redacted] | [redacted]
113 | [redacted] | [redacted]
114 | [redacted] | [redacted]
115 | [redacted] | [redacted]
116 | [redacted] | [redacted]
117 | [redacted] | [redacted]
118 | [redacted] | [redacted]
119 | [redacted] | [redacted]
120 | [redacted] | [redacted]

The above rates were developed based on an experience study period from January 1,
[redacted], through December 31, [redacted], with a base year of [redacted]. The rates were calculated
by adjusting the applicable standard mortality tables in section 1.430(h)(3)-1(d) of the
Regulations indicated in the table below, using the mortality ratio and credibility
weighting factor determined by aggregating male and female experience, as shown in
the table below.

Population | Standard base mortality table | Mortality ratio | Credibility factor
Plans 1 and 2, male annuitants | Male annuitant mortality table | 1.550271 | 0.569920
Plans 1 and 2, female annuitants | Female annuitant mortality table | 1.550271 | 0.569920

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 correctly developed in accordance with section 1.430(h)(3)-2 of the
Regulations and Revenue Ruling 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(d)(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
paragraph 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 1.430(h)(3)-1 of the Regulations, other than
annual updates to the static mortality tables issued pursuant to 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.

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.

We have sent a copy of this letter to your authorized representative pursuant to a power
of attorney on file in this office and to the Manager, EP Classification in Columbus, Ohio
and to the Manager, EP Compliance Unit in Chicago, Illinois.

If you have any questions regarding this matter, please contact
(ID# [redacted]) at [redacted].

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

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