Two pension plans approved to use substitute mortality tables, with limits for disabled participants

Plain-English summary

Single-employer defined benefit pension plans value their liabilities using mortality tables, and a plan with enough of its own credible mortality experience can ask the IRS to approve "substitute" tables based on that experience. This taxpayer requested substitute mortality tables under section 430(h)(3) for two plans in its controlled group ("Plan X" and "Plan W"). The IRS approved substitute tables for the male and female participants (annuitants and nonannuitants) of both plans for ten plan years, with a limit: the substitute tables apply only to participants who became disabled within a stated period, while participants disabled outside that period use the disability mortality rates in Revenue Ruling 96-7 (or a successor). Another plan in the group ("Plan P") lacked credible mortality experience, so it must use the standard tables. As usual, the IRS reviewed only whether the rates were developed correctly under the regulations and Revenue Procedure 2017-55, and the letter lists the circumstances under which the substitute tables would stop being usable before the ten years end. Requests for the group's other plans (R and S) are handled in separate letters.

Ruling snapshot

• Question: May the two plans use substitute mortality tables developed from their own experience for computations under section 430?
• Outcome: Approved for Plan X and Plan W male and female participants for ten plan years, with disabled participants limited to a stated period (otherwise Rev. Rul. 96-7 applies); standard tables required for the plan lacking credible experience.
• Key authorities: IRC § 430(h)(3); ERISA § 303(h)(3); Treas. Reg. §§ 1.430(h)(3)-1 and 1.430(h)(3)-2; Rev. Rul. 96-7; Rev. Proc. 2017-55

Full text (IRS public release)

Scanned document transcribed from the IRS OCR text. Obvious scan misreads were corrected; wording is otherwise verbatim. Redactions appear as they do in the release. The per-age male and female mortality rate values do not appear in the IRS public release text (the rate columns are blank; only the age labels survive), as noted at the table below.

SIQHINICAaNnt iINAEX NO. V45U.UU-UU

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

Re: Substitute Mortality Table
Taxpayer =

Plan X =
(EIN:

Plan W =
(EIN:

Other Plans in controlled group:

Plan R=
(EIN:
Plan S =
EIN:
e
Plan P =
(EIN:

Dear

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 X

WASHINGTON, D.C. 20224

OCT 3 0 2018
Ruling
, Plan No. )
, Plan No. )
, Plan No. )
, Plan No. )

, Plan No. )

DEPARTMENT OF THE TREASURY 20 190402 2

INTERNAL REVENUE SERVICE

Ti EP MRA AL

and Plan W 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
. 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. -

1,

Specifically, this approval applies to the following populations, except for certain
disabled participants, as described below:

• Plan X— Male participants (annuitants and nonannuitants)

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• Plan X — Female participants (annuitants and nonannuitants)
• Plan W — Male participants (annuitants and nonannuitants)
• Plan W -— Female participants (annuitants and nonannuitants)

The substitute mortality tables will apply to participants who became disabled during the —
period January 1, , through December 31, ', and excluding participants who
became disabled outside of this interval. The mortality rates specified in Revenue

Ruling 96-7 (or any successor) will apply solely for disabled participants whose
disabilities occurred prior to or after

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

• Plan P — all participants

The Taxpayer is also requesting approval for substitute mortality tables for Plans R and
S, which will be addressed in separate ruling letters.

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 Procedure 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 table
below for Plan X and Plan W. As indicated above, these tables will not apply for
participants who became disabled before and after

Substitute Mortality Tables

Approved for use beginning with the plan year commencing January 1,
Base year

Male Annuitants Female Annuitants

[Transcriber note: in the columns that follow, only the age labels are legible in the IRS release text; the per-age male and female substitute mortality rate values do not appear in the released text. Refer to the official PDF for any values that were published.]
and Nonannuitants .|_ and Nonannuitants

7)

OWMNAHAWNaAKE


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Age

Male Annuitants
and Nonannuitants

Female Annuitants
and Nonannuitants

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43

45
46
47
48
49
50
51
52
53
54


601904021

Male Annuitants
and Nonannuitants

Female Annuitants
and Nonannuitants


20190402}

Male Annuitants Female Annuitants
Age and Nonannuitants_{ and Nonannuitants
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120

The above rates were developed based on an experience study period from January 1,

‘through December 31, with a base year of 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.

Mortality | Credibility

Population Standard base mortality table ratio factor

Male combined annuitant/
nonannuitant mortality
Female combined annuitant/
|_nonannuitant mortality

Male Participants

Female Participants

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 Procedure 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.

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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) Fora 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 representatives 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.

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If you require further assistance in this matter, please contact

(ID# ) at
Sincerely,
David M. Ziegler, Manager
Employee Plans Actuarial Group 2
cc:

Manager, EP Classification
Columbus, Ohio

Manager, EP Compliance Unit
Chicago, Illinois