Six pension plans received substitute mortality table approval

Plain-English summary

An employer requested substitute mortality tables for six pension plans covering male and female union and nonunion participants, including disabled participants. The IRS approved the four combined populations for five plan years after finding that the rates were developed under the applicable regulations and Revenue Procedure 2017-55. A seventh controlled-group plan had insufficient credible mortality experience and therefore had to use the standard tables. Because the nonunion population had already fallen below the regulatory 80-percent coverage threshold, continued use required annual actuarial certifications and extensive supporting data.

Ruling snapshot

• Question: Could six controlled-group pension plans use plan-specific substitute mortality tables for four union and nonunion populations?
• Outcome: Approved for five plan years; Plan 7 must use standard tables, and annual certification applies to the nonunion populations.
• Key authorities: IRC § 430(h)(3); ERISA § 303(h)(3); Treas. Reg. §§ 1.430(h)(3)-1 and 1.430(h)(3)-2; Rev. Proc. 2017-55

Full text (IRS public release)

Transcriber's note: this document is a nine-page scan. All nine page images were checked. Identifying information, effective dates, study dates, population data, annuity brackets, and every mortality-rate, mortality-ratio, and credibility-weighting value were blanked in the IRS release and are marked or described as redacted below. The four mortality-rate columns for ages 1 through 120 are entirely blank; no values were reconstructed. Obvious OCR errors in bullets and page artifacts were corrected by comparison with the images, and standalone page numbers and repeated release numbers were omitted. The wording is otherwise verbatim.

Significant Index No. 0430.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

APR 11 2019

Number: 201927026
Release Date: 7/5/2019

Re: Substitute Mortality Table Ruling

Taxpayer = [redacted]

Plans for which substitute mortality tables are requested (Included Group):

Plan 1 = [redacted]

Plan 2 = [redacted]

Plan 3 = [redacted]

Plan 4 = [redacted]

Plan 5 = [redacted]

Plan 6 = [redacted]

Other plan in controlled group:

Plan 7 = [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 the Included Group has been granted with respect to the populations specified in this letter.

This ruling is effective for a period of 5 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.

This approval applies to the following specific populations:

• Plans 1 through 6 combined – Male union participants, including disabled participants

• Plans 1 through 6 combined – Female union participants, including disabled participants

• Plans 1 through 6 combined – Male nonunion participants, including disabled participants

• Plans 1 through 6 combined – Female nonunion participants, 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:

• Plan 7 – All participants

In granting this approval, we have only considered whether the substitute mortality rates were developed 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 the Included Group:

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

[The scanned IRS release lists each age from 1 through 120. Every mortality-rate cell in all four population columns is blank. -- transcriber]

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, using the mortality ratio and credibility weighting factor determined individually for male and female union participants, but aggregating male and female experience for nonunion participants, as shown in the table below.

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 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.

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 5-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 section 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 section 1.430(h)(3)-1 of the Regulations, other than annual updates to the static mortality tables issued pursuant to section 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.

In particular, section 1.430(h)(3)-2(c)(6)(iii) provides that the use of substitute mortality tables must be discontinued after a significant change in coverage unless the plan’s actuary certifies in writing to the satisfaction of the Commissioner that the substitute mortality tables used for the population continue to be accurately predictive of future mortality of the population (taking into account the effect of the change in the population). For this purpose, a significant change in coverage occurs if the number of individuals covered by the substitute mortality table for a plan year is less than 80 percent or more than 120 percent of either (1) the average number of individuals in that population over the years covered by the experience study on which the substitute mortality table is based, or (2) the number of individuals covered by the substitute mortality table in a plan year for which a certification described in section 1.430(h)(3)- 2(6)(c)(iii)(A) of the Regulations was made.

The number of nonunion participants as of December 31, [redacted] was already less than 80% of the average number of nonunion participants covered during the experience study. Accordingly, this certification is needed each year that the number of nonunion participants (1) remains less than 80% (or becomes greater than 120%) of the average number of nonunion participants included in the experience study or (2) becomes less than 80% or more than 120% of the number of nonunion participants as of December 31, [redacted], the date of the most recent certification that the mortality tables are accurately predictive of the mortality of the remaining population.

So that the Service can review these certifications, the following information must be provided by the October 15th immediately following the end of each plan year, beginning with the [redacted] plan year (due October 15, [redacted]):

(1) The number of actual deaths during the experience study period used to develop the substitute mortality tables and the beginning and ending dates of the experience study period.

(2) A table showing the number of expected deaths and actual deaths, reported separately for each year beginning with deaths during [redacted] through the year preceding the most recent actuarial valuation, and in total.

(3) A table similar to the stability demonstration required under section 8 of Revenue Procedure 2017-55, showing the average number of participants in the population included in the experience study and the number of participants in the population as of the end of each plan year, beginning with December 31, [redacted] through the date immediately preceding the most recent actuarial valuation, expressed both as a headcount and as a percentage of the average number of participants in the experience study.

(4) A table showing a comparison of (i) the average ages and (ii) percentage of the population, by the following monthly single life annuity brackets: under $[redacted], between $[redacted] and $[redacted], between $[redacted] to $[redacted], between $[redacted] to $[redacted], between $[redacted] and $[redacted], and $[redacted] and over, for the population in the experience study and at the end of each plan year, beginning with December 31, [redacted] through the date immediately preceding the most recent actuarial valuation. The table should also show the average age and average benefit amount for the population in total, for both the experience study data and at the end of each plan year, beginning with December 31, [redacted] through the date immediately preceding the most recent actuarial valuation.

(5) An explanation of any material changes in the population and a certification by the enrolled actuary for the plans as to whether the substitute mortality table is accurately predictive, along with any additional demographic or other information to substantiate this claim.

(6) A certification, signed by the enrolled actuary, stating that:

a. The enrolled actuary is current with educational requirements set forth by the Joint Board for the Enrollment of Actuaries as well as any other actuarial designations asserted;

b. The enrolled actuary was personally involved in the determination that the substitute mortality table is still accurately predictive and provides the actuary’s best estimate for the Plan;

c. In determining that the substitute mortality table is still his or her best estimate, the enrolled actuary took into consideration the effect of business combinations, plan mergers or spinoffs and settlements/other risk transfers, and other events that would have similar effects on the relevant populations; and,

d. The enrolled actuary has the specific knowledge and experience to make the judgements set forth above and attests to these representations.

This information must be provided to David M. Ziegler (or to another individual designated by the Service), by Fax at (202) 317-8811, or to the following address:

Internal Revenue Service
Attn: Mr. David M. Ziegler
TE/GE: SE:T:EP:RA:T:A2
NCA-630
1111 Constitution Ave. NW
Washington DC 20224-0002

Failure to provide this information by the due date may result in the requirement that the standard mortality tables must be used for purposes of section 430 of the Code, beginning with the plan year during which the deadline for providing this information is missed.

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.

If you require further assistance in this matter, please contact [redacted] (ID# [redacted]) at ([redacted]).

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

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