Pension plan approved to use substitute annuitant mortality tables for ten years

Plain-English summary

A taxpayer requested substitute mortality tables for one defined benefit pension plan in a controlled group. The IRS approved substitute rates for male and female annuitants, excluding disabled participants, for ten plan years beginning with a redacted January 1 plan year. Standard mortality tables remained required for the listed nonannuitant populations and all participants in a third plan because they lacked credible mortality experience. The approved tables used a 2012 through 2016 experience study with a 2014 base year, and the taxpayer was told to monitor a related nonannuitant population that had experienced 83 deaths against the 100-death credibility threshold.

Ruling snapshot

• Question: May the pension plan use plan-specific substitute mortality tables for male and female annuitants?
• Outcome: approved for ten plan years for annuitants excluding disabled participants
• 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)

Significant Index No. 0430.00-00

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

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

JUN 26 2019

201938010
Re: Substitute Mortality Table Ruling
Taxpayer =

Plan for which substitute mortality tables are requested:

Plan 1 =

Other plans in controlled group:

Plan 2 =

Plan 3 =

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 (“Code”) for Plan 1 has
been granted with respect to the populations specified in this letter. This ruling is
effective for a period of 10 plan years beginning with the plan year commencing
January 1,          . 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.

201938010

This approval applies to the following specific populations:

• Plan 1 – Male annuitants, excluding disabled participants
• Plan 1 – Female annuitants, excluding disabled participants

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 1 — Male nonannuitants
Plan 1 — Female nonannuitants
Plan 2 — Male nonannuitants
Plan 2 — Female nonannuitants
Plan 3 — All participants

The Taxpayer is also requesting approval for substitute mortality tables for the male and
female annuitants, excluding disabled participants in Plan 2, which will be addressed in
a separate ruling letter.

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 Income Tax
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,
Base year

Age    Male Annuitants    Female Annuitants
0
1
2
3
4
5
6
7
8
9
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
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
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, 2012 through December 31, 2016, with a base year of 2014. 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 by aggregating male and female experience, as shown in

the table below.

Male and Female Annuitants

Mortality Ratio

Credibility Weighting Factor

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.

201938010

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
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.

We draw your attention to the fact that the combined male and female nonannuitants for
Plan 2 experienced 83 deaths during the experience study period (using the simplified
rule described in section 1.430(h)(3)-2(c)(2)(ii)(B) of the Regulations). Note that this
population will have credible mortality experience if it experiences at least 100 deaths
during a 5-year period (corresponding to the length of the experience study used to
construct the substitute mortality tables for the other populations). It is important to


201938010

monitor this population to ensure that appropriate action is taken should this occur, to
avoid violating paragraph (2) above.

Additionally, 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.

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.

201938010

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

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

CC: