Two pension plans approved to use substitute annuitant mortality tables

Plain-English summary

A taxpayer requested substitute mortality tables for two defined benefit pension plans. The IRS approved the substitute rates for male and female annuitants, including disabled participants, for ten plan years beginning with a redacted plan year. The plans had to continue using the standard tables for male and female nonannuitants because those populations lacked credible mortality experience. The approval required generational application of the substitute rates and could terminate early if specified credibility, controlled-group, coverage, predictive-accuracy, or replacement-table conditions arose.

Ruling snapshot

• Question: May the two pension plans use plan-specific substitute mortality tables for their annuitant populations?
• Outcome: approved for male and female annuitants, but not for nonannuitants
• 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

JUL 03 2019

201939004

Re: Substitute Mortality Table Ruling
Taxpayer =

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

Plan A =

Plan B =

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 the
Included Group 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 January 1,
          plan year. 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 A and B – Male annuitants, including disabled participants
• Plans A and B – Female annuitants, including 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 A – male and female nonannuitants
• Plan B – male and female nonannuitants

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

2                                                           201939004

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
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

3                                                           201939004

Age    Male Annuitants    Female Annuitants
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

4                                                           201939004

Age    Male Annuitants    Female Annuitants
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,
          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 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

5                                                           201939004

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 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.

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

6                                                           201939004

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 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
(ID#          ) at                 .

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

cc: