Plan approved to use substitute mortality tables

Plain-English summary

A defined benefit pension plan asked to use substitute mortality tables when calculating its minimum funding obligations. The IRS approved the tables for male and female annuitants and nonannuitants, including disabled participants, after determining that the rates were developed under the applicable regulations and Revenue Procedure 2017-55. The approval requires generational application of the rates. It can end early if specified events occur, including certain coverage changes, loss of credible-data conditions, a finding that the tables are no longer predictive, or replacement of the standard mortality tables. The IRS did not express an opinion on the accuracy of the calculations or other submitted material.

Ruling snapshot

• Question: Could the plan use its proposed substitute mortality tables for minimum funding computations?
• Outcome: Approved for the male and female plan populations specified in the letter.
• Key authorities: IRC § 430(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

SEP 03 2019

T:EP:RA:A2

Re: Substitute Mortality Table Ruling

Taxpayer =

Plan =

Merging Plan 1 =

Merging Plan 2 =

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

This approval applies to the following specific populations:

• Male participants (annuitants and nonannuitants), including disabled participants

• Female participants (annuitants and nonannuitants), including disabled 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 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 Plan:

Substitute Mortality Tables

Approved for use beginning with the plan year commencing November 1,

Base year

Male Annuitants and Nonannuitants, including Disabled Participants

Female Annuitants and Nonannuitants, including Disabled Participants

Age

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 November 1, through October 31, for the Plan and Merging Plan 1, and an experience study period from January 1, through December 31, for Merging Plan 2 and Merging Plan 3. The base year of the experience period is . 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 and Nonannuitants,
Including Disabled Participants

Mortality ratio

Credibility Weighting Factor

The Internal Revenue Service (“IRS”) 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 -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) of the Regulations 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 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: