Pension plan may use combined annuitant mortality tables

Plain-English summary

A pension plan requested a single substitute mortality table for its combined male and female annuitants, including disabled annuitants. The IRS found that the plan-specific rates were developed under the applicable regulations and Revenue Procedure 2017-55 and approved their use for up to 10 years, subject to early-termination rules. The plan must continue using standard tables for male and female nonannuitants because that population lacked credible mortality experience. It must monitor the nonannuitant population and provide actuarial certifications and supporting information whenever required.

Ruling snapshot

• Question: May the pension plan use a combined substitute mortality table for male and female annuitants?
• Outcome: Approved for annuitants for up to 10 years; standard tables continue to apply to 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

JAN 11 2021

Number: 202114021
Release Date: 4/9/2021

Re: Substitute Mortality Table Ruling

Taxpayer = [redacted]

Plan for which substitute mortality tables are requested:

Plan = [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 above Plan has been granted with respect to the populations specified in this letter. This ruling is effective for a period of up to [redacted] plan years beginning with the plan year

commencing November 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 population:
• Male and female annuitants (including disabled annuitants)

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:

• 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

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 November 1, [redacted] Base year [redacted]

Age Male Annuitants Female Annuitants
[The scanned table lists per-age substitute mortality rates for ages 15 through 120 in two columns, male annuitants and female annuitants. The individual rate values were redacted in the IRS release. -- 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 by aggregating male and female experience, as shown in the table below.

Male and Female Annuitants
(including disabled annuitants)

Mortality ratio
[redacted]

Credibility Weighting Factor
[redacted]

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(c)(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 nonannuitant population experienced [redacted] deaths during the experience study period. Note that this population will have credible mortality experience if it experiences at least [redacted] deaths during a [redacted]-year period (corresponding to the length of the experience study used to construct the substitute mortality tables for the annuitants). It is important to monitor this population to ensure that appropriate action is taken should this occur, to avoid

violating paragraph (2) above.

Also note that 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
[redacted] percent or more than [redacted] 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(c)(6)(iii)(A) of the Regulations was made.

For reference, the average number of the male and female annuitants (including disabled annuitants) over the years covered by the experience study, as well as the most recent number of male and female annuitants provided, are as follows:

Male and Female Annuitants

Average during the experience study period*
[redacted]

Most recent data provided
[redacted]

A certification must be provided each year that it is required under the Regulations, as described above, signed by the enrolled actuary for the plan and stating that the substitute mortality tables continue to be accurately predictive of the expected future mortality for the plan. The certification must also contain a statement 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 accurately predictive, 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.

All required certifications must be provided on or before the date Form 5500 is filed for each plan year for which the certification is required and must be accompanied by the supporting information relied upon by the enrolled actuary to make that certification. To the extent possible, please also provide the following supporting information:

(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 as of December 31, [redacted] and for each plan year beginning with deaths during the plan year ending October 31, [redacted] through the plan year immediately 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 October 31, [redacted] through the plan year 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, along with the average age and average benefit amount for the population in total. This information should be provided for the population in the experience study and at the end of each plan year, beginning with the valuation date for the first plan year that the certification is required, through the date immediately preceding the most recent actuarial valuation at the time the information is reported.

(5) An explanation of any material changes in the population.

This information must be provided to me (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 a requirement that the standard mortality tables must be used for purposes of section 430 of the Code, beginning with the earlier of (1) the plan year for which the deadline for providing this information is missed or (2) the date required for early termination of the use of the substitute mortality tables pursuant to section 1.430(h)(3)-2(c)(6)(ii) 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 representative/s 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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