Pension plan may use substitute mortality tables for annuitants

Plain-English summary

A pension plan asked to use plan-specific substitute mortality tables for its male and female annuitants, excluding disabled annuitants. The IRS found that the rates were developed under the applicable regulations and Revenue Procedure 2017-55 and approved them for up to 10 plan years. Standard mortality tables continue to apply to male and female nonannuitants, including disabled nonannuitants, because that population lacked credible mortality experience. Standard tables also continue to apply to disabled annuitants. Continued use of the approved tables is subject to early-termination rules and any required actuarial certifications and supporting information.

Ruling snapshot

• Question: May the pension plan use substitute mortality tables for male and female annuitants other than disabled annuitants?
• Outcome: Approved for up to 10 plan years; standard tables continue to apply to nonannuitants and disabled annuitants.
• 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 25 2021

Number: 202116016
Release Date: 4/23/2021

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 (“Code”) has been
granted with respect to the population specified in this letter. This ruling is effective for a
period of up to 10 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 population:
• Male and female annuitants, excluding disabled annuitants
Based on the information provided, the following population does not have credible

mortality experience, and therefore, the standard mortality tables under
section 430(h)(3)(A) of the Code will be used for calculations under section 430 of the
Code:

• Male and female nonannuitants, including disabled nonannuitants

Based on the information provided the following population will continue to use the
standard mortality tables under section 430(h)(3)(D) of the Code:

• Male and female disabled annuitants

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, for male and female annuitants (excluding disabled annuitants):

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

Age Male Annuitants, Excluding Disabled Annuitants Female Annuitants, Excluding Disabled Annuitants
[The scanned IRS release shows ages 1 through 24 and 109 through 120. Pages labeled 3 and 4, which would contain intermediate ages, are absent from the official PDF, and all mortality-rate values shown are redacted. -- 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 annuitant experience
(excluding disabled annuitants), as shown in the following table:

Aggregated Male and Female Annuitants,
Excluding Disabled Annuitants

Mortality Ratio
[redacted]

Credibility Weighting Factor
[redacted]

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(c)(6)(ii) 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 aggregated male and female nonannuitants
(including disabled nonannuitants) 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 male and
female annuitant population). It is important to monitor the aggregated male and female
nonannuitant population (including disabled nonannuitants) 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) of the Regulations provides that the use of
substitute mortality tables must be discontinued after a significant change in coverage
unless the the plans’ 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(c)(6)(iii)(A) of the
Regulations was made.

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

Aggregated Male and
Female Annuitants,
Excluding Disabled Annuitants

Average during the experience study period
[redacted]

Most recent data in the submission
[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:

(1) 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;

(2) 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;

(3) 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, settlements/other risk transfers, and other events that
would have similar effects on the relevant populations; and,

(4) 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 for each plan year beginning with deaths during the plan year ending
December 31, [redacted] through the plan year immediately preceding the most
recent actuarial valuation, and in total.

(3) A table showing the mortality gains/losses, reported separately for each plan
year beginning with the plan year beginning on January 1, [redacted] through the
plan year immediately preceding the most recent actuarial valuation.

(4) 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 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.

(5) 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 also 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.

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

This information must be provided to Mr. David M. Ziegler (or to another individual
designated by the IRS), 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 pursuant to a Power
of Attorney and Declaration of Representative (Form 2848) on file in this office and to
the [redacted].

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

Sincerely,

David M. Ziegler, Manager
Employee Plans Actuarial Group 2

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