# 26 CFR § 1.430(h)(3)-2 - Plan-specific substitute mortality tables used to determine present value.

§ 1.430(h)(3)-2 Plan-specific substitute mortality tables used to determine present value.

(a) In general. This section provides rules for the use of substitute mortality tables under section 430(h)(3)(C) in determining any present value or making any computation under section 430 in accordance with § 1.430(h)(3)-1(a)(1). To use substitute mortality tables for a plan, a plan sponsor must first obtain approval to use the tables in accordance with the procedures described in paragraph (b) of this section. Paragraph (c) of this section provides rules for the development of substitute mortality tables, including guidelines providing that a plan must have either fully or partially credible mortality information in order to use substitute mortality tables. Paragraph (d) of this section describes the requirements for full credibility. Paragraph (e) of this section describes the requirements for partial credibility. Paragraph (f) of this section provides special rules for newly-affiliated plans. Paragraph (g) of this section specifies the effective date and applicability date of this section. The Commissioner may, in revenue rulings and procedures, notices, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter), provide additional guidance regarding approval and use of substitute mortality tables under section 430(h)(3)(C) and related matters.

(b) Procedures for obtaining approval to use substitute mortality tables -

(1) Written request for approval to use substitute mortality tables -

(i) General requirements. To use substitute mortality tables, a plan sponsor must first submit a written request to the Commissioner demonstrating that those substitute mortality tables meet the requirements of section 430(h)(3)(C) and this section. This request must specify the first plan year, and the term of years (not more than 10), for which the tables are to apply.

(ii) Time for written request. Substitute mortality tables may not be used for a plan year unless the plan sponsor submits the written request described in paragraph (b)(1)(i) of this section at least 7 months before the first day of the first plan year for which the substitute mortality tables are to apply.

(2) Commissioner's review of request -

(i) In general. During the 180-day period that begins on the date the plan sponsor submits a request for approval to use substitute mortality tables for a plan pursuant to this section, the Commissioner will determine whether the request for approval to use substitute mortality tables satisfies the requirements of this section (including any published guidance issued pursuant to paragraph (a) of this section), and will either approve or deny the request. The Commissioner will deny a request if the request fails to meet the requirements of this section or if the Commissioner determines that a substitute mortality table does not reflect the actual mortality experience of the applicable population.

(ii) Request for additional information. The Commissioner may request additional information with respect to the submission and deny a request to use substitute mortality tables if the additional information is not provided in a timely manner.

(iii) Deemed approval. Except as provided in paragraph (b)(2)(iv) of this section, if the Commissioner does not issue a denial within the 180-day review period, the request is deemed to have been approved.

(iv) Extension of time permitted. The Commissioner and a plan sponsor may, before the expiration of the 180-day review period, agree in writing to extend that period.

(c) Development of substitute mortality tables -

(1) Substitute mortality tables must be used for all plans in controlled group -

(i) General rule. Except as otherwise provided in this paragraph (c), substitute mortality tables are permitted to be used for a plan for a plan year only if, for that plan year (or any portion of that plan year), substitute mortality tables are also approved and used for each other pension plan subject to the requirements of section 430 that is maintained by the plan sponsor and by each member of the plan sponsor's controlled group. For purposes of this section, the term controlled group means any group that is treated as a single employer under paragraph (b), (c), (m), or (o) of section 414. See paragraph (c)(7) of this section for special rules applicable to multiple-employer plans.

(ii) Treatment of plans without credible mortality information. The rule of paragraph (c)(1)(i) of this section does not prohibit use of substitute mortality tables for one plan for a plan year if the only other plan or plans maintained by the plan sponsor (or by a member of the plan sponsor's controlled group) for which substitute mortality tables are not used are too small to have fully or partially credible mortality information for the plan year. For this purpose, the demonstration that neither males nor females under a plan have credible mortality information for a plan year must be made by analyzing the actual number of deaths over a period that is the same length as the longest experience study period used for any plan within the controlled group and that ends less than three years before the first day of the plan year.

(2) Mortality experience requirements -

(i) In general. Substitute mortality tables must reflect the actual mortality experience of the pension plan for which the tables will be used, and that mortality experience must consist of credible mortality information as described in paragraph (c)(2)(ii) of this section. Separate substitute mortality tables must be established for each gender and, except as provided in paragraph (d)(6) of this section, a substitute mortality table is permitted to be established for a gender only if the plan has credible mortality information for that gender. See paragraph (d)(5) of this section for rules permitting the use of substitute mortality tables for separate populations within a gender in certain circumstances.

(ii) Credible mortality information -

(A) In general. A plan has credible mortality information for a gender if and only if the mortality experience with respect to that gender satisfies the requirement for either full credibility (as described in paragraph (d) of this section) or partial credibility (as described in paragraph (e) of this section).

(B) Simplified rule. Whether there is credible mortality information for a gender may be determined by only taking into account people who are at least age 50 and less than age 100. If there is credible mortality information for a gender using this simplified rule, the entire gender (not just those who are at least age 50 and less than age 100) has credible mortality information.

(iii) Gender without credible mortality information -

(A) In general. If, for the first plan year substitute mortality tables will be used for a plan, one gender has credible mortality information but the other gender does not have credible mortality information, then substitute mortality tables are established for the gender that has credible mortality information, and the mortality tables under § 1.430(h)(3)-1 are used for the gender that does not have credible mortality information. For a subsequent plan year, the plan sponsor may continue to use substitute mortality tables for the gender with credible mortality information without using substitute mortality tables for the other gender only if the other gender continues to lack credible mortality information for that subsequent plan year.

(B) Demonstration of lack of credible mortality information for a gender. The demonstration that a gender does not have credible mortality information (that is, the individuals of that gender had fewer than the minimum number of actual deaths to have partial credibility, as described in paragraph (e)(1) of this section) for a plan year must be made by analyzing the actual number of deaths over a period that is the same length as the period for the experience study on which the substitute mortality tables are based and that ends less than three years before the first day of the plan year.

(3) Determination of substitute mortality tables -

(i) Requirement to use generational mortality table. A plan's substitute mortality tables must be generational mortality tables. A plan's substitute mortality tables are determined using the plan's base substitute mortality tables developed pursuant to paragraph (d) or (e) of this section and the mortality improvement factors described in paragraph (c)(3)(ii) of this section.

(ii) Determination of mortality improvement factors. The mortality improvement factor for an age and gender is the cumulative mortality improvement factor determined under § 1.430(h)(3)-1(a)(2)(i)(E) for that age and gender for the applicable period. The applicable period is the period beginning with the base year for the base substitute mortality table determined under paragraph (d) or (e) of this section and ending in the calendar year in which the individual attains the age for which the probability of death is being determined. The base year for the base substitute mortality table is the calendar year that contains the day before the midpoint of the experience study period.

(4) Disabled individuals. Under section 430(h)(3)(D), separate mortality tables are permitted to be used for certain disabled individuals. If the separate mortality tables issued under section 430(h)(3)(D) for certain disabled individuals are used, then those disabled individuals are disregarded for all purposes under this section. Thus, if the mortality tables under section 430(h)(3)(D) are used for disabled individuals under a plan, mortality experience with respect to those individuals must be excluded in developing mortality rates for substitute mortality tables under this section.

(5) Aggregation -

(i) Permissive aggregation of plans. A plan sponsor may use the same substitute mortality tables for two or more of its plans provided that the rules of this section are applied by treating those plans as a single plan. In such a case, the substitute mortality tables must be based on data collected with respect to those aggregated plans.

(ii) Required aggregation of plans. In general, plans are not required to be aggregated for purposes of applying the rules of this section. However, for purposes of this section, a plan is required to be aggregated with any plan that was previously spun off from that plan if a purpose of the spinoff is to avoid the use of substitute mortality tables for any of the plans that were involved in the spinoff.

(iii) Special rule regarding experience study if aggregated plans have different plan years. If two or more plans are aggregated pursuant to this paragraph (c)(5) and not all of the plans have the same plan year, then the experience study period may be a period that is not a multiple of 12 months, provided that -

(A) The period over which mortality experience is collected for each plan (the data study period) is a multiple of 12 months and is based on the plan year for that plan;

(B) The data study periods for all of the plans consist of the same number of years;

(C) The data study periods for all of the plans satisfy the experience study period requirements of paragraph (d)(2)(ii) of this section; and

(D) The data study periods for all of the plans have been selected to minimize the total period of time covered by the experience study period by overlapping (to the greatest extent possible) those data study periods.

(6) Duration of use of tables -

(i) General rule. Except as provided in this paragraph (c)(6), substitute mortality tables are used for a plan for the term of consecutive plan years specified in the plan sponsor's written request for approval to use such tables under paragraph (b)(1) of this section and approved by the Commissioner, or a shorter period prescribed by the Commissioner in the approval to use substitute mortality tables. Following the end of the approved term of use, or following any early termination of use described in this paragraph (c)(6), the mortality tables specified in § 1.430(h)(3)-1 must be used for the plan unless approval under paragraph (b)(1) of this section has been received by the plan sponsor to use substitute mortality tables based on an updated experience study for a further term.

(ii) Early termination of use of tables. A plan's substitute mortality tables must not be used beginning with the earliest of -

(A) For a plan using a substitute mortality table for only one gender because of a lack of credible mortality information with respect to the other gender, the first plan year for which there is credible mortality information with respect to the gender that had lacked credible mortality information (unless an approved substitute mortality table is used for that gender);

(B) The first plan year for which the plan fails to satisfy the requirements of paragraph (c)(1) of this section (regarding use of substitute mortality tables for all plans in the controlled group), taking into account the rules of paragraph (f)(3) of this section (regarding the transition period for newly-affiliated plans);

(C) The second plan year following the plan year for which there is a significant change in individuals covered by the plan as described in paragraph (c)(6)(iii) of this section;

(D) The first plan year following the plan year for which a substitute mortality table used for a 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

(E) The date specified in guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter) in conjunction with a replacement of mortality tables specified under section 430(h)(3)(A) and § 1.430(h)(3)-1 (other than annual updates to the static mortality tables issued pursuant to § 1.430(h)(3)-1(a)(3) or changes to the mortality improvement rates pursuant to § 1.430(h)(3)-1(a)(2)(i)(C)).

(iii) Significant change in coverage -

(A) Change in coverage from time of experience study. For purposes of applying the rules of paragraph (c)(6)(ii)(C) of this section, a significant change in the individuals covered by a substitute mortality table for a plan year occurs if the number of individuals covered by the substitute mortality table for the plan year is less than 80 percent or more than 120 percent of the average number of individuals in that population over the years covered by the experience study on which the substitute mortality tables are based. However, a change in coverage is not treated as significant if 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 that population (taking into account the effect of the change in the population).

(B) Change in coverage from time of certification. For purposes of applying the rules of paragraph (c)(6)(ii)(C) of this section, a significant change in the individuals covered by a substitute mortality table for a plan year occurs if the number of individuals covered by the substitute mortality table for the plan year is less than 80 percent or more than 120 percent of the number of individuals covered by the substitute mortality table in a plan year for which a certification described in paragraph (c)(6)(iii)(A) of this section was made on account of a prior change in coverage. However, a change in coverage is not treated as significant if the plan's actuary certifies in writing to the satisfaction of the Commissioner that the substitute mortality tables used by the plan with respect to the covered population continue to be accurately predictive of future mortality of that population (taking into account the effect of the change in the population).

(7) Multiple-employer plans -

(i) General rule. In the case of a multiple-employer plan described in section 413(c), the plan administrator (as described in section 414(g)) is treated as the plan sponsor for purposes of this section. If approval is received to use substitute mortality tables by a plan, those tables must apply on a plan-wide basis (even if the plan is subject to the rules of section 413(c)(4)(A)).

(ii) Application of controlled group consistency rules. In the case of an employer that participates in a multiple-employer plan, if the proportion of the plan's funding target attributable to the employees and former employees of the employer and members of its controlled group represents more than 50 percent of the plan's funding target, then the employer is treated as maintaining the plan for purposes of paragraph (c)(1) of this section. Thus, for a multiple-employer plan with credible mortality information that is treated as maintained by an employer under this paragraph (c)(7), unless substitute mortality tables are used for that plan, substitute mortality tables may not be used for any plan maintained by that employer or a member of its controlled group (and if substitute mortality tables are used for any other plan maintained by any member of the employer's controlled group, they must be used for the multiple-employer plan). By contrast, if the proportion of the plan's funding target attributable to the employees and former employees of the employer and members of its controlled group represents 50 percent or less of the funding target for a multiple-employer plan in which it participates, then the employer is not treated as maintaining the plan for purposes of paragraph (c)(1) of this section. Accordingly, whether substitute mortality tables may be used for other plans in such an employer's controlled group is independent of whether substitute mortality tables are used for the multiple-employer plan.

(d) Full credibility -

(1) In general. The mortality experience with respect to a gender or other population within a plan has full credibility if the actual number of deaths for that population during the experience study period described in paragraph (d)(2) of this section is at least the full credibility threshold described in paragraph (d)(3) of this section. Paragraph (d)(4) of this section provides rules for the creation of a base substitute mortality table from the experience study, which apply if the mortality experience for the population has full credibility. Paragraph (d)(5) of this section provides rules regarding the use of separate substitute mortality tables for plan populations within a gender. Paragraph (d)(6) of this section provides an option to use the combined mortality experience of both genders to determine the existence and extent of credible mortality information and to develop a single mortality ratio for use in constructing substitute mortality tables.

(2) Experience study period requirements -

(i) General rule. The base substitute mortality table for a gender or other population must be developed from an experience study of the mortality experience of that population that is collected over an experience study period. The experience study period must consist of 2, 3, 4, or 5 consecutive 12-month periods, and must be the same period for all populations except as provided in paragraph (c)(5)(iii) of this section.

(ii) Requirement to use recent experience data -

(A) General rule. Except as provided in paragraph (d)(2)(ii)(B) of this section, the last day of the experience study period must be less than 3 years before the first day of the first plan year for which the substitute mortality tables are to apply. For example, if January 1, 2019, is the first day of the first plan year for which the substitute mortality tables will be used, then an experience study using calendar year data generally must include data collected for a period that ends no earlier than December 31, 2016.

(B) Exception for submission between 1 and 2 years before effective date of table. If the plan sponsor submits a request for approval to use of substitute mortality tables more than 1 year (and less than 2 years) before the first day of the first plan year for which the substitute mortality tables are to apply, then the experience study is not treated as failing to satisfy the rule in paragraph (d)(2)(ii)(A) of this section if the last day of the final year reflected in the experience data is less than 2 years before the date of submission. For example, if an application for approval to use of substitute mortality tables that would apply for plan years beginning on or after January 1, 2019 year is submitted in 2017, then an experience study using calendar year data may be based on data collected for a period that ends as early as December 31, 2015.

(iii) Experience study based on benefit amount. As provided in paragraph (d)(4)(i) of this section, the mortality rates under the base substitute mortality tables are amounts-weighted mortality rates that are derived from the experience study. An individual's benefit amount (which is used to determine amounts-weighted mortality rates and for other purposes under this paragraph (d)) is the individual's accrued benefit expressed in the form of an annual benefit commencing at normal retirement age (or at the current age, if later) if an individual has not commenced benefits and the individual's annual payment if the individual has commenced benefits. Because amounts-weighted mortality rates for a plan are determined using benefit amounts, the experience study used to develop a base substitute mortality table may not include periods before the plan was established.

(3) Full credibility threshold -

(i) Threshold number of deaths. The full credibility threshold for a gender or other population is the product of 1,082 and the population's benefit dispersion factor. In calculating the population's benefit dispersion factor, for purposes of paragraphs (d)(3)(iii), (iv), and (v) of this section, the population is adjusted, as appropriate, for individuals who leave the population on account of a reason other than death.

(ii) Population's benefit dispersion factor. The population's benefit dispersion factor is equal to -

(A) The number of expected deaths for the population during the experience study period (as defined in paragraph (d)(3)(iii) of this section); multiplied by

(B) The sum of the mortality-weighted squares of the benefits (as defined in paragraph (d)(3)(iv) of this section); divided by

(C) The square of the sum of the mortality-weighted benefits (as defined in paragraph (d)(3)(v) of this section).

(iii) Number of expected deaths. For a population, the number of expected deaths during the experience study period is equal to the sum, for all years in the experience study period, of the expected number of deaths in the population during the year using the mortality rates from the standard mortality tables determined under paragraph (d)(4)(iii) of this section. This amount is equal to:

$\sum _{t=1}^{E}\phantom{\rule{0ex}{0ex}}\sum _{x=1}^{{N}_{t}}{q}_{\mathrm{xt}}$
Where E is equal to the number of years in the experience study period, t represents each year during the experience study period, x represents an individual in the population during year t, qxt is the mortality rate for that individual's age and gender for the calendar year in which year t begins under the applicable standard mortality table determined under paragraph (d)(4)(iii) of this section, and Nt is equal to the number of individuals in the population in year t.

(iv) Sum of the mortality-weighted squares of the benefits -

(A) Determination. For a population, the sum of the mortality-weighted squares of the benefits is the sum, for all years in the experience study period, for all individuals in the population at the beginning of the year, of the product of -

(1) The probability of death for the individual using the mortality rate for the individual's age and gender from the standard mortality table determined under paragraph (d)(4)(iii) of this section; and

(2) The square of the benefit amount for the individual.

(B) Expression as formula. The sum of the mortality-weighted squares of the benefits for a population determined pursuant to paragraph (d)(3)(iv)(A) of this section is equal to:

$\sum _{t=1}^{E}\phantom{\rule{0ex}{0ex}}\sum _{x=1}^{{N}_{t}}{q}_{\mathrm{xt}}{b}_{\mathrm{xt}}^{2}$
Where E is equal to the number of years in the experience study period, t represents each year during the experience study period, x represents an individual in the population during year t, qxt is the mortality rate for that individual's age and gender for the calendar year in which year t begins under the applicable standard mortality table determined under paragraph (d)(4)(iii) of this section, bxt is equal to the benefit amount for that individual for year t, and Nt is equal to the number of individuals in the population in year t.

(v) Square of the sum of the mortality-weighted benefits -

(A) Determination. For a population, the square of the sum of the mortality-weighted benefits is equal to the square of the sum, for all years in the experience study period, for all individuals in the population at the beginning of the year, of the product of -

(1) The probability of death of the individual using the mortality rate for the individual's age and gender from the standard mortality table determined under paragraph (d)(4)(iii) of this section; and

(2) The benefit amount for the individual.

(B) Expression as formula. The square of the sum of the mortality-weighted benefits for a population determined pursuant to paragraph (d)(3)(v)(A) of this section is equal to:

${\left(\underset{t=1}{\overset{E}{\Sigma }}\phantom{\rule{0ex}{0ex}}\underset{x=1}{\overset{{N}_{t}}{\Sigma }}{q}_{\mathrm{xt}}{b}_{\mathrm{xt}}^{2}\right)}^{2}$
Where E is equal to the number of years in the experience study period, t represents each year during the experience study period, x represents an individual in the population during year t, qxt is the mortality rate for that individual's age and gender for the calendar year in which t begins under the applicable standard mortality table determined under paragraph (d)(4)(iii) of this section, bxt is equal to the benefit amount for that individual for year t, and Nt is equal to the number of individuals in the population in year t.

(4) Development of mortality rates -

(i) In general. The mortality rates under the base substitute mortality tables must be amounts-weighted mortality rates that are derived from the experience study. Except as provided in paragraph (d)(4)(iv) of this section, the mortality rate for an age and gender is determined by multiplying the mortality rate for that age and gender from the standard mortality table determined under paragraph (d)(4)(iii) of this section by the mortality ratio determined under paragraph (d)(4)(ii) of this section. If the simplified rule of paragraph (c)(2)(ii)(B) of this section is used for the population, then the mortality ratio is determined only taking into account people who are at least 50 years old and less than 100 years old, but the mortality ratio is applied to all ages.

(ii) Mortality ratio -

(A) In general. Except as provided in paragraph (d)(6) of this section, a mortality ratio is determined for a gender or other population within a gender, and is equal to the quotient determined by dividing -

(1) The sum, for all years in the experience study period, of the benefit amount for all individuals in the population at the beginning of the year who died during the year, by

(2) The sum, for all years in the experience study period, for all individuals in the population at the beginning of the year (adjusted, as appropriate, for individuals who leave on account of reason other than death), of the product of -

(i) The probability of death of the individual using the mortality rate for the individual's age and gender from the standard mortality table determined under paragraph (d)(4)(iii) of this section; and

(ii) The benefit amount for the individual .

(B) Expression as formula. For purposes of determining a mortality ratio as described in paragraph (d)(4)(ii)(A) of this section, the amount described in paragraph (d)(4)(ii)(A)(2) of this section is equal to:

$\sum _{t=1}^{E}\phantom{\rule{0ex}{0ex}}\sum _{x=1}^{{N}_{t}}{q}_{\mathrm{xt}}{b}_{\mathrm{xt}}$
Where E is equal to the number of years in the experience study period, t represents each year during the experience study period, x represents an individual in the population during year t, qxt is the mortality rate for that individual's age and gender for the calendar year in which t begins under the applicable standard mortality table determined under paragraph (d)(4)(iii) of this section, bxt is equal to the benefit amount for that individual for year t, and Nt is equal to the number of individuals in the population in year t.

(iii) Standard mortality table -

(A) Projection of base table. The standard mortality table for a year is the mortality table determined by applying cumulative mortality improvement factors determined under § 1.430(h)(3)-1(a)(2)(i)(E) to the base mortality table under § 1.430(h)(3)-1(d) for the period beginning with 2006 and ending in the base year for the base substitute mortality table determined under paragraph (c)(3)(ii) of this section. For purposes of the previous sentence, the cumulative mortality improvement factors are determined using the mortality improvement rates described in § 1.430(h)(3)-1(a)(2)(i)(C) that apply for the calendar year during which the plan sponsor submits the request for approval to use substitute mortality tables. If the plan sponsor submits such a request during 2017, then the cumulative mortality improvement factors are determined using the mortality improvement rates contained in the Mortality Improvement Scale MP-2016 Report (issued by the Retirement Plans Experience Committee (RPEC) of the Society of Actuaries and available at www.soa.org/Research/Experience-Study/Pension/research-2016-mp.aspx).

(B) Selection of base table. If the population consists solely of annuitants, the annuitant base mortality table set forth in § 1.430(h)(3)-1(d) must be used for purposes of paragraph (d)(4)(iii)(A) of this section. If the population consists solely of nonannuitants, the nonannuitant base mortality table set forth in § 1.430(h)(3)-1(d) must be used for that purpose. If the population includes both annuitants and non annuitants, a combination of the annuitant and nonannuitant base tables set forth in § 1.430(h)(3)-1(d) must be used for that purpose. The combined table is constructed using the weighting factors for small plans that are set forth in § 1.430(h)(3)-1(d). The weighting factors are applied to develop the combined table using the following equation: Combined mortality rate = [nonannuitant rate * (1 − weighting factor)] + [annuitant rate * weighting factor].

(iv) Modification for ages 96 and older. Mortality rates for ages 96 and older under the base substitute mortality table are determined using the rules of paragraph (d)(4)(i) of this section but substituting a modified mortality ratio for the mortality ratio determined under paragraph (d)(4)(ii) of this section. The modified mortality ratio is determined as follows -

(A) For ages 96 through 109, if the mortality ratio is greater than 1.0, the modified mortality ratio is equal to the mortality ratio for the population reduced by 1/15th of the excess of the mortality ratio over 1.0 for each year that the age exceeds 95.

(B) For ages 96 through 109, if the mortality ratio is less than 1.0, the modified mortality ratio is equal to the mortality ratio for the population increased by 1/15th of the excess of 1.0 over the mortality ratio for each year that the age exceeds 95.

(C) For ages 110 and older, the modified mortality ratio is equal to 1.0.

(v) Change in number of individuals covered by table. Experience data may not be used to develop a base table if the number of individuals in the population covered by the table (for example, the male annuitant population) as of the last day of the plan year before the year the request for approval to use the substitute mortality table is made is less than 80 percent or more than 120 percent of the average number of individuals in that population over the years covered by the experience study on which the substitute mortality tables are based, unless it is demonstrated to the satisfaction of the Commissioner that the experience data is accurately predictive of future mortality of that population (taking into account the effect of the change in individuals) after appropriate adjustments to the data are made (for example, excluding data from individuals with respect to a spun-off portion of the plan). For this purpose, a reasonable estimate of the number of individuals in the population covered by the table may be used.

(5) Separate tables for specified populations -

(i) In general. Except as provided in this paragraph (d)(5), separate substitute mortality tables are permitted to be used for separate populations within a gender only if -

(A) All individuals of that gender are divided into separate populations;

(B) Each separate population has mortality experience that has full credibility as determined under the rules of paragraph (d)(5)(iii) of this section; and

(C) The separate base substitute mortality table for each separate population is developed applying the rules of paragraphs (d)(1) through (4) of this section using an experience study that takes into account solely members of that population.

(ii) Annuitant and nonannuitant separate populations. Notwithstanding paragraph (d)(5)(i)(B) of this section, a gender may be separated into separate populations of annuitants and non annuitants for the purpose of developing and using substitute mortality tables, even if only one of those separate populations has credible mortality information. Similarly, if separate populations that satisfy paragraph (d)(5)(i)(B) of this section are established, then any of those populations may be further subdivided into separate annuitant and nonannuitant subpopulations, provided that at least one of the two resulting subpopulations has credible mortality information. The standard mortality tables under § 1.430(h)(3)-1 are used for a resulting subpopulation that does not have credible mortality information. For example, if the male hourly and salaried populations under a plan each have mortality experience with full credibility and the male salaried annuitant population has credible mortality information, then substitute mortality tables may be used for the plan with respect to the male salaried annuitant population even if the standard mortality tables under § 1.430(h)(3)-1 are used with respect to the male salaried nonannuitant population (because that nonannuitant population does not have credible mortality information).

(iii) Credible mortality information for separate populations. In determining whether the mortality experience for a separate population within a gender has full credibility, the rules of paragraph (d)(1) of this section must be applied to that separate population. In demonstrating that an annuitant (or nonannuitant) population within a gender or within a separate population does not have credible mortality information, the rules of paragraph (c)(2)(iii)(B) of this section are applied by substituting the annuitant (or nonannuitant) population for the gender.

(6) Option to determine a single mortality ratio for both genders. Base substitute mortality tables for a plan may be constructed by developing and applying a single mortality ratio for both genders, but only if the substitute mortality tables used for all plans maintained by members of the plan sponsor's controlled group (except for plans for which both the male and female populations, considered separately, have mortality experience with full credibility) are constructed in this manner. If the option under this paragraph (d)(6) is applied for a plan then, for all plans maintained by members of the plan sponsor's controlled group, whether both the male and female populations within the plan have credible mortality information (and, if that combined population's mortality experience does not have full credibility, the partial credibility weighting factor for the plan) is determined using the combined mortality experience for both genders.

(e) Partial credibility -

(1) In general. The mortality experience with respect to a population has partial credibility if the actual number of deaths for that population during the experience study period described in paragraph (d)(2) of this section is at least equal to 100 and is less than the full credibility threshold described for the population in paragraph (d)(3) of this section. If the mortality experience for the population has partial credibility, then in lieu of creating a base substitute mortality table as described in paragraph (d) of this section, the base substitute mortality table is created as the sum of -

(i) The product of -

(A) The partial credibility weighting factor determined under paragraph (e)(2) of this section; and

(B) The mortality rates that are derived from the experience study determined under paragraph (d)(4)(i) of this section, and

(ii) The product of -

(A) One minus the partial credibility weighting factor described in paragraph (e)(2) of this section; and

(B) The mortality rate from the standard mortality tables described in paragraph (d)(4)(iii) of this section.

(2) Partial credibility weighting factor. The partial credibility weighting factor is equal to the square root of the fraction -

(i) The numerator of which is the actual number of deaths for the population during the experience study period, and

(ii) The denominator of which is the full credibility threshold for the population described in paragraph (d)(3) of this section.

(f) Special rules for newly-affiliated plans -

(1) In general. This paragraph (f) provides special rules that provide temporary relief from certain rules in this section in the case of a controlled group that includes a newly-affiliated plan (as defined in paragraph (f)(2) of this section). Paragraph (f)(3) of this section provides a transition period during which the requirement in paragraph (c)(1) of this section (that is, the requirement that all plans within the controlled group that have credible mortality information must use substitute mortality tables) is not applicable. Paragraph (f)(4) of this section provides special rules that permit the use of a shorter experience study period in the case of a newly-affiliated plan that excludes the mortality experience data for the period before the date the plan becomes a newly-affiliated plan.

(2) Definition of newly-affiliated plan. For purposes of this paragraph (f), a plan is a newly-affiliated plan if the plan sponsor becomes a member of the new controlled group in connection with a merger, acquisition, or similar transaction described in § 1.410(b)-2(f). A plan also is treated as a newly-affiliated plan for purposes of this section if the plan is established in connection with a transfer of assets and liabilities from another employer's plan in connection with a merger, acquisition, or similar transaction described in § 1.410(b)-2(f).

(3) Transition period for newly-affiliated plans. The use of substitute mortality tables for a plan within a controlled group is not prohibited merely because, during the transition period, substitute mortality tables are not used for a newly-affiliated plan that fails to demonstrate a lack of credible mortality information during that period. Similarly, during the transition period, the use of substitute mortality tables for a newly-affiliated plan is not prohibited merely because substitute mortality tables are not used for another plan within the controlled group that fails to demonstrate a lack of credible mortality information during that period. The transition period begins on the date of the transaction that results in the plan becoming a newly-affiliated plan and ends on the last day of the plan year that immediately follows the latest ending period described in section 410(b)(6)(C)(ii) with respect to that transaction for any of the plans in the controlled group.

(4) Experience study period for newly-affiliated plan -

(i) In general. The mortality experience data for a newly-affiliated plan may either include or exclude mortality experience data for the period before the date the plan becomes a newly-affiliated plan. If a plan sponsor excludes mortality experience data for the period before the date the plan becomes a newly-affiliated plan, the exclusion must apply for all populations within the plan.

(ii) Demonstration relating to lack of credible mortality information. If the experience study for a newly-affiliated plan excludes mortality experience data for the period prior to the date the plan becomes a newly-affiliated plan, then the demonstration that the plan does not have credible mortality information for a plan year that begins after the transition period can be made using a shorter experience study period than would otherwise be permitted under paragraph (c)(2)(iii)(B) of this section, provided that the experience study period begins with the date the plan becomes a newly-affiliated plan and ends not more than one year and one day before the first day of the plan year.

(iii) Demonstration relating to credible mortality information. If the experience study for a newly-affiliated plan excludes mortality experience data for the period before the date the plan becomes a newly-affiliated plan and the plan fails to demonstrate that it does not have credible mortality information for the plan year under the rules of paragraph (f)(4)(ii) of this section, then other plans within the controlled group may continue to use substitute mortality tables only if substitute mortality tables are used for the newly-affiliated plan for the plan year. In such a case, the experience study period for the newly-affiliated plan may consist of a 12-month period.

(g) Effective/applicability date -

(1) General rule. This section applies for plan years beginning on or after January 1, 2018. Except as provided in paragraph (g)(2) of this section, the substitute mortality table used for a plan for such a plan year must comply with the rules of paragraphs (a) through (f) of this section.

(2) Transition rule for previously approved substitute mortality tables -

(i) Applicability for 2018. If a plan sponsor has received approval from the Commissioner to use substitute mortality tables for a plan year beginning in 2017, then that previous approval applies to a plan year beginning in 2018 provided that -

(A) The previous approval period had not ended;

(B) Substitute mortality tables are used for all plans in the plan sponsor's controlled group in accordance with the terms of that approval; and

(C) The projection factors provided in Projection Scale AA, as set forth in § 1.430(h)(3)-1(d) as in effect on December 31, 2017 (as contained in 26 CFR part 1 revised April 1, 2017) are applied to the base substitute mortality table.

(ii) Applicability for later plan years. If a plan sponsor is described in paragraph (g)(2)(i) of this section, then that previous approval applies to a later plan year provided that -

(A) The previous approval period had not ended;

(B) Substitute mortality tables are used for all plans in the plan sponsor's controlled group that have credible mortality information within the meaning of paragraph (c)(2)(ii) of this section; and

(C) The mortality improvement factors described in paragraph (c)(3)(ii) of this section are applied to the base substitute mortality table.

(3) Transition rule for requests for approval to use substitute mortality tables. A written request described in paragraph (b)(1)(i) of this section to use substitute mortality tables for a plan year that begins during 2018 does not fail to satisfy the timing requirement of paragraph (b)(1)(ii) of this section if it is submitted no later than February 28, 2018, provided that the plan sponsor agrees to a 90-day extension of the 180-day review period in accordance with paragraph (b)(2)(iv) of this section.

[T.D. 9826, 82 FR 46404, Oct. 5, 2017]