SECTION 2. BACKGROUND

INFORMATION

.01 Statutory background . Section 412 sets forth minimum funding requirements for defined benefit pension plans. In accordance with § 412(a)(2)(A), § 430 specifies the minimum funding requirements for a defined benefit plan (other than a multiemployer plan or a CSEC plan). Section 430(h)(3)(A) sets forth rules regarding the use of generally applicable mortality tables for purposes of § 430, and § 430(h)(3)(B) requires the Secretary to make periodic revisions (at least every 10 years) to those mortality tables. Section 430(h)(3)(C) provides that the Secretary may approve plan-specific substitute mortality tables to be used for a plan for a period not to exceed 10 years in determining any present value or making any computation under § 430. Substitute mortality tables meet the requirements for

approval if the pension plan has enough participants and has been maintained for a long enough period of time to have credible mortality experience, and those tables reflect the actual experience of the plan and projected trends in general mortality experience. Except as provided by the Secretary, a plan sponsor may not use substitute mortality tables for any plan unless substitute mortality tables are established and used for each plan subject to § 430 that is maintained by the plan sponsor or a member of the plan sponsor’s controlled group.

.02 Regulations regarding substitute mortality tables . Under § 1.430(h)(3)-2(c) (2), substitute mortality tables must reflect the actual mortality experience of the pension plan for which the tables are to be used, and that mortality experience must be credible. Separate mortality tables must be established for each gender under the plan and, in general, substitute mortality tables are permitted to be established for a gender only if the plan has credible mortality experience (including partially credible mortality experience) with respect to that gender. The regulations provide an option for determining the credibility of mortality experience using the plan’s combined mortality experience for both genders (and using that combined experience to develop separate substitute mortality tables for each gender).

(1) Use of mortality ratios . Under § 1.430(h)(3)-2(c)(3), development of substitute mortality tables under the regulations requires creation of a base substitute mortality table (“Substitute Base Table”) with an associated base year, which is used in conjunction with mortality improvement factors to construct generational mortality tables. Under § 1.430(h) (3)-2(d), the Substitute Base Table must be constructed in a multiple-step process based on (a) a projection of the generally applicable mortality table to the base year for the Substitute Base Table, and (b) an amounts-weighted mortality ratio calculated from the experience study for the population. In the case of a plan with partially credible mortality experience, § 1.430(h)(3)-2(e) requires the application

1 Section 302 of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, as amended (ERISA) sets forth funding rules that are parallel to those in § 412 of the Code, and section 303 of ERISA sets forth additional funding rules for defined benefit plans (other than multiemployer plans) that are parallel to those in § 430 of the Code. Section 303(h)(3)(C) of ERISA requires the approval of the Secretary of the Treasury for the use of substitute mortality tables, and this revenue procedure applies for that purpose.

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§ 1.430(h)(3)-2. Under those amendments, in determining the mortality ratio used to develop plan-specific substitute mortality tables, certain adjustments to the probability of death must be made to the mortality rates from the standard mortality table. These adjustments, which are specified in § 1.430(h)(3)-2(d)(4)(iii)(B), apply for 12-month periods beginning in 2020, 2021, or 2022. .04 Revenue Procedure 2017-55 . Revenue Procedure 2017-55 provides the procedures for the approval of substitute mortality tables.