The IRS has issued guidance on special rules related to pension funding stabilization for single-employer defined benefit pension plans due to amendments to the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA) by the Moving Ahead for Progress in the 21st Century Act (MAP-21) (P.L. 112-141 ). Code Sec. 430 specifies the minimum funding requirements applicable to such plans. Code Sec. 430(h)(3) sets forth interest rates to be used in calculating the minimum required contribution, which are either a set of three segment rates or, alternatively, a full yield curve.
The individual segment rates are assigned other uses as well. MAP-21 provides an adjustment mechanism for the three segment rates, requiring that the rate used fall within a certain range, based on a segment rate average for a 25-year period ending on September 30 of the calendar year preceding the first day of that plan year. For plan years beginning in 2012, each segment rate is adjusted to be at least 90 percent and no more than 110 percent of the relevant 25-year average segment rate. The range is increased gradually, and segment rates for plan years beginning in 2015 are at least 70 percent and no more than 130 percent of the corresponding 25-year average segment rate. Initial segment rates for plans starting in 2012 were provided in Notice 2012-55 , I.R.B. 2012-36, 332 (TAXDAY, 2012/08/17, I.1 ).
The guidance is in the form of questions and answers. It initially addresses the application of MAP-21 segment rates generally, including how the adjusted segment rates are determined for a plan year, the purposes for which the MAP-21 segment rates apply, the effect of MAP-21 amendments on the application of interest rates for a plan using the full yield curve instead of segment rates, the annuity substitution rule under Reg. §1.430(d)-1(f)(4)(iii) , the effect of MAP-21 segment rates on the value of plan assets, the effect of MAP-21 segment rates on the determination of the funding standard carryover balance and prefunding balance, and reliance on guidance prior to expected changes in the regulations. The guidance also covers measurements for which MAP-21 interest rates do not apply, statutory hybrid plans, transition issues, MAP-21 elections, and Schedule SB reporting.
Notice 2012-61, 2012FED ¶46,457
Code Sec. 430
CCH Reference – 2012FED ¶20,161.03
CCH Reference – 2012FED ¶20,161.30
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