n-12-53.pdf

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Part III --- Administrative, Miscellaneous, and Procedural
Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates

Notice 2012-53

This notice provides guidance as to the corporate bond weighted average interest rate and
the permissible range of interest rates specified under § 412(b)(5)(B)(ii)(II) of the Internal Revenue
Code as in effect for plan years beginning before 2008. It also provides guidance on the corporate
bond monthly yield curve (and the corresponding spot segment rates), and the 24-month average
segment rates under § 430(h)(2). In addition, this notice provides guidance as to the interest rate
on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning
before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the
minimum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning
after 2007. These rates do not reflect any changes implemented by the Moving Ahead for Progress
in the 21st Century Act, Public Law 112-141 (MAP-21). MAP-21 provides that for purposes of
section 430(h)(2), the segment rates are limited by the applicable maximum percentage or the
applicable minimum percentage based on the average of segment rates over a 25 year period.
Guidance related to the new legislation will be issued in the future.

CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and 412(l)(7)(C)(i) provide that the interest rates used to calculate
current liability and to determine the required contribution under § 412(l) for plan years beginning in
2004 through 2007 must be within a permissible range based on the weighted average of the rates
of interest on amounts invested conservatively in long term investment grade corporate bonds
during the 4-year period ending on the last day before the beginning of the plan year.

Notice 2004-34, 2004-1 C.B. 848, provides guidelines for determining the corporate bond
weighted average interest rate and the resulting permissible range of interest rates used to
calculate current liability. That notice establishes that the corporate bond weighted average is
based on the monthly composite corporate bond rate derived from designated corporate bond
indices. The methodology for determining the monthly composite corporate bond rate as set forth
in Notice 2004-34 continues to apply in determining that rate. See Notice 2006-75, 2006-2 C.B.
366.

The composite corporate bond rate for July 2012 is 3.97 percent. Pursuant to Notice 2004-
34, the Service has determined this rate as the average of the monthly yields for the included
corporate bond indices for that month.

The following corporate bond weighted average interest rate was determined for plan years
beginning in the month shown below.

For Plan Years
Beginning in Permissible Range
Month Year

Corporate
Bond Weighted
Average 90% to 100%

August 2012 5.31 4.78 5.31

YIELD CURVE AND SEGMENT RATES

Generally, except for certain plans under sections104 and 105 of the Pension Protection Act
of 2006 (PPA), § 430 of the Code specifies the minimum funding requirements that apply to single
employer plans pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used
to determine a plan’s target normal cost and funding target. Under this provision, present value is
generally determined using three 24-month average interest rates (“segment rates”), each of which
applies to cash flows during specified periods. However, an election may be made under §
430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates.

Notice 2007-81, 2007-44 I.R.B. 899, provides guidelines for determining the monthly
corporate bond yield curve, and the 24-month average corporate bond segment rates used to
compute the target normal cost and the funding target. Pursuant to Notice 2007-81, the monthly
corporate bond yield curve derived from July 2012 data is in Table I at the end of this notice. The
spot first, second, and third segment rates for the month of July 2012 are, respectively, 1.22, 3.66,
and 4.50. The three 24-month average corporate bond segment rates applicable for August 2012
are as follows:

First
Segment

Second
Segment

Third
Segment

1.77 4.67 5.78

30-YEAR TREASURY SECURITIES INTEREST RATES

Section 417(e)(3)(A)(ii)(II) (prior to amendment by PPA) defines the applicable interest rate,
which must be used for purposes of determining the minimum present value of a participant’s
benefit under § 417(e)(1) and (2), as the annual rate of interest on 30-year Treasury securities for
the month before the date of distribution or such other time as the Secretary may by regulations
prescribe. Section 1.417(e)-1(d)(3) of the Income Tax Regulations provides that the applicable
interest rate for a month is the annual rate of interest on 30-year Treasury securities as specified by
the Commissioner for that month in revenue rulings, notices or other guidance published in the
Internal Revenue Bulletin.

The rate of interest on 30-year Treasury securities for July 2012 is 2.59 percent. The
Service has determined this rate as the average of the daily determinations of yield on the 30-year
Treasury bond maturing in May 2042.

Generally for plan years beginning after 2007, § 431 specifies the minimum funding
requirements that apply to multiemployer plans pursuant to § 412. Section 431(c)(6)(B) specifies a
minimum amount for the full-funding limitation described in section 431(c)(6)(A), based on the
plan’s current liability. Section 431(c)(6)(E)(ii)(I) provides that the interest rate used to calculate
current liability for this purpose must be no more than 5 percent above and no more than 10 percent
below the weighted average of the rates of interest on 30-year Treasury securities during the four-
year period ending on the last day before the beginning of the plan year. Notice 88-73, 1988-2 C.B.
383, provides guidelines for determining the weighted average interest rate. The following rates
were determined for plan years beginning in the month shown below.

For Plan Years
Beginning in
Permissible Range
Month Year

30-Year
Treasury
Weighted
Average

90% to 105%

August 2012 3.77 3.39 3.96

MINIMUM PRESENT VALUE SEGMENT RATES

In general, the applicable interest rates under § 417(e)(3)(D) are segment rates computed
without regard to a 24-month average. For plan years beginning in 2008 through 2011, the
applicable interest rates are the monthly spot segment rates blended with the applicable rate under
§ 417(e)(3)(A)(ii)(II) as in effect for plan years beginning in 2007. Notice 2007-81 provides
guidelines for determining the minimum present value segment rates. Pursuant to that notice, the
minimum present value transitional segment rates determined for July 2012, taking into account the
July 2012 30-year Treasury rate of 2.59 stated above, are as follows:

For Plan
Years
Beginning in
First
Segment

Second
Segment

Third
Segment

2011 1.49 3.45 4.12
2012 1.22 3.66 4.50

DRAFTING INFORMATION

The principal author of this notice is Tony Montanaro of the Employee Plans, Tax Exempt
and Government Entities Division. Mr. Montanaro may be e-mailed at
RetirementPlanQuestions@irs.gov
.

Table I

Monthly Yield Curve for July 2012
Derived from July 2012 Data

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield
0.5 0.39 20.5 4.37 40.5 4.51 60.5 4.57 80.5 4.60
1.0 0.67 21.0 4.38 41.0 4.51 61.0 4.57 81.0 4.60
1.5 0.91 21.5 4.38 41.5 4.52 61.5 4.57 81.5 4.60
2.0 1.10 22.0 4.39 42.0 4.52 62.0 4.58 82.0 4.60
2.5 1.24 22.5 4.39 42.5 4.52 62.5 4.58 82.5 4.60
3.0 1.36 23.0 4.39 43.0 4.52 63.0 4.58 83.0 4.61
3.5 1.46 23.5 4.40 43.5 4.53 63.5 4.58 83.5 4.61
4.0 1.57 24.0 4.40 44.0 4.53 64.0 4.58 84.0 4.61
4.5 1.70 24.5 4.40 44.5 4.53 64.5 4.58 84.5 4.61
5.0 1.83 25.0 4.41 45.0 4.53 65.0 4.58 85.0 4.61
5.5 1.98 25.5 4.41 45.5 4.53 65.5 4.58 85.5 4.61
6.0 2.15 26.0 4.42 46.0 4.53 66.0 4.58 86.0 4.61
6.5 2.32 26.5 4.42 46.5 4.54 66.5 4.58 86.5 4.61
7.0 2.49 27.0 4.42 47.0 4.54 67.0 4.58 87.0 4.61
7.5 2.67 27.5 4.43 47.5 4.54 67.5 4.59 87.5 4.61
8.0 2.84 28.0 4.43 48.0 4.54 68.0 4.59 88.0 4.61
8.5 3.01 28.5 4.44 48.5 4.54 68.5 4.59 88.5 4.61
9.0 3.16 29.0 4.44 49.0 4.54 69.0 4.59 89.0 4.61
9.5 3.31 29.5 4.45 49.5 4.55 69.5 4.59 89.5 4.61
10.0 3.44 30.0 4.45 50.0 4.55 70.0 4.59 90.0 4.61
10.5 3.56 30.5 4.45 50.5 4.55 70.5 4.59 90.5 4.61
11.0 3.67 31.0 4.46 51.0 4.55 71.0 4.59 91.0 4.61
11.5 3.77 31.5 4.46 51.5 4.55 71.5 4.59 91.5 4.61
12.0 3.86 32.0 4.46 52.0 4.55 72.0 4.59 92.0 4.61
12.5 3.94 32.5 4.47 52.5 4.55 72.5 4.59 92.5 4.61
13.0 4.01 33.0 4.47 53.0 4.56 73.0 4.59 93.0 4.62
13.5 4.07 33.5 4.47 53.5 4.56 73.5 4.59 93.5 4.62
14.0 4.12 34.0 4.48 54.0 4.56 74.0 4.59 94.0 4.62
14.5 4.17 34.5 4.48 54.5 4.56 74.5 4.60 94.5 4.62
15.0 4.21 35.0 4.48 55.0 4.56 75.0 4.60 95.0 4.62
15.5 4.24 35.5 4.49 55.5 4.56 75.5 4.60 95.5 4.62
16.0 4.26 36.0 4.49 56.0 4.56 76.0 4.60 96.0 4.62
16.5 4.28 36.5 4.49 56.5 4.56 76.5 4.60 96.5 4.62
17.0 4.30 37.0 4.50 57.0 4.57 77.0 4.60 97.0 4.62
17.5 4.32 37.5 4.50 57.5 4.57 77.5 4.60 97.5 4.62
18.0 4.33 38.0 4.50 58.0 4.57 78.0 4.60 98.0 4.62
18.5 4.34 38.5 4.50 58.5 4.57 78.5 4.60 98.5 4.62
19.0 4.35 39.0 4.51 59.0 4.57 79.0 4.60 99.0 4.62
19.5 4.36 39.5 4.51 59.5 4.57 79.5 4.60 99.5 4.62
20.0 4.37 40.0 4.51 60.0 4.57 80.0 4.60 100.0 4.62