n-04-56.pdf

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Part III --- Administrative, Miscellaneous, and Procedural

Weighted Average Interest Rates Update

Notice 2004-56

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. In addition, it provides guidance as to the interest rate on 30-year
Treasury securities under § 417(e)(3)(A)(ii)(II), and the weighted average interest rate and
permissible ranges of interest rates based on the 30-year Treasury securities rate.

CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE

Sections 412(b)(5)(B)(ii) and 412(l)(7)(C)(i), as amended by the Pension Funding
Equity Act of 2004, 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 or 2005
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, 2004-18 I.R.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 composite corporate bond rate for July 2004 is 6.00 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.

Corporate
For Plan Years Bond 90% to 100%
Beginning in: Weighted Permissible
Month Year Average Range

August 2004 6.29 5.66 to 6.29

30-YEAR TREASURY SECURITIES WEIGHTED AVERAGE INTEREST RATE

Section 417(e)(3)(A)(ii)(II) 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 interest rate 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.

Section 404(a)(1) of the Code, as amended by the Pension Funding Equity Act of
2004, permits an employer to elect to disregard subclause (II) of § 412(b)(5)(B)(ii) to
determine the maximum amount of the deduction allowed under §
404(a)(1).

The rate of interest on 30-year Treasury securities for July 2004 is 5.22 percent.
Pursuant to Notice 2002-26, 2002-1 C.B. 743, the Service has determined this rate as the
monthly average of the daily determination of yield on the 30-year Treasury bond maturing
in February 2031.

The following 30-year Treasury rates were determined for the plan years beginning
in the month shown below.

30-Year
For Plan Years Treasury 90% to 105% 90% to 110%
Beginning in: Weighted Permissible Permissible
Month Year Average Range Range

August 2004 5.16 4.65 to 5.42 4.65 to 5.68

Drafting Information

The principal authors of this notice are Paul Stern and Tony Montanaro of the
Employee Plans, Tax Exempt and Government Entities Division. For further information
regarding this notice, please contact the Employee Plans’ taxpayer assistance telephone
service at 1-877-829-5500 (a toll-free number), between the hours of 8:00 a.m. and 6:30
p.m. Eastern time, Monday through Friday. Mr. Stern may be reached at 1-202-283-9703.
Mr. Montanaro may be reached at 1-202-283-9714. The telephone numbers in the
preceding sentences are not toll-free.