n-12-28.pdf

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

Notice 2012-28

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.

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 and by the Pension Protection Act of 2006 (PPA), 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 March 2012 is 4.57 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%

April 2012 5.55 5.00 5.55

YIELD CURVE AND SEGMENT RATES

Generally for plan years beginning after 2007 (except for delayed effective dates for certain
plans under sections 104, 105, and 106 of 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. Section 430(h)(2)G) set forth a transitional rule applicable to plan years beginning
in 2008 and 2009 under which the segment rates were blended with the corporate bond weighted
average described above, including an election under § 430(h)(2)(G)(iv) for an employer to use the
segment rates without the transitional rule.

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 March 2012 data is in Table I at the end of this notice.
The spot first, second, and third segment rates for the month of March 2012 are, respectively, 1.57,
4.36, and 5.18. The three 24-month average corporate bond segment rates applicable for April
2012 are as follows:

First
Segment

Second
Segment

Third
Segment

1.90 4.90 6.01

The transitional rule of § 430(h)(2)(G) does not apply to plan years beginning after December 31,
2009. Therefore, for a plan year beginning after 2009 with a lookback month to April 2012, the
funding segment rates are the three 24-month average corporate bond segment rates applicable for
April 2012, listed above without blending for any transitional period.

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 March 2012 is 3.28 percent. The
Service has determined this rate as the average of the daily determinations of yield on the 30-year
Treasury bond maturing in February 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%

April 2012 3.97 3.57 4.17

MINIMUM PRESENT VALUE SEGMENT RATES

Generally for plan years beginning after December 31, 2007, 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 March 2012, taking into account the March 2012 30-year Treasury rate of 3.28
stated above, are as follows:

For Plan
Years
Beginning in

First
Segment

Second
Segment

Third
Segment

2011 1.91 4.14 4.80
2012 1.57 4.36 5.18

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 March 2012
Derived from March 2012 Data

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield
0.5 0.49 20.5 5.05 40.5 5.20 60.5 5.26 80.5 5.30
1.0 0.79 21.0 5.05 41.0 5.20 61.0 5.27 81.0 5.30
1.5 1.06 21.5 5.06 41.5 5.21 61.5 5.27 81.5 5.30
2.0 1.31 22.0 5.06 42.0 5.21 62.0 5.27 82.0 5.30
2.5 1.53 22.5 5.07 42.5 5.21 62.5 5.27 82.5 5.30
3.0 1.72 23.0 5.07 43.0 5.21 63.0 5.27 83.0 5.30
3.5 1.91 23.5 5.08 43.5 5.21 63.5 5.27 83.5 5.30
4.0 2.10 24.0 5.08 44.0 5.22 64.0 5.27 84.0 5.30
4.5 2.28 24.5 5.09 44.5 5.22 64.5 5.27 84.5 5.30
5.0 2.47 25.0 5.09 45.0 5.22 65.0 5.27 85.0 5.30
5.5 2.66 25.5 5.09 45.5 5.22 65.5 5.27 85.5 5.30
6.0 2.86 26.0 5.10 46.0 5.22 66.0 5.28 86.0 5.30
6.5 3.05 26.5 5.10 46.5 5.23 66.5 5.28 86.5 5.30
7.0 3.23 27.0 5.11 47.0 5.23 67.0 5.28 87.0 5.30
7.5 3.41 27.5 5.11 47.5 5.23 67.5 5.28 87.5 5.30
8.0 3.58 28.0 5.12 48.0 5.23 68.0 5.28 88.0 5.30
8.5 3.74 28.5 5.12 48.5 5.23 68.5 5.28 88.5 5.30
9.0 3.89 29.0 5.13 49.0 5.23 69.0 5.28 89.0 5.31
9.5 4.03 29.5 5.13 49.5 5.24 69.5 5.28 89.5 5.31
10.0 4.16 30.0 5.13 50.0 5.24 70.0 5.28 90.0 5.31
10.5 4.27 30.5 5.14 50.5 5.24 70.5 5.28 90.5 5.31
11.0 4.38 31.0 5.14 51.0 5.24 71.0 5.28 91.0 5.31
11.5 4.47 31.5 5.15 51.5 5.24 71.5 5.28 91.5 5.31
12.0 4.56 32.0 5.15 52.0 5.24 72.0 5.28 92.0 5.31
12.5 4.63 32.5 5.15 52.5 5.25 72.5 5.29 92.5 5.31
13.0 4.70 33.0 5.16 53.0 5.25 73.0 5.29 93.0 5.31
13.5 4.75 33.5 5.16 53.5 5.25 73.5 5.29 93.5 5.31
14.0 4.80 34.0 5.17 54.0 5.25 74.0 5.29 94.0 5.31
14.5 4.84 34.5 5.17 54.5 5.25 74.5 5.29 94.5 5.31
15.0 4.88 35.0 5.17 55.0 5.25 75.0 5.29 95.0 5.31
15.5 4.91 35.5 5.17 55.5 5.25 75.5 5.29 95.5 5.31
16.0 4.93 36.0 5.18 56.0 5.25 76.0 5.29 96.0 5.31
16.5 4.96 36.5 5.18 56.5 5.26 76.5 5.29 96.5 5.31
17.0 4.97 37.0 5.18 57.0 5.26 77.0 5.29 97.0 5.31
17.5 4.99 37.5 5.19 57.5 5.26 77.5 5.29 97.5 5.31
18.0 5.00 38.0 5.19 58.0 5.26 78.0 5.29 98.0 5.31
18.5 5.02 38.5 5.19 58.5 5.26 78.5 5.29 98.5 5.31
19.0 5.03 39.0 5.19 59.0 5.26 79.0 5.29 99.0 5.31
19.5 5.03 39.5 5.20 59.5 5.26 79.5 5.30 99.5 5.31
20.0 5.04 40.0 5.20 60.0 5.26 80.0 5.30 100.0 5.31