n-13-11.pdf

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25-Year Average Segment Rates and Adjusted 24-Month Average Segment Rates
Used for Pension Funding for Plan Years Beginning in 2013

Notice 2013-11

This notice provides guidance on the 25-year average segment rates that are
applied to adjust the otherwise applicable 24-month average segment rates that are used to
compute the minimum contribution requirements for single-employer defined benefit plans
under § 430 of the Internal Revenue Code (Code) and § 303 of the Employee Retirement
Income Security Act of 1974 (ERISA) for plan years beginning in 2013. The guidance
reflects the changes made to the Code and ERISA by the Moving Ahead for Progress in the
21
st Century Act (MAP-21), Pub. L. No.112-141.

BACKGROUND

Section 430 specifies the minimum funding requirements that generally apply to
single-employer defined benefit pension plans pursuant to § 412. Section 430(h)(2)
specifies interest rates that are used for purposes of calculating the minimum required
contribution. The interest rates that are used for this purpose are a set of three segment
rates described in § 430(h)(2)(C)(i), (ii), and (iii), or, alternatively, a full yield curve as
described in § 430(h)(2)(D)(ii).

Each segment rate described in § 430(h)(2)(C)(i), (ii), and (iii) is, for any month, the
single rate of interest determined by the Secretary for the month on the basis of the
applicable corporate bond yield curve for that month, taking into account only that portion of
the yield curve applicable to that segment. Section 430(h)(2)(D)(i) provides that the
Secretary shall prescribe a corporate bond yield curve applicable for each month. The
applicable corporate bond yield curve is, with respect to any month, a yield curve which
reflects a 24-month average (the average of the yield curve values for the preceding month
and the prior 23 months) of the yields on investment grade corporate bonds with varying
maturities that are in the top 3 quality levels available. Under § 430(h)(2)(D)(ii), an
employer may elect to use the corporate bond yield curve determined without regard to the
24-month averaging in lieu of the segment rates.

Section 40211(a) of MAP-21 adds § 430(h)(2)(C)(iv), generally effective for plan
years beginning on or after January 1, 2012. Section 430(h)(2)(C)(iv) provides that, for a
plan year, each of the three segment rates described in § 430(h)(2)(C)(i), (ii), and (iii) is
adjusted as necessary to fall within a specified range that is determined based on a
percentage of the average of the corresponding segment rates for the 25-year period
ending on September 30 preceding the calendar year that includes the first day of that plan
year. Under § 430(h)(2)(C)(iv)(II), for plan years beginning in 2013, each segment rate is
adjusted so that it is no less than 85% and no more than 115% of the corresponding
25-year average segment rate. For later plan years, this range is gradually expanded, so
that the segment rates for plan years beginning after 2015 are no less than 70% and no
more than 130% of the corresponding 25-year average segment rates. Section
430(h)(2)(C)(iv)(I) provides that the Secretary may prescribe equivalent rates for any years
in the 25-year period for which segment rates are not available.

2
Section 430(h)(2)(F) (as amended by MAP-21) provides that each month the
Secretary shall publish the corporate bond yield curve, the segment rates in § 430(h)(2)(C),
and the 25-year average of the segment rates. Section 430(h)(2)(F) also provides that the
Secretary shall publish a description of the methodology used to determine the yield curve
and the segment rates in sufficient detail to enable plans to make reasonable predictions
regarding the yield curve and rates for future months.

Notice 2007–81, 2007–2 C.B. 899, provides guidelines for determining the monthly
corporate bond yield curve and the 24-month average corporate bond segment rates.
Notice 2012-55, 2012-36 I.R.B. 332, provides information on the determination of the
25-year average segment rates for plan years beginning in 2012.

DEVELOPMENT OF 25-YEAR AVERAGE SEGMENT RATES FOR PLAN YEARS
BEGINNING IN 2013

The Treasury Department has constructed the corporate bond yield curves for the
period October 1987 to September 2005 using the method used for constructing the
corporate bond yield curves for current periods. Using these historical yield curves,
segment rates were calculated for each month from October 1987 to September 2005.
Annual averages of those segment rates are listed in the Appendix at the end of this notice.

Based on the segment rates from October 1987 to September 2012, the 25-year
averages for the period ending September 30, 2012, of the first, second, and third segment
rates are 5.81, 7.23 and 7.95 percent, respectively.

ADJUSTED 24-MONTH AVERAGE SEGMENT RATES

In prior notices, the Treasury Department and the Internal Revenue Service issued
24-month average segment rates that did not reflect the adjustment required by
§ 430(h)(2)(C)(iv) (as added by MAP-21) for plan years beginning in 2013. The table below
contains previously issued 24-month average segment rates without adjustment, and, for
plan years beginning in 2013, the adjusted 24-month average segment rates taking into
account the 85-115% corridor around the 25-year average segment rates:

3

24-Month Average Segment
Rates Not Adjusted
Adjusted 24-Month Average
Segment Rates, Based on
Applicable Percentage of 25-
Year Average Rates
Applicable First Second Third First Second Third
For Plan
Years
Beginning
In
Month Segment Segment Segment Segment Segment Segment
2013 February 2013 1.58 4.34 5.38 4.94 6.15 6.76
2013 January 2013 1.62 4.40 5.45 4.94 6.15 6.76

2013 December 2012 1.66 4.47 5.52 4.94 6.15 6.76
2013 November 2012 1.69 4.53 5.60 4.94 6.15 6.76
2013 October 2012 1.72 4.58 5.67 4.94 6.15 6.76
2013 September
2012
1.75 4.62 5.72 4.94 6.15 6.76

DRAFTING INFORMATION

The principal author of this notice is Tony Montanaro of the Employee Plans, Tax Exempt
and Government Entities Division. However, other personnel from the Internal Revenue
Service and the Treasury Department participated in preparing this notice. Mr. Montanaro
may be e-mailed at RetirementPlanQuestions@irs.gov
.

4
APPENDIX

ANNUAL AVERAGE SEGMENT RATES
USED TO DEVELOP THE 25-YEAR AVERAGE AS OF SEPTEMBER 30, 2012

Table 1: Annual Averages of 24-Month Segment Rates

Annual Period

From October To September

First

Second

Third

of Year of Year

Segment

Segment

Segment
1

1987 - 1988

8.19

9.52

9.86
2

1988 - 1989

8.78

9.83

10.01
3

1989 - 1990

9.22

9.61

9.67
4

1990 - 1991

9.13

9.44

9.66
5

1991 - 1992

8.36

9.25

9.89
6

1992 - 1993

6.81

8.49

9.66
7

1993 - 1994

5.55

7.59

8.98
8

1994 - 1995

6.03

7.62

8.64
9

1995 - 1996

6.66

7.73

8.51
10

1996 - 1997

6.44

7.37

8.18
11

1997 - 1998

6.33

7.18

7.92
12

1998 - 1999

6.03

6.73

7.51
13

1999 - 2000

6.20

6.91

7.59
14

2000 - 2001

6.73

7.50

8.02
15

2001 - 2002

5.90

7.29

7.96
16

2002 - 2003

4.27

6.56

7.57
17

2003 - 2004

3.16

5.88

7.17
18

2004 - 2005

3.06

5.53

6.80
19

2005 - 2006

4.02

5.49

6.40
20

2006 - 2007

4.99

5.66

6.29
21

2007 - 2008

5.21

5.97

6.48
22

2008 - 2009

5.23

6.54

6.75
23

2009 - 2010

4.38

6.57

6.71
24

2010 - 2011

2.67

5.66

6.41
25 2011 - 2012 1.90 4.92 6.04