CL Rates for 2006

[Guest merlin]

Since the PFEA technically expired at 12/31/05, what rates are we to use for RPACL, PBGC variable premium, etc.?

[david rigby]

http://benefitslink.com/IRS/notice2006-8.pdf

[mwyatt]

So I assume that any early vals done using these rates will probably need to be redone later this year when some other piece of legislation comes into being changing the '06 rates to another basis...

[Guest saeissler]

I am going ahead and reverting to the old rates. But in questions with clients about planning, I am alerting them to the possibility of changes ahead. Meanwhile - I see where the 90%to 105% rates apply but I see no way to use the 90-110% rates. However they are in Notice 2006-8, so I assume that I have forgotten something. Can someone clue me in?

[mwyatt]

The 90/110 rates applied to the old OBRA '87 Current Liability, which is in effect not relevant to mainstream calculations anymore. RPA '94 CL was on the 90/105 (with the temporary 120 jump).

[david rigby]

PFEA added IRC 404(a)(1)(F):

(F) ELECTION TO DISREGARD MODIFIED INTEREST RATE- An employer may elect to disregard subsections (b)(5)(B)(ii)(II) and (l)(7)©(i)(IV) of section 412 solely for purposes of determining the interest rate used in calculating the maximum amount of the deduction allowable under this paragraph.

Having a brain freeze. When I review the "temporary" references in PFEA, I'm not sure the above 404 subsection is included. Any opinion about whether it expired at 12/31/05?

[Mike Preston]

I could be wrong on this, but my understanding is that the underlying rates that this section is referencing did, indeed, expire at the end of 05. This makes is somewhat irrelevant as to whether this particular section expired. Because with it or without it, the result is the same. Weird, huh?

[david rigby]

Not sure if this came up at the EA meeting. I asked Jim Holland about this a few days ago. He confirmed that, although the 404 section had no expiration date, the cross referenced 412 sections did expire for plan years beginning in 2006. Thus, 404 CL rate = 412 CL rate (which is not required to = the gateway rate).

Pending pension reform legislation may revert to the 2004/2005 rules, and appears to amend the expired sections by a one-year extension. But nothing is official until its official.

[david rigby]

Anyone have information (and/or a link) about the duration of the bonds that make up the Moody's Aaa and Aa indexes?