IRC 417 Interest Rate

[mwyatt]

Here is a real "dumb" question (or so I hope). A well-known VS provider has in their checklist the option to define the GATT interest rate as the rate in effect as of the first day of the plan year in which annuity starting date begins (coupled with a stability period of the plan year), along with the 1,2,3,4, 5 and blended lookback periods.

As this corresponded to the old PBGC minimums (which usually referenced the rate in effect at the beginning of the plan year) I didn't really give this much thought.

For the most part, we generally amended for GATT with some form of lookback period, given the lag in the IRS actually issuing the 30-year rate. However, we had one case that did use the 1st day of the plan year. We recently submitted the plan for a letter on termination and the reviewer is questioning this definition of interest rate. The response of "well, the VS document was approved already by the IRS so why are you questioning this?" didn't seem too appropriate, but I've yet to find anything that would support this in IRC 417 or the proposed regs. Can anyone help me out?

[Blinky the 3-eyed Fish]

When switching from PBGC rates to GATT rates there are options provied so the change is afforded anti-cutback relief. These options are: 1) use calendar month preceding the distribution date; 2) use the same month, or the first or second months preceding what the PBGC rates used; 3) provide a without wearaway approach for a year.

Since your situation is using the same month in option 2, you should be fine.

Point the IRS reviewer to 1.417(e)-1(d)(10)

[mwyatt]

Thanks Blinky. I also got a call back from our document provider who provided the same language. They also stated that since the IRS had signed off on the VS language, I should tell the agent that they had no authority to challenge any language in the plan document, so drop the issue. I decided to rephrase that comment before speaking with the IRS...

[Blinky the 3-eyed Fish]

I am glad you are more diplomatic.

[mwyatt]

Yeah, I kind of thought picking fights with the IRS, no matter their position, is somewhat foolhardy. Kind of reminds me of a time back in the 80s dealing with an IRS agent on a TDR restated MP plan and its ability to provide the 3% TH minimum. The contribution called for 10% of Total Eligible Compensation to be contributed by the employer, and then this amount allocated first to individual's excess compensation (5.7% over TWB), with the balance allocated on flat compensation. For the life of me, I couldn't get her to understand that it was mathematically impossible for someone not to receive the 3% (eligibility for contribution wasn't a problem since it covered TH requirements). Finally gave up, but I always wondered where those who failed algebra ended up later in life...