2004 Max Rate

[LIBOR]

For 1/1/2004 DB valuations, is anyone using 90% of the weighted average of 30-year Treasuries to develop the Max ?

I thought PFEA of 2004 reset the allowable range to 90 - 100% of the weighted corporate blend ?

[MGB]

It also says that a plan sponsor can elect to ignore these temporary corporate bond rates and use the existing law for purposes of calculations under 404 (max).

[Blinky the 3-eyed Fish]

So I think the answer to your question LIBOR is why would you? The rule MGB mentions is going to yield a higher UCL.

[MGB]

The point is to be able to contribute more than what the corporate bond calculations would allow.

[david rigby]

Brain cramp. Is it correct that the IRS has still not answered the question of what rate in the range you may choose? For example, at 1/1/2004, if I choose 6.55% for 412 current liability, then I cannot choose a rate lower than 5.51% for the UCL under IRC 404? Answered? Maybe?

[LIBOR]

I think Pax has a good point; 2004 grey book question #3 touched on the inter-relationships between the interest rate and the various Code sections that rely on it.

I too was wondering if IRS has provided guidance either formally or otherwise in this regard ??

[MGB]

They've been asked in writing, but have not provided any official (or unofficial) guidance. However, those that have spoken with them have gotten the impression that they agree there is no link between max and min rates once this election is made.

[david rigby]

... there is no link between max and min rates once this election is made.

Does anyone have any additional information on this topic?

[MGB]

Only the unofficial discussions; they've indicated no link. So, you could use the top of the range for minimum and the bottom of the other range for maximum. It relies on the "may ignore" language in the law for this two years, which overrides the earlier linkage issues.

[david rigby]

Of course, the Gray Book is always unofficial, but ...

QUESTION 2005-14

Deductible Limit: Current Liability Interest Rates for Minimum and Maximum Purposes

For 2004 and 2005 plan years, PFEA requires the use of 90% to 100% of the corporate bond rate for calculating current liability for minimum-funding purposes. For purposes of calculating the maximum-deductible contribution, § 404(a)(1)(F) — as added by PFEA — states that “an employer may elect to disregard” the new provisions providing for the use of the corporate bond rate.

For 2004 and/or 2005 plan years, may an employer calculate the minimum-required contribution using 100% of the corporate bond rate, and simultaneously calculate the maximum-deductible contribution using 90% of the 30-year Treasury rate?

RESPONSE

Yes, the ability to calculate the 2004 (or 2005) maximum-deductible contribution using 90% of the 30-year Treasury rate is not dependent upon the rate used for 2004 (or 2005) minimum-funding purposes.

Standard Gray Book Footnote:

The above Response is a summary, prepared by representatives of the Program Committee, of the oral responses to the question posed to certain staff members of the Treasury and IRS, which represent only personal views of the individuals who provided them. Accordingly, the Response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.

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