Interest on Late Quarterlies after the plan year

[Guest Tautened Winds]

Here's how I understand the current law: After the plan year, penalty interest on late quarterlies is charged at the max of funding interest rate, 175% of the federal mid-term rate, and the current liability rate (the max rate). So if your current liability rate is 5%, funding interest rate is 7% and 175% of the federal mid-term rate is 9%, penalty interest after the plan year is 9%. Notice 89-52 is fairly clear about that. Do you know how penalty interest is charged after the plan year when 175% of the fed mid-term is lower than the max rate? Is it charged at the max rate or at 175% of the fed mid-term?

My inclination is to conclude that it's charged at the max rate.

[david rigby]

Are you suggesting that the rate from 01/01/2006 to 09/15/2006 (for example, assuming a CY plan) would be different than the rate from 04/15/2005 to 12/31/2005? I'm not aware of that possibility.

[Guest Tautened Winds]

Yes, that is my question, but only in a specific case; i.e. when 175% of the fed mid term is less than the funding interest rate. If you have quarterly contributions for the plan year 1/1/2005 go 12/31/2005, what amount of interest do you charge during 1/1/2006 to 9/15/2006 as penalty interest on late quarterlies? My inclination is to say that penalty interest will be charged at the max rate of the two rates for the period 1/1/2006 go 9/15/2006. However, there is language in notice 89-52 that says the funding interest rate will only be charged to the end of the plan year, so I'm having trouble verifying my inclination.

[Guest Texas_Acty]

My recollection is that the interest rates are based on the plan year. If so, then the rates from 1/1 to 9/15/2006 are the same as the 2005 rate (i.e., the rates for 1/1/2005).

[Guest Tautened Winds]

You're right on that Tex. I eventually found that the directions in the Schedule B are quite direct in saying that the max rate, of the three rates, is the rate that applies from 1/1/2005 to 9/2006.