Safe-Harbor Rate for Interest Credits

[Christine Roberts]

Notice 2007-6 described three safe harbor rates for interest credits, one of which is "the rate of interest on long-term investment grade corporate bonds (as described in § 412(b)(5)(B)(ii)(II) prior to amendment by PPA ’06”.

The cited code section in turn refers to "the weighted average of the rates of interest on amounts invested conservatively in long-term investment grade corporate bonds during the 4-year period ending on the last day before the beginning of the plan year."

So does the 2007-6 safe harbor refer to actual interest rates on corporate bonds or 4 year averages?

Any comments appreciated.

[Guest Mike Melnick]

I agree that it is not clear. I would argue that the notice is probably referring to the weighted average rate because, as you state, the Code section referenced clearly talks about the average rate. In addition, the new safe harbor rate beginning in 2008 will be the third segment rate, which is also an averaged rate.

A related question is what will be the permitted look book period. Will it be a 5 month period as currently applies to 417(e), or will it be no more than the 4 month period currently applicable to the segment rates? Hopefully, there will be more guidance in 2007, before any potential 204(h) cutback notices are due.