417(e) lookback

[abanky]

I am reviewing a takeover plan and found this weird phrasing... (maybe it's not so weird, but the first time I saw it).

"The "Applicable Interest Rate" means the annual rate of interest on 30-year Treasury Securities determined as of the first day of the Plan Year during which the Annuity Starting Date occurs."

Do I take that to mean that there is a zero month lookback? Is that even allowed?

or does that mean December's rate, because the 30-year isn't published until mid January?

[Andy the Actuary]

It sounds like this would be the January rate for a calendar year plan. Often times plans are drafted without regard to whether or not they can be administered. This would mean that if you provide a participant in December or before with a January payment date that the lump sum would be an estimate and would need to be recalculated once the January rate is known.

[abanky]

but doesn't 417(e) require that the interest rate be determined using a lookback of 1 to 5 months preceding the stability period?

[Andy the Actuary]

so use December's rate.

[david rigby]

I agree w/ Andy.

"... determined as of the first day of the Plan Year ..." implies (to me, at least) a rate determined throughout the last month of the preceding plan year.

[D Syrett]

I think the language in the original post is from the law on applicable interest rates as originally drafted. This option was apparently removed by PPA06. FWIW.

It would seem that if a plan has such language it is now forced to select a PPA06 option - perhaps with the "greater of" one year transition rule.