Election of Full Yield Curve

[dmb]

If employer elects to use the Full Yield Curve (FYC) as the Interest Rate Basis for a plan year, how is the present value of prior years amortization amounts calculated? More to the point, the rates of the FYC are provided on the half year basis (every six months). Is it specified anywhere that the yearly rates should be used to PV the prior years amortization amounts or is it acceptable to use the half year rates (six month rate, 18 month rate, 30 month rate, etc.)?? Any cite reference would be appreciated. Thanks.

[david rigby]

IRS Proposed Reg. 04/15/2008.

http://www.irs.gov/retirement/article/0,,id=96688,00.html

See 1.430(a)-1©(1)

Cross reference to Reg. 1.430(h)(2)-(e)

See the Reg dated 10/15/2009.

[dmb]

IRS Proposed Reg. 04/15/2008.

http://www.irs.gov/retirement/article/0,,id=96688,00.html

See 1.430(a)-1©(1)

Cross reference to Reg. 1.430(h)(2)-(e)

See the Reg dated 10/15/2009.

Thanks for the info, and while i agree that the annual rates of the full yield curve should be used, i still don't see anything that specifically states that it is required rather than using the mid year rates of the full yield curve.

[Guest Quagmire]

IRS Proposed Reg. 04/15/2008.

http://www.irs.gov/retirement/article/0,,id=96688,00.html

See 1.430(a)-1©(1)

Cross reference to Reg. 1.430(h)(2)-(e)

See the Reg dated 10/15/2009.

Thanks for the info, and while i agree that the annual rates of the full yield curve should be used, i still don't see anything that specifically states that it is required rather than using the mid year rates of the full yield curve.

It's a consistency thing. You have to use annual rates to determine the amortization amount initially. If the yield curve didn't change and you used mid-year rates to determine the present values, then the present value of past and future payments wouldn't equal the present value of the initial base, as it should.

[dmb]

IRS Proposed Reg. 04/15/2008.

http://www.irs.gov/retirement/article/0,,id=96688,00.html

See 1.430(a)-1©(1)

Cross reference to Reg. 1.430(h)(2)-(e)

See the Reg dated 10/15/2009.

Thanks for the info, and while i agree that the annual rates of the full yield curve should be used, i still don't see anything that specifically states that it is required rather than using the mid year rates of the full yield curve.

It's a consistency thing. You have to use annual rates to determine the amortization amount initially. If the yield curve didn't change and you used mid-year rates to determine the present values, then the present value of past and future payments wouldn't equal the present value of the initial base, as it should.

I guess that makes sense so if the mid year rates were used to value the liability and value the prior year charges that would be acceptable??

[Guest Quagmire]

IRS Proposed Reg. 04/15/2008.

http://www.irs.gov/retirement/article/0,,id=96688,00.html

See 1.430(a)-1©(1)

Cross reference to Reg. 1.430(h)(2)-(e)

See the Reg dated 10/15/2009.

Thanks for the info, and while i agree that the annual rates of the full yield curve should be used, i still don't see anything that specifically states that it is required rather than using the mid year rates of the full yield curve.

It's a consistency thing. You have to use annual rates to determine the amortization amount initially. If the yield curve didn't change and you used mid-year rates to determine the present values, then the present value of past and future payments wouldn't equal the present value of the initial base, as it should.

I guess that makes sense so if the mid year rates were used to value the liability and value the prior year charges that would be acceptable??

No, because the regulation doesn't allow mid-year rates for determining the amortization amount intially, you have to use the beginning of year rates.

[dmb]

No, because the regulation doesn't allow mid-year rates for determining the amortization amount intially, you have to use the beginning of year rates.

Where exactly does the regulation not allow mid-year rates?? I didn't see any specific wording to that effect. Thanks.