Segment Rate Trend

[Pension RC]

February is the second month in a row that the 417(e) segment rates have gone down. Can anyone suggest 1) a cause for this recent trend, 2) if the trend is expected to continue, and 3) where they might be in May 2014?

Thanks!

[Lou S.]

I was going to post a picture of the magic-8 ball which is probably as good as any guess about interest rates 3 months from now as anything else but the file size was too big.

[My 2 cents]

The 417(e) segment rates for May 2014 (assuming, for example, that you are working with a July-June plan year using the second month before the start of the plan year stability period) is only smoothed across that one month, so there is a significant potential for volatility that could materially change those rates. Look what happened in the last 4 or 5 months of 2008!

Assuming no major economic dislocations like that (fervently hoping for no major economic dislocations like that!), minor actions by the Fed or Treasury could certainly make a noticeable difference, up or down, even if on a relatively transitory basis. So I am with Lou S. - check with your magic 8 ball, since that is about as good as anything else for predicting one-month spot rates two or three months from now.

Or, if you are a statistics maven, perform stochastic testing which may, at least, offer the opportunity to quantify the uncertainty!