Stability Period

the stability period always starts on 1/1 for 417(e) purpose and it starts on the valuation date for funding assumption purpose. am I understanding it correctly? tried to find the regulation about the definition but can't find the specific definition of the start date. 

For distributions, the stability period can be the plan year, calendar year, plan quarter, calendar quarter, or calendar month containing the distribution date. The applicable interest rate can be determined as of the 1st, 2nd, 3rd, 4th or 5th month preceding the stability period, or may be an average of interest rates during those months. See 1.417(e)-1(d)(4).

For funding, the segment rates are the ones published for the applicable month, which is the month containing the valuation date. However the plan sponsor may elect an alternative applicable month of one of the 4 months preceding the month containing the valuation date. The plan sponsor may also elect to use the corporate bond yield curve instead of the segment rates. Once an election is made, it may only be changed or revoked with IRS approval. See 1.430(h)(2)-1(e).

4 hours ago, C. B. Zeller said:

For distributions, the stability period can be the plan year, calendar year, plan quarter, calendar quarter, or calendar month containing the distribution date. The applicable interest rate can be determined as of the 1st, 2nd, 3rd, 4th or 5th month preceding the stability period, or may be an average of interest rates during those months. See 1.417(e)-1(d)(4).

For funding, the segment rates are the ones published for the applicable month, which is the month containing the valuation date. However the plan sponsor may elect an alternative applicable month of one of the 4 months preceding the month containing the valuation date. The plan sponsor may also elect to use the corporate bond yield curve instead of the segment rates. Once an election is made, it may only be changed or revoked with IRS approval. See 1.430(h)(2)-1(e).

hi Corey, thank you so much for these info! for distributions - for example, the distribution date is 7/15/2024,

if the stability period is the plan year with 1st month lookback, then stability period is 2024 plan year and the applicable month is December 2023;

if the stability period is calendar month with 1st month lookback, then stability period is July 2024 and the applicable month is June 2024. Am I understanding these correctly?

Assuming that the plan year is the calendar year, then I agree.

20 hours ago, C. B. Zeller said:

Assuming that the plan year is the calendar year, then I agree.

thank you so much Corey!

The explanation from @C. B. Zeller is great.  But also take note:

• both stability period and lookback month should be defined in the plan document.
• using a one-month stability period and one-month lookback will (generally) provide the closest to "true market value", but
• that combination is the most difficult to administer.  Most plans I've seen use the PY as the stability period, often with a lookback month of "second month preceding".

22 minutes ago, david rigby said:

The explanation from @C. B. Zeller is great.  But also take note:

• both stability period and lookback month should be defined in the plan document.
• using a one-month stability period and one-month lookback will (generally) provide the closest to "true market value", but
• that combination is the most difficult to administer.  Most plans I've seen use the PY as the stability period, often with a lookback month of "second month preceding".

Thank you David!

while most of the plans (especially small ones) are using PY as stability period, the choice of the lookback is really a consulting issue.  For example month of September has a tendency to be the "lowest rates" month, if you want to be able to time/plan "things" better, August gives the most flexibility, if you have to process distirbutions in January the month of December is not a good choice, etc.

13 hours ago, truphao said:

while most of the plans (especially small ones) are using PY as stability period, the choice of the lookback is really a consulting issue.  For example month of September has a tendency to be the "lowest rates" month, if you want to be able to time/plan "things" better, August gives the most flexibility, if you have to process distirbutions in January the month of December is not a good choice, etc.

Thank you so much for the details!!!