5500 Preparer's Manual for 2012 Plan Years
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The IRS has released guidance on the 25-year average segment rates that are applied to adjust the otherwise applicable 24-month average segment rates that are used to calculate required pension funding. The guidance reflects changes made by the Moving Ahead for Progress in the 21st Century Act (MAP-21; P.L. 112-141), enacted July 6, 2012.
Code Sec. 430 specifies minimum funding requirements applicable generally to single-employer defined benefit pension plans. Interest rates are specified for purposes of calculating the minimum required contribution. The rates used for this purposes are a set of three segment rates or, alternatively, a full yield curve. Each month, the IRS prescribes a corporate bond yield curve applicable to that month. MAP-21 added Code Sec. 430(h)(2)(C)(iv), effective for plan years beginning in 2012 or later. Under this provision, each of the three segment rates is adjusted to fall within a specified range determined based on a percentage of the average of the corresponding segment rates for a 25-year period ending on September 30 preceding the calendar year that includes the first day of that plan year. The guidance explains how past rates were calculated.
25-year average segment rates
Based on the calculation of equivalent rates for months before October 2005 and actual segment rates for later months, the averages for the 25 years ending September 30, 2011, of the first, second, and third segments rates, are 6.15%, 7.61%, and 8.35%, respectively.
Adjusted 24-month average segment rates
The guidance also provides a table of the adjusted 24-month average segment rates, showing the 24-month average segment rates without adjustment and, for plan years beginning in 2012, the adjusted 24-month average segment rates taking into account the 90-110% corridor around the 25-year average segment rates. The 24-month average segment rates, as adjusted for MAP-21, for January through August 2012 valuation dates, are: 5.54% for the first segment, 6.85% for the second segment, and 7.52% for the third segment.
Further guidance coming
The IRS said that it intends to issue additional guidance in the near future on other issues relating to the application of the MAP-21 provisions, including guidance relating to benefit restrictions and transition issues.
Source: IRS Notice 2012-55.
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