||October 2, 2006
Weighted Average Interest Rate Update
This notice provides guidance as to the corporate bond weighted average
interest rate and the permissible range of interest rates specified under
§ 412(b)(5)(B)(ii)(II) of the Internal Revenue Code. In addition,
it provides guidance as to the interest rate on 30-year Treasury securities
under § 417(e)(3)(A)(ii)(II).
CORPORATE BOND WEIGHTED AVERAGE INTEREST RATE
Sections 412(b)(5)(B)(ii) and 412(l)(7)(C)(i), as amended by the Pension
Funding Equity Act of 2004 and by the Pension Protection Act of 2006, provide
that the interest rates used to calculate current liability and to determine
the required contribution under § 412(l) for plan years beginning
in 2004 through 2007 must be within a permissible range based on the weighted
average of the rates of interest on amounts invested conservatively in long
term investment grade corporate bonds during the 4-year period ending on the
last day before the beginning of the plan year.
Notice 2004-34, 2004-1 C.B. 848, provides guidelines for determining
the corporate bond weighted average interest rate and the resulting permissible
range of interest rates used to calculate current liability. That notice
establishes that the corporate bond weighted average is based on the monthly
composite corporate bond rate derived from designated corporate bond indices.
The methodology for determining the monthly composite corporate bond rate
as set forth in Notice 2004-34 continues to apply in determining that rate.
See Notice 2006-75, 2006-36 I.R.B. 366.
The composite corporate bond rate for August 2006 is 6.11 percent.
Pursuant to Notice 2004-34, the Service has determined this rate as the average
of the monthly yields for the included corporate bond indices for that month.
The following corporate bond weighted average interest rate was determined
for plan years beginning in the month shown below.
|For Plan Years
||90% to 100%
||5.21 to 5.78
30-YEAR TREASURY SECURITIES INTEREST RATE
Section 417(e)(3)(A)(ii)(II) defines the applicable interest rate, which
must be used for purposes of determining the minimum present value of a participant’s
benefit under § 417(e)(1) and (2), as the annual rate of interest
on 30-year Treasury securities for the month before the date of distribution
or such other time as the Secretary may by regulations prescribe. Section
1.417(e)-1(d)(3) of the Income Tax Regulations provides that the applicable
interest rate for a month is the annual interest rate on 30-year Treasury
securities as specified by the Commissioner for that month in revenue rulings,
notices or other guidance published in the Internal Revenue Bulletin.
The rate of interest on 30-year Treasury securities for August 2006
is 5.00 percent. The Service has determined this rate as the monthly average
of the daily determination of yield on the 30-year Treasury bond maturing
in February 2036.
The principal authors of this notice are Paul Stern and Tony Montanaro
of the Employee Plans, Tax Exempt and Government Entities Division. For further
information regarding this notice, please contact the Employee Plans’
taxpayer assistance telephone service at 877-829-5500 (a toll-free number),
between the hours of 8:00 a.m. and 6:30 p.m. Eastern time, Monday through
Friday. Mr. Stern may be reached at 202-283-9703. Mr. Montanaro may be reached
at 202-283-9714. The telephone numbers in the preceding sentences are not
Internal Revenue Bulletin 2006-40
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