IRS Late on 30-Year Bond Rate

March 11, 2002 ( - The IRS has not yet issued February's 30-year Treasury bond rate, which sponsors of defined benefit plans, and their actuaries use to calculate lump sum distributions.

Ever since the Treasury Department announced in October that it would no long issue the long bond, the IRS has issued a monthly rate for the bond, which plan sponsors use for various defined benefit plan calculations

According to the American Society of Pension Actuaries (ASPA), the Treasury and the IRS are developing a methodology for determining this monthly 30-year Treasury bond rate in the absence of the issuance of new securities.

Sit Tight

ASPA quotes the chief actuary at the Treasury Department as saying that he hopes the February rate will be released within the next two weeks. Until then, according to ASPA, he advises plan actuaries and consultants to “sit tight” and not make calculations in the absence of an official rate.

The economic stimulus bill, which the President recently signed into law, providing some temporary relief for plans struggling with the historically low yield of the long bond for the 2002 and 2003 plan years.

While the new legislation doesn’t allow the use of a substitute interest rate benchmark, it does permit plans to use 120% of the 4-year weighted average interest rate for 30-year Treasury bonds instead of the 105% currently permitted for purposes of calculating the deficit reduction contribution.

Additionally, for purposes of calculating Pension Benefit Guaranty Corp.’s variable rate premium, 100% of the 30-year bond rate can be used instead of the previously permitted 85%.

These changes don’t apply for the purpose of calculating lump sum distributions under section 417 or for purposes of calculating the section 415(b) limit for lump sum distributions.