“Thus, for a calendar year plan with a January 1, 2009, valuation date, the IRS will not challenge the use of the monthly yield curve for January 2009, or any one of the four months immediately preceding January 2009,” the IRS said in a statement.
The IRS had previously proposed—but never made into a rule—that plans be required to use the spot rate based on the interest rate in effect for the month preceding the beginning of the plan year.
That meant calendar-year plans would have had to use the lower rates in effect in December 2008, rather than the higher interest rates in effect in October or November of that year, to calculate their funding obligations. Using the lower December rates would have meant higher liabilities for the plans and the need for funding increases.
“Today’s announcement is welcome news for many employer defined-benefit plan sponsors that are facing unprecedented funding obligations as a result of the economic downturn,” James Klein, president of the American Benefits Council, said in a statement.