Part III. — Internal Revenue Bulletin 2008-26

Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates

Notice 2008–53

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 as in effect for plan years beginning before 2008. It also provides guidance on the corporate bond monthly yield curve (and the corresponding spot segment rates), the 24-month average segment rates, and the funding transitional segment rates under § 430(h)(2). In addition, this notice provides guidance as to the interest rate on 30-year Treasury securities under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning before 2008, the 30-year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I), and the min

For Plan Years

Corporate Bond Weighted

imum present value segment rates under § 417(e)(3)(D) as in effect for plan years beginning after 2007.

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 (PPA), 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, 2006–2 C.B. 366. The composite corporate bond rate for May 2008 is 6.47 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.

Beginning in Permissible Range

Month Year

Average 90% to 100%

June 2008 6.02 5.42 6.02

monthly corporate bond yield curve, the 24-month average corporate bond segment rates, and the funding transitional segment rates used to compute the target normal cost and the funding target. Pursuant to Notice 2007–81, the monthly corporate bond yield curve derived from May 2008 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of May 2008 are, respectively, 4.67, 6.36, and 6.77. The three 24-month average corporate bond segment rates applicable for June 2008 under the election of § 430(h)(2)(G)(iv) are as follows:

Third Segment

YIELD CURVE AND SEGMENT RATES

Generally for plan years beginning after 2007 (except for delayed effective dates for certain plans under sections 104, 105, and 106 of PPA), § 430 of the Code specifies the minimum funding requirements that apply to single employer plans pursuant to § 412. Section 430(h)(2) specifies the interest rates that must be used to determine a plan’s target normal cost and funding target. Under this provision, present value is generally determined using three 24-month average interest rates

First Segment

(“segment rates”), each of which applies to cash flows during specified periods. However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates. For plan years beginning in 2008 and 2009, a transitional rule under § 430(h)(2)(G) provides that the segment rates are blended with the corporate bond weighted average as specified above. An election may be made under § 430(h)(2)(G)(iv) to use the segment rates without applying the transitional rule.

Notice 2007–81, 2007–44 I.R.B. 899, provides guidelines for determining the

Second Segment

5.13 6.01 6.53

The transitional segment rates under § 430(h)(2)(G) applicable for June 2008, taking into account the corporate bond

weighted average of 6.02 stated above, are as follows:

2008–26 I.R.B. 1188 June 30, 2008

For Plan Years

Beginning in

First Segment

Second Segment

Third Segment

2008 5.72 6.02 6.19

for the full-funding limitation described in § 431(c)(6)(A), based on the plan’s current liability. Section 431(c)(6)(E)(ii)(I) provides that the interest rate used to calculate current liability for this purpose must be no more than 5 percent above and no more than 10 percent below the weighted average of the rates of interest on 30-year Treasury securities during the four-year period ending on the last day before the beginning of the plan year. Notice 88–73, 1988–2 C.B. 383, provides guidelines for determining the weighted average interest rate. The following rates were determined for plan years beginning in the month shown below.

30-YEAR TREASURY SECURITIES INTEREST RATES

Section 417(e)(3)(A)(ii)(II) (prior to amendment by PPA) 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

For Plan Years

rate of interest 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 May 2008 is 4.60 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 2038.

Generally for plan years beginning after 2007, § 431 specifies the minimum funding requirements that apply to multiemployer plans pursuant to § 412. Section 431(c)(6)(B) specifies a minimum amount

30-Year Treasury Weighted

Beginning in Permissible Range

Month Year

Average 90% to 105%

June 2008 4.75 4.28 4.99

ing the minimum present value segment rates. Pursuant to that notice, the minimum present value transitional segment rates determined for May 2008, taking into account the May 2008 30-year Treasury rate of 4.60 stated above, are as follows:

Third Segment

MINIMUM PRESENT VALUE SEGMENT RATES

Generally for plan years beginning after December 31, 2007, the applicable interest rates under § 417(e)(3)(D) are segment rates computed without regard to a

For Plan Years

Beginning in

24-month average. For plan years beginning in 2008 through 2011, the applicable interest rate is the monthly spot segment rate blended with the applicable rate under § 417(e)(3)(A)(ii)(II) as in effect for plan years beginning in 2007. Notice 2007–81 provides guidelines for determin

First Segment

Second Segment

2008 4.61 4.95 5.03

DRAFTING INFORMATION

The principal author of this notice is Tony Montanaro of the Employee Plans,

Tax Exempt and Government Entities Division. Mr. Montanaro may be e-mailed at RetirementPlanQuestions@irs.gov .

June 30, 2008 1189 2008–26 I.R.B.

Table I

Monthly Yield Curve for May 2008

Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield

2008–26 I.R.B. 1190 June 30, 2008

Request for Comments Regarding Election to Allocate and Apportion Interest on a Worldwide Basis Under Section 864(f)

Notice 2008–54

The purpose of this notice is to request public comments regarding the elections under section 864(f)(6) of the Internal Revenue Code (Code) to allocate and apportion interest expense on a worldwide affiliated group basis and under section 864(f)(5) to expand a financial institution group of a worldwide affiliated group.

BACKGROUND

Section 864(f) was added to the Code by the American Jobs Creation Act of 2004, P.L. 108–357, 118 Stat. 1418 (October 22, 2004). Section 864(f)(6) permits taxpayers to make a one-time election to allocate and apportion interest expense on a worldwide affiliated group basis. In general, if the election is made, the domestic members of the worldwide affiliated group determine their foreign source taxable income by allocating and apportioning their interest expense to such income in an amount equal to the excess (if any) of the worldwide affiliated group’s total interest expense multiplied by a fraction with a numerator consisting of the worldwide affiliated group’s foreign assets and a denominator consisting of the worldwide affiliated group’s total assets, over the amount of interest expense of all foreign corporations that are members of the worldwide affiliated group that would have been allocated and apportioned to foreign source income of such foreign members of the worldwide affiliated group if the rules of section 864(f) were applied to a group consisting solely of all such

foreign members. Section 864(f)(5) permits a one-time election to expand the financial institution group of a worldwide affiliated group that has made the election under section 864(f) to allocate interest expense on a worldwide affiliated group basis. The elections under section 864(f) may be made only for the first taxable year beginning after December 31, 2008, in which the taxpayer is eligible to make the election, and are revocable only with the consent of the Secretary.

REQUEST FOR COMMENTS

The IRS and Treasury Department request comments on guidance needed regarding the elections to allocate and apportion interest expense on a worldwide affiliated group basis and to expand the financial institution group of a worldwide affiliated group. Specifically, comments are requested on any substantive issues that need to be addressed in advance of the date of making such elections, which is generally expected to be the due date (including extensions) of an eligible taxpayer’s return for its first taxable year beginning after December 31, 2008. Further, comments are requested on whether it is necessary and appropriate to prescribe regulations providing for the direct allocation and apportionment of interest expense for purposes of section 864(f), preventing assets or interest expense from being taken into account more than once, and addressing changes in the status of members of a worldwide affiliated group or financial institution group (through acquisitions or otherwise). In addition, comments are requested regarding the treatment of loans between members of the worldwide affiliated group or financial institution group (or from a member of one group to a member of the other group), as well as appropriate foreign currency translation conven

tions relating to asset bases or interest expense. Comments are also requested on the extent to which regulations should provide that bank holding companies, financial holding companies, and subsidiaries of a financial institution (described in section 581 or section 591) or of a bank or financial holding company, should be treated as includible corporations for purposes of section 1504 for purposes of applying section 864(f) separately to such corporations. Finally, comments are requested regarding the standards the IRS should apply to determine whether to grant taxpayers consent to revoke an election under section 864(f)(6) or section 864(f)(5). Comments should be submitted on or before September 8, 2008, and should include a reference to Notice 2008–54. Send submissions to CC:PA:LPD:PR (Notice 2008–54), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2008–54), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20044, or sent electronically, via the following e-mail address: Notice.comments@irscounsel.treas.gov . Please include “Notice 2008–54” in the subject line of any electronic communication. All material submitted will be available for public inspection and copying.

DRAFTING INFORMATION

The principal author of this notice is Jeffrey L. Parry of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Jeffrey L. Parry at (202) 622–3850 (not a toll-free call).

June 30, 2008 1191 2008–26 I.R.B.