Part III. Administrative, Procedural, and Miscellaneous

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

Notice 2016–61

This notice provides guidance on the corporate bond monthly yield curve, the corresponding spot segment rates used under § 417(e)(3), and the 24-month average segment rates under § 430(h)(2) of the Internal Revenue Code. 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 and the 30year Treasury weighted average rate under § 431(c)(6)(E)(ii)(I).

YIELD CURVE AND SEGMENT RATES

Generally, except for certain plans under sections 104 and 105 of the Pension Protection Act of 2006 and CSEC plans under § 414(y), § 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 (“segment rates”), each of which applies to cash flows during specified periods. To the extent provided under § 430(h)(2)(C) (iv), these segment rates are adjusted by the applicable percentage of the 25-year average segment rates for the period ending September 30 of the year preceding the calendar year in which the plan year begins. ¹ However, an election may be made under § 430(h)(2)(D)(ii) to use the monthly yield curve in place of the segment rates.

Notice 2007–81, 2007–44 I.R.B. 899, provides guidelines for determining the monthly corporate bond yield curve, and the 24-month average corporate bond segment rates used to compute the target normal cost and the funding target. Consistent with the methodology specified in Notice 2007–81, the monthly corporate bond yield curve derived from September

2016 data is in Table I at the end of this notice. The spot first, second, and third segment rates for the month of September 2016 are, respectively, 1.47, 3.34, and 4.30. The 24-month average segment rates determined under § 430(h)(2)(C)(i) through (iii) must be adjusted pursuant to § 430(h) (2)(C)(iv) to be within the applicable minimum and maximum percentages of the corresponding 25-year average segment rates. For plan years beginning before 2021, the applicable minimum percentage is 90% and the applicable maximum percentage is 110%. The 25-year average segment rates for plan years beginning in 2015, 2016, and 2017 were published in Notice 2014–50, 2014–40 I.R.B. 590, Notice 2015–61, 2015–39 I.R.B. 408, and Notice 2016–54, 2016–40 I.R.B. 429, respectively.

24-MONTH AVERAGE CORPORATE BOND SEGMENT RATES

The three 24-month average corporate bond segment rates applicable for October 2016 without adjustment for the 25-year average segment rate limits are as follows:

Applicable Month First Segment Second Segment Third Segment

October 2016 1.52 3.78 4.76

Based on § 430(h)(2)(C)(iv), the 24month averages applicable for October

2016 adjusted to be within the applicable minimum and maximum percentages of

the corresponding 25-year average segment rates, are as follows:

Years Adjusted 24-Month Average Segment Rates

In Applicable Month First Segment Second Segment Third Segment

2015 October 2016 4.72 6.11 6.81

2016 October 2016 4.43 5.91 6.65

2017 October 2016 4.16 5.72 6.48

For Plan Years

Beginning In

30-YEAR TREASURY SECURITIES INTEREST RATES

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 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 rate of interest on 30-year Treasury securities for September 2016 is 2.35 percent. The Service determined this

1Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount of the full funding limitation under § 433(c)(7)(C)).

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rate as the average of the daily determinations of yield on the 30-year Treasury bond maturing in August 2046. For plan years

beginning in the month shown below, the weighted average of the rates of interest on 30-year Treasury securities and the permis

sible range of rate used to calculate current liability are as follows:

Permissible Range

For Plan Years Beginning in 30-Year Treasury

Year Weighted Average

Month Year Weighted Average 90% to 105%

October 2016 2.94 2.64 3.08

MINIMUM PRESENT VALUE SEGMENT RATES

In general, the applicable interest rates under § 417(e)(3)(D) are segment rates

First Segment

computed without regard to a 24-month average. Notice 2007–81 provides guidelines for determining the minimum present value segment rates. Pursuant to that notice, the minimum present value seg

Second Segment

ment rates determined for September 2016 are as follows:

Third Segment

1.47 3.34 4.30

DRAFTING INFORMATION

The principal author of this notice is Tom Morgan of the Office of the Associ

ate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS participated in the development of this guidance. For further

information regarding this notice, contact Mr. Morgan at 202-317-6700 or Tony Montanaro at 202-317-8698 (not toll-free numbers).

Bulletin No. 2016–46 723 November 14, 2016

Table I Monthly Yield Curve for September 2016

Derived from September 2016 Data Maturity Yield Maturity Yield Maturity Yield Maturity Yield Maturity Yield

November 14, 2016 724 Bulletin No. 2016–46

2017 Limitations Adjusted As Provided in Section 415(d), etc.

Notice 2016–62

Section 415 of the Internal Revenue Code (the Code) provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost-ofliving increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under § 415. Under § 415(d), the adjustments are to be made under adjustment procedures similar to those used to adjust benefit amounts under § 215(i)(2)(A) of the Social Security Act.

Cost-of-Living Adjusted Limits for 2017

Effective January 1, 2017, the limitation on the annual benefit under a defined benefit plan under § 415(b)(1)(A) is increased from $210,000 to $215,000.

For a participant who separated from service before January 1, 2017, the participant’s limitation under a defined benefit plan under § 415(b)(1)(B) is computed by multiplying the participant’s compensation limitation, as adjusted through 2016, by 1.0112.

The limitation for defined contribution plans under § 415(c)(1)(A) is increased in 2017 from $53,000 to $54,000. The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of § 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2017 are as follows:

The limitation under § 402(g)(1) on the exclusion for elective deferrals described in § 402(g)(3) remains unchanged at $18,000.

The annual compensation limit under §§ 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $265,000 to $270,000.

The dollar limitation under § 416(i)(1) (A)(i) concerning the definition of “key

employee” in a top-heavy plan is increased from $170,000 to $175,000.

The dollar amount under § 409(o)(1) (C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5-year distribution period is increased from $1,070,000 to $1,080,000, while the dollar amount used to determine the lengthening of the 5-year distribution period is increased from $210,000 to $215,000.

The limitation used in the definition of “highly compensated employee” under § 414(q)(1)(B) remains unchanged at $120,000.

The dollar limitation under § 414(v) (2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in § 401(k)(11) or § 408(p) for individuals aged 50 or over remains unchanged at $6,000. The dollar limitation under § 414(v)(2)(B) (ii) for catch-up contributions to an applicable employer plan described in § 401(k)(11) or 408(p) for individuals aged 50 or over remains unchanged at $3,000.

The annual compensation limitation under § 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost-of-living adjustments to the compensation limitation under the plan under § 401(a)(17) to be taken into account, is increased from $395,000 to $400,000.

The compensation amount under § 408 (k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $600. The limitation under § 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,500.

The limitation on deferrals under § 457 (e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $18,000.

The limitation under § 664(g)(7) concerning the qualified gratuitous transfer of qualified employer securities to an employee stock ownership plan remains unchanged at $45,000.

The compensation amounts under § 1.61– 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $105,000. The compensation amount under § 1.61–21(f)(5)(iii) remains unchanged at $215,000.

The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under § 1.401(a)(9)– 6, A–17(b)(2)(i) of the Income Tax Regulations remains unchanged at $125,000.

The Code provides that the $1,000,000,000 threshold used to determine whether a multiemployer plan is a systemically important plan under § 432(e)(9)(H)(v)(III)(aa) is adjusted using the cost-of-living adjustment provided under § 432(e)(9)(H)(v) (III)(bb). After taking the applicable rounding rule into account, the threshold used to determine whether a multiemployer plan is a systemically important plan under § 432(e)(9)(H)(v)(III)(aa) remains unchanged at $1,012,000,000.

The Code also provides that several retirement-related amounts are to be adjusted using the cost-of-living adjustment under § 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2017 are as follows:

The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contributions credit for married taxpayers filing a joint return remains unchanged at $37,000; the limitation under § 25B(b) (1)(B) remains unchanged at $40,000; and the limitation under §§ 25B(b)(1) (C) and 25B(b)(1)(D) is increased from $61,500 to $62,000. The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contributions credit for taxpayers filing as head of household remains unchanged at $27,750; the limitation under § 25B(b) (1)(B) remains unchanged at $30,000; and the limitation under §§ 25B(b)(1) (C) and 25B(b)(1)(D) is increased from $46,125 to $46,500.

The adjusted gross income limitation under § 25B(b)(1)(A) for determining the retirement savings contributions

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credit for all other taxpayers remains unchanged at $18,500; the limitation under § 25B(b)(1)(B) remains unchanged at $20,000; and the limitation under §§ 25B(b)(1)(C) and 25B(b)(1) (D) is increased from $30,750 to $31,000.

The deductible amount under § 219(b) (5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500.

The applicable dollar amount under § 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants in a qualified plan (or another retirement plan specified in § 219(g) (5)) filing a joint return or as a qualifying widow(er) is increased from $98,000 to $99,000. The applicable dollar amount under § 219(g)(3)(B)(ii) for all other taxpayers who are active participants (other than married taxpayers filing separate returns) is increased from $61,000 to $62,000. If an individual or the individual’s spouse is an active participant, the applicable dollar amount under § 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under § 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $184,000 to $186,000.

Accordingly, under § 219(g)(2)(A), the deduction for taxpayers making contributions to a traditional IRA is phased out for single individuals and heads of household who are active participants in a qualified plan (or another retirement plan specified in § 219(g)(5)) and have adjusted gross incomes (as defined in § 219(g)(3)(A)) between $62,000 and $72,000, increased from between $61,000 and $71,000. For married couples filing jointly, if the spouse who makes the IRA contribution is an active participant, the income phase-out range is between $99,000 and $119,000, increased from between $98,000 and $118,000. For an IRA contributor who is not an active partic

ipant and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $186,000 and $196,000, increased from between $184,000 and $194,000. For a married individual filing a separate return who is an active participant, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The adjusted gross income limitation under § 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for a taxpayer filing as a qualifying widow(er) is increased from $184,000 to $186,000. The adjusted gross income limitation under § 408A (c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $117,000 to $118,000. The applicable dollar amount under § 408A(c)(3)(B) (ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0.

Accordingly, under § 408A(c)(3)(A), the adjusted gross income phase-out range for taxpayers making contributions to a Roth IRA is $186,000 to $196,000 for married couples filing jointly, increased from $184,000 to $194,000. For singles and heads of household, the income phase-out range is $118,000 to $133,000, increased from $117,000 to $132,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The dollar amount under § 430(c)(7) (D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under § 430(c)(2)(D) has been made is increased from $1,106,000 to $1,115,000.

Drafting Information

The principal author of this notice is Tom Morgan of the Office of the Associate Chief Counsel (Tax Exempt and Gov

ernment Entities). However, other personnel from the IRS participated in the development of this guidance. For further information regarding this notice, contact Mr. Morgan at 202-317-6700 or John Heil at 443-853-5519 (not toll-free numbers).

Adjusted Applicable Dollar Amount for Fee Imposed by §§ 4375 and 4376

Notice 2016–64

I. PURPOSE

This notice provides the adjusted applicable dollar amount to be multiplied by the average number of covered lives for purposes of the fee imposed by §§ 4375 and 4376 of the Internal Revenue Code for policy years and plan years that end on or after October 1, 2016, and before October 1, 2017.

II. BACKGROUND

Section 4375 imposes a fee on the issuer of a specified health insurance policy for each policy year ending after September 30, 2012, and before October 1, 2019. Section 4376 imposes a fee on the plan sponsor of an applicable self-insured health plan for each plan year ending after September 30, 2012, and before October 1, 2019. The fee imposed by §§ 4375 and 4376 helps to fund the Patient-Centered Outcomes Research Institute (PCORI) and is calculated using the average number of lives covered under the policy or plan and the applicable dollar amount for that policy year or plan year. Under §§ 4375(a) and 4376(a), the applicable dollar amount is $2 for policy and plan years ending on or after October 1, 2013, and before October 1, 2014. ¹ Treas Reg. §§ 46.4375–1(c)(4) and 46.4376–1(c)(3).

Under §§ 4375(d) and 4376(d) and Treas. Reg. §§ 46.4375–1(c)(4) and 46.4376–1(c)(3), the applicable dollar amount for policy years and plan years ending in any Federal fiscal year beginning on or after October 1, 2014 is increased based on increases in the projected per capita amount of National Health Expenditures.

1The applicable dollar amount is $1 for policy and plan years ending before October 1, 2013.

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The percentage increase is calculated after adjustment to reflect updates to the data used to calculate the prior amount, $2.17, which was based on the per capita amounts of National Health Expenditures for 2015 and 2016 published by HHS on July 22, 2015.

IV. EFFECTIVE DATE

This notice is effective for policy years and plan years ending on or after October 1, 2016.

V. DRAFTING INFORMATION

The principal author of this notice is Stephanie L. Caden of the Office of Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this notice, contact Ms. Caden at (202) 317-5500 (not a toll free number).

Specifically, the applicable dollar amount is the sum of

(i) The applicable dollar amount for the

policy year or plan year ending in the previous Federal fiscal year; plus

(ii) The amount equal to the product of

(A) The applicable dollar amount for

the policy year or plan year ending in the previous Federal fiscal year; and (B) The percentage increase in the pro jected per capita amount of the National Health Expenditures most recently released by the Department of Health and Human Services (HHS) before the beginning of the Federal fiscal year.

Notice 2015–60, 2015–43, I.R.B. 604, provides that the adjusted applicable dollar amount for policy years and plan years

that end on or after October 1, 2015, and before October 1, 2016 is $2.17.

III. ADJUSTED APPLICABLE DOLLAR AMOUNT

The applicable dollar amount that must be used to calculate the fee imposed by §§ 4375 and 4376 for policy years and plan years that end on or after October 1, 2016, and before October 1, 2017, is $2.26. The increase from the prior amount is calculated by multiplying the adjusted applicable dollar amount for policy years and plan years ending in the previous Federal fiscal year, $2.17, by the percentage increase of the projected per capita amount of National Health Expenditures published by HHS on July 12, 2016. See www.cms.gov/Research-Statistics-Dataand-Systems/Statistics-Trends-andReports/NationalHealthExpendData/ Downloads/Proj2015tables.zip, Table 3.

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