For 417(e) purposes, can a plan use the average of the segment rates for the 2nd, 3rd, and 4th months prior to stability period?

See highlighted section on page 6 of the attached. This reg. was not nuked by PPA. In fact, you need to retain the stability period and lookback month. However, you will need to interpret how it applies under the 3-segment scenario.

Andy, thanks! I presume, however, that the same averaging of segment rates is not permissable for funding purposes under 430. Do you agree?

(1) I'm not the Ayatollah so my opinion is well, just my opinion and not gospel. In short, my agreement with you or anyone else means nothing in a court of law let alone in a tennis court.

(2) Averaging of segment rates for lump sum purposes appears to be allowable. In fact, if the plan provided for averaging prior to PPA, it would have seem it would have to provide for averaging after PPA unless amended (with window).

(3) For funding, I'm unaware that averaging of segment rates is permissible for 430, though of course you develop a recommended contribution using averaging.

(4) Your question is simply another illustration of why PPA serves only to cause headaches and truly does not provide any more meaningful results. I.e., FTs and lump sums determined as of the actuarial valuation date may differ significantly.

Andy the Ayatollah, would you describe the correct averaging techique? Should each month be weighted for the number of days it contains?

(Sorry, I could not resist).



carrots, why would anyone want to add more complications to this stuff?

Given my incredibly bad attitude regarding the interest rate constraints and accompanying irrationalities the feds have legislated over the years for lump sum calculations, I can honestly say that for most plans, I've recommended plan year stability period and 5 month lookback, which makes sense for planning purposes. The thought of averaging interest rates that do not relate to reality is repugnant. Thus, I've never been involved with a plan that averaged monthly interest rates for lump sum determination. Given my age, I likely never will. Therefore, I offer no thoughts on averaging segment rates.

In short, you have asked me if I believe in a supreme being. I said no. So, I can't nor will attempt to describe him, her, or it.

Oh, yee of little faith...how about Andy the Ayatollah of cynics??

Now for my own faith and cynicism:
I believe that the IRS will act in a consistent manner when the management of the IRS is stable and in control of their auditors. You could count on some regulators to keep a consistent policy position for an extended period of time. That is why we all hoped for consistent guidance from the Isadore Goodmans, Ira Cohens, Dick Wickershams, and Jim Hollands of the world.

I do not believe that market rates are stable, because there are too many counter examples. So an average of yield curves allows some stability in planning for distributions. A 30 yr treasury rate of 2.87% is just wacho!

Yes, and a lump sum rate of 5% is wacko if plan assets are invested to achieve a long-term yield of 7% plus. Thus, my wounds are long and deep going back to TRA86.

My understanding of 417(e) is that individual investors are actually consumers who need protection. I personally know plenty of retirees and near-retirees who can't figure out how to get more interest than a 5 year CD at their local bank. So 417(e) forces the payout to go down to the lowest common denominator - a safe yield on high quality fixed income products. It's a consumer thing...

Interesting perspective. Originally, it was supposed to be a proxy thing to ensure participants could insure their pension through annutiy purchase. A nice thought but in the vein of happy horse hockey because such action was never taken. Now, it's simply a dastard thing that artificially increases benefits and strips DB plans of their efficiency.

Really, you!


The comments by AtA and SoCal are exactly on point. Averaging removes some volatility but adds some complexity. You decide which is best for you (which is characteristic of more than one design decision). In my experience, using a one-year stability period is very common. A one-month lookback is probably not enough, but the sponsor has reasonable flexibility in choosing that definition.