Here's how I understand the current law: After the plan year, penalty interest on late quarterlies is charged at the max of funding interest rate, 175% of the federal mid-term rate, and the current liability rate (the max rate). So if your current liability rate is 5%, funding interest rate is 7% and 175% of the federal mid-term rate is 9%, penalty interest after the plan year is 9%. Notice 89-52 is fairly clear about that. Do you know how penalty interest is charged after the plan year when 175% of the fed mid-term is lower than the max rate? Is it charged at the max rate or at 175% of the fed mid-term?

My inclination is to conclude that it's charged at the max rate.

Are you suggesting that the rate from 01/01/2006 to 09/15/2006 (for example, assuming a CY plan) would be different than the rate from 04/15/2005 to 12/31/2005? I'm not aware of that possibility.

Yes, that is my question, but only in a specific case; i.e. when 175% of the fed mid term is less than the funding interest rate. If you have quarterly contributions for the plan year 1/1/2005 go 12/31/2005, what amount of interest do you charge during 1/1/2006 to 9/15/2006 as penalty interest on late quarterlies? My inclination is to say that penalty interest will be charged at the max rate of the two rates for the period 1/1/2006 go 9/15/2006. However, there is language in notice 89-52 that says the funding interest rate will only be charged to the end of the plan year, so I'm having trouble verifying my inclination.

My recollection is that the interest rates are based on the plan year. If so, then the rates from 1/1 to 9/15/2006 are the same as the 2005 rate (i.e., the rates for 1/1/2005).

You're right on that Tex. I eventually found that the directions in the Schedule B are quite direct in saying that the max rate, of the three rates, is the rate that applies from 1/1/2005 to 9/2006.