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Estimated Discount Rates: June 2016

Based on 30 Year Treasury Rates

There are two age groups that this describes; the grandfathered group and anyone else. The grandfathered group gets their discount rate by taking 95% of the daily average of the 30-year Treasury bonds.

We know that this group’s discount rate for the 3rd quarter is 2.5% based on where rates have been so far for this quarter and we also know that the discount rate for fourth quarter will be 2.5% as well.

For the category of anyone else, we have to use a segmented blend of corporate bond rates, short, intermediate and long-term bonds. We have seen the spread between corporate bonds and treasury bonds narrowing, and trending downwards towards year-end.

June2016-chart2

Estimated Discount Rates: June 2016

Based on IRS Minimum Present Value Rates

June2016-chart1

Source(s):
2. IRS: Minimum Present Value Segment Rates
3. IRS: Notice 2007-81
4. Calculations – First Segment: Current quarter average multiplied by (5/30 year) to indicate first 5 years of service. Second Segment: Current quarter average multiplied by (15/30 year) to indicate next 15 years of service. Third segment: Current quarter average multiplied by (10/30 year) to indicate last 10 years of service.


2. IRS Minimum Present Value Segment Rates:

http://www.irs.gov/Retirement-Plans/Minimum-Present-Value-Segment-Rates

The first segment rate applicable for a given month is the arithmetic average over the 10 maturity points from 1⁄2 year to 5 years of the applicable corporate bond yield curve. This is mathematically the same as the arithmetic average for the preceding 24 months of the “spot” first segment rates that can be developed from each of the monthly yield curves (as the arithmetic average over the 10 maturity points from 1⁄2 year to 5 years of those monthly yield curves) and this second approach has been used in order to facilitate presentation of the segment rates. Similarly, the second segment rate applicable for the given month is the arithmetic average for the preceding 24 months of the spot second segment rates for those months (where the spot second segment rate for a month is the arithmetic average over the 30 maturity points from 51⁄2 years to 20 years of the monthly yield curve). The third segment rate applicable for the given month is the arithmetic average for the preceding 24 months of the spot third segment rates for those months (where the spot third segment rate for a month is the arithmetic average over the 80 maturity points from 201⁄2 years to 60 years of the monthly yield curve). These 24-month average segment rates are the rates that would be applicable if an election was made under § 430(h)(2)(G)(iv) not to use the transitional rule of § 430(h)(2)(G), or if a plan’s first plan year begins after 2007.

Generally for plan years beginning after December 31, 2007, the applicable interest rates under Section 417(e)(3)(D) of the Code are segment rates computed without regard to a 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 Section 417(e)(3)(A)(ii)(II) of the Code as in effect for plan years beginning in 2007. For plan years beginning in the stated year, the following rates are the applicable interest rates for the month and year listed for minimum present value computations under Section 417(e)(3)(D) of the Code.

3. IRS Notice 2007-81: The first segment rate applicable for a given month is the arithmetic average over the 10 maturity points from 1⁄2 year to 5 years of the applicable corporate bond yield curve. This is mathematically the same as the arithmetic average for the preceding 24 months of the “spot” first segment rates that can be developed from each of the monthly yield curves (as the arithmetic average over the 10 maturity points from 1⁄2 year to 5 years of those monthly yield curves) and this second approach has been used in order to facilitate presentation of the segment rates. Similarly, the second segment rate applicable for the given month is the arithmetic average for the preceding 24 months of the spot second segment rates for those months (where the spot second segment rate for a month is the arithmetic average over the 30 maturity points from 51⁄2 years to 20 years of the monthly yield curve). The third segment rate applicable for the given month is the arithmetic average for the preceding 24 months of the spot third segment rates for those months (where the spot third segment rate for a month is the arithmetic average over the 80 maturity points from 201⁄2 years to 60 years of the monthly yield curve). These 24-month average segment rates are the rates that would be applicable if an election was made under § 430(h)(2)(G)(iv) not to use the transitional rule of § 430(h)(2)(G), or if a plan’s first plan year begins after 2007.

IMPORTANT DISCLOSURE INFORMATION:

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.comPlease Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a Bogart Wealth client, please contact Bogart Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.  Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

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