Friday, August 17, 2012

IRS Issues First MAP-21 Guidance

Kudos to the IRS. Yes, you heard it here first, kudos to the IRS. On July 6 of this year, President Obama signed into law the Moving Ahead for Progress in the 21st Century Act, hereinafter known as MAP-21. As anyone reading this blog will know, MAP-21 contained pension funding stabilization provisions, and interpretation of and guidance related to those provisions was of extreme importance.

Yesterday (that's a 41-day time span), the IRS issued Notice 2012-55 providing us with interest rate guidance for the preceding 12 months. For those of you who are pension actuaries or who are plan sponsors of defined benefit plans, this information is critical and the speed with which it got to us was essentially unprecedented.

For those who understand the terminology, First Segment Rates under MAP-21 are currently at 5.54%, Second Segment Rates at 6.85%, and Third Segment Rates are at 7.52%. These are increases of approximately 3.5%, 1.8%, and 1.3%, respectively from reality.

For those who are unfamiliar, these provisions of MAP-21 are allowing pension plan sponsors (and their actuaries) to use ridiculously smoothed interest rates to value their liabilities. It took only six years, but among the most key provisions of the Pension Protection Act has been gutted, all in the name of decreasing tax expenditures.

Most of the popular (and unpopular) media speaks about the IRS as the Evil Empire. They can be, at times, but in this case, don't blame it on them. They did their job, and they did it quickly. It's Congress and the President who passed and signed the law.

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