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1 1 (August 31, 2021)

handle is hein.crs/goveeld0001 and id is 1 raw text is: ACongressional * Research Service Proposed Extension of Interest Rate Stabilization Percentages for Single Employer Plans August 31, 2021 Participants in defined benefit (DB) pension plans typically receive monthly payments from the plans when they retire. Employers that sponsor these plans set aside an amount each year to fund the benefits that will be paid. The benefit obligations are a plan liability spread out over many years in the future. Pension Plan Benefit Calculations A DB plan's future benefits are spread out many years in the future and are calculated and reported as present values (also called current values) through a process called discounting. Discounting requires the use of a specified interest rate and uses a formula to express benefits that are expected to be paid in a particular year in the future as a present value. Discounting is the inverse of compounding, which projects how much a dollar amount will be worth at a point in the future given a specified interest rate. The formula for calculating a present value is: Dollar Value of Future Benefit Present Value = (Interest Rate) Number of Years in the Future The present value of a dollar amount is inversely related to both the interest rate (also called the discount rate) used to determine the present value of future cash flows and the number of years in the future used in the calculation. As the interest rate rises, the present value of future benefit obligations decreases, and DB pension plan sponsors' contributions decrease while maintaining plan funding. When pension plan contributions decrease, employers' taxable income increases, which results in increased revenue for the U. S. Treasury. Under current law, this present value formula uses three separate interest rates, referred to as segment rates, which are calculated as the average of the corporate bond yields within each segment for the Congressional Research Service https://crsreports.congress.gov IN11735 CRS INSIGHT Prepared for Membersand Committeesof Congress

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