[Federal Register Volume 74, Number 225 (Tuesday, November 24, 2009)]
[Rules and Regulations]
[Pages 61270-61277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28078]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 54
[TD 9472]
RIN 1545-BG48
Notice Requirements for Certain Pension Plan Amendments
Significantly Reducing the Rate of Future Benefit Accrual
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulation.
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SUMMARY: This document contains final regulations providing guidance
relating to the application of the section 204(h) notice requirements
to a pension plan amendment that is permitted to reduce benefits
accrued before the plan amendment's applicable amendment date. These
regulations also reflect certain amendments made to the section 204(h)
notice requirements by the Pension Protection Act of 2006. These final
regulations generally affect sponsors, administrators, participants,
and beneficiaries of pension plans.
DATES: Effective date: These regulations are effective on November 24,
2009.
Applicability date: For dates of applicability of these
regulations, see Q&A-18, Sec. 54.4980F-1 of these regulations.
FOR FURTHER INFORMATION CONTACT: Pamela R. Kinard at (202) 622-6060
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
were previously reviewed and approved by the Office of Management and
Budget in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under control number 1545-1780, in conjunction with the
Treasury decision (TD 9052), relating to Notice of Significant
Reduction in the Rate of Future Benefit Accrual, published on April 9,
2003 in the Federal Register (68 FR 17277). There are no proposals for
substantive changes to this collection of information.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
Overview
This document contains amendments to 26 CFR parts 1 and 54 under
sections 411(d)(6) and 4980F of the Internal Revenue Code (Code). This
Treasury decision amends Sec. 54.4980F-1 of the Treasury regulations
to reflect changes made to section 4980F by the Pension Protection Act
of 2006, Public Law 109-280 (120 Stat. 780) (PPA '06). In addition,
this Treasury decision amends Sec. 1.411(d)-3 to reflect changes to
section 411(d)(6) made by section 1107 of PPA '06.
Section 411(d)(6) Protected Benefits
Section 401(a)(7) of the Code provides that a trust does not
constitute a qualified trust unless the plan under which the trust is
established and maintained satisfies the requirements of section 411
(relating to minimum vesting standards). Section 411(d)(6)(A) and Sec.
1.411(d)-3(a)(1) provide that a plan is treated as not satisfying the
requirements of section 411 if the accrued benefit of a participant is
decreased by an amendment of the plan, other than an amendment
described in section 412(d)(2) (formerly section 412(c)(8)), section
4281 of the Employee Retirement Income Security Act of 1974 (ERISA), as
amended, or any other applicable law. Applicable law includes sections
418D and 418E of the Code and section 1541(a)(2) of the Taxpayer Relief
Act of 1997, Public Law 105-34 (111 Stat. 788, 1085). Section 204(g) of
ERISA contains parallel rules to section 411(d)(6) of the Code.
Notice Requirements for Significant Reduction in the Rate of Future
Benefit Accruals
Section 4980F imposes an excise tax when a plan administrator fails
to
[[Page 61271]]
provide timely notice of a plan amendment that provides for a
significant reduction in the rate of future benefit accrual. For this
purpose, the elimination or reduction of an early retirement benefit or
retirement-type subsidy is treated as having the effect of reducing the
rate of future benefit accrual. Section 4980F(e)(3) provides that,
except as provided in regulations, the notice must be provided within a
``reasonable time'' before the effective date of the plan amendment.
Section 204(h) of ERISA contains parallel rules to section 4980F of the
Code, and a notice required under section 4980F of the Code or section
204(h) of ERISA is generally referred to as a ``section 204(h)
notice.''
The Secretary of the Treasury has interpretive authority over
sections 411(d)(6) and 4980F of the Code as well as sections 204(g) and
204(h) of ERISA, including the subject matter addressed in these
regulations. See section 101(a) of Reorganization Plan No. 4 of 1978,
29 U.S.C. 1001nt (under which the Secretary of the Treasury generally
has the authority to issue regulations under parts 2 and 3 of subtitle
B of title I of ERISA, including sections 204(g) and 204(h) of
ERISA).\1\ Thus, these Treasury regulations under sections 411(d)(6)
and 4980F of the Code also apply for purposes of sections 204(g) and
204(h) of ERISA.
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\1\ In addition, sections 204(g) and 204(h) of ERISA include
provisions authorizing the Secretary of the Treasury to issue
guidance with respect to specific issues.
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Provisions of the Pension Protection Act of 2006
Section 402 of PPA '06 provides special funding rules for plans
maintained by an employer that is a commercial passenger airline or the
principal business of which is providing catering services to a
commercial passenger airline. Section 402(h)(4) of PPA '06 provides
that, in the case of a plan amendment adopted in order to comply with
the rules in section 402 of PPA '06, any notice required under section
4980F(e) of the Code (or section 204(h) of ERISA) must be provided
within 15 days of the effective date of the plan amendment. Section 402
of PPA '06 generally applies to amendments made pursuant to section 402
of PPA '06 for plan years ending after the date of enactment of PPA '06
(August 17, 2006).
Section 502(c) of PPA '06 amended section 4980F(e)(1) of the Code
(and section 204(h) of ERISA) to add a requirement that, if a section
204(h) notice is required with respect to an amendment, any employer
with an obligation to contribute to the plan receive a section 204(h)
notice. This new disclosure requirement is effective for plan years
beginning after December 31, 2007.
Section 1107 of PPA '06 provides that any plan amendment made
pursuant to a PPA '06 change may be retroactively effective and, except
as provided by the Secretary of the Treasury, does not violate the
anti-cutback rules of section 411(d)(6) of the Code (or section 204(g)
of ERISA) if, in addition to satisfying the conditions specified in
section 1107(b)(2) of PPA '06, the amendment is made on or before the
last day of the first plan year beginning on or after January 1, 2009
(January 1, 2011, with respect to governmental plans).
Notice Requirements Relating to Plan Amendments Affecting Previously
Accrued Benefits
In addition to the section 204(h) notice requirement, both the Code
and ERISA include a number of other requirements to provide information
to certain parties (such as participants, beneficiaries, and
contributing employers) regarding the potential effect of a plan
amendment that is permitted to reduce or eliminate previously accrued
benefits.
Section 412(d)(2) of the Code provides special rules relating to
retroactive plan amendments. Rev. Proc. 94-42 (1994-1 CB 717), see
Sec. 601.601(d)(2)(ii) (b), sets forth procedures under which a plan
sponsor may file notice with and obtain approval from the Secretary of
the Treasury for a retroactive amendment described in former section
412(c)(8) (now section 412(d)(2)) that reduces prior accrued benefits.
Section 4 of Rev. Proc. 94-42 provides guidance relating to the written
notice that must be provided to affected parties (employee
organizations, participants, beneficiaries, and alternate payees)
regarding the application for approval of a retroactive plan amendment
to reduce accrued benefits under section 412(d)(2).
Section 113(a)(1)(B) of PPA '06 added Code section 436 which
provides rules limiting benefits and benefit accruals for single-
employer plans with certain funding shortfalls.\2\ In general, these
limits are based on a plan's adjusted funding target attainment
percentage (AFTAP) \3\ and include limits on unpredictable contingent
event benefits \4\ (where the plan's AFTAP is or would be below 60
percent), certain plan amendments which would increase liabilities of
the plan by reason of an increase in benefits (where the plan's AFTAP
is or would be below 80 percent), and prohibited payments (where the
plan's AFTAP is below 60 percent or is at least 60 percent but below 80
percent, or during a period in which the plan sponsor is a debtor in a
case under title 11 U.S.C. or similar federal or State law and the plan
actuary has not certified that the plan's AFTAP is at least 100 percent
for the plan year), and a cessation of benefit accruals (where the
plan's AFTAP is below 60 percent).\5\
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\2\ Section 103(a) of PPA '06 added section 206(g) of ERISA, the
parallel provision to section 436 of the Code.
\3\ For a definition of AFTAP, see section 436(j)(2).
\4\ For a definition of unpredictable contingent event benefit,
see section 436(b)(3).
\5\ These provisions are reflected in sections 436(b)(1),
(c)(1), (d)(1), (d)(2), and (d)(3), and (e)(1) (and the parallel
provisions at sections 206(g)(1)(A), (g)(2)(A), (g)(3)(A),
(g)(3)(B), and (g)(3)(C), and (g)(4)(A) of ERISA).
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Section 101(j) of ERISA requires the plan administrator to provide
a written notice to plan participants and beneficiaries, generally
within 30 days after the plan becomes subject to the benefit
limitations in section 206(g)(1), (3), or (4) of ERISA (which are
parallel to the benefit limitations in Code section 436(b), (d), or
(e)) relating to unpredictable contingent event benefits, prohibited
payments, and cessation of benefit accruals. Section 101(c)(1)(A)(ii)
of the Worker, Retiree, and Employer Recovery Act of 2008, Public Law
110-458 (122 Stat. 5092) (WRERA), amended section 101(j) of ERISA to
authorize the Secretary of the Treasury, in consultation with the
Secretary of Labor, to prescribe rules applicable to the notice
requirements under section 101(j) of ERISA.
Section 418D of the Code (and the parallel provision at section
4244A of ERISA) provides that a multiemployer plan in reorganization is
permitted to adopt an amendment reducing or eliminating accrued
benefits attributable to employer contributions under the plan. Under
section 418D(b), an amendment is not permitted to reduce or eliminate
benefits unless notice is given to plan participants, beneficiaries,
and other affected persons at least 6 months before the first day of
the plan year in which the amendment reducing benefits is adopted. The
notice must include certain information, including an explanation of
the rights and remedies of participants and beneficiaries under the
plan and notification that, if contributions under the plan are not
increased, accrued benefits under the plan for certain participants and
beneficiaries will be
[[Page 61272]]
reduced or an excise tax will be imposed on contributing employers.
Section 418E of the Code (and the parallel provision at section
4245 of ERISA) provides rules relating to suspension of benefits under
an insolvent multiemployer plan. If payments of basic benefits under
the plan exceed the resource benefit level or the level of basic
benefits of the plan for the plan year, the payment of benefits must be
suspended to the extent necessary to reduce such payments to the
greater of the resource benefit level of the plan or the level of basic
benefits. Section 418E of the Code provides that plans in
reorganization that may become insolvent must provide notice to the
Pension Benefit Guaranty Corporation (PBGC), contributing employers,
employee organizations, plan participants, and beneficiaries that,
certain non-basic benefit payments will be suspended if insolvency
occurs.
Section 4281 of ERISA provides rules relating to the reduction of
benefits or the suspension of benefit payments under certain terminated
multiemployer plans. Section 4281(c) of ERISA provides that, if the
value of nonforfeitable benefits under a terminated plan exceeds the
value of a plan's assets, the plan must be amended to reduce benefits
under the plan to the extent necessary to ensure that the plan's assets
are sufficient to meet its obligations. The regulations at 29 CFR
4281.32 provide that a plan sponsor must notify the PBGC and plan
participants and beneficiaries of a plan amendment reducing benefits
pursuant to section 4281(c) of ERISA.
Section 212(a) of PPA '06 added section 432 of the Code (and
section 202(a) of PPA '06 added the parallel provision at section 305
of ERISA), which provides rules relating to multiemployer plans that
are in endangered or critical status. Under certain circumstances, a
plan may adopt a plan amendment that reduces previously accrued
benefits. Section 432(b)(3)(D) of the Code provides that, within 30
days after a certification by a plan actuary that a plan is in
endangered or critical status, the plan sponsor must notify plan
participants and beneficiaries, the bargaining parties, the PBGC, and
the Secretary of Labor of the plan's endangered or critical status. If
the plan is certified to be in critical status, the notice must provide
an explanation of the possibility that (1) adjustable benefits may be
reduced and (2) such reductions may apply to participants and
beneficiaries whose benefit commencement date is on or after the date
the notice is provided for the first plan year in which the plan is in
critical status. Adjustable benefits, defined in section
432(e)(8)(A)(iv), include certain section 411(d)(6) protected benefits
such as early retirement benefits and retirement-type subsidies.
Section 432(e)(8)(C) requires a plan to provide notice of a plan
amendment reducing adjustable benefits to affected parties (including
plan participants, beneficiaries, and contributing employers) at least
30 days before the general effective date of the reduction. The notice
must include information that is sufficient for participants and
beneficiaries to understand the effect of any reduction on their
benefits, a description of the possible rights and remedies of plan
participants and beneficiaries, and information on how to contact the
Department of Labor and the PBGC. See sections 102(b)(1)(C),
102(b)(1)(E)(iv), 102(b)(2)(B), 102(b)(2)(D)(iv)(III), and
102(b)(2)(D)(iv)(IV) of WRERA for provisions authorizing the Secretary
of the Treasury, in consultation with the Secretary of Labor, to issue
guidance relating to the notice requirements in section 305(b)(3)(D) of
ERISA (and the parallel provision at section 432(b)(3)(D) of the Code)
and section 305(e)(8)(C)(iii) of ERISA (and the parallel provision at
section 432(e)(8)(C) of the Code).
Section 432(f)(2) of the Code also restricts a plan from making
certain accelerated benefit payments, effective on the date a notice of
certification of a multiemployer plan's critical status is provided,
which include single sum distributions. On March 18, 2008, proposed
regulations (REG-151135-07) under section 432 of the Code (432 proposed
regulations) were published in the Federal Register (73 FR 14417).
Under Sec. 1.432(b)-1(e)(2) of the 432 proposed regulations, if a plan
in critical status provides benefits that are restricted under section
432(f)(2), then the notice of critical status described in section
432(b)(3)(D) must include an explanation that the plan cannot pay such
restricted benefits, to the extent the benefits exceed the monthly
amount paid under a single life annuity (plus social security
supplements described in section 411(a)(9)).
On March 21, 2008, proposed regulations (REG-110136-07) under
sections 411(d)(6) and 4980F of the Code (2008 proposed regulations)
were published in the Federal Register (73 FR 15101). On July 10, 2008,
the IRS held a public hearing on the 2008 proposed regulations. Written
comments responding to the notice of proposed rulemaking were also
received. After consideration of the comments, the proposed regulations
are adopted, as amended by this Treasury decision. The revisions are
discussed in this preamble.
Summary of Comments and Explanation of Revisions
PPA '06 Revisions to Section 204(h) Notice Requirements
This Treasury decision amends the regulations under section 4980F
of the Code to reflect provisions in PPA '06. Section 502(c) of PPA '06
amended section 204(h) of ERISA and section 4980F of the Code to
require that section 204(h) notice be provided to any employer that has
an obligation to contribute to the plan. A contributing employer is
defined in the regulations as an employer that has an obligation to
contribute to a plan (within the meaning of section 4212(a) of ERISA).
A commentator suggested that the final regulations clarify that the
requirement that section 204(h) notice be given to contributing
employers applies only to employers in a multiemployer plan, not to
employers in a single employer plan. These regulations include this
suggestion.
These final regulations retain from the proposed regulations a
special timing rule to reflect section 402 of PPA '06. Section 402 of
PPA '06 provides special funding rules for plans maintained by an
employer that is a commercial passenger airline or the principal
business of which is providing catering services to a commercial
passenger airline. Section 402(h)(4) of PPA '06 provides that, in the
case of a plan amendment adopted in order to comply with the rules in
section 402 of PPA '06, any notice required under section 4980F(e) of
the Code (or section 204(h) of ERISA) must be provided within 15 days
of the effective date of the plan amendment. The proposed regulations
provided that, for certain plans maintained by an employer that is a
commercial passenger airline or the principal business of which is
providing catering services to a commercial passenger airline, section
204(h) notice must be provided at least 15 days before the effective
date of the amendment. This is consistent with the Joint Committee on
Taxation's Technical Explanation to section 402 of PPA '06 which states
that the section 204(h) notice ``allows the notice to be provided at
least 15 days before the effective date of the plan amendment.'' \6\ No
comments were received on this proposed rule and the final regulations
[[Page 61273]]
retain the rule from the proposed regulations.
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\6\ See Joint Committee on Taxation, Technical Explanation of
H.R. 4, the ``Pension Protection Act of 2006'' (JCX-38-06), August
3, 2006, 109th Cong., 2nd Sess. 87 (2006) at 87.
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Plan Amendments Reflecting a Change in Statutorily Mandated Minimum
Present Value Rules
Section 417(e)(3) of the Code provides that, in distributing the
present value of an accrued benefit to a plan participant, the present
value of the benefit is not permitted to be less than the present value
calculated using the applicable mortality table and the applicable
interest rate under section 417(e)(3). Section 302(b) of PPA '06
amended section 417(e)(3) of the Code to provide new actuarial
assumptions for calculating the minimum present value of a
participant's accrued benefit. Plan sponsors have asked whether a plan
amendment to reflect the change in these section 417(e)(3) actuarial
assumptions would trigger the requirement to provide a section 204(h)
notice. Revenue Ruling 2007-67 (2007-2 CB 1047), see Sec.
601.601(d)(2)(ii)(b), which includes guidance on plan amendments
regarding the new applicable mortality table and applicable interest
rate under section 417(e)(3), states that certain amendments to reflect
the new applicable mortality table and applicable interest rate for
distributions with an annuity starting date in 2008 or later would not
violate the anti-cutback rules of section 411(d)(6). The final
regulations retain the rule in the 2008 proposed regulations that no
section 204(h) notice is required if a defined benefit plan is amended
to reflect changes to the applicable interest or mortality assumptions
in section 417(e)(3) made by PPA '06. For example, a reduced single-sum
distribution resulting from an amendment to a traditional defined
benefit plan that timely substitutes the prescribed actuarial
assumptions under section 417(e)(3), as amended by PPA '06, for the
pre-PPA '06 actuarial assumptions under section 417(e)(3) does not
require a section 204(h) notice.
Interaction of the Section 204(h) Notice Timing Rules With Plan
Amendments That Have a Retroactive Effective Date
Section 1.411(d)-3(a)(1) of the current Treasury regulations
generally provides that a plan is not a qualified plan if a plan
amendment decreases the accrued benefit of any plan participant. These
rules are generally based on the ``applicable amendment date,'' which
is defined in Sec. 1.411(d)-3(g)(4) as the later of the effective date
of the amendment or the date the amendment is adopted. While Sec.
1.411(d)-3(a)(1) generally prohibits a plan amendment that reduces
benefits accrued before the applicable amendment date, a number of
statutory exceptions apply. These exceptions include amendments
permitted under sections 412(d)(2), 418D, and 418E of the Code, section
4281 of ERISA, and section 1107 of PPA '06. The prior regulations under
section 411(d)(6) of the Code listed these exceptions, other than the
exception under section 1107 of PPA '06. The final regulations provide
a conforming amendment to Sec. 1.411(d)-3(a)(1) to include section
1107 of PPA '06 as a statutory exception to the general anti-cutback
rule in section 411(d)(6) of the Code.
In the case of an amendment that is permitted to be adopted
retroactively, the proposed regulations stated that the effective date
of the amendment, for purposes of section 4980F, is the date the
amendment is put into effect on an operational basis under the plan, so
that a section 204(h) notice must generally be provided at least 45
days before the date the amendment is put into effect on an operational
basis (15 days for multiemployer plans).
A commentator suggested that the final regulations clarify that
there is no specific time limit on how far in advance of the effective
date of a section 204(h) amendment \7\ a section 204(h) notice may be
provided. The commentator argued that while the notice requirements
under section 4980F only restrict how late a notice can be provided,
other notice requirements, such as the notice required under section
417(a)(6), provide a timeframe in which the notice must be provided.
The commentator argued that notification far in advance of the
effective date should be permitted on the grounds that notice any time
in advance of the effective date would satisfy the statute, and would
provide a practical solution to the administrative challenges of
providing notice for a large plan with many contributing employers and
with a variety of different amendment effective dates. No change has
been made to the proposed regulations to reflect these comments.
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\7\ A section 204(h) amendment is defined in Q&A-4(b) of Sec.
54.4980F-1 of the Treasury regulations as an amendment for which
section 204(h) notice is required.
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Another commentator requested clarification on whether section
204(h) notice is required in the case of a plan amendment that is
permitted to reduce prior benefit accruals. The commentator cited to
Q&A-7(b) of Sec. 54.4980F-1, which provides that any section 411(d)(6)
protected benefit that may be eliminated or reduced as permitted under
Sec. 1.411(d)-3 or Sec. 1.411(d)-4, Q&A-2(a) or (b), is not taken
into account in determining whether an amendment is a section 204(h)
amendment. This cross-reference to Sec. 1.411(d)-3 was added to the
regulations in 2005 with the intent to address amendments that reduce
or eliminate benefits or subsidies that create significant burdens or
complexities for the plan and plan participants unless the amendment
adversely affects the rights of any participant in more than a de
minimis manner, not to address amendments implementing changes in
applicable law. Similarly, the cross-reference to Sec. 1.411(d)-4,
Q&A-2(a) or (b) was not intended to apply to amendments implementing
future changes in applicable law. In order to reflect this intent, the
final regulations revise the cross-references in Q&A-7(b) to provide
that any plan amendment that is permitted to eliminate or reduce a
section 411(d)(6) protected benefit under Sec. 1.411(d)-3(c), (d), or
(f), or under Sec. 1.411(d)-4, Q&A-2(a)(2), (a)(3), (b)(1), or
(b)(2)(ii) through (b)(2)(xi), is not an amendment for which section
204(h) notice is required.
The final regulations retain a special transitional rule which
provides that, in the case of an amendment that is permitted to reduce
benefit accruals and is made to a plan that is a statutory hybrid to
which section 411(a)(13)(C) applies, a section 204(h) notice must be
provided at least 30 days before the amendment is effective. No
commentators objected to this rule in the proposed regulations.
Accordingly, the final regulations provide that for any section 204(h)
notice that is required to be provided in connection with an amendment
to a statutory hybrid plan under section 411(a)(13)(C) that is first
effective before January 1, 2009, and that limits the amount of a
distribution to the account balance as permitted under section
411(a)(13)(A), section 204(h) notice does not fail to be timely if the
notice is provided at least 30 days before the date the amendment is
first effective. This special timing rule reflects the 30-day timing
rule described in Notice 2007-6 (2007-3 CB 272), see Sec.
601.601(d)(2)(ii)(b), which provides transitional guidance on the
requirements of sections 411(a)(13) and 411(b)(5).\8\ The final
regulations, like the
[[Page 61274]]
proposed regulations, permit the use of this transitional timing rule
through the end of 2008. Thereafter, the general 45-day timing rule
applies to such amendments.
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\8\ Section B.4 of Notice 2007-6 provides that, in the case of a
plan amendment that is permitted to reduce benefit accruals, a
section 204(h) notice must be provided at least 30 days before the
amendment is effective. This rule would require the notice to be
provided at least 30 days before the earliest date on which the plan
is operated in accordance with the amendment.
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Interaction of Section 204(h) Notice Requirements With Other Notice
Requirements Relating to Plan Amendments
As stated in the background portion of this preamble, the Code and
ERISA include a number of other notice requirements relating to plan
amendments that are permitted to reduce or eliminate accrued benefits.
To eliminate the need for a plan to provide multiple notices at
different dates and with substantially the same function and
information to affected persons, the proposed regulations stated that,
with respect to an amendment that triggers a section 204(h) notice
requirement as well as another statutory notice requirement, if a plan
provides the latter notice in accordance with the applicable standards
for such a notice, the plan is treated as having timely complied with
the requirement to provide a section 204(h) notice with respect to the
section 204(h) amendment. Under the proposed regulations, this
treatment would apply to the following notices:
A notice required under Rev. Proc. 94-42 relating to
retroactive plan amendments that reduce accrued benefits described in
section 412(d)(2) of the Code;
A notice required under section 101(j) of ERISA if an
amendment is adopted to comply with the benefit limitation requirements
of section 436 of the Code (section 206(g) of ERISA);
A notice required under section 418D of the Code (section
4244A(b) of ERISA) for an amendment that reduces or eliminates accrued
benefits attributable to employer contributions with respect to a
multiemployer plan in reorganization;
A notice required under section 418E of the Code (section
4245(e) of ERISA), relating to the effects of the insolvency status for
a multiemployer plan; and
A notice required under section 4281 of ERISA and 29 CFR
4281.32 for an amendment of a multiemployer plan reducing benefits
pursuant to section 4281(c) of ERISA.
In general, commentators did not object to this treatment under the
2008 proposed regulations. However, some commentators argued that the
regulations should not apply the excise tax under section 4980F of the
Code if the plan were to fail to satisfy the requirements of the other
applicable notice. For example, a commentator suggested that if the
notice requirements under section 101(j) of ERISA are not satisfied for
an amendment adopted to comply with section 436 of the Code (or section
206(g) of ERISA), the plan should still be treated as having provided
section 204(h) notice even though participants receive no notice of the
amendment. However, there is no statutory basis for this suggestion,
and the final regulations do not make this change. Thus, in any case in
which notice is required to be given under section 101(j) of ERISA and,
in addition, section 204(h) notice is required for the related plan
amendment under section 4980F of the Code (and section 204(h) of
ERISA), the plan sponsor either could provide two notices--at the times
and in the manner required under each such section--or could provide a
notice under section 101(j) of ERISA at the time and in the manner
required under section 101(j). In this respect, providing section
101(j) notice constitutes a safe harbor for purposes of any requirement
to provide section 204(h) notice. However, in general (and depending on
the facts and circumstances), the failure to provide notice under both
section 101(j) of ERISA and section 4980F of the Code (and section
204(h)) of ERISA), where required, would violate section 101(j) of
ERISA and, separately, Code section 4980F (as well as section 204(h) of
ERISA).
With respect to amendments made in order to comply with the benefit
limitations provided by section 436 of the Code, some commentators
asked that the rules in the final regulations be clarified to provide
explicitly that a plan that is never required to provide a notice under
ERISA section 101(j) (or is not required to do so for a long period of
time) is not treated as failing to satisfy ERISA section 204(h) or Code
section 4980F. Commentators asserted that this should be the case even
though a section 204(h) notice was not sent when the plan adopted
general conditional language authorizing the benefit restrictions to
become effective if and when required. Under the standards set forth in
the existing regulations at Sec. 54.4980F-1, A-5(a) and A-6, whether
an amendment to comply with section 436 requires section 204(h) notice
depends on whether it is reasonably expected that the amendment will
result in a reduction, taking into account facts and circumstances at
the time of the amendment (in either the rate of future benefit accrual
or early retirement benefits or retirement-type subsidies) and, if so,
whether such reduction will be significant. A plan would still be
required to provide notice under section 101(j) of ERISA when a benefit
limitation is triggered under the rules of section 436 of the Code. The
provision in these final regulations under which providing timely
section 101(j) notice satisfies any section 204(h) notice requirement
for a section 436 amendment has the effect of mooting questions such as
when and whether an amendment to comply with section 436 requires
section 204(h) notice. Accordingly, no special rules have been adopted
to address these comments.
A conforming change was made to Q&A-8 of the regulation for plan
amendments with retroactive effective dates. The final regulations
provide that whether an amendment reducing the rate of future benefit
accrual provides for a reduction that is significant is determined
based on reasonable expectations taking into account the relevant facts
and circumstances at the time the amendment is adopted, or earlier, at
the time of the effective date of the amendment.
As stated earlier, a plan is treated as having timely complied with
the requirements to provide a section 204(h) notice if the plan
satisfies the requirements for providing one of the notices listed
earlier in this section. Note that this special treatment does not
apply if a plan is amended to implement benefit reductions independent
of the reductions permitted under the relevant notice requirement.
Thus, if a plan that is subject to the requirements of section 436 of
the Code (section 206(g) of ERISA) is amended to cease all benefit
accruals independent of the amendment implementing the limitations
required under section 436(e) (section 206(g)(4) of ERISA) (for
example, an amendment implementing a permanent cessation of benefit
accruals), the section 204(h) notice is required if the plan amendment
provides for a significant reduction in the rate of future benefit
accrual (treating elimination or reduction of an early retirement
benefit or retirement-type subsidy as a reduction in the rate of future
benefit accrual). A section 101(j) notice, however, is not required to
be provided as a result of such an independent plan amendment.
Timing and Content Rules for Multiemployer Plans in Critical Status
Section 432 of the Code, relating to multiemployer plans that are
in endangered or critical status (as defined in section 432(b)),
permits a plan amendment to be adopted that reduces prior accruals
under certain
[[Page 61275]]
circumstances. With respect to any such amendment for a plan that is in
critical status, section 432(e)(8)(C) requires that notice be provided
to participants, beneficiaries, contributing employers, and certain
employee organizations of any reduction in adjustable benefits. The
2008 proposed regulations included a rule under which the timing and
content of a notice under 432(e)(8)(C) also satisfies the timing and
content requirements for a section 204(h) notice. As a result, under
the proposed regulations, any notice for a multiemployer plan in
critical status that satisfies the timing and content requirements
under section 432(e)(8)(C) would satisfy the timing and content
requirements of a section 204(h) notice. Currently, the IRS and the
Treasury Department are establishing requirements for a notice required
under section 432(e)(8)(C), including the content requirements. The
interaction of the section 432(e)(8)(C) notice with the requirements
for a section 204(h) notice will be addressed as part of the section
432 regulation project.
The final regulations add the notice required under section
432(b)(3)(D) to the list of similarly situated benefit reduction
notices discussed in the preamble to these regulations under the
heading, ``Interaction of the Section 204(h) Notice Requirements with
Other Notice Requirements Relating to Plan Amendments.'' As mentioned
in the background section of the preamble to these regulations, section
432(b)(3)(D) generally requires notice to plan participants and
beneficiaries, within 30 days after a plan receives its annual
certification, on whether the plan is in endangered or critical status.
If the plan is in critical status, section 432(b)(3)(D) provides that
the notice must provide certain information to participants and
beneficiaries, including the possibility that adjustable benefits may
be reduced and a description of who might be subject to the reductions.
Section 432(f)(2)(A) generally states that, effective on the date that
notice is provided that a plan is in critical status, the plan must not
pay any payment in excess of the monthly amount paid under a single-
life annuity (notwithstanding the anti-cutback rule in section
411(d)(6)). Thus, the payment of single-sum distributions would not be
permitted under section 432(f)(2)(A) after a plan provides notification
that the plan is in critical status. The final regulations provide that
if a plan provides the notice under section 432(b)(3)(D) in accordance
with the applicable timing and content standards for such a notice with
respect to an amendment, the plan is treated as having complied with
any requirement to provide a section 204(h) notice with respect to the
amendment.
Delegation of Authority to the Commissioner
Like the 2008 proposed regulations, these final regulations
delegate authority to the Commissioner of the Internal Revenue Service
to publish revenue rulings, notices, or other guidance published in the
Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this
chapter) under section 4980F of the Code (which would also apply to
section 204(h) of ERISA) that the Commissioner determines to be
necessary or appropriate for a section 204(h) amendment that applies
with respect to benefits accrued before the applicable amendment date
but that does not violate section 411(d)(6) of the Code. This
delegation of authority provides the Commissioner with greater
flexibility to develop special rules to address special circumstances
in the future, such as future statutory changes. This delegation of
authority also extends to circumstances in which a section 204(h)
amendment may require another notice in addition to a section 204(h)
notice, as long as the amendment is permitted to reduce accrued
benefits, regardless of whether that amendment actually reduces
benefits accrued before the adoption date of the amendment. This
delegation would permit the Commissioner to treat plans providing other
notices with timing and content requirements similar to a section
204(h) notice as having complied with the requirement to provide a
section 204(h) notice.
Effective/Applicability Dates
These rules in these final regulations are generally applicable to
section 204(h) amendments that are effective on or after January 1,
2008. With respect to the timing rules on providing a section 204(h)
notice for a plan amendment that has a retroactive effective date and
the clarification of the cross-references in Q&A-7(b), these special
rules apply to section 204(h) amendments adopted in plan years
beginning after July 1, 2008. With respect to any section 204(h)
amendment to a lump sum-based benefit formula (or any amendment adopted
pursuant to section 701 of PPA '06), the special rules under the
regulations relating to an amendment that applies with respect to
benefits accrued before the applicable amendment date apply to
amendments adopted after December 21, 2006. The special 30-day timing
rule for providing a section 204(h) notice applies to such amendments
effective on or after December 21, 2006, and no later than December 31,
2008. The Treasury Department and the IRS anticipate issuing guidance
in the near future relating to the application of section 4980F to plan
amendments that are adopted, in accordance with section 1107 of PPA
'06, to comply with the requirements of section 411(b)(5)(B)(i),
relating to market rates of return. As provided in Announcement 2009-82
(available on the IRS Web site at http://www.irs.gov/pub/irs-drop/a-09-82.pdf), this future guidance may provide a special timing rule for
when section 204(h) notice must be provided.
The regulations also reflect special statutory effective dates for
provisions in PPA '06. Section 402 of PPA '06 applies to section 204(h)
amendments adopted in plan years ending after August 17, 2006. Section
4980F(e)(1) of the Code, as amended by section 502(c) of PPA '06,
applies to section 204(h) amendments adopted in plan years beginning
after December 31, 2007.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to this regulation. Pursuant to the
Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified
that the collection of information in this regulation would not have a
significant impact on a substantial number of small entities. This
certification is based on the fact that this regulation only provides
guidance on how to satisfy existing collection of information
requirements. Accordingly, a Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f) of the Code, the notice of
proposed rulemaking preceding this regulation was submitted to the
Small Business Administration for comment on its impact on small
business.
Drafting Information
The principal author of these regulations is Pamela R. Kinard of
the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt
and Government Entities), Internal Revenue Service. However, personnel
from other offices of the Internal Revenue Service and Treasury
Department participated in their development.
[[Page 61276]]
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 54
Excise taxes, Pensions, Reporting and recordkeeping requirements.
Amendments to the Regulations
0
Accordingly, 26 CFR parts 1 and 54 are amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.411(d)-3 is amended by revising the first sentence of
paragraph (a)(1).
The revision reads as follows:
Sec. 1.411(d)-3 Section 411(d)(6) protected benefits.
(a) Protection of accrued benefits--(1) General rule. Under section
411(d)(6)(A), a plan is not a qualified plan (and a trust forming a
part of such plan is not a qualified trust) if a plan amendment
decreases the accrued benefit of any plan participant, except as
provided in section 412(d)(2) (section 412(c)(8) for plan years
beginning before January 1, 2008), section 4281 of the Employee
Retirement Income Security Act of 1974 as amended (ERISA), or other
applicable law (see, for example, sections 418D and 418E of the
Internal Revenue Code, and section 1107 of the Pension Protection Act
of 2006, Public Law 109-280 (120 Stat. 780, 1063)). * * *
* * * * *
PART 54--PENSION EXCISE TAXES
0
Par. 3. The authority citation for part 54 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 54.4980F-1 also issued under 26 U.S.C. 4980F. * * *
0
Par. 4. Section 54.4980F-1 is amended by:
0
1. Revising the second sentence of paragraph A-1(a).
0
2. Revising paragraph A-7(b).
0
3. Revising paragraph A-8(a) and redesignating paragraph A-8(d) as A-
8(e) and adding new paragraph A-8(d).
0
4. Revising the first sentence of paragraphs A-9(a), A-9(b), and A-
9(c), and revising paragraph A-9(d)(1).
0
5. Adding paragraphs A-9(f) and A-9(g).
0
6. Revising the first sentence of paragraph A-10(a).
0
7. Revising paragraph A-11(a)(1).
0
8. Adding paragraphs A-18(a)(4) and A-18(a)(5).
0
9. Revising paragraph A-18(b)(1) and adding paragraphs A-18(b)(3)(i),
A-18(b)(3)(ii), and A-18(b)(3)(iii).
The additions and revisions read as follows:
Sec. 54.4980F-1 Notice requirements for certain pension plan
amendments significantly reducing the rate of future benefit accrual.
* * * * *
A-1. (a) * * * The notice is required to be provided to plan
participants and alternate payees who are applicable individuals (as
defined in Q&A-10 of this section), to certain employee organizations,
and to contributing employers under a multiemployer plan (as described
in Q&A-10(a) of this section). * * *
* * * * *
A-7. * * *
(b) Plan provisions not taken into account--(1) In general. Plan
provisions that do not affect the rate of future benefit accrual of
participants or alternate payees are not taken into account in
determining whether there has been a reduction in the rate of future
benefit accrual.
(2) Interaction with section 411(d)(6). Any benefit that is not a
section 411(d)(6) protected benefit as described in Sec. Sec.
1.411(d)-3(g)(14) and 1.411(d)-4, Q&A-1(d) of this chapter, or that is
a section 411(d)(6) protected benefit that may be eliminated or reduced
as permitted under Sec. 1.411(d)-3(c), (d), or (f), or under Sec.
1.411(d)-4, Q&A-2(a)(2), (a)(3), (b)(1), or (b)(2)(ii) through
(b)(2)(xi) of this chapter, is not taken into account in determining
whether an amendment is a section 204(h) amendment. Thus, for example,
provisions relating to the right to make after-tax deferrals are not
taken into account.
* * * * *
A-8. (a) General rule. Whether an amendment reducing the rate of
future benefit accrual or eliminating or reducing an early retirement
benefit or retirement-type subsidy provides for a reduction that is
significant for purposes of section 4980F (and section 204(h) of ERISA)
is determined based on reasonable expectations taking into account the
relevant facts and circumstances at the time the amendment is adopted,
or, if earlier, at the effective date of the amendment.
* * * * *
(d) Plan amendments reflecting a change in statutorily mandated
minimum present value rules. If a defined benefit plan offers a
distribution to which the minimum present value rules of section
417(e)(3) apply (other than a payment to which section 411(a)(13)(A)
applies) and the plan is amended to reflect the changes to the
applicable interest rate and applicable mortality table in section
417(e)(3) made by the Pension Protection Act of 2006, Public Law 109-
780 (120 Stat. 780) (PPA '06) (and no change is made in the dates on
which the payment will be made), no section 204(h) notice is required
to be provided.
* * * * *
A-9. (a) 45-day general rule. Except as otherwise provided in this
Q&A-9, section 204(h) notice must be provided at least 45 days before
the effective date of any section 204(h) amendment. * * *
(b) 15-day rule for small plans. Except for amendments described in
paragraphs (d)(2) and (g) of this Q&A-9, section 204(h) notice must be
provided at least 15 days before the effective date of any section
204(h) amendment in the case of a small plan. * * *
(c) 15-day rule for multiemployer plans. Except for amendments
described in paragraphs (d)(2) and (g) of this Q&A-9, section 204(h)
notice must be provided at least 15 days before the effective date of
any section 204(h) amendment in the case of a multiemployer plan. * * *
(d) Special timing rule for business transactions--(1) 15-day rule
for section 204(h) amendment in connection with an acquisition or
disposition. Except for amendments described in paragraphs (d)(2) and
(g) of this Q&A-9, if a section 204(h) amendment is adopted in
connection with an acquisition or disposition, section 204(h) notice
must be provided at least 15 days before the effective date of the
section 204(h) amendment.
* * * * *
(f) Special timing rule for certain plans maintained by commercial
airlines. See section 402 of PPA '06 for a special rule that applies to
certain plans maintained by an employer that is a commercial passenger
airline or the principal business of which is providing catering
services to a commercial passenger airline. Under this special rule,
section 204(h) notice must be provided at least 15 days before the
effective date of the amendment.
(g) Special timing rules relating to certain section 204(h)
amendments that reduce section 411(d)(6) protected benefits--(1) Plan
amendments permitted to reduce prior accruals. This paragraph (g)
generally provides special rules with respect to a plan amendment that
would not violate section 411(d)(6)
[[Page 61277]]
even if the amendment were to reduce section 411(d)(6) protected
benefits, which are limited to accrued benefits that are attributable
to service before the applicable amendment date. For example, this
paragraph (g) applies to amendments that are permitted to be effective
retroactively under section 412(d)(2) of the Code (section 412(c)(8)
for plan years beginning before January 1, 2008), section 418D of the
Code, section 418E of the Code, section 4281 of ERISA, or section 1107
of PPA '06. See, generally, Sec. 1.411(d)-3(a)(1).
(2) General timing rule for amendments to which this paragraph (g)
applies. For an amendment to which this paragraph (g) applies, the
amendment is effective on the first date on which the plan is operated
as if the amendment were in effect. Thus, except as otherwise provided
in this paragraph (g), a section 204(h) notice for an amendment to
which paragraph (a) of this section applies that is adopted after the
effective date of the amendment must be provided, with respect to any
applicable individual, at least 45 days before (or such other date as
may apply under paragraph (b), (c), (d), or (f) of this Q&A-9) the date
the amendment is put into operational effect.
(3) Special rules for section 204(h) notices provided in connection
with other disclosure requirements--(i) In general. Notwithstanding the
requirements in this Q&A-9 and Q&A-11 of this section, if a plan
provides one of the notices in paragraph (g)(3)(ii) of this Q&A-9, in
accordance with the applicable timing and content rules for such
notice, the plan is treated as timely providing a section 204(h) notice
with respect to a section 204(h) amendment.
(ii) Notice requirements. The notices in this paragraph (g)(3)(ii)
are--
(A) A notice required under any revenue ruling, notice, or other
guidance published under the authority of the Commissioner in the
Internal Revenue Bulletin to affected parties in connection with a
retroactive plan amendment described in section 412(d)(2) (section
412(c)(8) for plan years beginning before January 1, 2008);
(B) A notice required under section 101(j) of ERISA if an amendment
is adopted to comply with the benefit limitation requirements of
section 206(g) of ERISA (section 436 of the Code);
(C) A notice required under section 432(b)(3)(D) of the Code for an
amendment adopted to comply with the benefit restrictions under section
432(f)(2);
(D) A notice required under section 418D, or section 4244A(b) of
ERISA, for an amendment that reduces or eliminates accrued benefits
attributable to employer contributions with respect to a multiemployer
plan in reorganization;
(E) A notice required under section 418E, or section 4245(e) of
ERISA, relating to the effects of the insolvency status for a
multiemployer plan; and
(F) A notice required under section 4281 of ERISA for an amendment
of a multiemployer plan reducing benefits pursuant to section 4281(c)
of ERISA.
(4) Delegation of authority to Commissioner. The Commissioner may
provide special rules under section 4980F, in revenue rulings, notices,
or other guidance published in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(b) of this chapter), that the Commissioner determines
to be necessary or appropriate with respect to a section 204(h)
amendment--
(A) That applies to benefits accrued before the applicable
amendment date but that does not violate section 411(d)(6); or
(B) For which there is a required notice relating to a reduction in
benefits and such notice has timing and content requirements similar to
a section 204(h) notice with respect to a significant reduction in the
rate of future benefit accruals.
* * * * *
A-10. (a) In general. Section 204(h) notice must be provided to
each applicable individual, to each employee organization representing
participants who are applicable individuals, and, for plan years
beginning after December 31, 2007, to each employer that has an
obligation to contribute (within the meaning of section 4212(a) of
ERISA) to a multiemployer plan. * * *
* * * * *
A-11. (a) Explanation of notice requirement--(1) In general.
Section 204(h) notice must include sufficient information to allow
applicable individuals to understand the effect of the plan amendment.
In order to satisfy this rule, a plan administrator providing section
204(h) notice must generally satisfy paragraphs (a)(2), (a)(3), (a)(4),
(a)(5), and (a)(6) of this Q&A-11. See paragraph (g)(3) of Q&A-9 of
this section for special rules relating to section 204(h) notices
provided in connection with certain other written notices. See also
paragraph (g)(4) of Q&A-9 of this section for a delegation of authority
to the Commissioner to provide special rules.
* * * * *
A-18. (a) * * *
(4) Special effective date for certain section 204(h) amendments
made by plans of commercial airlines. Section 402 of PPA `06 applies to
section 204(h) amendments adopted in plan years ending after August 17,
2006.
(5) Special effective date for rule relating to contributing
employers. Section 502(c) of PPA '06, which amended section 4980F(e)(1)
of the Internal Revenue Code, applies to section 204(h) amendments
adopted in plan years beginning after December 31, 2007.
(b) Regulatory effective date--(1) General effective date. Except
as otherwise provided in this paragraph (b) of this section, Q&A-1
through Q&A-18 of this section apply to amendments with an effective
date that is on or after September 1, 2003.
* * * * *
(3) Effective dates for Q&A-9(g)(1), (g)(3), and (g)(4)--(i)
General effective date. Except as otherwise provided in Q&A-
18(b)(3)(ii) or (b)(3)(iii) of this section, Q&A-9(g)(1), (g)(3), and
(g)(4) of this section apply to amendments that are effective on or
after January 1, 2008.
(ii) Effective dates for Q&A-9(g)(2) and Q&A-7(b). Except as
otherwise provided in Q&A-18(b)(3)(iii) of this section, Q&A-9(g)(2)
and Q&A-7(b) of this section apply to section 204(h) amendments adopted
in plan years beginning after July 1, 2008.
(iii) Special rules for section 204(h) amendments to an applicable
defined benefit plan. Except as otherwise provided in paragraph
(b)(3)(i) or (b)(3)(ii) of this Q&A-18, with respect to any section
204(h) notice provided in connection with a section 204(h) amendment to
an applicable defined benefit plan within the meaning of section
411(a)(13)(C)(i) to limit distributions as permitted under section
411(a)(13)(A) for distributions made after August 17, 2006, that is
made pursuant to section 701 of PPA '06, paragraphs (g)(1) and (g)(2)
of Q&A-9 of this section apply to amendments that are effective after
December 21, 2006. For such an amendment that is effective not later
than December 31, 2008, section 204(h) notice does not fail to be
timely if the notice is provided at least 30 days, rather than 45 days,
before the date that the amendment is first effective.
Steve T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: November 12, 2009.
Michael Mundaca,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E9-28078 Filed 11-23-09; 8:45 am]
BILLING CODE 4830-01-P