Definitions of Qualified Matching Contributions and Qualified Nonelective Contributions, 5477-5480 [2017-00876]
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Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Proposed Rules
may be hand-delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–135734–
14), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW.,
Washington, DC 20224, or sent
electronically via the Federal
eRulemaking Portal at https://
www.regulations.gov (IRS REG–135734–
14).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Joshua G. Rabon (202) 317–6937;
concerning submissions of comments or
requests for a public hearing, Regina
Johnson, (202) 317–5177 (not toll-free
numbers).
available at www.regulations.gov or
upon request. A public hearing will be
scheduled if requested in writing by any
person that timely submits electronic or
written comments. If a public hearing is
scheduled, notice of the date, time, and
place for the public hearing will be
published in the Federal Register.
SUPPLEMENTARY INFORMATION:
List of Subjects in 26 CFR Part 1
Background
Income taxes, Reporting and
recordkeeping requirements.
The temporary regulations in the
Rules and Regulations section of this
issue of the Federal Register amend
portions of the regulations under section
7874 of the Code concerning the de
minimis exceptions to the general rules
of §§ 1.7874–7T (disregard of certain
stock attributable to passive assets) and
1.7874–10T (disregard of certain
distributions). The text of those
temporary regulations also serves as the
text of the proposed regulations herein.
The preamble to those temporary
regulations, which is also the preamble
to certain final regulations under section
7874, explains the temporary
regulations, the corresponding proposed
regulations, and the final regulations.
Special Analyses
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Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
comments that are submitted timely to
the IRS as prescribed in this preamble
under the ‘‘Addresses’’ heading. The
Treasury Department and the IRS
request comments on all aspects of the
proposed rules. All comments will be
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10T(i) as revised elsewhere in this issue
of the Federal Register.]
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2017–00637 Filed 1–13–17; 4:15 pm]
BILLING CODE 4830–01–P
Drafting Information
The principal author of these
proposed regulations is Joshua G. Rabon
of the Office of Associate Chief Counsel
(International). However, other
personnel from the Treasury
Department and the IRS participated in
their development.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
to read in part as follows:
■
Authority: 26 U.S.C. 7805 * * *
Section 1.7874–7 also issued under 26
U.S.C. 7874(c)(6) and 7874(g).
*
*
*
*
*
Section 1.7874–10 also issued under 26
U.S.C. 7874(c)(4) and 7874(g).
*
*
*
*
*
Par. 2. Section 1.7874–7 is added to
read as follows.
§ 1.7874–7 Disregard of certain stock
attributable to passive assets.
(a) through (c)(1) [Reserved]
(2) [The text of proposed § 1.7874–
7(c)(2) is the same as the text of
§ 1.7874–7T(c)(2) as revised elsewhere
in this issue of the Federal Register.]
(d) through (g) [Reserved]
(h) [The text of proposed § 1.7874–
7(h) is the same as the text of § 1.7874–
7T(h) as revised elsewhere in this issue
of the Federal Register.]
■ Par. 3. Section 1.7874–10 is added to
read as follows:
§ 1.7874–10 Disregard of certain
distributions.
(a) through (d)(1) [Reserved]
(2) [The text of proposed § 1.7874–
10(d)(2) is the same as the text of
§ 1.7874–10T(d)(2) as revised elsewhere
in this issue of the Federal Register.]
(e) through (h) [Reserved]
(i) [The text of proposed § 1.7874–
10(i) is the same as the text of § 1.7874–
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–131643–15]
RIN–1545–BN05
Definitions of Qualified Matching
Contributions and Qualified
Nonelective Contributions
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
■
Certain IRS regulations, including
these, are exempt from the requirements
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. Therefore, a
regulatory assessment is not required.
Because the regulations do not impose
a collection of information on small
entities, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f), this notice
of proposed rulemaking has been
submitted to the Chief Counsel of
Advocacy of the Small Business
Administration for comment on its
impact on small business.
5477
This document contains
proposed amendments to the definitions
of qualified matching contributions
(QMACs) and qualified nonelective
contributions (QNECs) under
regulations relating to certain qualified
retirement plans that contain cash or
deferred arrangements under section
401(k) or that provide for matching
contributions or employee contributions
under section 401(m). Under these
regulations, employer contributions to a
plan would be able to qualify as QMACs
or QNECs if they satisfy applicable
nonforfeitability and distribution
requirements at the time they are
allocated to participants’ accounts, but
need not meet these requirements when
they are contributed to the plan. These
regulations would affect participants in,
beneficiaries of, employers maintaining,
and administrators of tax-qualified
plans that contain cash or deferred
arrangements or provide for matching
contributions or employee
contributions.
SUMMARY:
Comments and requests for a
public hearing must be received by
April 18, 2017.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–131643–15) Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand-delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–131643–
15), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW.,
Washington, DC 20224, or sent
electronically via the Federal
eRulemaking Portal at
DATES:
E:\FR\FM\18JAP1.SGM
18JAP1
5478
Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Proposed Rules
www.regulations.gov (IRS REG–131643–
15).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Rosemary Y. Oluwo at (202) 317–6060;
concerning submissions of comments or
to request a hearing, Regina Johnson at
(202) 317–6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
mstockstill on DSK3G9T082PROD with PROPOSALS
Background
Section 401(k)(1) provides that a
profit-sharing or stock bonus plan, a
pre-ERISA money purchase plan, or a
rural cooperative plan shall not be
considered as failing to satisfy the
requirements of section 401(a) merely
because the plan includes a qualified
cash or deferred arrangement (CODA).
To be considered a qualified CODA, a
plan must satisfy several requirements,
including: (i) Under section
401(k)(2)(B), amounts held by the plan’s
trust that are attributable to employer
contributions made pursuant to an
employee’s election must satisfy certain
distribution requirements; (ii) under
section 401(k)(2)(C), an employees’ right
to such employer contributions must be
nonforfeitable; and (iii) under section
401(k)(3), such employer contributions
must satisfy certain nondiscrimination
requirements.
Under section 401(k)(3)(D)(ii), the
employer contributions taken into
account for purposes of applying the
nondiscrimination requirements may,
under such rules as the Secretary may
provide and at the election of the
employer, include, in addition to
contributions made pursuant to an
employee’s election, matching
contributions that meet the distribution
and nonforfeitability requirements of
section 401(k)(2)(B) and (C) and
qualified nonelective contributions
within the meaning of section
401(m)(4)(C). Under section
401(m)(4)(C), a qualified nonelective
contribution is an employer
contribution, other than a matching
contribution, with respect to which the
distribution and nonforfeitability
requirements of section 401(k)(2)(B) and
(C) are met.
Under § 1.401(k)–1(b)(1)(ii), a CODA
satisfies the applicable
nondiscrimination requirements if it
satisfies the actual deferral percentage
(ADP) test of section 401(k)(3),
described in § 1.401(k)–2. The ADP test
limits the degree of disparity permitted
between the percentage of compensation
made as employer contributions to the
plan for a plan year on behalf of eligible
highly compensated employees and the
percentage of compensation made as
employer contributions on behalf of
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eligible nonhighly compensated
employees. If the ADP test limits are
exceeded, the employer must take
corrective action to ensure that the
limits are met. In determining the
amount of employer contributions made
on behalf of an eligible employee,
employers are allowed to take into
account certain qualified matching
contributions (QMACs) and qualified
nonelective contributions (QNECs)
made on behalf of the employee by the
employer.
In lieu of applying the ADP test, an
employer may choose to design its plan
to satisfy an ADP safe harbor, including
the ADP safe harbor provisions of
section 401(k)(12), described in
§ 1.401(k)–3. Under § 1.401(k)–3, a plan
satisfies the ADP safe harbor provisions
of section 401(k)(12) if, among other
things, it satisfies certain contribution
requirements. With respect to the safe
harbor under section 401(k)(12), an
employer may choose to satisfy the
contribution requirement by providing a
certain level of QMACs or QNECs to
eligible nonhighly compensated
employees under the plan.
A defined contribution plan that
provides for matching or employee
after-tax contributions must satisfy the
nondiscrimination requirements under
section 401(m) with respect to those
contributions for any plan year. Under
§ 1.401(m)–1(b)(1), the matching
contributions and employee
contributions under a plan satisfy the
nondiscrimination requirements for a
plan year if the plan satisfies the actual
contribution percentage (ACP) test of
section 401(m)(2) described in
§ 1.401(m)–2.
The ACP test limits the degree of
disparity permitted between the
percentage of compensation made as
matching contributions and after-tax
employee contributions for or by
eligible highly compensated employees
under the plan and the percentage of
compensation made as matching
contributions and after-tax employee
contributions for or by eligible
nonhighly compensated employees
under the plan. If the ACP test limits are
exceeded, the employer must take
corrective action to ensure that the
limits are met. In determining the
amount of employer contributions made
on behalf of an eligible employee,
employers are allowed to take into
account certain QNECs made on behalf
of the employee by the employer.
Employers must also take into account
QMACs made on behalf of the employee
by the employer unless an exclusion
applies (including an exclusion for
QMACs that are taken into account
under the ADP test).
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If an employer designs its plan to
satisfy the ADP safe harbor of section
401(k)(12), it may avoid performing the
ACP test with respect to matching
contributions under the plan, as long as
the additional requirements of the ACP
safe harbor of section 401(m)(11) are
met.
Under § 1.401(k)–6, QMACs and
QNECs are matching contributions and
employer contributions (other than
elective or matching contributions) that
satisfy the nonforfeitability
requirements of § 1.401(k)–1(c) and the
distribution requirements of § 1.401(k)–
1(d) ‘‘when they are contributed to the
plan.’’ Similarly, § 1.401(m)–5 includes
independent definitions of QMACs and
QNECs, which are matching
contributions and employer
contributions (other than elective or
matching contributions) that satisfy the
nonforfeitability and distribution
requirements of § 1.401(k)–1(c) and (d)
‘‘at the time the contribution is made.’’
The Treasury Department and the IRS
have received comments with respect to
the definitions of QMACs and QNECs in
§§ 1.401(k)–6 and 1.401(m)–5. In
particular, commenters assert that
employer contributions should be able
to qualify as QMACs and QNECs as long
as they satisfy applicable
nonforfeitability and distribution
requirements at the time they are
allocated to participants’ accounts,
rather than when they are first
contributed to the plan. Commenters
contend that interpreting sections
401(k)(3)(D)(ii) and 401(m)(4)(C) to
require satisfaction of applicable
nonforfeitability and distribution
requirements at the time amounts are
first contributed to the plan would
preclude plan sponsors with plans that
permit the use of amounts in plan
forfeiture accounts to offset future
employer contributions under the plan
from applying such amounts to fund
QMACs and QNECs. This is because the
amounts would have been allocated to
the forfeiture accounts only after a
participant incurred a forfeiture of
benefits and, thus, generally would have
been subject to a vesting schedule when
they were first contributed to the plan.
Commenters have requested that QMAC
and QNEC requirements not be
interpreted to prevent the use of plan
forfeitures to fund QMACs and QNECs.
The commenters urge that the
nonforfeitability and distribution
requirements under § 1.401(k)–6 should
apply when QMACs and QNECs are
allocated to participants’ accounts and
not when the contributions are first
made to the plan.
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Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Proposed Rules
Explanation of Provisions
After consideration of the comments
described in this preamble in the
‘‘Background’’ section, the Treasury
Department and the IRS are proposing
to amend § 1.401(k)–6 to provide that
amounts used to fund QMACs and
QNECs must be nonforfeitable and
subject to distribution restrictions in
accordance with § 1.401(k)–1(c) and (d)
when allocated to participants’
accounts, and to no longer require that
amounts used to fund QMACs and
QNECs satisfy the nonforfeitability and
distribution requirements when they are
first contributed to the plan. Treasury
and IRS note that while the second
sentence of each of the current
definitions of QMACs and QNECs refers
to the ‘‘vesting’’ requirements of
§ 1.401(k)–1(c), those requirements are
more appropriately characterized as
‘‘nonforfeitability’’ requirements
consistent with section 401(k)(2)(C) and
the title of § 1.401(k)–1(c). Accordingly,
these proposed regulations would
amend these definitions to clarify those
references by replacing the word
‘‘vesting’’ with ‘‘nonforfeitability’’ in
each definition; these changes are not
otherwise intended to have any
substantive impact on this or any other
section of the regulations. These
proposed regulations would also amend
the definitions of QMACs and QNECs in
§ 1.401(m)–5 to provide cross-references
to the definitions of QMACs and QNECs
under § 1.401(k)–6. These amendments
to § 1.401(m)–5 are being made to
ensure a consistent definition of QMACs
and QNECs in § 1.401(k)–6 and
§ 1.401(m)–5 (including the requirement
that amounts used to fund QMACs and
QNECs be made subject to
nonforfeitability and distribution
requirements when they are allocated to
participants’ accounts as QMACs or
QNECs) and are not otherwise intended
to have any substantive impact on this
or any other section of the regulations.
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Proposed Effective/Applicability Date
These regulations are proposed to
apply to taxable years beginning on or
after the date of publication of the
Treasury decision adopting these rules
as final regulations in the Federal
Register. Taxpayers, however, may rely
on these proposed regulations for
periods preceding the proposed
applicability date. If, and to the extent,
the final regulations are more restrictive
than the rules in these proposed
regulations, those provisions of the final
regulations will be applied without
retroactive effect.
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5479
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. Therefore, a
regulatory impact assessment is not
required. Because the regulation does
not impose a collection of information
on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does
not apply. Pursuant to section 7805(f) of
the Internal Revenue Code, these
regulations will be submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small business.
(g) * * *
(5) Effective date for definitions of
qualified matching contributions
(QMACs) and qualified nonelective
contributions (QNECs). The revisions to
the second sentence in the definitions of
QMACs and QNECs in § 1.401(k)–6
apply to taxable years ending on or after
the date of publication of the Treasury
decision adopting these rules as final
regulations in the Federal Register.
■ Par. 3. Section 1.401(k)–6 is amended
by revising the second sentence in the
definitions of Qualified matching
contributions (QMACs) and Qualified
nonelective contributions (QNECs) to
read as follows:
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
comments that are submitted timely to
the IRS as prescribed in this preamble
under the ADDRESSES heading. Treasury
and the IRS request comments on all
aspects of the proposed rules. All
comments will be available at
www.regulations.gov or upon request. A
public hearing will be scheduled if
requested in writing by any person who
timely submits written comments. If a
public hearing is scheduled, notice of
the date, time, and place for the public
hearing will be published in the Federal
Register.
§ 1.401(k)–6
Drafting Information
The principal author of these
regulations is Rosemary Y. Oluwo,
Office of Associate Chief Counsel (Tax
Exempt and Governmental Entities).
However, other personnel from the IRS
and Treasury Department participated
in the development of these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:
■
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.401(k)–1 is amended
by adding paragraph (g)(5) to read as
follows:
■
§ 1.401(k)–1 Certain cash or deferred
arrangements.
*
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*
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*
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*
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Definitions.
*
*
*
*
*
Qualified matching contributions
(QMACs). * * * Thus, the matching
contributions must satisfy the
nonforfeitability requirements of
§ 1.401(k)–1(c) and be subject to the
distribution requirements of § 1.401(k)–
1(d) when they are allocated to
participants’ accounts. * * *
Qualified nonelective contributions
(QNECs). * * * Thus, the nonelective
contributions must satisfy the
nonforfeitability requirements of
§ 1.401(k)–1(c) and be subject to the
distribution requirements of § 1.401(k)–
1(d) when they are allocated to
participants’ accounts. * * *
*
*
*
*
*
■ Par. 4. Section 1.401(m)–1 is amended
by adding paragraph (d)(4) to read as
follows:
§ 1.401(m)–1 Employee contributions and
matching contributions.
*
*
*
*
*
(d) * * *
(4) Effective date for definitions of
qualified matching contributions
(QMACs) and qualified nonelective
contributions (QNECs). The revisions to
the definitions of QMACs and QNECs in
§ 1.401(m)–5 apply to taxable years
ending on or after the date of
publication of the Treasury decision
adopting these rules as final regulations
in the Federal Register.
■ Par. 5. Section 1.401(m)–5 is amended
by revising the definitions of Qualified
matching contributions (QMACs) and
Qualified nonelective contributions
(QNECs) to read as follows:
§ 1.401(m)–5
*
Definitions.
*
*
*
*
Qualified matching contributions
(QMACs). Qualified matching
contributions or QMACs means
qualified matching contributions or
QMACs as defined in § 1.401(k)–6.
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Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Proposed Rules
Qualified nonelective contributions
(QNECs). Qualified nonelective
contributions or QNECs means qualified
nonelective contributions or QNECs as
defined in § 1.401(k)–6.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2017–00876 Filed 1–17–17; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
I. Table of Abbreviations
Coast Guard
COTP Captain of the Port, Honolulu
CFR Code of Federal Regulations
FR Federal Register
NPRM Notice of proposed rulemaking
§ Section
U.S.C. United States Code
33 CFR Part 100
[Docket Number USCG–2016–1041]
RIN 1625–AA08
Special Local Regulation; Pago Pago
Harbor, American Samoa
Coast Guard, DHS.
Notice of proposed rulemaking.
AGENCY:
ACTION:
The Coast Guard proposes to
establish a permanent special local
regulation for the Annual Fautasi Ocean
Challenge canoe race in Pago Pago
Harbor, American Samoa. This annual
event historically occurs during the
weeks of Veteran’s Day and
Thanksgiving Day. This action is
necessary to safeguard the participants
and spectators, including all crews,
vessels, and persons on the water in
Pago Pago Harbor during the event. This
regulation will functionally close the
port to vessel traffic during the race, but
will not require the evacuation of any
vessels from the harbor. Entry into,
transiting, or anchoring in the harbor
would be prohibited to all vessels not
registered with the sponsor as
participants or not part of the race
patrol, unless specifically authorized by
the Captain of the Port (COTP) Honolulu
or a designated representative. Vessels
who are already moored or anchored in
the harbor seeking permission to remain
there shall request permission from the
COTP unless deemed a spectator vessel
that is moored to a waterfront facility
within the regulated area. The area
forming the subject of this permanent
special local regulation is described
below. We invite your comments on this
notice of proposed rulemaking (NPRM).
DATES: Comments and related material
must be received by the Coast Guard on
or before February 17, 2017.
ADDRESSES: You may submit comments
identified by docket number USCG–
2016–1041 using the Federal
eRulemaking Portal at https://
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SUMMARY:
VerDate Sep<11>2014
www.regulations.gov. See the ‘‘Public
Participation and Request for
Comments’’ portion of the
SUPPLEMENTARY INFORMATION section for
further instructions on submitting
comments.
FOR FURTHER INFORMATION CONTACT: If
you have questions about this proposed
rulemaking, call or email Lieutenant
Commander Nicolas Jarboe, Waterways
Management Division, U.S. Coast Guard
Sector Honolulu; telephone (808) 541–
4359, email nicolas.a.jarboe@uscg.mil.
SUPPLEMENTARY INFORMATION:
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II. Background, Purpose, and Legal
Basis
This annual event will consist of a
series of races entirely within Pago Pago
Harbor between longboats with
paddling crews of 30–50 persons each.
It is anticipated that a large number of
spectator pleasure craft will be drawn to
the event. Spectator vessels and
commercial vessel traffic would pose a
significant safety hazard to the
longboats, longboat crew members, and
other persons and vessels involved with
the event due to the longboats limited
maneuverability within the port.
The Captain of the Port, Honolulu
(COTP), proposes to establish a
permanent special local regulation for
Pago Pago Harbor to minimize vessel
traffic in Pago Pago Harbor before,
during, and after the scheduled event to
safeguard persons and vessels during
the longboat races. A regulated area is
a water area, shore area, or water and
shore area, for safety or environmental
purposes, of which access is limited to
authorized persons, vehicles, or vessels.
The statutory basis for this rulemaking
is 33 U.S.C. 1233, which gives the Coast
Guard, under a delegation from the
Secretary of the Department of
Homeland Security, regulatory authority
to enforce the Ports and Waterways
Safety Act.
III. Discussion of Proposed Rule
This rule will create a permanent
special local regulation in Pago Pago
Harbor. The regulated area will close the
harbor to all vessels not authorized by
the COTP for entry into, transiting, or
anchoring within the port for the
duration of the event. The COTP will
authorize registered participants,
support vessels, and enforcement
vessels to enter and remain in the area.
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No other vessels will be permitted to
enter the regulated area without
obtaining permission from the COTP or
a designated representative. The harbor
will remain closed until the Coast Guard
issues an ‘‘All Clear’’ after races have
concluded and the harbor is deemed
safe for normal operations. This rule
will not require any vessel already
moored to evacuate the port, provided
they are moored in such a way that they
do not interfere with the event. The
proposed regulatory text appears at the
end of this document.
IV. Regulatory Analyses
We developed this proposed rule after
considering numerous statutes and
Executive Orders related to rulemaking.
Below we summarize our analyses
based on a number of these statutes and
Executive orders and we discuss First
Amendment rights of protestors.
A. Regulatory Planning and Review
Executive Orders 12866 and 13563
direct agencies to assess the costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits.
Executive Order 13563 emphasizes the
importance of quantifying both costs
and benefits, of reducing costs, of
harmonizing rules, and of promoting
flexibility. This NPRM has not been
designated a ‘‘significant regulatory
action,’’ under Executive Order 12866.
This determination is based on the size,
location, duration, and time-of-day of
the safety zone. Accordingly, this NPRM
has not been reviewed by the Office of
Management and Budget.
Under this NPRM, the Coast Guard
would issue a Broadcast Notice to
Mariners with information pertaining to
the regulated area via VHF–FM marine
channel 16.
B. Impact on Small Entities
The Regulatory Flexibility Act of
1980, 5 U.S.C. 601–612, as amended,
requires Federal agencies to consider
the potential impact of regulations on
small entities during rulemaking. The
term ‘‘small entities’’ comprises small
businesses, not-for-profit organizations
that are independently owned and
operated and are not dominant in their
fields, and governmental jurisdictions
with populations of less than 50,000.
The Coast Guard certifies under 5 U.S.C.
605(b) that this proposed rule would not
have a significant economic impact on
a substantial number of small entities.
Some owners or operators of vessels
intending to transit the regulated area
may be small entities and may not be
authorized to do so. However, given the
E:\FR\FM\18JAP1.SGM
18JAP1
]]>Agencies
[Federal Register Volume 82, Number 11 (Wednesday, January 18, 2017)]
[Proposed Rules]
[Pages 5477-5480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00876]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-131643-15]
RIN-1545-BN05
Definitions of Qualified Matching Contributions and Qualified
Nonelective Contributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed amendments to the definitions
of qualified matching contributions (QMACs) and qualified nonelective
contributions (QNECs) under regulations relating to certain qualified
retirement plans that contain cash or deferred arrangements under
section 401(k) or that provide for matching contributions or employee
contributions under section 401(m). Under these regulations, employer
contributions to a plan would be able to qualify as QMACs or QNECs if
they satisfy applicable nonforfeitability and distribution requirements
at the time they are allocated to participants' accounts, but need not
meet these requirements when they are contributed to the plan. These
regulations would affect participants in, beneficiaries of, employers
maintaining, and administrators of tax-qualified plans that contain
cash or deferred arrangements or provide for matching contributions or
employee contributions.
DATES: Comments and requests for a public hearing must be received by
April 18, 2017.
ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-131643-15) Room 5203,
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
131643-15), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC 20224, or sent electronically via the
Federal eRulemaking Portal at
[[Page 5478]]
www.regulations.gov (IRS REG-131643-15).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Rosemary Y. Oluwo at (202) 317-6060; concerning submissions of comments
or to request a hearing, Regina Johnson at (202) 317-6901 (not toll-
free numbers).
SUPPLEMENTARY INFORMATION:
Background
Section 401(k)(1) provides that a profit-sharing or stock bonus
plan, a pre-ERISA money purchase plan, or a rural cooperative plan
shall not be considered as failing to satisfy the requirements of
section 401(a) merely because the plan includes a qualified cash or
deferred arrangement (CODA). To be considered a qualified CODA, a plan
must satisfy several requirements, including: (i) Under section
401(k)(2)(B), amounts held by the plan's trust that are attributable to
employer contributions made pursuant to an employee's election must
satisfy certain distribution requirements; (ii) under section
401(k)(2)(C), an employees' right to such employer contributions must
be nonforfeitable; and (iii) under section 401(k)(3), such employer
contributions must satisfy certain nondiscrimination requirements.
Under section 401(k)(3)(D)(ii), the employer contributions taken
into account for purposes of applying the nondiscrimination
requirements may, under such rules as the Secretary may provide and at
the election of the employer, include, in addition to contributions
made pursuant to an employee's election, matching contributions that
meet the distribution and nonforfeitability requirements of section
401(k)(2)(B) and (C) and qualified nonelective contributions within the
meaning of section 401(m)(4)(C). Under section 401(m)(4)(C), a
qualified nonelective contribution is an employer contribution, other
than a matching contribution, with respect to which the distribution
and nonforfeitability requirements of section 401(k)(2)(B) and (C) are
met.
Under Sec. 1.401(k)-1(b)(1)(ii), a CODA satisfies the applicable
nondiscrimination requirements if it satisfies the actual deferral
percentage (ADP) test of section 401(k)(3), described in Sec.
1.401(k)-2. The ADP test limits the degree of disparity permitted
between the percentage of compensation made as employer contributions
to the plan for a plan year on behalf of eligible highly compensated
employees and the percentage of compensation made as employer
contributions on behalf of eligible nonhighly compensated employees. If
the ADP test limits are exceeded, the employer must take corrective
action to ensure that the limits are met. In determining the amount of
employer contributions made on behalf of an eligible employee,
employers are allowed to take into account certain qualified matching
contributions (QMACs) and qualified nonelective contributions (QNECs)
made on behalf of the employee by the employer.
In lieu of applying the ADP test, an employer may choose to design
its plan to satisfy an ADP safe harbor, including the ADP safe harbor
provisions of section 401(k)(12), described in Sec. 1.401(k)-3. Under
Sec. 1.401(k)-3, a plan satisfies the ADP safe harbor provisions of
section 401(k)(12) if, among other things, it satisfies certain
contribution requirements. With respect to the safe harbor under
section 401(k)(12), an employer may choose to satisfy the contribution
requirement by providing a certain level of QMACs or QNECs to eligible
nonhighly compensated employees under the plan.
A defined contribution plan that provides for matching or employee
after-tax contributions must satisfy the nondiscrimination requirements
under section 401(m) with respect to those contributions for any plan
year. Under Sec. 1.401(m)-1(b)(1), the matching contributions and
employee contributions under a plan satisfy the nondiscrimination
requirements for a plan year if the plan satisfies the actual
contribution percentage (ACP) test of section 401(m)(2) described in
Sec. 1.401(m)-2.
The ACP test limits the degree of disparity permitted between the
percentage of compensation made as matching contributions and after-tax
employee contributions for or by eligible highly compensated employees
under the plan and the percentage of compensation made as matching
contributions and after-tax employee contributions for or by eligible
nonhighly compensated employees under the plan. If the ACP test limits
are exceeded, the employer must take corrective action to ensure that
the limits are met. In determining the amount of employer contributions
made on behalf of an eligible employee, employers are allowed to take
into account certain QNECs made on behalf of the employee by the
employer. Employers must also take into account QMACs made on behalf of
the employee by the employer unless an exclusion applies (including an
exclusion for QMACs that are taken into account under the ADP test).
If an employer designs its plan to satisfy the ADP safe harbor of
section 401(k)(12), it may avoid performing the ACP test with respect
to matching contributions under the plan, as long as the additional
requirements of the ACP safe harbor of section 401(m)(11) are met.
Under Sec. 1.401(k)-6, QMACs and QNECs are matching contributions
and employer contributions (other than elective or matching
contributions) that satisfy the nonforfeitability requirements of Sec.
1.401(k)-1(c) and the distribution requirements of Sec. 1.401(k)-1(d)
``when they are contributed to the plan.'' Similarly, Sec. 1.401(m)-5
includes independent definitions of QMACs and QNECs, which are matching
contributions and employer contributions (other than elective or
matching contributions) that satisfy the nonforfeitability and
distribution requirements of Sec. 1.401(k)-1(c) and (d) ``at the time
the contribution is made.''
The Treasury Department and the IRS have received comments with
respect to the definitions of QMACs and QNECs in Sec. Sec. 1.401(k)-6
and 1.401(m)-5. In particular, commenters assert that employer
contributions should be able to qualify as QMACs and QNECs as long as
they satisfy applicable nonforfeitability and distribution requirements
at the time they are allocated to participants' accounts, rather than
when they are first contributed to the plan. Commenters contend that
interpreting sections 401(k)(3)(D)(ii) and 401(m)(4)(C) to require
satisfaction of applicable nonforfeitability and distribution
requirements at the time amounts are first contributed to the plan
would preclude plan sponsors with plans that permit the use of amounts
in plan forfeiture accounts to offset future employer contributions
under the plan from applying such amounts to fund QMACs and QNECs. This
is because the amounts would have been allocated to the forfeiture
accounts only after a participant incurred a forfeiture of benefits
and, thus, generally would have been subject to a vesting schedule when
they were first contributed to the plan. Commenters have requested that
QMAC and QNEC requirements not be interpreted to prevent the use of
plan forfeitures to fund QMACs and QNECs. The commenters urge that the
nonforfeitability and distribution requirements under Sec. 1.401(k)-6
should apply when QMACs and QNECs are allocated to participants'
accounts and not when the contributions are first made to the plan.
[[Page 5479]]
Explanation of Provisions
After consideration of the comments described in this preamble in
the ``Background'' section, the Treasury Department and the IRS are
proposing to amend Sec. 1.401(k)-6 to provide that amounts used to
fund QMACs and QNECs must be nonforfeitable and subject to distribution
restrictions in accordance with Sec. 1.401(k)-1(c) and (d) when
allocated to participants' accounts, and to no longer require that
amounts used to fund QMACs and QNECs satisfy the nonforfeitability and
distribution requirements when they are first contributed to the plan.
Treasury and IRS note that while the second sentence of each of the
current definitions of QMACs and QNECs refers to the ``vesting''
requirements of Sec. 1.401(k)-1(c), those requirements are more
appropriately characterized as ``nonforfeitability'' requirements
consistent with section 401(k)(2)(C) and the title of Sec. 1.401(k)-
1(c). Accordingly, these proposed regulations would amend these
definitions to clarify those references by replacing the word
``vesting'' with ``nonforfeitability'' in each definition; these
changes are not otherwise intended to have any substantive impact on
this or any other section of the regulations. These proposed
regulations would also amend the definitions of QMACs and QNECs in
Sec. 1.401(m)-5 to provide cross-references to the definitions of
QMACs and QNECs under Sec. 1.401(k)-6. These amendments to Sec.
1.401(m)-5 are being made to ensure a consistent definition of QMACs
and QNECs in Sec. 1.401(k)-6 and Sec. 1.401(m)-5 (including the
requirement that amounts used to fund QMACs and QNECs be made subject
to nonforfeitability and distribution requirements when they are
allocated to participants' accounts as QMACs or QNECs) and are not
otherwise intended to have any substantive impact on this or any other
section of the regulations.
Proposed Effective/Applicability Date
These regulations are proposed to apply to taxable years beginning
on or after the date of publication of the Treasury decision adopting
these rules as final regulations in the Federal Register. Taxpayers,
however, may rely on these proposed regulations for periods preceding
the proposed applicability date. If, and to the extent, the final
regulations are more restrictive than the rules in these proposed
regulations, those provisions of the final regulations will be applied
without retroactive effect.
Special Analyses
Certain IRS regulations, including this one, are exempt from the
requirements of Executive Order 12866, as supplemented and reaffirmed
by Executive Order 13563. Therefore, a regulatory impact assessment is
not required. Because the regulation does not impose a collection of
information on small entities, the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to section 7805(f) of the Internal
Revenue Code, these regulations will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on their
impact on small business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the Addresses heading.
Treasury and the IRS request comments on all aspects of the proposed
rules. All comments will be available at www.regulations.gov or upon
request. A public hearing will be scheduled if requested in writing by
any person who timely submits written comments. If a public hearing is
scheduled, notice of the date, time, and place for the public hearing
will be published in the Federal Register.
Drafting Information
The principal author of these regulations is Rosemary Y. Oluwo,
Office of Associate Chief Counsel (Tax Exempt and Governmental
Entities). However, other personnel from the IRS and Treasury
Department participated in the development of these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be 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 1.401(k)-1 is amended by adding paragraph (g)(5) to
read as follows:
Sec. 1.401(k)-1 Certain cash or deferred arrangements.
* * * * *
(g) * * *
(5) Effective date for definitions of qualified matching
contributions (QMACs) and qualified nonelective contributions (QNECs).
The revisions to the second sentence in the definitions of QMACs and
QNECs in Sec. 1.401(k)-6 apply to taxable years ending on or after the
date of publication of the Treasury decision adopting these rules as
final regulations in the Federal Register.
0
Par. 3. Section 1.401(k)-6 is amended by revising the second sentence
in the definitions of Qualified matching contributions (QMACs) and
Qualified nonelective contributions (QNECs) to read as follows:
Sec. 1.401(k)-6 Definitions.
* * * * *
Qualified matching contributions (QMACs). * * * Thus, the matching
contributions must satisfy the nonforfeitability requirements of Sec.
1.401(k)-1(c) and be subject to the distribution requirements of Sec.
1.401(k)-1(d) when they are allocated to participants' accounts. * * *
Qualified nonelective contributions (QNECs). * * * Thus, the
nonelective contributions must satisfy the nonforfeitability
requirements of Sec. 1.401(k)-1(c) and be subject to the distribution
requirements of Sec. 1.401(k)-1(d) when they are allocated to
participants' accounts. * * *
* * * * *
0
Par. 4. Section 1.401(m)-1 is amended by adding paragraph (d)(4) to
read as follows:
Sec. 1.401(m)-1 Employee contributions and matching contributions.
* * * * *
(d) * * *
(4) Effective date for definitions of qualified matching
contributions (QMACs) and qualified nonelective contributions (QNECs).
The revisions to the definitions of QMACs and QNECs in Sec. 1.401(m)-5
apply to taxable years ending on or after the date of publication of
the Treasury decision adopting these rules as final regulations in the
Federal Register.
0
Par. 5. Section 1.401(m)-5 is amended by revising the definitions of
Qualified matching contributions (QMACs) and Qualified nonelective
contributions (QNECs) to read as follows:
Sec. 1.401(m)-5 Definitions.
* * * * *
Qualified matching contributions (QMACs). Qualified matching
contributions or QMACs means qualified matching contributions or QMACs
as defined in Sec. 1.401(k)-6.
[[Page 5480]]
Qualified nonelective contributions (QNECs). Qualified nonelective
contributions or QNECs means qualified nonelective contributions or
QNECs as defined in Sec. 1.401(k)-6.
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2017-00876 Filed 1-17-17; 8:45 am]
BILLING CODE 4830-01-P
