Notice Requirements for Certain Pension Plan Amendments Significantly Reducing the Rate of Future Benefit Accrual, 15101-15107 [E8-5625]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 73, Number 56 (Friday, March 21, 2008)]
[Proposed Rules]
[Pages 15101-15107]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-5625]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 54

[REG-110136-07]
RIN 1545-BG48


Notice Requirements for Certain Pension Plan Amendments 
Significantly Reducing the Rate of Future Benefit Accrual

AGENCY: Internal Revenue Service (IRS), Department of the Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that would provide 
guidance relating to the application of section 4980F of the Internal 
Revenue Code to a plan amendment that is permitted to reduce benefits 
accrued before the plan amendment's applicable amendment date. These 
regulations would also reflect certain amendments made to section 4980F 
by the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 
780). These proposed regulations would affect sponsors, administrators, 
participants, and beneficiaries of pension plans. This document also 
provides a notice of a public hearing on these proposed regulations.

DATES: Written or electronic comments must be received by June 19, 
2008. Outlines of topics to be discussed at the public hearing 
scheduled for July 10, 2008, at 10 a.m. must be received by June 20, 
2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-110136-07), Room 
5203, Internal Revenue Service, PO 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-
110136-07), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, 20224 or sent via the Federal eRulemaking 
Portal at https://www.regulations.gov (IRS REG-

[[Page 15102]]

110136-07). The public hearing will be held in the IRS Auditorium, 
Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Pamela R. Kinard, at (202) 622-6060; concerning submission of comments, 
the hearing, and/or to be placed on the building access list to attend 
the hearing, Richard A. Hurst, Richard.A.Hurst@irscounsel.treas.gov, or 
(202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collections of information referenced in this notice of 
proposed rulemaking 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 proposed amendments to 26 CFR parts 1 and 54 
under section 4980F of the Internal Revenue Code (Code). Section 4980F 
sets forth the requirements for providing notice to certain affected 
persons when a plan significantly reduces future benefit accruals. A 
notice required under section 4980F of the Code or the parallel rules 
in section 204(h) of the Employee Retirement Income Security Act of 
1974 (ERISA) is referred to as a ``section 204(h) notice.'' These 
proposed regulations would set forth timing rules for providing a 
section 204(h) notice for a plan amendment that is permitted to be 
effective before the applicable amendment date. In addition, the 
regulations provide guidance relating to changes made in section 4980F 
by the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 
780) (PPA '06).

Section 411(d)(6) Protected Benefits

    Section 411(d)(6)(A) provides 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. There are certain 
exceptions to this general rule. For example, amendments described in 
section 412(d)(2) (section 412(c)(8) for plan years beginning before 
January 1, 2008) of the Code or section 4281 of ERISA. 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 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.
    For both section 204(g) and section 204(h) of ERISA, the Secretary 
of the Treasury has interpretive authority over the subject matter 
addressed in these regulations for purposes of ERISA, as well as the 
Code. Pursuant to section 101(a) of Reorganization Plan No. 4 of 1978, 
29 U.S.C. 1001nt, 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 section 204(g) and (h) of ERISA. Thus, 
these proposed Treasury regulations under section 4980F of the Code 
would apply as well for purposes of section 204(h) of ERISA.

Notice Requirements Relating to Plan Amendments Affecting Benefits for 
Prior Service

    Section 412(d)(2) of the Code (section 412(c)(8) for plan years 
beginning before January 1, 2008) 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 section 412(d)(2) 
that reduces accrued benefits. Section 4 of Rev. Proc. 94-42 provides 
guidance relating to the written notice that must be provided to 
affected parties regarding the application for approval of a 
retroactive plan amendment to reduce accrued benefits under section 
412(d)(2) (a ``section 412(d)(2) written notice''). The content 
requirements of a section 412(d)(2) written notice include a 
description of the plan amendment and its effect, including the range 
in reduction of accrued benefits of participants, beneficiaries, and 
alternate payees.
    Section 212(a) of PPA '06 added section 432 of the Code, 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(e)(8)(C) requires a plan to provide notice of the plan amendment to 
affected parties 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 and a description of the possible rights 
and remedies of plan participants and beneficiaries.
    Section 113(a)(1)(B) of PPA '06 added Code section 436, providing 
rules limiting benefits and benefit accruals for single-employer plans 
with certain funding shortfalls. Section 101(j) of ERISA generally 
requires the plan administrator to provide a written notice to plan 
participants and beneficiaries within 30 days after the plan becomes 
subject to this benefit limitation.
    Section 4244A of ERISA provides that a multiemployer plan in 
reorganization is permitted to adopt an amendment reducing or 
eliminating certain accrued benefits (increases adopted within the 
prior 5 years) attributable to employer contributions under the plan. 
Under section 4244A(b)(2) of ERISA, 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 explaining the rights and remedies of 
participants and beneficiaries under the plan and informing the 
recipients that if contributions under the plan are not increased, 
accrued benefits under the plan for certain participants and 
beneficiaries will be reduced or an

[[Page 15103]]

excise tax will be imposed on employers.
    Section 4245 of ERISA provides rules relating to suspension of 
benefits under insolvent multiemployer plans. If benefit payments under 
the plan exceed the resource benefit level 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 or the level 
of basic benefits. Section 4245(e) of ERISA provides that certain plans 
in reorganization must provide notice to plan participants and 
beneficiaries that certain non-basic benefit payments will be 
suspended.
    Section 4281 of ERISA provides rules relating to benefits under 
certain multiemployer terminated plans. Section 4281(c) of ERISA 
provides that if the value of nonforfeitable benefits exceeds the value 
of the plan assets, the plan must be amended to reduce benefits in 
excess of nonforfeitable benefits arising from increases adopted within 
the prior 5 years, or the level that can be provided by plan assets, if 
greater. The regulations at 29 CFR 4281.32 provide that a plan sponsor 
must notify the Pension Benefit Guaranty Corporation (PBGC) and plan 
participants and beneficiaries of a plan amendment reducing benefits 
pursuant to section 4281(c) of ERISA. The notice must be provided no 
later than the earlier of 45 days after the amendment reducing benefits 
is adopted or the date of the first reduced benefit payment. Paragraph 
(e) of 29 CFR 4281.32 sets forth the content requirements applicable to 
a notice of benefit reduction.

Additional Provisions of 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 as a recipient of a section 204(h) 
notice any employer that has an obligation to contribute to the plan. 
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 any 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).

Explanation of Provisions

PPA '06 Rules

    These proposed regulations would add contributing employers to the 
list of persons to whom a section 204(h) notice must be provided. A 
contributing employer is defined in the proposed regulations as an 
employer that has an obligation to contribute to a plan (within the 
meaning of section 4212(a) of ERISA). This requirement to give section 
204(h) notice to contributing employers was added to reflect section 
502(c)(2) of PPA '06. This requirement would only apply to amendments 
adopted in plan years beginning after December 31, 2007.
    The regulations would also add a special timing rule to reflect 
section 402 of PPA '06. 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.\1\
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    \1\ This timing rule 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 must be provided at least 15 
days before the effective date of the plan amendment. 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).
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Plan Amendments Reflecting a Change in Statutorily Mandated Minimum 
Present Value Rules

    Section 417(e)(3) 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 using the 
applicable mortality table and the applicable interest rate, as defined 
in section 417(e)(3)(B) and (C), respectively. Section 302(b) of PPA 
'06 amended section 417(e)(3) 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) statutory actuarial assumptions 
would trigger the requirement to provide a section 204(h) notice. 
Revenue Ruling 2007-67 (2007-48 IRB 1047), see Sec.  
601.601(d)(2)(ii)(b), which includes guidance on plan amendments 
regarding the new interest rate and mortality table under section 
417(e)(3), states that certain amendments to reflect the new interest 
rate or mortality table for an annuity starting date in 2008 or later 
would not violate the anti-cutback rules of section 411(d)(6). The 
proposed regulations would provide that a reduced single-sum 
distribution resulting from an amendment to a traditional defined 
benefit plan to substitute 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) 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 the general rule under Sec.  1.411(d)-3(a)(1) prohibits 
plan amendments that reduce a plan participant's accrued benefit, 
certain exceptions exist. 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 proposed regulations would 
provide a conforming amendment to Sec.  1.411(d)-3(a)(1) to reference 
the rules at section 1107 of PPA '06.
    The proposed regulations generally state that the effective date of 
an amendment that is permitted to be adopted retroactively is the date 
the amendment is put into effect on an operational basis, so that a 
section 204(h) notice must nevertheless generally be provided at least 
45 days before the date the amendment is effective (15 days for 
multiemployer plans). The proposed regulations would add special timing 
rules for when a section 204(h) notice must be provided

[[Page 15104]]

to recipients with respect to a section 204(h) amendment \2\ that is 
permitted to reduce benefits accrued before the plan amendment's 
applicable amendment date. Specifically, for purposes of section 
1107(b)(2)(A) of PPA '06, the proposed regulations would clarify that 
the date on which such a plan amendment is effective is the first day 
that the plan is operated as if the amendment were in effect. Thus, a 
section 204(h) notice must generally be provided at least 45 days (15 
days for a multiemployer plan) before the amendment is effective (even 
though the amendment is not adopted until a later date). Except to the 
extent a special timing rule is set forth in these regulations, a 
determination of whether a section 204(h) notice is required in 
connection with an amendment made pursuant to section 1107 of PPA '06 
should be made in accordance with the general standards set forth in 
Sec.  54.4980F-1, Q&As-5, 6, 7, and 8.
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    \2\ 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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    The proposed regulations provide a special timing rule for section 
204(h) amendments to an applicable defined benefit plan as defined in 
section 411(a)(13)(C)(i). The regulations provide that for any section 
204(h) notice that is required to be provided in connection with an 
amendment to an applicable defined benefit plan within the meaning of 
section 411(a)(13)(C)(i) that is first effective before January 1, 
2009, and that limits the amount of the distribution to the account 
balance as permitted under section 411(a)(13)(A), the notice will not 
fail to be timely if 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 IRB 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) of the Code.\3\ The 
proposed regulations would permit a plan amendment to an applicable 
defined benefit plan within the meaning of section 411(a)(13)(C)(i) to 
use this special timing rule through the end of 2008. Thereafter, the 
general 45-day timing rule would apply to such amendments.
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    \3\ 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 explained earlier in this preamble, under the heading ``Notice 
Requirements Relating to Plan Amendments Affecting Benefits for Prior 
Service,'' both the Code and ERISA include a number of notice 
requirements for plan amendments that are permitted to reduce or 
eliminate accrued benefits. These notice requirements are in addition 
to the notice requirements under section 4980F of the Code and section 
204(h) of ERISA. To eliminate the need for a plan to provide multiple 
notices with substantially the same function and information to 
affected persons, these proposed regulations would provide that if a 
plan provides one of these notices in accordance with the applicable 
standards for such notices, the plan will be treated as having complied 
with the requirement to provide a section 204(h) notice with respect to 
a 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);
     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 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 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.

Timing and Content Rules for Multiemployer Plans in Endangered or 
Critical Status

    Section 432, 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 
circumstances. With respect to any such amendment for a plan that is in 
critical status, section 432(e)(8)(C) requires notice of the plan 
amendment. Notice under section 432(e)(8)(C) must be provided at least 
30 days before the general effective date of the reduction. Section 
432(e)(8)(C) requires the notice to include information that is 
sufficient for participants and beneficiaries to understand the effect 
of any reduction on their benefits and a description of the possible 
rights and remedies of participants and beneficiaries, including 
contact information for the Department of Labor for further assistance 
and information where appropriate.
    As discussed in this preamble under the heading ``Interaction of 
the Section 204(h) Timing Rules with Plan Amendments that Have a 
Retroactive Effective Date,'' PPA '06 requires that notice be given 30 
days before the general effective date for an amendment to a plan in 
critical status under section 432(e)(8)(C). Q&A-9(c) of Sec.  54.4980F-
1 of the Treasury Regulations provides that a section 204(h) amendment 
made in the case of a multiemployer plan must be provided at least 15 
days before the effective date of the amendment. Compliance with the 
30-day timing rule of section 432(e)(8)(C) notice would thus also 
satisfy this 15-day timing rule. These proposed regulations also 
include a rule under which the content of a notice under 432(e)(8)(C) 
would also satisfy the content requirements for a section 204(h) 
notice. As a result, under these 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 be treated as 
satisfying the timing and content requirements of a section 204(h) 
notice.
    However, in the case of an amendment to which section 432 applies 
for a multiemployer plan in endangered status, the normal timing and 
content rules for a section 204(h) notice under section 4980F would 
apply (so that any required section 204(h) notice must be provided at 
least 15 days before the effective date).

Delegation of Authority to the Commissioner

    The proposed regulations would also delegate to the Commissioner of 
the Internal Revenue Service the authority 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 with respect to 
a section 204(h) amendment that applies with respect to benefits 
accrued before the

[[Page 15105]]

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 the 
limited circumstances in which Congress permits a plan to be amended to 
reduce benefits accrued before the adoption date of the plan amendment. 
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, regardless of whether that amendment reduces 
benefits accrued before the adoption date of the amendment. Often these 
notices must provide content requirements similar to a section 204(h) 
notice. This delegation would permit the Commissioner to treat plans 
providing these other notices as having complied with the requirement 
to provide a section 204(h) notice, thus eliminating unnecessary 
overlap in the administration of plans.

Proposed Effective Dates

    These regulations are generally proposed to be applicable to 
section 204(h) amendments that are effective on or after January 1, 
2008. However, for any section 204(h) amendment that is adopted after 
the effective date of the amendment, the clarification of the effective 
date of the amendment in these proposed regulations is applicable to 
those amendments on or after July 1, 2008. In addition, for any 
amendment to which the proposed regulations would otherwise apply, no 
inference is intended as to when a section 204(h) notice must be 
provided if the amendment is effective before July 1, 2008.
    As described in this preamble under the heading ``Interaction of 
the Section 204(h) Notice Timing Rules with Plan Amendments that Have a 
Retroactive Effective Date,'' with respect to any section 204(h) 
amendment to a lump sum-based benefit formula (or any other amendment 
adopted pursuant to section 701 of PPA '06), the special rules under 
the proposed 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 date on which Notice 
2007-6 was published). However, 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 not later than December 31, 2008. 
With respect to the rule relating to adding contributing employers to 
the list of section 204(h) recipients, the effective date is proposed 
to apply to section 204(h) amendments adopted in plan years beginning 
after December 31, 2007.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to this regulation. 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 Internal 
Revenue Code, this regulation has been submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The Treasury Department and IRS request comments on the clarity of 
the proposed rules and how they can be made easier to understand. All 
comments will be available for public inspection and copying.
    A public hearing has been scheduled for July 10, 2008, beginning at 
10 a.m. in the Auditorium, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC. Due to building security procedures, 
visitors must enter at the Constitution Avenue entrance. In addition, 
all visitors must present photo identification to enter the building. 
Because of access restrictions, visitors will not be admitted beyond 
the immediate entrance area more than 30 minutes before the hearing 
starts. For information about having your name placed on the building 
access list to attend the hearing, see the FOR FURTHER INFORMATION 
CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written or 
electronic comments by June 19, 2008 and an outline of the topics to be 
discussed and the amount of time to be devoted to each topic (a signed 
original and eight (8) copies) by June 20, 2008. A period of 10 minutes 
will be allotted to each person for making comments. An agenda showing 
the scheduling of the speakers will be prepared after the deadline for 
receiving outlines has passed. Copies of the agenda will be available 
free of charge at the hearing.

Drafting Information

    The principal author of these regulations is Pamela R. Kinard, 
Office of Division Counsel/Associate Chief Counsel (Tax Exempt and 
Government Entities). However, other personnel from the IRS and the 
Treasury Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 54

    Excise taxes, Pensions, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 54 are 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 1.411(d)-3 is amended by revising the first 
sentence of paragraph (a)(1) to read as follows:
    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

    Par. 3. The authority citation for part 54 continues to read in 
part as follows:


[[Page 15106]]


    Authority: 26 U.S.C. 7805 * * *

    Section 54.4980F-1 also issued under 26 U.S.C. 4980F and section 
1107 of the Pension Protection Act of 2006, Public Law 109-780 (120 
Stat. 780). * * *
    Par. 4. Section 54.4980F-1 is amended by:
    1. Revising the second sentence of A-1(a).
    2. Redesignating A-8(d) as A-8(e) and adding new A-8(d).
    3. Revising the first sentence of A-9(a), A-9(b), and A-9(c), and 
revising A-9(d)(1).
    4. Adding A-9(f) and A-9(g).
    5. Revising the first sentence of A-10(a).
    6. Revising A-11(a)(1) and adding A-11(a)(7).
    7. Adding A-18(a)(4) and A-18(a)(5).
    8. Revising A-18(b)(1) and adding (b)(3)(i), (b)(3)(ii), and 
(b)(3)(iii).
    These 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) Requirements of Internal Revenue Code section 4980F(e) and 
ERISA section 204(h). * * * 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 (as described in Q&A-10 of 
this section).
* * * * *
    A-8. * * *
    (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 and mortality assumptions in section 417(e)(3) made 
by 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 the Pension Protection Act of 2006, Public 
Law 109-780 (120 Stat. 780) (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 411(d)(6) plan 
amendments--(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) even if the 
amendment applies with respect to benefits accrued before the 
applicable amendment date. Thus, for example, this paragraph (g) 
applies to amendments that are permitted to be effective retroactively 
under section 412(d)(2) (section 412(c)(8) for plan years beginning 
before January 1, 2008), 418D, or 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 paragraphs (b), (c), (d), or (f) of this Q&A-9) the 
date the amendment is effective.
    (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 providing a section 204(h) notice with 
respect to a section 204(h) amendment and is treated as satisfying the 
timing rules of this Q&A-9 and the content rules of paragraphs (a)(3), 
(4), and (6) of Q&A-11 of this section.
    (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 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;
    (D) A notice required under section 4245(e) of ERISA, relating to 
the effects of the insolvency status for a multiemployer plan; and
    (E) 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--
    (i) That applies to benefits accrued before the applicable 
amendment date but that does not violate section 411(d)(6) or
    (ii) For which there is a required notice with timing and content

[[Page 15107]]

requirements similar to a section 204(h) notice.
* * * * *
    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 the 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), (3), (4), (5), 
and (6) of this Q&A-11. See paragraph (a)(7) of this Q&A-11 for a 
special rule relating to section 204(h) notices provided in connection 
with a notice required under section 432(e)(8)(C). 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.
* * * * *
    (7) Information in section 204(h) notice provided in connection 
with a notice required under section 432(e)(8)(C). The information 
required in a notice under section 432(e)(8)(C) is treated as 
satisfying the content requirements of paragraphs (a)(3), (4), and (6) 
of this Q&A-11 for a section 204(h) notice.
* * * * *
    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 of PPA '06, which amended section 4980F(e)(1) of 
the 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), section 4980F and section 
204(h) of ERISA, as amended by EGTRRA, apply to plan amendments taking 
effect on or after June 7, 2001 (statutory effective date), which is 
the date of enactment of EGTRRA.
* * * * *
    (3) Effective dates for Q&A-9(g)(1), (g)(3), and (g)(4) and Q&A-
11(a)(7)--(i) General effective date. Except as provided in Q&A-
18(b)(3)(ii) or (b)(3)(iii) of this section, the rules in Q&A-9(g)(1), 
(g)(3), and (g)(4) and Q&A-11(a)(7) of this section apply to amendments 
that are effective on or after January 1, 2008.
    (ii) Effective date for Q&A-9(g)(2). Except as provided in Q&A-
18(b)(3)(iii) of this section, the rules in Q&A-9(g)(2) of this section 
apply to amendments that are effective on or after July 1, 2008.
    (iii) Special rules for section 204(h) amendments to applicable 
defined benefit plan. Notwithstanding 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, the special rules in paragraphs (g)(1) and (2) 
of Q&A-9 of this section apply to amendments made 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.
* * * * *

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E8-5625 Filed 3-20-08; 8:45 am]
BILLING CODE 4830-01-P