Annual Financial and Actuarial Information Reporting; Pension Protection Act of 2006, 11022-11035 [E9-5741]

Agencies

• Pension Benefit Guaranty Corporation

[Federal Register Volume 74, Number 49 (Monday, March 16, 2009)]
[Rules and Regulations]
[Pages 11022-11035]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-5741]


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PENSION BENEFIT GUARANTY CORPORATION

29 CFR Part 4001, 4010, and 4044

RIN 1212-AB09


Annual Financial and Actuarial Information Reporting; Pension 
Protection Act of 2006

AGENCY: Pension Benefit Guaranty Corporation.

ACTION: Final rule.

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SUMMARY: This is a final rule to amend PBGC's regulation on Annual 
Financial and Actuarial Information Reporting. The amendments implement 
the provisions of the Pension Protection Act of 2006, Public Law 109-
280 (PPA 2006), which changed the standards for determining which 
persons are required to report under section 4010 (Authority to Require 
Certain Information) of the Employee Retirement Income Security Act of 
1974 and made other changes to the reporting requirements. In addition 
to providing guidance on implementing the PPA 2006 changes, the final 
rule waives reporting in certain cases for controlled groups with 
aggregate plan underfunding of $15 million or less, modifies the 
standards for determining which plans are exempt from the actuarial 
information requirements, revises the actuarial information 
requirements to conform with other PPA 2006 changes, and provides other 
clarifications.

DATES: Effective April 15, 2009. (See Applicability in SUPPLEMENTARY 
INFORMATION.)

FOR FURTHER INFORMATION CONTACT: John H. Hanley, Director, Legislative 
and Regulatory Department; or Catherine B. Klion, Manager, or Grace H. 
Kraemer, Attorney, Regulatory and Policy Division, Legislative and 
Regulatory Department, Pension Benefit Guaranty Corporation, 1200 K 
Street, NW., Washington, DC 20005-4026; 202-326-4024. (TTY/TDD users 
may call the Federal relay service toll-free at 1-800-877-8339 and ask 
to be connected to 202-326-4024.)

SUPPLEMENTARY INFORMATION:

Background

    Pension Benefit Guaranty Corporation (PBGC) administers the pension 
insurance programs under Title IV of the Employee Retirement Income 
Security Act of 1974 (ERISA). In order to give PBGC an opportunity to 
anticipate and attempt to minimize potential liabilities that may arise 
from the termination of significantly underfunded plans, ERISA section 
4010 requires the reporting of actuarial and financial information by 
controlled groups with pension plans that have significant 
underfunding. That information is exempt from disclosure under the 
Freedom of Information Act (5 U.S.C. 552) and may not be made public, 
except as may be relevant to any administrative or judicial action or 
proceeding.
    Pursuant to ERISA section 4010, PBGC issued its initial regulation 
on Annual Financial and Actuarial Information Reporting in 1995 (29 CFR 
part 4010). The regulation specifies the items of identifying, 
financial, and actuarial information that filers must submit under 
ERISA section 4010. PBGC reviews the information that is filed and 
enters it into an electronic database for more detailed analysis. 
Computer-assisted analysis of this information helps PBGC to anticipate 
possible major demands on the pension insurance system and to focus 
PBGC resources on situations that pose the greatest risks to that 
system. Because other sources of information are usually

[[Page 11023]]

not as current as the ERISA section 4010 information, the ERISA section 
4010 filing plays a major role in PBGC's ability to protect participant 
and premium-payer interests.
    In March 2005, PBGC amended part 4010 to require electronic 
reporting and to make other less significant changes. Reporting is now 
accomplished through PBGC's secure e-4010 Web-based application.

PPA 2006 Changes

    On August 17, 2006, the President signed into law the Pension 
Protection Act of 2006, Public Law 109-280 (PPA 2006), which made 
numerous changes in the area of pension law, including changes to ERISA 
section 4010. Before its amendment by PPA 2006, ERISA section 4010(b) 
required reporting, in general, if: (1) The aggregate unfunded vested 
benefits of all plans maintained by members of a controlled group 
exceeded $50 million, disregarding plans with no unfunded vested 
benefits (the ``$50 Million Gateway Test''); (2) the conditions 
specified in ERISA section 302(f) and section 412(n) of the Internal 
Revenue Code (Code) for imposing a lien for missed contributions 
exceeding $1 million had been met with respect to any plan maintained 
by any member of the controlled group; or (3) the Internal Revenue 
Service (IRS) had granted minimum funding waivers in excess of $1 
million to any plan maintained by any member of the controlled group, 
and any portion of the waivers was still outstanding.
    Section 505 of PPA 2006 amended ERISA section 4010(b)(1), replacing 
the $50 Million Gateway Test with a test based on the funding target 
attainment percentage of each plan in the controlled group. As amended 
by PPA 2006, ERISA section 4010(b)(1) requires reporting if:

the funding target attainment percentage (as defined in subsection 
(d)) at the end of the preceding plan year of a plan maintained by 
the contributing sponsor or any member of its controlled group is 
less than 80 percent.\1\
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    \1\ Filers with pre-PPA 2006 information years are reminded that 
PBGC regulations provide that if a filer for the immediately 
preceding information year is not required to file for the current 
information year, the filer must submit information, in accordance 
with the instructions on PBGC's Web site, https://www.pbgc.gov, 
demonstrating why a filing is not required for the current 
information year. This requirement will apply, for example, to a 
filer that was required to file for the information year ending on 
December 31, 2007, based on the $50 Million Gateway Test, but that 
is not required to file for the information year ending on December 
31, 2008, based on the new 80% FTAP Gateway Test.

This preamble refers to the new funding target attainment percentage 
test as the 80% FTAP Gateway Test.
    Although PPA 2006 did not alter the substance of the other two 
gateway tests (found in paragraphs (b)(2) and (b)(3) of ERISA section 
4010), it made other changes that affect these provisions. For 
instance, because PPA 2006 made changes to references in paragraph 
(b)(2), references in Sec.  4010.4(a) (which describes who must file 
under part 4010) need to be amended. Similarly, PPA 2006 made changes 
to the minimum funding waiver provisions, which are referred to in part 
4010.
    Finally, PPA 2006 added ERISA sections 4010(d)(1) and 4010(e). 
ERISA section 4010(d)(1) lists three items that must be included in the 
information filers submit to PBGC.\2\ ERISA section 4010(e) requires 
PBGC to submit to Congress an annual summary report of the information 
submitted to PBGC pursuant to ERISA section 4010.
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    \2\ ERISA section 4010(a), which was unaltered by PPA 2006, 
provides that filers must provide the information specified by PBGC 
in regulations.
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    On February 20, 2008 (at 73 FR 9243), PBGC published in the Federal 
Register a proposed rule to amend part 4010 of PBGC's regulations to 
implement the PPA 2006 changes and provide other guidance. PBGC 
received four public comments on the proposed rule, all from actuarial 
consulting firms. All of the commenters sought clarification of some of 
the proposal's provisions and three commenters requested that 
additional waivers from the section 4010 reporting requirements be 
granted in the final rule. The comments are discussed below with the 
topics to which they relate.

Overview of Final Rule

    This final rule amends part 4010 of PBGC's regulations to implement 
the change to ERISA section 4010(b)(1). In particular, this final rule 
provides guidance on how to determine whether reporting is required 
based on a plan's funding target attainment percentage. The final rule 
also makes conforming changes to address the PPA 2006 changes affecting 
the section 4010 reporting triggers based on the imposition of certain 
liens or on the granting of certain minimum funding waivers.
    In conjunction with these changes, the final rule also: (1) Waives 
reporting in certain cases for controlled groups with aggregate 
underfunding of $15 million or less; (2) modifies the standards for 
determining which plans are exempt from reporting actuarial 
information; (3) modifies the reporting requirements primarily to 
implement the PPA 2006 changes; (4) provides guidance on reporting 
requirements for sponsors of multiple employer plans; and (5) makes 
other clarifications. The final rule is applicable to information years 
beginning after 2007.
    The final rule is nearly the same as the proposed rule, but there 
are a few differences. The key changes are that the final rule--
     Clarifies that for purposes of the gateway tests, only 
plans that are in existence on the last day of the information year and 
that are sponsored by persons who are members of the contributing 
sponsor's controlled group on the last day of the information year are 
counted;
     Clarifies that fair market value of the plan's assets, for 
purposes of part 4010 excludes contributions receivable (i.e., 
contributions received by the plan after the end of the plan year);
     Modifies the proposed rule reporting requirements for 
sponsors of multiple employer plans and provides for an alternative 
method of compliance for certain contributing sponsors of multiple 
employer plans; and
     Modifies the plan actuarial reporting requirements to 
require filers to report certain information regarding liens and 
outstanding minimum funding waivers.
     Modifies the proposed rule requirements for certain plans 
to which special funding rules apply.
    A detailed discussion of the final rule follows.

Information Year

    In the original proposed rule under ERISA section 4010 (60 FR 
35308, Jul. 6, 1995), PBGC introduced the concept of ``information 
year.'' The information year is the fiscal year, except that if two or 
more members of a controlled group have different fiscal years, the 
information year is the calendar year (Sec.  4010.5). In the preamble 
to that original proposed rule, PBGC explained that ``information 
year'' serves four purposes:

    First, it will help persons determine which plan years and 
fiscal years to use to identify Filers. Second, it will help Filers 
determine whether a pension plan qualifies for a filing exemption. 
Third, it is used to identify the information to be submitted by a 
Filer. Fourth, it establishes the due date for submission of 
required information by a Filer. The regulation does not require a 
Filer to change its fiscal year or the plan year of any pension 
plan. Further, the regulation does not require a Filer to report 
financial information on any accounting period other than an 
existing fiscal year or to report actuarial information for any 
period other than the existing plan year of a pension plan. 
Generally, the Information Year is the fiscal year of the Filer. If 
all members of a controlled group do not report financial

[[Page 11024]]

information on the same fiscal year, the Information Year is the 
calendar year.

``Information year'' has been integral to the process of reporting 
under ERISA section 4010 and PBGC finds no indication that PPA 2006 
alters this. Therefore, under the final rule, reporting will continue 
to be based on the concept of ``information year.'' The final rule 
provides guidance for unusual situations, such as where the plan year 
and the information year differ.
    The final rule clarifies how the ERISA section 4010 requirements 
apply to certain unusual plan year situations, such as when a plan has 
two plan years that end in the information year or has no plan year 
that ends in the information year. Under the final rule, the last plan 
year ending on or before the end of the information year is treated as 
the plan year that ends within the information year.
    The final rule also clarifies that the gateway tests apply only to 
plans maintained as of the end of the information year and hence 
exclude plans no longer maintained by the controlled group as of the 
end of the information year. In addition, the final rule clarifies that 
when two or more members of a controlled group have different fiscal 
years, the determination of whether an entity is exempt from the ERISA 
section 4010 reporting requirements is made on the basis of a calendar 
year information year.
    One commenter requested guidance on applying the information year 
rules to certain spinoffs, citing as an example the application of the 
80% FTAP Gateway Test both to a plan created by a midyear spinoff from 
a pre-existing plan within the controlled group, and to the pre-
existing plan, where the assets and liabilities at the pre-existing 
plan's valuation date include the assets and liabilities of the spunoff 
plan. Because section 4010 issues involving midyear spinoffs are 
infrequent and factually specific, PBGC believes they are better 
addressed on a case-by-case basis. Filers can obtain guidance on such 
issues by contacting PBGC's Department of Insurance Supervision and 
Compliance.

Funding Target Attainment Percentage

    As discussed above, ERISA section 4010(b)(1), as amended by PPA 
2006, requires reporting if the funding target attainment percentage at 
the end of the preceding plan year of a plan maintained by the 
contributing sponsor or any member of its controlled group is less than 
80 percent. ERISA section 303(d)(2) and Code section 430(d)(2) provide 
that the ``funding target attainment percentage'' of a plan for a plan 
year is the ratio (expressed as a percentage) which--

    (A) The value of plan assets for the plan year (as reduced under 
subsection (f)(4)(B)), bears to
    (B) The funding target of the plan for the plan year (determined 
without regard to subsection (i)(1)).

    In accordance with ERISA section 303(g)(1) and Code section 
430(g)(1), the value of plan assets and the funding target of a plan 
for a plan year are determined as of the valuation date of the plan for 
the plan year. Under ERISA section 303(g)(2) and Code section 
430(g)(2), the valuation date for nearly all plans subject to ERISA 
section 4010 reporting will be the beginning of the plan year.\3\ Thus, 
while ERISA section 4010(b)(1) refers to the funding target attainment 
percentage at the end of the preceding plan year, in nearly all cases 
both elements of the funding target attainment percentage must be 
calculated as of the beginning of the plan year. This creates an 
ambiguity with regard to the date as of which the funding target 
attainment percentage is to be calculated for purposes of ERISA section 
4010(b)(1).
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    \3\ ERISA section 303(g)(2) and Code section 430(g)(3) provide 
that the valuation date of a plan for any plan year is the first day 
of the plan year, except that certain small plans may designate any 
date in the plan year to be the valuation date for the plan year and 
succeeding plan years. For this purpose, small plans are plans with 
100 or fewer participants on each day of the plan year, when 
aggregated with all plans in the controlled group. Because PBGC will 
exclude controlled groups with under $15 million in underfunding, 
plans that would be considered small plans for purposes of 
determining valuation dates would rarely be subject to reporting 
under part 4010. Therefore, the valuation date for nearly all plans 
subject to ERISA section 4010 reporting would be the beginning of 
the plan year.
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    The final rule resolves this ambiguity by providing that the 
funding target attainment percentage (for purposes of the 80% FTAP 
Gateway Test) is determined as of the valuation date for the plan year 
ending within the information year--generally, the first day of the 
plan year that ends within the information year. Because plans will 
need to determine the funding target attainment percentage as of the 
valuation date for other purposes, measuring the funding target 
attainment percentage as of the valuation date for the 80% FTAP Gateway 
Test will be less burdensome on prospective filers than requiring a 
separate determination as of the end of the preceding plan year. In 
addition, using this measurement date will give controlled groups ample 
time to determine whether reporting is required pursuant to the 80% 
FTAP Gateway Test and to prepare the ERISA section 4010 filing (if 
required) by the due date.
    ERISA section 303(d)(2) and Code section 430(d)(2) provide that in 
determining the funding target attainment percentage of a plan for a 
plan year, plan assets are reduced by the amount of the prefunding 
balance and the funding standard carryover balance. Plan sponsors are 
permitted under ERISA section 303(f) and Code section 430(f) to make 
certain elections to use, increase, or reduce a prefunding balance or a 
funding standard carryover balance effective at the beginning of the 
plan year. Under PPA 2006, the Department of the Treasury (Treasury) is 
to provide guidance on the timing and manner of these elections. On 
August 31, 2007 (at 72 FR 50544), Treasury published a proposed rule on 
Benefit Restrictions for Underfunded Pension Plans that would provide 
such guidance. Treasury's proposed regulation would require that an 
election that affects the funding target attainment percentage for a 
plan year be made well before the due date for the ERISA section 4010 
filing. If Treasury's final regulation retains this rule, filers will 
have no difficulty reflecting these elections in determinations of 
whether reporting is required under ERISA section 4010. However, if the 
final Treasury regulation allows a plan sponsor to make such an 
election after the due date for the ERISA section 4010 filing, PBGC 
would expect controlled groups to anticipate any such election when 
determining the funding target attainment percentage, regardless of 
when the election is made.

Certain Plans To Which Special Funding Rules Apply

    There are three categories of plans to which special funding rules 
apply:
     Delayed effective date plans--Sections 104, 105, and 106 
of PPA 2006 delay the effective date of the funding amendments for 
certain plans described in those sections, which in general deal with 
plans of rural cooperatives, plans affected by settlement agreements 
with PBGC, and plans of government contractors.
     Frozen airline plans--Section 402(b) of PPA 2006 provides 
alternate funding rules for frozen plans sponsored by commercial 
passenger airlines and airline caterers.
     Non-frozen airline plans--Section 402(a)(2) of PPA 2006, 
as amended by the U.S. Troop Readiness, Veterans' Care, Katrina 
Recovery, and Iraq Accountability Appropriations Act, 2007, Public Law 
110-28, provides funding relief for non frozen plans

[[Page 11025]]

sponsored by commercial passenger airlines and airline caterers.
    The proposed regulation provided that sections 104, 105, 106, and 
402 of PPA 2006 were generally to be disregarded for purposes of 4010 
reporting. For example, under the proposed rule, the funding target 
attainment percentage underlying the 80% FTAP gateway test was to be 
determined as if these plans were not subject to alternate funding 
rules. The final regulation retains the proposed regulation requirement 
with respect to frozen airline plans and delayed effective date plans.
    Plans subject to section 402(a)(2) of PPA 2006 (certain non-frozen 
plans of commercial passenger airlines and airline caterers) use a 
discount rate of 8.25 percent to determine their funding target for 
purposes of ERISA section 303 and IRC section 430 for ten years. Under 
the proposed regulation, this provision would not have affected the 
FTAP calculation for purposes of the 80% FTAP Gateway Test or reporting 
the FTAP if a filing is required. The final regulation does not address 
this issue. PBGC will provide additional guidance as appropriate.
    With respect to delayed effective plans, the final regulation, like 
the proposed regulation, does not address the treatment of any credit 
balance in determining the FTAP for plans subject to those sections, in 
particular whether the credit balance is treated as if it were a 
carryover balance and thus subtracted from assets when determining the 
FTAP. PBGC is examining this issue as well and will provide additional 
guidance as appropriate.
    The preamble to the proposed rule stated that where provisions of 
PPA sections 104, 105, 106 and 402 affected a required actuarial 
valuation reporting item, PBGC would expect that filers could, in 
consultation with PBGC, provide appropriately modified information 
instead of the information listed in Sec.  4010.8(a)(11). PBGC is 
providing those modifications in the final regulation. In the case of a 
plan year for which the application of the new funding rules is 
deferred under PPA 2006 sections 104, 105, and 106, the requirements in 
connection with the actuarial valuation report are those that were in 
effect as of December 31, 2007 (since those requirements are tied to 
the same pre-PPA funding rules that such plans must use to determine 
their funding requirements). With respect to the frozen airline plans, 
which are subject to completely different funding rules, the final 
regulation provides that the requirements in connection with the 
actuarial valuation report are included with the 4010 filing 
instructions on PBGC's Web site, www.pbgc.gov. Because the funding 
relief for non-frozen airline plans follows the basic framework of the 
PPA 2006 funding rules and there is thus no need for special guidance, 
Sec.  4010.8(a)(11) applies.

Minimum Funding Waivers

    ERISA section 4010(b) requires section 4010 reporting if the IRS 
has granted minimum funding waivers in excess of $1 million to any plan 
maintained by any member of the controlled group and as of the end of 
the plan year ending within the information year there is an 
outstanding balance on such waivers.
    The minimum funding waiver will continue to be included for all 
five years of the amortization period unless the waiver amortization 
bases are reduced to zero pursuant to ERISA section 303(e)(5) and Code 
section 430(e)(5). The final regulation provides that funding waivers 
granted under ERISA section 302 and Code section 412 for a plan year 
before ERISA section 303 or Code section 430 became effective count for 
this purpose. This treatment of pre-PPA 2006 funding waivers is 
consistent with Treasury's proposed rule on Determination of Minimum 
Required Pension Contributions, 73 FR 20203 (Apr. 15, 2008) (see Sec.  
1.430(a)-1(h)(3)). However, regardless of what the final Treasury 
regulation provides, pre-PPA 2006 funding waivers will count for 
purposes of determining whether an ERISA section 4010 filing is 
required.
    To simplify the regulation, the final rule eliminates the provision 
in the current regulation that provides that a minimum funding waiver 
is not outstanding under certain circumstances where an agreement 
requires the maintenance of a specific credit balance. PBGC found that 
this occurred infrequently. In those cases where it does occur, PBGC 
will consider waiving the ERISA section 4010 reporting requirement on a 
case-by-case basis under Sec.  4010.11.

Waiver for Controlled Groups With Aggregate Plan Underfunding not 
Exceeding $15 Million

    The technical explanation of PPA 2006 prepared by the staff of the 
Joint Committee on Taxation \4\ states: ``It is intended that the PBGC 
may waive the [section 4010 filing] requirement in appropriate 
circumstances, such as in the case of small plans.'' Similarly, PBGC 
seeks to balance the benefit it derives from annual reporting of 
financial and actuarial information with the burden reporting imposes 
on filers.
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    \4\ Joint Committee on Taxation, Technical Explanation of H.R. 
4, the ``Pension Protection Act of 2006,'' as passed by the House on 
July 26, 2006, and as considered by the Senate on August 3, 2006 
(JCX-38-06), August 3, 2006.
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    Based on its experience, PBGC has determined that controlled groups 
with aggregate plan underfunding of $15 million or less present a level 
of risk and exposure to PBGC that is sufficiently low to warrant the 
waiver of reporting triggered solely by the 80% FTAP Gateway Test. 
Thus, under the proposed rule, persons that would be required to file 
solely because one or more plans are less than 80 percent funded would 
qualify for a waiver of reporting requirements if the aggregate ``4010 
funding shortfall'' is less than $15 million (disregarding plans with 
no 4010 funding shortfall). (This waiver is referred to in this 
preamble as the ``$15 million waiver.'') The final rule defines a 
plan's 4010 funding shortfall as the funding shortfall under ERISA 
section 303(c)(4) and Code section 430(c)(4), but determined without 
regard to the credit balance reduction under ERISA section 303(f)(4)(B) 
and Code section 430(f)(4)(B). In developing this waiver, PBGC 
recognized that PPA 2006 requires PBGC to submit to Congress an annual 
summary report of ERISA section 4010 information submitted to PBGC and 
that any waiver would therefore also affect the information provided to 
Congress.
    Three commenters expressed concerns about situations in which 
reporting would not be waived when the aggregate 4010 funding shortfall 
exceeds $15 million and the only plans that are less than 80 percent 
funded are small plans. For example, a small plan that is less than 80 
percent funded could trigger a reporting requirement for an entire 
controlled group even though the other, larger plans are funded well 
above the 80 percent level. These commenters offered a variety of ways 
the proposed $15 million waiver could be modified to waive reporting 
for filers in such situations, including: (1) Excluding plans that are 
over 90 percent (or 95 percent) funded when determining the aggregate 
4010 funding shortfall; (2) increasing the $15 million threshold, and 
(3) waiving reporting if the 80% FTAP Gateway Test is failed only by 
one or more plans that meet PBGC's definition of an exempt plan under 
Sec.  4010.8(c) (generally a plan with fewer than 500 participants) for 
purposes of reporting actuarial information, regardless of the 
aggregate 4010 funding shortfall amount. The fourth commenter did not 
express concern about situations in which reporting would not be waived 
when

[[Page 11026]]

the aggregate 4010 funding shortfall exceeds $15 million and the only 
plans that are less than 80 percent funded are small plans, but did 
request that PBGC provide examples to clarify the application of the 
$15 million waiver to controlled groups with both small and large 
plans. PBGC believes that this application of the $15 million waiver is 
clear and that further clarification is unnecessary.
    The final rule does not change the proposed $15 million waiver. 
PBGC is more concerned about the dollar amount of underfunding than the 
funding percentage. In the case of a large plan, a funding percentage 
of 90 or 95 percent can represent hundreds of millions of dollars of 
underfunding. PBGC continues to believe that the $15 million waiver 
reasonably balances the need for information and the burden of 
reporting, and that consistent with the technical explanation of PPA 
2006 by the staff of the Joint Committee on Taxation, the waiver will 
generally exempt controlled groups maintaining only small plans from 
section 4010 reporting. Moreover, PBGC believes that the exemption from 
reporting actuarial information in Sec.  4010.8(c) will minimize the 
potential reporting burdens for sponsors of small plans without 
impairing PBGC's ability to collect information on controlled groups 
with plans representing a large amount of underfunding and thereby 
representing significant financial exposure for PBGC.
    PBGC believes that, in most of the situations about which the 
commenters expressed concern, a contributing sponsor could make 
additional, relatively nominal, contributions to the small plan to 
increase its funding percentage to 80 percent or merge the small plan 
into one of the better funded larger plans to avoid the reporting 
requirement. One commenter expressed concern that if a small plan with 
a funding percentage below 80 percent becomes part of a controlled 
group during the information year as a result of a business 
transaction, there might not be enough time to fund the plan up or 
merge it with a better funded plan so as to avoid the reporting 
requirement. This commenter suggested that reporting be waived if the 
only plan under the 80 percent funding threshold (1) meets PBGC's 
definition of an exempt plan for purposes of reporting actuarial 
information and (2) became a member of a controlled group as a result 
of a recent acquisition. PBGC is not adopting the commenter's 
suggestion. PBGC believes that situations in which a section 4010 
filing is triggered solely by a small plan's becoming a member of a 
controlled group during the information year will occur infrequently, 
and further can sometimes be avoided in the normal course of planning 
corporate transactions. However, filers in such situations may contact 
PBGC's Department of Insurance Supervision and Compliance to discuss a 
waiver or extension under PBGC's discretionary authority (see Sec.  
4010.11).
    As under the proposed rule, the $15 million waiver does not apply 
if reporting is required for any reason other than having a plan with a 
funding target attainment percentage below 80 percent.
    One commenter requested guidance as to whether an employer may 
apply the separate lines of business rules under the Code for purposes 
of determining whether this employer must file under section 4010. The 
separate lines of business rules under Code section 414(r), allow an 
employer to be treated as operating separate lines of business for 
purposes of meeting the minimum coverage requirements under Code 
section 410(b), if certain requirements are met. There is no nexus 
between the filing requirements under ERISA section 4010 and the 
nondiscrimination requirements under Code section 410(b). Accordingly, 
the separate lines of business rules under Code section 414 (r) have no 
bearing on the filing requirements of ERISA section 4010.

Actuarial Information Reporting Requirements

    In addition to the requirements described in ERISA section 4010(a), 
which provides that filers must submit certain financial and actuarial 
information as prescribed by PBGC in regulations, ERISA section 
4010(d), as amended by PPA 2006, specifies three items of actuarial 
information that are required to be filed with PBGC. That section 
provides that information filed under ERISA section 4010 must include:

    (A) The amount of benefit liabilities under the plan determined 
using the assumptions used by the corporation [PBGC] in determining 
liabilities;
    (B) The funding target of the plan determined as if the plan has 
been in at-risk status for at least 5 plan years; and
    (C) The funding target attainment percentage of the plan.

The final rule provides detailed guidance on how to determine benefit 
liabilities for ongoing plans using the assumptions used by PBGC in 
determining liabilities. This determination is similar to that set 
forth in the current regulation under Sec.  4010.8(d)(2). As with the 
current regulation, the final rule requires filers to use the 
assumptions prescribed by Sec. Sec.  4044.51 through 4044.57 of PBGC's 
regulation on Allocation of Assets in Single-Employer Plans (29 CFR 
part 4044). However, as explained below, in two respects the final 
regulation modifies or expands previous guidance (including informal 
guidance) given by PBGC or PBGC staff relating to certain assumptions 
not specified in Sec. Sec.  4044.51 through 4044.57.
    First, the final regulation provides that solely for purposes of 
determining the earliest retirement age (ERA) at valuation date and the 
unreduced retirement age (URA) to be used when determining expected 
retirement age (XRA), an active participant is to be treated as 
continuing in service after the end of the plan year. This provision 
modifies informal guidance provided by PBGC staff that future expected 
service should be disregarded when determining XRAs for ERISA section 
4010 benefit liability calculations.\5\ This modification eliminates an 
inconsistency between how filers compute benefit liabilities for ERISA 
section 4010 purposes and how PBGC calculates benefit liabilities as 
part of its plan monitoring functions. The main impact of this change 
on ERISA section 4010 filers is that they will need to make a one-time 
modification of their computer programs. The final rule includes 
examples demonstrating how XRA is calculated and applied in determining 
benefit liabilities.
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    \5\ Q&A 17 in the 2001 Blue Book and Q&A 19 in the 2002 Blue 
Book, available on PBGC's Web site, https://www.pbgc.gov. Blue Books 
are summaries of the questions and answers discussed at meetings 
between PBGC staff and representatives of the Enrolled Actuaries 
Program Committee in preparation for the annual Enrolled Actuaries 
Meetings. The summaries reflect the views of individual staff 
members and do not represent the official position of PBGC.
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    Second, the final regulation provides that a filer may reflect pre-
retirement decrements \6\ other than mortality (such as turnover and 
disability) when determining benefit liabilities, subject to the 
following two requirements:
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    \6\ ``Pre-retirement decrement'' is an actuarial term used to 
describe possible reasons an active participant might cease to be an 
active participant before retirement (e.g., termination, disability 
or death).
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     If any pre-retirement decrements other than mortality are 
used to calculate benefit liabilities for a plan, all pre-retirement 
decrements used for minimum funding purposes for that plan must be 
used. For example, if a plan uses both termination and disability 
decrements to determine the minimum required contribution, the benefit 
liability must be determined either including or excluding both the 
termination and the disability decrements.

[[Page 11027]]

     Assumptions about the rate of incidence related to a pre-
retirement decrement must be the same as those used to determine the 
funding target for minimum funding purposes.
    This provision expands informal guidance provided by PBGC staff \7\ 
and is consistent with common actuarial practice. Although the rules 
about pre-retirement decrements have not changed from the proposed 
regulation, the language describing these rules has been modified to 
address questions raised by a commenter. For example, the final 
regulation states the first requirement described above explicitly. In 
addition, language has been added to explain that different XRAs may 
apply for different pre-retirement decrements \8\ and how the pre-
retirement decrement rules apply in situations where there is no clear 
distinction between termination and retirement decrements, as may be 
the case with certain hybrid plans.
---------------------------------------------------------------------------

    \7\ Q&A 25 in the 2000 Blue Book.
    \8\ When valuing pre-retirement decrements, the XRA represents 
the assumed age at which benefits will commence.
---------------------------------------------------------------------------

    The final regulation also clarifies that the assumptions used to 
determine the minimum required contribution for the plan year ending 
within the filer's information year, other than assumptions for 
decrements, interest, and expenses, must be used when determining 
benefit liabilities. The types of assumptions in this category include 
form of payment, cost-of-living increases, and marital status.
    In addition to providing detailed guidance on how to determine 
benefit liabilities,\9\ the final rule reflects new requirements (under 
PPA 2006) to provide the funding target of the plan determined as if 
the plan has been in at-risk status for at least 5 plan years, and the 
funding target attainment percentage of the plan. The final rule 
requires filers to report whether the plan, at any time during the plan 
year, was subject to any of the limitations described in ERISA section 
206(g) (e.g., funding-based limits on benefits and benefit accruals) 
and, if so, which limitations applied, when such limitations applied, 
and when such limitations were lifted (if applicable).
---------------------------------------------------------------------------

    \9\ Although the final rule provides detailed guidance about how 
benefit liabilities are calculated for section 4010 reporting 
purposes, there are a few issues that are not addressed (e.g., how 
to value temporary supplements or lump sums). PBGC will provide 
additional guidance as appropriate upon request.
---------------------------------------------------------------------------

    The final rule includes two new plan actuarial information 
reporting requirements that were not included in the proposed rule. 
Filers must report--
     Whether a required installment or other required payment 
to the plan was not made and, as a result, a lien described in ERISA 
section 303(k) and Code section 430(k) was triggered during the 
information year, and the required installment or other required 
payment was not made within ten days after its due date; and
     Whether IRS granted one or more minimum funding waivers 
totaling in excess of $1 million, if any portion thereof is 
outstanding.

This information, which is readily available, will make it easier for 
PBGC to quickly determine and track the conditions that trigger ERISA 
section 4010 filings and easily identify situations involving liens or 
large waivers.
    As with the current regulation, the final rule requires submission 
of the actuarial valuation report for the plan year ending within the 
filer's information year and specifies what information must be 
included in or attached to the report. The required items of 
information have been modified to better suit the new PPA 2006 funding 
structure. All of the required actuarial information is information 
that PBGC expects most actuaries would include in post-PPA 2006 
valuation reports (e.g., target normal cost, information on shortfall 
amortization bases, information on funding assumptions, an age/service 
scatter). However, because the funding rules have changed so 
dramatically as a result of PPA 2006, and because Treasury regulations 
implementing the new funding rules are not yet final, the regulation's 
list of required items may exclude some relevant actuarial information. 
To allow PBGC to expand the list of required items as it gains more 
experience with the new funding requirements under PPA 2006, the final 
rule provides that the online instructions to PBGC's secure e-4010 Web-
based application may require that additional items be included in (or 
attached to) the valuation report. PBGC expects that any additional 
items would be items typically required to be reported on the Form 5500 
Schedule SB (defined benefit plan actuarial information).
    Because some of the actuarial reporting requirements are geared to 
the new funding rules under PPA 2006, which generally are applicable to 
plan years beginning after 2007, the final regulation includes special 
rules for plan years beginning before 2008 in Sec.  4010.8(h).

Exempt Plans

    Section 4010.8(c) of PBGC's current regulation provides that 
actuarial information need not be reported for plans with fewer than 
500 participants, as of the end of the plan year ending within the 
filer's information year. (It also provides an exemption for certain 
overfunded plans.) One commenter noted that certain actuarial 
information is more easily obtained on a plan's valuation date, than as 
of the end of the plan year. In response to that comment, and based on 
further consideration by PBGC, the final rule allows participants to be 
counted on either date for this purpose.
    Through means other than reporting under part 4010, such as through 
PBGC's early warning program (see Technical Update 00-3 \10\) and 
reportable events notices, PBGC has discovered that a number of plans 
with fewer than 500 participants have significant underfunding and 
thereby represent significant financial exposure for PBGC. In such 
cases, PBGC needs actuarial information on these plans to properly 
evaluate its risk and exposure for the entire controlled group.
---------------------------------------------------------------------------

    \10\ Technical Updates are available on PBGC's Web site, https://
www.pbgc.gov.
---------------------------------------------------------------------------

    Therefore, PBGC is modifying the exemption from reporting actuarial 
information. Under the final rule, actuarial information is not 
required if (1) the plan has fewer than 500 participants as of the end 
of the plan year ending within the filer's information year or as of 
the valuation date for that plan year, and (2) the plan's 4010 funding 
shortfall does not exceed $15 million. The 4010 funding shortfall is 
described above in the discussion of the $15 million waiver.
    The final rule retains the exemption in the current regulation from 
providing actuarial information for plans that have no unfunded 
benefits. For this purpose, unfunded benefits are determined in the 
same manner as for purposes of ERISA section 4010(d)(1), which requires 
the reporting of benefit liabilities using the assumptions used by 
PBGC. The only difference is that the filer will be allowed to use the 
retirement age assumptions used by the plan for that plan year for 
purposes of section 303 of ERISA (without regard to the at-risk 
assumptions of section 303(i) of ERISA) instead of the retirement age 
assumptions in Sec.  4044.8(d)(2).
    As under the current regulation, these exemptions from reporting 
actuarial information do not apply if the plan has a funding waiver or 
has been more than 10 days late with minimum funding contributions.

[[Page 11028]]

Special Rules for Multiple Employer Plans

    Although multiple employer plans are uncommon and only a handful 
have been subject to ERISA section 4010 reporting (a situation that is 
not expected to change under the new rules), PBGC has received a number 
of inquiries over the years on how the section 4010 requirements apply 
to contributing sponsors of multiple employer plans. In response to 
those inquiries, the proposed rule provided for reduced reporting for 
certain multiple employer plans and made several clarifications. The 
proposed rule generally provided that only information on employers 
that were among the 10 largest employers in terms of participants (for 
hourly plans) or contributions (for salaried plans) would need to be 
reported and that filers could provide actuarial information on 
multiple employer plans by reference if that information (for the same 
plan year) had been provided by another filer.
    A commenter suggested that PBGC waive reporting for a contributing 
sponsor of a multiple employer plan if the sponsor's portion of the 
multiple employer plan liability is a de minimis amount and all other 
waiver conditions are met. In response to that comment, and based on 
further consideration by PBGC, the final rule provisions on multiple 
employer plans differ from those in the proposed rule.
    The final rule provides an alternative method of compliance for 
certain sponsors of multiple employer plans. An eligible contributing 
sponsor (defined as a contributing sponsor of a multiple employer plan 
that would not be subject to reporting if the plan were disregarded in 
applying the gateway tests) satisfies the section 4010 requirements if 
any contributing sponsor of the plan provides a timely filing for an 
information year that coincides with or overlaps with the eligible 
contributing sponsor's information year. PBGC may request some or all 
of the information that would otherwise be required from the eligible 
contributing sponsor; PBGC will make such a request no earlier than the 
date the information would otherwise have been due. The eligible 
contributing sponsor must provide the requested information within 45 
days after the date of the request.
    For most multiple employer plans, the alternative method of 
compliance will have the effect of a full waiver of reporting for all 
but one of the contributing sponsors. The alternative method of 
compliance is simpler than the proposed rule provisions for multiple 
employer plans and, unlike those provisions, will not require 
contributing sponsors to share information, much of which is 
confidential, with other controlled groups.
    The final rule, like the proposed rule, clarifies that the entire 
4010 funding shortfall of a multiple employer plan is counted when 
determining whether the $15 million waiver applies to any employer that 
is a contributing sponsor of the multiple employer plan. However, a 
sponsor of a multiple employer plan that does not qualify for the $15 
million waiver may have its reporting requirement effectively waived 
under the alternative method of compliance discussed above.
    The final rule requires any filer that is a contributing sponsor of 
a multiple employer plan to provide a list of all contributing sponsors 
to that plan. The final rule clarifies that with the exception of that 
list, a filer is not required to provide additional identifying or 
financial information for another contributing sponsor of the multiple 
employer plan if that other contributing sponsor is not a member of the 
filer's controlled group.

Other Changes

    The final rule includes an automatic one-day extension of the ERISA 
section 4010 reporting deadline for controlled groups whose 105-day 
reporting period includes February 29. This provision codifies a ``leap 
year extension'' of the ERISA section 4010 reporting deadline 
exemplified by Technical Updates 04-1 and 08-1.
    The final rule also incorporates the provisions of Technical Update 
96-3 that are still relevant in light of PPA 2006. Thus, Technical 
Update 96-3 is superseded with respect to information years beginning 
after 2007.
    The final rule makes other clarifying, conforming, or editorial 
changes. Except as specifically discussed in this preamble, no 
substantive change is intended or should be inferred.

Transition Rules

    Under the final rule, the funding target attainment percentage 
(used for the 80% FTAP Gateway Test and reporting under Sec.  4010.8) 
and the 4010 funding shortfall (used for the $15 million waiver and the 
definition of exempt plans) are determined as of the valuation date for 
the plan year ending within the information year. These measurements 
are tied to provisions of PPA 2006 that apply only to plan years 
beginning after 2007. Thus, for plan years beginning in 2007 but ending 
in information years that begin after 2007, these terms are not defined 
by statute. To address this situation, the proposed rule required that 
employers use surrogates for determining the funding target attainment 
percentage and the 4010 funding shortfall for plan years beginning 
before 2008. The surrogates provided under the proposed rule are as 
follows:
     The funding target attainment percentage surrogate is the 
ratio (expressed as a percentage) of the actuarial value of assets 
(reduced by any credit balance) to the current liability (determined 
using the highest permissible interest rate) for the 2007 plan 
year.\11\ (A special rule applies in situations where a carryover 
balance is reduced in accordance with ERISA section 303(f) and Code 
section 430(f) as of the beginning of the 2008 plan year.)
---------------------------------------------------------------------------

    \11\ This surrogate is similar to a surrogate in Treasury's 
proposed rule on Benefit Restrictions for Underfunded Pension Plans, 
72 FR 50544 (Aug. 31, 2007) and in Treasury's proposed rule on 
Determination of Minimum Required Pension Contributions, 73 FR 20203 
(Apr. 15, 2008).
---------------------------------------------------------------------------

     The 4010 funding shortfall surrogate is the excess, if 
any, of the plan's current liability (determined using the highest 
permissible interest rate) over the actuarial value of assets for the 
2007 plan year.
    One commenter suggested that in determining the funding target 
attainment percentage surrogate, that under certain circumstances, the 
actuarial value of assets not be reduced by the credit balance. The 
commenter requested that for plan years beginning in 2007, the funding 
target attainment percentage (FTAP) transition rule provide that assets 
not be reduced by the credit balance if the ratio of unreduced assets 
to liability is at least 90 percent. This would make the 4010 FTAP 
transition rule consistent with the transition rule in Treasury's 
proposed regulations under Code section 436.\12\ IRC section 436(j)(3) 
provides a permanent exemption to the rule requiring assets be reduced 
by carryover and prefunding balances. The proposed Treasury regulations 
under Code section 436 incorporate this statutory exemption in its 
transition rule for plan years beginning in 2007. ERISA section 4010, 
however, does not provide any exception to the rule requiring that 
assets be reduced by carryover and prefunding balances. Accordingly, 
the final rule does not adopt the commenter's suggestion and PBGC's 
final rule retains the surrogates provided under the proposed rule:
---------------------------------------------------------------------------

    \12\ Treasury's proposed rule on Benefit Restrictions for 
Underfunded Pension Plans, 72 FR 50544 (Aug. 31, 2007).

---------------------------------------------------------------------------

[[Page 11029]]

    Although the surrogates described above have not changed from those 
in the proposed rule, PBGC has modified the regulatory language to 
describe the methodology explicitly rather than by reference to 
Treasury rules.

Applicability

    Section 505(e) of PPA 2006 provides that the amendments made by 
section 505 apply with respect to ``years beginning after 2007.'' This 
applicability provision of PPA 2006 uses the term ``year'' rather than 
``plan year,'' although the term ``plan year'' appears in other 
applicability provisions in PPA 2006. PBGC interprets this section of 
PPA 2006 to mean that the amendments apply to any information year 
beginning after 2007. Therefore, these rules apply to information years 
beginning after 2007.
    Technical Update 07-2 provides guidance regarding the application 
of these rules for information years beginning in 2007. In the rare 
case of a short information year beginning in 2008 (for example, an 
information year beginning on January 1, 2008, and ending on March 31, 
2008), the filer should contact PBGC to obtain a reporting extension.

Compliance With Rulemaking Guidelines

Executive Order 12866

    PBGC has determined, in consultation with the Office of Management 
and Budget, that this final rule is a ``significant regulatory action'' 
under Executive Order 12866, as amended. The Office of Management and 
Budget has therefore reviewed the final rule under Executive Order 
12866.

Regulatory Flexibility Act

    PBGC certifies under section 605(b) of the Regulatory Flexibility 
Act that the amendments in this final rule will not have a significant 
economic impact on a substantial number of small entities. This final 
rule implements statutory changes made by Congress. It provides 
guidance on how to determine whether reporting under ERISA section 4010 
is required and what to report. Furthermore, PBGC is providing an 
exemption for controlled groups that have total plan underfunding of 
$15 million or less. Accordingly, as provided in section 605 of the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.), sections 603 and 604 
do not apply.

Paperwork Reduction Act

    The information requirements relating to reporting under ERISA 
section 4010 have been approved by the Office of Management and Budget 
under the Paperwork Reduction Act (OMB control number 1212-0049, 
expires March 31, 2012).

List of Subjects

29 CFR Part 4001

    Pensions.

29 CFR Part 4010

    Pension insurance, Pensions, Reporting and recordkeeping 
requirements.

29 CFR Part 4044

    Pension insurance, Pensions.

0
For the reasons given above, PBGC is amending 29 CFR parts 4001, 4010, 
and 4044 as follows.

PART 4001--TERMINOLOGY

0
1. The authority citation for part 4001 continues to read as follows:

    Authority: 29 U.S.C. 1301, 1302(b)(3).


0
2. In Sec.  4001.2, three new definitions are added in alphabetical 
order, to read as follows:


Sec.  4001.2  Definitions.

* * * * *
    Earliest retirement age at valuation date means the later of: a 
participant's age on his or her birthday nearest to the valuation date, 
or the participant's attained age as of his or her Earliest PBGC 
Retirement Date (as determined under Sec.  4022.10 of this chapter).
* * * * *
    Expected retirement age (XRA) means the age, determined in 
accordance with Sec. Sec.  4044.55 through 4044.57 of this chapter, at 
which a participant is expected to begin receiving benefits when the 
participant has not elected, before the allocation date, an annuity 
starting date. This is the age to which a participant's benefit payment 
is assumed to be deferred for valuation purposes. An XRA is equal to or 
greater than the participant's earliest retirement age at valuation 
date but less than his or her normal retirement age.
* * * * *
    Unreduced retirement age (URA) means the earlier of the normal 
retirement age specified in the plan or the age at which an unreduced 
benefit is first payable.
* * * * *

PART 4010--ANNUAL FINANCIAL AND ACTUARIAL INFORMATION REPORTING

0
3. The authority citation for part 4010 continues to read as follows:

    Authority: 29 U.S.C. 1302(b)(3), 1310.


Sec.  4010.1  [Amended]

0
4. Section 4010.1 is amended by removing the words ``the PBGC under 
section 4010 of ERISA'' and adding in their place the words ``PBGC 
under ERISA section 4010''; and by removing the last sentence of the 
section.

0
5. In Sec.  4010.2:
0
a. In the introductory text, the words ``controlled group, ERISA, fair 
market value'' are removed and the words ``controlled group, earliest 
retirement age at valuation date, ERISA, expected retirement age (XRA), 
fair market value'' are added in their place, and the words ``and plan 
year'' are removed and the words ``plan year, and unreduced retirement 
age (URA)'' are added in their place.
0
b. The definitions of ``exempt entity,'' ``exempt plan,'' ``filer,'' 
and ``information year'' are amended by removing the words ``of this 
part'' where they appear once in each definition.
0
c. The definition of ``exempt entity'' is amended by removing the word 
``who'' and adding in its place the word ``that''; by removing the word 
``whom'' and adding in its place the word ``which''; and by removing 
the figures ``4010.4(d)'' and adding in their place the figures 
``4010.4(c)''.
0
d. The definition of ``information year'' is amended by removing the 
words ``the year'' and adding in their place the words ``the 
information year''.
0
e. Four new definitions are added in alphabetical order, to read as 
follows:


Sec.  4010.2  Definitions.

* * * * *
    At-risk status means, with respect to a plan for a plan year, at-
risk status as defined in ERISA section 303(i)(4) and Code section 
430(i)(4).
* * * * *
    Funding target means, with respect to a plan for a plan year, the 
funding target as provided under ERISA section 303(d)(1) and Code 
section 430(d)(1) determined as of the valuation date for the plan 
year.
    Funding target attainment percentage means, with respect to a plan 
for a plan year, the funding target attainment percentage as determined 
under Sec.  4010.4(b) for the plan year.
* * * * *
    Valuation date means, with respect to a plan for a plan year, the 
valuation date as determined under ERISA section 303(g)(2) and Code 
section 430(g)(2).

0
6. In Sec.  4010.3, paragraph (a) is revised to read as follows:


Sec.  4010.3  Filing requirement.

    (a) General. Except as provided in Sec.  4010.8(c) (relating to 
exempt plans)

[[Page 11030]]

and except where one or more waivers under Sec.  4010.11 apply, each 
filer must submit to PBGC annually, on or before the due date specified 
in Sec.  4010.10, all information specified in Sec.  4010.6(a) with 
respect to all members of a controlled group and all plans maintained 
by members of the filer's controlled group. Under Sec.  4000.3(b) of 
this chapter, except as otherwise provided by PBGC, the information 
must be submitted electronically in accordance with the instructions on 
PBGC's Web site, https://www.pbgc.gov.
* * * * *

0
7. Section 4010.4 is amended to read as follows:


Sec.  4010.4  Filers.

    (a) General. A contributing sponsor of a plan and each member of 
the contributing sponsor's controlled group on the last day of the 
information year is a filer with respect to an information year (unless 
exempted under paragraph (c) of this section) if--
    (1) For any plan (including an exempt plan) maintained by the 
members of the contributing sponsor's controlled group on the last day 
of the information year, the funding target attainment percentage for 
the plan year ending within the information year is less than 80 
percent;
    (2) Any member of the controlled group fails to make a required 
installment or other required payment to a plan and, as a result, the 
conditions for imposition of a lien described in ERISA section 303(k) 
and Code section 430(k) have been met during the information year, and 
the required installment or other required payment is not made within 
ten days after its due date; or
    (3) Any plan maintained by a member of the controlled group has 
been granted one or more minimum funding waivers under ERISA section 
302(c) and Code section 412(c) totaling in excess of $1 million, and as 
of the end of the plan year ending within the information year, any 
portion thereof is still outstanding.
    (b) Funding target attainment percentage--(1) General. Except as 
provided in paragraph (b)(3) of this section, the funding target 
attainment percentage for a plan for a plan year equals the funding 
target attainment percentage as provided under ERISA section 303(d)(2) 
and Code section 430(d)(2) determined as of the valuation date for the 
plan year.
    (2) Prefunding balance and funding standard carryover balance 
elections. For purposes of determining the funding target attainment 
percentage for a plan for the plan year, prefunding balances and 
funding standard carryover balances must reflect any elections (or 
deemed elections) under ERISA section 303(f) and Code section 430(f) 
that affect the value of such balances as of the beginning of the plan 
year, regardless of when the elections (or deemed elections) are made.
    (3) Transition rule for plan years beginning before 2008. For plan 
years beginning before 2008, the funding target attainment percentage 
for a plan for the plan year is determined as the fraction (expressed 
as a percentage), the numerator of which is the net transition plan 
assets determined under paragraph (b)(4) of this section, and the 
denominator of which is the plan's current liability determined using 
the highest rate of interest allowable under Code section 412(l)(7) as 
of the valuation date for the 2007 plan year.
    (4) Net transition plan assets--(i) In general. Net transition plan 
assets for purposes of paragraph (b)(3) of this section are equal to 
plan assets as determined under paragraph (b)(4)(ii) of this section 
reduced by any credit balance in accordance with paragraph (b)(4)(iii) 
of this section.
    (ii) Determination of assets. Plan assets under this paragraph 
(b)(4)(ii) are determined under Code Section 412(c)(2) as in effect for 
the plan year beginning in 2007, except that the value of plan assets 
before subtracting the plan's funding standard account credit balance 
described in paragraph (b)(4)(iii) of this section can neither be less 
than 90 percent of the fair market value of plan assets nor greater 
than 110 percent of the fair market value of plan assets on the 
valuation date for that plan year.
    (iii) Subtraction of credit balance. If a plan has a funding 
standard account credit balance as of the valuation date for the plan 
year beginning in 2007, that balance is subtracted from the asset value 
described in paragraph (b)(4)(ii) of this section as of that valuation 
date.
    (iv) Effect of funding standard carryover balance reduction for 
2008 plan year. Notwithstanding paragraph (b)(4)(iii) of this section, 
if, for the plan year beginning in 2008, the employer has made an 
election to reduce some or all of the funding standard carryover 
balance as of the first day of that year in accordance with ERISA 
section 303(f) and Code section 430(f), then the present value 
(determined as of the valuation date for the plan year beginning in 
2007 using the valuation interest rate for that plan year) of the 
amount so reduced is not treated as part of the funding standard 
account credit balance when that balance is subtracted from the asset 
value under paragraph (b)(4)(iii) of this section.
    (c) Exempt entities. A person is an exempt entity for an 
information year if the conditions of paragraphs (c)(1) through (4) of 
this section are satisfied.
    (1) The person is not a contributing sponsor of a plan (other than 
an exempt plan) as of the last day of the information year.
    (2) The person has revenue for its fiscal year ending within the 
controlled group's information year that is five percent or less of the 
revenue of the person's controlled group for the fiscal year(s) ending 
within the information year.
    (3) The person has annual operating income for the fiscal year 
ending within the controlled group's information year that is no more 
than the greater of--
    (i) Five percent of the controlled group's annual operating income 
for the fiscal year(s) ending within the information year, or
    (ii) $5 million.
    (4) The person has net assets at the end of the fiscal year ending 
within the controlled group's information year that is no more than the 
greater of--
    (i) Five percent of the controlled group's net assets at the end of 
the fiscal year(s) ending within the information year, or
    (ii) $5 million.
    (d) Transition rule; failure to make required contribution; minimum 
funding waiver. For plan years beginning before 2008, where the 
reference is made in paragraph (a)(2) of this section to ``ERISA 
section 303(k) and Code section 430(k)'' a reference to ``ERISA section 
302(f)(1)(A) and (B) and Code section 412(n)(1)(A) and (B)'' shall 
apply in its place, and where the reference is made in paragraph (a)(3) 
of this section to ``ERISA section 302(c) and Code section 412(c)'' a 
reference to ``ERISA section 303 and Code section 412(d)'' shall apply 
in its place as those provisions are in effect for plan years beginning 
before 2008.
    (e) Minimum funding waiver--(1) General. For purposes of Sec.  
4010.4(a)(3), a portion of the minimum funding waiver for a plan is 
considered outstanding unless prior to the plan year ending within the 
information year the statutory amortization period has ended, or, as of 
th