Transitional Amendments To Satisfy the Market Rate of Return Rules for Hybrid Retirement Plans, 70680-70687 [2015-28915]
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Federal Register / Vol. 80, No. 220 / Monday, November 16, 2015 / Rules and Regulations
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
21 CFR Part 1308
[Docket No. DEA–419F]
Schedules of Controlled Substances:
Placement of Eluxadoline Into
Schedule IV
Correction
In notice document 2015–28718,
beginning on page 69861 in the issue of
Thursday, November 12, 2015, make the
following correction:
On page 69861, in the first column, in
the eighteenth and nineteenth lines
from the bottom, ‘‘December 17, 2015’’
should read ‘‘December 14, 2015’’.
[FR Doc. C1–2015–28718 Filed 11–13–15; 8:45 am]
BILLING CODE 1505–01–D
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9743]
RIN 1545–BL62
Transitional Amendments To Satisfy
the Market Rate of Return Rules for
Hybrid Retirement Plans
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:
This document contains final
regulations that provide guidance
regarding certain amendments to
applicable defined benefit plans.
Applicable defined benefit plans are
defined benefit plans that use a lump
sum-based benefit formula, including
cash balance plans and pension equity
plans, as well as other plans that have
formulas with an effect similar to a
lump sum-based benefit formula. These
final regulations relate to previously
issued final regulations that specify
permitted interest crediting rates for
purposes of the requirement that an
applicable defined benefit plan not
provide for interest credits (or
equivalent amounts) at an effective rate
that is greater than a market rate of
return. These final regulations permit a
plan sponsor of an applicable defined
benefit plan that does not comply with
the market rate of return requirement to
amend the plan in order to change to an
interest crediting rate that is permitted
under the previously issued final hybrid
plan regulations without violating the
anti-cutback rules of section 411(d)(6).
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SUMMARY:
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These regulations affect sponsors,
administrators, participants, and
beneficiaries of these plans.
DATES: Effective Date: These regulations
are effective on November 16, 2015.
Applicability Date: These regulations
generally apply to plan amendments
made on or after September 18, 2014 (or
an earlier date as elected by the
taxpayer). These regulations cease to
apply for amendments made on or after
the first day of the first plan year that
begins on or after January 1, 2017 (or,
for collectively bargained plans, on or
after a later date specified in the
regulations).
FOR FURTHER INFORMATION CONTACT: Neil
S. Sandhu or Linda S.F. Marshall at
(202) 317–6700 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) under sections 411(a)(13) and
411(b)(5) of the Internal Revenue Code
(Code).
Generally, a defined benefit pension
plan must satisfy the minimum vesting
standards of section 411(a) and the
accrual requirements of section 411(b)
in order to be qualified under section
401(a) of the Code. Sections 411(a)(13)
and 411(b)(5), which modify the
minimum vesting standards of section
411(a) and the accrual requirements of
section 411(b), were added to the Code
by section 701(b) of the Pension
Protection Act of 2006, Public Law 109–
280 (120 Stat. 780 (2006)) (PPA ’06).
Sections 411(a)(13) and 411(b)(5) and
certain related effective date provisions
were subsequently amended by the
Worker, Retiree, and Employer Recovery
Act of 2008, Public Law 110–458 (122
Stat. 5092 (2008)) (WRERA ’08).
Under section 411(b)(5)(B)(i), a
statutory hybrid plan is treated as failing
to satisfy the requirements of section
411(b)(1)(H) (which provides that the
rate of an employee’s benefit accrual
must not be reduced because of the
attainment of any age) if the terms of the
plan provide any interest credit (or an
equivalent amount) for any plan year at
a rate that is in excess of a market rate
of return. Section 411(b)(5)(B)(i) is
generally effective for plan years
beginning after December 31, 2007.
Section 411(d)(6) provides generally
that a plan does not satisfy section 411
if an amendment to the plan decreases
a participant’s accrued benefit. For this
purpose, a plan amendment that has the
effect of eliminating or reducing an
early retirement benefit or a retirementtype subsidy or eliminating an optional
form of benefit with respect to benefits
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attributable to service before the
amendment is treated as reducing
accrued benefits.
Sections 204(b)(5)(B)(i) and 204(g) of
the Employee Retirement Income
Security Act of 1974, Public Law 93–
406 (88 Stat. 829 (1974)), as amended
(ERISA), contain rules that are parallel
to sections 411(b)(5)(B)(i) and 411(d)(6),
respectively. Under section 101 of
Reorganization Plan No. 4 of 1978 (43
FR 47713), the Secretary of the Treasury
has interpretive jurisdiction over the
subject matter addressed in these final
regulations for purposes of ERISA, as
well as the Code. Thus, these final
regulations apply for purposes of
sections 411(b)(5)(B)(i) and 411(d)(6) of
the Code, as well as for purposes of
sections 204(b)(5)(B)(i) and 204(g) of
ERISA.
Section 1.411(d)–4, A–2(b)(1), of the
Income Tax Regulations provides, in
part, that the Commissioner may,
consistent with the provisions of
§ 1.411(d)–4, provide for the elimination
or reduction of section 411(d)(6)
protected benefits that have already
accrued to the extent that such
elimination or reduction is necessary to
permit compliance with other
requirements of section 401(a). The
Commissioner may exercise this
authority only through the publication
of revenue rulings, notices, and other
documents of general applicability.
Section 1.411(d)–4, A–2(b)(2)(i),
provides that a plan may be amended to
eliminate or reduce a section 411(d)(6)
protected benefit, within the meaning of
§ 1.411(d)–4, A–1, if the following three
requirements are met: The amendment
constitutes timely compliance with a
change in law affecting plan
qualification; there is an exercise of
section 7805(b) relief by the
Commissioner; and the elimination or
reduction of the section 411(d)(6)
protected benefit is made only to the
extent necessary to enable the plan to
continue to satisfy the requirements for
qualified plans.
Final regulations (TD 9505) (2010
final hybrid plan regulations) were
published by the Treasury Department
and the IRS in the Federal Register on
October 19, 2010 (75 FR 64123).
Additional final regulations (TD 9693)
(2014 final hybrid plan regulations)
were published by the Treasury
Department and the IRS in the Federal
Register on September 19, 2014 (79 FR
56442) (collectively, the 2010 and 2014
final hybrid plan regulations are
referred to herein as the final hybrid
plan regulations). The final hybrid plan
regulations provide, effective for plan
years that begin on or after January 1,
2016, a list of interest crediting rates
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and combinations of rates that satisfy
the requirement of section
411(b)(5)(B)(i) that a plan not provide an
effective rate of return in excess of a
market rate of return, while not
permitting other rates. The provisions
that provide for a list of rates are set
forth at § 1.411(b)(5)–1(d)(1)(iii),
(d)(1)(vi), and (d)(6)(i).
Interest crediting rates can be broadly
characterized as either investment-based
rates or rates that are not investmentbased rates. An investment-based rate is
a rate of return provided by actual
investments, taking into account the
return attributable to any change in the
value of the underlying investments. A
rate of return that is based on the rate
of return for an index that measures the
change in the value of investments can
also be considered to be an investmentbased rate. Rates that are not
investment-based rates are either fixed
rates of interest or bond-based rates
(such as yields to maturity of bonds).
Section 1.411(b)(5)–1(d)(3) and (d)(4)
sets forth permitted rates that are not
investment-based rates, such as the
third segment rate described in section
417(e)(3)(D) or 430(h)(2)(C)(iii), the
yield on 30-year Treasury Constant
Maturities, and a fixed 6 percent rate of
interest. Section 1.411(b)(5)–1(d)(5) sets
forth permitted investment-based rates,
such as the rate of return on certain
regulated investment companies (RICs),
as defined in section 851, and the rate
of return on plan assets. As provided in
§ 1.411(b)(5)–1(d)(6), certain annual (or
more frequent) floors are permitted in
combination with the bond-based rates
and cumulative floors (in excess of the
cumulative zero floor required under
section 411(b)(5)(i)(II)) are permitted in
combination with either the bond-based
rates or the investment-based rates.
Section 1.411(b)(5)–1(e)(3) provides
that the right to future interest credits
determined in the manner specified
under the plan and not conditioned on
future service is a factor that is used to
determine the participant’s accrued
benefit for purposes of section 411(d)(6).
Accordingly, section 411(d)(6)
protection applies not only to interest
credits that have already been credited
but also to future interest credits that are
not conditioned on future service.
Proposed hybrid plan transition
regulations (REG–111839–13) (2014
proposed regulations) were published
by the Treasury Department and the IRS
in the Federal Register on September
19, 2014 (79 FR 56305). The 2014
proposed regulations would permit an
amendment to change the interest
crediting rate under a hybrid plan from
a rate not on the list to a rate on the list
of interest crediting rates and
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combinations of rates that satisfy the
requirement of section 411(b)(5)(B)(i) for
plan years that begin on or after January
1, 2016.
Written comments in response to the
2014 proposed regulations were
received, and a public hearing was held
on January 9, 2015. After consideration
of the comments received, the
provisions in the 2014 proposed
regulations are adopted by this Treasury
decision, subject to a number of changes
that are summarized in this preamble.
Explanation of Provisions
A number of commenters requested
that the regulations provide for
sufficient time for plan sponsors to
implement amendments pursuant to
these regulations to change a plan’s
interest crediting rate to a permissible
rate. In addition, these commenters
pointed out that these amendments are
often interrelated with amendments
required to comply with the 2014 final
hybrid plan regulations, and that plan
sponsors often consider and implement
all of the required amendments at the
same time. In response to these
comments, these final regulations delay
the applicability date of certain
provisions under sections 411(a)(13)
and 411(b)(5) in the final hybrid plan
regulations, including those provisions
that provide a list of interest crediting
rates and combinations of rates that
satisfy the requirement of section
411(b)(5)(B)(i) that the plan not provide
an effective rate of return in excess of a
market rate of return. Under these
regulations, these provisions are
generally effective for plan years that
begin on or after January 1, 2017.
Prior to the first day of the first plan
year that begins on or after January 1,
2017, a plan that uses an interest
crediting rate that is not permitted
under the final hybrid plan regulations
must be amended to change to an
interest crediting rate that is permitted
under those regulations. Although a
plan is permitted to be amended to
change the interest crediting rate with
respect to benefits that have not yet
accrued, an amendment that reduces the
interest crediting rate with respect to
benefits that have already accrued
would ordinarily be impermissible
under section 411(d)(6).
In order to resolve the conflict
between the market rate of return rules
of section 411(b)(5)(B)(i) and the anticutback rules of section 411(d)(6), these
regulations permit a plan with a
noncompliant interest crediting rate to
be amended with respect to benefits that
have already accrued so that its interest
crediting rate complies with the market
rate of return rules. If the applicable
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requirements of these regulations are
satisfied, such an amendment is
permitted with respect to benefits that
have already accrued, but only with
respect to interest credits that are
credited for interest crediting periods
that begin on or after the later of the
effective date of the amendment or the
date the amendment is adopted (the
applicable amendment date within the
meaning of § 1.411(d)–3(g)(4)).1 To
qualify for this treatment, the
amendment must be adopted prior to
and effective no later than the
applicability date of the regulatory
market rate of return rules (generally,
the first day of the first plan year that
begins on or after January 1, 2017, with
a delayed applicability date for
collectively bargained plans).
Like the 2014 proposed regulations,
these regulations permit amendments
that bring the plan into compliance by
changing the specific feature that causes
the plan’s interest crediting rate to be
noncompliant, while not changing other
features of the existing rate. If the
noncompliant interest crediting rate has
more than one noncompliant feature,
then each noncompliant feature must be
addressed separately in the prescribed
manner. Examples are included to
illustrate the application of these rules.
The standard in these final
regulations for resolving this conflict
between section 411(d)(6) and section
411(b)(5)(B)(i) is generally comparable
to the standard under the rules of
§ 1.411(d)–4, A–2(b)(1) and (b)(2)(i) with
respect to the Commissioner’s exercise
of authority to resolve a conflict
between section 411(d)(6) and another
qualification requirement under section
401(a). The Treasury Department and
the IRS believe this approach is the
most appropriate manner to resolve the
conflict between the market rate of
return rules of section 411(b)(5)(B)(i)
and the anti-cutback rules of section
411(d)(6).2
If a noncompliant rate involves one or
more variable rates or a variable rate
together with a fixed rate, it is not
1 Thus, these regulations do not permit a
reduction in the hypothetical account balance as of
the applicable amendment date.
2 A plan may have been amended to change its
interest crediting rate under the rules of section
1107 of PPA ’06. Section 1107 of PPA ’06 provided
relief from the requirements of section 411(d)(6) for
amendments made pursuant to a change in law
under PPA ’06 if the amendment was adopted by
the last day of the first plan year that began on or
after January 1, 2009 (or 2011, in the case of a
governmental plan as defined in section 414(d)). If
an interest crediting rate adopted under the rules of
section 1107 of PPA ’06 is not permitted under the
final hybrid plan regulations, then these final
regulations permit a subsequent amendment to
change the rate to a rate permitted under the final
hybrid plan regulations.
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always readily apparent which specific
feature or component rate causes the
rate to be noncompliant. In addition, if
either the existing rate or any of the
potential corrections involves variable
components, it is impossible to
determine with certainty at the time of
amendment the single amendment that
in all cases that will result in the least
reduction to the participant’s accrued
benefit as of the participant’s annuity
starting date. Thus, in response to a
number of comments on the 2014
proposed regulations that more
flexibility to amend noncompliant
features be provided, the final
regulations in many cases permit a plan
sponsor to choose one of two or more
alternative amendments in order to
bring a plan into compliance.
A number of commenters specifically
requested that the rules in the transition
regulations permit any noncompliant
bond-based rate to be capped at the
third segment rate. The Treasury
Department and the IRS agree that this
is an appropriate approach.
Accordingly, an additional option has
been added in each case involving
bond-based rates so that any
noncompliant variable rate that is not an
investment-based rate (including the
greater of two or more non-investment
based variable rates) may be capped at
the third segment rate. If this approach
is used, the third segment rate cap
would have to satisfy the rules that
apply to the use of the third segment
rate as an interest crediting rate. Thus,
the cap could be any of the third
segment rates that may be used as an
interest crediting rate and the cap would
have to use a permissible lookback
month and stability period. Note,
however, that if any noncompliant
composite rate is limited so that it does
not exceed a third segment rate cap, that
limit would also apply with respect to
any annual fixed minimum rate that is
part of the noncompliant composite
rate. Therefore, the annual interest
crediting rate (taking into account the
cap) could be lower than the otherwise
applicable fixed minimum rate.3
A special rule has been added to the
regulations to clarify that an amendment
to correct a noncompliant feature that
provides for a greater interest crediting
rate than the specific amendment set
forth in the regulations also does not
violate section 411(d)(6). Thus, for
example, in any case in which it is
permissible to address a noncompliant
rate by capping the rate at the third
3 This limitation on an otherwise applicable
minimum rate may have implications for plans that
require an annual minimum rate in order to satisfy
the anti-backloading rules of section 411(b)(1).
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segment rate, it would also be
permissible to address the
noncompliant rate simply by switching
to the third segment rate. Similarly, an
amendment to switch to the third
segment rate together with a permitted
fixed minimum rate would be
permissible.
These final regulations also provide
flexibility with respect to noncompliant
investment-based rates. In particular, if
a plan credits interest using a
noncompliant investment-based rate
and there is no permitted investmentbased rate with similar risk and return
characteristics as the plan’s
impermissible rate, then, as an
alternative to the specified corrective
amendment that was in the proposed
regulations, an amendment to switch to
the third segment rate with a 4 percent
fixed minimum rate is permitted. The
regulations also clarify the specified
corrective amendment that was in the
proposed regulations by providing that
it is permissible in such a case to switch
to a permitted investment-based rate
that is otherwise similar to the plan’s
impermissible investment-based rate but
without the risk and return
characteristics of the impermissible rate
that caused it to be impermissible
(generally requiring the use of a rate that
is less volatile than the plan’s
impermissible investment-based rate but
is otherwise similar to that rate).
The preamble to the 2014 final hybrid
plan regulations contained a discussion
of statutory hybrid plans that permit
participants to choose from among a
menu of hypothetical investment
options. Because of the significant
concerns relating to the use of these
plan designs, the Treasury Department
and the IRS continue to study the issues
raised in the preamble to the 2014 final
hybrid plan regulations related to these
plans, and it is possible that the
Treasury Department and the IRS will
conclude that such plan designs are not
permitted. Nevertheless, the Treasury
Department and the IRS understand that
some of these plans contain one or more
hypothetical investment options that
provide for a rate of return that is not
permitted under the final hybrid plan
regulations. A special rule is included
in these regulations in order to address
the noncompliance that results from the
availability of at least one hypothetical
investment option that provides for an
impermissible rate of return. This
special rule provides that the rules of
these final regulations may be applied
separately to correct each impermissible
hypothetical investment option.
Alternatively, with respect to such a
plan that permitted a participant to
choose an interest crediting rate from
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among a menu of hypothetical
investment options on September 18,
2014, pursuant to plan provisions that
were adopted on or before September
18, 2014, this special rule provides that
the entire menu of investment options
may be treated as an impermissible
investment-based rate for which there is
no permitted investment-based rate with
similar risk and return characteristics
(so that the rule of § 1.411(b)(5)–
1(e)(3)(vi)(C)(7) does not apply). As a
result, plans described in the preceding
sentence may be amended to eliminate
a participant’s ability to choose an
interest crediting rate from among a
menu of hypothetical investment
options in accordance with
§ 1.411(b)(5)–1(e)(3)(vi)(C)(9). The
inclusion of this special rule with
respect to plan designs that permit
participant direction of interest
crediting rates is merely intended to
address the noncompliance that results
from the availability of a hypothetical
investment option that provides for an
impermissible rate of return, and should
not be construed to create any inference
as to the permissibility of these plan
designs in general.
The preamble to the 2014 proposed
regulations specifically requested
comments as to an amendment to bring
a plan into compliance if the plan
credits interest using a composite rate
that is an investment-based rate of
return with an impermissible annual (or
more frequent) fixed or variable rate.
Many commenters requested flexibility
to choose among options in such a case
because there is no single correction
that is the best correction for all cases.
The Treasury Department and the IRS
agree that, for this type of interest
crediting rate, no single correction
method is the most appropriate method
for all cases. Therefore, the final
regulations provide that it is permissible
either to eliminate the fixed minimum
rate (or any variable non-investment
based rate) and eliminate any reduction
to the investment-based rate, or to
switch to the third segment rate
(preserving any fixed minimum rate to
the maximum extent permitted).
In response to comments inquiring
about the treatment of plans that
provide for a cumulative floor (such as,
for example, in order to comply with
section 411(d)(6) in connection with a
prior amendment to change the plan’s
interest crediting rate on accrued pay
credits), the regulations provide for a
special rule that applies with respect to
a participant under a plan that takes
into account a minimum rate of return
that applies less frequently than
annually or that determines the
participant’s benefit as of the annuity
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starting date as the benefit provided by
the greatest of two or more account
balances and that minimum rate or
benefit based on two or more account
balances does not satisfy the market rate
of return rules. If this rule applies, the
plan must be amended to provide that
the benefit for a participant is based
solely on the benefit (and the associated
interest crediting rate with respect to
that benefit) that is greatest for that
participant as of the applicable
amendment date for the amendment
adopted pursuant to these regulations.
In addition, the plan must be further
amended pursuant to the other rules in
these regulations if the remaining
interest crediting rate does not satisfy
the market rate of return rules.
In response to comments as to the
permissibility of rounding interest
crediting rates and the need for the
regulations to provide section 411(d)(6)
relief for plans that use an
impermissible rounding rule, the
regulations provide for a rounding rule
and also provide for section 411(d)(6)
relief for transitional amendments to
comply with this rounding rule. Under
the rounding rule, a plan is not treated
as failing to meet the requirement that
a plan not credit interest at a rate that
exceeds a market rate of return merely
because the plan determines interest
credits for an interest crediting period
by rounding the calculated interest rate
or rate of return. Under this rule, an
annual rate may be rounded to the
nearest multiple of 25 basis points (or a
smaller rounding interval). If a plan
provides for the crediting of interest
more frequently than annually, then the
rounding interval must not exceed a
pro-rata portion of 25 basis points.
Notwithstanding the preceding
sentence, a plan is permitted to round
to the nearest basis point regardless of
the length of the interest crediting
period.
Several commenters identified the
need for section 411(d)(6) relief for
plans that provide for rules that apply
upon plan termination that do not
comply with the plan termination rules
in the final hybrid plan regulations. In
response to these comments, the
regulations provide for section 411(d)(6)
relief for transitional amendments made
to enable a plan to comply with the plan
termination rules in the final hybrid
plan regulations.
In response to the comment request
included in the 2014 proposed
regulations with respect to all aspects of
those proposed rules, the Department of
Treasury and the IRS received a number
of comments with respect to provisions
of the 2014 final hybrid plan regulations
instead of the 2014 proposed
regulations. These final regulations
delay the applicability date of certain
provisions in the 2014 final hybrid plan
regulations (and provide for a special
delayed applicability date for
collectively bargained plans), but do not
otherwise address comments on
provisions of the 2014 final hybrid plan
regulations.4
Effective/Applicability Dates
These regulations generally apply to
plan amendments made on or after
September 18, 2014 (or an earlier date
as elected by the taxpayer), and they do
not apply for amendments made on or
after the first day of the first plan year
that begins on or after January 1, 2017.
However, for collectively bargained
plans, these regulations continue to
apply for amendments made before the
first day of the first plan year that begins
on or after January 1, 2019, unless the
last collective bargaining agreement
ratified on or before November 13, 2015
expires before January 1, 2019, in which
case these regulations cease to apply to
amendments made on or after the first
day of the first plan year that begins on
or after the later of the date on which
the last applicable collective bargaining
agreement expires or January 1, 2017.
Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements
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Location
for plan years that begin on or after January 1, 2016 ....
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. Therefore, a
regulatory impact 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 these regulations, and
because these regulations do not impose
a collection of information on small
entities, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) does not apply.
Pursuant to section 7805(f) of the Code,
the notice of proposed rulemaking
preceding these regulations was
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small business.
Drafting Information
The principal authors of these
regulations are Neil S. Sandhu and
Linda S.F. Marshall, Office of Associate
Chief Counsel (Tax Exempt and
Government Entities). However, other
personnel from the IRS and the Treasury
Department participated in the
development of these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
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 * * *
§ 1.411(a)(13)–1
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for plan years that begin on or after January 1, 2016 ....
for plan years that begin on or after January 1, 2016 ....
For plan years that begin on or after January 1, 2016 ..
4 Proposed regulations (REG–132554–08) under
sections 411(a)(13), 411(b)(1), and 411(b)(5) (2010
proposed hybrid plan regulations) were published
by the Treasury Department and the IRS in the
Federal Register on October 19, 2010 (75 FR
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for plan years described in paragraph (e)(2)(ii)(A)
(e)(2)(ii)(B) of this section, as applicable.
for plan years described in paragraph (e)(2)(ii)(A)
(e)(2)(ii)(B) of this section (as applicable).
for plan years described in paragraph (e)(2)(ii)(A)
(e)(2)(ii)(B) of this section (as applicable).
For plan years described in paragraph (e)(2)(ii)(A)
(e)(2)(ii)(B) of this section (as applicable).
64197). The Treasury Department and the IRS
received written comments on the 2010 proposed
hybrid plan regulations, and a public hearing was
held on January 26, 2011. The 2014 final hybrid
plan regulations, which finalized the 2010 proposed
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[Amended]
Par. 2. For each entry listed in the
‘‘Location’’ column, remove the
language in the ‘‘Remove’’ column and
add the language in the ‘‘Add’’ column
in its place.
■
Remove
§ 1.411(a)(13)–1(d)(3)(i),
third sentence.
§ 1.411(a)(13)–1(d)(3)(i), fifth
and sixth sentences.
§ 1.411(a)(13)–1(d)(4)(ii)(A),
second sentence.
§ 1.411(a)(13)–1(d)(4)(ii)(C),
second sentence.
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or
or
or
or
hybrid plan regulations, took into account the
comments received prior to publication of the 2014
final hybrid plan regulations.
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Par. 3. Section 1.411(a)(13)–1 is
amended by revising paragraph (e)(2)(ii)
to read as follows:
■
§ 1.411(a)(13)–1
Statutory hybrid plans.
*
*
*
*
*
(e) * * *
(2) * * *
(ii) Special effective date—(A) In
general. Except as otherwise provided
in this paragraph (e)(2)(ii), paragraphs
(b)(2), (3), and (4) of this section apply
to plan years that begin on or after
January 1, 2017.
(B) Collectively bargained plans. In
the case of a plan maintained pursuant
to one or more collective bargaining
agreements between employee
representatives and one or more
employers ratified on or before
November 13, 2015, that constitutes a
collectively bargained plan under the
rules of § 1.436–1(a)(5)(ii)(B),
paragraphs (b)(2), (3), and (4) of this
section apply to plan years that begin on
or after the later of—
(1) January 1, 2017; and
(2) The earlier of—
(i) January 1, 2019; and
(ii) The date on which the last of those
collective bargaining agreements
terminates (determined without regard
to any extension thereof on or after
November 13, 2015).
*
*
*
*
*
§ 1.411(b)(5)–1
[Amended]
Par. 4. For each entry listed in the
‘‘Location’’ column, remove the
language in the ‘‘Remove’’ column and
add the language in the ‘‘Add’’ column
in its place.
■
Location
Remove
Add
§ 1.411(b)(5)–1(b)(1)(ii)(F) ...
For plan years that begin on or after January 1, 2016 ..
§ 1.411(b)(5)–1(b)(1)(iii),
third sentence.
§ 1.411(b)(5)–1(b)(2)(i), third
sentence.
§ 1.411(b)(5)–
1(e)(2)(ii)(B)(1), second
sentence.
§ 1.411(b)(5)–1(e)(3)(ii)(D) ...
for plan years that begin on or after January 1, 2016 ....
For plan years described in paragraph (f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of this section (as applicable).
for plan years described in paragraph (f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of this section (as applicable).
for plan years described in paragraph (f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of this section, as applicable.
the first plan year described in paragraph (f)(2)(i)(B)(1)
or (f)(2)(i)(B)(3) of this section (as applicable).
for plan years that begin on or after January 1, 2016 ....
the first plan year that begins on or after January 1,
2016.
For plan years that begin on or after January 1, 2016 ..
Par. 5. Section 1.411(b)(5)–1 is
amended by:
■ 1. Adding a new sentence between the
second and third sentences of paragraph
(d)(1)(iv)(A);
■ 2. Adding paragraph (d)(1)(iv)(E);
■ 3. Adding paragraphs (e)(3)(vi) and
(vii); and
■ 4. Revising paragraph (f)(2)(i)(B).
The additions and revisions read as
follows:
■
§ 1.411(b)(5)–1 Reduction in rate of benefit
accrual under a defined benefit plan.
asabaliauskas on DSK5VPTVN1PROD with RULES
*
*
*
*
*
(d) * * *
(1) * * *
(iv) * * *
(A) * * * In addition, a plan is
permitted to round the calculated
interest rate or rate of return in
accordance with paragraph (d)(1)(iv)(E)
of this section.
*
*
*
*
*
(E) Rounding of interest crediting rate.
A plan is not treated as failing to meet
the requirements of this paragraph (d)
merely because the plan determines
interest credits for an interest crediting
period by rounding the calculated
interest rate or rate of return in
accordance with this paragraph
(d)(1)(iv)(E). An annual rate may be
rounded to the nearest multiple of 25
basis points (or a smaller rounding
interval). If a plan provides for the
crediting of interest more frequently
than annually, then the rounding
interval must not exceed a pro-rata
portion of 25 basis points.
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For plan years described in paragraph (f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of this section (as applicable).
Notwithstanding the preceding
sentence, a plan is permitted to round
to the nearest basis point regardless of
the length of the interest crediting
period.
*
*
*
*
*
(e) * * *
(3) * * *
(vi) Transitional amendments needed
to satisfy the market rate of return
rules—(A) In general. Notwithstanding
the requirements of section 411(d)(6), if
the requirements set forth in this
paragraph (e)(3)(vi) are satisfied, a plan
may be amended to change its interest
crediting rate with respect to benefits
that have already accrued in order to
comply with the requirements of section
411(b)(5)(B)(i) and paragraph (d) of this
section. A plan amendment is eligible
for the treatment provided under this
paragraph (e)(3)(vi)(A) to the extent that
the amendment modifies an interest
crediting rate that does not satisfy the
requirements of section 411(b)(5)(B)(i)
and paragraph (d) of this section in the
manner specified in paragraph
(e)(3)(vi)(C) of this section.
(B) Rules of application—(1) Multiple
noncompliant features. If a plan’s
interest crediting rate has more than one
noncompliant feature as described in
paragraph (e)(3)(vi)(C) of this section,
then each noncompliant feature must be
addressed separately in the manner
specified in paragraph (e)(3)(vi)(C) of
this section.
(2) Definition of investment-based
rate. The application of the rules of
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paragraph (e)(3)(vi)(C) of this section to
an interest crediting rate depends on
whether the interest crediting rate is an
investment-based rate. For purposes of
this paragraph (e)(3)(vi), an investmentbased rate is a rate based on either a rate
of return provided by actual
investments (taking into account the
return attributable to any change in the
value of the underlying investments) or
a rate of return for an index that
measures the change in the value of
investments. A rate is an investmentbased rate even if it is based only in part
on a rate described in the preceding
sentence.
(3) Timing rules for permitted
amendments. The rules under this
paragraph (e)(3)(vi) apply only to a plan
amendment that is adopted prior to and
effective no later than the first day of the
first plan year described in paragraph
(f)(2)(i)(B)(1) or (f)(2)(i)(B)(3) of this
section, as applicable. In addition, the
rules under this paragraph (e)(3)(vi)
apply to a plan amendment only with
respect to interest credits that are
credited for interest crediting periods
that begin on or after the applicable
amendment date (within the meaning of
§ 1.411(d)–3(g)(4)).
(4) Amendments that provide for
greater interest crediting rates. If a plan
is amended in accordance with
paragraphs (e)(3)(vi)(C)(1) through (10)
of this section to switch from a
noncompliant rate to a compliant rate
and is subsequently amended to switch
to a second compliant rate that can
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never be less than the first compliant
rate, then the second amendment does
not violate section 411(d)(6). If, instead,
the plan is amended to switch from the
noncompliant rate to the second
compliant rate in a single amendment,
that amendment also does not violate
section 411(d)(6). For example, if it is
permitted under paragraph (e)(3)(vi)(C)
of this section to first amend the plan to
credit interest using the lesser of the
current rate and a rate described in
paragraph (d)(3) of this section, it is
then permissible to amend the plan to
credit interest using that rate described
in paragraph (d)(3) of this section. In
such a case, it is also permissible to
amend the plan to switch from the
current rate to a rate described in
paragraph (d)(3) of this section in a
single amendment.
(5) Cumulative floors, including floors
resulting from a prior change in rates
with section 411(d)(6) protection. This
paragraph (e)(3)(vi)(B)(5) applies to a
plan that takes into account a minimum
rate of return that applies less frequently
than annually. This paragraph
(e)(3)(vi)(B)(5) also applies to a plan that
determines the participant’s benefit as
of the annuity starting date as the
benefit provided by the greatest of two
or more account balances (for example,
in order to comply with section
411(d)(6) in connection with a prior
amendment to change the plan’s interest
crediting rate). In either case, this
paragraph (e)(3)(vi)(B)(5) applies with
respect to a participant only if the
requirements of paragraph (d)(6) of this
section are not satisfied with respect to
that participant. If this paragraph
(e)(3)(vi)(B)(5) applies with respect to a
participant, the plan must be amended
to provide that the benefit for the
participant is based solely on the benefit
(and the associated interest crediting
rate with respect to that benefit) that is
greatest for that participant as of the
applicable amendment date for the
amendment made pursuant to this
paragraph (e)(3)(vi). In addition, the
plan must be further amended pursuant
to the other rules in this paragraph
(e)(3)(vi) if the remaining interest
crediting rate does not satisfy the
requirements of paragraph (d) of this
section.
(6) Plans that permit participant
direction of interest crediting rates. This
paragraph (e)(3)(vi)(B)(6) applies in the
case in which a plan permits a
participant to choose an interest
crediting rate from among a menu of
hypothetical investment options and at
least one of those hypothetical
investment options provides for an
interest crediting rate that is not
permitted under paragraph (d) of this
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Jkt 238001
section (so that the plan fails to satisfy
the requirements of paragraph (d) of this
section). In such a case, the rules of this
paragraph (e)(3)(vi) may be applied
separately to correct each impermissible
investment option. Alternatively, with
respect to such a plan that permitted a
participant to choose an interest
crediting rate from among a menu of
hypothetical investment options on
September 18, 2014, pursuant to plan
provisions that were adopted on or
before September 18, 2014, the entire
menu of investment options may be
treated as an impermissible investmentbased rate for which there is no
permitted investment-based rate with
similar risk and return characteristics
(so that the rule of paragraph
(e)(3)(vi)(C)(7) of this section does not
apply). As a result, plans described in
the preceding sentence may be amended
to eliminate a participant’s ability to
choose an interest crediting rate from
among a menu of hypothetical
investment options in accordance with
paragraph (e)(3)(vi)(C)(9) of this section.
(C) Noncompliant feature and
amendment to bring plan into
compliance—(1) Timing or other rules
related to determining interest credits
not satisfied. If a plan has an underlying
interest rate that generally satisfies the
rules of paragraph (d) of this section but
that does not satisfy the rules relating to
how interest credits are determined and
credited as set forth in paragraph
(d)(1)(iv) of this section, then the plan
must be amended either—
(i) To correct the aspect of the plan’s
interest crediting rate that fails to
comply with the rules of paragraph
(d)(1)(iv) of this section with respect to
its underlying interest crediting rate; or
(ii) If the plan’s interest crediting rate
is a variable rate that is not an
investment-based rate of return, to
provide that the plan’s interest crediting
rate is the lesser of that variable rate and
a rate described in paragraph (d)(3) of
this section that satisfies the rules of
paragraph (d)(1)(iv) of this section.
(2) Fixed rate in excess of 6 percent.
If a plan’s interest crediting rate is a
fixed rate in excess of the rate described
in paragraph (d)(4)(v) of this section,
then the plan must be amended to
reduce the interest crediting rate to an
annual interest crediting rate of 6
percent.
(3) Bond-based rate with margin
exceeding maximum permitted margin.
If a plan’s interest crediting rate is a
noncompliant rate that consists of an
underlying rate described in paragraph
(d)(3) or (d)(4) of this section except that
the plan applies a margin that exceeds
the maximum permitted margin under
paragraph (d)(3) or (d)(4) of this section
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70685
to the underlying rate, then the plan
must be amended either—
(i) To reduce the margin to the
maximum permitted margin for the
underlying rate used by the plan; or
(ii) To provide that the plan’s interest
crediting rate is the lesser of the plan’s
noncompliant rate and a rate described
in paragraph (d)(3) of this section
(together with any fixed minimum rate
that was part of the noncompliant rate,
reduced to the extent necessary to
comply with paragraph (d)(6)(ii) of this
section).
(4) Bond-based rate with fixed
minimum rate applied on an annual or
more frequent basis in excess of the
highest permitted fixed minimum rate.
If a plan’s interest crediting rate is a
composite rate that consists of a variable
rate described in paragraph (d)(3) or
(d)(4) of this section in combination
with a fixed minimum rate in excess of
the highest permitted fixed minimum
rate under paragraph (d)(6)(ii)(A)(2) or
(B)(2) of this section (as applicable),
then the plan must be amended in one
of the following manners:
(i) To reduce the fixed minimum rate
to the highest permitted fixed minimum
rate that may be used in combination
with the plan’s variable rate;
(ii) To credit interest using an annual
interest crediting rate of 6 percent; or
(iii) To provide that the plan’s interest
crediting rate is the lesser of the plan’s
noncompliant composite rate and a rate
described in paragraph (d)(3) of this
section (together with a fixed minimum
rate of 4 percent).
(5) Greatest of two or more variable
bond-based rates. If a plan’s interest
crediting rate is a composite rate that is
the greatest of two or more variable rates
described in paragraph (d)(3) or (d)(4) of
this section, then the plan must be
amended to provide for an interest
crediting rate that is the lesser of the
composite rate and a rate described in
paragraph (d)(3) of this section.
(6) Other impermissible bond-based
rates. If, after application of the rules of
paragraphs (e)(3)(vi)(C)(1) through (5) of
this section, a plan’s interest crediting
rate is a variable rate that is not an
investment-based rate of return and is
not described in paragraph (d)(3) or
(d)(4) of this section, then the plan must
be amended either—
(i) To provide for an interest crediting
rate based on a variable rate described
in paragraph (d)(3) or (d)(4) of this
section that has similar duration and
quality characteristics as the plan’s
variable rate, if such a rate can be
selected; or
(ii) To provide for an interest crediting
rate that is the lesser of the plan’s
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variable rate and a rate described in
paragraph (d)(3) of this section.
(7) Impermissible investment-based
rate that can be replaced with a
permissible rate that has similar risk
and return characteristics. If a plan’s
interest crediting rate is an investmentbased rate of return that is not described
in paragraph (d)(5) of this section and a
permitted investment-based rate
described in paragraph (d)(5)(ii)(A),
(d)(5)(ii)(B), or (d)(5)(iv) of this section
that has similar risk and return
characteristics as the plan’s
impermissible investment-based rate
can be selected, then the plan must be
amended to provide for an interest
crediting rate based on such a permitted
investment-based rate.
(8) Investment-based rate with an
annual or more frequent minimum rate
that is either a fixed rate or a noninvestment based variable rate. If a
plan’s interest crediting rate is an
investment-based rate of return that
would be described in paragraph (d)(5)
of this section except that the plan uses
an annual or more frequent minimum
rate that is either a fixed rate or a noninvestment based variable rate in
conjunction with the investment-based
rate, then the plan must be amended
either—
(i) To credit interest using that
investment-based rate of return
described in paragraph (d)(5) of this
section without the minimum rate and
eliminating any reduction (or other
adjustment) to the investment-based
rate; or
(ii) To provide that the plan’s interest
crediting rate is a rate described in
paragraph (d)(3) of this section (together
with any fixed minimum rate, reduced
to the extent necessary to comply with
paragraph (d)(6)(ii) of this section).
(9) Other impermissible investmentbased rates. If, after application of the
rules of paragraphs (e)(3)(vi)(C)(1), (7),
and (8) of this section, a plan’s interest
crediting rate is an investment-based
rate that is not described in paragraph
(d)(5) of this section, then the plan must
be amended either—
(i) To provide for an interest crediting
rate that is an investment-based rate that
is described in paragraph (d)(5) of this
section and that is otherwise similar to
the plan’s impermissible investmentbased rate but without the risk and
return characteristics of the
impermissible investment-based rate
that caused it to be impermissible
(generally requiring the use of a rate that
is less volatile than the plan’s
impermissible investment-based rate but
is otherwise similar to that rate); or
(ii) To provide that the plan’s interest
crediting rate is a rate described in
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Jkt 238001
paragraph (d)(3) of this section with a
fixed minimum rate of 4 percent.
(D) Examples. The following
examples illustrate the application of
the rules of this paragraph (e)(3)(vi).
Each plan has a plan year that is the
calendar year, and all amendments are
adopted on October 1, 2016, and
become effective for interest crediting
periods beginning on or after January 1,
2017. Except as otherwise provided, the
interest crediting rate under the plan
satisfies the timing and other rules
related to crediting interest under
paragraph (d)(1)(iv) of this section.
Example 1. (i) Facts. A plan determines
interest credits for a plan year using the
average yield on 30-year Treasury Constant
Maturities for the last week of the preceding
plan year (which is an impermissible
lookback period for this purpose pursuant to
paragraph (d)(1)(iv)(B) of this section because
it is not a month).
(ii) Conclusion. Pursuant to paragraph
(e)(3)(vi)(C)(1) of this section, the plan must
be amended in one of two manners. It may
be amended to determine interest credits for
a plan year using the average yield on 30-year
Treasury Constant Maturities for a lookback
month that complies with the requirements
of paragraph (d)(1)(iv)(B) of this section.
Alternatively, the plan may be amended to
cap the existing rate so that it cannot exceed
a third segment rate described in paragraph
(d)(3) of this section for a period that
complies with the requirements of paragraph
(d)(1)(iv)(B) of this section.
Example 2. (i) Facts. A plan determines
interest credits for a plan year using the
average yield on 30-year Treasury Constant
Maturities for the last week of the preceding
plan year, plus 50 basis points.
(ii) Conclusion. Pursuant to paragraph
(e)(3)(vi)(B)(1) of this section, the plan must
be amended to correct both the
impermissible lookback period and the
excess margin. Accordingly, pursuant to
paragraph (e)(3)(vi)(C)(1) and (3) of this
section, the plan may be amended to
determine interest credits for a plan year
using the average yield on 30-year Treasury
Constant Maturities (with no margin) for a
period that complies with the requirements
of paragraph (d)(1)(iv)(B) of this section.
Alternatively, the plan may be amended to
cap the existing rate so that it cannot exceed
a third segment rate described in paragraph
(d)(3) of this section for a period that
complies with the requirements of paragraph
(d)(1)(iv)(B) of this section.
Example 3. (i) Facts. A plan credits interest
for a plan year using the rate of return on
plan assets for the preceding plan year.
(ii) Conclusion. Pursuant to paragraph
(e)(3)(vi)(C)(1) of this section, the plan must
be amended to determine interest credits for
each plan year using the rate of return on
plan assets for that plan year.
Example 4. (i) Facts. A plan credits interest
using the average yield on 30-year Treasury
Constant Maturities for December of the
preceding plan year with a minimum rate of
5.5 percent per year.
(ii) Conclusion. Pursuant to paragraph
(e)(3)(vi)(C)(4) of this section, the plan must
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be amended to change the plan’s interest
crediting rate. The new interest crediting rate
under the plan may be the average yield on
30-year Treasury Constant Maturities for
December of the preceding plan year with a
minimum rate of 5 percent per year.
Alternatively, the new interest crediting rate
under the plan may be an annual interest
crediting rate of 6 percent. As another
alternative, the existing noncompliant
composite rate may be capped so that it
cannot exceed a third segment rate described
in paragraph (d)(3) of this section, with a
minimum rate of 4 percent as a floor on the
entire resulting rate.
Example 5. (i) Facts. A plan credits interest
using the greater of the unadjusted yield on
30-year Treasury Constant Maturities and the
yield on 1-year Treasury Constant Maturities
plus 100 basis points.
(ii) Conclusion. Pursuant to paragraph
(e)(3)(vi)(C)(5) of this section, the plan must
be amended to cap the existing composite
‘‘greater-of’’ rate so that the composite rate
cannot exceed a third segment rate described
in paragraph (d)(3) of this section.
Example 6. (i) Facts. A plan credits interest
using a broad-based index that measures the
yield to maturity on a group of intermediateterm investment grade corporate bonds.
(ii) Conclusion. Pursuant to paragraph
(e)(3)(vi)(C)(6) of this section, the plan must
be amended in one of two manners. The plan
may be amended to credit interest using a
second segment rate described in paragraph
(d)(4)(iv) of this section. Alternatively, the
plan may be amended to cap the existing rate
so that it cannot exceed a third segment rate
described in paragraph (d)(3) of this section.
Example 7. (i) Facts. A plan credits interest
using the rate of return for a broad-based
index that measures the yield to maturity on
a group of short-term non-investment grade
corporate bonds.
(ii) Conclusion. Pursuant to paragraph
(e)(3)(vi)(C)(6)(ii) of this section, the plan
must be amended to cap the existing rate so
that it cannot exceed a third segment rate
described in paragraph (d)(3) of this section.
Example 8. (i) Facts. A plan credits interest
using the rate of return for the S&P 500
index. To bring the plan into compliance
with the market rate of return rules, the plan
sponsor amends the plan to credit interest
based on the rate of return on a RIC that is
designed to track the rate of return on the
S&P 500 index.
(ii) Conclusion. The amendment satisfies
the rule of paragraph (e)(3)(vi)(C)(7) of this
section.
Example 9. (i) Facts. A plan credits interest
based on the rate of return on a collective
trust that holds a portfolio of equity
investments, which provides a rate of return
that is reasonably expected to be not
significantly more volatile than the broad
U.S. equities market or a similarly broad
international equities market. To bring the
plan into compliance with the market rate of
return rules, the plan sponsor amends the
plan to credit interest based on the actual rate
of return on the assets within a specified
subset of the plan’s assets that is invested in
the collective trust and that satisfies the
requirements of paragraph (d)(5)(ii)(B) of this
section.
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(ii) Conclusion. The amendment satisfies
the rule of paragraph (e)(3)(vi)(C)(7) of this
section.
Example 10. (i) Facts. A plan credits
interest for a plan year using the rate of
return on a RIC that has most of its
investments concentrated in the
semiconductor industry.
(ii) Conclusion. Pursuant to paragraph
(e)(3)(vi)(C)(9) of this section, the plan must
be amended in one of two manners. The plan
may be amended to provide for an interest
crediting rate that is an investment-based rate
that is described in paragraph (d)(5) of this
section and that is similar to the plan’s
impermissible investment-based rate except
to the extent that the risk and return
characteristics of the impermissible
investment-based rate caused it to be
impermissible. Thus, the plan may be
amended to provide for an interest crediting
rate based on the rate of return on a RIC that
is invested in a broader sector of the market
than the semiconductor industry (such as the
overall technology sector of the market),
provided that the sector in which the RIC is
invested is broad enough that the volatility
requirements of paragraph (d)(5)(iv) of this
section are satisfied. Alternatively, the plan
may be amended to provide that the plan’s
interest crediting rate is a third segment rate
described in paragraph (d)(3) of this section
with a fixed minimum rate of 4 percent.
Example 11. (i) Facts. A plan was amended
in 2014 to change its interest crediting rate
for all interest crediting periods after the
applicable amendment date of the
amendment. The amendment changed the
rate from the yield on 30-year Treasury
Constant Maturities to the rate of return on
aggregate plan assets under paragraph
(d)(5)(ii)(A) of this section. The amendment
also provided for section 411(d)(6) protection
with respect to the account balance as of the
applicable amendment date (by providing
that the account balance after the applicable
amendment date will never be smaller than
the account balance as of the applicable
amendment date credited with interest using
the yield on 30-year Treasury Constant
Maturities).
(ii) Conclusions. (A) Participants benefiting
under the plan. With respect to those
participants who were benefiting under the
plan as of the applicable amendment date of
the amendment described in paragraph (i) of
this Example 11, the requirements of
paragraph (e)(3)(iii) of this section (which
provides a special market rate of return rule
to permit certain changes in rates for
participants benefiting under the plan) are
satisfied. Accordingly, no amendment is
required under this paragraph (e)(3)(vi) with
respect to those participants.
(B) Participants not benefiting under the
plan. With respect to those participants who
were not benefiting under the plan as of the
applicable amendment date of the
amendment described in paragraph (i) of this
Example 11, the requirements of paragraph
(e)(3)(iii) of this section are not satisfied and,
accordingly, the ‘‘greater-of’’ rate resulting
from the section 411(d)(6) protection does
not satisfy the requirements of paragraph
(d)(6) of this section. As a result, pursuant to
paragraph (e)(3)(vi)(B)(5) of this section, it
VerDate Sep<11>2014
16:20 Nov 13, 2015
Jkt 238001
must be determined on a participant-byparticipant basis which account balance
provides the benefit that is greater as of the
applicable amendment date for the
amendment made pursuant to this paragraph
(e)(3)(iv) (the transitional amendment). If, as
of the applicable amendment date for the
transitional amendment, the account balance
credited with interest after the change in
rates using the yield on 30-year Treasury
Constant Maturities is greater, then the plan
must be amended to provide that the
participant’s benefit is based solely on that
account balance credited with interest using
the yield on 30-year Treasury Constant
Maturities. On the other hand, if, as of the
applicable amendment date for the
transitional amendment, the account balance
using the rate of return on aggregate plan
assets is greater, then the plan must be
amended to provide that the participant’s
benefit is based solely on that account
balance credited with interest at the rate of
return on aggregate plan assets.
(vii) Plan termination amendments. A
plan amendment with an applicable
amendment date on or before the first
day of the first plan year described in
paragraph (f)(2)(i)(B)(1) or (3) of this
section (as applicable) is not treated as
reducing accrued benefits in violation of
section 411(d)(6) merely because the
amendment changes the rules that apply
upon plan termination in order to
satisfy the requirements of paragraph
(e)(2) of this section.
*
*
*
*
*
(f) * * *
(2) * * *
(i) * * *
(B) Special effective date—(1) In
general. Except as otherwise provided
in this paragraph (f)(2)(i)(B), paragraphs
(d)(1)(iii), (d)(1)(iv)(D) and (E), (d)(1)(vi),
(d)(2)(ii) and (v), (d)(5)(ii)(B), (d)(5)(iv),
(d)(6), (e)(2), (e)(3)(iii), (iv) and (v), and
(e)(4) of this section apply to plan years
that begin on or after January 1, 2017 (or
an earlier date as elected by the
taxpayer).
(2) Transitional amendments.
Paragraphs (e)(3)(vi) and (vii) of this
section apply to plan amendments made
on or after September 18, 2014 (or an
earlier date as elected by the taxpayer).
(3) Collectively bargained plans. In
the case of a plan maintained pursuant
to one or more collective bargaining
agreements between employee
representatives and one or more
employers ratified on or before
November 13, 2015, that constitutes a
collectively bargained plan under the
rules of § 1.436–1(a)(5)(ii)(B), the
paragraphs referenced in paragraph
(f)(2)(i)(B)(1) of this section apply to
plan years that begin on or after the later
of—
(i) January 1, 2017; and
(ii) The earlier of January 1, 2019; and
the date on which the last of those
PO 00000
Frm 00019
Fmt 4700
Sfmt 4700
70687
collective bargaining agreements
terminates (determined without regard
to any extension thereof on or after
November 13, 2015).
*
*
*
*
*
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: November 3, 2015.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2015–28915 Filed 11–13–15; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket No. USCG–2015–0994]
RIN 1625–AA00
Safety Zone; Unknown Substance in
the Vicinity of Kelley’s Island Shoal,
Lake Erie; Kelley’s Island, OH
Coast Guard, DHS.
Temporary final rule.
AGENCY:
ACTION:
The Coast Guard is
establishing a temporary safety zone in
the waters of the Lake Erie in the
vicinity of Kelley’s Island Shoal, OH.
This zone is intended to restrict vessels
from a portion of Lake Erie due to the
presence of an unknown substance
emanating from an unknown vessel.
This temporary safety zone is necessary
to protect people and vessels from the
hazards associated with this event.
DATES: This rule is effective without
actual notice from November 16, 2015
until 8 p.m. November 24, 2015. For the
purposes of enforcement, actual notice
will be used from 2 p.m. October 25,
2015, until November 16, 2015.
ADDRESSES: Documents indicated in this
preamble as being available in the
docket are part of docket USCG–2015–
0994 and are available online by going
to www.regulations.gov, type the docket
number in the ‘‘SEARCH’’ box and click
‘‘SEARCH.’’ Click on Open Docket
Folder on the line associated with this
rulemaking. They are also available for
inspection or copying at the Docket
Management Facility (M–30), U.S.
Department of Transportation, West
Building Ground Floor, Room W12–140,
1200 New Jersey Avenue SE.,
Washington, DC 20590, between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays.
SUMMARY:
E:\FR\FM\16NOR1.SGM
16NOR1
Agencies
[Federal Register Volume 80, Number 220 (Monday, November 16, 2015)]
[Rules and Regulations]
[Pages 70680-70687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-28915]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9743]
RIN 1545-BL62
Transitional Amendments To Satisfy the Market Rate of Return
Rules for Hybrid Retirement Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that provide guidance
regarding certain amendments to applicable defined benefit plans.
Applicable defined benefit plans are defined benefit plans that use a
lump sum-based benefit formula, including cash balance plans and
pension equity plans, as well as other plans that have formulas with an
effect similar to a lump sum-based benefit formula. These final
regulations relate to previously issued final regulations that specify
permitted interest crediting rates for purposes of the requirement that
an applicable defined benefit plan not provide for interest credits (or
equivalent amounts) at an effective rate that is greater than a market
rate of return. These final regulations permit a plan sponsor of an
applicable defined benefit plan that does not comply with the market
rate of return requirement to amend the plan in order to change to an
interest crediting rate that is permitted under the previously issued
final hybrid plan regulations without violating the anti-cutback rules
of section 411(d)(6). These regulations affect sponsors,
administrators, participants, and beneficiaries of these plans.
DATES: Effective Date: These regulations are effective on November 16,
2015.
Applicability Date: These regulations generally apply to plan
amendments made on or after September 18, 2014 (or an earlier date as
elected by the taxpayer). These regulations cease to apply for
amendments made on or after the first day of the first plan year that
begins on or after January 1, 2017 (or, for collectively bargained
plans, on or after a later date specified in the regulations).
FOR FURTHER INFORMATION CONTACT: Neil S. Sandhu or Linda S.F. Marshall
at (202) 317-6700 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1) under sections 411(a)(13) and 411(b)(5) of the Internal
Revenue Code (Code).
Generally, a defined benefit pension plan must satisfy the minimum
vesting standards of section 411(a) and the accrual requirements of
section 411(b) in order to be qualified under section 401(a) of the
Code. Sections 411(a)(13) and 411(b)(5), which modify the minimum
vesting standards of section 411(a) and the accrual requirements of
section 411(b), were added to the Code by section 701(b) of the Pension
Protection Act of 2006, Public Law 109-280 (120 Stat. 780 (2006)) (PPA
'06). Sections 411(a)(13) and 411(b)(5) and certain related effective
date provisions were subsequently amended by the Worker, Retiree, and
Employer Recovery Act of 2008, Public Law 110-458 (122 Stat. 5092
(2008)) (WRERA '08).
Under section 411(b)(5)(B)(i), a statutory hybrid plan is treated
as failing to satisfy the requirements of section 411(b)(1)(H) (which
provides that the rate of an employee's benefit accrual must not be
reduced because of the attainment of any age) if the terms of the plan
provide any interest credit (or an equivalent amount) for any plan year
at a rate that is in excess of a market rate of return. Section
411(b)(5)(B)(i) is generally effective for plan years beginning after
December 31, 2007.
Section 411(d)(6) provides generally that a plan does not satisfy
section 411 if an amendment to the plan decreases a participant's
accrued benefit. For this purpose, a plan amendment that has the effect
of eliminating or reducing an early retirement benefit or a retirement-
type subsidy or eliminating an optional form of benefit with respect to
benefits attributable to service before the amendment is treated as
reducing accrued benefits.
Sections 204(b)(5)(B)(i) and 204(g) of the Employee Retirement
Income Security Act of 1974, Public Law 93-406 (88 Stat. 829 (1974)),
as amended (ERISA), contain rules that are parallel to sections
411(b)(5)(B)(i) and 411(d)(6), respectively. Under section 101 of
Reorganization Plan No. 4 of 1978 (43 FR 47713), the Secretary of the
Treasury has interpretive jurisdiction over the subject matter
addressed in these final regulations for purposes of ERISA, as well as
the Code. Thus, these final regulations apply for purposes of sections
411(b)(5)(B)(i) and 411(d)(6) of the Code, as well as for purposes of
sections 204(b)(5)(B)(i) and 204(g) of ERISA.
Section 1.411(d)-4, A-2(b)(1), of the Income Tax Regulations
provides, in part, that the Commissioner may, consistent with the
provisions of Sec. 1.411(d)-4, provide for the elimination or
reduction of section 411(d)(6) protected benefits that have already
accrued to the extent that such elimination or reduction is necessary
to permit compliance with other requirements of section 401(a). The
Commissioner may exercise this authority only through the publication
of revenue rulings, notices, and other documents of general
applicability.
Section 1.411(d)-4, A-2(b)(2)(i), provides that a plan may be
amended to eliminate or reduce a section 411(d)(6) protected benefit,
within the meaning of Sec. 1.411(d)-4, A-1, if the following three
requirements are met: The amendment constitutes timely compliance with
a change in law affecting plan qualification; there is an exercise of
section 7805(b) relief by the Commissioner; and the elimination or
reduction of the section 411(d)(6) protected benefit is made only to
the extent necessary to enable the plan to continue to satisfy the
requirements for qualified plans.
Final regulations (TD 9505) (2010 final hybrid plan regulations)
were published by the Treasury Department and the IRS in the Federal
Register on October 19, 2010 (75 FR 64123). Additional final
regulations (TD 9693) (2014 final hybrid plan regulations) were
published by the Treasury Department and the IRS in the Federal
Register on September 19, 2014 (79 FR 56442) (collectively, the 2010
and 2014 final hybrid plan regulations are referred to herein as the
final hybrid plan regulations). The final hybrid plan regulations
provide, effective for plan years that begin on or after January 1,
2016, a list of interest crediting rates
[[Page 70681]]
and combinations of rates that satisfy the requirement of section
411(b)(5)(B)(i) that a plan not provide an effective rate of return in
excess of a market rate of return, while not permitting other rates.
The provisions that provide for a list of rates are set forth at Sec.
1.411(b)(5)-1(d)(1)(iii), (d)(1)(vi), and (d)(6)(i).
Interest crediting rates can be broadly characterized as either
investment-based rates or rates that are not investment-based rates. An
investment-based rate is a rate of return provided by actual
investments, taking into account the return attributable to any change
in the value of the underlying investments. A rate of return that is
based on the rate of return for an index that measures the change in
the value of investments can also be considered to be an investment-
based rate. Rates that are not investment-based rates are either fixed
rates of interest or bond-based rates (such as yields to maturity of
bonds).
Section 1.411(b)(5)-1(d)(3) and (d)(4) sets forth permitted rates
that are not investment-based rates, such as the third segment rate
described in section 417(e)(3)(D) or 430(h)(2)(C)(iii), the yield on
30-year Treasury Constant Maturities, and a fixed 6 percent rate of
interest. Section 1.411(b)(5)-1(d)(5) sets forth permitted investment-
based rates, such as the rate of return on certain regulated investment
companies (RICs), as defined in section 851, and the rate of return on
plan assets. As provided in Sec. 1.411(b)(5)-1(d)(6), certain annual
(or more frequent) floors are permitted in combination with the bond-
based rates and cumulative floors (in excess of the cumulative zero
floor required under section 411(b)(5)(i)(II)) are permitted in
combination with either the bond-based rates or the investment-based
rates.
Section 1.411(b)(5)-1(e)(3) provides that the right to future
interest credits determined in the manner specified under the plan and
not conditioned on future service is a factor that is used to determine
the participant's accrued benefit for purposes of section 411(d)(6).
Accordingly, section 411(d)(6) protection applies not only to interest
credits that have already been credited but also to future interest
credits that are not conditioned on future service.
Proposed hybrid plan transition regulations (REG-111839-13) (2014
proposed regulations) were published by the Treasury Department and the
IRS in the Federal Register on September 19, 2014 (79 FR 56305). The
2014 proposed regulations would permit an amendment to change the
interest crediting rate under a hybrid plan from a rate not on the list
to a rate on the list of interest crediting rates and combinations of
rates that satisfy the requirement of section 411(b)(5)(B)(i) for plan
years that begin on or after January 1, 2016.
Written comments in response to the 2014 proposed regulations were
received, and a public hearing was held on January 9, 2015. After
consideration of the comments received, the provisions in the 2014
proposed regulations are adopted by this Treasury decision, subject to
a number of changes that are summarized in this preamble.
Explanation of Provisions
A number of commenters requested that the regulations provide for
sufficient time for plan sponsors to implement amendments pursuant to
these regulations to change a plan's interest crediting rate to a
permissible rate. In addition, these commenters pointed out that these
amendments are often interrelated with amendments required to comply
with the 2014 final hybrid plan regulations, and that plan sponsors
often consider and implement all of the required amendments at the same
time. In response to these comments, these final regulations delay the
applicability date of certain provisions under sections 411(a)(13) and
411(b)(5) in the final hybrid plan regulations, including those
provisions that provide a list of interest crediting rates and
combinations of rates that satisfy the requirement of section
411(b)(5)(B)(i) that the plan not provide an effective rate of return
in excess of a market rate of return. Under these regulations, these
provisions are generally effective for plan years that begin on or
after January 1, 2017.
Prior to the first day of the first plan year that begins on or
after January 1, 2017, a plan that uses an interest crediting rate that
is not permitted under the final hybrid plan regulations must be
amended to change to an interest crediting rate that is permitted under
those regulations. Although a plan is permitted to be amended to change
the interest crediting rate with respect to benefits that have not yet
accrued, an amendment that reduces the interest crediting rate with
respect to benefits that have already accrued would ordinarily be
impermissible under section 411(d)(6).
In order to resolve the conflict between the market rate of return
rules of section 411(b)(5)(B)(i) and the anti-cutback rules of section
411(d)(6), these regulations permit a plan with a noncompliant interest
crediting rate to be amended with respect to benefits that have already
accrued so that its interest crediting rate complies with the market
rate of return rules. If the applicable requirements of these
regulations are satisfied, such an amendment is permitted with respect
to benefits that have already accrued, but only with respect to
interest credits that are credited for interest crediting periods that
begin on or after the later of the effective date of the amendment or
the date the amendment is adopted (the applicable amendment date within
the meaning of Sec. 1.411(d)-3(g)(4)).\1\ To qualify for this
treatment, the amendment must be adopted prior to and effective no
later than the applicability date of the regulatory market rate of
return rules (generally, the first day of the first plan year that
begins on or after January 1, 2017, with a delayed applicability date
for collectively bargained plans).
---------------------------------------------------------------------------
\1\ Thus, these regulations do not permit a reduction in the
hypothetical account balance as of the applicable amendment date.
---------------------------------------------------------------------------
Like the 2014 proposed regulations, these regulations permit
amendments that bring the plan into compliance by changing the specific
feature that causes the plan's interest crediting rate to be
noncompliant, while not changing other features of the existing rate.
If the noncompliant interest crediting rate has more than one
noncompliant feature, then each noncompliant feature must be addressed
separately in the prescribed manner. Examples are included to
illustrate the application of these rules.
The standard in these final regulations for resolving this conflict
between section 411(d)(6) and section 411(b)(5)(B)(i) is generally
comparable to the standard under the rules of Sec. 1.411(d)-4, A-
2(b)(1) and (b)(2)(i) with respect to the Commissioner's exercise of
authority to resolve a conflict between section 411(d)(6) and another
qualification requirement under section 401(a). The Treasury Department
and the IRS believe this approach is the most appropriate manner to
resolve the conflict between the market rate of return rules of section
411(b)(5)(B)(i) and the anti-cutback rules of section 411(d)(6).\2\
---------------------------------------------------------------------------
\2\ A plan may have been amended to change its interest
crediting rate under the rules of section 1107 of PPA '06. Section
1107 of PPA '06 provided relief from the requirements of section
411(d)(6) for amendments made pursuant to a change in law under PPA
'06 if the amendment was adopted by the last day of the first plan
year that began on or after January 1, 2009 (or 2011, in the case of
a governmental plan as defined in section 414(d)). If an interest
crediting rate adopted under the rules of section 1107 of PPA '06 is
not permitted under the final hybrid plan regulations, then these
final regulations permit a subsequent amendment to change the rate
to a rate permitted under the final hybrid plan regulations.
---------------------------------------------------------------------------
If a noncompliant rate involves one or more variable rates or a
variable rate together with a fixed rate, it is not
[[Page 70682]]
always readily apparent which specific feature or component rate causes
the rate to be noncompliant. In addition, if either the existing rate
or any of the potential corrections involves variable components, it is
impossible to determine with certainty at the time of amendment the
single amendment that in all cases that will result in the least
reduction to the participant's accrued benefit as of the participant's
annuity starting date. Thus, in response to a number of comments on the
2014 proposed regulations that more flexibility to amend noncompliant
features be provided, the final regulations in many cases permit a plan
sponsor to choose one of two or more alternative amendments in order to
bring a plan into compliance.
A number of commenters specifically requested that the rules in the
transition regulations permit any noncompliant bond-based rate to be
capped at the third segment rate. The Treasury Department and the IRS
agree that this is an appropriate approach. Accordingly, an additional
option has been added in each case involving bond-based rates so that
any noncompliant variable rate that is not an investment-based rate
(including the greater of two or more non-investment based variable
rates) may be capped at the third segment rate. If this approach is
used, the third segment rate cap would have to satisfy the rules that
apply to the use of the third segment rate as an interest crediting
rate. Thus, the cap could be any of the third segment rates that may be
used as an interest crediting rate and the cap would have to use a
permissible lookback month and stability period. Note, however, that if
any noncompliant composite rate is limited so that it does not exceed a
third segment rate cap, that limit would also apply with respect to any
annual fixed minimum rate that is part of the noncompliant composite
rate. Therefore, the annual interest crediting rate (taking into
account the cap) could be lower than the otherwise applicable fixed
minimum rate.\3\
---------------------------------------------------------------------------
\3\ This limitation on an otherwise applicable minimum rate may
have implications for plans that require an annual minimum rate in
order to satisfy the anti-backloading rules of section 411(b)(1).
---------------------------------------------------------------------------
A special rule has been added to the regulations to clarify that an
amendment to correct a noncompliant feature that provides for a greater
interest crediting rate than the specific amendment set forth in the
regulations also does not violate section 411(d)(6). Thus, for example,
in any case in which it is permissible to address a noncompliant rate
by capping the rate at the third segment rate, it would also be
permissible to address the noncompliant rate simply by switching to the
third segment rate. Similarly, an amendment to switch to the third
segment rate together with a permitted fixed minimum rate would be
permissible.
These final regulations also provide flexibility with respect to
noncompliant investment-based rates. In particular, if a plan credits
interest using a noncompliant investment-based rate and there is no
permitted investment-based rate with similar risk and return
characteristics as the plan's impermissible rate, then, as an
alternative to the specified corrective amendment that was in the
proposed regulations, an amendment to switch to the third segment rate
with a 4 percent fixed minimum rate is permitted. The regulations also
clarify the specified corrective amendment that was in the proposed
regulations by providing that it is permissible in such a case to
switch to a permitted investment-based rate that is otherwise similar
to the plan's impermissible investment-based rate but without the risk
and return characteristics of the impermissible rate that caused it to
be impermissible (generally requiring the use of a rate that is less
volatile than the plan's impermissible investment-based rate but is
otherwise similar to that rate).
The preamble to the 2014 final hybrid plan regulations contained a
discussion of statutory hybrid plans that permit participants to choose
from among a menu of hypothetical investment options. Because of the
significant concerns relating to the use of these plan designs, the
Treasury Department and the IRS continue to study the issues raised in
the preamble to the 2014 final hybrid plan regulations related to these
plans, and it is possible that the Treasury Department and the IRS will
conclude that such plan designs are not permitted. Nevertheless, the
Treasury Department and the IRS understand that some of these plans
contain one or more hypothetical investment options that provide for a
rate of return that is not permitted under the final hybrid plan
regulations. A special rule is included in these regulations in order
to address the noncompliance that results from the availability of at
least one hypothetical investment option that provides for an
impermissible rate of return. This special rule provides that the rules
of these final regulations may be applied separately to correct each
impermissible hypothetical investment option. Alternatively, with
respect to such a plan that permitted a participant to choose an
interest crediting rate from among a menu of hypothetical investment
options on September 18, 2014, pursuant to plan provisions that were
adopted on or before September 18, 2014, this special rule provides
that the entire menu of investment options may be treated as an
impermissible investment-based rate for which there is no permitted
investment-based rate with similar risk and return characteristics (so
that the rule of Sec. 1.411(b)(5)-1(e)(3)(vi)(C)(7) does not apply).
As a result, plans described in the preceding sentence may be amended
to eliminate a participant's ability to choose an interest crediting
rate from among a menu of hypothetical investment options in accordance
with Sec. 1.411(b)(5)-1(e)(3)(vi)(C)(9). The inclusion of this special
rule with respect to plan designs that permit participant direction of
interest crediting rates is merely intended to address the
noncompliance that results from the availability of a hypothetical
investment option that provides for an impermissible rate of return,
and should not be construed to create any inference as to the
permissibility of these plan designs in general.
The preamble to the 2014 proposed regulations specifically
requested comments as to an amendment to bring a plan into compliance
if the plan credits interest using a composite rate that is an
investment-based rate of return with an impermissible annual (or more
frequent) fixed or variable rate. Many commenters requested flexibility
to choose among options in such a case because there is no single
correction that is the best correction for all cases. The Treasury
Department and the IRS agree that, for this type of interest crediting
rate, no single correction method is the most appropriate method for
all cases. Therefore, the final regulations provide that it is
permissible either to eliminate the fixed minimum rate (or any variable
non-investment based rate) and eliminate any reduction to the
investment-based rate, or to switch to the third segment rate
(preserving any fixed minimum rate to the maximum extent permitted).
In response to comments inquiring about the treatment of plans that
provide for a cumulative floor (such as, for example, in order to
comply with section 411(d)(6) in connection with a prior amendment to
change the plan's interest crediting rate on accrued pay credits), the
regulations provide for a special rule that applies with respect to a
participant under a plan that takes into account a minimum rate of
return that applies less frequently than annually or that determines
the participant's benefit as of the annuity
[[Page 70683]]
starting date as the benefit provided by the greatest of two or more
account balances and that minimum rate or benefit based on two or more
account balances does not satisfy the market rate of return rules. If
this rule applies, the plan must be amended to provide that the benefit
for a participant is based solely on the benefit (and the associated
interest crediting rate with respect to that benefit) that is greatest
for that participant as of the applicable amendment date for the
amendment adopted pursuant to these regulations. In addition, the plan
must be further amended pursuant to the other rules in these
regulations if the remaining interest crediting rate does not satisfy
the market rate of return rules.
In response to comments as to the permissibility of rounding
interest crediting rates and the need for the regulations to provide
section 411(d)(6) relief for plans that use an impermissible rounding
rule, the regulations provide for a rounding rule and also provide for
section 411(d)(6) relief for transitional amendments to comply with
this rounding rule. Under the rounding rule, a plan is not treated as
failing to meet the requirement that a plan not credit interest at a
rate that exceeds a market rate of return merely because the plan
determines interest credits for an interest crediting period by
rounding the calculated interest rate or rate of return. Under this
rule, an annual rate may be rounded to the nearest multiple of 25 basis
points (or a smaller rounding interval). If a plan provides for the
crediting of interest more frequently than annually, then the rounding
interval must not exceed a pro-rata portion of 25 basis points.
Notwithstanding the preceding sentence, a plan is permitted to round to
the nearest basis point regardless of the length of the interest
crediting period.
Several commenters identified the need for section 411(d)(6) relief
for plans that provide for rules that apply upon plan termination that
do not comply with the plan termination rules in the final hybrid plan
regulations. In response to these comments, the regulations provide for
section 411(d)(6) relief for transitional amendments made to enable a
plan to comply with the plan termination rules in the final hybrid plan
regulations.
In response to the comment request included in the 2014 proposed
regulations with respect to all aspects of those proposed rules, the
Department of Treasury and the IRS received a number of comments with
respect to provisions of the 2014 final hybrid plan regulations instead
of the 2014 proposed regulations. These final regulations delay the
applicability date of certain provisions in the 2014 final hybrid plan
regulations (and provide for a special delayed applicability date for
collectively bargained plans), but do not otherwise address comments on
provisions of the 2014 final hybrid plan regulations.\4\
---------------------------------------------------------------------------
\4\ Proposed regulations (REG-132554-08) under sections
411(a)(13), 411(b)(1), and 411(b)(5) (2010 proposed hybrid plan
regulations) were published by the Treasury Department and the IRS
in the Federal Register on October 19, 2010 (75 FR 64197). The
Treasury Department and the IRS received written comments on the
2010 proposed hybrid plan regulations, and a public hearing was held
on January 26, 2011. The 2014 final hybrid plan regulations, which
finalized the 2010 proposed hybrid plan regulations, took into
account the comments received prior to publication of the 2014 final
hybrid plan regulations.
---------------------------------------------------------------------------
Effective/Applicability Dates
These regulations generally apply to plan amendments made on or
after September 18, 2014 (or an earlier date as elected by the
taxpayer), and they do not apply for amendments made on or after the
first day of the first plan year that begins on or after January 1,
2017. However, for collectively bargained plans, these regulations
continue to apply for amendments made before the first day of the first
plan year that begins on or after January 1, 2019, unless the last
collective bargaining agreement ratified on or before November 13, 2015
expires before January 1, 2019, in which case these regulations cease
to apply to amendments made on or after the first day of the first plan
year that begins on or after the later of the date on which the last
applicable collective bargaining agreement expires or January 1, 2017.
Special Analyses
Certain IRS regulations, including this one, are exempt from the
requirements of Executive Order 12866, as supplemented and reaffirmed
by Executive Order 13563. Therefore, a regulatory impact assessment is
not required. It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations, and because these regulations do not impose a
collection of information on small entities, the Regulatory Flexibility
Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of
the Code, the notice of proposed rulemaking preceding these regulations
was submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal authors of these regulations are Neil S. Sandhu and
Linda S.F. Marshall, Office of Associate Chief Counsel (Tax Exempt and
Government Entities). However, other personnel from the IRS and the
Treasury Department participated in the development of these
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Sec. 1.411(a)(13)-1 [Amended]
0
Par. 2. For each entry listed in the ``Location'' column, remove the
language in the ``Remove'' column and add the language in the ``Add''
column in its place.
------------------------------------------------------------------------
Location Remove Add
------------------------------------------------------------------------
Sec. 1.411(a)(13)- for plan years that for plan years
1(d)(3)(i), third sentence. begin on or after described in
January 1, 2016. paragraph
(e)(2)(ii)(A) or
(e)(2)(ii)(B) of
this section, as
applicable.
Sec. 1.411(a)(13)- for plan years that for plan years
1(d)(3)(i), fifth and sixth begin on or after described in
sentences. January 1, 2016. paragraph
(e)(2)(ii)(A) or
(e)(2)(ii)(B) of
this section (as
applicable).
Sec. 1.411(a)(13)- for plan years that for plan years
1(d)(4)(ii)(A), second begin on or after described in
sentence. January 1, 2016. paragraph
(e)(2)(ii)(A) or
(e)(2)(ii)(B) of
this section (as
applicable).
Sec. 1.411(a)(13)- For plan years that For plan years
1(d)(4)(ii)(C), second begin on or after described in
sentence. January 1, 2016. paragraph
(e)(2)(ii)(A) or
(e)(2)(ii)(B) of
this section (as
applicable).
------------------------------------------------------------------------
[[Page 70684]]
0
Par. 3. Section 1.411(a)(13)-1 is amended by revising paragraph
(e)(2)(ii) to read as follows:
Sec. 1.411(a)(13)-1 Statutory hybrid plans.
* * * * *
(e) * * *
(2) * * *
(ii) Special effective date--(A) In general. Except as otherwise
provided in this paragraph (e)(2)(ii), paragraphs (b)(2), (3), and (4)
of this section apply to plan years that begin on or after January 1,
2017.
(B) Collectively bargained plans. In the case of a plan maintained
pursuant to one or more collective bargaining agreements between
employee representatives and one or more employers ratified on or
before November 13, 2015, that constitutes a collectively bargained
plan under the rules of Sec. 1.436-1(a)(5)(ii)(B), paragraphs (b)(2),
(3), and (4) of this section apply to plan years that begin on or after
the later of--
(1) January 1, 2017; and
(2) The earlier of--
(i) January 1, 2019; and
(ii) The date on which the last of those collective bargaining
agreements terminates (determined without regard to any extension
thereof on or after November 13, 2015).
* * * * *
Sec. 1.411(b)(5)-1 [Amended]
0
Par. 4. For each entry listed in the ``Location'' column, remove the
language in the ``Remove'' column and add the language in the ``Add''
column in its place.
------------------------------------------------------------------------
Location Remove Add
------------------------------------------------------------------------
Sec. 1.411(b)(5)- For plan years that For plan years
1(b)(1)(ii)(F). begin on or after described in
January 1, 2016. paragraph
(f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of
this section (as
applicable).
Sec. 1.411(b)(5)- for plan years that for plan years
1(b)(1)(iii), third begin on or after described in
sentence. January 1, 2016. paragraph
(f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of
this section (as
applicable).
Sec. 1.411(b)(5)- for plan years that for plan years
1(b)(2)(i), third sentence. begin on or after described in
January 1, 2016. paragraph
(f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of
this section, as
applicable.
Sec. 1.411(b)(5)- the first plan year the first plan year
1(e)(2)(ii)(B)(1), second that begins on or described in
sentence. after January 1, paragraph
2016. (f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of
this section (as
applicable).
Sec. 1.411(b)(5)- For plan years that For plan years
1(e)(3)(ii)(D). begin on or after described in
January 1, 2016. paragraph
(f)(2)(i)(B)(1) or
(f)(2)(i)(B)(3) of
this section (as
applicable).
------------------------------------------------------------------------
0
Par. 5. Section 1.411(b)(5)-1 is amended by:
0
1. Adding a new sentence between the second and third sentences of
paragraph (d)(1)(iv)(A);
0
2. Adding paragraph (d)(1)(iv)(E);
0
3. Adding paragraphs (e)(3)(vi) and (vii); and
0
4. Revising paragraph (f)(2)(i)(B).
The additions and revisions read as follows:
Sec. 1.411(b)(5)-1 Reduction in rate of benefit accrual under a
defined benefit plan.
* * * * *
(d) * * *
(1) * * *
(iv) * * *
(A) * * * In addition, a plan is permitted to round the calculated
interest rate or rate of return in accordance with paragraph
(d)(1)(iv)(E) of this section.
* * * * *
(E) Rounding of interest crediting rate. A plan is not treated as
failing to meet the requirements of this paragraph (d) merely because
the plan determines interest credits for an interest crediting period
by rounding the calculated interest rate or rate of return in
accordance with this paragraph (d)(1)(iv)(E). An annual rate may be
rounded to the nearest multiple of 25 basis points (or a smaller
rounding interval). If a plan provides for the crediting of interest
more frequently than annually, then the rounding interval must not
exceed a pro-rata portion of 25 basis points. Notwithstanding the
preceding sentence, a plan is permitted to round to the nearest basis
point regardless of the length of the interest crediting period.
* * * * *
(e) * * *
(3) * * *
(vi) Transitional amendments needed to satisfy the market rate of
return rules--(A) In general. Notwithstanding the requirements of
section 411(d)(6), if the requirements set forth in this paragraph
(e)(3)(vi) are satisfied, a plan may be amended to change its interest
crediting rate with respect to benefits that have already accrued in
order to comply with the requirements of section 411(b)(5)(B)(i) and
paragraph (d) of this section. A plan amendment is eligible for the
treatment provided under this paragraph (e)(3)(vi)(A) to the extent
that the amendment modifies an interest crediting rate that does not
satisfy the requirements of section 411(b)(5)(B)(i) and paragraph (d)
of this section in the manner specified in paragraph (e)(3)(vi)(C) of
this section.
(B) Rules of application--(1) Multiple noncompliant features. If a
plan's interest crediting rate has more than one noncompliant feature
as described in paragraph (e)(3)(vi)(C) of this section, then each
noncompliant feature must be addressed separately in the manner
specified in paragraph (e)(3)(vi)(C) of this section.
(2) Definition of investment-based rate. The application of the
rules of paragraph (e)(3)(vi)(C) of this section to an interest
crediting rate depends on whether the interest crediting rate is an
investment-based rate. For purposes of this paragraph (e)(3)(vi), an
investment-based rate is a rate based on either a rate of return
provided by actual investments (taking into account the return
attributable to any change in the value of the underlying investments)
or a rate of return for an index that measures the change in the value
of investments. A rate is an investment-based rate even if it is based
only in part on a rate described in the preceding sentence.
(3) Timing rules for permitted amendments. The rules under this
paragraph (e)(3)(vi) apply only to a plan amendment that is adopted
prior to and effective no later than the first day of the first plan
year described in paragraph (f)(2)(i)(B)(1) or (f)(2)(i)(B)(3) of this
section, as applicable. In addition, the rules under this paragraph
(e)(3)(vi) apply to a plan amendment only with respect to interest
credits that are credited for interest crediting periods that begin on
or after the applicable amendment date (within the meaning of Sec.
1.411(d)-3(g)(4)).
(4) Amendments that provide for greater interest crediting rates.
If a plan is amended in accordance with paragraphs (e)(3)(vi)(C)(1)
through (10) of this section to switch from a noncompliant rate to a
compliant rate and is subsequently amended to switch to a second
compliant rate that can
[[Page 70685]]
never be less than the first compliant rate, then the second amendment
does not violate section 411(d)(6). If, instead, the plan is amended to
switch from the noncompliant rate to the second compliant rate in a
single amendment, that amendment also does not violate section
411(d)(6). For example, if it is permitted under paragraph
(e)(3)(vi)(C) of this section to first amend the plan to credit
interest using the lesser of the current rate and a rate described in
paragraph (d)(3) of this section, it is then permissible to amend the
plan to credit interest using that rate described in paragraph (d)(3)
of this section. In such a case, it is also permissible to amend the
plan to switch from the current rate to a rate described in paragraph
(d)(3) of this section in a single amendment.
(5) Cumulative floors, including floors resulting from a prior
change in rates with section 411(d)(6) protection. This paragraph
(e)(3)(vi)(B)(5) applies to a plan that takes into account a minimum
rate of return that applies less frequently than annually. This
paragraph (e)(3)(vi)(B)(5) also applies to a plan that determines the
participant's benefit as of the annuity starting date as the benefit
provided by the greatest of two or more account balances (for example,
in order to comply with section 411(d)(6) in connection with a prior
amendment to change the plan's interest crediting rate). In either
case, this paragraph (e)(3)(vi)(B)(5) applies with respect to a
participant only if the requirements of paragraph (d)(6) of this
section are not satisfied with respect to that participant. If this
paragraph (e)(3)(vi)(B)(5) applies with respect to a participant, the
plan must be amended to provide that the benefit for the participant is
based solely on the benefit (and the associated interest crediting rate
with respect to that benefit) that is greatest for that participant as
of the applicable amendment date for the amendment made pursuant to
this paragraph (e)(3)(vi). In addition, the plan must be further
amended pursuant to the other rules in this paragraph (e)(3)(vi) if the
remaining interest crediting rate does not satisfy the requirements of
paragraph (d) of this section.
(6) Plans that permit participant direction of interest crediting
rates. This paragraph (e)(3)(vi)(B)(6) applies in the case in which a
plan permits a participant to choose an interest crediting rate from
among a menu of hypothetical investment options and at least one of
those hypothetical investment options provides for an interest
crediting rate that is not permitted under paragraph (d) of this
section (so that the plan fails to satisfy the requirements of
paragraph (d) of this section). In such a case, the rules of this
paragraph (e)(3)(vi) may be applied separately to correct each
impermissible investment option. Alternatively, with respect to such a
plan that permitted a participant to choose an interest crediting rate
from among a menu of hypothetical investment options on September 18,
2014, pursuant to plan provisions that were adopted on or before
September 18, 2014, the entire menu of investment options may be
treated as an impermissible investment-based rate for which there is no
permitted investment-based rate with similar risk and return
characteristics (so that the rule of paragraph (e)(3)(vi)(C)(7) of this
section does not apply). As a result, plans described in the preceding
sentence may be amended to eliminate a participant's ability to choose
an interest crediting rate from among a menu of hypothetical investment
options in accordance with paragraph (e)(3)(vi)(C)(9) of this section.
(C) Noncompliant feature and amendment to bring plan into
compliance--(1) Timing or other rules related to determining interest
credits not satisfied. If a plan has an underlying interest rate that
generally satisfies the rules of paragraph (d) of this section but that
does not satisfy the rules relating to how interest credits are
determined and credited as set forth in paragraph (d)(1)(iv) of this
section, then the plan must be amended either--
(i) To correct the aspect of the plan's interest crediting rate
that fails to comply with the rules of paragraph (d)(1)(iv) of this
section with respect to its underlying interest crediting rate; or
(ii) If the plan's interest crediting rate is a variable rate that
is not an investment-based rate of return, to provide that the plan's
interest crediting rate is the lesser of that variable rate and a rate
described in paragraph (d)(3) of this section that satisfies the rules
of paragraph (d)(1)(iv) of this section.
(2) Fixed rate in excess of 6 percent. If a plan's interest
crediting rate is a fixed rate in excess of the rate described in
paragraph (d)(4)(v) of this section, then the plan must be amended to
reduce the interest crediting rate to an annual interest crediting rate
of 6 percent.
(3) Bond-based rate with margin exceeding maximum permitted margin.
If a plan's interest crediting rate is a noncompliant rate that
consists of an underlying rate described in paragraph (d)(3) or (d)(4)
of this section except that the plan applies a margin that exceeds the
maximum permitted margin under paragraph (d)(3) or (d)(4) of this
section to the underlying rate, then the plan must be amended either--
(i) To reduce the margin to the maximum permitted margin for the
underlying rate used by the plan; or
(ii) To provide that the plan's interest crediting rate is the
lesser of the plan's noncompliant rate and a rate described in
paragraph (d)(3) of this section (together with any fixed minimum rate
that was part of the noncompliant rate, reduced to the extent necessary
to comply with paragraph (d)(6)(ii) of this section).
(4) Bond-based rate with fixed minimum rate applied on an annual or
more frequent basis in excess of the highest permitted fixed minimum
rate. If a plan's interest crediting rate is a composite rate that
consists of a variable rate described in paragraph (d)(3) or (d)(4) of
this section in combination with a fixed minimum rate in excess of the
highest permitted fixed minimum rate under paragraph (d)(6)(ii)(A)(2)
or (B)(2) of this section (as applicable), then the plan must be
amended in one of the following manners:
(i) To reduce the fixed minimum rate to the highest permitted fixed
minimum rate that may be used in combination with the plan's variable
rate;
(ii) To credit interest using an annual interest crediting rate of
6 percent; or
(iii) To provide that the plan's interest crediting rate is the
lesser of the plan's noncompliant composite rate and a rate described
in paragraph (d)(3) of this section (together with a fixed minimum rate
of 4 percent).
(5) Greatest of two or more variable bond-based rates. If a plan's
interest crediting rate is a composite rate that is the greatest of two
or more variable rates described in paragraph (d)(3) or (d)(4) of this
section, then the plan must be amended to provide for an interest
crediting rate that is the lesser of the composite rate and a rate
described in paragraph (d)(3) of this section.
(6) Other impermissible bond-based rates. If, after application of
the rules of paragraphs (e)(3)(vi)(C)(1) through (5) of this section, a
plan's interest crediting rate is a variable rate that is not an
investment-based rate of return and is not described in paragraph
(d)(3) or (d)(4) of this section, then the plan must be amended
either--
(i) To provide for an interest crediting rate based on a variable
rate described in paragraph (d)(3) or (d)(4) of this section that has
similar duration and quality characteristics as the plan's variable
rate, if such a rate can be selected; or
(ii) To provide for an interest crediting rate that is the lesser
of the plan's
[[Page 70686]]
variable rate and a rate described in paragraph (d)(3) of this section.
(7) Impermissible investment-based rate that can be replaced with a
permissible rate that has similar risk and return characteristics. If a
plan's interest crediting rate is an investment-based rate of return
that is not described in paragraph (d)(5) of this section and a
permitted investment-based rate described in paragraph (d)(5)(ii)(A),
(d)(5)(ii)(B), or (d)(5)(iv) of this section that has similar risk and
return characteristics as the plan's impermissible investment-based
rate can be selected, then the plan must be amended to provide for an
interest crediting rate based on such a permitted investment-based
rate.
(8) Investment-based rate with an annual or more frequent minimum
rate that is either a fixed rate or a non-investment based variable
rate. If a plan's interest crediting rate is an investment-based rate
of return that would be described in paragraph (d)(5) of this section
except that the plan uses an annual or more frequent minimum rate that
is either a fixed rate or a non-investment based variable rate in
conjunction with the investment-based rate, then the plan must be
amended either--
(i) To credit interest using that investment-based rate of return
described in paragraph (d)(5) of this section without the minimum rate
and eliminating any reduction (or other adjustment) to the investment-
based rate; or
(ii) To provide that the plan's interest crediting rate is a rate
described in paragraph (d)(3) of this section (together with any fixed
minimum rate, reduced to the extent necessary to comply with paragraph
(d)(6)(ii) of this section).
(9) Other impermissible investment-based rates. If, after
application of the rules of paragraphs (e)(3)(vi)(C)(1), (7), and (8)
of this section, a plan's interest crediting rate is an investment-
based rate that is not described in paragraph (d)(5) of this section,
then the plan must be amended either--
(i) To provide for an interest crediting rate that is an
investment-based rate that is described in paragraph (d)(5) of this
section and that is otherwise similar to the plan's impermissible
investment-based rate but without the risk and return characteristics
of the impermissible investment-based rate that caused it to be
impermissible (generally requiring the use of a rate that is less
volatile than the plan's impermissible investment-based rate but is
otherwise similar to that rate); or
(ii) To provide that the plan's interest crediting rate is a rate
described in paragraph (d)(3) of this section with a fixed minimum rate
of 4 percent.
(D) Examples. The following examples illustrate the application of
the rules of this paragraph (e)(3)(vi). Each plan has a plan year that
is the calendar year, and all amendments are adopted on October 1,
2016, and become effective for interest crediting periods beginning on
or after January 1, 2017. Except as otherwise provided, the interest
crediting rate under the plan satisfies the timing and other rules
related to crediting interest under paragraph (d)(1)(iv) of this
section.
Example 1. (i) Facts. A plan determines interest credits for a
plan year using the average yield on 30-year Treasury Constant
Maturities for the last week of the preceding plan year (which is an
impermissible lookback period for this purpose pursuant to paragraph
(d)(1)(iv)(B) of this section because it is not a month).
(ii) Conclusion. Pursuant to paragraph (e)(3)(vi)(C)(1) of this
section, the plan must be amended in one of two manners. It may be
amended to determine interest credits for a plan year using the
average yield on 30-year Treasury Constant Maturities for a lookback
month that complies with the requirements of paragraph (d)(1)(iv)(B)
of this section. Alternatively, the plan may be amended to cap the
existing rate so that it cannot exceed a third segment rate
described in paragraph (d)(3) of this section for a period that
complies with the requirements of paragraph (d)(1)(iv)(B) of this
section.
Example 2. (i) Facts. A plan determines interest credits for a
plan year using the average yield on 30-year Treasury Constant
Maturities for the last week of the preceding plan year, plus 50
basis points.
(ii) Conclusion. Pursuant to paragraph (e)(3)(vi)(B)(1) of this
section, the plan must be amended to correct both the impermissible
lookback period and the excess margin. Accordingly, pursuant to
paragraph (e)(3)(vi)(C)(1) and (3) of this section, the plan may be
amended to determine interest credits for a plan year using the
average yield on 30-year Treasury Constant Maturities (with no
margin) for a period that complies with the requirements of
paragraph (d)(1)(iv)(B) of this section. Alternatively, the plan may
be amended to cap the existing rate so that it cannot exceed a third
segment rate described in paragraph (d)(3) of this section for a
period that complies with the requirements of paragraph
(d)(1)(iv)(B) of this section.
Example 3. (i) Facts. A plan credits interest for a plan year
using the rate of return on plan assets for the preceding plan year.
(ii) Conclusion. Pursuant to paragraph (e)(3)(vi)(C)(1) of this
section, the plan must be amended to determine interest credits for
each plan year using the rate of return on plan assets for that plan
year.
Example 4. (i) Facts. A plan credits interest using the average
yield on 30-year Treasury Constant Maturities for December of the
preceding plan year with a minimum rate of 5.5 percent per year.
(ii) Conclusion. Pursuant to paragraph (e)(3)(vi)(C)(4) of this
section, the plan must be amended to change the plan's interest
crediting rate. The new interest crediting rate under the plan may
be the average yield on 30-year Treasury Constant Maturities for
December of the preceding plan year with a minimum rate of 5 percent
per year. Alternatively, the new interest crediting rate under the
plan may be an annual interest crediting rate of 6 percent. As
another alternative, the existing noncompliant composite rate may be
capped so that it cannot exceed a third segment rate described in
paragraph (d)(3) of this section, with a minimum rate of 4 percent
as a floor on the entire resulting rate.
Example 5. (i) Facts. A plan credits interest using the greater
of the unadjusted yield on 30-year Treasury Constant Maturities and
the yield on 1-year Treasury Constant Maturities plus 100 basis
points.
(ii) Conclusion. Pursuant to paragraph (e)(3)(vi)(C)(5) of this
section, the plan must be amended to cap the existing composite
``greater-of'' rate so that the composite rate cannot exceed a third
segment rate described in paragraph (d)(3) of this section.
Example 6. (i) Facts. A plan credits interest using a broad-
based index that measures the yield to maturity on a group of
intermediate-term investment grade corporate bonds.
(ii) Conclusion. Pursuant to paragraph (e)(3)(vi)(C)(6) of this
section, the plan must be amended in one of two manners. The plan
may be amended to credit interest using a second segment rate
described in paragraph (d)(4)(iv) of this section. Alternatively,
the plan may be amended to cap the existing rate so that it cannot
exceed a third segment rate described in paragraph (d)(3) of this
section.
Example 7. (i) Facts. A plan credits interest using the rate of
return for a broad-based index that measures the yield to maturity
on a group of short-term non-investment grade corporate bonds.
(ii) Conclusion. Pursuant to paragraph (e)(3)(vi)(C)(6)(ii) of
this section, the plan must be amended to cap the existing rate so
that it cannot exceed a third segment rate described in paragraph
(d)(3) of this section.
Example 8. (i) Facts. A plan credits interest using the rate of
return for the S&P 500 index. To bring the plan into compliance with
the market rate of return rules, the plan sponsor amends the plan to
credit interest based on the rate of return on a RIC that is
designed to track the rate of return on the S&P 500 index.
(ii) Conclusion. The amendment satisfies the rule of paragraph
(e)(3)(vi)(C)(7) of this section.
Example 9. (i) Facts. A plan credits interest based on the rate
of return on a collective trust that holds a portfolio of equity
investments, which provides a rate of return that is reasonably
expected to be not significantly more volatile than the broad U.S.
equities market or a similarly broad international equities market.
To bring the plan into compliance with the market rate of return
rules, the plan sponsor amends the plan to credit interest based on
the actual rate of return on the assets within a specified subset of
the plan's assets that is invested in the collective trust and that
satisfies the requirements of paragraph (d)(5)(ii)(B) of this
section.
[[Page 70687]]
(ii) Conclusion. The amendment satisfies the rule of paragraph
(e)(3)(vi)(C)(7) of this section.
Example 10. (i) Facts. A plan credits interest for a plan year
using the rate of return on a RIC that has most of its investments
concentrated in the semiconductor industry.
(ii) Conclusion. Pursuant to paragraph (e)(3)(vi)(C)(9) of this
section, the plan must be amended in one of two manners. The plan
may be amended to provide for an interest crediting rate that is an
investment-based rate that is described in paragraph (d)(5) of this
section and that is similar to the plan's impermissible investment-
based rate except to the extent that the risk and return
characteristics of the impermissible investment-based rate caused it
to be impermissible. Thus, the plan may be amended to provide for an
interest crediting rate based on the rate of return on a RIC that is
invested in a broader sector of the market than the semiconductor
industry (such as the overall technology sector of the market),
provided that the sector in which the RIC is invested is broad
enough that the volatility requirements of paragraph (d)(5)(iv) of
this section are satisfied. Alternatively, the plan may be amended
to provide that the plan's interest crediting rate is a third
segment rate described in paragraph (d)(3) of this section with a
fixed minimum rate of 4 percent.
Example 11. (i) Facts. A plan was amended in 2014 to change its
interest crediting rate for all interest crediting periods after the
applicable amendment date of the amendment. The amendment changed
the rate from the yield on 30-year Treasury Constant Maturities to
the rate of return on aggregate plan assets under paragraph
(d)(5)(ii)(A) of this section. The amendment also provided for
section 411(d)(6) protection with respect to the account balance as
of the applicable amendment date (by providing that the account
balance after the applicable amendment date will never be smaller
than the account balance as of the applicable amendment date
credited with interest using the yield on 30-year Treasury Constant
Maturities).
(ii) Conclusions. (A) Participants benefiting under the plan.
With respect to those participants who were benefiting under the
plan as of the applicable amendment date of the amendment described
in paragraph (i) of this Example 11, the requirements of paragraph
(e)(3)(iii) of this section (which provides a special market rate of
return rule to permit certain changes in rates for participants
benefiting under the plan) are satisfied. Accordingly, no amendment
is required under this paragraph (e)(3)(vi) with respect to those
participants.
(B) Participants not benefiting under the plan. With respect to
those participants who were not benefiting under the plan as of the
applicable amendment date of the amendment described in paragraph
(i) of this Example 11, the requirements of paragraph (e)(3)(iii) of
this section are not satisfied and, accordingly, the ``greater-of''
rate resulting from the section 411(d)(6) protection does not
satisfy the requirements of paragraph (d)(6) of this section. As a
result, pursuant to paragraph (e)(3)(vi)(B)(5) of this section, it
must be determined on a participant-by-participant basis which
account balance provides the benefit that is greater as of the
applicable amendment date for the amendment made pursuant to this
paragraph (e)(3)(iv) (the transitional amendment). If, as of the
applicable amendment date for the transitional amendment, the
account balance credited with interest after the change in rates
using the yield on 30-year Treasury Constant Maturities is greater,
then the plan must be amended to provide that the participant's
benefit is based solely on that account balance credited with
interest using the yield on 30-year Treasury Constant Maturities. On
the other hand, if, as of the applicable amendment date for the
transitional amendment, the account balance using the rate of return
on aggregate plan assets is greater, then the plan must be amended
to provide that the participant's benefit is based solely on that
account balance credited with interest at the rate of return on
aggregate plan assets.
(vii) Plan termination amendments. A plan amendment with an
applicable amendment date on or before the first day of the first plan
year described in paragraph (f)(2)(i)(B)(1) or (3) of this section (as
applicable) is not treated as reducing accrued benefits in violation of
section 411(d)(6) merely because the amendment changes the rules that
apply upon plan termination in order to satisfy the requirements of
paragraph (e)(2) of this section.
* * * * *
(f) * * *
(2) * * *
(i) * * *
(B) Special effective date--(1) In general. Except as otherwise
provided in this paragraph (f)(2)(i)(B), paragraphs (d)(1)(iii),
(d)(1)(iv)(D) and (E), (d)(1)(vi), (d)(2)(ii) and (v), (d)(5)(ii)(B),
(d)(5)(iv), (d)(6), (e)(2), (e)(3)(iii), (iv) and (v), and (e)(4) of
this section apply to plan years that begin on or after January 1, 2017
(or an earlier date as elected by the taxpayer).
(2) Transitional amendments. Paragraphs (e)(3)(vi) and (vii) of
this section apply to plan amendments made on or after September 18,
2014 (or an earlier date as elected by the taxpayer).
(3) Collectively bargained plans. In the case of a plan maintained
pursuant to one or more collective bargaining agreements between
employee representatives and one or more employers ratified on or
before November 13, 2015, that constitutes a collectively bargained
plan under the rules of Sec. 1.436-1(a)(5)(ii)(B), the paragraphs
referenced in paragraph (f)(2)(i)(B)(1) of this section apply to plan
years that begin on or after the later of--
(i) January 1, 2017; and
(ii) The earlier of January 1, 2019; and the date on which the last
of those collective bargaining agreements terminates (determined
without regard to any extension thereof on or after November 13, 2015).
* * * * *
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: November 3, 2015.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2015-28915 Filed 11-13-15; 8:45 am]
BILLING CODE 4830-01-P