On June 13, 2003, OPM published interim regulations at Federal Register 68 FR 35265, to implement provisions of the Chief Human Capital Officers Act of 2002 (Title XIII of the Homeland Security Act). The Chief Human Capital Officers Act of 2002 (Act) provides Federal agencies with a number of human resources (HR) flexibilities. These flexibilities include direct-hire authority and alternative (that is, category) rating and selection procedures, which will aid in recruitment and hiring. The Act also provides Federal agencies with the authority to pay or reimburse employees for the costs of academic degree training. For additional background information on these flexibilities, please refer to the interim regulations.

During the comment period, OPM hosted four briefings to introduce the new flexibilities. We received written and oral comments from six Federal agencies, one employee union, a Federal program director, one private sector company, and numerous Federal employees and human resources professionals. Based on these comments, we have made several changes in the final regulations to adopt suggestions or to clarify intent. We have addressed these comments as they apply within each flexibility.

Additional information on direct-hire and category rating and selection procedures has been added to OPM's Delegated Examining Operations Handbook. Information on approved Governmentwide direct-hire authorities can be obtained by visiting OPM's Web site at http://www.opm.gov and accessing the document entitled “Primary Appointing Authorities for Career and Career Conditional Employees” from the Web site index. We have also posted fact sheets on our Web site that address many of the questions received on these new flexibilities. To access these fact sheets, refer to the individual flexibility in the Web site index.

Section 3304(c) of title 5, United States Code, provides agencies with the authority to appoint candidates directly to jobs for which OPM determines that there is a severe shortage of candidates or a critical hiring need.

We asked agencies to comment on whether OPM should combine the requirements and justification for direct-hire authorities in a single section of the regulations, or whether we should continue to publish them in separate sections. Three of the four agencies responding to our request recommended we retain this information in separate sections. Therefore, this information will remain in separate sections in the final regulation.

The final regulation provides that OPM may independently decide that a severe shortage of candidates or a critical hiring need exists, either Governmentwide or in specified agencies, for one or more specific occupational series, grades (or equivalent), or geographic locations. Alternatively, an agency may, in a written request to OPM, identify the position(s) for which it believes a severe shortage or a critical hiring need exists. The agency must support its request with relevant evidence, as described below. Agencies that use this direct-hire authority must adhere to public notice requirements, as set forth in 5 U.S.C. 3327 and 3330, and 5 CFR part 330, subpart G.

Two agencies suggested that the authority to approve the use of direct-hire authority be delegated to agencies, and if not delegated, that the regulation require requests be submitted from the agency headquarters level. Based on our experience to date, there are widely varying interpretations of the appropriate use of direct-hire authority. OPM will, therefore, retain approval authority. However, for consistent application within individual agencies, requests for direct-hire authority should be submitted by the agency headquarters level. We have added this requirement to the regulation.

One agency suggested we include, in the definition portion of the regulation, the same language explaining when a “critical need” exists that was published in the interim regulation supplementary information. In addition, it was suggested that we substitute “difficult to identify” for “unable to identify” in the definition of “severe shortage of candidates” to more realistically describe a severe shortage situation. We have added these language changes in the regulation for clarity.

We received several agency comments and questions about the ability to use a direct-hire authority if a delegated examining unit (DEU) is not present. Although an agency using direct-hire authority must have a delegated examining authority, the agency is not required to have a DEU in place. We have clarified this in the regulation.

One agency commented that the required justification for a direct-hire authority based on a critical hiring need is excessive and burdensome. The agency recommended the regulation provide for agencies to use direct-hire based on a critical hiring need to prevent a staffing crisis rather than to address an existing one. This comment is outside the scope of the provisions of the Act and the regulation. The legislative language provides for direct-hire authority, outside the merit system, when a critical hiring need exists. We want to emphasize, however, that the regulation provides a number of criteria that can be used to evidence a critical hiring need, as they apply to a specific situation. These criteria, not necessarily all-inclusive, present examples of the type of information that will support reasonable evidence that the agency is experiencing a critical situation.

A union objected to the use of direct-hire authority for a severe shortage of candidates unless a special salary rate had been established for the position. Special salary rates are one of the many flexibilities agencies have to address their recruitment difficulties. Establishing a special salary rate is not a prerequisite for obtaining approval for a direct-hire authority. Special salary rates were included in the regulation as an example of a flexibility an agency may use to support its justification for a severe shortage of candidates. We have added language to clarify our intention.

The same union also noted that the regulation requires agencies to submit supporting evidence when requesting direct-hire authority based on a severe shortage of candidates or a critical hiring need, but does not require the same evidence from OPM when deciding on its own that a need exists. In addition, the union commented that similar evidence from OPM to support the need for an extension of existing direct-hire authority should be required. We agree that these additions should be included in the regulation and have added clarifying language.

The union also commented that the “periodic” review of existing direct-hire authorities should adhere to a specific schedule and that the content of reviews and the requirement for publication should be identified. We have determined it to be impractical to regulate a schedule for reviewing direct-hire authorities. However, we will ensure that these reviews will take place often and will focus on continued adherence to regulatory intent. We have not adopted this suggestion.

OPM has eliminated 5 CFR part 333, Recruitment and Selection for Temporary and Term Appointments Outside the Register, based on its conclusion that this hiring authority is now obsolete.

One Federal agency submitted comments opposing the elimination of the outside-the-register procedures. The comments did not adequately explain why using other merit-based hiring authorities does not enable the agency to meet its hiring needs. Nor did the agency provide any compelling independent reason for retaining outside-the-register procedures. The comments have not been adopted and the outside-the-register procedures are eliminated.

Based on the elimination of the outside-the-register procedure, OPM has also eliminated the Temporary Appointments Pending the Establishment of a Register (TAPER) regulation.

One Federal agency submitted comments opposing the elimination of the TAPER regulation. The comments did not adequately explain why the agency cannot use other merit-based hiring authorities to meet its hiring needs. Nor did the agency provide any compelling independent reason for retaining the ability to make TAPER appointments. As described in the interim regulation's supplemental information, this regulation has been shown to have outlived its usefulness, and other appropriate appointing authorities are available for use in its place. The comments have not been adopted and the TAPER regulation is eliminated.

Eliminating the TAPER regulation will not adversely affect employees currently serving under TAPER appointments. These individuals will continue under these appointments until they have completed the 3 years of service that entitles them, under 5 U.S.C. 3304a, to be converted to career appointments.

Agencies have authority under 5 U.S.C. 3319 to develop a category-based rating method as an alternative way of assessing job applicants for positions filled through the competitive examining process. Traditionally, applicants for Federal jobs are assigned numerical scores, including veterans' preference points, if appropriate, and are considered for selection based on the “rule of three” (5 U.S.C. 3318(a)). The category rating method prescribed by the Act does not add veterans' preference points or apply the “rule of three” but protects the rights of veterans by placing them ahead of non-preference eligibles within each category. Preference eligibles who meet minimum qualification requirements and who have a compensable service-connected disability of at least 10 percent must be listed in the highest quality category, except when the position being filled is scientific or professional at the GS-9 grade level or higher. When using category rating, agencies must follow veterans' preference procedures as specified in 5 U.S.C. 3319(b) and (c)(2). Consistent with this requirement and with 5 U.S.C. 2302(e)(1)(G), OPM intends to promulgate a regulation in the near future designating section 3319(b) and (c)(2) as a “veterans' preference requirement” for purposes of the prohibited personnel practice described in 5 U.S.C. 2302(b)(11). Please refer to the interim regulations' supplementary information in Federal Register dated June 13, 2003, 68 FR 35265 for a full discussion of the category rating method.

Based on the complexity of the comments on category rating, we have organized them into topic areas for clarity and for ease of reference.

One agency requested that the regulations specify that category rating may be used for term and temporary appointments. Category rating is a method for evaluating applicants under a competitive examining system. It is not a separate appointing authority. Category rating may be used to fill any competitive service position, including a position filled through a term or temporary appointment. This is reflected in sections 316.302 and 316.402 of the regulation.

One agency requested clarification on the proper placement of the word “competencies” in relation to the words “knowledge, skills, or abilities” cited in § 337.302(b). We have modified that section to clarify our meaning. This agency also suggested we change the wording in § 337.303(b) to read “based on job analysis” instead of “through job analysis.” We did not adopt this suggestion because the chosen phrase is consistent with the language in other guides issued by OPM.

Three agencies and several Federal employees suggested clarification of what is required in the vacancy announcement when using category rating.

The current vacancy announcement requirements of 5 CFR part 330 and Executive Order 13078, requiring the agency to state how applicants will be rated, have not changed. However, agencies have a choice in their basis of rating. Agencies must decide on rating and selection procedures in advance of posting a vacancy announcement. Once a procedure is chosen, it must be described in the vacancy announcement.

Traditionally, agencies described rating procedures in general terms under the “Basis of Rating” heading in the vacancy announcement. Under category rating procedures, agencies will continue to use the “Basis of Rating” as a means of communicating rating procedures to applicants. Agencies can simply state whether the rating is based on numerical rating procedures or category rating procedures and how veterans' preference will be applied.

Also, agencies were concerned that the statement “Describe each quality category in the job announcement * * *” is ambiguous and could be read as tantamount to a requirement to publish the crediting plan and benchmarks in the vacancy announcement. No such requirement applies.

When describing each quality category, agencies may continue to use the “Qualification Requirement” heading to describe each quality category. This description could vary from naming the quality categories to describing the competencies or the knowledge, skills, and abilities required for each quality category. OPM does not expect agencies to disclose crediting plans and/or rating schedules with scoring keys to the general public because doing so would jeopardize the integrity and validity of the assessment. These issues are addressed in OPM's Delegated Examining Operations Handbook (DEOH). No changes in the regulation are necessary to respond to this comment.

Two agencies requested that OPM clarify how to use category rating procedures to rank preference eligibles with a service-connected disability of 10 percent or more.

Under the traditional numerical rating and ranking procedures, 5 U.S.C. 3313 instructs agencies to place preference eligibles, who meet the minimum qualification requirements, at the top of the list of eligibles, regardless of their numerical scores, for all positions except scientific and professional positions at the GS-09 (and equivalent) grade level or higher. When filling scientific and professional positions at the GS-09 (and equivalent) grade level or higher, these preference eligibles are ranked according to their numerical scores, including points added under 5 U.S.C. 3309.

Under category rating, the same concept applies. The Act instructs agencies to place preference eligibles, who meet the minimum qualification requirements, in the highest quality category when filling all positions except scientific and professional positions at the GS-09 (and equivalent) grade level or higher. These preference eligibles are placed above the non-preference eligibles. When filling scientific and professional positions at the GS-09 (and equivalent) grade level or higher, these preference eligibles are placed above the non-preference eligibles within the quality category in which they were assessed.

Within a quality category, agencies may list preference eligibles above non-preference eligibles in any order (such as type of preference, alphabetical order, Social Security number, etc.). An example of how to rank preference eligibles with a service-connected disability of 10 percent or more is in Chapter 6 of the DEOH.

Several agencies and Federal employees suggested that OPM explain how to remove preference eligibles from the list after three considerations under category rating.

Currently, 5 U.S.C. 3317(b) allows an appointing official to remove a preference eligible from further consideration after considering and passing over the preference eligible three times. This same rule applies under category rating. A preference eligible within a quality category must receive three bona fide considerations before he or she may be eliminated from further consideration. We intend to address the possibility of adding information about how this rule applies to preference eligibles and whether it applies to non-preference eligibles in an upcoming amendment to this regulation, which will be published with a request for comments.

One agency suggested that OPM include the category rating reporting requirements in the regulation. For convenience and clarity, we added the reporting requirements in § 337.306 of the final regulation. These reporting requirements are also located in Chapter 5 of the DEOH. One agency noticed that the reporting requirements did not include all minority groups in the annual report to Congress. The Act requires that agencies submit information on the impact category rating has on hiring veterans and particular minorities. Because the Act does not include all minority groups in the list of minorities, we may not require agencies to add to the specific groups included in the Act. An agency may do so on its own.

Several Federal employees asked for specific information on where agencies should send their annual reports on category rating. We have added this information at § 337.305 of the final regulation and to the DEOH.

One agency suggested, for reporting consistency, that OPM develop a standard reporting form for use by all agencies. We do not plan to develop a reporting form at this time. Each agency is responsible for developing its own reporting format.

One agency suggested that OPM develop a training module on category rating for its managers. We did not adopt this suggestion because it is outside the scope of the regulation.

Four agencies and several Federal employees suggested that OPM explain the merging of quality categories. The Act allows agencies to merge the highest quality category with the next lower quality category, if the highest quality category has fewer than three candidates. Merging quality categories is optional. When merging quality categories, preference eligibles from the next lower quality category are placed above the non-preference eligibles in the newly merged quality category.

Additional information on merging quality categories is described in the DEOH.

Three agencies requested clarification on using examinations that produce numerical scores ( e.g., Luevano Consent Decree examination or rating schedule) with category rating. We did not include this information in the final regulation, but will publish guidance on this issue that will be posted on OPM's Web site at http://www.opm.gov.

One professional organization commented that in order to promote accountability, an agency that decides to use category rating should first be required to publicize the data upon which it relied in reaching its decision.

Agencies with delegated examining authority are required to establish an accountability system in compliance with all examining laws and regulations, including category rating. Additionally, OPM has oversight responsibility to ensure that each agency complies with competitive examining laws and regulations. OPM plans to add the alternative ranking and selection procedures to its evaluation agenda to ensure that agencies are complying with the category rating regulations. Because periodic oversight is a sufficient mechanism for accountability, we chose not to adopt the recommendations that agencies should be required to publish their data.

An agency asked whether category rating may be used for rating and ranking candidates for wage grade positions. Neither the Act nor these regulations bar the use of category rating for wage grade positions.

A Federal employee suggested that agencies should be able to use category rating to fill excepted service positions. We have not adopted this suggestion. The Act authorizes agencies with delegated examining authority under 5 U.S.C. 1104(a)(2) to develop a category rating system for jobs filled through competitive examining. This authority cannot be extended to the excepted service. However, 5 CFR part 302 gives agencies the flexibility to develop procedures similar to category rating to fill excepted service positions.

Section 1331(a) of the Act amended the provisions of 5 U.S.C. 4107 by expanding the agency's authority to pay or reimburse employees for the cost of academic degree training when such training contributes significantly to meeting an identified agency training need, resolving an identified agency staffing problem, or accomplishing goals in the agency's human capital management strategic plan.

One agency suggested the reference to 5 CFR 335.103(c)(1)(iii), which requires competition for certain training opportunities that lead to promotion, be added to the requirement for selecting employees for academic degree programs. We agree and have added the reference 5 CFR 335.103(c)(1)(iii) to § 410.308(c). The same agency questioned whether Career Transition Assistance Plan (CTAP) requirements should be followed concerning details for training assignments that may become permanent. The scenario presented by the agency concerning CTAP and detail assignments is outside the scope of the regulation.

A union suggested that OPM redraft the regulation to reincorporate constraints on the use of academic degrees as previously written in 5 CFR 410.308 to guard against the abusive spending of funds for closely related purposes. The wording in the interim regulation does not remove protection against abusive use of funds. Agencies continue to be required to establish written training policies and procedures to support and document the use of this expanded authority in accordance with the criteria in law. Agencies are also required to maintain records on the use and efficacy of their academic degree training programs. However, we have rephrased § 410.308(c) to address specific criteria concerning the use of this authority.

Two agencies commented that sections 410.309 and 410.310 need clarification in light of the expanded authority to pay for academic degrees. They indicated that if the authority is to be a useful tool for retention, it should not require an agency paying for a four-year degree to commit the beneficiary to a 12-year service obligation. Although these sections do not specifically address the expanded academic degree authority, they are integral to the implementation of this authority. Therefore, we have considered the comments and concur that sections 410.309 and 410.310 should be clarified to explain agencies' flexibilities when using this academic degree training authority. We have added a definition to § 410.101 and a new paragraph (d) to § 410.310 to provide an additional method to compute time in training. These changes allow agencies more flexibility in establishing effective continued service requirements following training. Additional information and an example on how to apply section 410.310(d) can be found on the OPM Web site at http://www.opm.gov/hrd/lead/pubs/handbook/opmintro.asp.

One agency and one union commented on the need for clarification of overseas limited appointing authority. We have revised § 301.201 to clarify its meaning.

Two Federal agencies commented that restating referenced sections of title 5, U.S.C., instead of referencing them, would make the regulations clearer and easier to apply. We have adopted this suggestion throughout the regulation.

This final rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866.

I certify that these regulations will not have a significant economic impact on a substantial number of small entities (including small businesses, small organizational units, and small governmental jurisdictions) because they only apply to Federal agencies and employees.

OPM published interim voluntary early retirement authority regulations on June 13, 2003 ( Federal Register , volume 68, number 114, fr13jn03-2). As a result, agencies may now receive OPM approval to use voluntary early retirement authority to reshape their workforces for reasons other than downsizing. The alternative to reshaping the workforce through voluntary measures such as early retirement is generally a reduction in force—a tool that can be disruptive and costly, both to employees and agencies. Agencies with a need for downsizing or reshaping their workforces can benefit from the ability to use the voluntary early retirement authority flexibilities that the final version of these regulations will provide.

Section 1313(b) of the “Homeland Security Act of 2002” (Public Law 107-296, 116 Stat. 2135) provides agencies the option to offer voluntary early retirement when restructuring as well as downsizing. Previously, voluntary early retirement was only available to agencies when they needed to downsize. To obtain voluntary early retirement authority, unless an agency has a separate statutory authority, it must request approval from OPM. The request must provide the information required by section 1313(b) of Public Law 107-296. OPM will review the agency's request, and, if it meets requirements, issue voluntary early retirement authority. The agency must have OPM approval before using voluntary early retirement authority.

The voluntary early retirement provisions are the same under the Civil Service Retirement System (CSRS) and the Federal Employees' Retirement System (FERS). Section 831.114 of title 5, Code of Federal Regulations, is revised to implement the voluntary early retirement provisions under CSRS that were amended by section 1313(b)(1) of Public Law 107-296 and codified in 5 U.S.C. 8336(d)(2). Section 842.213 of title 5, Code of Federal Regulations, is revised to implement the voluntary early retirement provisions under FERS that were amended by section 1313(b)(2) of Public Law 107-296 and codified in 5 U.S.C. 8414(b)(1). The regulations explain which employees are potentially eligible for voluntary early retirement, how an agency requests voluntary early retirement authority from OPM, and how the agency manages the voluntary early retirement authority after approval.

An agency's human capital plan and/or voluntary separation incentive payment implementation plan may be used to satisfy the requirements for requesting a voluntary early retirement authority if it contains the information required in the voluntary early retirement authority regulations.

The revised sections 831.114 and 842.213 expand the definition of “specific designee” and describe how agencies are to inform employees returning from military leave about the voluntary early retirement offers they may have missed while they were away. The definition of “specific designee” in the interim regulations provided only two examples. It was felt that agency officials might believe that only individuals in one of the two types of positions described in those examples could serve as specific designees. The definition is expanded in the final rule to reduce the possibility of such an error.

During the comment period described in the interim regulations, we received only one comment. It came from a labor organization concerned with the manner in which agencies may limit voluntary early retirement offers. Because the comment conflicted with existing law, and was outside the scope of these regulations, OPM is not adopting the suggestion made by the labor organization in its comments.

After the comment period, two agencies raised questions about employees on military leave who would have, but for their current military service, received voluntary early retirement offers. Section 4311 of title 38, United States Code, requires that agencies treat employees on military duty as though they were still on the job. Further, it specifies that employees are not to be disadvantaged because of their military service. Because of these requirements, we have included a paragraph in sections 831.114 and 842.213 describing voluntary early retirement provisions for employees on military leave.

For the convenience of the reader, we have restated criteria contained in the 5 U.S.C. 8336(d)(2) and 5 U.S.C. 8414(b)(1)(B), in sections 831.114(k)(2) and 842.213(k)(2), respectively. We have removed sections 831.114(h) and 842.213(h) from the interim regulation, and renumbered the final regulation accordingly, because these provisions are contained in the newly added statutory language.

I certify that this regulation will not have a significant economic impact on a substantial number of small entities because it affects only certain Federal employees.

This rule has been reviewed by the Office of Management and Budget in accordance with Executive Order 12866.

On December 4, 2003, the President signed into law the FACT Act, which amends the FCRA. Pub. L. 108-159, 117 Stat. 1952. In general, the FACT Act enhances the ability of consumers to combat identity theft, increases the accuracy of consumer reports, and allows consumers to exercise greater control regarding the type and amount of marketing solicitations they receive. The FACT Act also restricts the use and disclosure of sensitive medical information. To bolster efforts to improve financial literacy among consumers, the FACT Act creates a new Financial Literacy and Education Commission empowered to take appropriate actions to improve the financial literacy and education programs, grants, and materials of the Federal government. Lastly, the FACT Act establishes uniform national standards in key areas of regulation regarding consumer report information.

Section 217 of the FACT Act requires that if any financial institution (1) extends credit and regularly and in the ordinary course of business furnishes information to a nationwide consumer reporting agency, and (2) furnishes negative information to such an agency regarding credit extended to a customer, the institution must provide a clear and conspicuous notice about furnishing negative information, in writing, to the customer. Section 217 defines the term “negative information” to mean information concerning a customer's delinquencies, late payments, insolvency, or any form of default. The term “credit” is defined under the FACT Act to have the same meaning as in section 702 of the Equal Credit Opportunity Act, which defines “credit” to mean “the right granted by a creditor to a debtor to defer payment of debt or to incur debt and defer its payment or to purchase property or services and defer payment therefor.” 15 U.S.C. 1691a. The provisions in Section 217 will become effective December 1, 2004. 69 FR 6526, (February 11, 2004).

Section 217 specifies that an institution must provide the required notice to the customer prior to, or no later than 30 days after, furnishing the negative information to a nationwide consumer reporting agency. After providing the notice, the institution may submit additional negative information to a nationwide consumer reporting agency with respect to the same transaction, extension of credit, account, or customer without providing additional notice to the customer. If a financial institution has provided a customer with a notice prior to the furnishing of negative information, the institution is not required to furnish negative information about the customer to a nationwide consumer reporting agency. A financial institution generally may provide the notice about furnishing negative information on or with any notice of default, any billing statement, or any other materials provided to the customer, so long as the notice is clear and conspicuous. Section 217 specifically provides, however, that the notice may not be included in the initial disclosures provided under section 127(a) of the Truth in Lending Act (15 U.S.C. 1637(a)).

Section 217 also provides a safe harbor for institutions concerning their efforts to comply with the notice requirement. Section 217 provides that a financial institution shall not be liable for failure to perform the duties required by this section if, at the time of the failure, the institution maintained reasonable policies and procedures to comply with the section or the institution reasonably believed that the institution was prohibited by law from contacting the customer.

Under section 217, the term “financial institution” is defined broadly to have the same meaning as in section 509 of the Gramm-Leach-Bliley Act (GLB Act), which generally defines financial institution to mean “any institution the business of which is engaging in financial activities as described in section 4(k) of the Bank Holding Company Act of 1956,” whether or not affiliated with a bank. 15 U.S.C. 6809(3). Thus, the term “financial institution” includes not only institutions regulated by the Board and other federal banking agencies, but also includes other financial entities, such as merchant creditors and debt collectors that extend credit and report negative information. 16 CFR 313.3(k), 65 FR 33646, 33655 (May 24, 2000).

Section 217 requires the Board to publish, after notice and comment, a concise model notice not to exceed 30 words in length that financial institutions may, but are not required to, use to comply with the notice requirement. Under section 217, a financial institution shall be deemed to be in compliance with the notice requirement if the institution uses the Board's model notice, or uses the model notice and rearranges its format.

In April 2004, the Board issued the following proposed model notice: “We [may provide]/[have provided] information to credit bureaus about an insolvency, delinquency, late payment, or default on your account to include in your credit report.” 69 FR 19123 (April 12, 2004). The Board received approximately 50 comment letters in response to the proposal. Around 40 letters were submitted by financial institutions and their representatives. One letter was received from consumer representatives, two letters from government entities, and six letters from individuals.

Most commenters suggested that the Board revise the model notice language to enhance the readability and clarity of the disclosure for consumers. In light of these comments and its own analysis, the Board has revised the language of the model notice to make the disclosure more understandable to consumers. As discussed in more detail below, the final rule provides two model notices—one that may be used by a financial institution if the institution provides the notice in advance of providing negative information to a consumer reporting agency, and one that can be used if an institution provides the notice after providing negative information to a consumer reporting agency. The Board found it more useful to craft a precise, focused notice for each situation, rather than providing one model notice for use in both situations.

Several commenters also requested additional guidance from the Board on use of the model notices. Several commenters asked the Board to incorporate into the regulation the safe harbor for use of the model notice that is contained in section 217. The safe harbor in section 217 essentially provides that a financial institution shall be deemed to be in compliance with the notice requirement relating to furnishing negative information if the institution uses the model notice issued by the Board, or uses such model notice and rearranges its format. Several commenters also requested guidance on how financial institutions may rearrange the format of the model notice without losing the safe harbor from liability provided by the model notice. The Board has incorporated the safe harbor into the text of the regulation, and has provided additional guidance on use of the model notices.

Many commenters also asked the Board to provide guidance on a number of substantive issues raised by section 217 that are not related to the contents of the model notice. For example, several commenters asked the Board to clarify issues relating to existing customers, such as whether the notice should be given to existing customers, or whether a substantially similar notice previously given to existing customers is sufficient to satisfy the notice requirement. In addition, some commenters asked the Board to clarify the timing of the notice. Consumer groups asked the Board to make clear that the notice may only be sent to consumers about whom there is negative information that the financial institution either intends to send to credit bureaus or has sent to credit bureaus. On the other hand, several industry commenters wanted clarification that the notice may be delivered at any time prior to the furnishing of negative information, and may be included on credit applications, loan closing documents, or with periodic notices (such as a privacy notice).

The final rule does not address substantive issues raised by commenters that are not related to the contents of the model notice. Such issues are beyond the scope of this rulemaking. Under section 217, the Board was given authority to issue model notices, and certain guidance relating to the model notices, but was not given the authority to issue general regulations implementing section 217. Section 621(e) of the FCRA provides the banking agencies (the Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Office of Thrift Supervision) with the authority to prescribe joint regulations necessary to carry out the purposes of the FCRA, including section 217 which amends the FCRA. 15 U.S.C. 1681s(e). The Board will share with the other banking agencies the comments the Board received on substantive issues not related to the contents of the model notice.

The Board proposed paragraph 222.1(b)(2) to clarify the scope of the Board's Regulation V, which implements the FCRA. Generally, the Board's Regulation V covers the institutions under the Board's jurisdiction. 15 U.S.C. 1681s(e). Nonetheless, the Board proposed paragraph (b)(2) to specify that the Board's model notice in Appendix B relating to furnishing of negative information may be used by all financial institutions (as that term is defined in section 509 of the GLB Act) to comply with the notice requirement contained in section 217 of the FACT Act. The Board received no comments on the proposed paragraph 222.1(b)(2). The Board is adopting this provision with several technical revisions. The Board has revised paragraph (b)(2)(i) to reflect more accurately the institution's under the Board's jurisdiction. In addition, the Board has revised paragraph (b)(2)(ii) to pluralize the reference to model notices.

The Board proposed the following model notice that financial institutions may use to comply with the notice requirement under section 217 of the FACT Act: “We [may provide]/[have provided] information to credit bureaus about an insolvency, delinquency, late payment, or default on your account to include in your credit report.” 69 FR 19123 (April 12, 2004).

Most commenters suggested that the Board revise the model notice language to enhance the readability and clarity of the disclosure for consumers. Many commenters provided suggested language on how the model notice should be revised to achieve this goal. In light of these comments and its own analysis, the Board has revised the language of the model notice to make the disclosure more useful and more understandable to consumers.

Appendix B provides two model notices. Model Notice B-1 may be used by financial institutions that give the notice prior to furnishing negative information to a consumer reporting agency. This model notice reads: “We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.” This model notice has a Flesch readability score of 52.1, and a Flesch-Kincaid grade level score of 9.3. (The proposed model notice has a Flesch readability score of 27.5, and a Flesch-Kincaid grade level score of 12.0.) Model Notice B-2 may be used by financial institutions that give the notice after furnishing negative information to a consumer reporting agency. This model notice reads: “We have told a credit bureau about a late payment, missed payment or other default on your account. This information may be reflected in your credit report.” This model notice has a Flesch readability score of 58.3, and a Flesch-Kincaid grade level score of 8.4.

In commenting on the proposed model notice, both consumer groups and industry commenters believed that the terms “delinquency” and “insolvency” are not readily understandable to consumers. In addition, several industry commenters noted that they were not aware that financial institutions furnished information about “insolvency” of a customer to credit bureaus. Several industry commenters suggested that the model notice should simply use the terms “late payment” and “default” because they believed those terms are understandable to consumers, and would be sufficient to convey to the customer the types of negative information that the furnisher may provide. Consumer groups suggested including the language “late payments, missed payments, or partial payments, other default or bankruptcy” as specific examples of the negative information furnished by financial institutions. Model Notices B-1 and B-2 use the terms “late payment(s),” “missed payment(s),” and “other default(s).” The Board believes that these terms are understandable to consumers, and adequately convey to customers the types of negative information that furnishers may provide to consumer reporting agencies.

Several industry commenters also believed that the proposed language may imply to customers that a financial institution only provides information about an “insolvency, delinquency, late payment, or default” to a consumer reporting agency. These commenters pointed out that many financial institutions report more than these four types of information to consumer reporting agencies; many institutions furnish both positive and negative information on accounts. These commenters suggested that the Board adopt model notice language that more accurately reflects the nature of a financial institution's likely behavior with respect to furnishing information to consumer reporting agencies. As revised, the Board believes that the language of Model Notice B-1 no longer suggests that a financial institution only provides information about “insolvency, delinquency, late payment, or default” to a consumer reporting agency.

Several industry commenters suggested that the Board delete the last clause—“to include in your credit report”—from the proposed model notice because the furnisher of negative information is not responsible for deciding whether such information is, in fact, included in the relevant credit reports. The Board has revised the language of Model Notices B-1 and B-2 so the model notices no longer imply that negative information will be included in the credit report. Nonetheless, these model notices still include a reference to a customer's credit report—indicating that negative information may be reflected in the customer's credit report. The Board believes that it is important to alert customers to the possible consequences of negative information being furnished to credit bureaus.

Several industry commenters asked the Board to provide multiple model notices that would give financial institutions options from which to choose when providing the required disclosures to customers. The Board believes that the two model notices given in Appendix B are sufficient. The Board notes that financial institutions may, but are not required to, use the model notices issued by the Board to meet the notice requirement contained in section 217.

Consumer groups requested that the Board require financial institutions to take certain steps to the make the disclosure readily noticeable. These groups suggested that the Board require the disclosure to be on the front page of the notice or billing statement, and require it to be in bold face type and in larger print than the information that accompanies it. The Board notes that section 217 requires financial institutions to provide the notice of furnishing negative information in a clear and conspicuous manner. The Board does not believe it is necessary to place additional format requirements on financial institutions that decide to use the model notices to meet the notice requirements.

Several commenters requested additional guidance from the Board on use of the model notices. Several commenters asked the Board to incorporate into the regulation the safe harbor relating to use of the model notice contained in the statute. In particular, section 217 provides that a financial institution may, but is not required to, use the model notice issued by the Board. Section 217 also provides that a financial institution shall be deemed to be in compliance with the notice requirement relating to furnishing negative information contained in section 217 if the institution uses the model notice issued by the Board, or uses such model notice and rearrange its format. Several commenters believed it would be helpful to include this safe harbor in the text of the regulation, because many examiners and financial institutions use the regulation as a point of reference.

Some commenters also requested guidance on how financial institutions may rearrange the format of the model notices without losing the safe harbor from liability provided by the model notices. In particular, these commenters requested clarification that the critical elements of the model notice's reference to late payment, default, and reporting to a credit bureau may be rearranged or combined with other language and still come within the safe harbor of the model notice, provided that the meaning of the model notice is retained.

In light of these comments and its own analysis, the Board has revised Appendix B to incorporate the safe harbor contained in section 217, and to provide additional guidance on the use of the model notices. In particular, Appendix B provides that although use of the model notices is not required, a financial institution shall be deemed to be in compliance with the notice requirement if the institution properly uses the model notices in Appendix B. In addition, Appendix B provides that financial institutions may make certain changes to the language or format of the model notices without losing the safe harbor from liability provided by the model notices. Appendix B provides examples of acceptable changes, including rearranging the order of the references to “late payment(s)” and “missed payment(s),” or pluralizing the terms “credit bureau,” “credit report” and “account” as used in the model notices. Nonetheless, Appendix B provides that changes to the model notices may not be so extensive as to affect the substance, clarity, or meaningful sequence of the language in the model notices. Financial institutions making such extensive revisions will lose the safe harbor from liability that Appendix B provides.

In accordance with section 3(a) of the Regulatory Flexibility Act, the Board has certified that the final revisions to Regulation V relating to the model notices will not have a significant economic impact on small entities. Section 217 of the FACT Act amends the FCRA to provide that if any financial institution (1) extends credit and regularly and in the ordinary course of business furnishes information to a nationwide consumer reporting agency, and (2) furnishes negative information to such an agency regarding credit extended to a customer, the institution must provide a clear and conspicuous notice about furnishing negative information, in writing, to the customer. Section 217 defines the term “financial institution” to have the same meaning as in the privacy provisions of the Gramm-Leach-Bliley Act. Thus, the term “financial institution” includes not only institutions regulated by the Board and other federal banking agencies, but also includes other financial entities, such as merchant creditors and debt collectors that extend credit and report negative information.

The final revisions to Regulation V would provide financial institutions with model notices (provided in Appendix B) that they may use to comply with the notice requirement under section 217 of the FACT Act relating to furnishing negative information. The final revisions to Regulation V also would provide financial institutions with additional guidance on how to use these model notices.

The final revisions to Regulation V relating to the model notices are not expected to have a significant economic impact on small entities. By providing model notices and additional guidance on use of the model notices, the Board has minimized the burden imposed on financial institutions by the notice requirement contained in section 217 of the FACT Act. A financial institution that properly uses the model notices in Appendix B will be deemed to be in compliance with the notice requirement of section 217. The Board also notes that the revisions to Regulation V do not require financial institutions to use the model notices. Financial institutions may, but are not required to, use the model notices in Regulation V to meet the notice requirement contained in section 217.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final rule under the authority delegated to the Board by the Office of Management and Budget (OMB). The Federal Reserve may not conduct or sponsor, and an organization is not required to respond to, this information collection unless it displays a currently valid OMB control number. The OMB control number for this final rule is 7100-0308.

The collection of information involved in this rulemaking is found in section 217 of the FACT Act, Pub. L. 108-159, 117 Stat. 1952. This information is mandatory for financial institutions that furnish negative information to credit bureaus regarding credit extended to customers. The respondents are financial institutions as defined in the privacy provisions of the GLB Act. The term “financial institution” includes not only institutions regulated by the Board and other federal banking agencies, but also includes other financial entities, such as merchant creditors and debt collectors that extend credit and report negative information.

The final revisions to Regulation V would provide financial institutions with model notices (provided in Appendix B) that they may use to comply with the notice requirement under section 217 of the FACT Act relating to furnishing negative information. The final revisions to Regulation V also would provide additional guidance to financial institutions on how to use these model notices.

The estimated annual burden for financial institutions is approximately 240,000 hours. Financial institutions would face a one-time burden to reprogram and update systems to include the new notice requirement. With respect to financial institutions, approximately 30,000 furnish information to consumer reporting agencies. The estimated time to update systems is approximately 8 hours (one business day). In conjunction with the proposed revisions to Regulation V, the Board sought comment on the burden estimate for the proposed changes. The Board did not receive any comments specifically responding to the paperwork reduction analysis published with the proposed rule.

On April 16, 2004, the Federal Aviation Administration (FAA) issued AD 2004-09-05, amendment 39-13594 (69 FR 23093, April 28, 2004), which applies to certain Cessna Model 500, 501, 550, and 551 airplanes. That AD requires a one-time inspection of the brake stator disks to determine to what change level they have been modified (if any), and related investigative and corrective actions if necessary. That AD also requires that the existing markings on the piston housing of certain brake assemblies be eliminated. That AD was prompted by several reports of wheel lockups that appear to be caused by cracked or broken brake stator disks becoming jammed in the brake assembly and preventing rotation. The actions required by that AD are intended to prevent such wheel lockups and consequent jamming of the brake assembly, which may result in reduced directional control or braking performance during landing.

We recently obtained information which indicates that the compliance time for the inspection for cracked or broken stator disks on airplanes that do not use thrust reversers was stated incorrectly. Paragraph (b)(2) of the AD specifies that this inspection must be accomplished prior to the accumulation of 200 total landings on the brake assembly, or within 25 landings after the effective date of the AD, whichever is later. However, the compliance time for determining whether the stator disks are subject to this inspection, as stated in paragraph (a) of the AD, is 50 landings or 90 days after the effective date of the AD, whichever is first. The disparity between the compliance times—50 landings after the effective date of the AD for the initial inspection versus 25 landings after the effective date of the AD for the follow-on inspection—could result in certain airplanes being out of compliance with the requirements of paragraph (b)(2) of the AD before that airplane reaches the initial compliance time in paragraph (a) of the AD. To ensure that affected operators are given sufficient time to comply with the requirements of this AD, the grace period in paragraph (b)(2) of the AD should have been 50 landings, rather than 25 landings, after the effective date of the AD.

The FAA has determined that a correction to AD 2004-09-05 is necessary. The correction will revise the grace period portion of the compliance time in paragraph (b)(2) of the AD from 25 landings to 50 landings after the effective date of the AD.

This document corrects the error and correctly adds the AD as an amendment to section 39.13 of the Federal Aviation Regulations (14 CFR 39.13).

The AD is reprinted in its entirety for the convenience of affected operators. The effective date of the AD remains June 2, 2004.

Since this action only extends the compliance time specified in paragraph (b)(2) of the AD, it has no adverse economic impact and imposes no additional burden on any person. Therefore, the FAA has determined that notice and public procedures are unnecessary.

This amendment to part 97 of the Federal Aviation Regulations (14 CFR part 97) establishes, amends, suspends, or revokes Standard Instrument Approach Procedures (SIAPs). The complete regulatory description of each SIAP is contained in official FAA form documents which are incorporated by reference in this amendment under 5 U.S.C. 552(a), 1 CFR part 51, and § 97.20 of the Federal Aviation Regulations (FAR). The applicable FAA Forms are identified as FAA Forms 8260-3, 8260-4, and 8260-5. Materials incorporated by reference are available for examination or purchase as stated above.

The large number of SIAPs, their complex nature, and the need for a special format make their verbatim publication in the Federal Register expensive and impractical. Further, airmen do not use the regulatory text of the SIAPs, but refer to their graphic depiction on charts printed by publishers of aeronautical materials. Thus, the advantages of incorporation by reference are realized and publication of the complete description of each SIAP contained in FAA form documents is unnecessary. The provisions of this amendment state the affected CFR (and FAR) sections, with the types and effective dates of the SIAPs. This amendment also identifies the airport, its location, the procedure identification and the amendment number.

This amendment to part 97 is effective upon publication of each separate SIAP as contained in the transmittal. Some SIAP amendments may have been previously issued by the FAA in a National Flight Data Center (NFDC) Notice to Airmen (NOTAM) as an emergency action of immediate flight safety relating directly to published aeronautical charts. The circumstances which created the need for some SIAP amendments may require making them effective in less than 30 days. For the remaining SIAPs, an effective date at least 30 days after publication is provided.

Further, the SIAPs contained in this amendment are based on the criteria contained in the U.S. Standard for Terminal Instrument Procedures (TERPS). In developing these SIAPs, the TERPS criteria were applied to the conditions existing or anticipated at the affected airports. Because of the close and immediate relationship between these SIAPs and safety in air commerce, I find that notice and public procedure before adopting these SIAPs are impracticable and contrary to the public interest and, where applicable, that good cause exists for making some SIAPs effective in less than 30 days.

The FAA has determined that this regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore—(1) is not a “significant regulatory action” under Executive Order 12866; (2) is not a “significant rule” under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a regulatory evaluation as the anticipated impact is so minimal. For the same reason, the FAA certifies that this amendment will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

These final regulations amend 26 CFR part 1 relating to section 401(a)(9). The regulations provide guidance on the minimum distribution requirements under section 401(a)(9) for plans qualified under section 401(a) and for other arrangements that incorporate the section 401(a)(9) rules by reference. The section 401(a)(9) rules are incorporated by reference in section 408(a)(6) and (b)(3) for individual retirement accounts and annuities (IRAs) (including Roth IRAs, except as provided in section 408A(c)(5)), section 403(b)(10) for section 403(b) annuity contracts, and section 457(d) for eligible deferred compensation plans.

Section 401(a)(9) provides rules for distributions during the life of the employee in section 401(a)(9)(A) and rules for distributions after the death of the employee in section 401(a)(9)(B). Section 401(a)(9)(A)(ii) provides that the entire interest of an employee in a qualified plan must be distributed, beginning not later than the employee's required beginning date, in accordance with regulations, over the life of the employee or over the lives of the employee and a designated beneficiary (or over a period not extending beyond the life expectancy of the employee and a designated beneficiary).

Section 401(a)(9)(C) defines required beginning date for employees (other than 5-percent owners and IRA owners) as April 1 of the calendar year following the later of the calendar year in which the employee attains age 70 1/2 or the calendar year in which the employee retires. For 5-percent owners and IRA owners, the required beginning date is April 1 of the calendar year following the calendar year in which the employee attains age 70 1/2 , even if the employee has not retired.

Section 401(a)(9)(D) provides that (except in the case of a life annuity) the life expectancy of an employee and the employee's spouse that is used to determine the period over which payments must be made may be redetermined, but not more frequently than annually.

Section 401(a)(9)(E) provides that the term designated beneficiary means any individual designated as a beneficiary by the employee.

Section 401(a)(9)(F) provides that, under regulations prescribed by the Secretary, any amount paid to a child shall be treated as if it had been paid to the surviving spouse if such amount will be become payable to the surviving spouse upon such child reaching the age of majority (or other designated event permitted under regulations).

Section 401(a)(9)(G) provides that any distribution required to satisfy the incidental death benefit requirement of section 401(a) is a required minimum distribution.

Section 401(a)(9) also provides that, if the employee dies after distributions have begun, the employee's interest must be distributed at least as rapidly as under the method used by the employee.

Section 401(a)(9) further provides that, if the employee dies before required minimum distributions have begun, the employee's interest must be either distributed (in accordance with regulations) over the life or life expectancy of the designated beneficiary with the distributions beginning no later than 1 year after the date of the employee's death, or distributed within 5 years after the death of the employee. However, under section 401(a)(9)(B)(iv), a surviving spouse may wait until the date the employee would have attained age 70 1/2 to begin taking required minimum distributions.

Comprehensive proposed regulations under section 401(a)(9) were first published in the Federal Register on July 27, 1987 (52 FR 28070) (EE-113-82). Those proposed regulations were amended in 1997 (62 FR 67780) (REG-209463-82) to address the limited issue of the rules that apply when a trust is designated as an employee's beneficiary. Comprehensive proposed regulations were reproposed in the Federal Register on January 17, 2001 ((66 FR 3928) (REG-130477-00/REG-130481-00)). The 2001 proposed regulations substantially revised and simplified the rules for defined contribution plans but maintained the basic structure for defined benefit plans and requested additional comments on the rules that should apply to those plans. With respect to annuity payments, the 2001 proposed regulations retained the basic structure of the 1987 proposed regulations and the preamble indicated that the IRS and Treasury were continuing to study these rules and specifically requested updated comments on current practices and issues relating to required minimum distributions from annuity contracts. Commentators on the 2001 proposed regulations provided information on the variety of annuity contracts being developed and available as insurance company products for purchase with separate accounts.

Final and temporary regulations relating to required minimum distributions from qualified plans, individual retirement plans, and section 403(b) annuity contracts, custodial accounts, and retirement income accounts were published in the Federal Register on April 17, 2002 (67 FR 18987). Proposed regulations that cross reference those temporary regulations were published in the Proposed Rules section of the Federal Register on April 17, 2002 ((67 FR 18834) (REG-108697-02)). The final and temporary regulations were effective with the 2003 calendar year.

The 2002 regulations finalized the rules for defined contribution plans and the basic rules regarding the determination of the required beginning date, determination of designated beneficiary and other general rules that apply to both defined benefit and defined contribution plans. The 2002 regulations also provided temporary regulations under § 1.401(a)(9)-6T relating to minimum distribution requirements for defined benefit plans and annuity contracts purchased with an employee's account balance under a defined contribution plan. In response to the comments to the 2001 proposed regulations, the temporary regulations significantly expanded the situations in which annuity payments under annuity contracts purchased with an employee's benefit may provide for increasing payments, but this guidance was provided in proposed and temporary form rather than final form in order to give taxpayers an opportunity to comment on these changes.

A public hearing was held on the temporary and proposed regulations on October 9, 2002. At the public hearing, and in comments on the temporary regulations, concerns were raised that requiring compliance with certain of the rules in the temporary regulations in 2003 would not be appropriate. Many of the comments relate to restrictions on variable annuity payments, and certain other increasing annuity payments, set forth in A-1 of § 1.401(a)(9)-6T. Commentators also requested additional guidance in applying the rule in A-12 of § 1.401(a)(9)-6T that requires the entire interest under an annuity contract to include the actuarial value of other benefits (such as minimum survivor benefits) provided under the contract and that the rule requiring the inclusion of these values be delayed until the guidance is provided. Finally, commentators requested that special consideration be provided to governmental plans.

In response to these comments and in order to provide adequate time to consider the issues raised, the IRS issued Notice 2003-2 (2003-1 C.B. 257) which provided that, pending the issuance of further regulations, plans are permitted to satisfy certain requirements in the 1987 or 2001 proposed regulations with respect to variable annuity payments in lieu of complying with the corresponding requirements in the 2002 temporary regulations, and that the entire interest under an annuity contract (including an annuity described in section 408(b) or section 403(b)) is permitted to be determined as the dollar amount credited to the employee or beneficiary without regard to the actuarial value of any other benefits (such as minimum survivor benefits) that will be provided under the contract. Notice 2003-2 also provided that, pending the issuance of further regulations under section 401(a)(9), governmental plans are only required to satisfy a reasonable and good faith interpretation of section 401(a)(9). Finally, Notice 2003-2 provided that the transitional relief would continue at least through the year in which additional regulations are published, with a later effective date for certain governmental plans.

In response to the comments received, these final regulations make a number of significant modifications to the proposed and temporary regulations and adopt the regulations as modified. They also make a minor modification to the rules in A-2 of § 1.401(a)(9)-8 for separate accounts. These final regulations contain rules relating to minimum distribution requirements for defined benefit plans and annuity contracts purchased with an employee's account balance under a defined contribution plan. For purposes of this discussion of the background of the regulations in this preamble, as well as the explanation of provisions below, whenever the term employee is used, it is intended to include not only an employee but also an IRA owner.

These final regulations retain the basic rules of the temporary regulations. For example, distributions of an employee's entire interest must be paid in the form of periodic annuity payments for the employee's or beneficiary's life (or the joint lives of the employee and beneficiary) or over a comparable period certain. The payments must be nonincreasing or only increase as provided in the regulations. As provided in the temporary regulations, the permitted increases under these final regulations include: adjustments to reflect increases in the cost of living; any increase in benefits pursuant to a plan amendment; a pop up in payments in the event of the death of the beneficiary or the divorce of the employee and spouse; or return of employee contributions upon an employee's death. In addition, for both annuity contracts purchased from insurance companies and annuities paid from section 401(a) qualified trusts, the regulations allow variable annuities and other regular increases, if certain conditions are satisfied. The regulations also allow changes in distribution form in certain circumstances.

These regulations retain many rules from the temporary regulations without modification. These include, for example, rules regarding: the distribution of benefits that accrue after an employee's first distribution calendar year; the treatment of nonvested benefits; the actuarial increase to an employee's benefit that must be provided if the employee retires after the calendar year in which the employee attains age 70 1/2 ; and benefits that commence in the form of an annuity prior to an employee's required beginning date.

The basic purpose of the incidental benefit rule is to ensure that the payments under the annuity are primarily to provide retirement benefits to the employee. These final regulations retain the basic rule in the temporary regulations that, if distributions commence under a distribution option that is in the form of a joint and survivor annuity where the beneficiary is not the employee's spouse, the incidental benefit requirement will not be satisfied unless the payments to the beneficiary as a percentage of the payments to the employee do not exceed the percentage provided in the table in the regulations. The percentage is based on the number of years that the employee's age exceeds the beneficiary's age, and the percentage decreases as the difference between the ages increases. This reflects the fact that the greater the number of years younger a beneficiary is than the employee, the greater the number of years of expected payments that will be made to the beneficiary after the death of the employee. Under the table in the temporary regulations, a plan may not provide a 100 percent survivor benefit to an employee's nonspouse beneficiary under a joint and survivor annuity if the beneficiary is more than 10 years younger than the employee. Some commentators suggested that an adjustment to the table is appropriate if the employee commences distributions before 70 1/2 . This is because, in such a case, more payments are expected to be made while the employee is alive.

In response to these comments, the final regulations provide that, if an employee's annuity starting date is at an age younger than age 70, an adjustment is made to the employee/beneficiary age difference. This adjusted employee/beneficiary age difference is determined by decreasing the age difference by the number of years the employee is younger than age 70 at the annuity starting date. The effect of this change is to permit a higher percentage after an employee's death for employees who commence benefits at earlier ages. Thus, for an employee age 55 at the time of the employee's annuity starting date, a joint and 100 percent survivor annuity can be provided if the survivor is not more than 25 years younger than the employee.

These final regulations clarify that a plan may provide an annual increase that does not exceed the increase in an eligible cost-of-living index for a 12-month period ending in the year during which the increase occurs or the prior year. An eligible cost-of-living index is a consumer price index (CPI) issued by the Bureau of Labor Statistics and based on prices of all items (or all items excluding food and energy), including an index for a population of consumers (such as urban consumers or urban wage earners and clerical workers) or geographic area or areas (such as a given metropolitan area or state).

Under these regulations, a plan may provide for annual cost-of-living increases, or may provide for less frequent cost-of-living increases that are cumulative since the most recent increase (or the employee's annuity starting date, if later), as long as there is no actuarial increase to reflect having not provided increases in the interim years.

For a plan that provides annual increases, but provides a ceiling on the annual increase, and thus does not allow a full cost-of-living increase in some years, the plan may allow an unused portion of the cost-of-living increase to be provided in a subsequent year when the ceiling exceeds the increase in the CPI for that year and still treat the increase in that subsequent year as an increase that does not exceed an eligible cost-of-living index.

Finally, a plan can provide for annuity payments with a percentage adjustment based on the increase in compensation for the position held by the employee at the time of retirement. However, in the case of a nongovernmental plan, this form of adjustment is only permitted if it is provided under the terms of the plan as in effect on April 17, 2002.

In addition to these permitted increases in the amount of annuity payments, the final regulations retain the rules in the temporary regulations allowing an annuity purchased from an insurance company with an employee's account balance under a defined contribution plan to provide for variable and increasing payments and clarify that these rules apply to an annuity contract purchased from an insurance company by a qualified trust for a defined benefit plan. For an annuity contract purchased from an insurance company, these final regulations retain the rule that the total expected future payments (disregarding any payment increases) as of the annuity starting date must exceed the premium being annuitized. This rule insures that annuity payments start at a high enough amount to prevent inappropriate deferral.

In response to comments asking for more flexibility in the rules relating to changes in distribution amounts from an annuity contract purchased from an insurance company, the final regulations replace the rule permitting partial and complete withdrawals with a broader rule permitting all types of acceleration. The final regulations allow any method that retains the same rate of increase in future payments but results in the total future expected payments under the annuity (disregarding any future payment increases and including the amount of any payment made as a result of the acceleration) being decreased, thereby allowing acceleration in the form of a shorter period as well as through withdrawals. In addition, the requirement that a total withdrawal option be available has been eliminated.

These final regulations also permit defined benefit plans under a qualified trust to provide variable or fixed-rate increasing annuities paid directly from the trust, but the control in the regulations on the rate of increase for these annuities is different. For these annuities, increases in payments solely to reflect better-than-assumed investment performance are permitted but only if the assumed interest rate for calculating the initial level of payments is at least 3 percent. Alternatively, fixed rate increases may be provided but only if the rate of increase is less than 5 percent. Paralleling the payment of the undistributed premium at death, the regulations allow a payment at death to the extent that the payments after annuitization are less than the present value of the employee's accrued benefit as of the annuity starting date calculated using the applicable interest and morality under section 417(e).

The rule allowing an acceleration of payments under an annuity has not been extended to annuity payments from a qualified trust. However, as noted below, such plans are permitted to allow changes in form of distribution in certain specific circumstances as described below. In addition, if distribution is in the form of a joint and survivor annuity, the final regulations allow the survivor to convert the survivor annuity into a lump sum upon the death of the employee.

Some commentators requested that employees and beneficiaries be permitted to change the form of future distributions in response to changed circumstances, such as upon retirement or death. In response to these comments, the regulations allow an employee or beneficiary to change the form of future distributions in a number of circumstances provided certain conditions are satisfied. First, if distribution is in the form of a period certain only annuity ( i.e. , an annuity with no life contingency), the individual may change the form of distribution prospectively at any time. The employee or beneficiary also is permitted to change the form of distribution prospectively upon an employee's actual retirement or upon plan termination, regardless of the form of annuity payments before retirement or plan termination. In addition, an employee may change to a qualified joint and survivor annuity in connection with marriage.

In order to make these changes, the future payments must satisfy section 401(a)(9) (as though payments first commenced on the new annuity starting date, treating the actuarial value of the remaining payments as the employee's or beneficiary's entire interest). As a condition to changes in the form of distribution, whether under a period certain only annuity or a life contingent annuity, the stream of payments from the employee's original annuity starting date (both the payments before and after the change in form) must satisfy section 415 using the interest rate assumption and applicable mortality table in effect as of the annuity starting date. In addition, the end point of the new period certain, if any, may not be later the end point available at the original annuity starting date. Furthermore, the plan must treat an individual electing a new form of distribution under these rules as having a new annuity starting date for purposes of sections 415 and 417. Thus, the payments under the new form must satisfy section 415 as of its new annuity starting date based on the applicable interest rate and applicable mortality table for that date, taking into account prior payments. Although not stated, for plans subject to section 411, any form of distribution or change in the form of distribution must not result in an impermissible forfeiture of benefits.

A number of commentators requested that the final regulations provide the rule in prior proposed regulations that allowed minimum distributions from a defined benefit plan to be calculated using the rule for defined contribution plans in § 1.401(a)(9)-5. The primary argument for allowing this level of flexibility in calculating distribution amounts from year to year is to allow employees to adjust to changed circumstances. The rules in these final regulations allowing a change in distribution form upon retirement or plan termination, and at any time when distribution is in the form of a term certain only, address this need.

The final regulations retain the basic rule in the temporary regulations that, before annuitization, the defined contribution plan rules apply. For this purpose, an employee's entire interest under an annuity contract is the dollar amount credited to the employee or beneficiary under the contract plus the actuarial value of any additional benefits (such as survivor benefits in excess of the account balance) that will be provided under the contract. A number of commentators requested guidance on how this actuarial value is calculated and indicated that, in certain circumstances it would be appropriate to disregard this additional value.

The IRS and Treasury believe that it is generally appropriate to reflect the value of additional benefits under an annuity contract, just as the fair market value of all assets generally must be reflected in valuing an account balance under a defined contribution plan. However, in response to these comments, the final regulations allow the additional benefits to be disregarded when there is a pro-rata reduction in the additional benefits for any withdrawal, provided the actuarial present value of the additional benefits is not more than 20 percent of the account balance. An example is provided that illustrates an acceptable method of determining the value of an additional benefit that is a guaranteed death benefit. In addition, an exception is provided for an additional benefit in the form of a guaranteed return of premiums upon death.

The final regulations provide rules governing when, pursuant to section 401(a)(9)(F), payment of an employee's accrued benefit to a child may be treated as if such payments were made to a surviving spouse. Under the final regulations, payments under a defined benefit plan or annuity contract that are made to an employee's child until such child reaches the age of majority (or dies, if earlier) may be treated, for purposes of section 401(a)(9), as if such payments were made to the surviving spouse, provided they become payable to the surviving spouse upon cessation of the payments to the child. In addition, for this purpose, a child may be treated as having not reached the age of majority if the child has not completed a specified course of education and is under the age of 26, or so long as the child is disabled.

A number of commentators raised concerns that governmental plans offer annuity distribution options that are not permitted under the temporary regulations. Most of the suggestions made by commentators on behalf of governmental plans were incorporated into the final regulations, such as expanding the list of acceptable COLAs; permitting lump sum distributions to beneficiaries; and providing for pop-up payments to a surviving spouse after the cessation of payments to a child.

Nevertheless, some substantive changes recommended by or on behalf of governmental plans were not made in the final regulations. In light of the difficulties a governmental plan faces in changing its plan terms ( e.g. , in some states, the state constitution does not allow elimination of existing distribution options) and the public oversight of such plans, these final regulations provide a grandfather rule under which, in the case of an annuity distribution option provided under the terms of a governmental plan as in effect on April 17, 2002, the plan will not fail to satisfy section 401(a)(9) merely because the annuity payments do not satisfy the requirements set forth in these regulations. However, a grandfathered distribution option must satisfy the statutory requirements of section 401(a)(9), based on a reasonable and good faith interpretation of that section.

This grandfather rule only applies to existing plan provisions. Otherwise, the regulations provide that annuity payments under governmental plans within the meaning of section 414(d) must satisfy the rules for nongovernmental plans. Thus, any new distribution option in a governmental plan or change in a distribution option must comply with the rules applicable to nongovernmental plans under these final regulations.

Several comments have been received raising administrative concerns with the rule in the final regulations applicable to defined contribution plans that recognizes separate accounts for purposes of section 401(a)(9) only after the separate account is actually established. In particular, concerns have been raised that, for employees who die late in a calendar year, it is nearly impossible to set up separate accounts by the end of the year so that they can be used to determine required minimum distributions for the year after death. In response to these comments the regulations have been modified to provide that if separate accounts, determined as of an employee's date of death, are actually established by the end of the calendar year following the year of an employee's death, the separate accounts can be used to determine required minimum distributions for the year following the year of the employee's death. Under the separate account rules, post-death investment experience must be shared on a pro-rata basis until the date on which the separate accounts are actually established.

As provided in the temporary and proposed regulations, these final regulations apply for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2003. However, in order to fulfill the commitment in Notice 2003-2 to allow plans to continue to use certain provisions from the pre-existing proposed regulations and to provide plan sponsors sufficient time to make any adjustments in their plans needed to comply with these regulations, a distribution from a defined benefit plan or annuity contract for calendar years 2003, 2004, and 2005 will not fail to satisfy section 401(a)(9) merely because the payments do not satisfy the rules in these final regulations, provided the payments satisfy section 401(a)(9) based on a reasonable and good faith interpretation of the provisions of section 401(a)(9). For a plan that satisfies the parallel provisions of the 1987 proposed regulations, the 2001 proposed regulations, the 2002 temporary and proposed regulations, or these final regulations, a distribution will be deemed to satisfy a reasonable good faith interpretation of section 401(a)(9).

For governmental plans, this reasonable good faith standard extends to the end of the calendar year that contains the 90th day after the opening of the first legislative session of the legislative body with the authority to amend the plan that begins on or after June 15, 2004, if such 90th day is later than December 31, 2005.

It has been determined that these final regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Because § 1.401(a)(9)-6 imposes no new collection of information on small entities, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

The principal authors of these regulations are Marjorie Hoffman and Cathy A. Vohs of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and Treasury participated in the development of these regulations.

The PBGC's regulations prescribe actuarial assumptions—including interest assumptions—for valuing and paying plan benefits of terminating single-employer plans covered by title IV of the Employee Retirement Income Security Act of 1974. The interest assumptions are intended to reflect current conditions in the financial and annuity markets.

Three sets of interest assumptions are prescribed: (1) A set for the valuation of benefits for allocation purposes under section 4044 (found in Appendix B to part 4044), (2) a set for the PBGC to use to determine whether a benefit is payable as a lump sum and to determine lump-sum amounts to be paid by the PBGC (found in Appendix B to part 4022), and (3) a set for private-sector pension practitioners to refer to if they wish to use lump-sum interest rates determined using the PBGC's historical methodology (found in Appendix C to part 4022).

Accordingly, this amendment (1) adds to Appendix B to part 4044 the interest assumptions for valuing benefits for allocation purposes in plans with valuation dates during July 2004, (2) adds to Appendix B to part 4022 the interest assumptions for the PBGC to use for its own lump-sum payments in plans with valuation dates during July 2004, and (3) adds to Appendix C to part 4022 the interest assumptions for private-sector pension practitioners to refer to if they wish to use lump-sum interest rates determined using the PBGC's historical methodology for valuation dates during July 2004.

For valuation of benefits for allocation purposes, the interest assumptions that the PBGC will use (set forth in Appendix B to part 4044) will be 4.50 percent for the first 20 years following the valuation date and 5.00 percent thereafter. These interest assumptions represent an increase (from those in effect for June 2004) of 0.20 percent for the first 20 years following the valuation date and are otherwise unchanged.

The interest assumptions that the PBGC will use for its own lump-sum payments (set forth in Appendix B to part 4022) will be 3.50 percent for the period during which a benefit is in pay status and 4.00 percent during any years preceding the benefit's placement in pay status. These interest assumptions are unchanged from those in effect for June 2004.

For private-sector payments, the interest assumptions (set forth in Appendix C to part 4022) will be the same as those used by the PBGC for determining and paying lump sums (set forth in Appendix B to part 4022).

The PBGC has determined that notice and public comment on this amendment are impracticable and contrary to the public interest. This finding is based on the need to determine and issue new interest assumptions promptly so that the assumptions can reflect, as accurately as possible, current market conditions.

Because of the need to provide immediate guidance for the valuation and payment of benefits in plans with valuation dates during July 2004, the PBGC finds that good cause exists for making the assumptions set forth in this amendment effective less than 30 days after publication.

The PBGC has determined that this action is not a “significant regulatory action” under the criteria set forth in Executive Order 12866.

Because no general notice of proposed rulemaking is required for this amendment, the Regulatory Flexibility Act of 1980 does not apply. See 5 U.S.C. 601(2).

The safety zones in 33 CFR 165.907 were established to provide for the safety of vessels in the vicinity of fireworks displays in the Captain of the Port Detroit Zone. Entry into these zones is prohibited during the following enforcement periods unless authorized by the Captain of the Port or his designee:

(1) The safety zone for the Bay-Rama Fishfly Festival, New Baltimore, MI, will be enforced June 24, 2004, from 9 p.m. to 11 p.m.

(2) The safety zone for the St. Clair Shores Fireworks, St. Clair Shores, MI, will be enforced on June 25, 2004, from 10 p.m. to 10:35 p.m.

(3) The safety zone for the Sigma Gamma Assoc., Grosse Pointe Farms, MI, will be enforced on June 28, 2004, from 8:30 p.m. to 10 p.m.

In order to ensure the safety of spectators and transiting vessels, these safety zones will be in effect for the duration of the events. In cases where shipping is affected, commercial vessels may request permission from the Captain of the Port Detroit to transit the safety zone. Approval will be made on a case-by case basis.

Requests must be made in advance and approved by the Captain of Port before transits will be authorized. The Captain of the Port may be contacted via U.S. Coast Guard Group Detroit on channel 16, VHF-FM.

On November 20, 2003, we published a notice of proposed rulemaking (NPRM) entitled “Safety and Security Zones; New York Marine Inspection Zone and Captain of the Port Zone” in the Federal Register (68 FR 65427). We received one letter commenting on the proposed rule. No public hearing was requested, and none was held.

The Coast Guard is establishing a permanent security zone between the Ambrose to Hudson Canyon Traffic Lane and the Barnegat to Ambrose Traffic Lane bound by the following points: 40°21′29.9″ N, 073°44′41.0″ W, thence to 40°21′04.5″ N, 073°45′31.4″ W, thence to 40°15′28.3″ N, 073°44′13.8″ W, thence to 40°15′35.4″ N, 073°43′29.8″ W, thence to 40°19′21.2″ N, 073°42′53.0″ W, (NAD 1983) thence to the point of origin. The security zone will only be used for high interest vessels due to emergency situations onboard the vessel.

On January 31, 2002, a release of MTBE (methyl tertiary-butyl ether) onboard the M/V LEADER required the closure of Anchorage Grounds No. 23-A, 23-B, and 24 in the Narrows. Additionally, from September 11, to September 13, 2002, a radiological anomaly was discovered onboard the M/V PALERMO SENATOR during a vessel boarding. As a result, the vessel was ordered to depart the Port of New York/New Jersey and remain at anchorage for further investigation. To maximize safety, the Captain of the Port New York established a security zone around the anchored vessel.

While these incidents had uneventful conclusions they each posed a significant threat to port infrastructure and the local population. The Coast Guard intends to minimize risk to the Port of New York/New Jersey and the area population by requiring vessels in similar emergency situations to anchor in the security zone while the vessel is inspected and cleared for a safe transit.

The security zone will prevent vessels from transiting a portion of the Atlantic Ocean and is needed to protect vessel operators from the hazards associated with emergency situations onboard vessels that are not authorized within the Port of New York/New Jersey due to conditions that may be dangerous to the Port and the local population. Marine traffic will still be able to transit around the security zone when it is subject to enforcement via already established traffic separation schemes. In cases of emergency, vessels transiting in the traffic separation scheme traffic lanes adjacent to the security zone will be authorized to enter the adjacent separation zone between traffic lanes to avoid immediate danger. The Captain of the Port does not anticipate any negative impact on vessel traffic due to this security zone.

The Coast Guard does not know when the security zone will be enforced as the zone will be used only on an as needed basis. Establishing a permanent security zone by notice and comment rulemaking provided the public the opportunity to comment on the zone, location and size. Coast Guard Activities New York will give notice of the enforcement of the security zone by all appropriate means to provide the widest publicity among the affected segments of the public. This rule has been discussed with the Sandy Hook Pilots Association and they do not feel this zone will interfere with the New York Traffic Separation Scheme. Notifications will be made to the local maritime community by the Vessel Traffic Service New York, facsimile, marine information and electronic mail broadcasts, and on the Internet at http://www.harborops.com .

The Coast Guard received one letter commenting on the proposed rulemaking. The comment recommended that the Coast Guard establish a standardized means for vessels which security zones have been established to transmit the existence of such security zones on their Automatic Identification System (AIS), if installed. The comment also recommended that patrol craft enforcing security zones should transmit information on the security zone on their AIS. This request is beyond the scope of this rulemaking, but we have sent a copy of this letter to the Coast Guard program office responsible for AIS and note that the docket for an AIS request for comments (68 FR 39369, July 1, 2003; Docket number USCG-2003-14878) contains a similar recommendation ( see item #50) from the same commenter.

We did make one technical change. The wrong paragraph designator was used in the NPRM. It should have been § 165.169(a)(12) instead of § 165.169(a)(7). This final rule contains the correct paragraph designator—33 CFR 165.169(a)(12). Other than the paragraph designator, the regulatory text remains the same as in the proposed rule.

This rule is not a “significant regulatory action” under section 3(f) of Executive Order 12866, Regulatory Planning and Review, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. The Office of Management and Budget has not reviewed it under that Order. It is not “significant” under the regulatory policies and procedures of the Department of Homeland Security (DHS).

We expect the economic impact of this rule to be so minimal that a full Regulatory Evaluation under the regulatory policies and procedures of DHS is unnecessary.

This finding is based on the minimal time that vessels will be restricted from the zone, and the zone is in an area where the Coast Guard expects insignificant adverse impact on all mariners during periods when the zone is in effect. Vessels may also still transit through all Traffic Lanes to, and from, the Port of New York/New Jersey. As stated above, in cases of emergency, vessels transiting in the adjacent traffic lanes will be authorized to enter the adjacent separation zone to avoid immediate danger. This rule has been discussed with the Sandy Hook Pilots Association. The Pilot's Association does not feel that activation of this zone will interfere with the New York Traffic Separation Scheme. Notifications of when the zone will be in effect will also be made to the local maritime community by the Vessel Traffic Service New York, facsimile, marine information and electronic mail broadcasts, and on the Internet at http://www.harborops.com .

Under the Regulatory Flexibility Act (5 U.S.C. 601-612), we have considered whether this rule would have a significant economic impact on a substantial number of small entities. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000.

The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

This rule will affect the following entities, some of which might be small entities: the owners or operators of vessels, including commercial fisherman, intending to transit, engage in fishing, or anchor in a portion of the Atlantic Ocean during the times this zone is activated.

This security zone will not have a significant economic impact on a substantial number of small entities for the following reasons: Commercial Vessel traffic will continue to transit through the New York Traffic Separation Scheme. Recreational, fishing and small commercial vessels will still be able transit around the security zone. Additionally, the periods of time when the zone will be effective are expected to be short and nothing more than minimal interference with commercial fishing operations is expected. The Sandy Hook Pilots Association agrees that activating the zone will not interfere with the traffic separation scheme. In the event that the zone is activated, maritime advisories widely available to users of the Port of New York/New Jersey will be issued by the Vessel Traffic Service New York, facsimile, marine information and electronic mail broadcasts, and on the Internet at http://www.harborops.com .

If you think that your business, organization, or governmental jurisdiction qualifies as a small entity and that this rule will have a significant economic impact on it, please submit a comment ( see ADDRESSES ) explaining why you think it qualifies and how and to what degree this rule will economically affect it.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we offered to assist small entities in understanding the rule so that they could better evaluate its effects on them and participate in the rulemaking process. We received no further requests for assistance from small entities.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247).

This rule calls for no new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has a substantial direct effect on State or local governments and would either preempt State law or impose a substantial direct cost of compliance on them. We have analyzed this rule under that Order and have determined that it does not have implications for federalism.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

This rule will not effect a taking of private property or otherwise have taking implications under Executive Order 12630, Governmental Actions and Interference with Constitutionally Protected Property Rights.

This rule meets applicable standards in sections 3(a) and 3(b)(2) of Executive Order 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

We have analyzed this rule under Executive Order 13045, Protection of Children from Environmental Health Risks and Safety Risks. This rule is not an economically significant rule and does not create an environmental risk to health or risk to safety that may disproportionately affect children.

This rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

We have analyzed this rule under Executive Order 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. We have determined that it is not a “significant energy action” under that order because it is not a “significant regulatory action” under Executive Order 12866 and is not likely to have a significant adverse effect on the supply, distribution, or use of energy. The Administrator of the Office of Information and Regulatory Affairs has not designated it as a significant energy action. Therefore, it does not require a Statement of Energy Effects under Executive Order 13211.

We have considered the environmental impact of this rule and concluded that under figure 2-1, paragraph (34)(g), of Commandant Instruction M16475.lD, this rule is categorically excluded from further environmental documentation because it establishes a security zone. A “Categorical Exclusion Determination” is available in the docket for inspection or copying where indicated under ADDRESSES.

Title VIII of the Alaska National Interest Lands Conservation Act (ANILCA) (16 U.S.C. 3111-3126) requires that the Secretary of the Interior and the Secretary of Agriculture (Secretaries) implement a joint program to grant a preference for subsistence uses of fish and wildlife resources on public lands in Alaska, unless the State of Alaska enacts and implements laws of general applicability that are consistent with ANILCA and that provide for the subsistence definition, preference, and participation specified in Sections 803, 804, and 805 of ANILCA. In December 1989, the Alaska Supreme Court ruled that the rural preference in the State subsistence statute violated the Alaska Constitution and, therefore, negated State compliance with ANILCA.

The Department of the Interior and the Department of Agriculture (Departments) assumed, on July 1, 1990, responsibility for implementation of Title VIII of ANILCA on public lands. The Departments administer Title VIII through regulations at Title 50, Part 100 and Title 36, Part 242 of the Code of Federal Regulations (CFR). Consistent with Subparts A, B, and C of these regulations, as revised January 8, 1999, (64 FR 1276), the Departments established a Federal Subsistence Board to administer the Federal Subsistence Management Program. The Board's composition includes a Chair appointed by the Secretary of the Interior with concurrence of the Secretary of Agriculture; the Alaska Regional Director, U.S. Fish and Wildlife Service; the Alaska Regional Director, National Park Service; the Alaska State Director, Bureau of Land Management; the Alaska Regional Director, Bureau of Indian Affairs; and the Alaska Regional Forester, USDA Forest Service. Through the Board, these agencies participate in the development of regulations for Subparts A, B, and C, which establish the program structure and determine which Alaska residents are eligible to take specific species for subsistence uses, and the annual Subpart D regulations, which establish seasons, harvest limits, and methods and means for subsistence take of species in specific areas. Subpart D regulations for the 2004 fishing seasons, harvest limits, and methods and means were published on February 3, 2004 (69 FR 5018).

Because this action relates to public lands managed by an agency or agencies in both the Departments of Agriculture and the Interior, identical closures and adjustments would apply to 36 CFR part 242 and 50 CFR part 100.

The Alaska Department of Fish and Game (ADF&G), under the direction of the Alaska Board of Fisheries (BOF), manages sport, commercial, personal use, and State subsistence harvest on all lands and waters throughout Alaska. However, on Federal lands and waters, the Federal Subsistence Board implements a subsistence priority for rural residents as provided by Title VIII of ANILCA. In providing this priority, the Board may, when necessary, preempt State harvest regulations for fish or wildlife on Federal lands and waters.

These adjustments are necessary because of the need to maintain the viability of salmon stocks in the Copper River based on in-season run assessments. These actions are authorized and in accordance with 50 CFR 100.19(d-e) and 36 CFR 242.19(d-e).

In December 2001, the Board adopted regulatory proposals establishing a new Federal subsistence fishery in the Chitina Subdistrict of the Copper River. This fishery is open to Federally qualified users having customary and traditional use of salmon in this Subdistrict. The State conducts a personal use fishery in this Subdistrict that is open to all Alaska residents.

Management of the fishery is based on the numbers of salmon returning to the Copper River. A larger than predicted salmon run will allow additional fishing time. A smaller than predicted run will require restrictions to achieve upriver passage and spawning escapement goals. A run that approximates the pre-season forecast will allow fishing to proceed similar to the pre-season schedule with some adjustments made to fishing time based on in-season data. Adjustments to the preseason schedule are expected as a normal function of an abundance-based management strategy. State and Federal managers, reviewing and discussing all available in-season information, will make these adjustments.

While Federal and State regulations currently differ for this Subdistrict, the Board indicated that Federal in-season management actions regarding fishing periods were expected to mirror State actions. The State established a preseason schedule of allowable fishing periods based on daily projected sonar estimates. This preseason schedule is intended to distribute the harvest throughout the salmon run and provide salmon for upriver subsistence fisheries and the spawning escapement. The salmon season is closed until the first open period scheduled for June 3, 2004, at 6 a.m. Shown below are the fishing schedule openings for the Chitina Subdistrict of the Copper River:

State personal use and Federal subsistence fisheries in this Subdistrict close simultaneously by regulation on September 30, 2004. No deviation from this date is anticipated.

In December 2000, the Board adopted a regulatory proposal opening the Glennallen Subdistrict of the Copper River to Federally qualified users May 15. This allowed Federally qualified users to harvest salmon prior to the State subsistence fishing season that opens June 1. This fishery is open to Federally qualified users having customary and traditional use of salmon in this Subdistrict. The State conducts a personal use fishery in this Subdistrict that is open to all Alaska residents. Salmon migrating through the Glennallen Subdistrict during this period are likely to spawn in upper river tributaries based on prior studies conducted by the Alaska Department of Fish and Game. In 2003, Federally qualified users harvested approximately 750 salmon in the Glennallen Subdistrict during May. None of this harvest appears to have occurred upstream of the Gakona River.

The State has briefly delayed the opening of the commercial fishery near the mouth of the Copper River predicated on the pre-season forecast. Production from the early portion of the natural run may be weak because of low inriver escapements prior to mid June in brood years 1999 and 2000. If Miles Lake sonar estimates are substantially below the forecasted levels both the State and the Board will reduce the open periods in the Chitina Subdistrict as described in the Copper River Salmon Management Plan (5 AAC 24.360). Management of the fishery is based on the numbers of salmon returning to the Copper River. A larger than predicted salmon run will allow additional fishing time. A smaller than predicted run will require restrictions to achieve upriver passage and spawning escapement goals.

In May of 2004, Federally qualified users that harvest salmon upstream of the Gakona River strongly expressed concerns that their harvest is declining and that one of the causes of this decline is harvest of salmon downstream. Harvest data from 1996 through 2003 suggest that this may be a valid concern. No data regarding early run escapement is available until the Miles Lake sonar is operational and salmon passing the sonar site have arrived within the Glennallen Subdistrict (approximately 3 weeks' travel time). Therefore, this action utilizes a conservative approach and restricts the fishery until data from the Miles Lake sonar are available.

The Glennallen Subdistrict of the Copper River will be closed to the harvest of salmon until June 1, 2004.

Federally qualified users downstream of the Gakona River are not expected to be significantly impacted by this action because they have ample opportunity to harvest additional salmon stocks that enter the Subdistrict later to spawn in tributaries downstream of the Gakona River.

State and Federal subsistence fisheries in this Subdistrict close simultaneously by regulation on September 30, 2004. No deviation from this date is anticipated.

The Board finds that additional public notice and comment requirements under the Administrative Procedure Act (APA) for these adjustments are impracticable, unnecessary, and contrary to the public interest. Lack of appropriate and immediate conservation measures could seriously affect the continued viability of fish populations, adversely impact future subsistence opportunities for rural Alaskans, and would generally fail to serve the overall public interest. Therefore, the Board finds good cause pursuant to 5 U.S.C. 553(b)(3)(B) to waive additional public notice and comment procedures prior to implementation of these actions and pursuant to 5 U.S.C. 553(d)(3) to make this rule effective as indicated in the DATES section.

A Final Environmental Impact Statement (FEIS) was published on February 28, 1992, and a Record of Decision on Subsistence Management for Federal Public Lands in Alaska (ROD) was signed April 6, 1992. The final rule for Subsistence Management Regulations for Public Lands in Alaska, Subparts A, B, and C (57 FR 22940-22964, published May 29, 1992) implemented the Federal Subsistence Management Program and included a framework for an annual cycle for subsistence hunting and fishing regulations. A final rule that redefined the jurisdiction of the Federal Subsistence Management Program to include waters subject to the subsistence priority was published on January 8, 1999 (64 FR 1276.)

The intent of all Federal subsistence regulations is to accord subsistence uses of fish and wildlife on public lands a priority over the taking of fish and wildlife on such lands for other purposes, unless restriction is necessary to conserve healthy fish and wildlife populations. A Section 810 analysis was completed as part of the FEIS process. The final Section 810 analysis determination appeared in the April 6, 1992, ROD, which concluded that the Federal Subsistence Management Program, under Alternative IV with an annual process for setting hunting and fishing regulations, may have some local impacts on subsistence uses, but the program is not likely to significantly restrict subsistence uses.

The adjustment and emergency closures do not contain information collection requirements subject to Office of Management and Budget (OMB) approval under the Paperwork Reduction Act of 1995.

The adjustments have been exempted from OMB review under Executive Order 12866.

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq. ) requires preparation of flexibility analyses for rules that will have a significant effect on a substantial number of small entities, which include small businesses, organizations, or governmental jurisdictions. The exact number of businesses and the amount of trade that will result from this Federal land-related activity is unknown. The aggregate effect is an insignificant economic effect (both positive and negative) on a small number of small entities supporting subsistence activities, such as boat, fishing gear, and gasoline dealers. The number of small entities affected is unknown; however, the effects will be seasonally and geographically-limited in nature and will likely not be significant. The Departments certify that the adjustments will not have a significant economic effect on a substantial number of small entities within the meaning of the Regulatory Flexibility Act. Under the Small Business Regulatory Enforcement Fairness Act (5 U.S.C. 801 et seq. ), this rule is not a major rule. It does not have an effect on the economy of $100 million or more, will not cause a major increase in costs or prices for consumers, and does not have significant adverse effects on competition, employment, investment, productivity, innovation, or the ability of U.S.-based enterprises to compete with foreign-based enterprises.

Title VIII of ANILCA requires the Secretaries to administer a subsistence preference on public lands. The scope of this program is limited by definition to certain public lands. Likewise, the adjustments have no potential takings of private property implications as defined by Executive Order 12630.

The Service has determined and certifies pursuant to the Unfunded Mandates Reform Act, 2 U.S.C. 1502 et seq. , that the adjustments will not impose a cost of $100 million or more in any given year on local or State governments or private entities. The implementation is by Federal agencies, and no cost is involved to any State or local entities or Tribal governments.

The Service has determined that the adjustments meet the applicable standards provided in Sections 3(a) and 3(b)(2) of Executive Order 12988, regarding civil justice reform. In accordance with Executive Order 13132, the adjustments do not have sufficient federalism implications to warrant the preparation of a Federalism Assessment. Title VIII of ANILCA precludes the State from exercising subsistence management authority over fish and wildlife resources on Federal lands. Cooperative salmon run assessment efforts with ADF&G will continue.

In accordance with the President's memorandum of April 29, 1994, “Government-to-Government Relations with Native American Tribal Governments” (59 FR 22951), Executive Order 13175, and 512 DM 2, we have evaluated possible effects on Federally recognized Indian tribes and have determined that there are no effects. The Bureau of Indian Affairs is a participating agency in this rulemaking.

On May 18, 2001, the President issued Executive Order 13211 on regulations that significantly affect energy supply, distribution, or use. This Executive Order requires agencies to prepare Statements of Energy Effects when undertaking certain actions. As these actions are not expected to significantly affect energy supply, distribution, or use, they are not significant energy actions and no Statement of Energy Effects is required.

Theodore Matuskowitz drafted this document under the guidance of Thomas H. Boyd, of the Office of Subsistence Management, Alaska Regional Office, U.S. Fish and Wildlife Service, Anchorage, Alaska. Taylor Brelsford, Alaska State Office, Bureau of Land Management; Rod Simmons, Alaska Regional Office, U.S. Fish and Wildlife Service; Bob Gerhard, Alaska Regional Office, National Park Service; Dr. Glenn Chen, Alaska Regional Office, Bureau of Indian Affairs; and Steve Kessler, USDA-Forest Service, provided additional guidance.

Section 9004 of RCRA 42 U.S.C. 6991c, allows the EPA to approve a State underground storage tank program to operate in the State in lieu of the Federal underground storage tank program. EPA published a notice in the Federal Register announcing its decision to grant approval to West Virginia on September 23, 1997, and approval was effective on February 10, 1998 (63 FR 6667).

EPA codifies its approval of a State program in 40 CFR part 282 and incorporates by reference therein the State's statutes and regulations that make up the approved program which is federally-enforceable in accordance with sections 9005 and 9006 of Subtitle I of RCRA, 42 U.S.C. 6991d and 6991e, and other applicable statutory and regulatory provisions. Today's rulemaking codifies EPA's approval of West Virginia's underground storage tank program. This codification reflects the State program in effect at the time EPA granted West Virginia approval, in accordance with RCRA section 9004(a), 42 U.S.C. 6991c(a), for its underground storage tank program. Notice and opportunity for comment were provided earlier on the Agency's decision to approve the West Virginia program, and EPA is not now reopening that decision nor requesting comment on it.

To codify EPA's approval of West Virginia's underground storage tank program, EPA has added § 282.98 to title 40 of the CFR 40 CFR 282.98(d)(1)(i) incorporates by reference the State's statutes and regulations that make up the approved program which is federally-enforceable. 40 CFR 282.98 also describes the Attorney General's Statement, the Demonstration of Adequate Enforcement Procedures, the Program Description, and the Memorandum of Agreement, which were evaluated as part of the approval process of the underground storage tank program, in accordance with Subtitle I of RCRA.

EPA retains the authority in accordance with sections 9005 and 9006 of Subtitle I of RCRA, 42 U.S.C. 6991d and 6991e, and other applicable statutory and regulatory provisions, to undertake inspections and enforcement actions in approved States. With respect to such an enforcement action, EPA will rely on Federal sanctions, Federal inspection authorities, and Federal procedures rather than the State-authorized analogues to these provisions. Therefore, West Virginia's inspection and enforcement authorities are not incorporated by reference, nor are they part of West Virginia's approved state program which operates in lieu of the Federal program. These authorities, however, are listed in 40 CFR 282.98(d)(1)(ii) for informational purposes, and also because EPA considered them in determining the adequacy of West Virginia's enforcement authority. West Virginia's authority to inspect and enforce the State's underground storage tank requirements continues to operate independently under State law.

Some provisions of the State's underground storage tank program are not part of the federally-approved State program. These non-approved provisions are not part of the RCRA Subtitle I program because they are “broader in scope” than Subtitle I of RCRA. See 40 CFR 281.12(a)(3)(ii). As a result, State provisions which are “broader in scope” than the Federal program are not incorporated by reference for purposes of Federal enforcement in 40 CFR part 282. Section 282.98 of the codification simply lists for reference and clarity the West Virginia statutory and regulatory provisions which are “broader in scope” than the Federal program and which are not, therefore, part of the approved program being codified today. “Broader in scope” provisions cannot be enforced by EPA; the State, however, will continue to enforce such provisions.

This rule only codifies EPA-authorized underground storage tank program requirements pursuant to RCRA section 9004 and imposes no requirements other than those imposed by State law (see Supplementary Information). Therefore, this rule complies with applicable executive orders and statutory provisions as follows.

1. Executive Order 12866: Regulatory Planning Review—The Office of Management and Budget has exempted this rule from its review under Executive Order (EO) 12866. 2. Paperwork Reduction Act—This rule does not impose an information collection burden under the Paperwork Reduction Act. 3. Regulatory Flexibility Act—After considering the economic impacts of today's rule on small entities under the Regulatory Flexibility Act, I certify that this rule will not have a significant economic impact on a substantial number of small entities. 4. Unfunded Mandates Reform Act—Because this rule codifies pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act. 5. Executive Order 13132: Federalism—EO 13132 does not apply to this rule because it will not have federalism implications ( i.e. , substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government). 6. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments—EO 13175 does not apply to this rule because it will not have tribal implications ( i.e. , substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes). 7. Executive Order 13045: Protection of Children from Environmental Health & Safety Risks—This rule is not subject to EO 13045 because it is not economically significant and it is not based on health or safety risks. 8. Executive Order 13211: Actions that Significantly Affect Energy Supply, Distribution, or Use—This rule is not subject to EO 13211 because it is not a significant regulatory action as defined in EO 12866. 9. National Technology Transfer Advancement Act—EPA codifies approved State programs as long as they meet criteria required by RCRA, so it would be inconsistent with applicable law for EPA, in its review of a State program, to require the use of any particular voluntary consensus standard in place of another standard that meets the requirements of RCRA. Thus, section 12(d) of the National Technology Transfer and Advancement Act does not apply to this rule. 10. Congressional Review Act—EPA will submit a report containing this rule and other information required by the Congressional Review Act (5 U.S.C. 801 et seq. ) to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2). This action will be effective on August 16, 2004.

Section 9004 of RCRA, 42 U.S.C. 6991c, allows the EPA to approve a State underground storage tank program to operate in the State in lieu of the Federal underground storage tank program. EPA published a notice in the Federal Register announcing its decision to grant approval to Virginia on September 28, 1998, and approval was effective on October 28, 1998 (63 FR 51528).

EPA codifies its approval of a State program in 40 CFR part 282 and incorporates by reference therein the State's statutes and regulations that make up the approved program which is federally-enforceable in accordance with sections 9005 and 9006 of Subtitle I of RCRA, 42 U.S.C. 6991d and 6991e, and other applicable statutory and regulatory provisions. Today's rulemaking codifies EPA's approval of Virginia's underground storage tank program. This codification reflects the State program in effect at the time EPA granted Virginia approval, in accordance with RCRA section 9004(a), 42 U.S.C. 6991c(a), for its underground storage tank program. Notice and opportunity for comment were provided earlier on the Agency's decision to approve the Virginia program, and EPA is not now reopening that decision nor requesting comment on it.

To codify EPA's approval of Virginia's underground storage tank program, EPA has added § 282.96 to title 40 of the CFR. 40 CFR 282.96(d)(1)(i) incorporates by reference the State's statutes and regulations that make up the approved program which is federally-enforceable. 40 CFR 282.96 also describes the Attorney General's Statement, the Demonstration of Adequate Enforcement Procedures, the Program Description, and the Memorandum of Agreement, which were evaluated as part of the approval process of the underground storage tank program, in accordance with Subtitle I of RCRA.

EPA retains the authority in accordance with sections 9005 and 9006 of Subtitle I of RCRA, 42 U.S.C. 6991d and 6991e, and other applicable statutory and regulatory provisions, to undertake inspections and enforcement actions in approved States. With respect to such an enforcement action, EPA will rely on Federal sanctions, Federal inspection authorities, and Federal procedures rather than the State-authorized analogues to these provisions. Therefore, Virginia's inspection and enforcement authorities are not incorporated by reference, nor are they part of Virginia's approved state program which operates in lieu of the Federal program. These authorities, however, are listed in 40 CFR 282.96(d)(1)(ii) for informational purposes, and also because EPA considered them in determining the adequacy of Virginia's enforcement authority. Virginia's authority to inspect and enforce the State's underground storage tank requirements continues to operate independently under State law.

Some provisions of the State's underground storage tank program are not part of the federally-approved State program. These non-approved provisions are not part of the RCRA Subtitle I program because they are “broader in scope” than Subtitle I of RCRA. See 40 CFR 281.12(a)(3)(ii). As a result, State provisions which are “broader in scope” than the Federal program are not incorporated by reference for purposes of Federal enforcement in 40 CFR part 282. Section 282.96 of the codification simply lists for reference and clarity the Virginia statutory and regulatory provisions which are “broader in scope” than the Federal program and which are not, therefore, part of the approved program being codified today. “Broader in scope” provisions cannot be enforced by EPA; the State, however, will continue to enforce such provisions.

This rule only codifies EPA-authorized underground storage tank program requirements pursuant to RCRA section 9004 and imposes no requirements other than those imposed by State law (see Supplementary Information). Therefore, this rule complies with applicable executive orders and statutory provisions as follows.

1. Executive Order 12866: Regulatory Planning Review—The Office of Management and Budget has exempted this rule from its review under Executive Order (EO) 12866. 2. Paperwork Reduction Act—This rule does not impose an information collection burden under the Paperwork Reduction Act. 3. Regulatory Flexibility Act—After considering the economic impacts of today's rule on small entities under the Regulatory Flexibility Act, I certify that this rule will not have a significant economic impact on a substantial number of small entities. 4. Unfunded Mandates Reform Act—Because this rule codifies pre-existing requirements under state law and does not impose any additional enforceable duty beyond that required by state law, it does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act. 5. Executive Order 13132: Federalism—EO 13132 does not apply to this rule because it will not have federalism implications ( i.e. , substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government). 6. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments—EO 13175 does not apply to this rule because it will not have tribal implications ( i.e. , substantial direct effects on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes). 7. Executive Order 13045: Protection of Children from Environmental Health & Safety Risks—This rule is not subject to EO 13045 because it is not economically significant and it is not based on health or safety risks. 8. Executive Order 13211: Actions that Significantly Affect Energy Supply, Distribution, or Use—This rule is not subject to EO 13211 because it is not a significant regulatory action as defined in EO 12866. 9. National Technology Transfer Advancement Act—EPA codifies approved State programs as long as they meet criteria required by RCRA, so it would be inconsistent with applicable law for EPA, in its review of a State program, to require the use of any particular voluntary consensus standard in place of another standard that meets the requirements of RCRA. Thus, section 12(d) of the National Technology Transfer and Advancement Act does not apply to this rule. 10. Congressional Review Act—EPA will submit a report containing this rule and other information required by the Congressional Review Act (5 U.S.C. 801 et seq. ) to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication in the Federal Register . A major rule cannot take effect until 60 days after it is published in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2). This action will be effective on August 16, 2004.

The fishery for reef fish is managed under the Fishery Management Plan for the Reef Fish Resources of the Gulf of Mexico (FMP) that was prepared by the Council. The FMP was approved by NMFS and implemented under the authority of the Magnuson-Stevens Act by regulations at 50 CFR part 622.

On January 8, 2004 (69 FR 1278), NMFS published a notice announcing the availability of Secretarial Amendment 1 and requested comments on its contents. On February 20, 2004 (69 FR 7898), NMFS published a proposed rule to implement Secretarial Amendment 1 and requested comments through April 20, 2004 (69 FR 7898, February 20, 2004). NMFS adopted Secretarial Amendment 1 on May 28, 2004. The rationale for the measures in Secretarial Amendment 1 is provided in the amendment and in the preamble to the February 20, 2004 (69 FR 7898), proposed rule and is not repeated here.

NMFS received 17 comments on Secretarial Amendment 1 and three comments on the proposed rule in addition to a petition signed by 66 commercial fishermen on the proposed rule. Additionally, two Council members submitted a minority report objecting to various aspects of Secretarial Amendment 1. A summary of those comments and NMFS' responses to those comments follows.

Comment 1: Several comments were received that objected to the establishment of a 2-fish red grouper recreational bag limit (within the aggregate 5-fish grouper bag limit).

Response: Setting a 2-fish red grouper recreational bag limit (out of the aggregate 5-fish grouper bag limit) is projected to reduce the harvest in the recreational sector by 9 percent and is necessary to accomplish rebuilding goals without reallocating harvest. Although this reduction is slightly less than the 9.4-percent reduction sought by NMFS, the percent difference is not significant since the recreational sector only accounted for 19 percent of the total red grouper harvest during 1999-2001. Further, according to a NMFS bag limit analysis conducted in 2001 on angler trips where red grouper were caught, the average number of red grouper taken per angler trip was only 1.2 fish, and only 6 percent of the angler trips caught more than two red grouper. The effect of the bag limit on this 6 percent of angler trips will achieve the above-mentioned 9 percent harvest reduction. However, overall, a reduction in the recreational bag limit will have little impact on most recreational fishermen. A bag limit reduction also eliminates the necessity for a closed season, which would result in more negative impacts on the for-hire sector, because trip cancellations are more likely to occur under a closed season than under a reduced bag limit.

Comment 2: Several comments recommended a prohibition on longlines as allowable gear in the commercial grouper fishery or movement of the longline gear boundary to the 50-fathom (91.4-m) depth contour.

Response: A prohibition on the use of longlines as allowable gear, and the subsequent reduction in red grouper landings of approximately 60 percent attributed to that sector, is unnecessary to rebuild the stock within 10 years. Further, a prohibition on longlines as allowable gear would disproportionally affect one sector of the commercial grouper fishery, i.e., longline fishermen, by allowing the vertical line and trap sectors of the fishery to harvest a greater proportion of the resource. Such action would have dire economic consequences for the longline sector and result in severe economic disruption on those coastal fishing communities dependent on this segment of the commercial fishery. Additionally, such action could result in the loss of some onshore processing infrastructure which could have negative economic impacts on other sectors of the commercial grouper fishery that require these processing facilities. Movement of the commercial longline gear boundary to the 50-fathom (91.4-m) depth contour, even with an estimated 60-80 percent shift in effort by longline fishermen to vertical line gear, would reduce the harvest of red grouper by approximately 38-43 percent. Because only a 9.4-percent reduction is necessary, these actions would be unnecessarily restrictive for rebuilding the red grouper stock and could lead to greater short-term socioeconomic loss from forgone yield.

Comment 3: One comment recommended reducing the commercial quota for shallow-water grouper by 50 percent.

Response: The measures implemented by this rule reduce the shallow-water grouper commercial quota to account for the required 9.4-percent reduction in the red grouper component of the quota which is necessary to end overfishing and rebuild the red grouper stock. Reducing the shallow-water grouper quota by 50 percent would be unnecessarily restrictive for rebuilding the red grouper stock and would lead to greater short-term socioeconomic loss from forgone yield.

Comment 4: One comment was received from the Council that recommended establishing a single commercial trip limit of 4,000 lb (1,814 kg) for shallow-water grouper if 75 percent of the shallow-water grouper quota is reached by September 30, and a petition submitted by commercial fishermen recommended a 5,500-lb (2,495-kg) trip limit year-round for the commercial grouper fishery.

Response: In an earlier draft of Secretarial Amendment 1, trip limits were proposed to help achieve the required 9.4-percent reduction in red grouper landings and to slow the commercial harvest, thereby providing for an extended open season. Landings data for the commercial shallow-water grouper fishery indicated that the shallow-water grouper quota was exceeded in 2000 and 2001. Thus, trip limits were proposed as a management measure to help achieve the required reduction in fishing mortality and control fishing effort to allow for an extended season. The Southeast Fisheries Science Center (SEFSC) recently recalculated the shallow-water grouper landings using an updated conversion factor which showed that the shallow-water grouper quota had only been exceeded by 6,500 lb (2,948 kg) in 2001. Therefore, alternatives for year-round trip limits were determined by NMFS to be unnecessary at this time to ensure an expanded season. Additionally, establishment of a trip limit may encourage effort shifting from one sector of the fishery to another sector with a higher trip limit, i.e., vertical line to longline, with a subsequent increase in fishing mortality.

NMFS conducted an economic analysis for a single commercial trip limit of 4,000 lb (1,814 kg) for shallow-water grouper if 75 percent of the shallow-water grouper quota is reached by September 30. The agency concluded that such action will not prevent a quota closure since the red grouper quota under this scenario, based on 1999 through 2001 landings data, is projected to be reached by late November or early December, which is similar to the projected closure date under the proposed commercial quotas.

Anecdotal information received from several fishing organizations indicates that an unknown number of large highly migratory species longline vessels have entered the shallow-water grouper fleet in 2004. Effort by these larger vessels, which are capable of deploying longline gear of lengths substantially greater than gear used in the existing fleet, could increase fishing mortality rates on both the red grouper and shallow-water grouper stocks, thus potentially reducing the fishing season. NMFS will monitor landings through the existing shallow-water grouper quota monitoring program. If landings of either red grouper or other shallow-water grouper species have increased beyond projections for the 2004 fishing year, the Council or NMFS may elect to implement trip limits as an additional management measure.

Comment 5: One non-governmental organization (NGO) stated that the recommended reduction in fishing mortality is not sufficient to address overfishing and rebuild the red grouper stock.

Response: Secretarial Amendment 1 is based on the best available scientific information and accordingly will establish a 10-year red grouper rebuilding plan, structured in 3-year intervals, that would end overfishing and rebuild the stock to maximum sustainable yield (MSY). The rebuilding plan seeks to achieve a 9.4-percent reduction in the recreational and commercial harvest of red grouper, relative to the average landings for 1999-2001, during the first 3 years of the 10-year rebuilding plan. The appropriate measures for the subsequent 3-year intervals, consistent with the overall provisions of the rebuilding plan, would be determined based on the latest stock assessments available at that time. Secretarial Amendment 1 also includes measures designed to protect other shallow-water grouper, deep-water grouper, and tilefishes from any potential shift in fishing mortality that might result from implementation of the red grouper rebuilding plan.

Comment 6: One comment from an NGO stated that the use of the 1999-2001 time frame for establishing commercial quota baselines, and the de facto allocation for the recreational fishery, is both scientifically risky and inherently unfair to the recreational sector. Additionally, a minority report submitted by two Council members stated that the 6.56 million-lb (2.95 million-kg) allowable biological catch (ABC) for red grouper is too high.

Response: The Council decided to base its harvest reduction strategy on the baseline years 1999-2001 rather than 1990-2000 because the fishery is currently influenced by the strong 1996 red grouper year-class, and will likely continue to be influenced by it for the next 3 years of the rebuilding plan. A new stock assessment will be prepared and a new ABC selected for the second and subsequent 3-year intervals.

The commercial-to-recreational ratio of red grouper caught during 1990-2000 was 76:24, little changed from the 1986-1989 pre-regulatory ratio of 75:25. However, in recent years (1999-2001) the commercial-to-recreational ratio has shifted to 81:19. There are two likely reasons for this shift. First, in 2000, differential gag minimum size limits were implemented (24 inches (61 cm) commercial, 22 inches (56 cm) recreational), which allowed the recreational sector to focus more on gag. In fact, the recreational proportion of gag harvest increased in 1999-2001 compared to 1990-2000. Second, the strong 1996 year-class of red grouper entered the fishery around 1999. Since commercial sector catches predominately were red grouper while the recreational sector catches predominately were gag, this year-class provides more of a boost to commercial harvest than to recreational harvest. Single-species grouper allocations are not specified in Reef Fish Amendment 1, and the current amendment does not attempt to address the question of single-species grouper allocations. Instead, the current amendment achieves the needed reductions in red grouper harvest by applying the same percentage reductions to each sector, thus effectively maintaining allocations at current levels.

The RFSAP strongly recommended a constant F MSY fishing mortality rate for red grouper with an ABC range of 6.59 to 7.63 million lb (2.99 to 3.46 million kg, respectively) in 2004. Further, the RFSAP also recommended that if the Council decided to take a more conservative approach and began to manage red grouper towards B OY , a constant F OY yield of 6.14 to 6.59 million lb (2.79 to 2.99 million kg) is recommended for 2004. The recommended ABC of 6.56 million lb (2.98 million kg) for the first 3-year interval of the rebuilding plan is mid-range of these high and low end values recommended by the RFSAP. This allows the stock to be adjusted in 3-year increments, rather than every year. This strategy allows harvest to increase in a stepwise fashion as the stock recovers.

The Administrator, Southeast Region, NMFS, determined that Secretarial Amendment 1 is necessary for the conservation and management of the Gulf reef fish fishery and that it is consistent with the national standards of the Magnuson-Stevens Act and other applicable laws.

This final rule has been determined to be not significant for purposes of Executive Order 12866.

NMFS prepared a FRFA that describes the economic impact this rule is expected to have on small entities. A summary of the FRFA follows.

The Magnuson-Stevens Act provides the statutory basis for this rulemaking. This rule will: establish red grouper biological reference points and stock status criteria; adopt a 10-year red grouper rebuilding plan based on a 3-year interval rebuilding strategy that will include a 9.4-percent reduction in total red grouper harvests for the first 3-year interval; adjust the shallow-water grouper quota by an amount equal to the reduction in the red grouper quota; set the recreational bag limit at two red grouper out of the five aggregate grouper bag limit per person; close the commercial shallow-water grouper fishery when the commercial red grouper quota or the shallow-water grouper quota is reached, whichever comes first; reduce the deep-water grouper quota; and establish a tilefish quota.

The primary objective of this rule is to optimize the net benefits to the Nation of the shallow-water grouper stocks by rebuilding the red grouper component to a stock level capable of supporting optimum yield.

No comments were received regarding the economic impact of this rule. Therefore, no changes were made in the final rule as a result of such comments.

This rule contains no changes in recordkeeping or compliance requirements.

This rule will impact both the commercial and recreational participants that traditionally harvest shallow-water grouper species and dealers who receive these species from commercial harvesters.

There are currently approximately 1,204 active commercial reef fish permits and an unknown number of other permits in the process of being renewed. Examination of 2000 logbook data showed that of vessels with commercial reef fish permits, 782 vessels in Florida and 207 in other Gulf states landed reef fish with vertical line gear in 2000. An additional 155 vessels in Florida and 33 in other Gulf states were identified as having landed reef fish using longline gear in 2000. Furthermore, 55 vessels, all in Florida, reported landing reef fish using fish traps. For all vessels landing reef fish, a total of 546 vessels participate in the shallow-water grouper fishery on a consistent basis. Of these vessels, 138 used longline gear, 353 used vertical line gear, and 55 used fish traps. Within the commercial red grouper fishery, longline gear accounted for 59 percent of landings, handline gear accounted for 24 percent, and fish traps accounted for 16 percent. The corresponding landings percentages for the commercial gag fishery are: 25 percent for longline gear, 73 percent for handline gear, and 2 percent for fish traps. Other gear types account for a minuscule portion of the commercial landings of these species. Red grouper and gag are the two most significant species in the shallow-water grouper fishery. The measures in this rule will directly or indirectly affect all of these vessels.

Although this rule will directly or indirectly affect all commercial vessels that participate in the grouper fishery, this rule will affect vessels that operate in the eastern Gulf (Florida) more significantly because the bulk of the grouper fishery is in this area. Among the Florida vessels, the longline vessels will bear most of the cost of the measures, particularly with respect to red grouper. High-volume vertical line and fish trap vessels will also bear a disproportionate share of the burden. Estimates of gross annual receipts per vessel for vessels in the reef fish fishery are as follows: $67,979 for high-volume vessels using vertical line gear in the eastern Gulf; $24,588 for low-volume vessels using vertical line gear in the eastern Gulf; $116,989 for high-volume vessels using bottom longline gear Gulf-wide; $87,635 for low-volume vessels using bottom longline gear Gulf-wide; $93,426 for high-volume vessels using fish traps (Florida only); and $86,039 for low-volume vessels using fish traps (Florida only). Estimates of net annual income per vessel (defined as gross receipts less routine trip costs) for vessels in the reef fish fishery are as follows: $23,822 for high-volume vessels using vertical line gear in the eastern Gulf; $4,479 for low-volume vessels using vertical line gear in the eastern Gulf; $25,452 for high-volume vessels using bottom longline gear Gulf-wide; $14,978 for low-volume vessels using bottom longline gear Gulf-wide; $19,409 for high-volume vessels using fish traps (Florida only); and $21,025 for low-volume vessels using fish traps (Florida only).

This rule will also affect fish dealers that receive groupers by way of purchase, barter, or trade. About 431 dealers located in the five Gulf states receive groupers. Of this total, approximately 87 dealers located in Florida will be most directly affected by this final rule. Of these 87 dealers, approximately 54 dealers generally receive less than 10,000 lb (4,536 kg) of grouper per year while 11 dealers generally receive more than 80,000 lb (36,287 kg) of grouper per year. Among the longline vessels operating in the fishery, more vessels reported sales to dealers in Madiera Beach (54 vessels) and St. Petersburg (34 vessels) than any other locations. Information on the average number of employees per reef fish dealer is not known. Although dealers and processors are not synonymous entities, total employment for reef fish processors in the Southeast has been estimated at approximately 700 individuals, both part- and full-time. It is assumed that all processors must be dealers, yet a dealer need not be a processor. Further, processing is a much more labor intensive exercise than dealing, therefore requiring greater employment. Therefore, it is assumed that total dealer employment is less than 700 individuals.

The measures in the rule that apply to the recreational sector will also affect all for-hire vessels that operate in the reef fish fishery. As of July 2003, a total of 1,377 reef fish permits had been issued to the recreational for-hire sector, which includes both charter boats and headboats. Similar to the situation with the commercial sector, most of the effects will be borne by those for-hire vessels that operate in Florida. This number, however, cannot be determined with certainty since the for-hire permit registration address does not necessarily indicate the area of operation. Further, identifying the number of vessels dependent upon shallow-water grouper species is not possible given available data. Based on fees, number of passengers, and number of trips, average annual receipts are estimated at $68,000 for charter vessels and $324,000 for headboats. Major activity centers for charter boats in Florida are Naples, Fort Myers/Fort Myers Beach, Destin, Panama City/Panama City Beach, Pensacola, and the Florida Keys. The major activity centers for headboats are Clearwater, Fort Myers/Fort Myers Beach, Destin, Panama City/Panama City Beach, and the Florida Keys. Florida Keys vessels, however, depend more on king mackerel, billfish, and dolphin than grouper species. Additional impacts from the measures contained in this rule will be borne by the extended communities at the activity centers and the businesses therein. However, these entities cannot be quantified due to lack of sufficient data.

The Small Business Administration (SBA) considers a commercial fishing business to be a small business entity if the business is independently owned and operated, is not dominant in its field of operation, and has receipts of up to $3.5 million annually. The benchmark for a small business in the for-hire fishery is a firm with receipts of up to $6 million per year. The SBA benchmark for a fish dealer or processing facility is a business with fewer than 500 employees. Given the revenue and employment information provided above, all the business entities potentially affected by the rule are considered small entities.

The biological reference points and stock status criteria specified by Secretarial Amendment 1 will not directly affect fishery behavior and, thus, are not expected to produce any direct economic impacts. The quota reductions and associated quota closure for the commercial shallow-water grouper fishery are expected to take effect by mid-November of the first year of implementation. The quota closure is expected to reduce annual net revenues by 11 percent for longline vessels, 4 percent for vertical line vessels, and 5 percent for fish trap vessels. If vessels can successfully increase their landings and revenues more than their costs by increasing their number of trips, net income losses due to the quota closure provision can be partially offset. However, this would cause the quota to be reached faster every year, inducing a derby that may eventually result in decreases in ex-vessel prices and further erode vessel profits. The quotas for tilefish and deep-water groupers match the historical commercial harvests for these species so these particular measures are not expected to reduce the profits of commercial vessels.

The red grouper recreational bag limit is not expected to substantially affect the revenues of for-hire vessels, although trip cancellations by recreational anglers may occur as a result of the change. However, only 5 percent of charter vessels operating off the Florida Gulf coast have reported targeting one species, while 36 percent reported targeting three or fewer species, and 90 percent reported targeting eight or fewer species. About 29 percent of charter vessels have reported not targeting specific species. None of the headboats in the Florida Gulf target only one species, 60 percent target four or less species, and 41 percent do not target specific species. Since the bag limit change is specific to red groupers, other species may still be targeted or caught. Thus, trip cancellations as a result of the red grouper bag limit reduction are expected to be relatively few. Fishing trip costs of for-hire vessels are also not likely to increase, since these vessels are expected to continue to fish in the same areas they traditionally fish. Total effects of the rule on the net revenue or profit of the for-hire vessels in Florida, however, cannot be determined with certainty because firm-specific data are not available for the for-hire fleet.

The profit profile for dealers is not known due to the absence of applicable data. The projected reduction in ex-vessel sales ($2.248 million) as a result of the rule equals approximately 11.5 percent of total shallow-water grouper revenues. It is unlikely, however, that any dealer with substantial business operations would be wholly dependent upon harvests of shallow-water grouper. Thus, dealer business failure as a result of quota reductions is not expected to be substantial.

Three alternatives, including the no action alternative, were considered relative to the specification of red grouper MSY. The rule will establish red grouper MSY as a range whereas each of the two additional action alternatives specify the reference points alternately as the lower and upper bounds of the proposed range. Since specification of the maximum sustainable yield is a required component of a fishery management plan, the no-action alternative is not a viable alternative. The specification of a range contained in the rule was selected as best accounting for the uncertainty associated with the spawner-recruit relationship for this species.

Three alternatives, including the no action alternative, were considered relative to the specification of red grouper minimum stock size threshold. Since specification of the minimum stock size threshold is a required component of a fishery management plan, the no-action alternative is not a viable alternative. One alternative would establish a more conservative specification of the minimum stock size threshold than the rule, while another would establish a less conservative threshold. The specification contained in the rule was selected because it follows the recommendations of NMFS's Technical Guidance On the Use of Precautionary Approaches to Implementing National Standard 1 of the Magnuson-Stevens Fishery Conservation and Management Act (NOAA Technical Memorandum NMFS-F/SPO-##) (NMFS Technical Guidance).

Four alternatives, including the status quo alternative, were considered relative to the specification of red grouper maximum fishing mortality rate. One alternative would establish a more conservative specification of the maximum fishing mortality rate, while the other three alternatives would establish a less conservative threshold. The specification contained in the rule was selected because it follows the recommendations of the NMFS Technical Guidance.

Three alternatives, including the no action alternative, were considered relative to the specification of red grouper optimum yield. Since specification of the optimum yield is a required component of a fishery management plan, the no-action alternative is not a viable alternative. One alternative would establish a more conservative specification of the threshold, while another would establish a less conservative threshold. The specification contained in the rule was selected because it follows the recommendations of the NMFS Technical Guidance.

Five alternatives, including the no action alternative, were considered relative to the red grouper rebuilding plan specified by the rule. Since specification of a rebuilding plan is a required component of a fishery management plan for a resource that has been identified as overfished, the no-action alternative is not a viable alternative. Three alternatives would establish the same recovery period, 10 years, but specify different annual allowable biological catches. One of these alternatives would allow a higher initial catch than the rule, thereby inducing lower short-term adverse impacts than the rule. This alternative would not, however, require mandatory evaluations of the allowable biological catch every 3 years, as the rule will, and may not allow harvests to increase during the recovery period, as the rule will. Thus, this alternative may result in increased costs relative to the rule. The two alternatives that would establish lower catches than the rule would result in increased adverse impacts relative to the rule. An additional alternative would establish a shorter recovery period than the rule, requiring lower harvest levels, thereby accelerating the recovery schedule but with greater short-term adverse economic impacts. The recovery plan specified by the rule, therefore, best accomplishes NMFS' objectives while minimizing adverse economic impacts.

Three alternatives, including the no action alternative, were considered relative to the reduction in the shallow-water grouper quota by an amount equal to the reduction in the red grouper total allowable catch. Two alternatives would reduce the shallow-water grouper quota by amounts greater than the rule and would not, therefore, decrease the adverse impacts of the rule. The no action alternative could lead to greater mortality of red grouper as a result of catch and release mortality, therefore jeopardizing the recovery of the species.

Five alternatives were considered relative to commercial quota closure. The no-action alternative would close the commercial fishery for shallow-water grouper when the aggregate quota is reached. This would result in less adverse economic impacts than the closure specified by the rule but would result in excessive red grouper mortality if the red grouper quota is reached before the shallow-water grouper quota is met. One alternative would close the commercial red grouper fishery when this quota is reached, but allow the fishery for other shallow-water grouper species to continue until the aggregate quota is reached. While this alternative would result in less short-term adverse economic impacts than the rule, red grouper would continue to be caught as a bycatch species, thereby resulting in total red grouper mortality exceeding the quota. In addition to closing the commercial red grouper fishery, another alternative would close fishing for all shallow-water grouper species in certain areas of the Gulf when the red grouper quota is met. Multiple area closure options were considered, up to and including closure of the entire Gulf, which would match the provisions of the rule. For those options that are not Gulf-wide, the resultant short-term adverse impacts would be less than those of the rule. These options would potentially allow, however, excessive mortality of red grouper since red grouper would continue to be caught as bycatch. The final alternative would allow continued red grouper harvest if the red grouper allocation has not been met when the shallow-water grouper aggregate quota has been achieved. This alternative, however, would result in the shallow-water grouper aggregate quota being exceeded. Since these other alternatives would result in either excessive red grouper or excessive total shallow-water grouper mortality, only the closure specification contained in the rule is consistent with the NMFS' objectives.

Four alternatives were considered relative to fixed shallow-water grouper closed seasons. The fixed closure specified by the rule is the status quo February 15 through March 15 closed season on red grouper, gag, and black grouper. One alternative would replace this closure with a March 1 through May 31 closure, and would apply the closure to either the same three species or all shallow-water grouper species. This alternative, regardless of the species options, would be more stringent than necessary to reduce red grouper harvests and protect gag spawning aggregations and would result in greater economic losses than the proposed alternative. A second alternative incorporates the same species options as the first rejected alternative, but does not identify a specific closure period. Depending upon the period chosen, the resultant impacts could be less than or greater than those of the rule. However, the rule was selected since the period encompassed best meets the dual purpose of reducing red grouper harvest and protecting gag spawning aggregations. A final alternative would eliminate the fixed closure. While this alternative would also eliminate the short-term adverse impacts of the rule, the desired reduction in red grouper harvests and protection of gag would not be accomplished.

Five alternatives were considered for commercial grouper trip limits. The rule will continue the status quo of no commercial grouper trip limits. The remaining alternatives would either impose trip limits that applied throughout the year, or would be triggered upon shallow-water grouper harvests reaching 75 percent of the aggregate quota. Each of these alternatives would result in greater adverse economic impacts than the rule and are, therefore, not consistent with NMFS' intent.

Approaches for constraining the recreational grouper harvest to its allocation included closures, bag limits, and minimum size limits. In addition to the specifications contained in the rule, which will maintain the status quo of no fixed closed season for the recreational grouper fishery, four alternatives were considered relative to recreational closures. In addition to options for applying the closure to selected species in the shallow-water grouper complex or the entire complex, each of these alternatives specified fixed closed seasons. One alternative additionally limited the closure to a specific region of the Gulf as opposed to the entire Gulf. Allowing the recreational fishery to remain open year-round, as will be accomplished by the rule in combination with appropriate bag and size limits, was determined to produce the least adverse economic impacts on the fishery. Thus, the rule was determined to best achieve NMFS' objectives.

Four alternatives were considered for the recreational grouper bag limit. While this rule will establish a limit of two red grouper out of the aggregate five-fish shallow-water grouper bag limit, one alternative would establish a similar limit on gag in addition to the red grouper limit. This alternative would, thus, be more restrictive than the rule and increase adverse impacts. Additionally, this alternative would exceed the protection currently believed necessary for gag. Another alternative would not change the red grouper limit but would instead reduce the total aggregate bag limit. Available options, however, would result in either or both reductions in red grouper harvests that are greater than necessary or reductions in the harvest of other grouper species that are not currently justified. Thus, this alternative would increase the negative impacts on the fishery. The final alternative, the status quo, would not achieve the required red grouper harvest reductions. The rule, therefore, best achieves the necessary harvest reductions at the least adverse impact.

Four alternatives were considered to each of the minimum size specifications of the rule to retain the commercial and recreational red grouper minimum size limits at their current specification of 20 inches (50.8 cm) total length. The larger minimum size limits, however, lead to harvest reductions that exceed the required reductions, generate increased discard mortality, and increase expected losses relative to the rule. Thus, the rule best achieves NMFS' objectives at the least adverse impact.

The rule specifies that the fishing year remains the status quo, which provides that the fishing year for all reef fish begins January 1 each year. Alternatives to the status quo provide for a fishing year to start after a fixed commercial season for any reef fish or for the grouper fishery only. These alternatives are not expected to have immediate impacts on fishing participants. Maintaining the status quo, however, as specified by the rule, provides stability and helps eliminate future uncertainty associated with changes in the start of the open season for various species within the grouper fishery in particular and reef fish fishery in general.

The rule establishes a quota for tilefish and reduces the deep-water grouper quota from its current level, which has never been met, to the average annual harvest from 1996-2000, with the intent to minimize the potential adverse impacts of participants in the shallow-water grouper fishery shifting effort to the deep-water species. In addition to options encompassing different quota levels and the status quo alternative, significant alternatives to the rule came in two forms. One form set different quota levels for deep-water groupers and tilefish independently, while the other form combined deep-water groupers and tilefish and provided for different quota levels for the aggregate. The alternative independent quotas for each group fall between the extremes of the alternative options and, thus, would be expected to result in less adverse impacts than the lower options, and more adverse impacts than the higher options. However, the quotas specified by the rule are equal to the average commercial harvest for these species, so adverse impacts on fishing participants are expected to be minimal.

Copies of the RIR and FRFA are available upon request (see ADDRESSES ).

The Atlantic shark fisheries are managed under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act). The 1999 Fishery Management Plan for Atlantic Tunas, Swordfish, and Sharks (HMS FMP), and Amendment 1 to the HMS FMP, finalized in 2003, are implemented by regulations at 50 CFR part 635.

On December 24, 2003, NMFS issued a final rule (68 FR 74746) that established the 2004 annual landings quota for LCS at 1,017 metric tons (mt) dressed weight (dw). The final rule also established regional LCS quotas for the commercial shark fishery in the Gulf of Mexico (Texas to the West coast of Florida), South Atlantic (East coast of Florida to North Carolina and the Caribbean), and North Atlantic (Virginia to Maine). The quota for LCS was split between the three regions as follows: 42 percent to the Gulf of Mexico, 54 percent to the South Atlantic, and 4 percent to the North Atlantic. As was done since 1993, the quotas for each region were further split evenly between the 2004 first and second semiannual fishing seasons.

On May 13, 2004, NMFS published a proposed rule to adjust the seasonal quota split for the North Atlantic region (69 FR 26540). The comment period on that proposed rule closed on May 28, 2004. As described in the proposed rule, landings data from 2000-2002 indicated that the majority of LCS in the North Atlantic region were landed in the second semiannual season. Historically, first season landings, including state landings after a Federal closure, have ranged from 6 to 38 percent, with an average of approximately 20 percent of the annual regional quota for the North Atlantic being landed during the first season. Second season landings, including state landings after a Federal closure, have ranged from 62 to 94 percent, with an average of approximately 80 percent of the annual regional quota for the North Atlantic being landed during the second season. In addition, as of April 23, 2004, there were no reported landings of LCS for the North Atlantic region during the first semiannual season, indicating that the current 50-percent split between the two semiannual seasons does not reflect the historic or current landings for the North Atlantic region.

Thus, this final rule adjusts the seasonal quota split from an even split (50/50) to a 20/80 split resulting in 8.1 mt dw (17,857.3 lb dw) for the first semiannual season and 32.6 mt dw (71,870.0 lb dw) for the second semiannual season, not adjusted for any over- or underharvest. This action will not affect the overall LCS landings quota for the fishery or the region (40.7 mt dw or 89,727.2 lb dw for the North Atlantic), but will adjust the North Atlantic 2004 semiannual season quotas to result in a longer second season that more accurately reflects historical and current landings in the region. Available information regarding any over- or underharvest from both seasons will be considered before establishing the trimester season that begins in 2005.

There have been no changes from the proposed to the final rule.

Since neither the annual quotas, nor the overall regional quotas will be changed, NMFS does not expect this action to result in any negative economic consequences. This action will likely have a positive economic impact by allowing fishermen to harvest an amount closer to the actual historic landings for the region. Without making this adjustment, the length of the second semiannual season would have to be shortened when the lower existing quota was reached, thus preventing fishermen from landing as many sharks as they have historically. The shortened season would also make effective management and reporting of the data in a timely manner impracticable. Dealer reports of shark landings are received on a bi-weekly basis, and under the lower existing quota the season would have to be closed in a matter of days rather than weeks, thus not allowing sufficient time to review landings reports.

On June 1, 2004, NMFS published a notice in the Federal Register (68 FR 30837) announcing the opening and closing dates for the commercial Atlantic large coastal, small coastal, and pelagic shark fisheries for the 2004 second semiannual fishing season and the quotas for the Gulf of Mexico and the South Atlantic regions. This information is not repeated here.

Comments on the proposed rule received during the public comment period are summarized here together with NMFS' responses.

Comment 1: The quotas have resulted in too short of a fishing season in the South Atlantic. If the quota split for the North Atlantic region is going to result in a longer second semiannual fishing season for the North Atlantic, then the South Atlantic region should have been allowed to have a longer first semiannual fishing season.

Response: The lower overall LCS quota implemented in Amendment 1 to the HMS FMP, combined with splitting the quota among three regions, has resulted in a shorter fishing season for each of the regions. Adjusting the North Atlantic regional quota split between the first and second semiannual seasons is necessary because, as of April 23, 2004, there had been no reported landings of LCS for the first semiannual season in the North Atlantic region. By contrast, as of April 23, 2004, 87 percent of the South Atlantic regional quota for the first season had been reported landed. The closure of the fishery in the South Atlantic region was thus timed appropriately to avoid an overharvest of LCS. If there had been a similar significant underharvest of LCS in other regions, along with historical data indicating a majority of landings in the second season, NMFS would have considered taking similar action to allow additional harvest during the second semiannual season, as appropriate, given the overall quota. For any quota not fully taken in any region, the underharvest will be added to the quota in the 2005 fishing year, consistent with § 635.27(b)(1)(vi).

Comment 2: NMFS should not allow any harvest of sharks.

Response: The Atlantic commercial shark fishery is being managed to allow for LCS to rebuild, consistent with the Magnuson-Stevens Act. In Amendment 1 to the HMS FMP, NMFS established the overall annual quota for LCS at 1,017 mt dw based on the latest stock assessments, and established a revised rebuilding plan for LCS. The environmental impacts of the overall regional quotas were analyzed in Amendment 1 to the HMS FMP and the final rule published on December 24, 2003, (68 FR 74746). This action does not change the 40.7-mt dw quota allocated for the North Atlantic region as part of the rebuilding plan. Adjusting the 2004 quota allocation for the North Atlantic region between the first and second semiannual seasons is not expected to have a negative impact on shark populations.

Comment 3: The 15-day comment period was too short to allow true public comment.

Response: The 15-day comment period was necessary in order to ensure sufficient notice of the closing date for the North Atlantic region's second semiannual fishing season prior to the start of that season on July 1, 2004.

Comment 4: Adjusting the semiannual quota split from a 50/50 split to a 80/20 split is appropriate given that no LCS were reported landed in the North Atlantic region during the first semiannual fishing season.

Response: The 80/20 split in this action ensures that the quota represents the true historical landings for the second semiannual season in the North Atlantic, without exceeding the overall quota for the region or the fishery as a whole.

Regulations at 50 CFR 635.27(b) provide for adjustments of shark fishing quotas via a framework regulatory action.

On December 24, 2003 (68 FR 74746), NMFS announced that the 2004 annual landings quotas for LCS was established at 1,017 metric tons (mt) dressed weight (dw) (2,242,078.2 lb dw). The LCS quotas was also further split, consistent with § 635.27(b)(1)(iii), between three fishing regions. The North Atlantic fishing region received four percent of the quota or 40.7 mt dw (89,727.2 lb dw).

This final rule allocates 20 percent of the North Atlantic regional quota to the first 2004 semiannual fishing season and 80 percent to the second 2004 semiannual fishing season. Without accounting for any under- or overharvests, the 2004 North Atlantic regional semiannual LCS quota levels are 8.1 mt dw (17,857.3 lb dw) and 32.6 mt dw (71,870 lb dw) for the first and second semiannual seasons, respectively.

In the December 2003 final rule, NMFS announced that due to an overharvest of the quota in the first 2003 semiannual season, the 2004 first semiannual quota for all regions needed to be reduced by 55.4 mt dw (122,134.8 lb dw). Thus, accounting for four percent of the overharvest (2.2 mt dw or 4,850 lb dw), the North Atlantic regional LCS quota for the first 2004 semiannual season is now 5.9 mt dw (13,007 lb dw).

In the fishing season Federal Register notice for the second 2004 semiannual fishing season (69 FR 30837, June 1, 2004), NMFS announced that due to an underharvest in the 2003 second semiannual fishing season, the North Atlantic fishing region would have 7 mt dw (15,432.2 lb dw) added to its available quota. Thus, the 2004 second semiannual fishing season LCS quotas for the North Atlantic region is 39.6 mt dw (87,302.2 lb dw).

NMFS will take appropriate action before January 1, 2005, in order to determine and announce the 2005 first trimester quotas for the Atlantic shark fisheries, consistent with § 635.27(b)(1)(iii).

As announced in a separate Federal Register notice (69 FR 30837, June 1, 2004), the 2004 second semiannual commercial fishing season for LCS, SCS, pelagic sharks, blue sharks, and porbeagle sharks in all regions in the western north Atlantic Ocean, including the Gulf of Mexico and the Caribbean Sea, will open July 1, 2004. To estimate the LCS fishery closure dates, NMFS calculated the average reported catch rates for each region from the second seasons from recent years (2000, 2001, 2002, and 2003) and used these average catch rates to estimate the amount of available quota that would likely be taken by the end of each dealer reporting period. Because state landings after a Federal closure are counted against the quota, NMFS also calculated the average amount of quota reported received after the Federal closure dates of the years used to estimate catch rates. Additionally, pursuant to § 635.5 (b)(1), shark dealers must report any sharks received twice a month: those sharks received between the first and 15th of every month must be reported to NMFS by the 25th of that same month and those received between the 16th and the end of the month must be reported to NMFS by the 10th of the following month. Thus, in order to simplify dealer reporting and aid in managing the fishery, NMFS will close the Federal LCS fishery on either the 15th or the end of any given month.

Based on average LCS catch rates in recent years in the North Atlantic region, approximately 76 percent of the available LCS quota would likely be taken by the second week of July and 152 percent of the available LCS quota would likely be taken by the end of July. Dealer data also indicate that, on average, approximately 9 mt dw (19,841 lb dw) of LCS have been reported received by dealers after a Federal closure. This is approximately 24 percent of the available quota. Thus, if catch rates in 2004 are similar to the average catch rates from 2000 to 2003, 100 percent (76 + 24 percent) of the quota could be caught over the entire semiannual season if Federal waters are closed during the second week of July. If the fishery remains open until the end of July, the quota would likely be exceeded (152 + 24 percent = 176 percent). Accordingly, the Assistant Administrator for Fisheries (AA) has determined that the North Atlantic LCS quota for the second 2004 semiannual season will likely be attained by July 15, 2004. Thus, the North Atlantic LCS fishery will close on July 15, 2004, at 11:30 p.m. local time.

This final rule is published under the authority of the Magnuson-Stevens Fishery Conservation and Management Act, 16 U.S.C. 1801 et seq. The AA previously determined in Amendment 1 to the HMS FMP that the implementation of regional quotas was necessary to ensure effective implementation of the commercial shark fishery. The AA has determined that this final rule is consistent with the Magnuson-Stevens Act and other applicable laws.

The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this action would not have a significant economic impact on a substantial number of small entities. No comments were received concerning the economic impact of the rule. As a result, a regulatory flexibility analysis was not prepared.

As of October 2003, there were 56 directed shark limited access permits in the North Atlantic region that would be affected by this rule, all of which are considered small entities. This final rule will have a positive economic impact because it would allow the fishery to stay open longer, thus providing fishermen with a better opportunity to catch the quota. The positive economic impact is not expected to be significant because the overall quota would not be changed, only the period during which the quota may be harvested. By not making this adjustment, the second semiannual season length would be considerably shorter because the fishery would have to close when the lower existing quota was reached, the quota would not reflect historic and current landings in the fishery, and there could be a negative economic impact on fishermen due to the early closure and lower landings.

Pursuant to the procedures established to implement Executive Order 12866, the Office of Management and Budget has determined that this final rule is not significant.

NMFS notified all states, consistent with the Coastal Zone Management Act, of the regional quotas during the rulemaking for Amendment 1 of the HMS FMP. No states indicated that the regional quota requirement was inconsistent with their coastal zone management programs. Thus, NMFS has determined that adjusting the semiannual regional quota for the North Atlantic region would be consistent to the maximum extent practicable with the enforceable policies of those Atlantic, Gulf of Mexico, and Caribbean coastal states that have approved coastal zone management programs.

The environmental impacts of the overall regional quotas were analyzed in Amendment 1 to the HMS FMP and the final rule published on December 24, 2003, (68 FR 74746). Adjusting the 2004 quota allocation for the North Atlantic region between the first and second semiannual seasons is not expected to have impacts on endangered species or marine mammal interaction rates beyond those impacts considered in the October 29, 2003, Biological Opinion. NOAA Fisheries intends to act expeditiously to inform the interested public about this final action using direct email notification, a fax notice, and the internet.