Citrus canker is a plant disease caused by the bacterium Xanthomonas citri subsp. citri that affects plants and plant parts, including fresh fruit, of citrus and citrus relatives (Family Rutaceae). Citrus canker can cause defoliation and other serious damage to the leaves and twigs of susceptible plants. It can also cause lesions on the fruit of infected plants, which render the fruit unmarketable, and cause infected fruit to drop from the trees before reaching maturity. The aggressive A (Asiatic) strain of citrus canker can infect susceptible plants rapidly and lead to extensive economic losses in commercial citrus-producing areas. Citrus canker is only known to be present in the United States in the State of Florida.

The regulations to prevent the interstate spread of citrus canker are contained in §§ 301.75-1 through 301.75-14 of “Subpart—Citrus Canker” (7 CFR 301.75-1 through 301.75-17, referred to below as the regulations). The regulations restrict the interstate movement of regulated articles from and through areas quarantined because of citrus canker and provide, among other things, conditions under which regulated fruit may be moved into, through, and from quarantined areas for packing. These regulations are promulgated pursuant to the Plant Protection Act (7 U.S.C. 7701 et seq. ).

On June 21, 2007, we published in the Federal Register (72 FR 34180-34191, Docket No. APHIS-2007-0022) a proposal to amend the citrus canker regulations by modifying the conditions under which fruit may be moved interstate from quarantined areas. Among other things, we proposed to require that boxes in which fruit are packed be marked with the statement “Limited Permit: USDA-APHIS-PPQ” in addition to the limited distribution statement, “Not for distribution in AZ, CA, HI, LA, TX, and American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and Virgin Islands of the United States,” that the regulations already required. We also proposed that only fruit that has been treated, inspected, and found free of visible symptoms of citrus canker would be allowed to leave packinghouses in boxes marked with the limited permit statement.

We proposed adding the limited permit statement in order to help ensure that only fruit that was handled in accordance with all of the requirements in § 301.75-7 would be moved interstate. In addition, the limited permit statement indicates under whose authority the distribution of the fruit to commercial citrus-producing States is prohibited, thus further assuring that packers and handlers comply with the limited distribution requirement. It was also our understanding that boxes and other containers in which fruit would be moving interstate would be large enough to bear the proposed limited permit statement, by adding either a sticker or stamp to the existing inventory of boxes or containers.

We received comments on the proposed rule stating that bags of fruit, which are typically packed in boxes, also bore the limited distribution statement but that it was not practical to add the limited permit statement using a sticker or stamp, as the surface area of the label on bags was not large enough to accommodate the additional limited permit statement. Existing inventories of bags would have to be destroyed, and new bags would have to be printed.

On November 19, 2007, we published in the Federal Register (72 FR 65171-65204, Docket No. APHIS-2007-0022) a final rule that required the limited permit and limited distribution statements on all boxes and containers in which regulated fruit is packaged for interstate movement, but provided a temporary exception for the use of bags that are marked only with the limited distribution statement. This exception was intended to allow industry to exhaust its existing inventory of bags pre-marked with the limited distribution statement.

The regulations in paragraph (a)(5)(ii) of § 301.75-7 have provided that, until August 1, 2008, fruit that meets all the requirements of § 301.75-7 may be packed in bags that are clearly marked with the statement “Not for distribution in AZ, CA, HI, LA, TX, and American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and Virgin Islands of the United States,” as long as the bags of fruit are packed in boxes that are marked with both the limited permit and limited distribution statements. Fruit that does not meet all the requirements of § 301.75-7 may not be packed in either bags or boxes that are marked with the limited distribution statement.

We determined that this requirement would ensure that fruit moved interstate meets the requirements of § 301.75-7 and would provide protection against the distribution of fruit to commercial citrus-producing States because the bags must be packed in boxes that are marked with both the limited permit statement and the limited distribution statement, and because bagged fruit is not unloaded from the boxes in which it is shipped until it reaches the point of sale. Since the final rule became effective on November 19, 2007, there have been no instances where bags of fruit have been unloaded from the boxes in which they were shipped and distributed prior to the final point of sale. This requirement has provided an effective means of ensuring that the information regarding the permitted distribution of the fruit is apparent to enforcement personnel, distributors, and consumers.

Recently, regulated entities have informed us that the existing inventory of bags marked only with the limited distribution statement has not yet been depleted. They have requested an additional 2 years to use their remaining inventory. Given that the provisions allowing the use of the existing bags have been working successfully, this interim rule extends the temporary exception until August 1, 2010, to allow for the depletion of the existing inventory of such bags. This action maintains the current safeguards against the movement of regulated fruit to commercial citrus-producing States. Because this exception will eventually expire, when regulated entities deplete their existing inventory of bags marked only with the limited distribution statement, they will replenish their inventory with bags marked with both the limited permit statement and the limited distribution statement, thus making clear under whose authority the distribution of the fruit to commercial citrus-producing States is prohibited.

This rule extends until August 1, 2010, a temporary exception that is scheduled to end on August 1, 2008. That exception allows fruit to be packed for interstate movement in bags if those bags are clearly marked with the limited distribution statement and if those bags are then packed in a container that is marked with both the limited permit statement and the limited distribution statement. Immediate action is warranted to alleviate what would otherwise be the negative economic effects on citrus packers who would have no practical option to comply with the regulations other than destroying their current inventory of bags pre-marked with the limited distribution statement and having replacement bags printed with both the limited permit and limited distribution statements. Under these circumstances, the Administrator has determined that prior notice and opportunity for public comment are contrary to the public interest and that there is good cause under 5 U.S.C. 553 for making this action effective less than 30 days after publication in the Federal Register .

We will consider comments we receive during the comment period for this interim rule (see DATES above). After the comment period closes, we will publish another document in the Federal Register . The document will include a discussion of any comments we receive and any amendments we are making to the rule.

This interim rule has been reviewed under Executive Order 12866. The rule has been determined to be not significant for the purposes of Executive Order 12866 and, therefore, has not been reviewed by the Office of Management and Budget.

In accordance with the Regulatory Flexibility Act, we have analyzed the potential economic effects of this action on small entities.

We are amending the regulations to extend the temporary exception that allows fruit to be packed for interstate movement in bags that are clearly marked with only a limited distribution statement, if those bags are then packed in a box that is marked with both the limited distribution statement and the statement “Limited Permit: USDA-APHIS-PPQ.” We are extending the ending date for this temporary exemption from August 1, 2008, to August 1, 2010. This action provides for the continued use of existing inventories of bags in which regulated fruit are packed while maintaining safeguards against the movement of regulated fruit to commercial citrus-producing States.

APHIS has determined that displaying the limited permit language on boxes or other containers containing fruit for interstate movement is a sufficient mitigation for controlling the distribution of this fruit for the interstate market. Since the final rule became effective on November 19, 2007, there have been no instances where bags of fruit have been unloaded from the boxes in which they were shipped and distributed prior to the final point of sale.

Additionally, the inventory of bags that had been printed prior to the November 19, 2007, final rule continues to be significant. The value of the current inventory of bags, in combination with the projected costs of printing new bags with the limited permit statement, has been estimated by industry to be up to $6 million. APHIS has determined that the adverse economic impact associated with having packers print new bags in order to comply with the regulations is not warranted.

The current inventory of bags printed with the limited distribution statement, but not the limited permit statement, is expected to be depleted by August 1, 2010.

APHIS does not believe small entities will be subject to significant economic impacts as a result of this interim rule, as its effect is to allow regulated entities to continue their current packing process. However, if the ending date of the exception was not extended, entities affected by the interim rule would not be able to deplete any current inventory of bags they may possess.

Under these circumstances, the Administrator of the Animal and Plant Health Inspection Service has determined that this action will not have a significant economic impact on a substantial number of small entities.

This program/activity is listed in the Catalog of Federal Domestic Assistance under No. 10.025 and is subject to Executive Order 12372, which requires intergovernmental consultation with State and local officials. (See 7 CFR part 3015, subpart V.)

This rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule: (1) Preempts all State and local laws and regulations that are inconsistent with this rule; (2) has no retroactive effect; and (3) does not require administrative proceedings before parties may file suit in court challenging this rule.

This rule contains no new information collection or recordkeeping requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ).

This decision adopts provisions to amend the manufacturing (make) allowances for cheese, butter, nonfat dry milk (NFDM) and dry whey powder contained in the Class III and Class IV product-price formulas. Specifically, this decision adopts the following make allowances: cheese—$0.2003 per pound; butter—$0.1715 per pound; NFDM—$0.1678 per pound; and dry whey—$0.1991 per pound. This decision also increases the butterfat yield factor in the butterfat price formula from 1.20 to 1.211.

This administrative rule is governed by the provisions of Sections 556 and 557 of Title 5 of the United States Code and, therefore, is excluded from the requirements of Executive Order 12866.

This interim rule has been reviewed under Executive Order 12988, Civil Justice Reform. This rule is not intended to have a retroactive effect. This rule will not preempt any state or local laws, regulations, or policies, unless they present an irreconcilable conflict with this rule.

The Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674) (AMAA), provides that administrative proceedings must be exhausted before parties may file suit in court. Under Section 608c(15)(A) of the AMAA, any handler subject to an order may request modification or exemption from such order by filing with the Department of Agriculture (USDA) a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with the law. A handler is afforded the opportunity for a hearing on the petition. After a hearing, the Department would rule on the petition. The AMAA provides that the district court of the United States in any district in which the handler is an inhabitant, or has its principal place of business, has jurisdiction in equity to review the Department's ruling on the petition, provided a bill in equity is filed not later than 20 days after the date of the entry of the ruling.

In accordance with the Regulatory Flexibility Act (5 U.S.C. 601-612), the Agricultural Marketing Service has considered the economic impact of this action on small entities and has certified that this interim rule will not have a significant economic impact on a substantial number of small entities. For the purpose of the Regulatory Flexibility Act, a dairy farm is considered a small business if it has an annual gross revenue of less than $750,000, and a dairy products manufacturer is a small business if it has fewer than 500 employees.

For the purposes of determining which dairy farms are small businesses, the $750,000 per year criterion was used to establish a marketing guideline of 500,000 pounds per month. Although this guideline does not factor in additional monies that may be received by dairy producers, it should be an inclusive standard for most “small” dairy farmers. For purposes of determining a handler's size, if the plant is part of a larger company operating multiple plants that collectively exceed the 500-employee limit, the plant will be considered a large business even if the local plant has fewer than 500 employees.

During February 2007, the month the initial public hearing was held, the milk of 49,712 dairy farmers was pooled on the Federal order system. Of the total, 46,729 dairy farmers, or 94 percent, were considered small businesses. During the same month, 352 plants were regulated by or reported their milk receipts to be pooled and priced on a Federal order. Of the total, 186 plants, or 53 percent, were considered small businesses.

This interim final rule amends all orders by changing the make allowances contained in the formulas used to compute component prices and the minimum class prices in all Federal milk orders. Specifically, the make allowance for butter increases from $0.1202 to $0.1715 per pound; the make allowance for cheese increases from $0.1682 to $0.2003 per pound; the make allowance for NFDM increases from $0.1570 to $0.1678 per pound; and the make allowance for dry whey increases from $0.1956 to $0.1991 per pound. The butterfat yield factor in the butterfat price formulas is increased from 1.20 to 1.211.

The adoption of these new make allowances serves to approximate the average cost of producing cheese, butter, NFDM and dry whey for manufacturing plants located in Federal milk marketing areas.

The established criteria for the make allowance changes are applied in an identical fashion to both large and small businesses and will not have any different impact on those businesses producing manufactured milk products. An economic analysis has been performed that discusses impacts of the amendments on industry participants including producers and manufacturers. It can be found on the AMS Dairy Web site at http://www.ams.usda.gov/dairy. Based on the economic analysis, we have concluded that the amendments will not have a significant economic impact on a substantial number of small entities.

The Agricultural Marketing Service (AMS) is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes.

This interim final rule does not require additional information collection that needs clearance by the Office of Management and Budget (OMB) beyond currently approved information collection. The primary sources of data used to complete the forms are routinely used in most business transactions. Forms require only a minimal amount of information that can be supplied without data processing equipment or a trained statistical staff. Thus, the information collection and reporting burden is relatively small. Requiring the same reports for all handlers does not significantly disadvantage any handler that is smaller than the industry average.

Notice of Hearing: Issued February 5, 2007; published February 9, 2007 (72 FR 6179).

Supplemental Notice of Hearing: Issued February 14, 2007; published February 20, 2007 (72 FR 7753).

Notice to Reconvene Hearing: Issued March 15, 2007; published March 21, 2007 (72 FR 13219).

Notice to Reconvene Hearing: Issued May 2, 2007; published May 8, 2007 (72 FR 25986).

Tentative Partial Final Decision: Issued June 16, 2008; published June 20, 2008 (73 FR 35306).

The findings and determinations hereinafter set forth supplement those that were made when the Northeast and other orders were first issued and when they were amended. The previous findings and determinations are hereby ratified and confirmed, except where they may conflict with those set forth herein.

The following findings are hereby made with respect to the Northeast and other marketing orders:

(a) Findings upon the basis of the hearing record.

A public hearing was held upon certain proposed amendments to the tentative marketing agreements and to the orders regulating the handling of milk in the Northeast and other marketing areas. The hearing was held pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), and the applicable rules of practice and procedure (7 CFR part 900).

Upon the basis of the evidence introduced at such hearing and the record thereof, it is found that:

(1) The said orders as hereby amended, and all of the terms and conditions thereof, will tend to effectuate the declared policy of the Act;

(2) The parity prices of milk, as determined pursuant to section 2 of the Act, are not reasonable in view of the price of feeds, available supplies of feeds, and other economic conditions which affect market supply and demand for milk in the aforesaid marketing areas. The minimum prices specified in the orders as hereby amended on an interim basis, are such prices as will reflect the aforesaid factors, insure a sufficient quantity of pure and wholesome milk, and be in the public interest; and

(3) The said orders, as hereby amended on an interim basis, regulate the handling of milk in the same manner as, and is applicable only to persons in the respective classes of industrial or commercial activity specified in, a marketing agreement upon which a hearing has been held.

(b) Additional Findings. It is necessary and in the public interest to make these interim amendments to the Northeast and other orders effective [insert effective date]. Any delay beyond that date would tend to disrupt the orderly marketing of milk in the aforesaid marketing areas.

The interim amendments to this order are known to handlers. The tentative partial decision containing the proposed amendments to this order was issued on June 16, 2008.

The changes that result from these interim amendments will not require extensive preparation or substantial alteration in the method of operation for handlers. In view of the foregoing, it is hereby found and determined that good cause exists for making these interim amendments effective on [insert effective date].

Determinations. It is hereby determined that:

(1) The refusal or failure of handlers (excluding cooperative associations specified in Section 8c(9) of the Act) of more than 50 percent of the milk, which is marketed within the specified marketing areas, to sign a proposed marketing agreement, tends to prevent the effectuation of the declared policy of the Act;

(2) The issuance of this interim order amending the Northeast and other marketing orders is the only practical means pursuant to the declared policy of the Act of advancing the interests of producers as defined in the orders as hereby amended;

(3) The issuance of the interim orders amending the Northeast and other orders is favored by at least two-thirds of the producers who were engaged in the production of milk for sale in the respective marketing areas.

It is therefore ordered, that on and after the effective date hereof, the handling of milk in the Northeast and other marketing areas shall be in conformity to and in compliance with the terms and conditions of the orders, as amended, and as hereby amended, as follows:

This document removes references to the NRC's antitrust responsibilities that it possessed prior to the enactment of section 625 of the Energy Policy Act of 2005, Public Law 109-58. For the reasons set out in the preamble and under the authority of the Atomic Energy Act of 1954, as amended; the Energy Reorganization Act of 1974, as amended; and 5 U.S.C. 552 and 553, the NRC is adopting the following amendments to 10 CFR parts 2 and 50.

The agencies issued a notice of proposed rulemaking (NPR) on September 25, 2006, 2 seeking comment on a new risk-based capital adequacy framework that requires some and permits other qualifying banks to use an internal ratings-based (IRB) approach to calculate regulatory capital requirements for credit risk and certain advanced measurement approaches (AMA) to calculate regulatory capital requirements for operational risk (together, the IRB and the AMA are referred to as the “advanced approaches”). On December 7, 2007, the agencies published the advanced approaches final rule. 3 The advanced approaches final rule is based largely on a series of publications by the Basel Committee on Banking Supervision (BCBS) that culminated in a comprehensive release in June 2006, titled, “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” (New Accord). The New Accord presents a three-pillar framework for determining risk-based capital requirements for credit risk, market risk, and operational risk (Pillar 1); supervisory review of capital adequacy (Pillar 2); and market discipline through enhanced public disclosure (Pillar 3).

On February 28, 2007, the agencies published in the Federal Register three separate documents proposing supervisory guidance related to the implementation of the advanced approaches. 4 Two of those documents provided guidance for certain aspects of Pillar 1, that is, for the IRB systems for determining the credit risk of retail and wholesale exposures, and other systems for equity and securitization exposures, and for the AMA for determining operational risk. The third document proposed guidance for Pillar 2. This final guidance document provides supervisory guidance only for Pillar 2, and it does not provide Pillar 1 guidance on the systems for determining regulatory capital requirements for credit risk or for determining regulatory capital requirements for operational risk. This document does not differ significantly from the proposed Pillar 2 guidance.

The agencies recognize that a number of institutions may need additional guidance to implement the advanced approaches final rule. Accordingly, consistent with the proposed guidance for Pillar 2, this guidance document highlights certain aspects of existing supervisory review that are being augmented or clarified to support the implementation of the supervisory assessment of overall capital adequacy under the advanced approaches final rule. In making this assessment, the agencies will consider, among other items, whether each institution (i) has satisfied the qualification requirements for implementing the advanced approaches; (ii) has a rigorous process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive strategy for maintaining appropriate capital levels (internal capital adequacy assessment process—ICAAP); and (iii) maintains a satisfactory risk management and control structure, consistent with its capital position and overall risk profile.

The agencies received ten public comments on the proposed guidance from banking organizations, trade associations representing the banking or financial services industry, and other interested parties. Overall, the commenters supported the principles-based orientation of the guidance. However, some commenters recommended revisions to certain sections of the guidance that they viewed as overly prescriptive. One commenter expressed concern that the guidance appeared to suggest that increases in risk should result in greater capital, even if an institution already maintains a substantial capital buffer. To address this concern, the agencies have revised the guidance to clarify that an increase in risk may not necessarily require an increase in capital where the bank already holds capital at a level exceeding what its internal processes and supervisors regard as adequate.

Other commenters expressed concern regarding the agencies' position that liquidity risk should be addressed within the ICAAP. However, the proposed guidance was consistent with the agencies' view of liquidity risk as a material risk that can affect capital adequacy. The agencies clarified this section of the guidance to indicate that, within the ICAAP, institutions should consider the capital adequacy implications of liquidity risk. One commenter expressed the concern that each bank's ICAAP measures would be compared to (and reconciled with) Pillar 1 measures and to other institutions' ICAAP results. The agencies acknowledge that there may be limited comparability to Pillar 1 measures because a bank's ICAAP under Pillar 2 should be tailored to its individual risk profile, while Pillar 1 measures are based on certain common assumptions that may not apply to each individual bank. Accordingly, there is likely to be some limit to the comparisons that can be made across institutions.

Some commenters expressed confusion about the stress testing requirement in Pillar 1 and stress testing discussed in the Pillar 2 guidance. The agencies regard stress testing as a critical component in the identification and measurement of material risks. Although there are no prescriptive stress testing requirements in Pillar 2, institutions should use stress testing or similar exercises in their ICAAP to consider the consequences of unlikely but severe events and outcomes as an input to the capital adequacy assessment process.

Finally, one commenter indicated that it might not be practical to incorporate the ICAAP into bank management's decision-making process. The agencies believe that for the ICAAP to be meaningful and relevant, it should be consistent with the bank's other risk management practices.

In accordance with the requirements of the Paperwork Reduction Act of 1995, the Agencies may not conduct or sponsor, and the respondent is not required to respond to, an information collection unless it displays a currently valid Office of Management and Budget (OMB) control number. The Agencies are requesting comment on a proposed information collection. The Agencies are also giving notice that the proposed collection of information has been submitted to OMB for review and approval.

Comments are invited on:

(a) Whether the collection of information is necessary for the proper performance of the Agencies' functions, including whether the information has practical utility;

(b) The accuracy of the estimates of the burden of the information collection, including the validity of the methodology and assumptions used;

(c) Ways to enhance the quality, utility, and clarity of the information to be collected;

(d) Ways to minimize the burden of the information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and

(e) Estimates of capital or start up costs and costs of operation, maintenance, and purchase of services to provide information.

Title of Information Collection: Basel II Interagency Supervisory Guidance for the Supervisory Review Process (Pillar 2).

Frequency of Response: Event-generated.

Affected Public:

OCC: National banks.

Board: State member banks and bank holding companies.

FDIC: Insured state nonmember banks and certain subsidiaries of these entities.

OTS: Savings associations and certain of their subsidiaries.

Abstract: The notice sets forth a supervisory guidance document for implementing the supervisory review process (Pillar 2). The guidance was issued for 60 days of comment on February 28, 2007 (72 FR 9084). No comments were received on the burden estimates provided in that notice.

The Agencies believe that paragraphs 37, 41, 43, and 46 impose new information collection requirements. Section 37 states that banks should state clearly the definition of capital used in any aspect of ICAAP and document any changes in the internal definition of capital. Under section 41, banks should maintain thorough documentation of ICAAP. Section 43 specifies that boards of directors should approve the bank's ICAAP, review it on a regular basis, and approve any changes. Boards of directors are also required under Section 46 to periodically review the assessment of overall capital adequacy and to analyze how measures of internal capital adequacy compare with other capital measures (such as regulatory or accounting).

The agencies burden estimates for these information collection requirements are summarized below. Note that the estimated number of respondents listed below include both institutions for which the Basel II risk-based capital requirements are mandatory and institutions that may be considering opting-in to Basel II (despite the lack of any formal commitment by most of these latter institutions).

Estimated Burden:

Number of Respondents: 52.

Estimated Burden per Respondent: 140 hours.

Total Estimated Annual Burden: 7,280 hours.

Number of Respondents: 15.

Estimated Burden per Respondent: 420 hours.

Total Estimated Annual Burden: 6,300 hours.

Number of Respondents: 19.

Estimated Burden per Respondent: 420 hours.

Total Estimated Annual Burden: 7,980 hours.

Number of Respondents: 4.

Estimated Burden per Respondent: 420 hours.

Total Estimated Annual Burden: 1,680 hours.

The full text of the guidance follows:

1. This guidance supplements the final rule published jointly by the U.S. Federal banking agencies 1 in the Federal Register on December 7, 2007 (advanced approaches rule). 2 The advanced approaches rule implements a new risk-based capital framework encompassing three pillars:

• Minimum risk-based capital requirements (Pillar 1);

• Supervisory review (Pillar 2); and

• Market discipline through enhanced public disclosures (Pillar 3).

The minimum risk-based capital requirements in Pillar 1 of the advanced approaches rule apply to a bank's calculation of minimum risk-based capital requirements for credit risk and operational risk. 3 If the bank is also subject to the market risk rule, 4 then the minimum risk-based capital requirements in that rule would apply. 5

2. This document addresses the process for supervisory review in the advanced approaches rule. As described in this guidance, supervisory review covers three main areas:

• Comprehensive supervisory review of capital adequacy;

• Compliance with regulatory capital requirements; and

• Internal capital adequacy assessment process (ICAAP).

3. The process of supervisory review described in this guidance reflects a continuation of the longstanding approach employed by the agencies in their supervision of banks. However, because implementation of the advanced approaches rule affects certain aspects of supervisory review, this guidance highlights areas of existing supervisory review that are being augmented or more clearly defined to support implementation of the advanced approaches rule by U.S. banks.

4. The supervisory review process described in this document is intended to help ensure overall capital adequacy by:

• Confirming a bank's compliance with regulatory capital requirements;

• Addressing the limitations of minimum risk-based capital requirements as a measure of a bank's full risk profile—including risks not covered or not adequately addressed or quantified in Pillar 1;

• Ensuring that each bank is able to assess its own capital adequacy (beyond minimum risk-based capital requirements) based on its risk profile and business model; and

• Encouraging banks to develop and use better techniques to identify and measure risk.

5. This guidance neither supersedes nor alters the functioning of the existing Prompt Corrective Action requirements. 6 Similarly, this guidance does not affect any other requirements for compliance with existing regulations and supervisory standards related to risk-management practices or other areas. The supervisory review process described in this guidance supports the supervisors' existing ability to:

• Require an individual bank to take measures to prevent its capital from falling below the level needed to adequately support its risks; or

• Otherwise intervene to ensure that the bank's capital levels are adequate.

6. Capital helps protect individual banks from insolvency, thereby promoting safety and soundness in the overall U.S. banking system. Minimum risk-based capital requirements establish a threshold below which a sound bank's risk-based capital must not fall. Risk-based capital ratios permit some comparative analysis of capital adequacy across banks because they are based on certain common assumptions. However, supervisors must perform a more comprehensive review of capital adequacy that considers the risks that are specific to each individual bank, including those not incorporated in risk-based capital requirements. In short, supervisors must ensure that a bank's overall capital does not fall below the level required to support its entire risk profile.

7. Supervisors generally expect banks to hold capital above their minimum risk-based capital levels, commensurate with their individual risk profiles, to account for all material risks. Going forward under the advanced approaches rule, supervisors will continue to review the overall capital adequacy of any bank through a comprehensive evaluation that considers all relevant available information. In determining the extent to which banks should hold capital in excess of risk-based capital minimums, supervisors will consider: The combined implications of a bank's compliance with qualification requirements for regulatory capital standards; the quality and results of a bank's own process for determining whether capital is adequate (the ICAAP); and the bank's risk-management processes, control structure, and other relevant information relating to the bank's risk profile and capital level. 7 This review is consistent with current supervisory practice, under which the agencies assess a bank's overall capital adequacy through a comprehensive evaluation of all relevant information.

8. The supervisory review process assesses whether a bank has a satisfactory process to determine that its overall capital is adequate, and that the bank maintains adequate capital on an ongoing basis, as underlying conditions change. For example, changes in a bank's risk profile or in relevant capital measures are areas of particular focus that are effectively addressed through the supervisory review process. Generally, a bank should hold more capital for material increases in risk that are not otherwise mitigated, unless the bank already holds capital at a level exceeding what its internal processes and supervisors would regard as adequate. Conversely, a bank may be able to reduce overall capital (to a level still above regulatory minimums) if the supervisory review supports the conclusion that the bank's inherent risk has materially declined or that it has been appropriately mitigated.

9. As a result of its comprehensive supervisory review, a bank's primary Federal supervisor may take action if it is not satisfied that capital is adequate. The primary Federal supervisor may require the bank to take actions to address identified supervisory concerns, which may include requiring the bank to hold additional capital to bring capital to levels that the supervisor deems commensurate with the bank's risk profile. In addition, the primary Federal supervisor may, under its enforcement authority, require a bank to modify or enhance risk-management and internal-control processes, reduce its exposure to risk, or take any action deemed necessary to address identified supervisory concerns.

10. In order to use the advanced approaches rule to calculate minimum risk-based capital requirements, a bank must meet certain process and systems requirements. As part of the supervisory review process, the agencies will ensure that each bank meets these requirements. The advanced approaches rule provides an explanation of these qualification requirements for any systems and processes used.

11. A bank using the advanced approaches rule must comply with the rule's qualification requirements for both initial and ongoing qualification. A bank that falls out of compliance with the qualification requirements would be required to establish a plan to return to compliance that satisfies its primary Federal supervisor.

12. Supervisors will ensure that each bank using the advanced approaches rule complies with the qualification requirements both at the consolidated level and at any subsidiary bank that uses the advanced approaches rule. Thus, each bank that applies the advanced approaches rule must have appropriate risk-measurement and risk-management processes and systems that meet the rule's qualification requirements.

13. The qualification requirements in the advanced approaches rule state that “a bank must have a rigorous process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive strategy for maintaining an appropriate level of capital.”  8 Because minimum risk-based capital requirements are based on certain assumptions and address only a subset of risks faced by an individual bank, each bank must conduct an internal assessment of whether its capital is adequate, given its risk profile. A bank must conduct this assessment, using the ICAAP, in addition to its calculation of minimum risk-based capital requirements. 9 Accordingly, a bank's capital should exceed the level required by its minimum risk-based capital requirements, and also should be adequate according to its own ICAAP.

14. The fundamental objectives of a sound ICAAP are:

• Identifying and measuring material risks;

• Setting and assessing internal capital adequacy goals that relate directly to risk; and

• Ensuring the integrity of internal capital adequacy assessments.

15. Assessing overall capital adequacy through the ICAAP requires thorough identification of all material risks, measurement of those that can be reliably quantified, and systematic assessment for the limitations of minimum risk-based capital requirements. The ICAAP should address the capital implications arising from both on- and off-balance sheet positions, as well as from provisions of explicit or implicit support. Material risks include those that in isolation do not appear to be material at first, but when combined with other risks could lead to material losses. In this manner, the ICAAP should contribute broadly to the development of better risk management within the organization at both the individual entity and consolidated levels.

16. Each bank implementing the advanced approaches rule should have an ICAAP that is appropriate for its unique risk characteristics and should not rely solely upon the assessment of capital adequacy at the parent company level. This does not preclude the use of a consolidated ICAAP as an important input to a subsidiary bank's own ICAAP, provided that each entity's board and senior management ensure that the ICAAP is appropriately modified to address the unique structural and operating characteristics and risks of the subsidiary bank.

17. In general, the ICAAP will likely go beyond the assumptions built into minimum risk-based capital requirements. However, in certain instances a bank's ICAAP—when supported by proper justification and evidence—may build upon and utilize the methods, practices, and results it uses to determine minimum risk-based capital requirements. For example, in developing the ICAAP, a bank may choose to use data, ratings, or estimates from internal ratings-based approaches for credit risk; or a bank may choose to use the advanced measurement approaches as the basis for its internal assessment of operational risk. Furthermore, although the ICAAP should be a distinct and comprehensive process that produces its own capital measures, in some cases a bank may be able to demonstrate that minimum risk-based capital measures appropriately reflect certain aspects of a bank's risk profile and thus are appropriate for use in its ICAAP.

18. The design and operation of any systems used to meet the ICAAP requirements will likely differ, depending on the complexity of each bank's operations and risk profile. Many banks employ “economic capital” measures for some elements of risk management, such as limit setting, or for evaluating performance or determining aggregate capital needs. 10 In some cases, economic capital measures may relate directly to a bank's assessment of capital adequacy under the ICAAP; however, in other cases, a bank may be using economic capital measures that are not intended for capital adequacy assessments. In the latter case, a bank does not necessarily need to change its existing process or systems, but it may need to build upon or adjust its economic capital measures for use in the ICAAP and the bank would have to demonstrate clearly how it does so. Notably, economic capital is not the only means to meet the ICAAP requirement. Regardless of the specific implementation method(s) chosen, the bank's ICAAP should address the three ICAAP objectives listed in paragraph 14.

19. The first objective of the ICAAP is to identify all material risks. Risks that can be reliably measured and quantified should be treated as rigorously as data and methods allow. The appropriate means and methods to measure and quantify those material risks are likely to vary across banks. The key point is for a bank to be able to identify all material risks and measure those that can be reliably quantified in order to determine how those risks affect the bank's overall capital adequacy.

20. Some of the risks to which a bank may be exposed include credit risk, market risk, operational risk, interest rate risk in the banking book, and liquidity risk (as outlined below). 11 Other risks, such as reputational risk, business or strategic risk, and country risk may also be material for a bank and, in such cases, should be given equal consideration to the more formally defined risk types. 12 Additionally, if a bank employs risk mitigation techniques it should understand the risk to be mitigated and the potential effects of that mitigation (including enforceability and effectiveness).

• Credit risk: A bank should have the ability to assess credit risk at the portfolio level in addition to the exposure or counterparty level. In making this assessment, the bank should be particularly attentive to identifying any credit risk concentrations and ensuring that their effects are adequately assessed. The bank should consider the various types of dependence among exposures, and the credit risk effects of extreme outcomes, stress events, and shocks to assumptions about portfolio and exposure behavior. The bank also should carefully assess concentrations in counterparty credit exposures, including those that result from trading in less liquid markets, and determine the effect that these exposures might have on capital adequacy.

• Market risk: A bank should be able to identify risks in trading and capital markets activities resulting from a movement in market prices and rates. This determination should consider factors such as illiquidity of instruments, leverage, concentrated positions, one-way markets, non-linear or deep out-of-the money option positions as well as embedded optionality, and the potential for significant shifts in correlations or other types of dependence structures. Assessments that incorporate extreme events, idiosyncratic variations, credit migrations or changes in credit spreads, defaults, and shocks should also be tailored to capture key portfolio vulnerabilities.

• Operational risk: A bank should be able to assess the potential risks resulting from inadequate or failed internal processes, people, and systems, as well as from events external to the bank. 13 This assessment should include the effects of extreme events and shocks relating to operational risk. Extreme events could include a substantial or sudden increase in failed processes across business units or a significant incidence of failed internal controls.

• Interest rate risk in the banking book: A bank should incorporate interest rate risk in the banking book into its assessment of capital adequacy. In making this assessment, the bank should identify the risks associated with changes in interest rates that impact both on- and off-balance sheet exposures in the banking book from a short- and long-term perspective. This might include the impact of changes due to parallel yield curve shocks, yield curve twists, yield curve inversions, changes in the adjustment of rates earned and paid on different financial instruments with otherwise similar repricing characteristics (basis risk), and other relevant scenarios including some that incorporate stress events, extreme outcomes, and shocks to assumptions. The bank should be able to support any assumptions it has made with respect to the behavioral characteristics of servicing rights, non-maturity deposits, positions subject to prepayment risk, and other assets and liabilities, especially for those exposures characterized by embedded optionality.

• Liquidity risk: A bank should incorporate liquidity risk into the assessment of its capital adequacy. A bank should evaluate whether capital is adequate given its own funding liquidity profile and given the liquidity of the markets in which it operates. This assessment should incorporate various types of liquidity environments and include an evaluation of the potential for a material disruption in the sources of liquidity typically relied on by the bank as a result of bank-specific as well as systemic events. A bank should consider the capital adequacy implications of lacking a well-diversified funding base, relying predominantly on wholesale credit markets for its funding, or relying heavily on volatile funding sources. A bank involved in securitization activities should consider the capital adequacy implications of relying on market liquidity to distribute warehoused assets, including the potential for disruptions that would cause a bank to bring certain items onto its balance sheet. In its assessment of the impact of liquidity risk on capital adequacy, the bank should also challenge assumptions built into its definition of liquid products.

The risk factors discussed above are not an exhaustive list of those affecting any given bank. A well-developed ICAAP should include an assessment of all relevant factors that present a material source of risk to capital, and should account for concentrations within each risk type.

21. A bank should assess whether its capital is sufficient to absorb any losses that may arise from activities that expose the bank to multiple risks within and across business lines or create concentrations across risk types. 14 A bank should recognize that losses could arise in several risk dimensions at the same time, stemming from the same event or a common set of factors. For example, a localized natural disaster could generate losses from credit, market, and operational risks. Additionally, the ICAAP should focus on any complex activities that give rise to multiple risks, and to their interaction. These activities can involve instruments that may be complex, illiquid, or difficult to value. For example, securitization activities expose a bank to a variety of risks that can affect capital adequacy at the same time, including credit, market, liquidity, and reputational risks; structured products can have multiple embedded risks that interact in complex ways and can present losses in multiple risk areas across different business lines at the same time. In general, the ICAAP should include an assessment of the potential effects of convergence of risks within and across business lines and their combined impact on capital adequacy.

22. The ICAAP should take into consideration the linkage between capital adequacy and damage or potential damage to a bank's reputation. A bank might incur losses affecting capital adequacy because of damage to its reputation, or the bank might incur losses trying to prevent or mitigate damage to its reputation. In assessing the linkage between reputational risk and capital adequacy, a bank should assess risks associated with both on-balance sheet and off-balance sheet exposures and activities, as well as risks associated with affiliates, subsidiaries, counterparties, clients, or other third parties. The assessment should include activities for which the bank acts as a sponsor or advisor, and cases in which the bank provides explicit or implicit support. A bank should also assess the risk of having to assume the losses of a third party to prevent or mitigate damage to the bank's reputation.

23. The bank's ICAAP should assess risks associated with new products, markets and activities. In making this assessment, the bank should account for any uncertainty in the valuation of new products, whether by the bank or a third party, which could be more challenging if the new products are particularly complex or do not have liquid markets. The ICAAP should take into consideration changing dynamics in markets for new products and uncertainty as to how new markets might respond to stress conditions. The ICAAP should also assess the challenges presented by new business lines or strategic acquisitions in terms of their impact on capital adequacy.

24. All measurements of risk should incorporate both quantitative and qualitative elements. Generally, a quantitative approach should form the foundation of a bank's measurement framework. Quantitative approaches that focus on most likely outcomes for budgeting, forecasting, or performance measurement purposes may not be fully applicable for assessing capital adequacy, which also should take less likely outcomes into account.

25. In some cases, quantitative tools can include the use of large historical databases. These databases are most applicable when they are fully reflective of all relevant risk characteristics, incorporate appropriate variability, and have adequate granularity and history; for example, they should include data based not just on benign but also more stressful economic periods or operating environments. When internal data are not available or do not reflect a bank's risk profile, a bank may rely on external data for risk measurements, but should ensure that external data have applicability to the bank's own activities and risk profile.

26. The confidence a bank places in the results of its ICAAP should depend on the quality and robustness of the associated risk assessments. When measuring risks, a bank should understand that estimation and measurement errors are common, and in many cases are themselves difficult to quantify. In general, the bank's ICAAP should reflect an appropriate level of conservatism to account for uncertainty in risk identification, risk mitigation or control, and risk quantification. In most cases, appropriate conservatism will result in greater capital needs.

27. In many cases, risk assessments may rely to a significant degree on models that use both qualitative and quantitative inputs. The use of models can enhance the ICAAP, but it can also introduce challenges. Specifically, models may fail to work as intended or expected, or they may be used inappropriately for purposes not considered in their initial design. These concerns apply to models purchased from third-party vendors, as well as to models that are internally developed. A bank using models as part of the ICAAP should recognize these possibilities and ensure that appropriate controls, such as rigorous initial and ongoing validation and independent review, are in place to mitigate and manage any risks related to model use. A bank should apply appropriate conservatism to compensate for any risks associated with models. Additional conservatism may be necessary to account for any uncertainties in the use of models to value on- or off-balance sheet exposures or for imperfections and volatility in market-based valuations. Additional conservatism may be necessary to compensate for increased risk, for example, when models or applications are more complex, or when they have a more significant influence on the ICAAP's results.

28. To gain a fuller understanding of the risks beyond more typical quantitative measures—such as those based on certain parameter behavior or distributional assumptions—a bank should also rely on other types of quantitative exercises. For example, stress testing, including scenario analysis and sensitivity analysis, is an additional quantitative exercise that a bank should regularly apply to complement more typical quantitative measures. A bank may need to rely more heavily on such exercises when internal or demonstrably relevant external data are scarce. These exercises can help gauge the consequences of outcomes that are unlikely, but would have a considerable impact on safety and soundness.

29. In addition to quantitative approaches for assessing risk, a bank should also employ qualitative approaches that incorporate management experience and judgment. Qualitative measures should be employed not only for those cases in which scarce data or unproven quantitative methods limit a full assessment of risk, but also more generally to complement even sophisticated quantitative estimates based on extensive and high-quality data.

30. A bank should be cognizant that both quantitative and qualitative approaches have their own inherent biases and assumptions that affect risk assessment. Accordingly, a bank should recognize the biases and assumptions embedded in, and the limitations of, the approaches used.

31. An effective ICAAP is comprehensive, assessing material risks across the entire bank. Each bank should have systems capable of aggregating across risk types. A bank should understand the challenges presented by risk aggregation and the inherent uncertainty in quantitative estimates used to aggregate risks (including the difficulty in estimating concentrations across risk types as noted in paragraph 21). For example, a bank is encouraged to consider the various interdependencies among risk types, the different techniques used to identify such interdependencies, and the channels through which those interdependencies might arise—across risk types, within the same business line, and across different business lines. Consistent with paragraph 26, any associated uncertainty in aggregating capital estimates across risk types and business lines should translate into greater capital needs.

32. Management should be systematic and rigorous in considering possible effects of diversification. Assumptions about diversification should be identified at each level where diversification is recognized, supported by analysis and evidence, and remain robust over time and under different market environments, including stressed market conditions. For example, a bank calculating the dependence structure within or among risk types should consider data quality and consistency, such as the volatility of correlations over time and during periods of market stress. In general, a bank should consider a wide range of possible adverse outcomes that have the potential to affect multiple risks at the same time and to limit expected diversification benefits. Consistent with paragraph 26, uncertainty in diversification estimates should translate into greater capital needs.

33. The second objective of the ICAAP is to set and assess capital adequacy goals in relation to all material risks. Under this objective, a bank should have a well-defined process to translate estimates of risk into an assessment of capital adequacy. In practice, capital adequacy goals may be reflected in various ways. A bank may choose to hold capital in excess of the level internal processes would regard as adequate for any number of business or strategic reasons. Excess capital may fluctuate over time. Each bank should recognize that minimum risk-based capital requirements represent a floor below which the bank's overall capital level must not fall, even if bank management believes that there is justification to maintain less capital.

34. A bank may establish its risk-tolerance level to reflect a desired level of risk coverage and/or a certain degree of creditworthiness, such as an explicit solvency standard. Accordingly, assessments of risk and capital adequacy should reflect the chosen risk tolerance of the bank. Because risk profiles and choices of risk tolerance may differ across banks, capital targets may also differ. However, if for internal capital adequacy purposes a bank were to choose to apply a level of risk coverage or a solvency standard that is less than that implied by minimum risk-based capital requirements, the bank would have to be able to: Identify and support the rationale for a lower solvency standard; demonstrate clearly that its ICAAP adequately addresses low-probability, high-severity events; and ensure that there is sufficient capital to absorb losses associated with such extreme events. Regardless of the solvency standard used, supervisors expect banks to hold capital at a level above that established by minimum risk-based capital requirements.

35. A bank should consider external conditions and other factors that influence its overall capital adequacy, including the potential impact of contingent exposures and changing economic and financial environments. The ICAAP should address the potential impact of broader market or systemic events, which could cause risk to increase beyond the bank's chosen risk-tolerance level, and have appropriate contingency plans for such outcomes. Such exercises may include stress testing, such as scenario and sensitivity analysis; however, in all cases they should incorporate both quantitative and qualitative methods. 15

36. Through the ICAAP, a bank should ensure that adequate capital is held against all material risks, and that capital remains adequate not just at a point in time, but over time, to account for changes in a bank's strategic direction, evolving economic conditions, and volatility in the financial environment. A bank should be cognizant of the impact of market-driven valuations on the volatility of capital. Moreover, recognizing the sensitivity of capital to economic and financial cycles should be a critical component of a bank's planning for current and future capital needs. For example, a bank should consider the potential effects of a sudden, sustained economic downturn. The level of capital deemed adequate by a bank given its ICAAP might also be influenced by the bank's intention to hold additional capital to mitigate the impact of volatility in capital requirements, its need to support acquisition plans, or its decision to accommodate market perceptions of capital adequacy and their impact on funding costs.

37. In analyzing capital adequacy, a bank should evaluate the capacity of its capital to absorb losses. Because various definitions of capital are used within the banking industry, each bank should state clearly the definition of capital used in any aspect of its ICAAP. Since components of capital are not necessarily alike and have varying capacities to absorb losses, a bank should be able to demonstrate the relationship between its internal capital definition and its assessment of capital adequacy. If a bank's definition of capital differs from the regulatory definition, the bank should reconcile such differences and provide an analysis to support the inclusion of any capital instruments that are not recognized under the regulatory definition. Although common equity is generally the predominant component of a bank's capital structure, a bank may be able to support the inclusion of other capital instruments in its internal definition of capital if it can demonstrate a similar capacity to absorb losses. The bank should document any changes in its internal definition of capital, and the reason for those changes.

38. An effective capital plan recognizes a bank's short- and long-term capital needs and objectives. Accordingly, a bank should evaluate whether long-run capital targets are consistent with short-run goals, based on current and planned changes in risk profiles. In developing its capital plan, the bank also should recognize that accommodating additional capital needs can require significant lead time, can be costly, or can be quite difficult, especially during downturns or other times of stress. A bank should have contingency plans to address unexpected capital needs.

39. A satisfactory ICAAP comprises a complete process with proper oversight and controls, and not just an ability to carry out certain capital calculations. The various elements of a bank's ICAAP should complement and reinforce one another to achieve the overall objective of assessing capital adequacy, taking into account the bank's risk profile.

40. A bank should maintain adequate internal controls to ensure the integrity, objectivity, and consistent application of the ICAAP. Decisions regarding the design and operation of the ICAAP should reflect sound risk management, and should not be unduly influenced by competing business objectives. A bank should identify any deficiencies in its ICAAP and plan and take remedial actions to address the deficiencies in a timely manner. The principles underlying a bank's ICAAP should be incorporated into policies that are reviewed and approved at appropriate levels within the organization.

41. A bank should maintain thorough documentation of its ICAAP to ensure transparency. At a minimum, this should include a description of the bank's overall capital-management process, including the committees and individuals responsible for the ICAAP; the frequency and distribution of ICAAP-related reporting; and the procedures for the periodic evaluation of the appropriateness and adequacy of the ICAAP. In addition, where applicable, ICAAP documentation should demonstrate the bank's sound use of quantitative methods (including model selection and limitations) and data-selection techniques, as well as appropriate maintenance, controls, and validation. A bank should document and explain the role of third-party and vendor products, services and information—including methodologies, model inputs, systems, data, and ratings—and the extent to which they are used within the ICAAP. A bank should have a process to regularly evaluate the performance of third-party and vendor products, services and information. As part of the ICAAP documentation, a bank should document the assumptions, methods, data, information, and judgment used in its quantitative and qualitative approaches.

42. The ICAAP should be enhanced and refined over time, with learning and experience (both quantitative and qualitative) contributing to its improvement. The ICAAP should evolve with changes in the risk profile and activities of the bank, as well as with advances in risk measurement and management practices. For example, a bank should incorporate in its ICAAP the introduction of new products and business lines and activities to ensure that the bank's capital plan is responsive to changes in the operational and/or business environment.

43. The board of directors and senior management have certain responsibilities in developing, implementing, and overseeing the ICAAP. The board should approve the ICAAP and its components. The board or its appropriately delegated agent should review the ICAAP and its components on a regular basis, and approve any revisions. That review should encompass the effectiveness of the ICAAP, the appropriateness of risk tolerance levels and capital planning, and the strength of control infrastructures. Senior management should continually ensure that the ICAAP is functioning effectively and as intended, under a formal review policy that is explicit and well documented. Additionally, a bank's internal audit function should play a key role in reviewing the controls and governance surrounding the ICAAP on an ongoing basis.

44. Each bank should ensure that the components of its ICAAP, including any models and their inputs, are subject to the bank's validation policies and procedures. Validation should be independent of the development, implementation, and operation of the ICAAP components, or the validation process should be subject to an independent review of its adequacy and effectiveness. Validation is generally defined as an ongoing process that includes, but is not limited to, the collection and review of developmental evidence, process verification, benchmarking, outcomes analysis, and monitoring activities used to confirm that processes are operating as designed. Validation policies and procedures should reflect the bank's business, structure, and sophistication, as well as the relative importance of each component of the ICAAP. Accordingly, a bank is encouraged to consult the agencies' existing guidance on validation.

45. A bank's ICAAP should be aligned with and be a part of the bank's wider internal governance structure and overall risk-management processes. The ICAAP should not be viewed as simply a compliance exercise. Rather, it is a dynamic and evolving process that is used by a bank to provide internal assurance that capital is adequate given the bank's risk profile. Management is responsible for ensuring that the ICAAP is fully consistent with the overall risk management framework of the bank. Information derived through the ICAAP process should influence decision making at both the consolidated and individual business-line levels, and be used to inform other management processes related to risk assessment, business planning and forecasting, pricing strategies, and performance measurement.

46. As part of the ICAAP, the board or its delegated agent, as well as appropriate senior management, should periodically review the resulting assessment of overall capital adequacy. This review, which should occur at least annually, should include an analysis of how measures of internal capital adequacy compare with other capital measures (such as regulatory, accounting-based or market-determined). Upon completion of this review, the board or its delegated agent should determine that, consistent with safety and soundness, the bank's capital takes into account all material risks and is appropriate for its risk profile. However, in the event a capital deficiency is uncovered (that is, if capital is not consistent with the bank's risk profile or risk tolerance) management should consult and adhere to formal procedures to correct the capital deficiency.

We have received reports of six events on CF34-8E turbofan engines that resulted in loss of thrust control. On March 2, 2008, the No. 1 engine on an ERJ 170 experienced a fluctuation of the interstage turbine temperature during decent that resulted in changes in thrust. The crew shut down the engine. On May 12, 2008, an ERJ 170 was at cruise when the ENG 2 Control Fault posted to the Engine Indicating and Crew Alerting System (EICAS) display. The FADEC software commanded the number two engine to idle and there was no response to throttle movement by the crew. The crew shut down the engine. Four more similar events occurred on May 29, June 10, June 14, and July 10, 2008, all resulting in loss of thrust control with an ENG 1 or 2 Control Fault message posted to the EICAS. Our investigation revealed that all events resulted from the same software fault scenario. We attribute the fault to FADEC software version 8Ev5.40. This condition, if not corrected, could result in loss of thrust control and controllability of the airplane.

The unsafe condition described previously is likely to exist or develop on other GE CF34-8E series turbofan engines of the same type design. For that reason, we are issuing this AD to prevent loss of thrust control and controllability of the airplane.

Since an unsafe condition exists that requires the immediate adoption of this AD, we have found that notice and opportunity for public comment before issuing this AD are impracticable, and that good cause exists for making this amendment effective in less than 30 days.

This AD is a final rule that involves requirements affecting flight safety and was not preceded by notice and an opportunity for public comment; however, we invite you to send us any written relevant data, views, or arguments regarding this AD. Send your comments to an address listed under ADDRESSES . Include “AD Docket No. FAA-2008-0821; Directorate Identifier 2008-NE-20-AD” in the subject line of your comments. We specifically invite comments on the overall regulatory, economic, environmental, and energy aspects of the rule that might suggest a need to modify it.

We will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. We will also post a report summarizing each substantive verbal contact with FAA personnel concerning this AD. Using the search function of the Web site, anyone can find and read the comments in any of our dockets, including, if provided, the name of the individual who sent the comment (or signed the comment on behalf of an association, business, labor union, etc.). You may review the DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR 19477-78).

You may examine the AD docket on the Internet at http://www.regulations.gov ; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is the same as the Mail address provided in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Is not a “significant rule” under the DOT Regulatory Policies and Procedures (44 FR 11034, February 26, 1979); and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary at the address listed under ADDRESSES .

The FAA proposed to amend 14 CFR part 39 by superseding AD 2007-02-07, Amendment 39-14894 (72 FR 2610, January 22, 2007), with a proposed AD. The proposed AD applies to RRD Dart 528, 529, 532, 535, 542, and 552 Series turboprop engines. We published the proposed AD in the Federal Register on November 9, 2007 (72 FR 63508). That action proposed to require deleting the Dart 555 series engines from the applicability paragraph of the proposed AD, and to list the Dart 552 series turboprop engines in the applicability paragraph of the proposed AD.

You may examine the AD docket on the Internet at http://www.regulations.gov ; or in person at the Docket Operations office between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this AD, the regulatory evaluation, any comments received, and other information. The street address for the Docket Operations office (telephone (800) 647-5527) is provided in the ADDRESSES section. Comments will be available in the AD docket shortly after receipt.

We provided the public the opportunity to participate in the development of this AD. We have considered the comments received.

One commenter asks us to change “turbofan engines” in the Costs of Compliance Section to “turboprop engines.” The commenter states that the Dart engine is a turboprop engine, not a “turbofan engines.”

We agree. We changed “turbofan engines” in the Costs to Comply section to “turboprop engines.”

The same commenter states that paragraph (c) Applicability, appears to omit some models of airplanes that might use the engines. The commenter states that the Dart engine is installed by supplemental type certificate on certain General Dynamics Convair model airplanes, and that those airplanes can still be found in the FAA's registry database.

We partially agree. We must identify in paragraph (c) Applicability, all engine models that are affected by this AD. We list the aircraft models that might use those engines to help readers to determine if they might have an affected engine. However, for clarity, we have changed the applicability paragraph to include the General Dynamics Convair models that might use these engines under supplemental type certificates.

We changed the compliance end dates in paragraphs (f)(2)(i) from June 30, 2007, to June 30, 2008, and paragraph (f)(2)(ii) from April 30, 2008, to July 31, 2008. We changed the compliance dates to avoid unnecessary grounding of aircraft while still meeting our safety concerns.

We have carefully reviewed the available data, including the comments received, and determined that air safety and the public interest require adopting the AD with the changes described previously. We have determined that these changes will neither increase the economic burden on any operator nor increase the scope of the AD.

We estimate that this AD will affect 30 RRD Dart 528, 529, 532, 535, 542, and 552 series turboprop engines installed on airplanes of U.S. registry. We also estimate that it will take about 50 work-hours per engine to perform the proposed actions, and that the average labor rate is $80 per work-hour. Required parts will cost about $50,000 per IPT disk. We estimate that 25 percent, or eight engines, will require IPT disk replacement. Based on these figures, we estimate the total cost of the AD to U.S. operators to be $500,000.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

We are issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, section 44701, “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

We have determined that this AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial direct effect 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.

For the reasons discussed above, I certify that this AD:

(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) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

We prepared a summary of the costs to comply with this AD and placed it in the AD Docket. You may get a copy of this summary at the address listed under ADDRESSES .

Section 412 provides minimum funding requirements for defined benefit pension plans. The Pension Protection Act of 2006 (PPA), Public Law 109-280 (120 Stat. 780), makes extensive changes to those minimum funding requirements that generally apply for plan years beginning on or after January 1, 2008. Section 430, which was added by PPA, specifies the minimum funding requirements that apply to defined benefit plans that are not multiemployer plans. 1 Section 430(a) defines the minimum required contribution for a defined benefit plan that is not a multiemployer plan by reference to the plan's funding target for the plan year. Under section 430(d)(1), a plan's funding target for a plan year generally is the present value of all benefits accrued or earned under the plan as of the beginning of the plan year.

Section 430(h)(3) provides rules regarding the mortality tables to be used under section 430. Under section 430(h)(3)(A), except as provided in section 430(h)(3)(C) or (D), the Secretary is to prescribe by regulation mortality tables to be used in determining any present value or making any computation under section 430. Those tables are to be based on the actual experience of pension plans and projected trends in such experience. In prescribing those tables, the Secretary is required to take into account results of available independent studies of mortality of individuals covered by pension plans. This standard for issuing the mortality table under section 430(h)(3)(A) is the same as the standard for issuing updated mortality tables pursuant to the review under section 412(l)(7)(C)(ii)(III) of the mortality table used in determining a plan's current liability pursuant to section 412(l)(7)(C)(ii)(I) for plan years before the effective date of the PPA changes.

Section 430(h)(3)(C) provides rules for a plan sponsor's use of substitute mortality tables. Upon the request of a plan sponsor and approval by the Secretary, mortality tables that meet the requirements for substitute mortality tables are used in determining present value or making any computation under section 430 during the period of consecutive plan years (not to exceed 10) specified in the request. Substitute mortality tables cease to be in effect as of the earliest of the date on which there is a significant change in the participants in the plan by reason of a plan spinoff or merger or otherwise, or the date on which the plan actuary determines that those tables do not meet the requirements for substitute mortality tables. The plan sponsor's request to use substitute mortality tables is to be made at least 7 months before the first day of the first plan year for which substitute mortality tables are to apply. A request to use substitute mortality tables is deemed approved unless the Secretary denies approval for the use of those mortality tables within 180 days of the request (subject to extension of this period by mutual agreement).

Mortality tables meet the requirements for substitute mortality tables if the pension plan has a sufficient number of plan participants and the plan has been maintained for a sufficient period of time in order to have credible mortality experience, and such tables reflect the actual experience of the plan and projected trends in general mortality experience of participants in pension plans. Except as provided by the Secretary, a plan sponsor cannot use substitute mortality tables for any plan unless substitute mortality tables are established and used for each other plan maintained by the plan sponsor and the plan sponsor's controlled group.

Section 430(h)(3)(D) provides for the use of separate mortality tables with respect to certain individuals who are entitled to benefits on account of disability. These separate mortality tables are permitted to be used with respect to disabled individuals in lieu of the generally applicable mortality tables provided pursuant to section 430(h)(3)(A) or the substitute mortality tables under section 430(h)(3)(C). The Secretary is to establish separate tables for individuals with disabilities occurring in plan years beginning before January 1, 1995, and in later plan years, with the mortality tables for individuals with disabilities occurring in those later plan years applying only to individuals who are disabled within the meaning of Title II of the Social Security Act.

Section 431, which was added by PPA, specifies the minimum funding requirements that apply to multiemployer plans. Under section 431(c)(6)(B), a plan's full funding limitation cannot be less than the excess (if any) of 90 percent of the current liability of the plan (including the expected increase in current liability due to benefits accruing during the plan year) over the value of the plan's assets. Section 431(c)(6)(D)(iv)(II) provides that the Secretary may by regulation prescribe mortality tables to be used in determining a plan's current liability for purposes of section 431(c)(6). The standards for these mortality tables are the same as the standards for mortality tables to be prescribed under section 430(h)(3)(A). Section 431(c)(6)(D)(iv)(I) provides that, until mortality tables are prescribed under section 431(c)(6)(D)(iv)(II), the mortality table used in determining a plan's current liability for purposes of section 431(c)(6) is the table prescribed by the Secretary that is based on the prevailing commissioners' standard table (described in section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on January 1, 1993.

On February 2, 2007, the IRS issued final regulations under section 412(l)(7) (TD 9310, 72 FR 4955) setting forth mortality tables to be used in determining a plan's current liability with respect to nondisabled pension plan participants during the 2007 plan year. Those updated mortality tables were based on the tables contained in the RP-2000 Mortality Tables Report. 2 Those regulations permitted plans to use separate mortality tables for nonannuitant and annuitant periods, with different projection periods for annuitants and nonannuitants based on an estimate of the duration of the respective liabilities. Alternatively, plans were permitted to use a combined table that applied the same mortality rates to both annuitants and nonannuitants.

On May 29, 2007, the IRS issued proposed regulations under section 430(h)(3) (72 FR 29456). Those proposed regulations provide guidance regarding the mortality tables to be used for purposes of applying certain defined benefit plan funding requirements, including § 1.430(h)(3)-1, which provides generally applicable mortality tables, and § 1.430(h)(3)-2, which provides rules regarding the approval and use of substitute mortality tables. On May 31, 2007, the IRS issued Rev. Proc. 2007-37 (2007-1 CB 1433), which sets forth procedures by which a plan sponsor may request approval to use substitute mortality tables in accordance with proposed § 1.430(h)(3)-2, including guidelines for the construction of substitute mortality tables. See § 601.601(d)(2)(ii)( b ) of this chapter.

On January 31, 2008, the IRS issued Notice 2008-21 (2008-7 IRB 431). See § 601.601(d)(2)(ii)( b ) of this chapter. Notice 2008-21 provides that, when certain pension funding regulations (including the § 1.430(h)(3)-2 regulations issued under section 430(h)(3)(C) regarding substitute mortality tables) are finalized, those final regulations will not apply to plan years beginning before January 1, 2009. For plan years beginning during 2008, taxpayers must follow applicable statutory provisions and can rely on the proposed regulations for compliance with those statutory provisions. Under Notice 2008-21, the IRS will not challenge a reasonable interpretation of section 430 (taking into account the items with respect to which guidance is provided in Notice 2008-21) for plan years beginning during 2008.

Several comments were received on the proposed regulations, and no public hearing was requested or held. After consideration of the comments received, the IRS and the Treasury Department are issuing these final regulations to adopt the rules set forth in the proposed regulations with certain modifications that are noted in this preamble.

These regulations adopt the methodology set forth in the proposed regulations that the IRS will use to establish mortality tables as provided under section 430(h)(3)(A) to be used for participants and beneficiaries to determine present value or make any computation under section 430. These mortality tables apply as well for purposes of determining the current liability of a multiemployer plan pursuant to section 431(c)(6)(D)(iv)(II). In addition, pursuant to § 1.412(l)(7)-1(a), these regulations apply for purposes of determining the current liability of a plan for which application of the PPA changes to section 412 is delayed (see sections 104 through 106 of PPA). Under these regulations, mortality tables to be used with respect to disabled individuals will be provided in guidance published in the Internal Revenue Bulletin (IRB). This guidance has been issued as Notice 2008-29 (2008-12 IRB 637). See § 601.601(d)(2)(ii)( b ).

The new mortality tables under section 430(h)(3)(A) are based on the tables contained in the RP-2000 Mortality Tables Report because, as with the mortality tables used under section 412(l)(7)(C)(ii), the IRS and the Treasury Department have determined that the RP-2000 mortality tables form the best available basis for predicting mortality of pension plan participants and beneficiaries (other than disabled individuals) based on pension plan experience, including expected trends. Like the mortality tables provided in the final section 412(l) regulations, the mortality tables set forth in these regulations are gender-distinct because of significant differences between expected male mortality and expected female mortality.

The mortality tables set forth in these regulations provide separate mortality rates for annuitants and nonannuitants. This distinction has been made because the RP-2000 Mortality Tables Report indicates that these two groups have significantly different mortality experience. This is particularly true at typical ages for early retirees, where the number of health-induced early retirements results in a population that has higher mortality rates than the population of currently employed individuals. While the use of separate mortality rates for these groups of individuals will likely entail changes in programming of actuarial software, the IRS and the Treasury Department believe that the improvement in accuracy resulting from the use of separate mortality tables for annuitants and nonannuitants more than offsets the added complexity.

Under these regulations, the annuitant mortality tables are applied to determine the present value of benefits for annuitants. The annuitant mortality tables are also used for nonannuitants (active employees and terminated vested participants) for the periods beginning when the nonannuitants are projected to commence receiving benefits, while the nonannuitant mortality tables are applied for the periods before nonannuitants are projected to commence receiving benefits. For any period in which an annuitant is projected to be receiving benefits, the mortality table applicable to any beneficiary of that annuitant is the annuitant mortality table.

The RP-2000 Mortality Tables Report sets forth mortality tables that reflect expected mortality as of 2000, along with projection factors that are used to reflect the impact of expected improvements in mortality. Similarly, the mortality tables set forth in these regulations are based on expected mortality as of 2000 and reflect the impact of expected improvements in mortality. The regulations permit plan sponsors to apply the projection of mortality improvement in either of two ways: Through use of static tables that are updated annually to reflect expected improvements in mortality, or through use of generational tables.

The regulations set forth base tables for annuitants and nonannuitants, as well as a set of projection factors. The base tables set forth in the regulations generally provide the same rates as the RP-2000 mortality tables, except that they have been extended so that the annuitant and nonannuitant tables have mortality rates available at each age. The RP-2000 Mortality Tables Report did not develop annuitant rates before age 50 or nonannuitant rates after age 70. The extended nonannuitant tables in these regulations were created by (1) using nonannuitant rates through age 70, (2) using annuitant rates for ages over 80, and (3) blending the rates to produce a smooth transition between the two tables, using increasing fractions. The total difference between the rates at ages 70 and 80 is divided by 55; the rate at age 71 is set equal to the rate at age 70 plus 1/55 of the total difference, the age 72 rate is equal to the rate at age 71 plus 2/55 of the total difference, etc.

A similar approach was used to develop the base tables for annuitants. For male annuitants, annuitant rates from the RP-2000 Mortality Tables Report were used for ages 50 and over, nonannuitant rates from the RP-2000 Mortality Tables Report were used through age 40, and rates between ages 41 and 49 were smoothed to create a smooth transition using the same methodology as was used for the nonannuitant tables. For female annuitants, annuitant rates from the RP-2000 Mortality Tables Report were used for ages 50 and over. However, to avoid anomalous results, female nonannuitant rates were used through age 46 (rather than age 40) and, accordingly, rates were smoothed between ages 47 and 49. The smoothing methodology for the female annuitant tables was the same as that used for the male tables but, because a shorter transition period was used, the difference between the age 46 and the age 50 mortality rates was smoothed using a denominator of 10 instead of 55.

For a plan sponsor that chooses to use the generational mortality tables, the mortality rate for each particular age would be projected for each individual participant to reflect projected improvement for the period of time until the participant reaches the particular age using the applicable base table along with the projection factors provided under the regulations. These projection factors are from Mortality Projection Scale AA, which was recommended for use in the UP-94 Study  3 and in the RP-2000 Mortality Tables Report.

The static mortality tables that are permitted to be used under the regulations are constructed from the base table used for purposes of the generational mortality tables. The static mortality tables are projected from the base table for the year 2000 through the year of valuation with further projection to reflect the approximate expected duration of liabilities. The static mortality tables for annuitants under the regulations reflect projection through the year of valuation with a further projection period of 7 years, and the static mortality tables for nonannuitants under the regulations reflect projection through the year of valuation with a further projection period of 15 years. These projection periods were selected as the expected average duration of liabilities. To be consistent with the original construction of the RP-2000 mortality tables, both the static annuitant and nonannuitant tables use the rates from the projected annuitant table for ages 80 and over and from the projected nonannuitant table for ages 40 and younger (ages 44 and younger for females). For a smooth transition between the different projection periods for annuitants versus nonannuitants, the nonannuitant rates for ages 71 through 79 and the annuitant rates for ages 41 through 49 (ages 45 through 49 for females) were smoothed using the same technique as that used in constructing the base tables.

The static mortality tables that apply with respect to valuation dates occurring during 2008 are set forth in these regulations, which also include an example of how to apply the tables in that year. The mortality tables to be used for valuation dates in subsequent years will be published in the Internal Revenue Bulletin. See § 601.601(d)(2)(ii)( b ). The IRS intends to publish a notice in the near future that provides a series of tables for valuation dates occurring during 2009 through 2013.

These regulations provide an option for smaller plans that choose to use static mortality tables to use a single blended static table for all participants—in lieu of the separate tables for annuitants and nonannuitants—in order to simplify the actuarial valuation for these plans. The final regulations provide that the smaller plans to which this rule applies are plans where the total of active and inactive participants is 500 or fewer, and clarify that this participant count is determined as of the plan's valuation date. The blended table is constructed from the separate nonannuitant and annuitant tables using the nonannuitant/annuitant weighting factors published in the RP-2000 Mortality Tables Report. However, because the RP-2000 Mortality Tables Report does not provide weighting factors before age 51 or after age 69, the IRS and the Treasury Department have extended the table of weighting factors (using straight-line interpolation) for ages 41 through 50 (ages 45-50 for females) and for ages 70 through 79 in order to develop the blended table.

Since the publication of proposed regulations under sections 430(h) and 430(d), questions have arisen regarding whether small plans are required to apply mortality assumptions using the mortality tables provided under section 430(h) for the period before a participant is projected to commence receiving benefits under the plan. Final regulations under section 430(d) are expected to clarify that the mortality tables provided under section 430(h) must be used to determine present values under section 430 when mortality assumptions are applied and that, in appropriate cases, it is permissible to assume no mortality for the period before a participant is projected to commence receiving benefits under the plan.

These regulations generally adopt the methodology set forth in the proposed regulations for the development and use of substitute mortality tables upon written request of the plan sponsor and approval of the Commissioner. Pursuant to section 430(h)(3)(C), substitute mortality tables apply in lieu of the mortality tables provided under section 430(h)(3)(A) and § 1.430(h)(3)-1 for purposes of making present value determinations and other computations.

Substitute mortality tables must reflect the actual mortality experience of the pension plan for which the tables are to be used, and that mortality experience must be credible. Separate mortality tables must be established for each gender under the plan, and a substitute mortality table is permitted to be established for a gender only if the plan has credible mortality experience with respect to that gender. If the mortality experience for one gender is credible but the mortality experience for the other gender is not credible, the substitute mortality tables are used for the gender that has credible mortality experience, and the mortality tables under § 1.430(h)(3)-1 are used for the gender that does not have credible mortality experience. If separate mortality tables under section 430(h)(3)(D) are used for certain disabled individuals under a plan, then those individuals are disregarded for all purposes with respect to substitute mortality tables under section 430(h)(3)(C). Thus, if the mortality tables under section 430(h)(3)(D) are used for certain disabled individuals under a plan, mortality experience with respect to those individuals must be excluded in determining mortality rates for substitute mortality tables with respect to a plan.

The proposed regulations provided that a substitute mortality table would be based on credible mortality experience for a gender within a plan if and only if the mortality experience were based on at least 1,000 deaths within that gender over the period covered by the experience study. The proposed regulations required that the experience study be based on mortality experience data over a 2, 3, or 4 consecutive year period, the last day of which must be less than 3 years before the first day of the first plan year for which the substitute mortality tables are to apply.

Commentators requested an expansion of this rule that would allow the plan to demonstrate credibility on the basis of divergence between the actual number of deaths and the number of deaths expected under the standard mortality tables in § 1.430(h)(3)-1. The IRS and the Treasury Department have rejected this suggestion because, although such a measure of divergence may show that the standard mortality tables are not necessarily the best estimate of future mortality under the plan, the existence of this divergence does not demonstrate that a particular alternative table reflects the actual experience of the pension plans maintained by the sponsor unless the experience study data reflects a sufficient number of deaths to support the use of that alternative table.

The 1,000-death threshold in the proposed regulations was set at a level so that there is a high degree of confidence that the plan's past mortality experience will be predictive of its future mortality, and is consistent with relevant actuarial literature (see, for example, Thomas N. Herzog, Introduction to Credibility Theory (1999); Stuart A. Klugman, et al. , Loss Models: From Data to Decisions (2004)). A number of commentators requested that substitute mortality tables be made available to plans with fewer annual deaths. For example, one commentator requested an extension of the 4-year maximum period for the mortality experience study in order to allow a smaller plan to satisfy the 1,000-death threshold. In response to these comments, these regulations lengthen the maximum period for the experience study and provide that the experience study for purposes of demonstrating 1,000 deaths within a gender can be conducted over as long as a 5-year period. In addition, in accordance with the delegation of authority set forth in the regulations, the Commissioner may, in revenue rulings, notices or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)( b )), provide for further extensions of this maximum experience study period.

Development of a substitute mortality table under the regulations requires creation of a base table and identification of a base year, which are then used to determine a substitute mortality table. The base table must be developed from a study of the mortality experience of the plan using amounts-weighted data. The regulations set forth rules regarding development of amounts-weighted mortality rates for an age. The regulations provide that amounts-weighted mortality rates may be derived from amounts-weighted mortality rates for age groups. The regulations provide for grouping of ages and alternative methods of graduation in order to simplify the construction of substitute mortality tables. The regulations provide rules for determination of the base year for a substitute mortality table. These rules have been modified from the rules set forth in the proposed regulations to reflect the potential for a longer experience study period than permitted under the proposed regulations.

In general, substitute mortality tables are permitted to be used for a plan for a plan year only if, for that plan year, substitute mortality tables are also approved and used for each other pension plan subject to the requirements of section 430 that is maintained by the plan sponsor or by a member of the sponsor's controlled group. The final regulations clarify the application of this rule where plans maintained within a controlled group have different plan years. In such a case, a plan that uses substitute mortality tables for a plan year satisfies the requirement that all plans within the controlled group use substitute mortality tables for the plan year if all plans within the controlled group use substitute mortality tables for at least some portion of the plan year. Under the regulations, the use of substitute mortality tables for one plan is not prohibited merely because another plan subject to section 430 that is maintained by the plan sponsor (or by a member of the plan sponsor's controlled group) cannot use substitute mortality tables because neither the males nor the females under that plan have credible mortality experience for a plan year. Thus, if a sponsor's controlled group contains two pension plans that are subject to section 430, each of which has credible mortality experience for at least one gender, either both plans must obtain approval from the Commissioner to use substitute mortality tables or neither plan may use substitute mortality tables. By contrast, if for one of those plans neither males nor females have credible mortality experience, then the plan without credible mortality experience will not interfere with the ability of the plan with credible mortality experience to use substitute mortality tables.

Under the regulations, the requirement that the plan sponsor demonstrate the lack of credible mortality experience for both the male and female populations in other plans maintained by the plan sponsor (and by members of the plan sponsor's controlled group) for which substitute mortality tables are not used must be satisfied for each plan year for which substitute mortality tables are used. This demonstration is made for a plan population by showing that the population has not experienced at least 1,000 deaths over a time period that satisfies the requirements set forth in the regulations. In general, for each plan year in which a plan uses substitute mortality tables, the demonstration that both genders of another plan maintained by the plan sponsor do not have credible mortality experience is made by counting the number of deaths for that plan population over a 4-year period. However, if the experience study period for the experience study on which the substitute mortality tables are based is longer than 4 years, the demonstration that both genders of another plan maintained by the plan sponsor do not have credible mortality experience (that is, there are less than 1,000 deaths within each gender) must be made using a consecutive period for mortality experience that is the same length as the period of the experience study. In either case, the period for mortality experience that is used to demonstrate lack of credible mortality experience with respect to a plan year must end less than 3 years before the first day of that plan year.

For example, a plan sponsor that requests to use substitute mortality tables for a plan for the plan year that begins January 1, 2009, using data obtained over a 4-year experience study period must show, as part of its submission to the Commissioner, that both the male and female populations in all other defined benefit plans of the plan sponsor (and of members of the plan sponsor's controlled group) that are subject to section 430 and that do not use substitute mortality tables do not have credible mortality experience using a 4-year period that ends no earlier than January 2, 2006 (that is, each gender in those plans did not experience 1,000 deaths during that 4-year period). If the plan sponsor chooses to use the 4-year period from January 1, 2004, through December 31, 2007, to demonstrate the lack of credible mortality experience for the other plans, then the plan can rely on this same data to demonstrate the lack of credible mortality experience for 2010 as well because the less-than-3-years requirement is still met with respect to the 2010 plan year. However, the plan cannot use this same data to demonstrate lack of credible mortality experience for the 2011 plan year because the last day of the experience study used for the demonstration (the January 1, 2004-December 31, 2007 period) is too distant in time (3 or more years) from the first day of the plan year (January 1, 2011).

Although the regulations permit a plan sponsor to use a single experience study to demonstrate a lack of credible mortality experience for a plan population for multiple years, plan sponsors are encouraged to update experience studies annually as new mortality data become available for the plan population. In such a case, if an updated test reveals 1,000 or more deaths for the more recent 4-year period (or 5-year period in the case of a plan using a 5-year experience study period), the plan sponsor nonetheless will be able to continue to use substitute mortality tables for one plan year by demonstrating that the other plans in the controlled group do not have credible mortality experience based on the earlier experience study. This will give the plan sponsor sufficient time to develop substitute mortality tables for the plan population with newly credible mortality experience and to obtain the Commissioner's approval to use those tables prior to the first year substitute mortality tables are to be used for that population.

Under the regulations, a plan's substitute mortality tables must be generational mortality tables. Substitute mortality tables are determined using the base mortality tables developed from the experience study and the projection factors provided in Projection Scale AA, as set forth in § 1.430(h)(3)-1(d). Under the generational mortality tables, the probability of an individual's death at a particular age is determined as the individual's base mortality rate (that is, the applicable base mortality rate from the base mortality table for the age for which the probability of death is being determined) multiplied by the mortality improvement factor. The mortality improvement factor is equal to (1 minus the projection factor for that age) n , where n is equal to the projection period (that is, the number of years between the base year for the base mortality table and the year for which the probability of death is being determined).

The regulations require separate tables to be established for males and females under a plan. Under the regulations, separate substitute mortality tables are permitted (but not required) to be established for separate populations within a gender, such as annuitants and nonannuitants or hourly and salaried individuals. The regulations provide that separate substitute mortality tables are permitted to be used for a separate population within a gender under a plan only if all individuals of that gender in the plan are divided into separate populations, each separate population has credible mortality experience (determined in the same manner as determining whether a gender has credible mortality experience), and the separate substitute mortality table for each separate population is developed using mortality experience data for that population. For example, in the case of a plan that has credible mortality experience data for both its male hourly and male salaried populations, separate substitute mortality tables could be used for those two separate populations. However, if the plan does not have credible mortality experience for its male salaried population, it is not permissible to use substitute mortality tables for its male hourly population and the standard mortality tables described in § 1.430(h)(3)-1 for its male salaried population.

The requirement that each separate population have credible mortality experience does not apply in the case of separate mortality tables that are developed for annuitant and nonannuitant populations within a gender. Thus, the regulations provide that substitute mortality tables for separate annuitant and nonannuitant populations may be used within a gender even if only one of those separate populations has credible mortality experience. Similarly, if separate populations with credible mortality experience are established within a gender, then any of those populations may be further subdivided into separate annuitant and nonannuitant subpopulations, provided that at least one of the two resulting subpopulations has credible mortality experience. In such a case, the standard mortality tables under § 1.430(h)(3)-1 must be used for a resulting subpopulation that does not have credible mortality experience. For example, in the case of a plan that has credible mortality experience for both its male hourly and salaried individuals, if the male salaried annuitant population has credible mortality experience, the plan may use substitute mortality tables with respect to that population even if the standard mortality tables under § 1.430(h)(3)-1 are used for the male salaried nonannuitant population (because that nonannuitant population does not have credible mortality experience). For purposes of demonstrating that an annuitant or nonannuitant population within a gender or within a separate population does not have credible mortality experience, the demonstration of lack of credible mortality experience is made on the same basis as for purposes of demonstrating a lack of credible mortality experience for a gender.

The proposed regulations provide a limited time period during which a newly acquired plan that does not use substitute mortality tables does not prevent another plan from using substitute mortality tables. The proposed regulations implied that this exception applies only where a newly acquired plan does not use substitute mortality tables (and not to the case where a plan that uses substitute mortality tables is acquired by a plan sponsor that maintains other plans for which substitute mortality tables are not used). In response to commentator concerns, the final regulations replace the term “newly acquired plan” with the term “newly affiliated plan.” Thus, the final regulations eliminate the implication that this exception is unavailable in situations in which the acquiring plan sponsor does not use substitute mortality tables for its other plans but the acquired plan uses substitute mortality tables.

Under the regulations, the use of substitute mortality tables for a plan is not prohibited merely because a newly affiliated plan does not use substitute mortality tables, but only through the last day of the plan year of the plan using substitute mortality tables that contains the last day of the transition period described in section 410(b)(6)(C)(ii) (without regard to any change in coverage during that period) for either the newly affiliated plan or the plan using substitute mortality tables, whichever is later. For the following plan year, the mortality tables prescribed under § 1.430(h)(3)-1 apply with respect to the plan (and all other plans within the plan sponsor's controlled group, including the newly affiliated plan) unless approval to use substitute mortality tables has been obtained with respect to the newly affiliated plan, or the newly affiliated plan cannot use substitute mortality tables because neither the males nor the females under the plan have credible mortality experience. For example, if on September 1, 2009, a plan sponsor of a plan that uses substitute mortality tables and that has a calendar year plan year acquires a business that maintains a plan that does not use substitute mortality tables and that has a plan year that ends June 30, the maintenance of the latter plan within the controlled group will not impair the continued use of substitute mortality tables by the former plan through the end of the plan year that ends on December 31, 2011. This is because December 31, 2010, is the last day of the period described in section 410(b)(6)(C)(ii) for the plan using substitute mortality tables, June 30, 2011, is the last day of the period described in section 410(b)(6)(C)(ii) for the newly affiliated plan that does not use substitute mortality tables, and the last day of the plan year of the plan using substitute mortality tables that contains the later of those two dates is December 31, 2011. Similarly, if on September 1, 2009, a plan sponsor of a plan that uses substitute mortality tables and that has a calendar year plan year is acquired by an employer that maintains a plan that does not use substitute mortality tables and that has a plan year that ends June 30, the maintenance of the latter plan within the controlled group will not impair the continued use of substitute mortality tables by the former plan through the end of the plan year that ends on December 31, 2011.

Under the regulations, a plan is treated as a newly affiliated plan if it becomes maintained by the plan sponsor (or by a member of the plan sponsor's controlled group) in connection with a merger, acquisition, or similar transaction described in § 1.410(b)-2(f). The regulations provide that a plan is also treated as a newly affiliated plan if it is established in connection with a transfer of assets and liabilities from another employer's plan in connection with a merger, acquisition, or similar transaction described in § 1.410(b)-2(f).

In the case of a newly affiliated plan that does not use substitute mortality tables, the demonstration of whether credible mortality experience exists for the plan may be made by either including or excluding mortality experience data for the period prior to the date the plan becomes maintained within the controlled group that includes the plan sponsor of the plan that uses substitute mortality tables. If a plan sponsor excludes mortality experience data prior to the date the plan became maintained within the controlled group that includes the plan sponsor of the plan that uses substitute mortality tables, the exclusion must apply for all populations within the plan. For example, it is impermissible to include the data for hourly individuals for the pre-acquisition period but exclude the data for salaried individuals for that same period.

In order to demonstrate a lack of credible mortality experience with respect to a gender for a plan year, a special rule applies if the plan's mortality experience demonstration for a plan year is made by excluding mortality experience for the period prior to the date the newly affiliated plan becomes maintained within the new plan sponsor's controlled group. In such a case, an employer is permitted to demonstrate a plan's lack of credible mortality experience using an experience study period of less than four years, provided that the experience study period begins with the date the plan becomes maintained within the employer's controlled group and ends not more than one year and one day before the first day of the plan year with respect to which the lack of credible mortality experience demonstration is made.

The regulations provide rules for aggregating plans for purposes of using substitute mortality tables. Under the regulations, in order to use a set of substitute mortality tables for two or more plans, the rules set forth in the regulations are applied by treating those plans as a single plan. In such a case, the substitute mortality tables must be used for all such plans and must be based on data collected with respect to all such plans. Although plans generally are not required to be aggregated, the regulations require a plan to be aggregated with any plan that was previously spun off from that plan if one purpose of the spinoff was to avoid the use of substitute mortality tables for any of the plans involved in the spinoff.

Under the regulations, in order to use substitute mortality tables with respect to a plan, a plan sponsor must submit a written request to the Commissioner that demonstrates that those substitute mortality tables comply with applicable requirements. A request to use substitute mortality tables must state the first plan year and the term of years (not more than 10) that the tables are requested to be used. In general, substitute mortality tables cannot be used for a plan year unless the plan sponsor submits the written request to use substitute mortality tables at least 7 months prior to the first day of the first plan year for which the substitute mortality tables are to apply. However, the timing of the written request to use substitute mortality tables does not prevent a plan from using substitute mortality tables for a plan year if the written request is submitted no later than October 1, 2007. This special rule, which was provided under the proposed regulations, allowed plan sponsors sufficient time to review the proposed regulations and other guidance in order to prepare requests to use substitute mortality tables for use in 2008. In addition, the timing of the written request to use substitute mortality tables does not prevent a plan from using substitute mortality tables for a plan year that begins during 2009 if the written request is submitted no later than October 1, 2008. This special rule allows plan sponsors sufficient time to review the final regulations in order to prepare requests to use substitute mortality tables for plan years that begin during 2009.

Under the regulations, experience data cannot be used to develop a base table if the number of individuals in the population covered by the table (for example, the male annuitants) as of the last day of the plan year before the year the request to use substitute mortality tables is made (or a reasonable estimate of that number), compared to the average number of individuals in that population over the years covered by the experience study on which the substitute mortality tables are based, reflects a difference of 20 percent or more, unless it is demonstrated to the satisfaction of the Commissioner that the experience data is accurately predictive of future mortality of that plan population (taking into account the effect of the change in individuals) after appropriate adjustments to the data are made (for example, excluding data from individuals with respect to a spun-off portion of the plan).

Under the regulations, the Commissioner may, in revenue rulings and procedures, notices or other guidance published in the IRB (see § 601.601(d)(2)(ii)( b ) of this chapter), provide additional guidance regarding the approval and use of substitute mortality tables under section 430(h)(3)(C) and related matters. The IRS intends to publish a revenue procedure in the near future that updates the requirements set forth in Rev. Proc. 2007-37 regarding approval to use substitute mortality tables to reflect the provisions of these final regulations.

In general, the Commissioner has a 180-day period to review a request for the use of substitute mortality tables. If the Commissioner does not issue a denial within this 180-day period, the request is deemed to have been approved unless the Commissioner and the plan sponsor have agreed to extend that period. The Commissioner may request additional information with respect to a submission. Failure to provide that information on a timely basis is grounds for denial of the plan sponsor's request. In addition, the Commissioner will deny a request if the request fails to meet the requirements to use substitute mortality tables or if the Commissioner determines that a substitute mortality table does not sufficiently reflect the mortality experience of the applicable plan population. One commentator suggested that the 180-day period for approval of substitute mortality tables should automatically be tolled during any period between the time additional information is requested and received, and should resume after that information is received. These regulations do not adopt this suggestion. It is anticipated that the Commissioner and the taxpayer will establish a reasonable period for the taxpayer to collect and submit the requested data and extend the 180-day period to the extent necessary.

The regulations provide rules regarding the duration of use of substitute mortality tables. Under the regulations, substitute mortality tables generally are used with respect to a plan for the term of consecutive plan years specified in the plan sponsor's written request to use such tables and approved by the Commissioner, or such shorter period prescribed by the Commissioner in the approval to use substitute mortality tables. If the term of use of a substitute mortality table ends for any reason, the mortality tables specified in § 1.430(h)(3)-1 will apply with respect to the plan unless the plan sponsor has obtained approval to use substitute mortality tables for a further term. The regulations provide that a plan's substitute mortality tables cannot be used as of the earliest of the following: The second plan year following the plan year in which there is a significant change in the population covered by the substitute mortality table (generally, a change of at least 20% from the average number of individuals included in the experience study); or the plan year following the plan year in which a substitute mortality table for a plan population is no longer accurately predictive of future mortality of that population, as determined by the Commissioner or as certified by the plan's actuary to the satisfaction of the Commissioner. In addition, the regulations provide that a plan's substitute mortality tables cannot be used after the date specified in guidance published in the IRB (see § 601.601(d)(2)(ii)( b )) pursuant to a replacement of mortality tables specified under section 430(h)(3)(A) (other than annual updates to the static mortality tables).

Section 1.430(h)(3)-1, which provides generally applicable mortality tables, applies to plan years beginning on or after January 1, 2008. Section 1.430(h)(3)-2, which provides rules regarding the approval and use of substitute mortality tables, applies to plan years beginning on or after January 1, 2009. Taxpayers may rely on the provisions of § 1.430(h)(3)-2 for plan years beginning during 2008. For example, taxpayers can use the exceptions contained in § 1.430(h)(3)-2(d)(1) from the general rule that all controlled group members must use substitute mortality tables in order for any controlled group member to use substitute mortality tables. Because section 430(h)(3) provides that substitute mortality tables can be used only if the use of those tables is approved by the Secretary, taxpayers can use substitute mortality tables for plan years beginning during 2008 only if those mortality tables were approved by the IRS under the procedures set forth in Rev. Proc. 2007-37.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that the collection of information contained in this regulation will not have a significant economic impact on a substantial number of small entities. Pension plans of small entities generally are precluded from requesting to use substitute mortality tables pursuant to § 1.430(h)(3)-2 because they will not have 1,000 deaths for a permitted population over a permissible mortality experience study period as required under § 1.430(h)(3)-2(c)(1)(ii) and, thus, will not have credible mortality experience as required by the regulation. Accordingly, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Small Business Administration for comment on its impact on small business.

The principal authors of these regulations are Lauson C. Green and Linda S. F. Marshall, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in the development of these regulations.

Background

The final regulations (TD 9414) that is the subject of this correction are under sections 2036 and 2039 of the Code.

Section 2642(a)(3) was added to the Code by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Public Law 107-16 (115 Stat. 38 (2001). Under section 2642(a)(3), if a trust is divided into two or more trusts in a “qualified severance,” the separate trusts resulting from the severance (resulting trusts), which may have different inclusion ratios, will be recognized as separate trusts for GST tax purposes. (As used in this guidance, “resulting trust” has no relation to a resulting trust recognized under the common law of trusts and principles of equity.) Once the resulting trusts are recognized as separate trusts, the transferor's lifetime GST tax exemption may be allocated separately to either trust. In addition, whether or not a GST taxable event occurs is determined separately for each resulting trust.

On August 24, 2004, proposed regulations under section 2642(a)(3) regarding qualified severances were published in the Federal Register (REG-145987-03, 2004-39 IRB 519, 69 FR 51967). Final regulations were published on August 2, 2007 (TD 9348, 2007-37 IRB 563, 72 FR 42291). The Treasury Department and IRS determined that certain comments received in response to the proposed regulations, and certain additional rules under section 2642(a)(3), should be addressed in a separate notice of proposed rulemaking. On August 2, 2007, the Federal Register published a notice of proposed rulemaking (REG-128843-05, 2007-37 IRB 587, 72 FR 42340) addressing those comments and rules. The IRS received one submission containing several comments on the notice of proposed rulemaking. The comments contained in the submission are discussed below. No public hearing was requested or held.

Section 26.2642-6(d)(4) of the existing regulations provides that each of the trusts resulting from a qualified severance must be funded with a fraction or percentage of the original trust, and that the sum of those fractions or percentages must be one or one hundred percent, respectively. The existing regulations provide that this requirement may be satisfied by the funding of each resulting trust with that trust's fraction or percentage share of each asset held by the original trust (a pro rata division). Section 26.2642-6(d)(4) of the proposed regulations permits the funding of the resulting trusts on a non-pro rata basis, provided that a special funding rule is also satisfied. Specifically, this section of the proposed regulations provides that, if the assets of the original trust are divided between or among the resulting trusts on a non-pro rata basis, no discounts or other reductions from the value of the asset owned by the original trust, arising by reason of the division of the original trust's interest in the asset between or among the resulting trusts, are permitted for purposes of determining the amount used to fund each resulting trust. Instead, solely for funding purposes, each resulting trust's interest in the stock of a closely held corporation, partnership interest, or other asset must be valued by multiplying the fair market value of the asset held in the original trust as of the date of severance by the fractional or percentage interest in that asset being distributed to that resulting trust. Thus, for purposes of the requirements of a qualified severance, regardless of whether the funding is done on a pro rata basis, the cumulative value of the resulting trusts equals the value of the original trust.

The commentators pointed out that funding pursuant to this rule would result in an allocation different from the allocation that would normally be obtained from funding based on the state law fair market value standard which would take the discounts into account. The commentators expressed concern that the resulting shift in beneficial interests between or among the resulting trusts could violate the trustee's fiduciary duty of impartiality under applicable state law. Further, the commentators pointed out that the proposed rule could be avoided through the post-severance purchase and sale of assets between resulting trusts at fair market value. The commentators recommended an alternative funding rule under which the value of the original trust would be calculated as the sum of the fair market value of the assets to be held by the resulting trusts.

This recommendation was not adopted in the final regulations. It is difficult to see how the fiduciary duty of impartiality is challenged more by this funding rule than by a pro rata division of each asset of the original trust. The funding rule in the proposed regulations was intended to facilitate the funding of the resulting trusts without the cost or need for review of appraisals of each severed interest, and thus to improve the administrability of the severance provisions. This funding rule produces a bright line test, the same result whether or not the trust assets are divided on a pro rata basis, and recognizes that in many circumstances, where a trust is severed for tax purposes into two identical trusts with the same or related beneficiaries, any closely held stock or partnership units divided between the two resulting trusts are likely to be sold as a unit without any actual reduction in value that may be reflected in the claimed discounts. Any use of post-severance sales between resulting trusts to avoid these funding rules may constitute mere steps in a pre-arranged transaction.

The commentators pointed out that the nonqualified severance illustrated in § 26.2642-6(j), Example 3 , of the existing regulations will result in a taxable event for GST tax purposes (that is, a taxable termination or taxable distribution) if that severance occurs on or after the proposed regulations are adopted as final. This is because, under the proposed regulations, the severed trust is treated as a separate trust for GST tax purposes. Accordingly, cautionary language has been added to this example to the effect that a GST taxable event will result as a consequence of the severance.

It was determined that § 26.2642-6(j), Example 12 of the proposed regulations addresses the same issue covered in Example 8 of § 26.2654-1(a)(5). Therefore, Example 12 has been removed from the final regulations and the examples have been renumbered accordingly.

As requested by the commentators, a new example, § 26.2642-6(j), Example 13 , has been added to confirm that a trust resulting from a nonqualified severance may subsequently be severed in a qualified severance.

The commentators noted that the proposed regulations under § 26.2654-1(a)(1)(iii) address the treatment of severances resulting in separate trusts that are required under the terms of a trust instrument (mandatory severances) but that are neither severances otherwise recognized under section 2654 nor qualified severances under section 2642. The proposed regulations conclude that the separate shares or trusts resulting from such a severance, if recognized as separate trusts under state law, will be recognized as separate for GST tax purposes. The commentators questioned why the proposed changes to the regulations under section 2654 must address those severances that result in separate trusts when this issue is already addressed in § 26.2642-6(h) of the proposed regulations dealing with nonqualified severances. Section 26.2654-1(a)(1)(iii) was intended to address only mandatory severances that, as with the other types of severances covered by § 26.2654-1(a), are dictated by the terms of the trust. On the other hand, § 26.2642-6(h) addresses discretionary severances, that is, severances that are elective and within the discretion of the trustee. The severances described in § 26.2654-1 are governed by that section. Therefore, the proposed addition to this section has not been removed.

The proposed regulations under section 2654 state a general rule that separate shares or trusts resulting from a mandatory severance, that are recognized as separate trusts for GST tax purposes, will not be treated as separate trusts for purposes of filing income tax returns or calculating any other taxes. The comments noted that this statement should not apply to shares or trusts that are recognized as separate trusts under local law. Rather, this statement should apply only to separate shares created within a single trust that are not recognized under local law as separate trusts. The final regulations reflect this change.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) applies only to § 26.2642-6(d)(7)(iii) of these regulations. It is hereby certified that this provision will not have a significant economic impact on a substantial number of small entities. Accordingly, a Regulatory Flexibility Analysis is not required. This provision directly affects individuals, not entities. Because the remaining sections of these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Small Business Administration for comment on their impact on small business.

The principal author of these final regulations is Mayer R. Samuels, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. Other personnel from the IRS and Treasury participated in their development.

On May 22, 2006, the Department of Homeland Security (DHS) through the United States Coast Guard (Coast Guard) and the Transportation Security Administration (TSA) published a joint notice of proposed rulemaking entitled “Transportation Worker Identification Credential (TWIC) Implementation in the Maritime Sector; Hazardous Materials Endorsement for a Commercial Driver's License” in the Federal Register (71 FR 29396). This was followed by a 45-day comment period and four public meetings. The Coast Guard and TSA issued a joint final rule, under the same title, on January 25, 2007 (72 FR 3492) (hereinafter referred to as the original TWIC final rule). The preamble to that final rule contains a discussion of all the comments received on the NPRM, as well as a discussion of the provisions found in the original TWIC final rule, which became effective on March 26, 2007.

On May 7, 2008, the Coast Guard and TSA issued a final rule to realign the compliance date for implementation of the Transportation Worker Identification Credential. 73 FR 25562. The date by which mariners need to obtain a TWIC, and by which owners and operators of vessels, facilities, and outer continental shelf facilities, who have not otherwise been required to implement access control procedures utilizing TWIC, must implement those procedures, is now April 15, 2009 instead of September 25, 2008. Owners and operators of facilities that must comply with 33 CFR part 105 will still be subject to earlier, rolling compliance dates, as set forth in 33 CFR 105.115(e).

The Coast Guard will continue to announce rolling compliance dates, as provided in 33 CFR 105.115(e), at least 90 days in advance via notices published in the Federal Register . The final compliance date for all COTP Zones will not be later than April 15, 2009.

Title 33 CFR 105.115(e) currently states that “[f]acility owners and operators must be operating in accordance with the TWIC provisions in this part by the date set by the Coast Guard in a Notice to be published in the Federal Register .” Through this Notice, the Coast Guard informs the owners and operators of facilities subject to 33 CFR 105.115(e) located within COTP Zones Charleston, Long Island Sound, Jacksonville, and Savannah that the deadline for their compliance with Coast Guard and TSA TWIC requirements is December 1, 2008.

The TSA and Coast Guard have determined that this date provides sufficient time for the estimated population required to obtain TWICs for these COTP Zones to enroll and for TSA to complete the necessary security threat assessments for those enrollment applications. We strongly encourage persons requiring unescorted access to facilities regulated by 33 CFR part 105 and located in one of these COTP Zones to enroll for their TWIC as soon as possible, if they haven't already. Additionally, we note that the TWIC Final Rule advises owners and operators of MTSA regulated facilities of their responsibility to notify employees of the TWIC requirements. Specifically, 33 CFR 105.200(b)(14) requires owners or operators of MTSA regulated facilities to “[i]nform facility personnel of their responsibility to apply for and maintain a TWIC, including the deadlines and methods for such applications.” Information on enrollment procedures, as well as a link to the pre-enrollment Web site (which will also enable an applicant to make an appointment for enrollment), may be found at https://twicprogram.tsa.dhs.gov/TWICWebApp/.

You may also visit our Web site at homeport.uscg.mil/twic for a framework showing expected future compliance dates by COTP Zone. This list is subject to change; changes in expected future compliance dates will appear on that Web site. The exact compliance date for COTP Zones will also be announced in the Federal Register at least 90 days in advance.

Throughout this document whenever ”we,” ”us,” or ”our” is used, we mean EPA.

Organization of this document: We are providing the following outline to aid in locating information in this preamble.

On November 5, 2007 (72 FR 62422-62427), EPA published a Notice of Proposed Rulemaking (NPR) for the Commonwealth of Massachusetts. The NPR proposed approval of Massachusetts' amendments to its Transit System Improvements Regulation, 310 CMR 7.36, and Definition Regulation, 310 CMR 7.00 (which were filed with the Massachusetts Secretary of State on November 16, 2006 and were effective on December 1, 2006), as a revision to the Massachusetts SIP. EPA proposed to find that the transit measures in the revised transit system improvements regulation remain directionally sound and that all proposed substitution projects identified in the Regulation will collectively contribute to achieving the national ambient air quality standard for ozone and maintaining the carbon monoxide standard, thereby satisfying requirements set forth in section 110(l) of the Clean Air Act (CAA or Act).

On December 13, 2006, the Massachusetts Department of Environmental Protection (MA DEP) submitted its formal SIP revision amending its Transit System Improvements Regulation. The revision consists of MA DEP's final amendments to 310 CMR 7.36, “Transit System Improvements,” effective December 1, 2006. MA DEP held a hearing on the amendments to the Regulation on December 21, 2005. On June 1, 2007, MA DEP supplemented its SIP revision with a letter determining that the Massachusetts Executive Office of Transportation (EOT) had met the requirements of 310 CMR 7.36 (8), Demonstration of Air Quality Emissions Reductions, along with EOT's air quality modeling analysis (“Description of Modeling Assumptions and Analysis Methodology for the State Implementation Plan Transit Commitment Projects Current and Proposed Substitutions,” dated March 15, 2007). EOT held a public comment period on this supplemental material for a 45-day period commencing on January 2, 2007. The document was amended based on comments received and an additional two-week public comment period began on March 21, 2007, following posting in the “Environmental Monitor.” DEP submitted EOT's responses to public comments received as part of the supplemental materials.

On August 22, 2007, we issued our determination that the Massachusetts SIP package is administratively and technically complete. In our completeness determination, we also highlighted EPA's interest in seeing that the transit projects are implemented in a timely manner and requested that MA DEP keep us apprised of the status of the replacement projects as they move forward. In addition, we specifically mentioned hearing recent reports of potential delays in the Green Line extension project and encouraged EOT to address this issue on the record at its upcoming September 6, 2007 public status report meeting.

On September 6, 2007, the MA DEP held a public meeting to address EOT's annual status report on transit commitments. EOT presented the status of the uncompleted transit projects and took public comment. David Mohler, Acting Deputy Secretary for Planning, EOT, explained the Commonwealth's efforts in seeking Federal funds for the Green Line, which could delay the completion of the Green Line for up to two years. Mohler emphasized EOT's plan to make up any time delay, and if a delay occurred, to propose mitigation projects and adequate emission offsets as required by the regulation. EOT also made available at the public meeting a September 4, 2007 letter from David Mohler to MA DEP's Acting Commissioner, Arlene O'Donnell, committing to accelerate the planning, design and environmental review and permitting of the project in order to meet the 2014 completion date.

On January 4, 2008, EOT submitted copies of its “State Implementation Plan—Transit Commitments, 2007 Annual Status Report, Agency Responses to Public Comments” to MA DEP and EPA. EOT's submittal provided a summary of and responses to public comments, a written certification that the public process requirements were met, and a written certification that complete information was provided on any actual or known project delays, project substitutions, and interim offsets. MA DEP determined that EOT met the public process and other requirements of 310 CMR 7.36(7)(d) by letter on March 4, 2008.

The Arborway Restoration, the Blue Line/Red Line connection, and the Green Line extension to Ball Square/Tufts University which were approved into the Massachusetts SIP on October 4, 1994 (59 FR 50495-50498), will be substituted with the Fairmount Line commuter rail improvements, 1,000 new park and ride parking spaces (serving MBTA transit and commuter rail in the Metropolitan Boston Area), and the Green Line transit line extension to Medford Hillside with a spur to Union Square. Air quality modeling demonstrates that the substitution projects will achieve a minimum of 110% of the emissions reductions that would have been achieved if the original projects had been built. In addition to the substitution of transit projects, EPA is today approving the other specific requirements of Massachusetts' amendments to the Transit System Improvements Regulation. The rationale for EPA's proposed action to approve those amendments is explained in the NPR and will not be restated here.

EPA received twenty-three public comments on our proposal to amend Massachusetts' Transit System Improvements Regulation (Transit Regulation). Copies of the public comments have been placed in the public docket without change and are available online at www.regulations.gov , docket number EPA-R01-OAR-2006-1018, document number EPA-R01-OAR-2006-1018-0022 through EPA-R01-OAR-2006-1018-0044. EPA's full Technical Support Document—Response to Comments is also available in the public docket, as well as at the Regional Office.

Comment: A number of commenters supported the transit system improvement projects. Six commenters supported all of the transit system improvement projects, three commenters expressed strong support for the Fairmount Line; two commenters supported the Green Line Extension; and one commenter supported the Design of Red Line/Blue Line Connector.

EPA Response: EPA acknowledges the commenters' support for the transit system improvement projects.

Comment: Three commenters wanted the transit system improvement projects originally approved into the SIP in 1994 to be implemented without any substitutions or changes.

EPA Response: As a threshold matter, EPA notes that nothing in our approval of these revisions to the Transit Regulation into the SIP in any way prevents the Commonwealth from completing the projects originally included in the regulation as EPA approved it in 1994. Although the projects are being dropped from the SIP-approved Transit Regulation, if any of the projects have merit, the Commonwealth's transportation planning process may include them in the statewide transportation improvement program. The only question before EPA is whether Massachusetts has the option of revising the set of projects to which it will attach the specific requirements under the CAA that come when transit measures are specifically required in a SIP.

EPA does not underestimate the importance of a state's decision to drop transit projects from a SIP. EPA's approval of this SIP revision will have the effect of eliminating the requirement under the CAA to complete the projects dropped from the regulation. That requirement allowed direct enforcement of the project deadlines pursuant to state law and sections 113 or 304 of the Act. The SIP mandate for these projects also required the Commonwealth to demonstrate in the conformity process under section 176(c) of the Act that Massachusetts' transportation plan and transportation improvement program supported and would not interfere with completion of those projects. EPA agrees that these compliance mechanisms provide an incentive to complete SIP-approved transit projects.

But precisely because the decision to incorporate transit projects into a SIP is a significant commitment, subject to compliance mechanisms under the Act, a state should only include in its SIP those transit projects to which it is clearly committed. And the state is in the best position to determine the mix of transit measures that best meets the state's transit and air quality goals and that merits this high level of commitment. Accordingly, the Act assigns to EPA a limited role in reviewing a state's choice of transit measures. Essentially, EPA is required to approve a SIP revision if it meets the basic requirements of the Act, most importantly in this case that the substitute transit projects will achieve equivalent or greater emissions reductions than the projects to be replaced. See CAA section 176(c)(8)(A)(i).

Below in Table 1 is a summary of EOT's March 2007 Modeling Analysis for daily air quality emission benefits from the original 1994 SIP-approved transit system improvement projects, as well as the new transit system improvement projects. EPA has reviewed the modeling analysis report and concurs in the air quality benefits attributed to the transit system improvement projects. EPA addresses EOT's modeling analysis and air quality benefits in several of EPA's responses to comments below.

The action before EPA is to approve or reject the Commonwealth's transit project substitution as part of the Commonwealth's revision to its Transit System Improvements regulations 310 CMR 7.36. Approval of the changes to the Transit System Improvements regulation including the substitute transit projects into the SIP extends federal-enforcement to the design, construction and in most cases operation of the transit projects. The fact that a project is not specifically approved into a SIP does not affect the Commonwealth's ability to include a transit project in its transportation plan process, seek future federal-funding or undertake a specific transit as a state initiative funded by State, City, public or private funding.

Indeed, outside the context of the Act's SIP process, there are several signs of activity in connection with the projects or project areas that will no longer be subject to a SIP mandate. On November 15, 2007, Ian A. Bowles, Secretary of Massachusetts Executive Office of Energy and Environmental Affairs, determined that the Red Line/Blue Line Connector (EEA Number 14101) requires the preparation of a mandatory Environmental Impact Report (EIR) initiating the Commonwealth's Massachusetts Environmental Policy Act for the proposed project. And in the Transit Settlement Agreement that resolved the case Conservation Law Foundation v. Romney et al. , Civil Action No. 05-10487-NG, is the following statement: “The parties agree that they will work in good faith with the City of Boston and other relevant parties to develop and agree upon recommended public transportation improvements to the Arborway corridor over the course of the next year. All Parties agree to commit to and participate in a public process to identify and recommend any agreed upon improvements for the Arborway Corridor.” (The settlement agreement dated November 28, 2006 is available at http://www.clf.org/uploadedFiles/Transit_settlement_signed_Jan2007.pdf. ) EPA encourages all parties involved to fully implement this agreement.

Comment: Two commenters requested EPA reject EOT's request to remove the Arborway project from the SIP.

EPA Response: The Commonwealth has flexibility to revise SIP-approved transportation control measures (TCMs), provided the revisions are consistent with attaining and maintaining compliance with the national ambient air quality standards (NAAQSs). This flexibility to substitute projects follows the intent of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy For Users (SAFETEA-LU). Section 6011(d) of SAFETEA-LU amended the Clean Air Act by adding a new section 176(c)(8) that establishes specific criteria and procedures for replacing TCMs in an existing approved SIP with new TCMs and adding TCMs to an approved SIP.

The action before EPA is to approve or reject the Commonwealth's transit project substitution as part of the Commonwealth's revision to its Transit System Improvements regulation 310 CMR 7.36. Under the Clean Air Act, the EPA Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k)(3); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Here, DEP's SIP submission meets all the requirements of the Act, specifically the elements in section 176(c)(8) for substituting TCMs, including a demonstration that the new TCMs achieve emissions reductions equivalent to the projects being substituted.

Comment: Three commenters objected to the substitution of the Red Line/Blue Line Connector with a commitment only to design the connector but dropping the SIP commitment to construct the project. Four commenters supported the construction of the Red Line/Blue Line Connector and outlined benefits of constructing and operating the Red Line/Blue Line Connector.

EPA Response: EPA is aware of the merits and benefits of the operation of the Red Line/Blue Line Connector. EPA acknowledges the commenters' support for construction of the Red Line Blue Line Connector by 2014. However, the Commonwealth of Massachusetts has taken advantage of the flexibility provided under the Clean Air Act to revise SIP-approved TCMs, provided the revisions are consistent with attaining and maintaining compliance with the NAAQSs. Here, the Commonwealth has decided to drop the commitment to construct the Connector as part of a larger package of substitute projects designed to achieve an equivalent emission reduction. Again, this flexibility to substitute projects follows the requirements of the new Clean Air Act section 176(c)(8) that establishes specific criteria and procedures for replacing TCMs in an existing approved SIP with new TCMs and adding TCMs to an approved SIP.

Comment: Eight commenters wanted EPA to enforce the transit system improvement project deadlines. One commenter supported a two year delay of the Medford Green Line Extension, asserting that completion of the transit project by 2014 was optimistic.

EPA Response: EPA concurs in the need for an enforceable deadline for the transit system improvement projects. EPA's approval of Massachusetts' Transit System Improvements regulation into the SIP will make the design, construction and operation deadlines in the Commonwealth's regulation federally-enforceable. In addition, transportation air quality conformity determinations required by section 176(c) of the Clean Air Act will require the Boston Metropolitan Planning Organization as well as the U.S. Department of Transportation to make a positive finding that all SIP-approved transportation control measures are being implemented in a timely manner and in accordance with established SIP deadlines (40 CFR 93.113) prior to approving the long range transportation plans and transportation improvement programs for Eastern Massachusetts.

EPA notes that in at least one respect, the compliance deadlines provided for in this new version of 310 CMR 7.36 are more firm than the deadlines in the version EPA approved in 1994. The original “Project Delays and Project Deadline Extensions,” (310 CMR 7.36 (3)) previously approved into the SIP allowing up to three years delay in project completion has been removed.

In further support of the 2014 completion date for the Green Line Extension, the Massachusetts Executive Office of Transportation and Public Works (EOTPW) has committed to make up delays in the Green Line Extension Project, associated with seeking federal funding and addressing federal requirements, to the maximum extent possible.

Comment: Four commenters requested enhancements to the transit system improvement projects. One Commenter raised concerns with a transit system improvement project's impact on transportation, environment, social and economic impacts and lack of community involvement. Two commenters wanted alternatives to the Green Line extension to be evaluated, while another commenter wanted more specificity in the broad terms of the regulation providing for the Green Line extension terminus station.

EPA Response: EPA acknowledges the commenters' support for the transit system improvement projects. EPA must accept the transit system improvement projects as presented, or reject the Transit Project substitutions, based on the Act's criteria established for approving SIPs (i.e., substitution projects must provide for equivalent emissions reductions in the same time frame). EPA has no authority to dictate specific enhancements to any of the proposed transit project substitutions. However, EPA believes the submitted projects could be enhanced during the public participation process associated with the Commonwealth's state environmental process and design of the transit measure.

The action before EPA is to approve or reject the Commonwealth's transit project substitution as part of the Commonwealth's revision to its Transit System Improvements regulation 310 CMR 7.36. The concerns raised by the commenters regarding transportation, environmental, social and economic impacts of the Green Line Extension project should be addressed and mitigated during the Commonwealth's state environmental process. See MGL c. 30 § 61-62 and regulations, 301 CMR 11.00. And should the Green Line Expansion Project receive federal funding, these concerns may also be addressed under any future federal environmental review and public participation process conducted in accordance with the National Environmental Policy Act. 42 U.S.C. 4321-4370f.

Comment: Two commenters wanted Massachusetts EOT to specify the location of the 1,000 park and ride locations, and identify an implementation schedule.

EPA Response: The Park and Ride provisions in section 7.36 provide that before December 31, 2011, construction shall be completed and 1,000 new park and ride parking spaces opened to full public use serving commuter transit facilities within the 101 cities and towns constituting the Boston Metropolitan Planning Organization. These park and ride facilities are subject to “Project Interim Deadlines,” established under 310 CMR 7.36(3), which identifies timeframes for hiring a design consultant, completing a conceptual design, filing an Environmental Notification Form (ENF) with MEPA, completing the Environmental Impact Report, completing final design, applying for necessary permits and funding, and proceeding to construction. Therefore, there is still considerable work to be done before the specific location of these lots can be determined.

EPA agrees with the commenters that it is impossible to fully assess the emissions reductions that these 1,000 spaces will accomplish without knowing where they will be located. And EPA recognizes that the individual transit substitution projects will undergo project refinement as these projects proceed through environmental evaluation, public participation and project design. Nevertheless, EPA has concluded that the uncertainty about the location of these parking spaces does not prevent EPA from approving the entire package of transit project substitutions. First, the package of new transit projects demonstrates equivalent emissions reductions to the substituted projects even if one were to eliminate entirely any credit for the lots. Therefore, EPA does not believe that EOT's inability to specify the location of these lots provides EPA a basis to disapprove this SIP revision. Second, EPA has reviewed the assumptions EOT made about the park and ride lots in modeling their emissions impact. EPA agrees that EOT made reasonably conservative assumptions in assigning any emissions reductions value to the lots.

Comment: Four commenters repeated modeling questions and concerns previously addressed through the Commonwealth's public participation process.

EPA Response: These questions and concerns were raised during the Commonwealth's approval of the revised Transit System Improvements regulations. Based on EPA's review of the Commonwealth's Response to Comments as well as EOT's Response to Public Comments identified during the public participation process on the Transit Commitments 2007 Annual Status Report, EPA believes the commenters' concerns have been adequately addressed.

The March 15, 2007, “Description of Modeling Assumptions and Analysis Methodology for the State Implementation Plan Transit Commitment Projects Current and Proposed Substitutions,” prepared by the Central Transportation Planning Staff is consistent with methodology and assumptions used in developing the SIP and developing the long range transportation plans and transportation improvement program. It is also consistent with the methodology and assumptions used in the transportation conformity process to determine that transportation planning is consistent with the air quality plan for the SIP. EPA recognizes that the transit substitution projects will continuously undergo refinement as they proceed through the environmental development phase and project design phase; however, EPA has determined the current project delineation to be sufficient in defining the project and for air quality evaluation.

Comment: One of the commenters submitted a number of modeling issues regarding the Green Line Arborway Restoration Project that were previously submitted during the Commonwealth's public participation process.

EPA Response: These Arborway modeling concerns were addressed in a June 27, 2005 Central Transportation Planning Staff memorandum from Karl Quackenbush and Scott Peterson to Dennis DiZoglio and Joe Cosgrove of the Massachusetts Bay Transit Authority, as well as addressed in EOT's “Summary of Comments Received on Modeling Analysis for Proposed Substitute State Implementation Plan Transit Projects and Agency Responses” dated May 3, 2007.

EPA concurs with the Commonwealth's modeling to evaluate air quality impacts associated with the original 1994 SIP-approved transit improvement projects and the proposed transit system improvement substitution projects. EPA did not assign or grant specific emission reduction credit to the 1994 SIP-approved projects, so to model the original projects and new substitution projects on an equal basis is the only fair way to evaluate potential air quality emission benefits from the transit improvement projects.

After review of the transportation and air quality modeling submitted as part of the SIP revision package, EPA has determined that the modeling is consistent with methodology and assumptions used in developing the SIP, consistent with developing the long range transportation plans and transportation improvement programs, as well as consistent with the methodology and assumptions used in the transportation conformity process to determine that transportation planning is consistent with the air quality planning for the SIP. See March 2007 re-evaluation submitted to EPA June 1, 2007, conducted to satisfy subsection (8) “Determination of Air Quality Emission Reductions” of the Transit System Improvements regulation, 310 CMR 7.36; CTPS's March 15, 2007 “Description of Modeling Assumptions and Analysis Methodology for the State Implementation Plan Transit Commitment Projects Current and Proposed Substitutions”; CTPS's June 16, 2005 Memorandum on “SIP Transit Modeling Assumptions”; and CTPS Memorandum dated June 27, 2005 on “Responses to Arborway Comments.”

EPA has evaluated the submitted SIP revision package, including Central Transportation Planning Staff's March 15, 2007 “Description of Modeling Assumptions and Analysis Methodology for the State Implementation Plan Transit Commitment Projects Current and Proposed Substitutions.” EPA independently concurs with the Massachusetts Department of Environmental Protection's June 1, 2007, determination that the emission reductions associated with the transit improvement projects in the revised State Regulation 310 CMR 7.36 “Transit System Improvements” will achieve in excess of the requirement in the state regulations that the substitute projects must achieve an emissions reduction of at least 110 percent of the reductions that would be expected from eliminated projects. As presented in Table 1, above, the reductions expected from the new projects when compared to the original SIP-approved projects as a percentage are for volatile organic compounds 154%, nitrogen oxides 137.5%, and carbon monoxide 149%.

Comment: Five commenters expressed their belief that there were no real substitutions for the Green Line Extension project. The commenters did not want further substitutions, and wanted air quality benefits to remain in the proposed Green Line Extension project area which they assert is an environmental justice area.

EPA Response: The Transit System Improvements Regulation provides for substitution of this project at 310 CMR 7.36(5) should the Commonwealth wish to take advantage of this flexibility in its regulation in the future. This substitution procedure for the Green Line Extension requires Massachusetts EOT to:

1. Identify the reasons for seeking a project substitution;

2. Conduct a public participation process for the substitution process;

3. Achieve interim emission reduction offsets of non-methane hydrocarbons, carbon monoxide, and nitrogen oxides;

4. Comply with original project interim deadlines;

5. Prioritize funding in the long range transportation plan and transportation improvement program of the Boston Metropolitan Planning Organization (MPO);

6. Require substitute project(s) that enhance or improve existing public transit service, or provide new transit service within the municipalities of Boston, Cambridge, Somerville, and Medford;

7. Demonstrate that the proposed substitute project will achieve 110% of the emission reductions of that would have been achieved had all components of the original project been completed; and to require that the Massachusetts Department of Environmental Protection determine in writing whether the substitution requirements of 310 CMR 7.36(5) have been met and whether the administrative record reasonably supports EOT's substitution determination.

With respect to a Green Line Extension substitution transit project trading off air quality benefits with other neighborhoods, the regulations define the geographic area of Boston, Cambridge, Somerville, and Medford for Green Line Extension substitution transit projects. This delineation is more restrictive than how the CAA requires EPA to evaluate emissions reductions in an ozone nonattainment area. As long as the emissions reductions come from within the applicable nonattainment area, in this case Eastern Massachusetts, they would qualify under the federal CAA. Here again, the state requirement in section 7.36 sets a higher bar by restricting the geographic area for an allowed substitution to only four municipalities within the Eastern Massachusetts nonattainment area.

Comment: One commenter raised the issue of timely implementation of TCMs adopted into the SIP.

EPA Response: EPA believes the Transit System Improvements regulation, with its defined project deadlines, interim project deadlines, and annual public reporting of update and status of SIP-approved TCMs, (which is open to public participation and requires a written determination by Massachusetts Department of Environmental Protection whether the public process and other requirements of 310 CMR 7.36(7) “Public Process Requirements,” were met) will assist in completing the SIP-approved TCMs on time.

Transportation conformity is required under Clean Air Act section 176(c) (42 U.S.C. 7506(c)) to ensure that federally supported highway and transit project activities are consistent with (“conform to”) the purpose of the SIP. EPA's transportation conformity rule establishes the criteria and procedures for determining whether transportation activities conform to the SIP. One criterion established at 40 CFR 93.113 is that all SIP-approved transportation control measures are being implemented in a timely manner and in accordance with established SIP deadlines. EPA believes the conformity process will ensure the timely implementation of these TCMs.

If a SIP-approved TCM identified in the transportation improvement program does fall behind schedule, a positive conformity determination can still be made in accordance with 40 CFR 93.113 if:

Comment: Two commenters expressed concern that past transportation air quality conformity evaluations did not adequately address timely implementation of TCMs.

EPA Response: EPA is finalizing an action to approve a TCM substitution and revisions to the Massachusetts Transit System Improvements regulation. EPA is not re-evaluating past transportation conformity determinations. The timely implementation of the substitute TCMs will be evaluated in future transportation conformity determinations to ensure that the requirements of Clean Air Act section 176(c)(2)(B) and 176(c)(3)(A)(ii) and the transportation conformity rule (49 CFR 93.113) are satisfied.

Comment: A commenter claimed that the air quality benefit associated with the substituted transit projects ignores the fact that the 1990 Conservation Law Foundation (CLF) Agreement and EPA intervention were intended to complement the parking restrictions in and near downtown Boston.

EPA Response: While the metropolitan Boston parking freezes complement traffic reduction strategies, the approval of the proposed transit improvement substitution projects is independent of the parking freezes, in the sense that nothing in the Act, including section 176(c)(8), requires EPA to link one set of TCMs with another. Admittedly, if the success of the state's proffered TCM substitutions relied heavily on the enforcement of TCMs that the state was not prepared to make part of the SIP, EPA would need to consider whether it could credit the substitute TCMs with the level of reduction the state was assuming from their combined effect with the TCMs outside the SIP. Here, however, the relevant parking freezes are part of the SIP, and DEP has not abandoned the use of parking freeze requirements as part of the strategy included in its SIP. Therefore that question is not before EPA.

EPA has approved Parking Freezes for Cambridge, Downtown Boston, South Boston, East Boston and Logan Airport. Since the 1994 adoption of the transit system improvement projects into the SIP, EPA has approved the South Boston Parking Freeze and amended the East Boston/Logan Parking Freeze.

On October 15, 1996, EPA approved the South Boston Parking Freeze SIP Amendment as a revision to the Massachusetts SIP (61 FR 53628). Massachusetts Air Pollution Control Regulation 310 CMR 7.33 entitled “City of Boston/South Boston Parking Freeze,” established and requires the Boston Air Pollution Control Commission (BAPCC) and the Massachusetts Port Authority (MassPort) to control the growth of parking spaces in the South Boston neighborhood of Boston. The effect of controlling parking growth is anticipated to be a decrease in vehicle miles traveled (VMT), thereby holding automobile usage to levels within the practical capacity of the local street network.

On March 12, 2001, EPA approved revisions to the Massachusetts Port Authority/Logan Airport Parking Freeze, 310 CMR 7.30, and City of Boston/East Boston Parking Freeze, 310 CMR 7.31, into the Massachusetts SIP (66 FR 14318). The revisions allow the Commonwealth to automatically approve the transfer of parking spaces from the East Boston Parking Freeze to the Logan Parking Freeze provided the total parking space inventory number for the Logan Parking Freeze remains at or below 21,790 parking spaces. Future modifications in the parking freeze inventories for the Logan Airport and East Boston Parking Freezes will be regulated by the Commonwealth's revisions to Massachusetts State Regulations 310 CMR 7.30 and 310 CMR 7.31.

Comment: A commenter stated that the SIP substitution proposal shifts the responsibility to enforce the Environmental Justice Executive Order from EPA, the Federal agency required to comply with the Executive Order, to the state. Another commenter identified Jamaica Plain, served by the Green Line Arborway Restoration Project, as an environmental justice neighborhood with a high asthma hospitalization rate among children under age 5 (11.1 per 1,000).

EPA Response: It is not this SIP revision, but rather the structure of the CAA as Congress designed it, that rests consideration of environmental justice issues here primarily with the state. Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k)(3); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations,” (59 FR 7629, February 16, 1994).

The Federal executive policy on environmental justice is established by Executive Order 12898. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. Here the Clean Air Act directs EPA to approve a SIP revision unless it does not meet the Act's requirements. Although the Act does not provide EPA the authority to modify the Commonwealth's regulatory decision solely on the basis of environmental justice considerations, EPA continues to encourage EOT to consider environmental justice concerns when deciding the location of the additional Park and Ride spaces and the new stations along the Fairmount commuter rail line and the Green Line extension project and when implementing public transportation improvements to the Arborway corridor promised in the Transit Settlement Agreement that resolved the case Conservation Law Foundation v. Romney et al. , Civil Action No. 05-10487-NG. EPA believes the transit improvement substitution projects can be enhanced and additional consideration be given to minority populations and low-income populations during the public participation process associated with the environmental evaluation phase and engineering design phase of the transit measures. EPA also urges EOT and DEP to consider environmental justice concerns when deciding whether to meet project deadlines, to approve proposals for project delays, and to approve offset or substitute projects.

Comment: One commenter identified the Commonwealth's transit substitutions as contrary to the Commonwealth's financial interests and claimed that restoring the Arborway Green Line would result in significant operating cost savings. Another commenter questioned whether the Commonwealth had accurately compared the relative costs of constructing and operating the Red-Blue Line connector with the proposed substitute projects.

EPA Response: The CAA assigns to the state the responsibility for assessing the cost implications of SIP measures. Indeed, EPA has no authority to disapprove a SIP revision solely because the Agency might disagree with the cost-effectiveness of a state's chosen control strategy. See Union Electric Co. v. EPA, 427 U.S. 246 (1976), rehearing denied 429 U.S. 873 (1976). Massachusetts EOT's position in responding to this issue during the state public participation process is that the restoration of Green Line Arborway service is not a cost-effective way to achieve the desired transportation and air quality benefits. Correspondingly, the CAA provides EPA no basis for disapproving this SIP revision even if EPA did not agree with the Commonwealth's weighing of the costs of the Red-Blue Line connector with the substitute projects.

Comment: Two commenters stated that particulate matter impacts are particularly harmful and expressed concern about the particulate matter and other emissions from diesel trains used on the Fairmount/Indigo Line.

EPA Response: The Massachusetts transit system improvement projects were originally approved into the SIP in 1994 as control strategies for carbon monoxide and ozone (control of precursors volatile organic compounds and nitrogen oxides), but no emission credits were assigned to these projects. EPA has also established National Ambient Air Quality Standards for Particulate Matter (PM 10 —Particles less than 10 micrometers in diameter, and PM 2.5 —Particles less than 2.5 micrometers in diameter and referred to as “fine” particles). Currently air quality monitoring within the Boston Metropolitan area indicates attainment of the PM 10 annual standard, as well as the PM 2.5 annual and 24-hour standards. As such, the area is not subject to the CAA conformity requirements for particulate matter.

EPA supports the Commonwealth's on-going efforts to reduce particulate matter from mobile sources through the use of lower sulfur fuel, alternative fuels, and retrofits for diesel equipment and vehicles including construction equipment and school buses.

Comment: One commenter looking at an earlier version of the air quality modeling analysis stated that “Attempts to deduce the benefits of the incremental extension of the Green Line, by subtracting the benefits claimed for the new Green Line extension from the benefits attributable to the Existing SIP Commitments, yield an incredible result: by increasing the number of stations by three, nitrogen oxides (NO X ) benefits increase nearly 300 percent and hydrocarbon (HC) benefits increase by nearly 400 percent. This result strains credulity and requires far more detailed background to justify such an anomalous result.”

EPA Response: The air quality modeling submitted with the SIP revision showed that extending the Green Line from Tufts University/Ball Square to Medford Hillside and adding the Green Line spur to Union Square Somerville would add the following daily emission benefits to the original Green Line Extension: 7 kilograms of nitrogen oxides; 12 kilograms of volatile organic compounds; and 212 kilograms of carbon monoxide. As a result, the demonstration submitted to EPA shows that the extension of the Green Line project to Medford Hillside and Union Square accounted for only a 0.025% increase in emission reduction benefits for NO X and 0.041% for VOC when compared to the no-build emissions for the modeled area. It is more realistic to compare the marginal emission benefits for the expanded Green Line extension alternative with the overall emission benefits of the entire original Green Line to Tufts University/Ball Square. EPA finds these incremental benefits to be reasonable.

Comment: One commenter raised a number of concerns about how the modeling analysis handled assumptions for the proposed “West Medford Green Line extension with a Union Square spur” and the “Fairmount Commuter Rail project” such as headways, fares, number of transit stations and transfers. The commenter asserted that modeling assumptions would have a significant impact on the forecast of ridership and corresponding emissions.

EPA Response: The Central Transportation Planning Staff (CTPS) maintains a regional travel demand model set that is used to measure a variety of impacts associated with changes to existing transportation infrastructure, one of which is air quality emissions. CTPS's model set is continuously improved as newer information is made available. This process of updating inputs and methods has led to several intermediate sets of results during the process of evaluating the SIP transit commitments. The commenter based his concerns on a review of an early state air quality modeling analysis and not the final analysis submitted June 1, 2007 with a supplement to the December 13, 2006 SIP revision. The March 2007 re-evaluation submitted to EPA June 1, 2007, was conducted to satisfy subsection (8) “Determination of Air Quality Emission Reductions” of the Transit System Improvements regulation, 310 CMR 7.36. Technical documentation identifying and explaining the model and modeling assumptions is addressed in the CTPS's March 15, 2007 “Description of Modeling Assumptions and Analysis Methodology for the State Implementation Plan Transit Commitment Projects Current and Proposed Substitutions.” Additional modeling support documents provided to EPA as part of the SIP revision include CTPS's June 16, 2005 Memorandum on “SIP Transit Modeling Assumptions,” and a second CTPS Memorandum dated June 27, 2005 on “Responses to Arborway Comments.” These updates and refinements to the modeling appear to address the concerns about fares, number of transit stations and transfers and represent the most recent information about and analysis of the emissions effect of the project substitutions.

Even with the refinement of the model and the supporting documentation, it remained unclear to EPA how the state's submittal responded to a comment concerning headways, specifically the potential for three minute headways on the Green Line Extension when the service from the two new branches is combined and travels through the Lechmere Station. One commenter indicated that the model's assumption of three minute headways was unrealistic. EPA contacted CTPS and the Massachusetts Bay Transportation Authority (MBTA) and learned that the Green Line has operated in the past on three minute headways outbound from Government Center Subway Station as well as inbound from Lechmere Station. The MBTA has made structural improvements to the Lechmere viaduct to allow 3 (2-car) trains per direction operating at 25 miles per hour. Finally, a 1999 operational analysis of the Green Line showed that within the Lechmere to Government Center area, the segment of the Green Line between the North Station and Haymarket stations serves as the capacity “pinch point,” with a maximum number of trains per hour on this segment of 34. Under the proposed Green Line Extension operating plan, the C, D and E Lines on the Green Line would operate through this pinch point with 34 trains per hour during the peak period. Therefore, it does not appear to be unrealistic that the new service could operate at three minute headways.

As explained in the response above, EPA has determined that the modeling is consistent with methodology and assumptions used in developing the State Implementation Plan, consistent with developing the long range transportation plans and transportation improvement programs, as well as consistent with the methodology and assumptions used in the transportation conformity process to determine that transportation planning is consistent with the air quality planning for the SIP.

Clean Air Act section 176(c)(8), added by SAFETEA-LU, establishes the procedures for ensuring that substitute TCMs provide equal or greater emissions reductions than the TCMs that are being replaced. It also establishes the process for MPO, EPA and state air agency concurrence on the substitution or addition of TCM projects. Finally, it ensures that the state and EPA maintain up-to-date information on the TCMs in approved SIPs so that the public is aware of the TCMs that are to be implemented. EPA and U.S. Department of Transportation (DOT) issued joint guidance on February 14, 2006, on the implementation of all of the Clean Air Act amendments made by SAFETEA-LU, a copy of which has been placed in the electronic docket. This guidance clarified EPA and DOT expectations for how TCM substitutions and additions are to be carried out by state and local agencies. The guidance is available at http://www.epa.gov/otaq/stateresources/transconf/420b06901.pdf . 1

On June 1, 2007, MA DEP concurred in EOT's determination that the substitute projects achieved at least equivalent emissions reductions. In addition to the state air pollution control agency, section 176(c)(8)(A)(v) specifically requires both the MPO and EPA to concur with the equivalency of the substitute TCMs before the substitution can take effect. On May 3, 2007, Massachusetts Secretary of Transportation, Bernard Cohen, submitted EOT's air quality modeling analysis for the substitution projects to MA DEP. This analysis demonstrates that the required emission reductions set forth in section 7.36(8) of the Regulation will be achieved by the new projects. In a May 1, 2008 letter to EPA, the Boston MPO concurred in the finding that the transit system improvements projects will achieve emission benefits equivalent to or greater than the benefits from the original transit system improvements projects being replaced. For EPA's concurrence on the substitutions included in this SIP revision, the Agency sent a letter to the Boston MPO, contemporaneous with our final action on this SIP revision, to document EPA's concurrence on the substitutions being approved with the revisions to MA DEP's regulation. 2 For any future substitutions, EPA will work with MA DEP to coordinate EPA's review with DEP's review of the proposed substitution so that the substitution can take effect as a matter of federal law if both DEP and EPA approve it.

Section 176(c)(8) now also requires all substitutions of TCM's to be submitted to EPA for incorporation into the codification of the SIP. For the purposes of the substitutions provided for in the revisions of the Regulation, the codification that results from the final action on this SIP revision will address this requirement. For future substitutions, although the state regulation does not specifically require MA DEP to forward to EPA the results of MA DEP's substitution determinations, it should be a routine matter for MA DEP to submit any substitution it approves under section 7.36(5)(h) so that the federally approved SIP can accurately reflect the current requirements under the Regulation.

EPA is approving Massachusetts' amendments to Transit System Improvements Regulation, 310 CMR 7.36, and Definition Regulation, 310 CMR 7.00 (which were filed with the Massachusetts Secretary of State on November 16, 2006 and were effective on December 1, 2006), as a revision to the Massachusetts SIP. EPA finds that the transit measures in the revised transit system improvements regulation remain directionally sound and that all proposed substitution projects identified in the Regulation will collectively contribute to achieving the national ambient air quality standard for ozone and maintaining the carbon monoxide standard, thereby satisfying requirements set forth in section 110(l) of the Clean Air Act.

EPA has determined that today's rule falls under the “good cause” exemption in section 553(d)(3) of the Administrative Procedures Act (APA) which, upon finding “good cause,” allows an agency to make a rule effective immediately (thereby avoiding the 30-day delayed effective date otherwise provided for in the APA). EPA has concluded that it is not necessary to delay the effectiveness of this rule for 30 days because the entities that will be directly affected by the transit system improvements regulation have had ample notice of the requirements in the regulation, and they wish to use the substitute transit projects as soon as possible in the conformity process under the Clean Air Act. First, the requirements of the transit system improvements regulation have been effective as a matter of state law since December 1, 2006. Therefore, it is unnecessary to wait an additional thirty days to make the regulation federally enforceable, because the entities subject to the regulation have already had ample time to anticipate the compliance requirements of this regulation under state law. Second, the state and U.S. Departments of Transportation (DOTs) and the Boston Metropolitan Planning Organization (Boston MPO) must use timely implementation of these SIP-approved transportation control measures to determine whether their long range transportation plans and transportation improvement programs conform with the state's implementation plan. The DOTs and Boston MPO will be most immediately affected by EPA's approval of these transit system improvements and their transportation planning obligations are directly impacted by changes in the SIP-approved list of transportation control projects. EPA and the Massachusetts DEP have been consulting extensively with the DOTs and the Boston MPO about the transit system improvements. The DOTs and Boston MPO are not only ready to use the new list of transit system improvement projects without waiting 30 days, they are eager to use them as soon as possible to avoid delays in the transportation planning process. Therefore, since the entities that are most directly impacted by this approval are ready to use the transit system improvements and prefer to use them immediately, EPA is making this rule effective immediately. This rule will be effective July 31, 2008.

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, EPA's role is to approve state choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves state law as meeting Federal requirements and does not impose additional requirements beyond those imposed by state law. For that reason, this action:

• Is not a “significant regulatory action” subject to review by the Office of Management and Budget under Executive Order 12866 (58 FR 51735, October 4, 1993);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Public Law 104-4);

• Does not have Federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not an economically significant regulatory action based on health or safety risks subject to Executive Order 13045 (62 FR 19885, April 23, 1997);

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001);

• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act; and

• Does not provide EPA with the discretionary authority to address, as appropriate, disproportionate human health or environmental effects, using practicable and legally permissible methods, under Executive Order 12898 (59 FR 7629, February 16, 1994).

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the Small Business Regulatory Enforcement Fairness Act of 1996, generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. EPA will submit a report containing this action and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule 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).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by September 29, 2008. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2).)

This is a summary of the Order by the Commission, FCC 08-154, adopted on June 13, 2008, and released on June 13, 2008. The complete text of this Order is available for inspection and copying during normal business hours in the FCC Reference Information Center, Courtyard Level, 445 12th Street, SW., Washington, DC 20554 and also may be purchased from the Commission's copy contractor, Best Copy and Printing, Inc., at 1-800-378-3160, CY-B402, 445 12th Street, SW., Washington, DC 20554.

This Order amends § 1.80(b) of the Commission's rules, 47 CFR 1.80(b), to increase the maximum penalties established in that section to account for inflation since the last adjustment to these penalties. The adjustment procedure is set forth in detail in § 1.80(b)(5) of the Commission's rules. That section implements the Debt Collection Improvement Act of 1996, 28 U.S.C. 2461, which requires federal agencies to adjust maximum statutory civil monetary penalties at least once every four years.

This Order adjusts the maximum penalties to account for the increase in the Consumer Price Index (CPI) between June of the year the forfeiture amount was last set or adjusted, 1 and June 2007. The increases were then rounded using the statutorily prescribed rules to produce the adjusted penalties.

The amendment of § 1.80(b) implements the requirements of the Debt Collection Improvement Act of 1986, 28 U.S.C. 2461, as incorporated in § 1.80(b)(5) of the Commission's rules. Since Congress has mandated these periodic rule changes and the Commission has no discretion but to make them, we find that, for good cause, compliance with the notice and comment provisions of the Administrative Procedure Act is unnecessary. See 5 U.S.C. 553(b)(B).

Since a notice of proposed rulemaking is not required, the Regulatory Flexibility Act, 5 U.S.C. 601 et seq., does not apply.

The actions taken in this Order have been analyzed with respect to the Paperwork Reduction Act of 1995 and found to impose no new or modified reporting and recordkeeping requirements or burdens on the public.

This interim final rule is being adopted without prior notice and prior public comment. However, the TSA will still provide an opportunity for public comment on this rulemaking. TSA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. We also invite comments relating to the economic, environmental, energy, or federalism impacts that might result from this rulemaking action. See ADDRESSES above for information on where to submit comments.

Please identify the docket number of this interim final rule at the beginning of each comment. TSA encourages commenters to provide their names and addresses. The most helpful comments reference a specific portion of the rulemaking, explain the reason for any recommended change, and include supporting data. You may submit comments and material electronically, in person, by mail, or fax as provided under ADDRESSES , but please submit your comments and material by only one means. If you submit comments by mail or delivery, submit them in an unbound format, no larger than 8.5 by 11 inches, suitable for copying and electronic filing.

If you would like TSA to acknowledge receipt of comments submitted by mail, include with your comments a self-addressed, stamped postcard on which the docket number appears. We will stamp the receipt date on the postcard and mail it to you.

TSA will file in the public docket all comments received by TSA, except for comments containing confidential information and sensitive security information (SSI). 1 TSA will consider all comments received on or before the closing date for comments and will consider comments filed late to the extent practicable. The docket is publicly available, and will be available for public inspection before and after the comment closing date.

Do not submit comments that include trade secrets, confidential commercial or financial information, or SSI to the public regulatory docket. Please submit such comments separately from other comments on this rulemaking. Comments containing this type of information should be appropriately marked as containing such information and submitted by mail to the address listed in the FOR FURTHER INFORMATION CONTACT section.

TSA will not place such comments in the public docket and will handle them in accordance with applicable safeguards and restrictions on access. TSA will hold documents containing SSI, confidential business information, or trade secrets in a separate file to which the public does not have access, and will note in the public docket that TSA has received such materials from the commenter. However, if TSA determines that portions of these comments may be made publicly available, TSA may include redacted versions in the public docket. If TSA receives a request to examine or copy information that is not in the public docket, TSA will treat that request as any other request under the Freedom of Information Act (FOIA) (5 U.S.C. 552) and under DHS' FOIA regulation (published in 6 CFR part 5).

Please be aware that anyone is able to search the electronic form of comments received into our dockets by the name of the individual submitting each comment (or signing each comment, in the cases of comments submitted on behalf of associations, businesses, labor unions, etc.). You may review the applicable Privacy Act Statement published in the Federal Register on April 11, 2000 (65 FR 19477) (available online at http://DocketInfo.dot.gov ).

You may review TSA's electronic public docket on the Internet at http://www.regulations.gov. In addition, DOT's Docket Management Facility provides paper copies of docket materials, equipment to facilitate docket review, and staff assistance to the public. To obtain assistance or to review comments in TSA's public docket, you may visit this facility from 9 a.m. to 5 p.m., Monday through Friday (excluding legal holidays), or you may call (202) 366-9826. This docket operations facility is located in the West Building Ground Floor, Room W12-140 at 1200 New Jersey Avenue, SE., Washington, DC 20590.

You can get an electronic copy using the Internet by—

(1) Searching the electronic Federal Docket Management System (FDMS) Web page at http://www.regulations.gov;

(2) Accessing the Government Printing Office's Web page at http://www.gpoaccess.gov/fr/index.html; or

(3) Visiting TSA's Security Regulations Web page at http://www.tsa.gov and accessing the link for “Research Center” at the top of the page.

In addition, copies are available by writing or calling the individual whose contact information is listed in the FOR FURTHER INFORMATION CONTACT section of this interim final rule. Make sure to identify the docket number of this rulemaking in communications with TSA.

The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996 requires TSA to comply with small entity requests for information and advice about compliance with statutes and regulations within TSA's jurisdiction. Any small entity that has a question regarding this document may contact the individual whose contact information is listed in FOR FURTHER INFORMATION CONTACT . Persons can obtain further information regarding SBREFA on the Small Business Administration's Web page at http://www.sba.gov/advo/laws/law_lib.html.

This action is being taken without providing a prior opportunity for notice and comment, and it provides for an effective date less than 30 days after publication in the Federal Register .

Sections 553(b) and (d) of the Administrative Procedure Act (APA) (5 U.S.C. 553) authorize agencies to dispense with certain notice procedures for rules when they find “good cause” to do so. Under section 553(b), the requirements of notice and opportunity for comment do not apply when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” Section 553(d) allows an agency, upon finding good cause, to make a rule effective immediately, thereby avoiding the 30-day delayed effective date requirement of section 553.

TSA finds that notice and public comment to this final rule are impracticable, unnecessary, and contrary to the public interest. The provisions in this interim final rule adopt verbatim sections 1414(e) (6 U.S.C. 1143(e)) and 1522(e) (6 U.S.C. 1170(e)) of the Implementing Recommendations of the 9/11 Commission Act of 2007, Public Law 110-153 (9/11 Act). Under sections 1414(e) and 1522(e) of the 9/11 Act, it is now a violation of that statute for public transportation agencies, railroad carriers, and their respective contractors and subcontractors to knowingly misrepresent to an employee or other relevant person, including an arbiter involved in a labor arbitration, the scope, application, or meaning of any rules, regulations, directives, or guidance issued by the DHS Secretary related to security background check requirements for covered individuals when conducting a security background check. This rule adds to the Code of Federal Regulations (CFR), without change, the same prohibitions as directed by the statute. This rule does not prohibit any conduct that is not already prohibited by the statute. Accordingly, it is appropriate for TSA to issue this regulation as an interim final rule. For the same reason, TSA finds that there is good cause to make this rule effective immediately.

This final rule codifies in the Code of Federal Regulations sections 1414(e) and 1522(e) of the 9/11 Act, which prohibit public transportation agencies, railroad carriers, and their respective contractors and subcontractors from knowingly misrepresenting Federal guidance or regulations concerning security background checks for covered individuals. Under this rule, entities operating mass transit systems, passenger rail systems, and freight rail carriers must understand TSA's regulations and guidance and represent these background checks accurately to their employees.

This regulation will apply to regulations and guidance issued by TSA both before and after enactment of the 9/11 Act. At present, TSA has issued one rule and several guidance documents relating to security background checks for covered individuals. These are the Transportation Worker Identification Credential (TWIC) regulation (49 CFR part 1572) and guidance documents for freight railroad and mass transit operators. The TWIC rule applies, in relevant part, to land transportation workers who need unescorted access to secure areas of maritime facilities and to vessels regulated under the Maritime Transportation Security Act, Public Law 107-295. The railroad guidance applies to rail carriers that transport materials poisonous by inhalation (commonly referred to as Toxic Inhalation Hazard (TIH) materials). The guidance can be found at http://www.tsa.gov/what_we_eo/layers/trip/freight_rail_security.shtm . The mass transportation guidance applies to entities that operate mass transit and rail passenger systems. This guidance can be found at http://www.tsa.dhs.gov/assets/pdf/guidance_employee_background_checks.pdf.

The 9/11 Act was enacted on August 3, 2007. Sections 1414 and 1522 of the Act address guidance issued by the Assistant Secretary of TSA concerning security background checks of covered individuals employed by public transportation agencies, railroad carriers, and their respective contractors and subcontractors. In particular, sections 1414(e) and 1522(e) prohibit public transportation agencies, railroad carriers, and their contractors and subcontractors from knowingly misrepresenting the scope, application, or meaning of any rules, directives, or guidance concerning background checks to employees, arbiters in an arbitration proceeding, or any other relevant persons.

Sections 1414(e) and 1522(e) expressed this concern about misrepresentation in nearly-identical language and directed TSA to issue a rule addressing that concern within one year of the statute's enactment. Section 1414(e), addressing public transportation, provides:

Similarly, section 1522(e) provides:

This interim final rule codifies the language of sections 1414(e) and 1522(e) of the 9/11 Act into 49 CFR part 1570. It also codifies the definitions of “covered individual” as contained in sections 1414(a) and 1515(a), “public transportation agency” in section 1402(5), “railroad” and “railroad carrier” in sections 1501(7) and (8), respectively, and “security background check” in sections 1414(a) and 1522(a). The regulatory text of this rule is essentially identical to the statutory provisions.

To date, TSA has issued one regulation and several guidance documents that relate to background checks in the public transportation and railroad sectors. In the future, DHS and TSA may undertake other initiatives. Today's rulemaking prohibits public transportation agencies, railroad carriers, and their respective contractors and subcontractors from knowingly misrepresenting to an employee or other relevant person, including an arbiter involved in a labor arbitration, the scope, application, or meaning of any rules, regulations, directives, or guidance issued by the Secretary of the Department of Homeland Security related to security background check requirements for covered individuals when conducting a security background check.

Prior to the enactment of the 9/11 Act, TSA issued regulations requiring credentialing and security threat assessments for certain maritime and land transportation workers. Specifically, under the TWIC regulations, individuals who require unescorted access to secure areas of maritime ports and vessels must undergo security threat assessments and must obtain biometric credentials to be used in access control systems installed by regulated facilities and vessels. 2 TSA conducts a security threat assessment, including a criminal history records check against a specified list of disqualifying criminal offenses, before issuing a TWIC. Some public transportation and railroad carrier employees may require TWICs under the TSA TWIC rule if they require unescorted access to secure areas of regulated vessels or maritime facilities.

Also prior to the enactment of the 9/11 Act, TSA issued guidance recommending that entities operating mass transit and passenger rail systems, and railroad carriers that transport TIH materials, conduct background checks on key employees. In 2006 DHS and DOT recommended that TIH railroad carriers establish procedures for background checks for contractor employees with unmonitored access to company-designated critical infrastructure. 3

On February 12, 2007, DHS and DOT issued additional guidance to TIH railroad carriers concerning the recommended scope and procedures for voluntarily conducted background checks. DHS and DOT noted that many TIH railroad carriers use criminal background checks to assess the suitability of their employees. DHS and DOT recommended that, to the extent that TIH railroad carriers choose to conduct criminal background checks for individuals with unmonitored access to company-designated critical infrastructure, they should consider using the Federally-established list of disqualifying crimes applicable to hazmat drivers and port transportation workers contained in 49 CFR 1572.103. DHS and DOT further recommended that the railroad industry should consider establishing a vigorous internal redress process for adversely affected job applicants and personnel, including an appeal and waiver process similar to the processes established for holders of commercial driver's licenses who apply for hazardous materials endorsements  4 and for port transportation workers. 5

In 2006, TSA and the Federal Transit Administration (FTA) jointly issued guidance recommending a number of practices to improve the security of their systems. 6 In this guidance, TSA and FTA recommended that these systems conduct background investigations, such as criminal history and motor vehicle records checks, on all new frontline operators and maintenance employees and on those employees and contractors with access to sensitive security information and security critical facilities and systems, such as tunnels, surveillance, monitoring, and intrusion detection systems. On February 28, 2008, consistent with the February 12, 2007 guidance to TIH freight railroad carriers, TSA and FTA issued additional guidance in which they recognized that some entities operating mass transit and passenger rail systems were using criminal background checks to assess the suitability of their employees. TSA and FTA suggested that these entities consider using the Federally-established list of disqualifying crimes applicable to hazmat drivers and port transportation workers found in 49 CFR 1572.103. TSA and FTA further suggested that entities operating mass transit and passenger rail systems also consider using an appeal and waiver process similar to the process established for hazardous material drivers and port transportation workers found in 49 CFR part 1515.

Public transportation agencies, railroad carriers, and their contractors, may not misrepresent the recommendations in any of these TSA guidance documents to their employees.

The Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3501. et seq. ) requires that a Federal agency consider the impact of paperwork and other information collection burdens imposed on the public and, under the provisions of PRA section 3507(d), obtain approval from the Office of Management and Budget (OMB) for each collection of information it conducts, sponsors, or requires through regulations. TSA has determined that there are no current or new information collection requirements associated with this rule.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order (E.O.) 12866, Regulatory Planning and Review (58 FR 51735, October 4, 1993), directs each Federal agency to propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq., as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (19 U.S.C. 2531-2533) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. Fourth, the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation). Because this rule does not add any requirements to those in the statute, the impact of this rule is negligible. Thus, TSA has not performed a cost/benefit analysis.

E.O. 12866, “Regulatory Planning and Review” (58 FR 51735, October 4, 1993) provides for making determinations as to whether a regulatory action is “significant” and therefore subject to OMB review and the requirements of the Order. Executive Order 12866 classifies a rule as significant if it meets any one of a number of specified conditions, including economic significance, which is defined as having an annual impact on the economy of $100 million. A regulation is also considered a significant regulatory action if it raises novel legal or policy issues.

This regulation is not significant under E.O. 12866. TSA has concluded, however, that the costs of the rule will be minimal for the reasons presented below. This rule codifies the language of sections 1414(e) and 1522(e) of the 9/11 Act prohibiting knowingly misrepresenting TSA's background check requirements or recommendations and incorporates it into 49 CFR part 1570. The regulatory text is identical to the statutory provisions.

This regulation should have no economic impact as it codifies the requirement that prohibits public transportation agencies, railroad carriers and their contractor and subcontractors from knowingly misrepresenting DHS guidance, directives, or regulations concerning security background checks for covered individuals. Stated simply, it codifies the statutory mandate that these entities may not knowingly make false statements regarding DHS security background check requirements

We expect affected entities to inform their employees and contractors about their obligations via email or letter and we believe that it would involve minimal cost.

This rule will benefit individuals employed by public transportation agencies, railroad carriers, and their contractor and subcontractors. These individuals will be given correct information about DHS background check guidance or requirements.

The Regulatory Flexibility Act of 1980 (RFA) (5 U.S.C. 601 et seq., as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996), requires agencies to perform a review to determine whether a proposed or final rule will have a significant economic impact on a substantial number of small entities when the Administrative Procedure Act (APA) requires notice and comment rulemaking. TSA has not assessed whether this rule will have a significant economic impact on a substantial number of small entities, as defined in the RFA. When an agency publishes a rulemaking without prior notice and an opportunity for comment, the RFA analysis requirements do not apply. TSA is adopting this interim final rule without prior notice and opportunity for public comment. Therefore, no RFA analysis is provided.

The Trade Agreement Act of 1979 prohibits Federal agencies from establishing any standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Legitimate domestic objectives, such as safety, are not considered unnecessary obstacles. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards. TSA has assessed the potential effect of this rulemaking and has determined that it will not create any unnecessary obstacles to foreign commerce.

The Unfunded Mandates Reform Act of 1995 is intended, among other things, to curb the practice of imposing unfunded Federal mandates on State, local, and tribal governments. Title II of the Act requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in a $100 million or more expenditure (adjusted annually for inflation) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.”

This rulemaking does not contain such a mandate. The requirements of Title II of the Act, therefore, do not apply and TSA has not prepared a statement under the Act.

TSA has analyzed this final rule under the principles and criteria of E.O. 13132, Federalism. We have determined that this action will not have a substantial direct effect on the States, or the relationship between the National Government and the States, or on the distribution of power and responsibilities among the various levels of government, and, therefore, have determined that this action does not have federalism implications.

TSA has reviewed this action for purposes of the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4347) and has determined that this action will not have a significant effect on the human environment.

The energy impact of the action has been assessed in accordance with the Energy Policy and Conservation Act (EPCA), Public Law 94-163, as amended (42 U.S.C. 6362). We have determined that this rulemaking is not a major regulatory action under the provisions of the EPCA.

NMFS manages the groundfish fishery in the GOA exclusive economic zone according to the Fishery Management Plan for Groundfish of the Gulf of Alaska (FMP) prepared by the North Pacific Fishery Management Council under authority of the Magnuson-Stevens Fishery Conservation and Management Act. Regulations governing fishing by U.S. vessels in accordance with the FMP appear at subpart H of 50 CFR part 600 and 50 CFR part 679.

The 2008 TAC of pelagic shelf rockfish allocated to catcher processors participating in the rockfish limited access fishery in the Central GOA is 1,194 metric tons (mt) as established by the 2008 and 2009 harvest specifications for groundfish of the GOA (73 FR 10562, February 27, 2008), and as posted as the 2008 Rockfish Program Allocations at http://www.fakr.noaa.gov/sustainablefisheries/goarat/default.htm .

In accordance with § 679.20(d)(1)(i), the Administrator, Alaska Region, NMFS (Regional Administrator), has determined that the 2008 TAC of pelagic shelf rockfish allocated to catcher processors participating in the rockfish limited access fishery in the Central GOA will soon be reached. Therefore, the Regional Administrator is establishing a directed fishing allowance of 1,194 mt, and is setting aside the remaining 0 mt as bycatch to support other anticipated groundfish fisheries. In accordance with § 679.20(d)(1)(iii), the Regional Administrator finds that this directed fishing allowance has been reached. Consequently, NMFS is prohibiting directed fishing for pelagic shelf rockfish by catcher processors participating in the rockfish limited access fishery in the Central GOA.

After the effective date of this closure the maximum retainable amounts at § 679.20(e) and (f) apply at any time during a trip.

This action responds to the best available information recently obtained from the fishery. The Assistant Administrator for Fisheries, NOAA (AA), finds good cause to waive the requirement to provide prior notice and opportunity for public comment pursuant to the authority set forth at 5 U.S.C. 553(b)(B) as such requirement is impracticable and contrary to the public interest. This requirement is impracticable and contrary to the public interest as it would prevent NMFS from responding to the most recent fisheries data in a timely fashion and would delay the closure of pelagic shelf rockfish by catcher processors participating in the rockfish limited access fishery in the Central GOA. NMFS was unable to publish a notice providing time for public comment because the most recent, relevant data only became available as of July 25, 2008.

The AA also finds good cause to waive the 30-day delay in the effective date of this action under 5 U.S.C. 553(d)(3). This finding is based upon the reasons provided above for waiver of prior notice and opportunity for public comment.

This action is required by § 679.20 and is exempt from review under Executive Order 12866.