Your written comments on the proposed rule should be specific, should be confined to issues pertinent to the proposed rule, and should explain the reason(s) for any change you recommend or proposal(s) you oppose. Where possible, you should reference the specific section or paragraph of the proposal you are addressing. Comments received after the close of the comment period (refer to DATES) will not be considered or included in the Administrative Record for the final rule.

Executive Order 12866 requires each agency to write regulations that are simple and easy to understand. We invite your comments on how to make these proposed regulations easier to understand, including answers to questions such as the following:

(1) Are the requirements in the proposed regulations clearly stated?

(2) Does the rule contain technical language or jargon that interferes with its clarity?

(3) Does the format of the rule (e.g., grouping and order of sections, use of headings, and paragraphing) make it clearer or less clear?

(4) Would the rule be easier to understand if it was divided into more (but shorter) sections?

(5) Is the description of the rule in the preamble section entitled “Background and Discussion of the Proposed Rule” helpful in understanding the rule? How could this description be more helpful in making the rule easier to understand?

The Department is proposing to amend the regulations for CACFP at 7 CFR part 226 to codify several of the provisions of the Healthy, Hunger-Free Kids Act of 2010 (HHFKA). This proposed rule would affect the management and administration of CACFP for State agencies, new and renewing institutions, sponsoring organizations, and sponsored facilities. This rule also proposes to incorporate several changes to the application and renewal process which are expected to improve the management of CACFP and to make a number of miscellaneous technical changes to the organization of 7 CFR part 226.

Current regulations require institutions to submit an initial application for CACFP participation and then to reapply to the CACFP on a schedule determined by the State agency, but not less than every one to three years. Section 331(b) of the Act amended section 17(d) of the Richard B. Russell National School Lunch Act (NSLA) (42 U.S.C. 1766(d)) to require, in lieu of submitting a renewal application, that renewing institutions need only annually confirm that the institution is in compliance with the licensing requirements of subsection 17(a)(5) of the NSLA (42 U.S.C. 1766(a)(5)) and submit to the State agency any additional necessary information, as specified by the Department.

This proposal would eliminate a renewal application for renewing institutions; however, such institutions would be required to annually certify that they still meet the program requirements for continued participation and to provide an update of the information provided on the initial application if the State agency has not already been notified of the changes. The exception to this is the budget submission for sponsoring organizations, which as in current regulations, must be submitted annually rather than through the certification process.

Section 331(b) of the Act amended section 17(d)(2) of the NSLA (42 U.S.C. 1766(d)(2)) to require that sponsoring organizations vary the timing of unannounced reviews so they are unpredictable to sponsored facilities. We anticipate unannounced reviews will be more effective in detecting CACFP integrity issues. This proposed rule would require sponsoring organizations to ensure that the timing of unannounced reviews is varied in a way that would ensure they are unpredictable to the facility under review.

Section 331(c) of the Act amended section 17(j)(1) of the NSLA (42 U.S.C. 1766(j)(1)) to require State agencies to develop and provide for the use of a standard permanent operating agreement between sponsoring organizations of centers and their sponsored centers. This rule proposes to require State agencies to develop standard permanent agreements that sponsors of child care centers, adult day care centers, emergency shelters, at-risk afterschool care centers, or outside school hours care centers will enter into with their unaffiliated sponsored centers.

Current regulations require a sponsoring organization, upon the request of a tier II day care home provider, to collect income eligibility applications from households (7 CFR 226.18(b)(12)). Section 333 of the Act amended section 17(f)(3)(A)(iii)(III) of the NSLA (42 U.S.C. 1766(f)(3)(A)(iii)(III)) to require sponsoring organizations to allow providers of tier II day care homes to assist in the transmission of household income information with the written consent of the parents or guardians of children in their care. This rule proposes to allow the tier II day care home to assist in collecting income eligibility applications from households and transmitting the applications to the sponsoring organization. The addition would limit the provider's assistance to collecting applications and transmitting them to the sponsoring organization, and prohibits tier II day care home providers from reviewing the applications.

Current regulations found at 7 CFR 226.12(a) require that administrative cost payments to a sponsoring organization of day care homes may not exceed the lesser of: (1) Actual expenditures for the costs of administering the CACFP less income to the CACFP, or (2) the amount of administrative costs approved by the State agency in the sponsoring organization's budget, or (3) the sum of the products obtained by multiplying each month the sponsoring organization's number of participating homes by the current administrative payment rate for day care home sponsors. In addition, current regulations specify that administrative payments to a sponsoring organization may not exceed 30 percent of the total amount of administrative payments and food service payments for day care home operations.

Section 334 of the HHFKA amended section 17(f)(3) of the NSLA (42 U.S.C. 1766(f)(3)) to eliminate the “lesser of” cost and budget comparisons for calculating administrative payments to day care home sponsoring organizations. Instead, effective October 1, 2010, administrative reimbursements are determined only by multiplying the number of day care homes under the oversight of each sponsoring organization by the appropriate annually adjusted administrative reimbursement rate(s). This rule proposes to modify the method of determining administrative payments to sponsoring organizations of day care homes by basing payments on the formula specified in Section 17 of the NSLA.

Section 334 of the HHFKA amended section 17(f)(3) of the NSLA (42 U.S.C. 1766(f)(3)) to permit day care home sponsors to carry over and obligate a maximum of 10 percent of administrative payments into the succeeding fiscal year. Under this proposal, the Department would require the State agency to ensure that sponsoring organizations of day care homes seeking to carryover administrative funds include, in their annual budget submission for State agency review and approval, estimates of the amount of administrative funds that will be carried over and a description of the proposed purpose(s) for which those funds will be used.

This proposal would make a number of changes that complement the requirements of the NSLA as amended by the HHFKA. Chief amongst these changes is a proposed re-organization of § 226.6, State agency administrative responsibilities. The re-organization is expected to improve the clarity of the regulations and to provide more uniformity to application and renewal requirements. The proposal moves the existing initial application requirements and the proposed renewal requirements to new §§ 226.6a and 226.6b, respectively.

While CACFP institutions and State agencies administering CACFP will be affected by this rulemaking, the economic effect will not be significant.

The Department is proposing to amend the regulations for CACFP at 7 CFR part 226. These changes are intended to implement several of the provisions of the HHFKA affecting the management and administration of CACFP for State agencies, new and renewing institutions, sponsoring organizations, and sponsored facilities.

The Department is proposing to require institutions to submit an initial CACFP application to the State agency and, in subsequent years, periodically update the information in lieu of submitting a new application; require sponsoring organizations to vary the timing of reviews of sponsored facilities; require State agencies to develop and provide for the use of a standard permanent agreement between sponsoring organizations and day care centers; allow tier II day care homes to collect household income information and transmit it to the sponsoring organization; modify the method of determining administrative payments to sponsoring organizations of day care homes by basing payments on a formula; and, allow sponsoring organizations of day care homes to carry over up to 10 percent of their administrative funding from the previous fiscal year into the next fiscal year. This rule also proposes to incorporate several changes to the application and renewal process which are expected to improve the management of CACFP and to make a number of miscellaneous technical changes. The proposed amendments are discussed in more detail below.

Current regulations require institutions to submit an initial application for CACFP participation then reapply to the Program on a schedule determined by the State agency, but not less than every one to three years. As a result, the State agency must periodically re-determine if an institution is eligible to participate in the CACFP based on a renewal application process. Most of the requirements for the initial application process are currently found at §§ 226.6(b)(1) and 226.6(f) and most of the requirements for the renewal application process are found at §§ 226.6(b)(2) and 226.6(f).

Section 331(b) of the HHFKA amends section 17(d) of the NSLA (42 U.S.C. 1766(d)) to require, in lieu of submitting a renewal application, that renewing institutions need only annually confirm that the institution is in compliance with the licensing requirements of subsection 17(a)(5) of the NSLA (42 U.S.C. 1766(a)(5)) and submit to the State agency any additional necessary information, as specified by the Department. State agencies were advised of these requirements in a memorandum issued April 8, 2011, Child Nutrition Reauthorization 2010: Child and Adult Care Food Program Applications (CACFP 19-2011).

This provision enables the Department to determine the new renewal process and the information that annually must be submitted to the State agency. Reflecting the intent of the HHFKA, this provision to eliminate the renewal application, this proposal would require participating institutions to annually certify that they still meet the CACFP requirements for continued participation and to provide an update of the information provided on the initial application, if the State agency has not already been notified of the changes. Thus, even though management plans would be annually certified, the plans must be updated as necessary to ensure they provide a current reflection of CACFP operations. The exception to this is the budget submission for sponsoring organizations, which must still be submitted annually rather than through the certification process. These changes are expected to reduce current application process burden, because renewing institutions will no longer need to submit documentation demonstrating they meet CACFP requirements, but simply provide certification that they are still in compliance instead.

This proposed rule outlines the complete list of information that institutions would need to certify as unchanged or indicate that it has already updated with the State agency. All institutions would be required to annually certify that they are not on the National disqualified list; they are not ineligible for other publicly funded programs; the institution's principals have not been convicted of a crime in the past seven years indicating a lack of business integrity; they are still compliant with performance standards; and, they are licensed or approved or, if a sponsoring organization, that all of their facilities are licensed or otherwise approved. Sponsoring organizations would continue to submit an annual budget and would also certify that: their management plan is up-to-date; their outside employment policy is current; and their training has been provided for all facilities. In addition this rule proposes to require renewing institutions to certify that they have no unreported less-than-arms-length transactions or other potential conflicts of interest have occurred in the past year and that any anticipated less-than-arms-length transactions or other potential conflicts of interest in the upcoming year have been disclosed to the State agency—both of which would be new requirements. If the institution cannot certify that all of this required information is unchanged or has already been updated, the institution would be required to submit any information necessary to notify the State agency of the change at that time.

As noted above, two changes to the application and renewal process are being added to this proposed rule in order to improve CACFP management. In accordance with the Food and Nutrition Service (FNS) Instruction 796-2 Financial Management—Child and Adult Care Food Program, sponsoring organizations must disclose less-than-arms-length transactions and potential conflicts of interest. Nevertheless, the Department has found that this existing requirement has not adequately addressed the continued problems associated with these types of transactions. The Department's monitoring activities continue to find a number of sponsoring organizations that have not properly disclosed less-than-arms-length transactions and potential conflicts of interest, and that have not received the required prior approval from their State agencies. As a result, in many cases, CACFP funds have been used improperly, resulting in large overclaims against sponsoring organizations.

To better address this issue, this rule proposes to specifically require the disclosure of anticipated less-than-arms-length transactions and potential conflicts of interest in both the initial application submitted by a new sponsoring organization and, for renewing sponsors, in the annual information submission process. Accordingly, §§ 226.2, new 226.6a and 226.6b would incorporate this addition.

The second addition would require that institutions provide State agencies with the full legal names and any other names previously used, for all principals in the initial application and whenever the institution adds new principals. This change would also require a sponsoring organization to provide the full legal names, and any other names previously used, for all day care home providers and by the principals of its sponsored centers. The proposal adds this change to the regulations in every instance where institutions were previously required to report the full names of their principals, and the principals of their sponsored facilities, to the State agency. Thus, the proposed language would require “full legal names and any other names previously used” where it currently requires “full names.” This will ensure better identification of any individuals who may be later placed on the National disqualified list. Accordingly, §§ 226.2, 226.6a and 226.6b would incorporate this addition.

Another provision necessitated by these changes to the application process is the addition of a serious deficiency dealing with institutions that fail to submit acceptable or complete renewal information. The amendments made to NSLA by the HHFKA significantly modifying the current renewal application process means that renewing institutions would continue to be considered “participating institutions.” Under § 226.6(c)(2) of this proposal, an institution's failure to properly submit renewal information would be considered a serious deficiency and the State agency would be required to follow the normal serious deficiency process for participating institutions. The corrective action in this case would be for the institution to submit the proper or corrected renewal information to the State agency in accordance with established procedures. As is true under the current renewal application process, State agencies would continue to have discretion in declaring renewing institutions seriously deficient, based on the type and magnitude of the missing information and the institution's willingness to quickly submit any missing information.

While reviewing the current regulations relating to application requirements, it became evident that the application and reapplication requirements for institutions are found in various places throughout 7 CFR part 226. To clearly articulate the new renewal process and distinguish it from the initial application process, the Department undertook a re-organization of the application and renewal requirements throughout 7 CFR part 226. Because the Department has received complaints about the length of § 226.6, the section in which the current application and reapplication requirements are found, the proposal moves the existing initial application requirements and the proposed renewal requirements to new §§ 226.6a and 226.6b, respectively. New § 226.6a is proposed to be titled “State agency application requirements for new institutions” and § 226.6b is proposed to be titled “State agency annual information submission requirements for renewing institutions.” This means that though §§ 226.6a and 226.6b do not look identical to current §§ 226.6(b)(1) and (b)(2), respectively, no requirements have been changed except for those outlined in this preamble.

With this new re-organization, the proposal would move the application or renewal requirements from the other sections in which they are currently located (namely §§ 226.6(b), 226.6(f), 226.16(b) and 226.17a(e)) to the relevant new sections. All application requirements contained in these sections would be deleted and, where necessary, would instead contain only cross references to §§ 226.6a and 226.6b. To assist the reader, distribution and derivation tables are posted on www.regs.gov and accompany this proposed rule. The distribution table identifies each existing section and where it would appear in the proposed amendatory language. The derivation table identifies each proposed new section and where it appears in the existing regulations.

Two additional proposed changes are included to provide a more uniform application process for day care homes and other facilities. Proposed §§ 226.6a(c)(5) and § 226.6b(d)(3) would require the State agency to collect from each sponsoring organization a list of all applicant day care homes, child care centers, outside-school-hours-care centers, at-risk afterschool care centers, and adult day care centers. Previously, this requirement appeared only in § 226.17a, although it is standard operating practice. Proposed § 226.6a(c)(9) would include requirements for facility applications for new institutions, these requirements are not new requirements but are proposed to be codified so that all application requirements are available in one place. Currently, facility application requirements are found at § 226.16(b). Additionally, CACFP 01-2008, Facility Applications and Agreements in the Child and Adult Care Food Program (CACFP), published November 15, 2007 discusses CACFP application requirements. These two proposed changes seek to provide a more uniform application process.

Finally, this rule proposes a change outside of the CACFP application process. In the proposed re-organization of § 226.6, paragraph (f)(4) restates existing regulations found at § 226.6(f)(1)(viii) that require State agencies to obtain from the State agency that administers the NSLP, a list of “elementary” schools in the State in which at least one-half of the children enrolled are certified to receive free or reduced-price meals. The State agency must provide the list of “elementary” schools to sponsoring organizations of day care homes. However, section 121 of the HHFKA amended section 17(f)(3)(A)(ii)(I)(bb) of the NSLA, to remove the word “elementary” from the definition of tier I day care homes. Since the proposed re-organization at § 226.6(f)(4) includes this provision, the Department is proposing to remove the term “elementary” from the regulatory text. The Department intends to issue a final rule that will make this change permanent in the near future.

We encourage commenters to limit their comments to the new changes proposed in this rule and to the proposed re-organization of §§ 226.6, 226.6a, and 226.6b. We are interested in whether the re-organization improves the clarity of the regulations.

Current regulations require sponsoring organizations to conduct three reviews per year per sponsored facility, two of which must be unannounced. One of the unannounced reviews must include observation of a meal service. No more than six months may elapse between reviews (7 CFR 226.16(d)(4)(iii)).

Unannounced reviews are an effective tool in ensuring CACFP integrity. An unannounced review gives sponsoring organizations the opportunity to document how the facility operates on any given day and to offer technical assistance. In addition, unannounced reviews offer a first-hand opportunity to detect and identify areas of mismanagement (such as inaccurate meal counts, problems with recordkeeping, and menu and enrollment discrepancies) and allow sponsoring organizations to initiate immediate corrective action, up to and including declaring a facility seriously deficient.

However, unannounced reviews that follow a consistent pattern are predictable and, therefore, undermine the intent of the CACFP's unannounced review requirements. Examples of consistent patterns are unannounced reviews that always occur during the third week of January, the third week of May, and the third week of September; reviews that never occur during the first week of the month when claims are being processed; meal service observations that always occur during the lunch meal service or never occur on weekends or evenings. Such patterns hinder the sponsoring organization's ability to uncover management deficiencies and CACFP abuse by enabling facilities to predict when the sponsor review will occur.

Section 331(b) of the HHFKA amended section 17(d)(2) of the NSLA (42 U.S.C. 1766(d)(2)) to require that sponsoring organizations vary the timing of unannounced reviews so they are unpredictable to sponsored facilities. The expectation is that unannounced reviews would be more effective in detecting CACFP integrity issues. State agencies were advised of this requirement in a memorandum issued April 7, 2011, Child Nutrition Reauthorization 2010: Varied Timing of Unannounced Reviews in the Child and Adult Care Food Program (CACFP 16-2011).

The Department appreciates that it may be difficult for a sponsoring organization to create separate review schedules for each facility. However, as required by the HHFKA amendments, sponsoring organizations can and should vary the scheduling of reviews within each month and each year and frequently change the intervals between reviews (e.g., 90, 105, 120, 135 days between reviews of facilities). Similarly, sponsoring organizations should alternate reviews of the breakfast, lunch, and supper meal service in facilities being reviewed.

To effect these changes, the proposal would revise § 226.16, Sponsoring organization provisions, by expanding the requirements relating to the frequency and type of required facility reviews in paragraph (d)(4)(iii) of that section. The additions would require sponsoring organizations to ensure that the timing of unannounced reviews is varied in a way that would ensure they are unpredictable to the facility. The proposed language also makes it clear that always reviewing the same meal service would be considered predictable and would be inconsistent with the CACFP requirements.

In addition, § 226.6, State agency administrative responsibilities, would be amended at paragraph (m)(3) of that section to expand the scope of the State agency review of sponsoring organizations' monitoring of facilities. Under the proposal, State agencies would be required to assess whether the timing of the sponsoring organization's facility reviews are varied and unpredictable, as required by § 226.16(d)(4)(iii). This addition ensures that State agencies, as part of their reviews of sponsoring organizations, would evaluate the timing and pattern of the facility reviews conducted by the sponsor to ensure that they are not predictable, and are in compliance with this requirement. As is currently the case, a sponsor's failure to comply with all of the requirements of § 226.16(d) could lead to a determination of a serious deficiency.

Current regulations require State agencies to develop and provide for the use of permanent agreements between sponsoring organizations and day care homes, but do not require such agreements for sponsoring organizations of centers and their sponsored centers.

Section 331(c) of the HHFKA amended section 17(j)(1) of the NSLA (42 U.S.C. 1766(j)(1)) to require State agencies to develop and provide for the use of permanent operating agreements between sponsoring organizations of centers and their sponsored centers and day care homes. To effect these changes, § 226.2, Definitions, would be amended by adding a definition of sponsored center. The definition would distinguish between affiliated and unaffiliated centers. Differentiating between affiliated and unaffiliated centers is necessary because only unaffiliated centers would be required to have an agreement with their sponsoring organization.

Unlike affiliated sponsored day care centers, unaffiliated sponsored day care centers are legally distinct from their sponsoring organization. For this reason, an agreement between the sponsoring organization and unaffiliated sponsored centers is essential to a clear understanding of responsibilities for participation in the CACFP. Because affiliated centers are not legally distinct from their sponsoring organization, the Department deems a requirement for an agreement unnecessary for affiliated centers. However, sponsoring organizations may, at their discretion, require an agreement with their affiliated centers.

Section 226.6, State agency administrative responsibilities, is proposed to be amended to include the requirement for State agencies to develop and provide for the use of a standard agreement between sponsoring organizations and unaffiliated child care centers. It also allows State agencies to approve an agreement developed by the sponsoring organization.

Section 226.16, Sponsoring organization provisions, is proposed to be amended to include the requirement for sponsors of child care centers, adult day care centers, emergency shelters, at-risk afterschool care centers, or outside school hours care centers to enter into a permanent agreement with their unaffiliated sponsored centers. At a minimum, the agreement would embody the requirements and the rights and responsibilities of both parties as currently set forth in § 226.17, Child care center provisions, § 226.17a, At-risk afterschool care center provisions, § 226.19, Outside-school-hours care center provisions and § 226.19a, Adult day care center provisions, as applicable. Corresponding changes were also made to update and align the requirements and responsibilities set forth in §§ 226.17, 226.17a, 226.19, and 226.19a. These include: (a) Requiring centers to permit visits by sponsoring organizations or State agencies to the center to review meal service and records and inform sponsoring organizations about changes in licensing status; (b) requiring sponsored child care centers to promptly inform the sponsoring organization about any change in its licensing or approval status; (c) establishing the right of centers to receive in a timely manner reimbursement from the sponsoring organizations for meals served; (d) requiring child care centers to meet any State agency approved time limit for submission of meal records; and (e) requiring sponsored child care centers to distribute to parents a copy of the sponsoring organization's notice to parents if directed to do so by the sponsoring organization.

Current regulations require sponsoring organizations, upon the request of a tier II day care home provider, to collect income eligibility applications from households (7 CFR § 226.18(b)(12)). To eliminate any concerns households may have about sharing their income information with their provider, the current regulations prohibit providers from collecting the applications directly from households.

Section 333 of the HHFKA amended section 17(f)(3)(A)(iii)(III) of the NSLA (42 U.S.C. 1766(f)(3)(A)(iii)(III)) to require sponsoring organizations to allow providers of tier II day care homes to assist in the transmission of household income information with the written consent of the parents or guardians of children in their care. State agencies were advised of this requirement in a memorandum issued April 7, 2011, Child Nutrition Reauthorization 2010: Transmission of Household Income Information by Tier II Family Day Care Homes in the Child and Adult Care Food Program (CACFP 17-2011).

To effect these changes, the Department proposes to amend § 226.18, Day care home provisions, by revising paragraph (b)(12) of that section to allow the tier II day care home to assist in collecting completed income eligibility applications from households and transmitting the applications to the sponsoring organization. As proposed, the addition would limit the provider's assistance to collecting applications and transmitting them to the sponsoring organization, and would prohibit tier II day care home providers from reviewing the completed applications.

In addition, § 226.23, Free and reduced-price meals, paragraph (e)(2) is proposed to be amended to specify the steps a tier II day care home must take when assisting in the collection and transmission of applications. Sponsoring organizations would be required to explain in the letter to the household, that the household can return the application to either the sponsoring organization or the day care home provider. Under the proposal, the household would give written consent for the provider to collect and transmit the household's application to the sponsoring organization by signing the letter sent by the sponsoring organization and returning it, along with the application, to the tier II day care home. To ensure that tier II day care home providers would not be able to view the applications, the Department suggests that the sponsoring organization's letter to the household encourage households to place their applications in a sealed envelope prior to giving it to their provider.

Current regulations found at 7 CFR 226.12(a) require that administrative cost payments to a sponsoring organization of day care homes may not exceed the lesser of: (1) Actual expenditures for the costs of administering the CACFP less income to the CACFP, or (2) the amount of administrative costs approved by the State agency in the sponsoring organization's budget, or (3) the sum of the products obtained by multiplying each month the sponsoring organization's number of participating homes by the current administrative payment rate for day care home sponsors. In addition, current regulations specify that administrative payments to a sponsoring organization may not exceed 30 percent of the total amount of administrative payments and food service payments for day care home operations.

Section 334 of the HHFKA amended section 17(f)(3) of the NSLA (42 U.S.C. 1766(f)(3)) to eliminate the “lesser of” cost and budget comparisons for calculating administrative payments to day care home sponsoring organizations. Instead, effective October 1, 2010, administrative reimbursements are determined only by multiplying the number of day care homes under the oversight of each sponsoring organization by the appropriate annually adjusted administrative reimbursement rate(s). As a result of this change, the expenditures for cost, the amount of costs approved in the administrative budget, or the 30 percent restriction no longer apply.

State agencies were advised of this change in a memorandum issued December 22, 2010, Child Nutrition Reauthorization 2010: Administrative Payments to Family Day Care Home Sponsoring Organizations (CACFP 06-2011). While this new provision will help streamline administrative payments to day care home sponsoring organizations and reduce reporting requirements, State agencies and sponsoring organizations are reminded that sponsoring organizations must continue to submit annual budgets that must be approved by the State agency. Further, sponsoring organizations remain responsible for correctly accounting for costs and for maintaining records and sufficient supporting documentation to demonstrate that costs charged to the Program: have actually been incurred; are allowable and allocable to the Program; and comply with applicable Program regulations and policies. State agencies must continue to recover reimbursements received for unallowable costs.

To effect this provision, paragraph (a) of § 226.12, Administrative payments to sponsoring organizations for day care homes, would be proposed to be revised to reflect the new formula. The proposal would also make technical changes to the administrative payment rates formula to reflect annual adjustments. These changes are intended only to clarify the base administrative payment rates without making any substantive changes to the adjustment process. In accordance with NSLA, the base reimbursement rates, which were published in the Federal Register on January 26, 1982 at 47 FR 3539, are the sum of the products obtained by multiplying each month the sponsoring organization's: Initial 50 day care homes by 42 dollars; Next 150 day care homes by 32 dollars; Next 800 day care homes by 25 dollars; and Additional day care homes by 22 dollars. The administrative payment rates will continue to be adjusted annually to reflect changes in the series for all items of the Consumer Price Index for All Urban Consumers, published by the Department of Labor.

Section 334 of the HHFKA amends section 17(f)(3) of the NSLA (42 U.S.C. 1766(f)(3)) to permit day care home sponsors to carry over a maximum of 10 percent of administrative payments into the succeeding fiscal year. In accordance with the HHFKA, the 10 percent maximum on the amount of administrative funds that may be carried over must be based on the administrative payments received by the day care home sponsoring organization for the fiscal year. Administrative funds remaining at the end of the fiscal year that exceed 10 percent of that fiscal year's administrative payments must be returned to the State agency. If any remaining carryover funds are not obligated or expended by the sponsoring organization in the succeeding fiscal year, the sponsor is required to return the remaining funds to the State agency.

State agencies were advised of this new authority in a memorandum issued April 8, 2011, Child Nutrition Reauthorization 2010: Carry Over of Unused Child and Adult Care Food Program Administrative Payments (CACFP 18-2011). In that memorandum, State agencies were reminded that day care home sponsoring organizations continue to remain responsible for annual budget submissions, budget amendments, correctly accounting for costs, and maintaining records and sufficient supporting documentation to demonstrate that costs charged to the CACFP have actually been incurred, are allowable and allocable, and comply with all applicable CACFP regulations and policies.

Under this proposal, § 226.6b(c) proposes to require the State agency to ensure that sponsoring organizations of day care homes seeking to carryover administrative funds include, in their annual budget submission for State agency review and approval, estimates of the amount of administrative funds that will be carried over and a description of the proposed purpose(s) for which those funds will be used. Because the final administrative claims will often not be known when the annual budget is submitted to the State agency, the sponsor should use its best estimate of the carryover amount when preparing the annual budget. Thus, when the budget is being prepared and submitted, the carryover estimate would be based on a comparison of the administrative payments the sponsoring organization expects to receive under the homes-times-rates formula with the amount of anticipated allowable administrative costs incurred in the current fiscal year.

Much of the current regulatory budget approval process remains the same. However, this proposed rule would provide that as soon as possible after fiscal year closeout, the sponsoring organization would be required to submit an amended budget to the State agency for review and approval. The amended budget would identify the amount of administrative funds actually carried over and a description of the purpose(s) for which those funds have been or will be used. The sponsoring organization would be required to maintain documentation of obligations and expenditures associated with approved administrative carryover funds for review by the State agency. Consistent with current regulations, it is still necessary for sponsoring organizations to use accrual accounting for the final claim of each fiscal year so that the end-of-year reconciliation and close-out can be performed.

Under proposed amendments to § 226.7, State agency responsibilities for financial management, paragraphs (g) and (j) of that section, State agencies would require the annual budget submission to include an estimate of the requested administrative fund carryover amounts and a description of the proposed purpose(s) for which those funds would be obligated or expended.

In approving a sponsoring organization's carryover request, a State agency would be required to take into consideration whether the day care home sponsoring organization has a financial management system that meets all CACFP requirements and whether the State agency is satisfied that the system is capable of controlling the custody, documentation and disbursement of carryover funds. The State agency would require a sponsoring organization carrying over administrative funds to submit an amended budget for State agency review and approval as soon as possible after fiscal year close-out. The amended budget would identify the amount of administrative funds actually carried over and describe the purpose(s) for which the carryover funds have been or will be used.

In addition, this rule proposes to require each State agency to establish procedures to recover administrative funds from sponsoring organizations of day care homes which are in excess of the 10 percent maximum carryover amount at the end of each fiscal year. Additionally, each State agency would also be required to establish procedures to recover any carryover amount not expended or obligated by the end of the fiscal year following the fiscal year in which the administrative funds were earned. As a result, State agencies would include a review of the documentation supporting carryover requests, obligations and expenditures when conducting a review of a sponsoring organization's administrative costs as currently required under § 226.6(m)(3)(iii). In addition, in implementing this proposed provision, State agencies would maintain a system that monitors the sponsoring organization's documentation of nonprofit status, and ensures that CACFP administrative funds are used principally for the benefit of participants. The accumulation of excessive balances in the sponsor's nonprofit food service account remains inconsistent with CACFP requirements, as described in FNS Instruction 796-2, Rev. 3, Section VI.

Finally, State agencies and sponsoring organizations are reminded that day care home sponsoring organizations are not required to carry over administrative funds. Any unexpended funds remaining at the end of the fiscal year, which could be carried over into the succeeding fiscal year, may be returned to the State agency at the sponsoring organization's option. In addition, nothing in this provision in any way limits or changes the requirements that a State agency: determine that all institutions are financially viable; establish an overclaim if the sponsor has used CACFP administrative funds improperly; or declare an institution seriously deficient on the basis of its improper use of CACFP administrative funds.

Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

This rule has been determined to be not significant and was not reviewed by the Office Management and Budget (OMB) in conformance with Executive Order 12866.

This proposed rule has been reviewed with regard to the requirements of the Regulatory Flexibility Act of 1980 (5 U.S.C. 601-612). It has been certified that this rule will not have a significant impact on a substantial number of small entities. While CACFP institutions and State agencies administering CACFP will be affected by this rulemaking, the economic effect will not be significant. This rule is expected to reduce administrative burdens and provide additional flexibility.

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments and the private sector. Under section 202 of the UMRA, the Department generally must prepare a written statement, including a cost/benefit analysis, for proposed and final rules with Federal mandates that may result in expenditures by State, local, or Tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. When such a statement is needed for a rule, section 205 of the UMRA generally requires the Department to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, more cost-effective, or least burdensome alternative that achieves the objectives of the rule.

This rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) that impose on State, local and Tribal governments or the private sector of $100 million or more in any one year. This rule is, therefore, not subject to the requirements of sections 202 and 205 of the UMRA.

The Program addressed in this action is listed in the Catalog of Federal Domestic Assistance under No. 10.558. For the reasons set forth in the final rule in 7 CFR part 3015, Subpart V, and related Notice published at 48 FR 29115, June 24, 1983, this is included in the scope of Executive Order 12372, which requires intergovernmental consultation with State and local officials.

Executive Order 13132 requires Federal agencies to consider the impact of their regulatory actions on State and local governments. Where such actions have federalism implications, agencies are directed to provide a statement for inclusion in the preamble to the regulations describing the agency's considerations in terms of the three categories called for under section (6)(b)(2)(B) of Executive Order 13132. USDA has considered the impact of this rule on State and local governments and has determined that this rule does not have federalism implications. This rule does not impose substantial or direct compliance costs on State and local governments. Therefore, under Section 6(b) of the Executive Order, a federalism summary impact statement is not required.

This proposed rule has been reviewed under Executive Order 12988, “Civil Justice Reform.” Although the provisions of this rule are not expected to conflict with any State or local law, regulations, or policies, the rule is intended to have preemptive effect with respect to any State or local laws, regulations, or policies that conflict with its provisions or that would otherwise impede its full implementation. This rule is not intended to have retroactive effect. Prior to any judicial challenge to the provisions of this rule or the applications of its provisions, all applicable administrative procedures must be exhausted.

This proposed rule has been reviewed in accordance with Department Regulation 4300-4, “Civil Rights Impact Analysis,” to identify any major civil rights impacts this rule might have on children on the basis of age, race, color, national origin, sex, or disability. A careful review of the rule revealed that the rule's intent does not affect the participation of protected individuals in CACFP.

The Paperwork Reduction Act of 1995 (44 U.S.C. Chap. 35; see 5 CFR 1320), requires that OMB approve all collections of information by a Federal agency from the public before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a current, valid OMB control number. This is a new collection. The new provisions in this rule, which decreases current burden hours, by 595 will be merged into CACFP, OMB Control Number #0584-0055, expiration date 8/31/2013. The current collection burden inventory for CACFP is 7,006,434. These changes are contingent upon OMB approval under the Paperwork Reduction Act of 1995. When the information collection requirements have been approved, the Department will publish a separate action in the Federal Register announcing OMB's approval.

Comments on the information collection in this proposed rule must be received by June 8, 2012. Send comments to the Office of Information and Regulatory Affairs, OMB, Attention: Desk Officer for FNS, Washington, DC 20503. Please also send a copy of your comments to Lynn Rodgers-Kuperman, Program Analysis and Monitoring Branch, Child Nutrition Division, 3101 Park Center Drive, Alexandria, VA 22302. For further information, or for copies of the information collection requirements, please contact Lynn Rodgers-Kuperman at the address indicated above. Comments are invited on: (1) Whether the proposed collection of information is necessary for the proper performance of the Agency's functions, including whether the information will have practical utility; (2) the accuracy of the Agency's estimate of the proposed information collection burden, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on those who are to respond, including use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.

All responses to this request for comments will be summarized and included in the request for OMB approval. All comments will also become a matter of public record.

Title: Child and Adult Care Food Program: Amendments Related to the Healthy Hunger-Free Kids Act of 2010.

OMB Number: 0584-New.

Expiration Date: Not Yet Determined.

Type of Request: New Collection.

Abstract: This rule proposes to codify several provisions of the Healthy, Hunger-Free Kids Act of 2010 (HHFKA) affecting the management of CACFP. The Department is proposing to: require institutions to submit an initial CACFP application to the State agency and, in subsequent years, periodically update the information in lieu of submitting a new application; require sponsoring organizations to vary the timing of reviews of sponsored facilities; require State agencies to develop and provide for the use of a standard permanent agreement between sponsoring organizations and day care centers; allow tier II day care homes to collect household income information and transmit it to the sponsoring organization; modify the method of determining administrative payments to sponsoring organizations of day care homes by basing payments on a formula; and allow sponsoring organizations of day care homes to carry over up to 10 percent of their administrative funding from the previous fiscal year into the next fiscal year. These changes were effective October 1, 2010. This rule also proposes to incorporate several changes to the application and renewal process which are expected to improve the management of CACFP and to make a number of miscellaneous technical changes.

The average burden per response and the annual burden hours are explained below and summarized in the charts which follow.

Respondents for this Proposed Rule: (Business' for and not-for-profit) Institutions.

Estimated Number of Respondents for this Proposed Rule: 250.

Estimated Number of Responses per Respondent for this Proposed Rule: (1).

Estimated Total Annual Responses: 250.

Estimated Total Annual Burden on Respondents for this Proposed Rule: (595)*.

*This represents an overall decrease from the existing burden for institutions.

Prior to the issuance of this Rule entitled “Child and Adult Care Food Program: Amendments Related to the Healthy Hunger-Free Kids Act of 2010,” 7 CFR 226.15(b) required that, all institutions submit to the State agency with its application all information required for its approval as set forth in 226.6(b) and 226.6(f). This rule eliminates the requirement for renewing institutions to submit an annual application for renewal; however, these institutions must demonstrate that they are capable of operating the Program in accordance with this part as set forth in § 226.6b(b).

Therefore, the burden associated with the renewing institutions to submit an annual application has been removed as a result of this Rule. A program adjustment will be made to the 7 CFR Part 226 Child and Adult Care Food Program information collection package (OMB control number 0584-0055) prior to its renewal date of August 31, 2013.

7 CFR 226.6, 226.15 and 226.16 require that, in order to participate in CACFP, State agencies and institutions must maintain records to demonstrate compliance with Program requirements. The regulations further require that State agencies and institutions maintain records for a period of three years.

The Department is committed to complying with the E-Government Act 2002 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.

Executive Order 13175 requires Federal agencies to consult and coordinate with Tribes on a government-to-government basis on policies that have Tribal implications, including regulations, legislative comments or proposed legislation, and other policy statements or actions that have substantial direct effects on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.

In the spring of 2011, FNS offered opportunities for consultation with Tribal officials or their designees to discuss the impact of the HHFKA on tribes or Indian Tribal governments. The consultation sessions were coordinated by FNS and held on the following dates and locations:

The five consultation sessions in total provided the opportunity to address Tribal concerns related to school meals. There were no comments about this regulation during any of the aforementioned Tribal Consultation sessions. Reports from these consultations are part of the USDA annual reporting on Tribal consultation and collaboration. FNS will respond in a timely and meaningful manner to Tribal government requests for consultation concerning this rule. Currently, FNS provides regularly scheduled quarterly consultation sessions through the end of FY2012 as a venue for collaborative conversations with Tribal officials or their designees.

Accordingly, 7 CFR part 226 is proposed to be amended as follows:

Title III of the Energy Policy and Conservation Act (42 U.S.C. 6291, et seq.; “EPCA” or, “the Act”) sets forth a variety of provisions designed to improve energy efficiency. (All references to EPCA refer to the statute as amended through the Energy Independence and Security Act of 2007 (EISA 2007), Public Law 110-140 (Dec. 19, 2007)). Part B of title III, which for editorial reasons was redesignated as Part A upon incorporation into the U.S. Code (42 U.S.C. 6291-6309), establishes the “Energy Conservation Program for Consumer Products Other Than Automobiles.”

Under EPCA, this program consists of four parts: (1) Testing, (2) labeling, (3) Federal energy conservation standards, and (4) certification and enforcement procedures. This rulemaking establishes test procedures that manufacturers of light-emitting diode (LED) lamps would use to meet obligations under labeling requirements promulgated by the Federal Trade Commission (FTC) under section 324(a)(6) of EPCA (42 U.S.C. 6294(a)(6)).

When the U.S. Department of Energy (DOE) proposes test procedures, it must offer the public an opportunity to present oral and written comments on them. (42 U.S.C. 6293(b)(2)) EISA 2007 section 321(b) amended EPCA (42 U.S.C. 6294(a)(2)(C)) to direct FTC to consider the effectiveness of lamp labeling for power levels or watts, light output or lumens, and lamp lifetime. This test procedure rulemaking for LED lamps is being conducted to support FTC's determination that LED lamps, which had previously not been labeled, require labels under EISA section 321(b) and 42 U.S.C. 6294(a)(6) in order to assist consumers in making purchasing decisions. 75 FR 41696, 41698 (July 19, 2010).

FTC has published a final rule for light bulb 1 labeling (Lighting Facts) that went into effect on January 1, 2012. 75 FR 41696 (July 19, 2010) The FTC Lighting Facts label covers three types of medium screw base lamps: general service incandescent lamps (GSIL), compact fluorescent lamps (CFL), and general service LED lamps.2 The label requires manufacturers to disclose information about the lamp's brightness 3 (lumen output), estimated annual energy cost, life 4 (rated lifetime), light appearance (correlated color temperature (CCT)), and energy use (input power). FTC requires that the estimated annual energy cost is calculated by multiplying the energy used by annual operating hours and an estimate for energy cost per kilowatt-hour. FTC references DOE test procedures, when available, for testing lamps for the FTC Lighting Facts label. This test procedure rulemaking would enable FTC to reference a DOE test procedure for LED lamps.

In this notice of proposed rulemaking (NOPR), DOE proposes test procedures for determining the lumen output, input power, CCT, and rated lifetime of LED lamps. DOE invites comment on all aspects of the proposed test procedure for LED lamps.

In this NOPR, DOE proposes test procedures for determination of lumen output, input power, CCT, and rated lifetime of an LED lamp. Specifically, DOE proposes to incorporate by reference IES 5 LM-79-2008 6 for determination of lumen output, input power, and CCT, UL 7 1993-2009 8 for support of the in-situ temperature measurement test (ISTMT), IES standards LM-80-2008 9 and TM-21-2011 10 for determination of rated lamp lifetime, and ANSI 11 /IESNA 12 RP-16-2010 13 for the definition of integrated LED lamps. DOE reviewed several potential approaches to testing lamp lumen output, input power, CCT, and rated lifetime, and determined that these UL and IES standards are the best standards based on discussions with industry experts. These standards are adequately specified to generate reliable results and are generally used by industry for determining photometric characteristics of LED lamps.

DOE conducted literature research and determined that IES LM-79-2008 is the standard used by industry to determine the electrical and photometric characteristics of LED lamps. IES LM-79-2008 provides the test setup, test conditions including instrumentation and electrical settings, test method, and calculations for determining the input power, lumen output, and CCT of LED lamps. Section III.B details the relevant sections of IES LM-79-2008 that are incorporated by reference, and any proposed changes, if required.

To develop a Federal test procedure for determining the rated lifetime of LED lamps, DOE conducted literature research and interviewed several industry experts to understand the methods used by industry to determine the rated lifetime of LED lamps. Due to the infancy of the technology, there are no industry standards that describe a methodology for determining rated lifetime based on direct measurements of an LED lamp. Based on the information currently available, DOE determined that IES LM-80-2008 should be used to measure the lumen maintenance 14 of an LED source 15 at the in-situ temperature determined by performing an ISTMT. The test setup and conditions for conducting the ISTMT should be as specified in UL 1993-2009. Finally, the LED source rated lifetime should be projected using the method described in IES TM-21-2011. DOE is proposing that the lumen maintenance of the LED source be measured and projected rather than the lumen maintenance of the LED lamp because currently there are no well-specified and established methods for projecting LED lamp lumen maintenance data. The proposed method is based on industry accepted measurements and projection methods and does not require operating the lamp until it reaches its rated lifetime. DOE discusses this determination in more detail in section III.C.1. DOE is proposing to define rated lifetime as the time when the lumen output of the LED sources within the LED lamp falls below 70 percent of the initial light output. Section III.C details the test method to determine the rated lifetime and the relevant sections of UL 1993-2009, IES LM-80-2008, and IES TM-21-2011 that are incorporated by reference, and any changes, if required.

This rulemaking is applicable to LED lamps that fall within DOE's proposed definition of an LED lamp in 10 CFR part 430.2, which is based on the term integrated LED lamps as defined by ANSI/IESNA RP-16-2010, “Nomenclature and Definitions for Illuminating Engineering.” These integrated lamps comprise the LED source (the LED packages (components) or LED arrays (modules)), LED driver, ANSI standard base, and other optical, thermal, mechanical and electrical components such as phosphor layers, insulating materials, fasteners to hold components within the lamp together, and electrical wiring. The LED lamp is intended to connect directly to a branch circuit through a corresponding ANSI standard socket. EPCA, as amended by EISA 2007 section 321(a)(1)(B), adds the definition for LED as a p-n junction 16 solid state device, the radiated output of which, either in the infrared region, the visible region, or the ultraviolet region, is a function of the physical construction, material used, and exciting current 17 of the device. (42 U.S.C. 6291(30)(CC)) DOE invites interested parties to comment on the scope of applicability of this test procedure and the incorporation of ANSI/IESNA RP-16-2010 to define LED lamps.

DOE reviewed industry standards and spoke with industry experts to determine the best method for measuring the lumen output, input power, and CCT of LED lamps. DOE reviewed the IEC 18 /PAS 19 pre-standard 62612 20 for determining the performance of self-ballasted LED lamps 21 , but this standard did not specify a test method for measuring the lumen output of LED lamps and is not yet a finalized document. Next, DOE reviewed the method specified by the ENERGY STAR® program and observed that it references IES LM-79-2008 for determining the lumen output, input power, and CCT of integrated LED lamps. In review of IES LM-79-2008, DOE found IES is the recognized technical authority on illumination, and the IES LM-79-2008 standard was prepared by the IES subcommittee on Solid State Light Sources of the IESNA Testing Procedures Committee. IES LM-79-2008 was also developed in collaboration with the ANSI Solid State Lighting Joint Working Group C78-09 and C82-04 comprising individuals from several organizations. DOE's view is that the committee members that worked on developing the IES LM-79-2008 standard represent applicable industry groups and interested parties. Based on an independent review by DOE and general acceptance by industry, DOE concluded that IES LM-79-2008 specifies all the information that is required for providing a complete test procedure for determining lumen output, input power, and CCT of LED lamps. However, DOE is proposing some modifications so that the test method better serves DOE's needs.

IES LM-79-2008 specifies the test setup and conditions at which the measurements and calculations must be performed. These include ambient conditions, power supply characteristics, lamp orientation, seasoning, and stabilization methods for LED lamps, and instrumentation and electrical settings. These requirements, and any modifications proposed by DOE, are further discussed in the sections III.B.2 through III.B.5. DOE requests comment on the proposed incorporation of IES LM-79-2008 for determining lumen output, input power, and CCT.

DOE proposes that the ambient conditions for testing LED lamps be as specified in section 2.0 22 of IES LM-79-2008. DOE recognizes that lumen output of LED lamps can vary with changes in ambient temperature and air movement around the LED lamp. The test conditions outlined in IES LM-79-2008 ensure reliable, repeatable, and consistent test results without significant test burden. These conditions are discussed in further detail below.

Section 2.2 of IES LM-79-2008 specifies that photometric measurements should be taken at an ambient temperature of 25 degrees Celsius (°C) ± 1 °C. DOE's view is that a tolerance of 1 °C for the ambient temperature is practical, limits the impact of ambient temperature on measurements, and would not be burdensome because the instruments used to measure the temperature provide for a greater accuracy allowing the test laboratories to maintain the temperature within the required tolerance for testing. Section 2.2 further specifies that the temperature should be measured at a point not more than one meter from the LED lamp and at the same height as the lamp. The standard also requires that the temperature sensor that is used for measurements be shielded from direct optical radiation from the lamp or any other source to reduce the impact of radiated heat on the ambient temperature measurement. This setup for measuring and controlling ambient temperature would result in appropriate testing conditions because it requires that the lamp be tested at room temperature and in an environment that is used most commonly for testing lamp technologies.

DOE proposes that the requirement for air movement around the LED lamp be as specified in section 2.4 of IES LM-79-2008, which requires that the air flow around the LED lamp should be such that it does not affect the lumen output measurements of the lamp being tested. DOE understands that this requirement would ensure consistent LED lamp measurements and is a requirement for the test setup of other lamp types such as GSFLs.

DOE also considered whether a specific method for determination of a draft-free environment should be specified. Section 4.3 of IES LM-9-2009 23 requires that a single ply tissue paper be held in place of the lamp to allow for visual observation of any drafts. DOE requests comment on whether the specification from section 4.3 of IES LM-9-2009 should be required for specifying the air movement around LED lamps.

DOE proposes that section 3.1 of IES LM-79-2008 be incorporated by reference to specify requirements for both alternating current (AC) and direct current (DC) power supplies. This section specifies that an AC power supply should have a sinusoidal voltage waveshape at the input frequency required by the LED lamp such that the root mean square (RMS) 24 summation of the harmonic components does not exceed three percent of the fundamental frequency 25 while operating the LED lamp. Section 3.2 of IES LM-79-2008 also requires that the voltage of an AC power supply (RMS voltage) or DC power supply (instantaneous voltage) applied to the LED lamp should be within ± 0.2 percent. These requirements are achievable with minimal testing burden and provide reasonable stringency in terms of power quality based on their similarity to voltage tolerance requirements for testing of other lamp types. These requirements ensure that the power supplied to the LED lamps is consistent and, in combination with other specifications, would likely result in repeatable photometric measurements.

DOE proposes that the LED lamp be mounted as specified in section 2.3 of IES LM-79-2008 and be positioned in the base-up, base-down, and horizontal orientations for testing. Section 2.3 of IES LM-79-2008 requires that the LED lamp should be mounted to the measuring instrument (integrating sphere or goniophotometer as described in section III.B.4.c) in such a manner that the heat flow through supporting objects does not affect the measurement results. This is important because the lumen output of LED lamps is sensitive to thermal changes. DOE's view is that the examples specified in section 2.3 of IES LM-79-2008 (such as suspending a ceiling-mounted LED lamp in open air and using support materials such as Teflon that have low heat conductivity instead of mounting it in close thermal contact with the sphere wall) ensure negligible cooling effects through the supporting objects of the LED lamps and minimal disturbance of the air flow around the lamp. DOE proposes that these materials, or other materials with low heat conductivity, should be used to mount the LED lamp.

DOE understands that the orientation of the lamp could affect the thermal conditions within the lamp, which may affect the light output. DOE considered testing the LED lamps as specified in section 6.0 of IES LM-79-2008, which states that the LED lamp should be tested in the operating orientation recommended by the lamp manufacturer for the intended use of the LED lamp. However, manufacturers do not typically specify the operating orientation for the LED lamp in their product literature. Further, it is possible that manufacturers would recommend an orientation for testing that provides the highest lumen output rather than the orientation in which the lamp is most frequently operated in practice. Therefore, DOE proposes that the lamp units should be positioned such that an equal number of units are oriented in the base up, base down, and horizontal orientations each (see section III.D for the sampling requirements). This would ensure that testing is carried out in all possible 26 orientations potentially used in practice, instead of only the highest performance orientation. DOE also requires that the lamps be positioned in the same orientation throughout testing, which would include lamp seasoning (section III.B.4.a), lamp stabilization (section III.B.4.b), and input power (section III.B.3.c) and lumen output measurements (section III.B.4.c). DOE requests comment on the appropriateness of orienting lamps, in the base-up, base-down, and horizontal positions for testing, and requests data on the impact of lamp orientation on the thermal characteristics of the LED lamp, and hence, the light output.

DOE proposes that the instrumentation requirements for the AC power meter and the AC and DC voltmeter and ammeter, as well as the acceptable tolerance for these instruments, be as specified in section 8.0 of IES LM-79-2008. Section 8.1 of IES LM-79-2008 specifies that for DC-input LED lamps, a DC voltmeter and DC ammeter should be connected between the DC power supply and the LED lamp under test. The DC voltmeter should be connected across the electrical power input of the LED lamp, and the input electrical power should be calculated as the product of the measured input voltage and current. Section 8.2 of IES LM-79-2008 specifies that the tolerance for the DC voltage and current measurement instruments should be ± 0.1 percent. For AC-input LED lamps, section 8.1 of IES LM-79-2008 further specifies that an AC power meter should be connected between the AC power supply and the LED lamp under test. The AC power, input voltage, and current should be measured. Section 8.2 of IES LM-79-2008 specifies that the tolerance of the AC voltage and current measurement instruments should be ± 0.2 percent and the tolerance of the AC power meter should be ± 0.5 percent. DOE's view is that the instrumentation requirements set forth in section 8.0 of IES LM-79-2008 are achievable and provide reasonable stringency in terms of measurement tolerance based on their similarity to instrument tolerance requirements for testing of other lamp types.

DOE proposes that the electrical settings for testing LED lamps be as specified in section 7.0 of IES LM-79-2008. Section 7.0 provides guidance on settings such as input voltage, level of light output for dimming capable LED lamps, and the modes for testing lamps with variable CCT. Section 7.0 states that the lamp should be operated at the specified rated voltage during testing. As stated in section 7.0, DOE agrees that any method, such as pulsed input electrical power and measurements synchronized with reduced duty cycle input power, intended to reduce the p-n junction temperature below that which is reached during operation with normal input power should not be used for testing the LED lamp. Further, for lamps with multiple voltages, DOE proposes that the LED lamp should be tested at 120 volts, unless it is not rated for 120 volts. DOE is proposing that lamps with multiple voltages should be tested at 120 volts because lamps rated at 120 volts are available most commonly in the market. If the LED lamp is not rated for 120 volts, DOE proposes that it should be tested at the highest rated voltage because the lamp is expected to have the best performance at the highest rated voltage. Further, section 7.0 of IES LM-79-2008 specifies that for LED lamps with dimming capabilities, the lamp should be operated at the maximum input power for testing. DOE invites interested parties to comment on the appropriateness of testing LED lamps at the rated voltage and testing lamps that are rated to operate at multiple voltages at either 120 volts or the highest rated voltage. DOE also requests comment on testing lamps with dimming capabilities at the maximum input power.

Lastly, section 7.0 of IES LM-79-2008 specifies that if an LED lamp has multiple modes of operation, including variable CCT, testing should be performed in each mode of operation for each unit. In its research, DOE did not come across any products that function at multiple modes of operation. DOE requests comment about whether LED lamps with variable CCT, or multiple modes of operation, are available in the market. If such lamps are available, DOE requests comment about whether such lamps should be tested at a particular CCT value rather than at each value.

DOE proposes that the LED lamp under test be seasoned (energized and operated) for 1,000 hours before beginning photometric measurements, contrary to the requirements of section 4.0 of IES LM-79-2008 which indicates no seasoning is required. Though IES LM-79-2008 states that the increase in light output from zero to 1,000 hours of operation does not significantly affect light output or lifetime ratings, IES TM-21-2011 specifies that the data obtained from the first 1,000 hours of operating an LED source should not be used to project the lifetime of an LED source (and hence, LED lamp rated lifetime as discussed in section III.C). DOE is proposing a 1,000 hour seasoning time because it has been established by industry 27 28 that light output of an LED source (and therefore, potentially the lamp) frequently increases during the first 1,000 hours of operation. If the lamp is not seasoned for 1,000 hours, then depending on the time required to stabilize the lamp (as specified in section III.B.4.b), the lumen output determined through testing may be much higher than the actual lumen output. This may create an incentive to increase the time required to stabilize the lamp such that the highest lumen output is achieved while taking lumen output measurements. Additionally, DOE understands that there may be some lamps that return to the initial lumen output (at zero hours) in less than 1,000 hours and others that may take longer, but proposes that 1,000 hours be used for seasoning all lamps to maintain uniformity. DOE invites interested parties to comment on the proposed seasoning time for the LED lamp under test and any increased testing burden due to seasoning the lamp for 1,000 hours. DOE also requests data on the degree to which the lumen output of the LED lamp changes during the first 1,000 hours of operation.

After the lamp has been seasoned, DOE proposes that the time required for lamp stabilization be as specified in section 5.0 of IES LM-79-2008. The ambient conditions and operating orientation of the LED lamp while stabilizing should continue to be as specified in sections III.B.2 and III.B.3.b. DOE further proposes that stability of the LED lamp is reached when the variation [(maximum−minimum)/minimum] of at least three readings of light output and electrical power over a period of 30 minutes, taken 15 minutes apart, is less than 0.5 percent. This calculation in included to add clarification to the method specified in section 5.0 of IES LM-79-2008. For stabilization of a number of products of the same model, section 5.0 of IES LM-79-2008 suggests that preburning 29 of the product may be used if it has been established that the method produces the same stabilized condition as when using the standard method described above. DOE invites interested parties to comment on adopting section 5.0 of IES LM-79-2008 for LED lamp stabilization prior to taking photometric measurements and whether its clarification on the variation calculation is appropriate.

After the lamp has been seasoned and stabilized, DOE proposes that the test method for measuring the lumen output of the LED lamp under test be as specified in section 9.0 of IES LM-79-2008. This section requires that the lumen output of the LED lamp be measured with an integrating sphere system or a goniophotometer. An integrating sphere system is an optical device that is useful for measuring the lumen output and color measurement of LED lamps. The hollow sphere contains two or more openings for introducing the LED lamp under test as well as attaching a detector (an instrument that is used to measure light output or the spectral radiant flux), such as a photometer or spectroradiometer. A goniophotometer is another device that measures the luminous intensity distribution and the lumen output of the LED lamp under test. It does so by measuring the light intensity of the LED lamp when reflected from a surface at various angles. DOE invites interested parties to comment on the appropriateness of using either an integrating sphere system or a goniophotometer for testing LED lamps. DOE also requests feedback on how the lumen output measured using a sphere-photometer system, sphere-spectroradiometer system, or a goniophotometer compare with each other.

This notice proposes the same method of measurement of lumen output for all LED lamps, including directional 30 LED lamps. For directional LED lamps, DOE proposes that the total lumen output emanated from the lamp should be measured because other directional lamp technologies currently measure and report total lumen output on the FTC Lighting Facts label. DOE understands that the beam lumen output, which is present in the zone bounded by the beam angle, is the “useful” lumen output for directional lamps. However, at this time, DOE is not proposing that beam lumen output be measured because inconsistency and confusion could arise in the industry if LED lamps measure beam lumen output (a portion of the total lumen output) while other lamp technologies measure total lumen output. Additionally, a comparison of performance among the different directional lamp technologies could not be made. DOE understands that beam lumen output or center-beam candle power (CBCP) metrics are useful for comparing and describing directional lamps but does not propose these metrics because they are not required for the FTC Lighting Facts label. DOE requests comment on the appropriateness of measuring total lumen output for directional LED lamps.

A Collective Investment Fund (CIF) is a bank-managed fund that holds pooled fiduciary assets that meet specific criteria established by the OCC fiduciary activities regulation at 12 CFR 9.18. Each CIF is established under a “Plan” that details the terms under which the bank manages and administers the fund's assets. The bank acts as a fiduciary for the CIF and holds legal title to the fund's assets. Participants in a CIF are the beneficial owners of the fund's assets. Each participant owns an undivided interest in the aggregate assets of a CIF; a participant does not directly own any specific asset held by a CIF.1

CIFs are designed to enhance investment management capabilities by combining assets from different accounts into a single fund with a specific investment strategy. By pooling fiduciary assets, a bank may lower the operational and administrative expenses associated with investing fiduciary assets and enhance risk management and investment performance for the participating accounts.

A fiduciary account's investment in a CIF is called a “participating interest.” Participating interests in a CIF are not FDIC-insured and are not subject to potential claims by a bank's creditors. In addition, a participating interest in a CIF cannot be pledged or otherwise encumbered in favor of a third party.

The general rule for valuation of a CIF's assets specifies that a CIF admitting a fiduciary account (that is, allowing the fiduciary account, in effect, to purchase its proportionate interest in the assets of the CIF) or withdrawing the fiduciary account (that is, allowing the fiduciary account, in effect, to redeem the value of its proportionate interest in the CIF) may only do so on the basis of a valuation of the CIF's assets, as of the admission or withdrawal date, based on the mark-to-market value of the CIF's assets.2 This general valuation rule is designed to protect all fiduciary accounts participating in the CIF from the risk that other accounts will be admitted or withdrawn at valuations that dilute the value of existing participating interests in the CIF.

A STIF is a type of CIF that permits a bank to value the STIF's assets on an amortized cost basis, rather than at mark-to-market value, for purposes of admissions and withdrawals. This is an exception to the general rule of market valuation. In order to qualify for this exception, a STIF's Plan must require the bank to: (1) Maintain a dollar-weighted average portfolio maturity of 90 days or less; (2) accrue on a straight-line or amortized basis the difference between the cost and anticipated principal receipt on maturity; and (3) hold the fund's assets until maturity under usual circumstances.3 These conditions are designed to protect fiduciary accounts from the risk of dilution of the value of their participating interests. In particular, by limiting the STIF's investments to shorter-term assets and generally requiring those assets to be held to maturity, realized differences between the amortized cost and mark-to-market value of the assets will be rare, absent atypical market conditions or an impaired asset. As further discussed in this SUPPLEMENTARY INFORMATION section, the amortized cost approach is beneficial for many fiduciary accounts, because some participants require that a certain percentage of the assets held in these accounts be in a liquid, low risk investment.

The OCC's STIF Rule governs STIFs managed by national banks. In addition, regulations adopted by the Office of Thrift Supervision, now recodified as OCC rules pursuant to Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act,4 have long required federal savings associations (FSAs) to comply with the requirements of the OCC's STIF Rule.5 Thus, the proposed revisions to the national bank STIFs Rule would apply to a federal savings association that establishes and administers a STIF fund. As of December 31, 2011, there was approximately $112 billion invested in STIFs administered by national banks and there were no STIFs administered by FSAs reported.6

The OCC is proposing to revise the requirements of the STIF Rule. While fiduciary accounts participating in a STIF have an interest in the fund maintaining a stable net asset value (NAV), ultimately the participating interests remain subject to the risk of loss to a STIF's principal. The OCC is proposing additional safeguards designed to address this risk in several ways. These include measures governing the nature of a STIF's investments, ongoing monitoring of the STIF's mark-to-market value and assessment of potential changes in its mark-to-market value under adverse market conditions, greater transparency and regulatory reporting about the STIF's holdings, and procedures to protect fiduciary accounts from undue dilution of their participating interests in the event that the STIF loses the ability to maintain a stable NAV.

There are other types of funds that seek to maintain a stable NAV. By far, the most significant of these from a financial market presence standpoint are “money market mutual funds” (MMMFs). These funds are organized as open-ended management investment companies and are regulated by the U.S. Securities and Exchange Commission (“SEC”) pursuant to the Investment Company Act of 1940, particularly pursuant to the provisions of SEC Rule 2a-7 thereunder (“Rule 2a-7”).7 MMMFs seek to maintain a stable share price, typically $1.00 a share. In this regard, they are similar to STIFs.

However, there are a number of important differences between MMMFs and STIFs; most significantly, MMMFs are open to retail investors, whereas, STIFs only are available to authorized fiduciary accounts. MMMFs may be offered to the investing public and have become a popular product with retail investors, corporate money managers, and institutional investors seeking returns equivalent to current short-term interest rates in exchange for high liquidity and the prospect of protection against the loss of principal. In contrast to the approximately $112 billion currently held in STIFs administered by national banks, MMMFs, as of December 2011, held approximately $2.7 trillion dollars of investor assets.8

During the recent period of financial market stress, beginning in 2007 and stretching into 2009, certain types of short-term debt securities frequently held by MMMFs experienced unusually high volatility. Concerns by investors that their MMMFs could not maintain a stable NAV eventually led to investor redemptions out of those funds, and some funds needed to liquidate sizeable portions of their securities to meet investor redemption requests. This flood of redemption requests depressed market prices for short-term debt instruments, exacerbating the problem for all types of stable NAV funds.

The President's Working Group on Financial Markets (“PWG”),9 after reviewing the market turmoil during the period 2007 through 2009, recommended that the SEC strengthen the regulation and monitoring of MMMFs and also recommended that bank regulators consider strengthening the regulation and monitoring of other types of products that seek to maintain a stable NAV. The October 2010 report from the PWG states: “[b]anking and state insurance regulators might consider additional restrictions to mitigate systemic risk for bank common and collective funds and other investment pools that seek a stable NAV but that are exempt from registration under sections 3(c)(3) and 3(c)(11) of the ICA.” 10

Based on the market turmoil from 2007 through 2009 and the work done by the PWG, among others, the SEC adopted amendments to Rule 2a-7 to strengthen the resilience of MMMFs.11 The OCC's proposed changes to the STIF Rule are informed by the SEC's revisions to Rule 2a-7, but differ in certain respects in light of the differences between the money market mutual fund as an investment product and the STIF, e.g., a bank's fiduciary responsibility to a STIF and requirements limiting STIF participation to eligible accounts under the OCC's fiduciary account regulation at 12 CFR part 9.

The proposed changes to the STIF Rule would enhance protections provided to STIF participants and reduce risks to banks that administer STIFs. The proposed changes add new requirements or amend existing requirements that a CIF must meet to be considered a STIF and value assets on an amortized cost basis. The OCC believes many banks that offer STIFs are already engaged in the risk mitigation efforts set forth in this proposed rule.

The proposed changes do not affect the obligation that STIFs meet the CIF requirements described in 12 CFR part 9, which allows national banks to maintain and invest fiduciary assets, consistent with applicable law. Applicable law is defined as the law of a state or other jurisdiction governing a national bank's fiduciary relationships, any applicable Federal law governing those relationships (e.g., ERISA, federal tax, and securities laws), the terms of the instrument governing a fiduciary relationship, or any court order pertaining to the relationship.12 Also, national banks managing CIFs are required to adopt and follow written policies and procedures that are adequate to maintain their fiduciary activities in compliance with applicable law.13 Additionally, the STIF Rule requires a STIF's bank manager, at least once during each calendar year, to conduct a review of all assets of each fiduciary account for which the bank has investment discretion to evaluate whether they are appropriate, individually and collectively, for the account.14 These examples of CIF requirements applicable to STIFs are not exclusive. Other requirements apply, and a bank must comply will all applicable requirements of 12 CFR part 9 when acting as a fiduciary for a CIF.

Banks administering a STIF would need to revise the written plan required by 12 CFR 9.18(b)(1) if this proposal is adopted as a final rule.

STIFs typically maintain stable NAVs in order to meet the expectations of the fund's bank managers and participating fiduciary accounts.15 To the extent a bank fiduciary offers a STIF with a fund objective of maintaining a stable NAV, participating accounts and the OCC expect those STIFs to maintain a stable NAV using amortized cost. The proposal would require a Plan to have as a primary objective that the STIF operate with a stable NAV of $1.00 per participating interest.16

The current STIF Rule requires the bank managing the STIF 17 to maintain a dollar-weighted average portfolio maturity of 90 days or less. The current STIF Rule restricts the weighted average maturity of the STIF's portfolio in order to limit the exposure of participating fiduciary accounts to certain risks, including interest rate risk. The proposed rule would change the maturity limits to further reduce such risks. First, the proposal would reduce the maximum weighted average portfolio maturity permitted by the rule from 90 days or less to 60 days or less. Second, it would establish a new maturity test that would limit the portion of a STIF's portfolio that could be held in longer term variable- or floating-rate securities.

The proposal would amend the “dollar-weighted average portfolio maturity” 18 requirement of the STIF Rule to 60 days or less. Currently, banks managing STIFs must maintain a dollar-weighted average portfolio maturity of 90 days or less.19 Securities that have shorter periods remaining until maturity generally exhibit a lower level of price volatility in response to interest rate and credit spread fluctuations and, thus, provide a greater assurance that the STIF will continue to maintain a stable value.

Having a portfolio weighted towards securities with longer maturities poses greater risks to participating accounts in a STIF. For example, a longer dollar-weighted average maturity period increases a STIF's exposure to interest rate risk. Additionally, longer maturity periods amplify the effect of widening credit spreads on a STIF. Finally, a STIF holding securities with longer maturity periods generally is exposed to greater liquidity risk because: (1) Fewer securities mature and return principal on a daily or weekly basis to be available for possible fiduciary account withdrawals, and (2) the fund may experience greater difficulty in liquidating these securities in a short period of time at a reasonable price.

STIFs with a shorter portfolio maturity period would be better able to withstand increases in interest rates and credit spreads without material deviation from amortized cost. Furthermore, in the event distress in the short-term instrument market triggers increasing rates of withdrawals from STIFs, the STIFs would be better positioned to withstand such withdrawals as a greater portion of their portfolios mature and return principal on a daily or weekly basis and would have greater ability to liquidate a portion of their portfolio at a reasonable price.

Question 1: What are the estimates of the effects, if any, on STIF portfolios and participating accounts from reducing the maximum dollar-weighted average portfolio maturity permitted by the rule from 90 to 60 days? The OCC seeks commenters' specific information about the risk sensitivities associated with current STIF portfolios, including the current and month-end dollar-weighted average maturity of these funds since 2008.

The proposal would add a new maturity requirement for STIFs, which would limit the dollar-weighted average portfolio life maturity to 120 days or less. The dollar-weighted average portfolio life maturity would be measured without regard to a security's interest rate reset dates and, thus, would limit the extent to which a STIF could invest in longer term securities that may expose it to increased liquidity and credit risk.

To determine compliance with the dollar-weighted average portfolio maturity requirement of the current STIF Rule, banks generally treat the maturity of a portfolio security as the period remaining until the date on which the principal must unconditionally be repaid according to its terms (its final “legal” maturity) or, in the case of a security called for redemption, the date on which the redemption payment must be made. However, banks treat certain types of securities, such as certain floating or adjustable-rate securities, as having shorter maturities equal to the time remaining to the next interest rate reset date.20 As a result, STIFs may treat longer term adjustable-rate securities as short-term securities. While adjustable-rate securities held in these funds do tend to protect a STIF against changes in interest rates, they do not fully protect against credit and liquidity risk to the portfolio.

The traditional dollar-weighted average portfolio maturity measurement in the current STIF Rule does not require a STIF to limit these risks. For this reason, the proposal would impose a new dollar-weighted average portfolio life maturity limitation on the structure of a STIF to capture credit and liquidity risk not encompassed by the dollar-weighted average portfolio maturity restriction. The proposal would require that STIFs maintain a dollar-weighted average portfolio life maturity of 120 days or less, which would provide a reasonable balance between strengthening the resilience of STIFs to credit and liquidity risk while not unduly restricting the bank's ability to invest the STIF's fiduciary assets in a diversified portfolio of short-term, high quality debt securities.

The impact of a limit on the dollar-weighted average life of a portfolio would be on those STIFs that hold certain longer term floating-rate securities. For example, under the current STIF Rule, a STIF with a portfolio comprising 50 percent of overnight repurchase agreements and 50 percent of two-year government agency floating-rate obligations that reset daily based on the federal funds rate would have a dollar-weighted average portfolio maturity of one day. In contrast, by applying a measurement that does not recognize resets, the portfolio would have a dollar-weighted average portfolio life maturity of 365.5 days (i.e., half of the portfolio has a one day maturity and half has a two-year maturity), which would be considerably longer than the 120-day limit of the proposal. Thus, the dollar-weighted average portfolio life maturity limitation would provide an extra layer of protection for qualified account participants against credit and liquidity risk, particularly in volatile markets.

Question 2: What are the effects, if any, on STIF portfolios and participating accounts of limiting the portion of a fund's portfolio that may be held in longer term variable- or floating-rate securities? The OCC seeks commenters' specific information about the risk sensitivities associated with the current dollar-weighted average life maturity of these funds.

In determining the dollar-weighted average portfolio maturity of STIFs under the current rule, national banks generally apply the same methodology as required by the SEC for MMMFs pursuant to Rule 2a-7. Dollar-weighted average maturity under Rule 2a-7 is calculated, as a general rule, by treating each security's maturity as the period remaining until the date on which, in accordance with the terms of the security, the principal amount must be unconditionally paid or, in the case of a security called for redemption, the date on which the redemption payment must be made. Rule 2a-7 also provides eight exceptions to this general rule. For example, for certain types of variable-rate securities, the date of maturity may be the earlier of the date of the next interest rate reset or the period remaining until the principal can be recovered through demand. For repurchase agreements, the maturity is the date on which the repurchase is scheduled to occur, unless the repo is subject to demand for repurchase, in which case the maturity is the notice period applicable to demand.21 The proposal would include this approach in the rule text for dollar-weighted average portfolio maturity and dollar-weighted average portfolio life maturity 22 for ease of administration and implementation of the proposed rule's requirements.

Question 3: Is this approach for the determination of maturity limits appropriate, and if not, what alternative approach should be used?

To ensure that banks managing STIFs include practices designed to limit the amount of credit and liquidity risk to which participating accounts in STIFs are exposed, the proposal would require adoption of portfolio and issuer qualitative standards and concentration restrictions. The OCC would expect bank fiduciaries to identify, monitor, and manage issuer and lower quality investment concentrations and implement procedures to perform appropriate due diligence on all concentration exposures as part of the bank's risk management policies and procedures for each STIF. In addition to standards imposed by applicable law, the portfolio and issuer qualitative standards and concentration restrictions should take into consideration market events and deterioration in an issuer's financial condition.

Question 4: Are defined portfolio concentration limits necessary in order for STIF managers and STIF participants to ensure that a fund has reduced its credit exposure to a specific issuer? Commenters who assert that portfolio concentration limits are necessary should provide details regarding the percent limits for specific issuers or classes of issuers.

Many banks process STIF withdrawal requests within a short time frame, often on the same day that the withdrawal request is received, which necessitates sufficient liquidity to meet such requests. By holding illiquid securities, a STIF exposes itself to the risk that it will be unable to satisfy withdrawal requests promptly without selling illiquid securities at a loss that, in turn, could impair its ability to maintain a stable NAV. Moreover, illiquid securities are generally subject to greater price volatility, exposing the STIF to greater risk that its mark-to-market value will deviate from its amortized cost value. To address this concern, the proposal would require adoption of standards that include provisions to address contingency funding needs.

The proposal would require a bank managing a STIF to adopt shadow pricing procedures.23 These procedures require the bank to calculate the extent of the difference, if any, between the mark-to-market NAV per participating interest using available market quotations (or an appropriate substitute that reflects current market conditions) from the STIF's amortized cost value per participating interest. In the event the difference exceeds $0.005 per participating interest,24 the bank must take action to reduce dilution of participating interests or other unfair results to participating accounts in the STIF, such as ceasing fiduciary account withdrawals. The shadow pricing procedures must occur at least on a calendar week basis and more frequently as determined by the bank when market conditions warrant.

Question 5: Does the proposal differ from banks' current pricing practices? If so, how? Question 6: Is the proposed weekly shadow pricing frequency appropriate? Question 7: Would another reporting frequency be more appropriate and, if so, what frequency and why?

The proposal would require a bank managing a STIF to adopt procedures for stress testing the fund's ability to maintain a stable NAV for participating interests. The proposal would require the stress tests be conducted at such intervals as an independent risk manager or a committee responsible for the STIF's oversight determines to be appropriate and reasonable in light of current market conditions, but in no case shall the interval be longer than a calendar month-end basis. The independent risk manager or committee members must be independent from the STIF's investment management. The stress testing would be based upon hypothetical events (specified by the bank) that include, but are not limited to, a change in short-term interest rates; an increase in participating account withdrawals; a downgrade of or default on portfolio securities; and the widening or narrowing of spreads between yields on an appropriate benchmark the fund has selected for overnight interest rates and commercial paper and other types of securities held by the fund.

The proposal provides a bank with flexibility to specify the scenarios or assumptions on which the stress tests are based, as appropriate to the risk exposures of each STIF. Banks managing STIFs should, for example, consider procedures that require the fund to test for the concurrence of multiple hypothetical events, e.g., where there is a simultaneous increase in interest rates and substantial withdrawals.25

The proposal also would require a stress test report be provided to the independent risk manager or the committee responsible for the STIF's oversight. The report would include: (1) The date(s) on which the testing was performed; (2) the magnitude of each hypothetical event that would cause the difference between the STIF's mark-to-market NAV calculated using available market quotations (or appropriate substitutes which reflect current market conditions) and its NAV per participating interest calculated using amortized cost to exceed $0.005; and (3) an assessment by the bank of the STIF's ability to withstand the events (and concurrent occurrences of those events) that are reasonably likely to occur within the following year.

In addition, the proposal would require that adverse stress testing results are reported to the bank's senior risk management that is independent from the STIF's investment management.

The proposed stress testing procedures would provide banks with a better understanding of the risks to which STIFs are exposed and would give banks additional information that can be used for managing those risks.

Question 8: Is the proposed requirement that a STIF adopt procedures for stress testing the fund's ability to maintain a stable NAV for participating interests appropriate? Why so or why not? Question 9: In particular, is the proposed monthly stress testing frequency appropriate? Commenters who assert that another frequency would be more appropriate should identify the alternative and provide a supporting rationale.

The proposal would require banks managing STIFs to disclose information about fund level portfolio holdings to STIF participants and to the OCC within five business days after each calendar month-end. Specifically, the bank would be required to disclose the STIF's total assets under management (securities and other assets including cash, minus liabilities); the fund's mark-to-market and amortized cost NAVs, both with and without capital support agreements; the dollar-weighted average portfolio maturity; and dollar-weighted average portfolio life maturity as of the last business day of the prior calendar month. The current STIF Rule does not contain a similar disclosure requirement.

Also, for each security held by the STIF, as of the last business day of the prior calendar month, the bank would be required to disclose to STIF participants and to the OCC within five business days after each calendar month-end at a security level: (1) The name of the issuer; (2) the category of investment; (3) the Committee on Uniform Securities Identification Procedures (CUSIP) number or other standard identifier; (4) the principal amount; (5) the maturity date for purposes of calculating dollar-weighted average portfolio maturity; (6) the final legal maturity date (taking into account any maturity date extensions that may be effected at the option of the issuer) if different from the maturity date for purposes of calculating dollar-weighted average portfolio maturity; (7) the coupon or yield; and (8) the amortized cost value.

Question 10: What is the estimate of the burden, if any, associated with the proposed security level disclosures to STIF participants, specifically, whether details about every security in the fund should be disclosed? Question 11: What disclosure formats could accomplish the disclosure objective efficiently? Question 12: What would be the impacts on tax-qualified STIF participants of monthly, detailed security-level disclosures from the STIF, including how STIF participants might use the disclosed information?

The proposal would require a bank that manages a STIF to notify the OCC prior to or within one business day after certain events. Those events are: (1) Any difference exceeding $0.0025 between the NAV and the mark-to-market value of a STIF participating interest based on current market factors; (2) when a STIF has re-priced its NAV below $0.995 per participating interest; (3) any withdrawal distribution-in-kind of the STIF's participating interests or segregation of portfolio participants; (4) any delays or suspensions in honoring STIF participating interest withdrawal requests; (5) any decision to formally approve the liquidation, segregation of assets or portfolios, or some other liquidation of the STIF; and (6) when a national bank, its affiliate, or any other entity provides a STIF financial support, including a cash infusion, a credit extension, a purchase of a defaulted or illiquid asset, or any other form of financial support in order to maintain a stable NAV per participating interest.26 This proposed requirement to notify the OCC prior to or within one business day after these limited specific events would permit the OCC to more effectively supervise STIFs that are experiencing liquidity or valuation stress.

To comply with this proposed requirement, a bank would have to calculate the mark-to-market value of a STIF participating interest on a daily basis.

Question 13: Is daily calculation of mark-to-market value of a STIF participating interest a feasible or appropriate frequency to permit effective monitoring and risk management by, and supervision of, STIFs experiencing liquidity or valuation stress?

The proposal would require banks managing a STIF to adopt procedures that in the event a STIF has re-priced its NAV below $0.995 per participating interest, the bank managing the STIF shall calculate, redeem, and sell the STIF's participating interests at a price based on the mark-to-market NAV. Currently, the rule creates an incentive for withdrawal of participating interests if the mark-to-market NAV falls below the stable NAV because the earlier withdrawals are more likely to receive the full stable NAV payment. The proposal removes this incentive, as once the NAV is priced below $0.995, all withdrawals of participating interests will receive the mark-to-market NAV instead of the stable NAV.

The proposal would require a bank managing a STIF to adopt procedures for suspending redemptions and initiating liquidation of a STIF as a result of redemptions. The intent of the proposal is to reduce the vulnerability of participating accounts to the harmful effects of extraordinary levels of withdrawals, which can be accomplished to some degree by suspending withdrawals. These suspensions only would be permitted in limited circumstances when, as a result of redemption, the bank has: (1) Determined that the extent of the difference between the STIF's amortized cost per participating interest and its current mark-to-market NAV per participating interest may result in material dilution of participating interests or other unfair results to participating accounts; (2) formally approved the liquidation of the STIF; and (3) facilitated the fair and orderly liquidation of the STIF to the benefit of all STIF participants.

The OCC understands that suspending withdrawals may impose hardships on fiduciary accounts for which the ability to redeem participations is an important consideration. Accordingly, the proposed requirement is limited to permitting suspension in extraordinary circumstances when there is significant risk of extraordinary withdrawal activity to the detriment of other participating accounts.

In addition to the specific requests for comment outlined in this Supplementary Information section, the OCC is interested in receiving comments on all aspects of this proposed rule.

The OCC also invites comments on the impact of this proposal on community banks. The OCC recognizes that community banks operate with more limited resources than larger institutions and may present a different risk profile. Question 14: How would the proposal impact community banks' current resources and available personnel with the requisite expertise? Question 15: How could the goals of the proposal be achieved for community banks through an alternative approach?

Section 722 of the Gramm-Leach-Bliley Act, Pub. L. 106-102, sec. 722, 113 Stat. 1338, 1471 (Nov. 12, 1999), requires the OCC to use plain language in all proposed and final rules published after January 1, 2000. The OCC invites your comments on how to make this proposal easier to understand. For example:

• Question 16: Have we organized the material to suit your needs? If not, how could this material be better organized?

• Question 17: Are the requirements in the proposed regulation clearly stated? If not, how could the regulation be more clearly stated?

• Question 18: Does the proposed regulation contain language or jargon that is not clear? If so, which language requires clarification?

• Question 19: Would a different format (grouping and order of sections, use of headings, paragraphing) make the regulation easier to understand? If so, what changes to the format would make the regulation easier to understand?

• Question 20: What else could we do to make the regulation easier to understand?

In accordance with section 3512 of the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521), the OCC may not conduct or sponsor, and a 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 information collection requirements contained in this notice of proposed rulemaking have been submitted to OMB for review and approval under section 3506 of the PRA and § 1320.11 of OMB's implementing regulations (5 CFR part 1320) as an amendment to the OCC's existing collection for Fiduciary Activities (OMB Control No. 1557-0140). The information collection requirements are found in §§ 9.18(b)(4)(iii)(E)-(L).

Comments are invited on:

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

(b) The accuracy of the estimate 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 information collection on respondents, including through the use of automated collection techniques or other forms of information technology; and

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

All comments will become a matter of public record. Comments should be addressed to: Communications Division, Office of the Comptroller of the Currency, Public Information Room, Mailstop 2-3, Attention: 1557-0140, 250 E Street SW., Washington, DC 20219. In addition, comments may be sent by fax to 202-874-5274, or by electronic mail to regs.comments@occ.treas.gov. You may personally inspect and photocopy comments at the OCC, 250 E Street SW., Washington, DC 20219. For security reasons, the OCC requires that visitors make an appointment to inspect comments. You may do so by calling 202-874-4700. Upon arrival, visitors will be required to present valid government-issued photo identification and submit to security screening in order to inspect and photocopy comments.

Additionally, please send a copy of your comments by mail to: OCC Desk Officer, 1557-140, U.S. Office of Management and Budget, 725 17th Street NW., #10235, Washington, DC 20503, or by fax to (202) 395-6974.

Title of Information Collection: Fiduciary Activities.

Frequency of Response: On occasion.

Affected Public: Businesses or other for-profit.

Respondents: National banks and federal branches and agencies of foreign banks.

OMB Control No.: 1557-0140.

Abstract: The rule would allow an institution to value a STIF's assets on a cost basis, rather than mark-to-market value for admissions and withdrawals if the written plan requires the STIF to adopt certain procedures and standards. These procedures and standards include: Portfolio and issuer qualitative standards and restrictions; liquidity standards; shadow pricing procedures; procedures for stress testing the ability to maintain a stable NAV and the testing itself; procedures to make certain disclosures for each security held and issuance of the disclosures; procedures to require notification to OCC regarding certain events; procedures regarding re-pricing events; and procedures for suspending redemptions and initiating liquidation of a STIF.

Estimated Burden for the Amendment to the Collection:

Estimated Number of Respondents: 15 respondents administering 34 funds.

Estimated Burden per Fund: 846 hours.

Estimated Total Annual Burden: 28,764 hours.

Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. 605(b) (RFA), the regulatory flexibility analysis otherwise required under section 603 of the RFA is not required if the agency certifies that the proposed rule will not, if promulgated, have a significant economic impact on a substantial number of small entities (defined for purposes of the RFA to include banks and federal branches and agencies with assets less than or equal to $175 million and trust companies with assets less than or equal to $ 7 million) and publishes its certification and a short, explanatory statement in the Federal Register along with its proposed rule.

The Proposed Rule would have no impact on any small national banks or federal branches and agencies or trust companies, as defined by the RFA. No small national banks or federal branches and agencies report management of STIFs on their required regulatory reports as of December 31, 2011. Therefore, the OCC certifies that the Proposed Rule would not, if promulgated, have a significant economic impact on a substantial number of small entities.

Section 202 of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532) requires the OCC to prepare a budgetary impact statement before promulgating a rule that includes a federal mandate that may result in the expenditure by State, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year (adjusted annually for inflation). The OCC has determined that this proposed rule will not result in expenditures by State, local, and tribal governments, or the private sector, of $100 million or more in any one year. Accordingly, the OCC has not prepared a budgetary impact statement.

I. General Information A. Does this action apply to me?

You may be potentially affected by this action if you manufacture (defined by statute to include import) or process any of the chemical substances that are listed in 40 CFR 799.5090(j) or 40 CFR 721.10228(a) of the proposed rule's regulatory text published in the Federal Register issue of October 21, 2011 (76 FR 65580) (FRL-8876-6). Potentially affected entities may include, but are not limited to:

• Manufacturers (defined by statute to include importers) of one or more of the subject chemical substances (NAICS codes 325 and 324110), e.g., chemical manufacturing and petroleum refineries.

• Processors of one or more of the subject chemical substances (NAICS codes 325 and 324110), e.g., chemical manufacturing and petroleum refineries.

This listing is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. Other types of entities not listed in this unit could also be affected. The North American Industrial Classification System (NAICS) codes have been provided to assist you and others in determining whether this action might apply to certain entities. If you have any questions regarding the applicability of this action to a particular entity, consult either technical person listed under FOR FURTHER INFORMATION CONTACT.

This action may also affect certain entities through pre-existing import certification and export notification rules under TSCA. See Unit VI. of the October 21, 2011 proposed rule for export notification requirements.

EPA has established a docket for this action under docket ID number EPA-HQ-OPPT-2010-0520. All documents in the docket are listed in the docket index available at http://www.regulations.gov. Although listed in the index, some information is not publicly available, e.g., Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available electronically at http://www.regulations.gov, or, if only available in hard copy, at the OPPT Docket. The OPPT Docket is located in the EPA Docket Center (EPA/DC) at Rm. 3334, EPA West Bldg., 1301 Constitution Ave. NW., Washington, DC. The EPA/DC Public Reading Room hours of operation are 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number of the EPA/DC Public Reading Room is (202) 566-1744, and the telephone number for the OPPT Docket is (202) 566-0280. Docket visitors are required to show photographic identification, pass through a metal detector, and sign the EPA visitor log. All visitor bags are processed through an X-ray machine and subject to search. Visitors will be provided an EPA/DC badge that must be visible at all times in the building and returned upon departure.

In the Federal Register issue of October 21, 2011, EPA published a proposed test rule and SNUR to regulate 45 HPV chemical substances. EPA is proposing a test rule under TSCA section 4(a)(1)(B) for 23 of these 45 HPV chemical substances to require manufacturers, importers, and processors to conduct testing to obtain screening level data for health and environmental effects and chemical fate. EPA has preliminarily determined that: Each of the 23 HPV chemical substances included in that proposed rule is produced in substantial quantities and that there is or may be substantial human exposure to each of them; there are insufficient data to reasonably determine or predict the effects on health or the environment of the manufacture, distribution in commerce, processing, use, or disposal of the chemical substances or of any combination of these activities; and the testing program proposed is necessary to develop such data. Data developed under the proposed rule, when finalized, will provide critical information about the environmental fate and potential hazards associated with the subject chemical substances. When combined with information about exposure and uses, these data will allow the Agency and others to evaluate potential health and environmental risks and to take appropriate follow-up actions.

EPA is also proposing to establish significant new use reporting and recordkeeping under TSCA section 5(a)(2) for the other 22 HPV chemical substances that would require EPA notification prior to worker or consumer exposures rising to substantial levels. The SNUN allows EPA to evaluate the use according to the specific parameters and circumstances for that intended use and, if warranted, be able to regulate prospective manufacturers or processors of the chemical substance before the designated significant new uses of the chemical substance occur.

In response to the proposed rule, EPA received a request to present oral comment from the People for the Ethical Treatment of Animals (PETA). Written comments provided during the comment period for the proposed rule, including those requesting an opportunity for oral comment, are available and can be reviewed in the docket under docket ID number EPA-HQ-OPPT-2010-0520.

You may submit a request to participate in this meeting to either technical person listed under FOR FURTHER INFORMATION CONTACT. Do not submit any information in your request that is considered CBI.

Requests to participate in the meeting, identified by docket ID number EPA-HQ-OPPT-2010-0520, must be received on or before May 15, 2012.