[Federal Register Volume 62, Number 148 (Friday, August 1, 1997)]
[Rules and Regulations]
[Pages 41272-41274]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20037]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8727]
RIN 1545-AV23


Remedial Amendment Period

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations 
relating to the remedial amendment period, during which a sponsor of a 
qualified retirement plan or an employer that maintains a qualified 
retirement plan can make retroactive amendments to the plan to 
eliminate certain qualification defects for the entire period. These 
final and temporary regulations clarify the scope of the Commissioner's 
authority to provide relief from plan disqualification under the 
regulations, to enable the Commissioner to provide appropriate relief 
for plan amendments relating to changes to the plan qualification rules 
made in the Small Business Job Protection Act of 1996 and the Uruguay 
Round Agreements Act of 1994. These final and temporary regulations 
affect sponsors of qualified retirement plans, and employers that 
maintain qualified retirement plans. The text of the temporary 
regulations also serves as the text of the proposed regulations set 
forth in the notice of proposed rulemaking on this subject in the 
Proposed Rules section of this issue of the Federal Register.

DATES: These regulations are effective August 1, 1997.

FOR FURTHER INFORMATION CONTACT: Linda S. F. Marshall, (202) 622-6030 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under section 401(b). The temporary regulations provide 
guidance to clarify the scope of the Commissioner's authority to 
provide relief from plan disqualification under section 401(b) and the 
regulations. This guidance will enable the Commissioner to provide 
appropriate relief concerning the timing of plan amendments relating to 
changes to the plan qualification rules made in the Small Business Job 
Protection Act of 1996, Pub. L. No. 104-188, and the Uruguay Round 
Agreements Act of 1994, Pub. L. No. 103-465, as well as for other plan 
amendments that may be needed as a result of future changes to the 
Internal Revenue Code.

Explanation of Provisions

    Section 401(b) provides that a plan is considered to satisfy the 
qualification requirements of section 401(a) for the period beginning 
with the date on which it was put into effect, or for the period 
beginning with the earlier of the date on which any amendment that 
caused the plan to fail to satisfy those requirements was adopted or 
put into effect, and ending with the time prescribed by law for filing 
the employer's return for the taxable year in which that plan or 
amendment was adopted (including extensions) or such later time as the 
Secretary may designate. The relief provided under section 401(b) 
applies only if all provisions of the plan needed to satisfy the 
qualification requirements are in effect by the end of the specified 
period and have been made effective for all purposes for the entire 
period.
    Section 1.401(b)-1(b) lists the plan provisions that may be amended

[[Page 41273]]

retroactively pursuant to rules of section 401(b). These plan 
provisions, termed ``disqualifying provisions,'' include the plan 
provisions listed in section 401(b), as well as plan provisions that 
result in failure of a plan to satisfy the qualification requirements 
of the Code by reason of a change in those requirements effected by the 
legislation listed in Sec. 1.401(b)-1(b)(2)(i) and (ii). Under 
Sec. 1.401(b)-1(b)(2)(ii), a disqualifying provision also includes a 
plan provision that is integral to a qualification requirement changed 
by specified legislation. Section 1.401(b)-1(b)(2)(iii), as in effect 
prior to amendment by the final regulations, provided that a 
disqualifying provision includes a plan provision that results in 
failure of the plan to satisfy the Code's qualification requirements by 
reason of a change in those requirements effected by amendments to the 
Code, that is designated by the Commissioner, at the Commissioner's 
discretion, as a disqualifying provision.
    Former Sec. 1.401(b)-1(c), which has been redesignated 
Sec. 1.401(b)-1(d) under the final regulations, provides rules for 
determining the period for which the relief provided under section 
401(b) applies (the ``remedial amendment period''). Former 
Sec. 1.401(b)-1(c)(1) defines the beginning of the remedial amendment 
period for the disqualifying provisions listed in Sec. 1.401(b)-1(b)(1) 
and Sec. 1.401(b)-1(b)(2)(i) and (ii).
    The temporary regulations make certain changes to clarify the scope 
of the Commissioner's authority to provide relief from plan 
disqualification under section 401(b). These changes are needed to 
clarify the rules relating to the plan provisions that may be 
designated by the Commissioner as disqualifying provisions based on 
amendments to the plan qualification requirements of the Internal 
Revenue Code. Section 1.401(b)-1T(b)(3) provides that a disqualifying 
provision includes a plan provision designated by the Commissioner, at 
the Commissioner's discretion, as a disqualifying provision that either 
(1) results in the failure of the plan to satisfy the qualification 
requirements of the Code by reason of a change in those requirements; 
or (2) is integral to a qualification requirement of the Code that has 
been changed. Section 1.401(b)-1T(c)(2) provides the Commissioner with 
explicit authority to impose limits and provide additional rules 
regarding the amendments that may be made with respect to disqualifying 
provisions during the remedial amendment period. Section 1.401(b)-
1T(d)(1)(iv) and (v) provide conforming rules regarding the beginning 
of the remedial amendment period for disqualifying provisions described 
in Sec. 1.401(b)-1T(b)(3).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It also has been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
does not apply to these regulations and, because the regulation does 
not impose a collection of information on small entities, the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. 
Pursuant to section 7805(f) of the Internal Revenue Code, these 
temporary regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small business.

Drafting Information

    The principal author of these regulations is Linda S. F. Marshall, 
Office of the Associate Chief Counsel (Employee Benefits and Exempt 
Organizations). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
one entry for Sec. 1.401(b)-1 to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Sec. 1.401(b)-1 also issued under 26 U.S.C. 401(b). * * *


Sec. 1.401(b)-1  [Amended]

    Par. 2. Section 1.401(b)-1 is amended as follows:
    1. Paragraphs (c), (d) and (e) are redesignated as paragraphs (d), 
(e) and (f), respectively.
    2. Following newly redesignated paragraph (d)(2)(iv), the two 
undesignated paragraphs are designated as paragraphs (d)(3) and (d)(4), 
respectively.
    Par. 3. In the list below, for each section indicated in the left 
column, remove the language in the middle column, and add the language 
in the right column.

--------------------------------------------------------------------------------------------------------------------------------------------------------
              Section                                        Remove                                                       Add                           
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1.401(b)-1 (a), first sentence....  (c), (d) and (e)........................................  (d), (e) and (f).                                         
1.401(b)-1 (b)(1).................  Effective or............................................  Effective                                                 
1.401(b)-1 (d)(1)(ii).............  Earlier), or............................................  Earlier),                                                 
1.401(b)-1 (d)(1)(iii)............  Such provision..........................................  Such provision, or                                        
1.401(b)-1 (d)(2) introductory      Paragraph (d)...........................................  Paragraph (e).                                            
 text.                                                                                                                                                  
1.401(b)-1 (d)(3).................  (c)(2)(i), (c)(2)(ii), and (c)(2)(iii)..................  (d)(2)(i), (d)(2)(ii) and (d)(2)(iii).                    
1.401(b)-1 (d)(4).................  (c)(2)..................................................  (d)(2).                                                   
1.401(b)-1 (d)(4).................  (c)(2)(i)...............................................  (d)(2)(i).                                                
1.401(b)-1 (e)(1)(ii)(C), third     Paragraph (d)(1)........................................  Paragraph (e)(1).                                         
 sentence.                                                                                                                                              
1.401(b)-1 (e)(2)(ii)(C), third     Paragraph (d)(2)........................................  Paragraph (e)(2).                                         
 sentence.                                                                                                                                              
1.401(b)-1 (e)(3) introductory      This paragraph (d)......................................  This paragraph (e).                                       
 text.                                                                                                                                                  
1.401(b)-1 (e)(3) introductory      Which paragraph (d)(1) or (2)...........................  Which paragraph (e)(1) or (2).                            
 text.                                                                                                                                                  
1.401(b)-1 (e)(3) introductory      In paragraph (d)(1) or (2)..............................  In paragraph (e)(1) or (2).                               
 text.                                                                                                                                                  
1.401(b)-1 (e)(4).................  Paragraph (d)(3)........................................  Paragraph (e)(3).                                         
1.401(b)-1 (e)(4).................  Paragraph (c)...........................................  Paragraph (d).                                            
1.401(b)-1(e)(5) introductory text  Subdivisions (i), (ii) and (iii) of this subparagraph...  Paragraphs (e)(5)(i), (ii) and (iii) of this section.     
 1.401(b)-1 (e)(5) introductory     Paragraph (c)...........................................  Paragraph (d).                                            
 text.                                                                                                                                                  
1.401(b)-1 (e)(5)(iii)............  Paragraph (d)(5)(ii)....................................  Paragraph (e)(5)(ii).                                     
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 41274]]

    Par. 4. Section 1.401(b)-1 is further amended as follows:
    1. Paragraph (b)(2)(iii) is removed.
    2. Paragraphs (b)(3), (c) and (d)(1)(iv) are added. The additions 
read as follows:


Sec. 1.401(b)-1  Certain retroactive changes in plan.

* * * * *
    (b) * * *
    (3) A plan provision described in Sec. 1.401(b)-1T(b)(3).
    (c) Special rules applicable to disqualifying provisions. For 
special rules applicable to disqualifying provisions, see 
Sec. 1.401(b)-1T(c).
    (d) * * *
    (1) * * *
    (iv) In the case of a disqualifying provision described in 
Sec. 1.401(b)-1T(b)(3), the date described in Sec. 1.401(b)-
1T(d)(1)(iv) or (v), whichever applies to the disqualifying provision.
    Par. 5. Section 1.401(b)-1T is added to read as follows:


Sec. 1.401(b)-1T  Certain retroactive changes in plan (temporary).

    (a) [Reserved]. For further information, see Sec. 1.401(b)-1(a).
    (b) Disqualifying provisions. For purposes of Sec. 1.401(b)-1, with 
respect to a plan described in Sec. 1.401(b)-1(a), the term 
``disqualifying provision'' means:
    (1) and (2) [Reserved]. For further information, see Sec. 1.401(b)-
1(b) (1) and (2).
    (3) A plan provision designated by the Commissioner, at the
    Commissioner's discretion, as a disqualifying provision that 
either--
    (i) Results in the failure of the plan to satisfy the qualification 
requirements of the Code by reason of a change in those requirements; 
or
    (ii) Is integral to a qualification requirement of the Code that 
has been changed.
    (c) Special rules applicable to disqualifying provisions--
    (1) Absence of plan provision. For purposes of paragraph (b)(3) of 
this section and Sec. 1.401(b)-1(b)(2), a disqualifying provision 
includes the absence from a plan of a provision required by, or, if 
applicable, integral to the applicable change to the qualification 
requirements of the Internal Revenue Code, if the plan was in effect on 
the date the change became effective with respect to the plan.
    (2) Method of designating of disqualifying provisions. The 
Commissioner may designate a plan provision as a disqualifying 
provision pursuant to paragraph (b)(3) of this section only in revenue 
rulings, notices, and other guidance published in the Internal Revenue 
Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this chapter.
    (3) Authority to impose limitations. In the case of a provision 
that has been designated as a disqualifying provision by the 
Commissioner pursuant to paragraph (b)(3) of this section, the 
Commissioner may impose limits and provide additional rules regarding 
the amendments that may be made with respect to that disqualifying 
provision during the remedial amendment period. The Commissioner may 
impose these limits and provide these additional rules only in revenue 
rulings, notices, and other guidance published in the Internal Revenue 
Bulletin. See Sec. 601.601(d)(2)(ii)(b) of this chapter.
    (d) Remedial amendment period. (1) The remedial amendment period 
with respect to a disqualifying provision begins:
    (i) through (iii) [Reserved]. For further information, see 
Sec. 1.401(b)-1(d)(1) (i) through (iii).
    (iv) In the case of a disqualifying provision described in 
paragraph (b)(3)(i) of this section, the date on which the change 
effected by an amendment to the Internal Revenue Code became effective 
with respect to the plan, or
    (v) In the case of a disqualifying provision described in paragraph 
(b)(3)(ii) of this section, the first day on which the plan was 
operated in accordance with such provision, as amended, unless another 
time is specified by the Commissioner in revenue rulings, notices, and 
other guidance published in the Internal Revenue Bulletin. See 
Sec. 601.601(d)(2)(ii)(b) of this chapter.
    (2) [Reserved]

    Dated: July 22, 1997.
Michael P. Dolan,
Acting Commissioner of Internal Revenue.
[FR Doc. 97-20037 Filed 7-31-97; 8:45 am]
BILLING CODE 4830-01-U