[Federal Register Volume 63, Number 184 (Wednesday, September 23, 1998)]
[Proposed Rules]
[Pages 50819-50821]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25341]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 31

[REG-209769-95]
RIN 1545-AT56


Exception From Supplemental Annuity Tax on Railroad Employers

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations that provide 
guidance to employers covered by the Railroad Retirement Tax Act. The 
Railroad Retirement Tax Act imposes a supplemental tax on those 
employers, at a rate determined by the Railroad Retirement Board, to 
fund the Railroad Retirement Board's supplemental annuity benefit. 
These proposed regulations provide rules for applying the exception 
from the supplemental tax with respect to employees covered by a 
supplemental pension plan established pursuant to a collective 
bargaining agreement and for applying a related excise tax with respect 
to employees for whom the exception applies. This document also 
provides notice of a public hearing on these proposed regulations.

DATES: Comments must be received by December 22, 1998. Requests to 
speak and outlines of topics to be discussed at the public hearing 
scheduled for January 20, 1999, must be received by December 30, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209769-95), room 
5228, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-209769-95), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., 
Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or by submitting comments directly to the IRS 
Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in Room 2615, Internal 
Revenue Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Linda S. 
F. Marshall, (202) 622-6030; concerning submissions and the hearing, 
Michael Slaughter, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Employment Tax 
Regulations (26 CFR Part 31) under section 3221(d). These proposed 
regulations provide guidance regarding the section 3221(d) exception 
from the tax imposed under section 3221(c) with respect to employees 
covered by a supplemental pension plan of the employer established 
pursuant to an agreement reached through collective bargaining.
    Under the Railroad Retirement Act of 1974, as amended (RRA), an 
employee of a railroad employer generally is entitled to receive a 
supplemental annuity paid by the Railroad Retirement Board (RRB) at 
retirement. An employee is entitled to receive a supplemental annuity 
only if the employee has performed at least 25 years of service with 
the railroad industry, including service with the railroad industry 
before October 1, 1981. The monthly amount of the supplemental annuity 
ranges from $23 to $43, based on the employee's number of years of 
service. See 45 U.S.C. 231b(e). Under section 2(h)(2) of the RRA, an 
employee's supplemental annuity is reduced by the amount of payments 
received by the employee from any plan determined by the RRB to be a 
supplemental pension plan of the employer, to the extent those payments 
are derived from employer contributions.
    Section 3221(c) imposes a tax on each railroad employer to fund the 
supplemental annuity benefits payable by the Railroad Retirement Board. 
The tax imposed under section 3221(c) is

[[Page 50820]]

based on work-hours for which compensation is paid. The rate of tax 
under section 3221(c) is established by the RRB quarterly, and is 
calculated to generate sufficient tax revenue to fund the RRB's current 
supplemental annuity obligations.
    Under section 3221(d), the tax imposed by section 3221(c) does not 
apply to an employer with respect to employees who are covered by a 
supplemental pension plan established pursuant to an agreement reached 
through collective bargaining between the employer and employees. 
However, if an employee for whom the employer is relieved of any tax 
under the section 3221(d) exception becomes entitled to a supplemental 
annuity from the RRB, the employer is subject to an excise tax equal to 
the amount of the supplemental annuity paid to the employee (plus a 
percentage determined by the RRB to be sufficient to cover 
administrative costs attributable to those supplemental annuity 
payments).
    Section 3221(d) was enacted by Pub. L. 91-215, 84 Stat. 70, which 
amended the Railroad Retirement Act of 1937 and the Railroad Retirement 
Tax Act. The legislative history to Pub. L. 91-215 indicates that the 
exception under section 3221(d) from the tax imposed under section 
3221(c) was ``directed primarily at the situation existing on certain 
short-line railroads which are owned by the steel companies. The 
employees of these lines are, for the most part, covered by other 
supplemental pension plans established pursuant to collective 
bargaining agreements between the steel companies and the unions 
representing the majority of their employees. * * * [T]hese railroads 
will no longer be required to pay a tax to finance the supplemental 
annuity fund, but will be required to reimburse the Railroad Retirement 
Board for any supplemental annuities that their employees may be paid 
upon retirement.'' S. Rep. 91-650, 91st Cong., 2d Sess. 6 (February 3, 
1970).

Summary of Regulations

    These proposed regulations provide rules for determining whether a 
plan is a supplemental pension plan established pursuant to an 
agreement reached through collective bargaining. Under these proposed 
regulations, a plan is a supplemental pension plan only if the plan is 
a pension plan within the meaning of Sec. 1.401-1(b)(1)(i). Under this 
definition, a plan is a pension plan only if the plan is established 
and maintained primarily to provide systematically for the payment of 
definitely determinable benefits to employees over a period of years, 
usually for life, after retirement. Thus, for example, a plan generally 
is not a supplemental pension plan if distributions from the plan that 
are attributable to employer contributions may be made prior to a 
participant's death, disability, or termination of employment. See Rev. 
Rul. 74-254 (1974-1 C.B. 90); Rev. Rul. 56-693 (1956-2 C.B. 282).
    These proposed regulations also require that the RRB determine that 
a plan is a private pension under its regulations in order for the plan 
to be a supplemental pension plan under section 3221(d) and these 
proposed regulations. This requirement is included because the section 
3221(d) exception to the section 3221(c) tax is based on the assumption 
that any participant for whom the exception applies will receive a 
reduced supplemental annuity because of the supplemental pension plan 
on account of which the section 3221(c) tax is eliminated.
    The IRS requests comments regarding other appropriate requirements 
for a supplemental pension plan within the meaning of section 3221(d).
    These proposed regulations also provide rules for determining 
whether a plan is established by collective bargaining agreement with 
respect to an employer. These rules generally follow the rules 
applicable to qualified plans for this purpose.
    Section 3221(d) imposes an excise tax equal to the amount of the 
supplemental annuity paid to any employee with respect to whom the 
employer has been excepted from the section 3221(c) tax under the 
section 3221(d) exception. These proposed regulations include rules 
applying this excise tax under section 3221(d).

Proposed Effective Date

    These proposed regulations are proposed to be effective October 1, 
1998.

Special Analyses

    It has been determined that this notice of proposed rulemaking 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 these 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this 
notice of proposed rulemaking will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
(in the manner described under the ADDRESSES caption) to the IRS. All 
comments will be available for public inspection and copying.
    A public hearing has been scheduled for January 20, 1999, at 10 
a.m. in Room 2615, Internal Revenue Building, 1111 Constitution Avenue 
NW., Washington, DC. Because of access restrictions, visitors will not 
be admitted beyond the Internal Revenue Building lobby more than 15 
minutes before the hearing starts.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons that wish to present oral comments at the hearing must 
submit comments and an outline of topics to be discussed and the time 
to be devoted to each topic (in the manner described under the 
ADDRESSES caption of this preamble) by December 30, 1998.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

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 the Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 31

    Employment taxes, Fishing vessels, Gambling, Income taxes, 
Penalties, Pensions, Railroad retirement, Reporting and recordkeeping 
requirements, Social security, Unemployment compensation.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 31 is proposed to be amended as follows:

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME AT SOURCE

    Paragraph 1. The authority citation for part 31 continues to read 
in part as follows:

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


[[Page 50821]]


    Par. 2. Section 31.3221-4 is added under the undesignated 
centerheading ``Tax on Employers'' to read as follows:


Sec. 31.3221-4  Exception from supplemental tax.

    (a) General rule. Section 3221(d) provides an exception from the 
excise tax imposed by section 3221(c). Under this exception, the excise 
tax imposed by section 3221(c) does not apply to an employer with 
respect to employees who are covered by a supplemental pension plan, as 
defined in paragraph (b) of this section, that is established pursuant 
to an agreement reached through collective bargaining between the 
employer and employees, within the meaning of paragraph (c) of this 
section.
    (b) Definition of supplemental pension plan--(1) In general. A plan 
is a supplemental pension plan covered by the section 3221(d) exception 
described in paragraph (a) of this section only if it meets the 
requirements of paragraphs (b)(2) through (4) of this section.
    (2) Pension benefit requirement. A plan is a supplemental pension 
plan within the meaning of this paragraph (b) only if the plan is a 
pension plan within the meaning of Sec. 1.401-1(b)(1)(i) of this 
chapter. Thus, a plan is a supplemental pension plan only if the plan 
provides for the payment of definitely determinable benefits to 
employees over a period of years, usually for life, after retirement. A 
plan need not be funded through a qualified trust that meets the 
requirements of section 401(a) or an annuity contract that meets the 
requirements of section 403(a) in order to meet the requirements of 
this paragraph (b)(2). A plan that is a profit-sharing plan within the 
meaning of Sec. 1.401-1(b)(1)(ii) of this chapter or a stock bonus plan 
within the meaning of Sec. 1.401-1(b)(1)(iii) of this chapter is not a 
supplemental pension plan within the meaning of this paragraph (b).
    (3) Railroad Retirement Board determination with respect to the 
plan. A plan is a supplemental pension plan within the meaning of this 
paragraph (b) with respect to an employee only during any period for 
which the Railroad Retirement Board has made a determination under 20 
CFR 216.42(d) that the plan is a private pension, the payments from 
which will result in a reduction in the employee's supplemental annuity 
payable under 45 U.S.C. 231a(b). A plan is not a supplemental pension 
plan for any time period before the Railroad Retirement Board has made 
such a determination, or after that determination is no longer in 
force.
    (4) Other requirements. [Reserved]
    (c) Collective bargaining agreement. A plan is established pursuant 
to a collective bargaining agreement with respect to an employee only 
if, in accordance with the rules of Sec. 1.410(b)-6(d)(2) of this 
chapter, the employee is included in a unit of employees covered by an 
agreement that the Secretary of Labor finds to be a collective 
bargaining agreement between employee representatives and one or more 
employers, provided that there is evidence that retirement benefits 
were the subject of good faith bargaining between employee 
representatives and the employer or employers.
    (d) Substitute section 3221(d) excise tax. Section 3221(d) imposes 
an excise tax on any employer who has been excepted from the excise tax 
imposed under section 3221(c) by the application of section 3221(d) and 
paragraph (a) of this section with respect to an employee. The excise 
tax is equal to the amount of the supplemental annuity paid to that 
employee under section 2(b) of the Railroad Retirement Act of 1974 (88 
Stat. 1305), plus a percentage thereof determined by the Railroad 
Retirement Board to be sufficient to cover the administrative costs 
attributable to such payments under section 2(b) of that Act.
    (e) Effective date. This section is effective October 1, 1998.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 98-25341 Filed 9-22-98; 8:45 am]
BILLING CODE 4830-01-U