[Federal Register Volume 73, Number 118 (Wednesday, June 18, 2008)]
[Proposed Rules]
[Pages 34665-34670]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-13788]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-100464-08]
RIN 1545-BH50


Accrual Rules for Defined Benefit Plans

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 providing guidance 
on the application of the accrual rule for defined benefit plans under 
section 411(b)(1)(B) of the Internal Revenue Code (Code) in cases where 
plan benefits are determined on the basis of the greatest of two or 
more separate formulas. These regulations would affect sponsors, 
administrators, participants, and beneficiaries of defined benefit 
plans. This document also provides a notice of a public hearing on 
these proposed regulations.

DATES: Written or electronic comments must be received by September 16, 
2008. Outlines of topics to be discussed at the public hearing 
scheduled for October 15, 2008, at 10 a.m. must be received by 
September 24, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG 100464-08), room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG 
100464-08), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at http://www.regulations.gov (IRS REG-100464-08). 
The public hearing will be held in the IRS Auditorium, Internal Revenue 
Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Lauson C. 
Green or Linda S. F. Marshall at (202) 622-6090; concerning submissions 
of comments, the hearing, and/or being placed on the building access 
list to attend the hearing, Richard A. Hurst at 
[email protected] or at (202) 622-7180 (not toll-
free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed Income Tax Regulations (26 CFR part 
1) under section 411(b) of the Code.\1\
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    \1\ Section 204(b) of the Employee Retirement Income Security 
Act of 1974, Public Law 93-406 (88 Stat. 829), as amended (ERISA), 
sets forth rules that are parallel to those in section 411(b) of the 
Code. Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 
47713), the Secretary of the Treasury has interpretive jurisdiction 
over the subject matter addressed in these proposed regulations for 
purposes of ERISA, as well as the Code. Thus, these proposed 
Treasury regulations issued under section 411(b)(1)(B) of the Code 
would apply as well for purposes of section 204(b)(1)(B) of ERISA.
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    Section 401(a)(7) provides that a trust is not a qualified trust 
under section 401 unless the plan of which such trust is a part 
satisfies the requirements of section 411 (relating to minimum vesting 
standards).
    Section 411(a) requires a qualified plan to provide that an 
employee's right to the normal retirement benefit is nonforfeitable 
upon attainment of normal retirement age and that an employee's right 
to his or her accrued benefit is nonforfeitable upon completion of the 
specified number of years of service under one of the vesting schedules 
set forth in section 411(a)(2). Section 411(a)(7)(A)(i) defines a 
participant's accrued benefit under a defined benefit plan as the 
employee's accrued benefit determined under the plan, expressed in the 
form of an annual benefit commencing at normal retirement age, subject 
to an exception

[[Page 34666]]

in section 411(c)(3) under which the accrued benefit is the actuarial 
equivalent of the annual benefit commencing at normal retirement age in 
the case of a plan that does not express the accrued benefit as an 
annual benefit commencing at normal retirement age.
    Section 411(a) also requires that a defined benefit plan satisfy 
the requirements of section 411(b)(1). Section 411(b)(1) provides that 
a defined benefit plan must satisfy one of the three accrual rules of 
section 411(b)(1)(A), (B), and (C) with respect to benefits accruing 
under the plan. The three accrual rules are the 3 percent method of 
section 411(b)(1)(A), the 133\1/3\ percent rule of section 
411(b)(1)(B), and the fractional rule of section 411(b)(1)(C).
    Section 411(b)(1)(A) provides that a defined benefit plan satisfies 
the requirements of the 3 percent method if, under the plan, the 
accrued benefit payable upon the participant's separation from service 
is not less than (A) 3 percent of the normal retirement benefit to 
which the participant would be entitled if the participant commenced 
participation at the earliest possible entry age under the plan and 
served continuously until the earlier of age 65 or the normal 
retirement age under the plan, multiplied by (B) the number of years 
(not in excess of 33\1/3\ years) of his or her participation in the 
plan. Section 411(b)(1)(A) provides that, in the case of a plan 
providing retirement benefits based on compensation during any period, 
the normal retirement benefit to which a participant would be entitled 
is determined as if the participant continued to earn annually the 
average rate of compensation during consecutive years of service, not 
in excess of 10, for which his or her compensation was highest. Section 
411(b)(1)(A) also provides that Social Security benefits and all other 
relevant factors used to compute benefits are treated as remaining 
constant as of the current plan year for all years after the current 
year.
    Section 411(b)(1)(B) provides that a defined benefit plan satisfies 
the requirements of the 133\1/3\ percent rule for a particular plan 
year if, under the plan, the accrued benefit payable at the normal 
retirement age is equal to the normal retirement benefit, and the 
annual rate at which any individual who is or could be a participant 
can accrue the retirement benefits payable at normal retirement age 
under the plan for any later plan year is not more than 133\1/3\ 
percent of the annual rate at which the individual can accrue benefits 
for any plan year beginning on or after such particular plan year and 
before such later plan year.
    For purposes of applying the 133\1/3\ percent rule, section 
411(b)(1)(B)(i) provides that any amendment to the plan which is in 
effect for the current year is treated as in effect for all other plan 
years. Section 411(b)(1)(B)(ii) provides that any change in an accrual 
rate which does not apply to any individual who is or could be a 
participant in the current plan year is disregarded. Section 
411(b)(1)(B)(iii) provides that the fact that benefits under the plan 
may be payable to certain participants before normal retirement age is 
disregarded. Section 411(b)(1)(B)(iv) provides that Social Security 
benefits and all other relevant factors used to compute benefits are 
treated as remaining constant as of the current plan year for all years 
after the current year.
    Section 411(b)(1)(C) provides that a defined benefit plan satisfies 
the fractional rule if the accrued benefit to which any participant is 
entitled upon his or her separation from service is not less than a 
fraction of the annual benefit commencing at normal retirement age to 
which the participant would be entitled under the plan as in effect on 
the date of separation if the participant continued to earn annually 
until normal retirement age the same rate of compensation upon which 
the normal retirement benefit would be computed under the plan, 
determined as if the participant had attained normal retirement age on 
the date on which any such determination is made (but taking into 
account no more than 10 years of service immediately preceding 
separation from service). This fraction, which cannot exceed 1, has a 
numerator that is the total number of the participant's years of 
participation in the plan (as of the date of separation from service) 
and a denominator that is the total number of years the participant 
would have participated in the plan if the participant separated from 
service at normal retirement age. Section 411(b)(1)(C) also provides 
that Social Security benefits and all other relevant factors used to 
compute benefits are treated as remaining constant as of the current 
plan year for all years after the current year.
    Section 1.411(a)-7(a)(1) of the Income Tax Regulations provides 
that, for purposes of section 411 and the regulations under section 
411, the accrued benefit of a participant under a defined benefit plan 
is either (A) the accrued benefit determined under the plan if the plan 
provides for an accrued benefit in the form of an annual benefit 
commencing at normal retirement age, or (B) an annual benefit 
commencing at normal retirement age which is the actuarial equivalent 
(determined under section 411(c)(3) and Sec.  1.411(c)-1)) of the 
accrued benefit under the plan if the plan does not provide for an 
accrued benefit in the form of an annual benefit commencing at normal 
retirement age.
    Section 1.411(b)-1(a)(1) provides that a defined benefit plan is 
not a qualified plan unless the method provided by the plan for 
determining accrued benefits satisfies at least one of the alternative 
methods in Sec.  1.411(b)-1(b) for determining accrued benefits with 
respect to all active participants under the plan. The three 
alternative methods are the 3 percent method, the 133\1/3\ percent 
rule, and the fractional rule. A defined benefit plan may provide that 
accrued benefits for participants are determined under more than one 
plan formula. Section 1.411(b)-1(a)(1) provides that, in such a case, 
the accrued benefits under all such formulas must be aggregated in 
order to determine whether or not the accrued benefits under the plan 
for participants satisfy one of these methods. Under Sec.  1.411(b)-
1(a)(1), a plan may satisfy different methods with respect to different 
classifications of employees, or separately satisfy one method with 
respect to the accrued benefits for each such classification, provided 
that such classifications are not so structured as to evade the accrued 
benefit requirements of section 411(b) and Sec.  1.411(b)-1.
    Section 1.411(b)-1(b)(2)(i) provides that a defined benefit plan 
satisfies the 133\1/3\ percent rule for a particular plan year if (A) 
under the plan the accrued benefit payable at the normal retirement age 
(determined under the plan) is equal to the normal retirement benefit 
(determined under the plan), and (B) the annual rate at which any 
individual who is or could be a participant can accrue the retirement 
benefits payable at normal retirement age under the plan for any later 
plan year cannot be more than 133\1/3\ percent of the annual rate at 
which the participant can accrue benefits for any plan year beginning 
on or after such particular plan year and before such later plan year.
    Section 1.411(b)-1(b)(2)(ii)(A) through (D) sets forth a series of 
rules that correspond to the rules of section 411(b)(1)(B)(i) through 
(iv). For example, Sec.  1.411(b)-1(b)(2)(ii)(A) sets forth a special 
plan amendment rule for purposes of satisfying the 133\1/3\ percent 
rule that corresponds to section 411(b)(1)(B)(i). Under that rule, any 
amendment to a plan that is in effect for the current year is treated 
as if it were in effect for all other plan years.

[[Page 34667]]

    Section 1.411(b)-1(b)(2)(ii)(E) provides that a plan is not treated 
as failing to satisfy the requirements of Sec.  1.411(b)-1(b)(2) for a 
plan year merely because no benefits under the plan accrue to a 
participant who continues service with the employer after the 
participant has attained normal retirement age.\2\ Section 1.411(b)-
1(b)(2)(ii)(F) provides that a plan does not satisfy the requirements 
of Sec.  1.411(b)-1(b)(2) if the base for the computation of retirement 
benefits changes solely by reason of an increase in the number of years 
of participation.
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    \2\ However, section 411(b)(1)(H), which was added to the Code 
after the issuance of Sec.  1.411(b)-1, generally requires the 
continued accrual of benefits after attainment of normal retirement 
age.
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    Rev. Rul. 2008-7 (2008-7 IRB 419), see Sec.  601.601(d)(2)(ii)(b), 
describes the application of the accrual rules of section 411(b)(1)(A) 
through (C) and the regulations under section 411(b)(1)(A) through (C) 
to a defined benefit plan that was amended to change the plan's benefit 
formula from a traditional formula based on highest average 
compensation to a new lump sum-based benefit formula. Under the terms 
of the plan described in the revenue ruling, for an employee who was 
employed on the day before the change, a hypothetical account was 
established equal to the actuarial present value of the employee's 
accrued benefit as of that date, and that account was also to be 
credited with subsequent pay credits and interest credits. Under 
transition rules set forth in the plan, the accrued benefit of certain 
participants is the greater of the accrued benefit provided by the 
hypothetical account balance at the age 65 normal retirement age and 
the accrued benefit determined under the traditional formula as in 
effect on the day before the change, but taking into account post-
amendment compensation and service for a limited number of years.
    Revenue Ruling 2008-7 describes how the accrued benefits of 
different participant groups satisfy, or fail to satisfy, the accrual 
rules under section 411(b)(1)(A) through (C), taking into account the 
requirement in Sec.  1.411(b)-1(a)(1) that a plan that determines a 
participant's accrued benefits under more than one formula must 
aggregate the accrued benefits under all of those formulas in order to 
determine whether or not the accrued benefits under the plan satisfy 
one of the alternative methods under section 411(b)(1)(A) through (C). 
However, Revenue Ruling 2008-7 explains that, in the case of a plan 
amendment that replaces the benefit formula under the plan for all 
periods after the amendment, pursuant to section 411(b)(1)(B)(i) and 
Sec.  1.411(b)-1(b)(2)(ii)(A), the rule that would otherwise require 
aggregation of the multiple formulas does not apply. Under section 
411(b)(1)(B)(i) and Sec.  1.411(b)-1(b)(2)(ii)(A), any amendment to the 
plan which is in effect for the current plan year is treated as if it 
were in effect for all other plan years (including past and future plan 
years).
    Revenue Ruling 2008-7 illustrates the application of this rule with 
respect to participants who only accrue benefits under the new formula 
(who in the ruling are referred to as participants who are not 
``grandfathered''). For these participants, the plan amendment 
completely ceases accruals under a traditional pension benefit formula 
that provides an annuity at normal retirement age based on service and 
average pay and, for all periods after the amendment, provides for the 
greater of the section 411(d)(6) protected benefit under the pre-
amendment formula and the benefit under a new post-amendment lump sum-
based benefit formula. In such a case, as stated in Revenue Ruling 
2008-7, the section 411(d)(6) protected benefit under the pre-amendment 
formula is not aggregated with the post-amendment formula, but rather 
is entirely disregarded, for purposes of applying the 133\1/3\ percent 
rule because the new formula is treated under section 411(b)(1)(B)(i) 
and Sec.  1.411(b)-1(b)(2)(ii)(A) as having been in effect for all plan 
years. This analysis was reflected in Register v. PNC Fin. Servs. 
Group, Inc., 477 F.3d 56 (3d Cir. 2007).
    In addition to satisfying the requirements of section 411(b)(1)(B), 
a defined benefit plan must also satisfy the age discrimination rules 
of section 411(b)(1)(H), taking into account section 411(b)(5), as 
added to the Code by the Pension Protection Act of 2006, Pub. L. 109-
280 (120 Stat. 780) (PPA '06). In the case of a conversion of a plan to 
a statutory hybrid plan pursuant to an amendment that is adopted after 
June 29, 2005 (a ``post-PPA conversion plan''), the conversion 
amendment must satisfy the rule of section 411(b)(5)(B)(iii) that 
prohibits wearaway of benefits upon conversion. In the case of a plan 
converted to a statutory hybrid plan pursuant to an amendment that is 
adopted on or before June 29, 2005 (a ``pre-PPA conversion plan''), as 
provided in Notice 2007-6, the IRS will not consider and will not issue 
determination letters with respect to whether such a pre-PPA conversion 
plan satisfies the requirements of section 411(b)(1)(H) (as in effect 
prior to the addition of section 411(b)(5) by PPA '06), including the 
effect of any wearaway. Thus, although wearaway upon conversion is 
expressly prohibited with respect to post-PPA conversion plans pursuant 
to section 411(b)(5), the IRS will not address and will not issue 
determination letters with respect to whether a conversion that results 
in wearaway with respect to a pre-PPA conversion plan violates the age 
discrimination rules of section 411(b)(1)(H). See Sec.  
601.601(d)(2)(ii)(b).
    Revenue Ruling 2008-7 provides a different analysis as to whether a 
plan with wearaway fails to satisfy the accrual rules of section 
411(b)(1)(B) when the pre-amendment formula continues in place after 
the amendment for a group of participants. In such a case, where an 
amendment has gone into effect but continues the prior formula for some 
period of time with respect to one or more participants, the 
application of the rule in section 411(b)(1)(B)(i) and Sec.  1.411(b)-
1(b)(2)(ii)(A) does not result in a disregard of the prior plan formula 
(which remains in effect after the amendment). Instead, the 133\1/3\ 
percent rule must be applied with respect to those participants based 
on the combined effect of the two ongoing formulas.\3\
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    \3\ Two federal courts have taken a position contrary to this 
interpretation of section 411(b)(1)(B)(i) and Sec.  1.411(b)-
1(b)(2)(ii)(A) as set forth in Revenue Ruling 2008-7. See Tomlinson 
v. El Paso Corp., 2008 WL 762456 (D. Colo. Mar. 19, 2008); Wheeler 
v. Pension Value Plan for Employees of Boeing Corp., 2007 WL 2608875 
(S.D. Ill. Sept. 6, 2007).
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    Revenue Ruling 2008-7 provides relief from disqualification under 
the Internal Revenue Code (under the authority of section 7805(b)) for 
a limited class of plans under which a group of employees specified 
under the plan receives a benefit equal to the greatest of the benefits 
provided under two or more formulas (an applicable ``greater-of'' 
benefit), provided that each such formula standing alone would satisfy 
an accrual rule of section 411(b)(1)(A), (B), or (C) for the years 
involved. Under the relief set forth in Rev. Rul. 2008-7, for plan 
years beginning before January 1, 2009, the IRS will not treat a plan 
eligible for the relief as failing to satisfy the accrual rules of 
section 411(b)(1)(A), (B), and (C) solely because the plan provides an 
applicable ``greater-of'' benefit, where the separate formulas, 
standing alone, would satisfy an accrual rule of section 411(b)(1)(A), 
(B), and (C).

[[Page 34668]]

Explanation of Provisions

    The fact pattern described in Revenue Ruling 2008-7 has occurred in 
a number of situations over the past few years. Employers sponsoring 
these plans have suggested that their plans should satisfy the accrual 
rules of section 411(b)(1)(A), (B), and (C), contending that any 
technical violation of the accrual rules is directly because the 
participant has higher frontloaded accruals under one formula when 
compared to the other formula that will ultimately provide the larger 
benefit under the plan. While the relief under section 7805(b) that is 
provided under Revenue Ruling 2008-7 addresses the situation for past 
years, the relief does not apply for the parallel accrual rules of 
section 204(b)(1)(A), (B) and (C) of ERISA and only applies to plan 
years beginning before January 1, 2009.
    The proposed regulations would provide a limited exception to the 
existing requirement under Sec.  1.411(b)-1(a)(1) to aggregate the 
accrued benefits under all formulas in order to determine whether or 
not the accrued benefits under the plan for participants satisfy one of 
the alternative methods under section 411(b)(1)(A) through (C). Under 
this limited exception, certain plans that determine a participant's 
benefits as the greatest of the benefits determined under two or more 
separate formulas would be permitted to demonstrate satisfaction of the 
133\1/3\ percent rule of section 411(b)(1)(B) by demonstrating that 
each separate formula satisfies the 133\1/3\ percent rule of section 
411(b)(1)(B).\4\
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    \4\ These proposed regulations would only apply for purposes of 
the 133\1/3\ percent rule of section 411(b)(1)(B) (and the parallel 
rule of section 204(b)(1)(B) of ERISA). Neither Rev. Rul. 2008-7 nor 
these proposed regulations are relevant to (and thus they do not 
affect) the application of the age discrimination rules of section 
411(b)(1)(H) (or the parallel age discrimination rules of section 
204(b)(1)(H) of ERISA).
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    A plan would be eligible for this exception only if each of the 
separate formulas uses a different basis for determining benefits. For 
example, a plan would be eligible for this special rule if it provides 
a benefit equal to the greater of the benefits under two formulas, one 
of which determines benefits on the basis of highest average 
compensation and the other of which determines benefits on the basis of 
career average compensation. As another example, a traditional defined 
benefit plan which determined benefits based on highest average 
compensation that is amended to add a cash balance formula (as in the 
facts of Rev. Rul. 2008-7) would be eligible for this exception where, 
in order to provide a better transition for longer service active 
participants, the plan provides that a group of participants is 
entitled to the greater of the benefit provided by the hypothetical 
account balance and the benefit determined under the continuing 
traditional formula. In each of the above two examples, each separate 
formula under the plan uses a different basis for determining benefits 
and, therefore, both of those plans would be eligible to utilize this 
exception. Accordingly, both plans would be permitted to demonstrate 
satisfaction of the 133\1/3\ percent rule of section 411(b)(1)(B) by 
demonstrating that each separate formula under the plan satisfies the 
133\1/3\ percent rule of section 411(b)(1)(B).
    The utility of this exception can be seen from the following 
example of a plan that provides a benefit equal to the greater of two 
formulas. One formula provides a benefit of 1 percent of average 
compensation for the 3 consecutive years of service with the highest 
such average multiplied by the number of years of service at normal 
retirement age (not in excess of 25 years of service), and the other 
formula provides a benefit that is the accumulation of 1.5 percent of 
compensation for each year of service. Under the existing final 
regulations, the 133\1/3\ percent rule of section 411(b)(1)(B) is 
applied by reference to the annual rate of accrual for each year from 
the year of the test through normal retirement age. If the 
participant's accrued benefit currently is determined using the 1 
percent formula (because the high-3 average compensation is 
significantly higher than the effective career average compensation 
that is used under the 1.5 percent formula), but the participant's 
normal retirement benefit will ultimately be determined using the 1.5 
percent formula if service continues to normal retirement age (because 
the 25-year service cap will apply to the 1 percent formula, but not 
the 1.5 percent formula), then the annual rate of accrual will have to 
be determined for testing purposes on a consistent basis for each year, 
either using each year's compensation or high-3 average compensation. 
Thus, in order to test the plan under the 133\1/3\ percent rule, the 
existing final regulations would require that either the accruals under 
the 1 percent formula be expressed in terms of a single year's pay or 
the accruals under the 1.5 percent formula be expressed in terms of 
high-3 average compensation. In either case, the annual rates of 
accrual would differ from the stated rates under the plan formulas. In 
addition, the annual rates of accrual for the accumulation formula when 
those rates are expressed in terms of high-3 average compensation could 
be negative in some cases. In contrast, using the exception set forth 
in the proposed regulation would enable the plan to be tested using the 
annual rates of accrual expressed in the plan formulas.
    The proposed regulations would also provide an extension of this 
exception in the case of a plan that provides benefits based on the 
greatest of three or more benefit formulas. In such a case, the plan 
would be eligible for a modified version of the formula-by-formula 
testing under the proposed regulations. Under this modification, the 
accrued benefits determined under all benefit formulas that have the 
same basis are first aggregated and then those aggregated formulas are 
treated as a single formula for purposes of applying the separate 
testing rule under the proposed regulations.
    Eligibility for separate testing under the proposed regulations 
would be constrained by an anti-abuse rule. The proposed regulations 
would provide that a plan is not eligible for separate testing if the 
Commissioner determines that the plan's use of separate formulas with 
different bases is structured to evade the general requirement to 
aggregate formulas under Sec.  1.411(b)-1(a)(1) (for example, if the 
differences between the bases of the separate formulas are minor).

Proposed Effective/Applicability Date

    These regulations are proposed to be effective for plan years 
beginning on or after January 1, 2009.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations, and because 
the 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 Code, this regulation has 
been 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 written (a signed original and eight 
(8)

[[Page 34669]]

copies) or electronic comments that are submitted timely to the IRS. 
The IRS and the Treasury Department specifically request comments on 
the clarity of the proposed regulations and how they may be made easier 
to understand. All comments will be available for public inspection and 
copying.
    Under these proposed regulations, a plan eligible for the separate 
testing option would not violate the accrual rules merely because the 
plan provides higher frontloaded accruals under one formula when 
compared to the other formula that will ultimately provide the larger 
benefit under the plan. Some commentators have suggested a broader rule 
that would modify the regulations to provide that a plan does not 
violate the accrual rules where the plan provides a pattern of accruals 
that affords higher benefits in earlier years (that is, benefit 
accruals are frontloaded) relative to a pattern of accruals that 
satisfies the accrual rules. The 3 percent method of section 
411(b)(1)(A) and the fractional rule of section 411(b)(1)(C) 
automatically achieve this result because they are cumulative tests 
that test on the basis of the total accrued benefit compared to the 
projected normal retirement benefit. By contrast, the 133\1/3\ percent 
rule is based on a comparison of the ``annual rate at which any 
individual who is or could be a participant can accrue the retirement 
benefits payable at normal retirement age'' for a later plan year with 
the annual rate for an earlier plan year. The existing final 
regulations include an example (Sec.  1.411(b)-1(b)(2)(iii), Example 
(3)) that demonstrates how a plan fails the 133\1/3\ percent rule where 
it provides accruals in earlier years that are frontloaded relative to 
accruals that apply in later years. The proposed regulations do not 
include a provision under the 133\1/3\ percent rule that recognizes 
prior frontloading of benefits. However, commentators who would suggest 
such a provision under the 133\1/3\ percent rule should describe how 
that provision would fit within the statutory language of section 
411(b)(1)(B), including the application of section 411(b)(1)(B)(i) 
(which requires that an amendment to the plan that is in effect for the 
current year be treated as in effect for all other plan years).
    A public hearing has been scheduled for October 15, 2008, beginning 
at 10 a.m. in the Auditorium, Internal Revenue Service, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written or 
electronic comments by September 16, 2008, and an outline of topics to 
be discussed and the amount of time to be devoted to each topic (a 
signed original and eight (8) copies) by September 24, 2008. 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 authors of these regulations are Lauson C. Green and 
Linda S. F. Marshall, Office of Division Counsel/Associate Chief 
Counsel (Tax Exempt and Government Entities). However, other personnel 
from the IRS and the Treasury Department participated in the 
development of these regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

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

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

    Par. 2. Section 1.411(b)-1 is amended by adding new paragraph 
(b)(2)(ii)(G) to read as follows:


Sec.  1.411(b)-1  Accrued benefit requirements.

* * * * *
    (b) * * *
    (2) * * *
    (ii) * * *
    (G) Special rule for multiple formulas--(1) In general. 
Notwithstanding paragraph (a)(1) of this section, a plan that 
determines a participant's accrued benefit as the greatest of the 
benefits determined under two or more separate formulas is permitted, 
to the extent provided under this paragraph (b)(2)(ii)(G), to 
demonstrate satisfaction of section 411(b)(1)(B) and this paragraph (b) 
by demonstrating that each separate formula satisfies the requirements 
of section 411(b)(1)(B) and this paragraph (b).
    (2) Separate bases requirement. A plan is eligible for separate 
testing under this paragraph (b)(2)(ii)(G) if each of the separate 
formulas uses a different basis for determining benefits. For example, 
a plan is eligible for this special rule if it provides an accrued 
benefit equal to the greater of the benefits under two formulas, one of 
which determines accrued benefits on the basis of highest average 
compensation and the other of which determines accrued benefits on the 
basis of career average compensation. As another example, a defined 
benefit plan that bases benefits on highest average compensation and 
that is amended to add a statutory hybrid benefit formula (as defined 
in Sec.  1.411(a)(13)-1(d)(3)) that provides for pay credits to be made 
based on each year's compensation is eligible for this separate testing 
exception if the plan provides that one or more participants are 
entitled to the greater of the benefit determined under the statutory 
hybrid benefit formula and the benefit determined under the original 
formula.
    (3) Plans with three or more formulas. If a plan determines a 
participant's benefits as the greatest of the benefits determined under 
three or more separate formulas, but two or more of the formulas use 
the same basis for determining benefits, then the plan may nonetheless 
apply paragraphs (b)(2)(ii)(G)(1) and (2) of this section by 
aggregating all benefit formulas that have the same basis and treating 
those aggregated formulas as a single formula for purposes of 
paragraphs (b)(2)(ii)(G)(1) and (2) of this section.
    (4) Anti-abuse rule. A plan is not eligible for separate testing 
under this paragraph (b)(2)(ii)(G) if the Commissioner determines that 
the plan's use of separate formulas with different bases is structured 
to evade the requirement to aggregate formulas under paragraph (a)(1) 
of this section (for example, if the differences between the bases of 
the separate formulas are minor).
    (5) Effective/applicability date. This paragraph (b)(2)(ii)(G) is 
applicable for

[[Page 34670]]

plan years beginning on or after January 1, 2009.

Steven T. Miller,
Acting Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-13788 Filed 6-17-08; 8:45 am]
BILLING CODE 4830-01-P