[Federal Register Volume 74, Number 225 (Tuesday, November 24, 2009)]
[Rules and Regulations]
[Pages 61270-61277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28078]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 54

[TD 9472]
RIN 1545-BG48


Notice Requirements for Certain Pension Plan Amendments 
Significantly Reducing the Rate of Future Benefit Accrual

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation.

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SUMMARY: This document contains final regulations providing guidance 
relating to the application of the section 204(h) notice requirements 
to a pension plan amendment that is permitted to reduce benefits 
accrued before the plan amendment's applicable amendment date. These 
regulations also reflect certain amendments made to the section 204(h) 
notice requirements by the Pension Protection Act of 2006. These final 
regulations generally affect sponsors, administrators, participants, 
and beneficiaries of pension plans.

DATES: Effective date: These regulations are effective on November 24, 
2009.
    Applicability date: For dates of applicability of these 
regulations, see Q&A-18, Sec.  54.4980F-1 of these regulations.

FOR FURTHER INFORMATION CONTACT: Pamela R. Kinard at (202) 622-6060 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
were previously reviewed and approved by the Office of Management and 
Budget in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)) under control number 1545-1780, in conjunction with the 
Treasury decision (TD 9052), relating to Notice of Significant 
Reduction in the Rate of Future Benefit Accrual, published on April 9, 
2003 in the Federal Register (68 FR 17277). There are no proposals for 
substantive changes to this collection of information.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

Overview

    This document contains amendments to 26 CFR parts 1 and 54 under 
sections 411(d)(6) and 4980F of the Internal Revenue Code (Code). This 
Treasury decision amends Sec.  54.4980F-1 of the Treasury regulations 
to reflect changes made to section 4980F by the Pension Protection Act 
of 2006, Public Law 109-280 (120 Stat. 780) (PPA '06). In addition, 
this Treasury decision amends Sec.  1.411(d)-3 to reflect changes to 
section 411(d)(6) made by section 1107 of PPA '06.

Section 411(d)(6) Protected Benefits

    Section 401(a)(7) of the Code provides that a trust does not 
constitute a qualified trust unless the plan under which the trust is 
established and maintained satisfies the requirements of section 411 
(relating to minimum vesting standards). Section 411(d)(6)(A) and Sec.  
1.411(d)-3(a)(1) provide that a plan is treated as not satisfying the 
requirements of section 411 if the accrued benefit of a participant is 
decreased by an amendment of the plan, other than an amendment 
described in section 412(d)(2) (formerly section 412(c)(8)), section 
4281 of the Employee Retirement Income Security Act of 1974 (ERISA), as 
amended, or any other applicable law. Applicable law includes sections 
418D and 418E of the Code and section 1541(a)(2) of the Taxpayer Relief 
Act of 1997, Public Law 105-34 (111 Stat. 788, 1085). Section 204(g) of 
ERISA contains parallel rules to section 411(d)(6) of the Code.

Notice Requirements for Significant Reduction in the Rate of Future 
Benefit Accruals

    Section 4980F imposes an excise tax when a plan administrator fails 
to

[[Page 61271]]

provide timely notice of a plan amendment that provides for a 
significant reduction in the rate of future benefit accrual. For this 
purpose, the elimination or reduction of an early retirement benefit or 
retirement-type subsidy is treated as having the effect of reducing the 
rate of future benefit accrual. Section 4980F(e)(3) provides that, 
except as provided in regulations, the notice must be provided within a 
``reasonable time'' before the effective date of the plan amendment. 
Section 204(h) of ERISA contains parallel rules to section 4980F of the 
Code, and a notice required under section 4980F of the Code or section 
204(h) of ERISA is generally referred to as a ``section 204(h) 
notice.''
    The Secretary of the Treasury has interpretive authority over 
sections 411(d)(6) and 4980F of the Code as well as sections 204(g) and 
204(h) of ERISA, including the subject matter addressed in these 
regulations. See section 101(a) of Reorganization Plan No. 4 of 1978, 
29 U.S.C. 1001nt (under which the Secretary of the Treasury generally 
has the authority to issue regulations under parts 2 and 3 of subtitle 
B of title I of ERISA, including sections 204(g) and 204(h) of 
ERISA).\1\ Thus, these Treasury regulations under sections 411(d)(6) 
and 4980F of the Code also apply for purposes of sections 204(g) and 
204(h) of ERISA.
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    \1\ In addition, sections 204(g) and 204(h) of ERISA include 
provisions authorizing the Secretary of the Treasury to issue 
guidance with respect to specific issues.
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Provisions of the Pension Protection Act of 2006

    Section 402 of PPA '06 provides special funding rules for plans 
maintained by an employer that is a commercial passenger airline or the 
principal business of which is providing catering services to a 
commercial passenger airline. Section 402(h)(4) of PPA '06 provides 
that, in the case of a plan amendment adopted in order to comply with 
the rules in section 402 of PPA '06, any notice required under section 
4980F(e) of the Code (or section 204(h) of ERISA) must be provided 
within 15 days of the effective date of the plan amendment. Section 402 
of PPA '06 generally applies to amendments made pursuant to section 402 
of PPA '06 for plan years ending after the date of enactment of PPA '06 
(August 17, 2006).
    Section 502(c) of PPA '06 amended section 4980F(e)(1) of the Code 
(and section 204(h) of ERISA) to add a requirement that, if a section 
204(h) notice is required with respect to an amendment, any employer 
with an obligation to contribute to the plan receive a section 204(h) 
notice. This new disclosure requirement is effective for plan years 
beginning after December 31, 2007.
    Section 1107 of PPA '06 provides that any plan amendment made 
pursuant to a PPA '06 change may be retroactively effective and, except 
as provided by the Secretary of the Treasury, does not violate the 
anti-cutback rules of section 411(d)(6) of the Code (or section 204(g) 
of ERISA) if, in addition to satisfying the conditions specified in 
section 1107(b)(2) of PPA '06, the amendment is made on or before the 
last day of the first plan year beginning on or after January 1, 2009 
(January 1, 2011, with respect to governmental plans).

Notice Requirements Relating to Plan Amendments Affecting Previously 
Accrued Benefits

    In addition to the section 204(h) notice requirement, both the Code 
and ERISA include a number of other requirements to provide information 
to certain parties (such as participants, beneficiaries, and 
contributing employers) regarding the potential effect of a plan 
amendment that is permitted to reduce or eliminate previously accrued 
benefits.
    Section 412(d)(2) of the Code provides special rules relating to 
retroactive plan amendments. Rev. Proc. 94-42 (1994-1 CB 717), see 
Sec.  601.601(d)(2)(ii) (b), sets forth procedures under which a plan 
sponsor may file notice with and obtain approval from the Secretary of 
the Treasury for a retroactive amendment described in former section 
412(c)(8) (now section 412(d)(2)) that reduces prior accrued benefits. 
Section 4 of Rev. Proc. 94-42 provides guidance relating to the written 
notice that must be provided to affected parties (employee 
organizations, participants, beneficiaries, and alternate payees) 
regarding the application for approval of a retroactive plan amendment 
to reduce accrued benefits under section 412(d)(2).
    Section 113(a)(1)(B) of PPA '06 added Code section 436 which 
provides rules limiting benefits and benefit accruals for single-
employer plans with certain funding shortfalls.\2\ In general, these 
limits are based on a plan's adjusted funding target attainment 
percentage (AFTAP) \3\ and include limits on unpredictable contingent 
event benefits \4\ (where the plan's AFTAP is or would be below 60 
percent), certain plan amendments which would increase liabilities of 
the plan by reason of an increase in benefits (where the plan's AFTAP 
is or would be below 80 percent), and prohibited payments (where the 
plan's AFTAP is below 60 percent or is at least 60 percent but below 80 
percent, or during a period in which the plan sponsor is a debtor in a 
case under title 11 U.S.C. or similar federal or State law and the plan 
actuary has not certified that the plan's AFTAP is at least 100 percent 
for the plan year), and a cessation of benefit accruals (where the 
plan's AFTAP is below 60 percent).\5\
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    \2\ Section 103(a) of PPA '06 added section 206(g) of ERISA, the 
parallel provision to section 436 of the Code.
    \3\ For a definition of AFTAP, see section 436(j)(2).
    \4\ For a definition of unpredictable contingent event benefit, 
see section 436(b)(3).
    \5\ These provisions are reflected in sections 436(b)(1), 
(c)(1), (d)(1), (d)(2), and (d)(3), and (e)(1) (and the parallel 
provisions at sections 206(g)(1)(A), (g)(2)(A), (g)(3)(A), 
(g)(3)(B), and (g)(3)(C), and (g)(4)(A) of ERISA).
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    Section 101(j) of ERISA requires the plan administrator to provide 
a written notice to plan participants and beneficiaries, generally 
within 30 days after the plan becomes subject to the benefit 
limitations in section 206(g)(1), (3), or (4) of ERISA (which are 
parallel to the benefit limitations in Code section 436(b), (d), or 
(e)) relating to unpredictable contingent event benefits, prohibited 
payments, and cessation of benefit accruals. Section 101(c)(1)(A)(ii) 
of the Worker, Retiree, and Employer Recovery Act of 2008, Public Law 
110-458 (122 Stat. 5092) (WRERA), amended section 101(j) of ERISA to 
authorize the Secretary of the Treasury, in consultation with the 
Secretary of Labor, to prescribe rules applicable to the notice 
requirements under section 101(j) of ERISA.
    Section 418D of the Code (and the parallel provision at section 
4244A of ERISA) provides that a multiemployer plan in reorganization is 
permitted to adopt an amendment reducing or eliminating accrued 
benefits attributable to employer contributions under the plan. Under 
section 418D(b), an amendment is not permitted to reduce or eliminate 
benefits unless notice is given to plan participants, beneficiaries, 
and other affected persons at least 6 months before the first day of 
the plan year in which the amendment reducing benefits is adopted. The 
notice must include certain information, including an explanation of 
the rights and remedies of participants and beneficiaries under the 
plan and notification that, if contributions under the plan are not 
increased, accrued benefits under the plan for certain participants and 
beneficiaries will be

[[Page 61272]]

reduced or an excise tax will be imposed on contributing employers.
    Section 418E of the Code (and the parallel provision at section 
4245 of ERISA) provides rules relating to suspension of benefits under 
an insolvent multiemployer plan. If payments of basic benefits under 
the plan exceed the resource benefit level or the level of basic 
benefits of the plan for the plan year, the payment of benefits must be 
suspended to the extent necessary to reduce such payments to the 
greater of the resource benefit level of the plan or the level of basic 
benefits. Section 418E of the Code provides that plans in 
reorganization that may become insolvent must provide notice to the 
Pension Benefit Guaranty Corporation (PBGC), contributing employers, 
employee organizations, plan participants, and beneficiaries that, 
certain non-basic benefit payments will be suspended if insolvency 
occurs.
    Section 4281 of ERISA provides rules relating to the reduction of 
benefits or the suspension of benefit payments under certain terminated 
multiemployer plans. Section 4281(c) of ERISA provides that, if the 
value of nonforfeitable benefits under a terminated plan exceeds the 
value of a plan's assets, the plan must be amended to reduce benefits 
under the plan to the extent necessary to ensure that the plan's assets 
are sufficient to meet its obligations. The regulations at 29 CFR 
4281.32 provide that a plan sponsor must notify the PBGC and plan 
participants and beneficiaries of a plan amendment reducing benefits 
pursuant to section 4281(c) of ERISA.
    Section 212(a) of PPA '06 added section 432 of the Code (and 
section 202(a) of PPA '06 added the parallel provision at section 305 
of ERISA), which provides rules relating to multiemployer plans that 
are in endangered or critical status. Under certain circumstances, a 
plan may adopt a plan amendment that reduces previously accrued 
benefits. Section 432(b)(3)(D) of the Code provides that, within 30 
days after a certification by a plan actuary that a plan is in 
endangered or critical status, the plan sponsor must notify plan 
participants and beneficiaries, the bargaining parties, the PBGC, and 
the Secretary of Labor of the plan's endangered or critical status. If 
the plan is certified to be in critical status, the notice must provide 
an explanation of the possibility that (1) adjustable benefits may be 
reduced and (2) such reductions may apply to participants and 
beneficiaries whose benefit commencement date is on or after the date 
the notice is provided for the first plan year in which the plan is in 
critical status. Adjustable benefits, defined in section 
432(e)(8)(A)(iv), include certain section 411(d)(6) protected benefits 
such as early retirement benefits and retirement-type subsidies.
    Section 432(e)(8)(C) requires a plan to provide notice of a plan 
amendment reducing adjustable benefits to affected parties (including 
plan participants, beneficiaries, and contributing employers) at least 
30 days before the general effective date of the reduction. The notice 
must include information that is sufficient for participants and 
beneficiaries to understand the effect of any reduction on their 
benefits, a description of the possible rights and remedies of plan 
participants and beneficiaries, and information on how to contact the 
Department of Labor and the PBGC. See sections 102(b)(1)(C), 
102(b)(1)(E)(iv), 102(b)(2)(B), 102(b)(2)(D)(iv)(III), and 
102(b)(2)(D)(iv)(IV) of WRERA for provisions authorizing the Secretary 
of the Treasury, in consultation with the Secretary of Labor, to issue 
guidance relating to the notice requirements in section 305(b)(3)(D) of 
ERISA (and the parallel provision at section 432(b)(3)(D) of the Code) 
and section 305(e)(8)(C)(iii) of ERISA (and the parallel provision at 
section 432(e)(8)(C) of the Code).
    Section 432(f)(2) of the Code also restricts a plan from making 
certain accelerated benefit payments, effective on the date a notice of 
certification of a multiemployer plan's critical status is provided, 
which include single sum distributions. On March 18, 2008, proposed 
regulations (REG-151135-07) under section 432 of the Code (432 proposed 
regulations) were published in the Federal Register (73 FR 14417). 
Under Sec.  1.432(b)-1(e)(2) of the 432 proposed regulations, if a plan 
in critical status provides benefits that are restricted under section 
432(f)(2), then the notice of critical status described in section 
432(b)(3)(D) must include an explanation that the plan cannot pay such 
restricted benefits, to the extent the benefits exceed the monthly 
amount paid under a single life annuity (plus social security 
supplements described in section 411(a)(9)).
    On March 21, 2008, proposed regulations (REG-110136-07) under 
sections 411(d)(6) and 4980F of the Code (2008 proposed regulations) 
were published in the Federal Register (73 FR 15101). On July 10, 2008, 
the IRS held a public hearing on the 2008 proposed regulations. Written 
comments responding to the notice of proposed rulemaking were also 
received. After consideration of the comments, the proposed regulations 
are adopted, as amended by this Treasury decision. The revisions are 
discussed in this preamble.

Summary of Comments and Explanation of Revisions

PPA '06 Revisions to Section 204(h) Notice Requirements

    This Treasury decision amends the regulations under section 4980F 
of the Code to reflect provisions in PPA '06. Section 502(c) of PPA '06 
amended section 204(h) of ERISA and section 4980F of the Code to 
require that section 204(h) notice be provided to any employer that has 
an obligation to contribute to the plan. A contributing employer is 
defined in the regulations as an employer that has an obligation to 
contribute to a plan (within the meaning of section 4212(a) of ERISA). 
A commentator suggested that the final regulations clarify that the 
requirement that section 204(h) notice be given to contributing 
employers applies only to employers in a multiemployer plan, not to 
employers in a single employer plan. These regulations include this 
suggestion.
    These final regulations retain from the proposed regulations a 
special timing rule to reflect section 402 of PPA '06. Section 402 of 
PPA '06 provides special funding rules for plans maintained by an 
employer that is a commercial passenger airline or the principal 
business of which is providing catering services to a commercial 
passenger airline. Section 402(h)(4) of PPA '06 provides that, in the 
case of a plan amendment adopted in order to comply with the rules in 
section 402 of PPA '06, any notice required under section 4980F(e) of 
the Code (or section 204(h) of ERISA) must be provided within 15 days 
of the effective date of the plan amendment. The proposed regulations 
provided that, for certain plans maintained by an employer that is a 
commercial passenger airline or the principal business of which is 
providing catering services to a commercial passenger airline, section 
204(h) notice must be provided at least 15 days before the effective 
date of the amendment. This is consistent with the Joint Committee on 
Taxation's Technical Explanation to section 402 of PPA '06 which states 
that the section 204(h) notice ``allows the notice to be provided at 
least 15 days before the effective date of the plan amendment.'' \6\ No 
comments were received on this proposed rule and the final regulations

[[Page 61273]]

retain the rule from the proposed regulations.
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    \6\ See Joint Committee on Taxation, Technical Explanation of 
H.R. 4, the ``Pension Protection Act of 2006'' (JCX-38-06), August 
3, 2006, 109th Cong., 2nd Sess. 87 (2006) at 87.
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Plan Amendments Reflecting a Change in Statutorily Mandated Minimum 
Present Value Rules

    Section 417(e)(3) of the Code provides that, in distributing the 
present value of an accrued benefit to a plan participant, the present 
value of the benefit is not permitted to be less than the present value 
calculated using the applicable mortality table and the applicable 
interest rate under section 417(e)(3). Section 302(b) of PPA '06 
amended section 417(e)(3) of the Code to provide new actuarial 
assumptions for calculating the minimum present value of a 
participant's accrued benefit. Plan sponsors have asked whether a plan 
amendment to reflect the change in these section 417(e)(3) actuarial 
assumptions would trigger the requirement to provide a section 204(h) 
notice. Revenue Ruling 2007-67 (2007-2 CB 1047), see Sec.  
601.601(d)(2)(ii)(b), which includes guidance on plan amendments 
regarding the new applicable mortality table and applicable interest 
rate under section 417(e)(3), states that certain amendments to reflect 
the new applicable mortality table and applicable interest rate for 
distributions with an annuity starting date in 2008 or later would not 
violate the anti-cutback rules of section 411(d)(6). The final 
regulations retain the rule in the 2008 proposed regulations that no 
section 204(h) notice is required if a defined benefit plan is amended 
to reflect changes to the applicable interest or mortality assumptions 
in section 417(e)(3) made by PPA '06. For example, a reduced single-sum 
distribution resulting from an amendment to a traditional defined 
benefit plan that timely substitutes the prescribed actuarial 
assumptions under section 417(e)(3), as amended by PPA '06, for the 
pre-PPA '06 actuarial assumptions under section 417(e)(3) does not 
require a section 204(h) notice.

Interaction of the Section 204(h) Notice Timing Rules With Plan 
Amendments That Have a Retroactive Effective Date

    Section 1.411(d)-3(a)(1) of the current Treasury regulations 
generally provides that a plan is not a qualified plan if a plan 
amendment decreases the accrued benefit of any plan participant. These 
rules are generally based on the ``applicable amendment date,'' which 
is defined in Sec.  1.411(d)-3(g)(4) as the later of the effective date 
of the amendment or the date the amendment is adopted. While Sec.  
1.411(d)-3(a)(1) generally prohibits a plan amendment that reduces 
benefits accrued before the applicable amendment date, a number of 
statutory exceptions apply. These exceptions include amendments 
permitted under sections 412(d)(2), 418D, and 418E of the Code, section 
4281 of ERISA, and section 1107 of PPA '06. The prior regulations under 
section 411(d)(6) of the Code listed these exceptions, other than the 
exception under section 1107 of PPA '06. The final regulations provide 
a conforming amendment to Sec.  1.411(d)-3(a)(1) to include section 
1107 of PPA '06 as a statutory exception to the general anti-cutback 
rule in section 411(d)(6) of the Code.
    In the case of an amendment that is permitted to be adopted 
retroactively, the proposed regulations stated that the effective date 
of the amendment, for purposes of section 4980F, is the date the 
amendment is put into effect on an operational basis under the plan, so 
that a section 204(h) notice must generally be provided at least 45 
days before the date the amendment is put into effect on an operational 
basis (15 days for multiemployer plans).
    A commentator suggested that the final regulations clarify that 
there is no specific time limit on how far in advance of the effective 
date of a section 204(h) amendment \7\ a section 204(h) notice may be 
provided. The commentator argued that while the notice requirements 
under section 4980F only restrict how late a notice can be provided, 
other notice requirements, such as the notice required under section 
417(a)(6), provide a timeframe in which the notice must be provided. 
The commentator argued that notification far in advance of the 
effective date should be permitted on the grounds that notice any time 
in advance of the effective date would satisfy the statute, and would 
provide a practical solution to the administrative challenges of 
providing notice for a large plan with many contributing employers and 
with a variety of different amendment effective dates. No change has 
been made to the proposed regulations to reflect these comments.
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    \7\ A section 204(h) amendment is defined in Q&A-4(b) of Sec.  
54.4980F-1 of the Treasury regulations as an amendment for which 
section 204(h) notice is required.
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    Another commentator requested clarification on whether section 
204(h) notice is required in the case of a plan amendment that is 
permitted to reduce prior benefit accruals. The commentator cited to 
Q&A-7(b) of Sec.  54.4980F-1, which provides that any section 411(d)(6) 
protected benefit that may be eliminated or reduced as permitted under 
Sec.  1.411(d)-3 or Sec.  1.411(d)-4, Q&A-2(a) or (b), is not taken 
into account in determining whether an amendment is a section 204(h) 
amendment. This cross-reference to Sec.  1.411(d)-3 was added to the 
regulations in 2005 with the intent to address amendments that reduce 
or eliminate benefits or subsidies that create significant burdens or 
complexities for the plan and plan participants unless the amendment 
adversely affects the rights of any participant in more than a de 
minimis manner, not to address amendments implementing changes in 
applicable law. Similarly, the cross-reference to Sec.  1.411(d)-4, 
Q&A-2(a) or (b) was not intended to apply to amendments implementing 
future changes in applicable law. In order to reflect this intent, the 
final regulations revise the cross-references in Q&A-7(b) to provide 
that any plan amendment that is permitted to eliminate or reduce a 
section 411(d)(6) protected benefit under Sec.  1.411(d)-3(c), (d), or 
(f), or under Sec.  1.411(d)-4, Q&A-2(a)(2), (a)(3), (b)(1), or 
(b)(2)(ii) through (b)(2)(xi), is not an amendment for which section 
204(h) notice is required.
    The final regulations retain a special transitional rule which 
provides that, in the case of an amendment that is permitted to reduce 
benefit accruals and is made to a plan that is a statutory hybrid to 
which section 411(a)(13)(C) applies, a section 204(h) notice must be 
provided at least 30 days before the amendment is effective. No 
commentators objected to this rule in the proposed regulations. 
Accordingly, the final regulations provide that for any section 204(h) 
notice that is required to be provided in connection with an amendment 
to a statutory hybrid plan under section 411(a)(13)(C) that is first 
effective before January 1, 2009, and that limits the amount of a 
distribution to the account balance as permitted under section 
411(a)(13)(A), section 204(h) notice does not fail to be timely if the 
notice is provided at least 30 days before the date the amendment is 
first effective. This special timing rule reflects the 30-day timing 
rule described in Notice 2007-6 (2007-3 CB 272), see Sec.  
601.601(d)(2)(ii)(b), which provides transitional guidance on the 
requirements of sections 411(a)(13) and 411(b)(5).\8\ The final 
regulations, like the

[[Page 61274]]

proposed regulations, permit the use of this transitional timing rule 
through the end of 2008. Thereafter, the general 45-day timing rule 
applies to such amendments.
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    \8\ Section B.4 of Notice 2007-6 provides that, in the case of a 
plan amendment that is permitted to reduce benefit accruals, a 
section 204(h) notice must be provided at least 30 days before the 
amendment is effective. This rule would require the notice to be 
provided at least 30 days before the earliest date on which the plan 
is operated in accordance with the amendment.
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Interaction of Section 204(h) Notice Requirements With Other Notice 
Requirements Relating to Plan Amendments

    As stated in the background portion of this preamble, the Code and 
ERISA include a number of other notice requirements relating to plan 
amendments that are permitted to reduce or eliminate accrued benefits. 
To eliminate the need for a plan to provide multiple notices at 
different dates and with substantially the same function and 
information to affected persons, the proposed regulations stated that, 
with respect to an amendment that triggers a section 204(h) notice 
requirement as well as another statutory notice requirement, if a plan 
provides the latter notice in accordance with the applicable standards 
for such a notice, the plan is treated as having timely complied with 
the requirement to provide a section 204(h) notice with respect to the 
section 204(h) amendment. Under the proposed regulations, this 
treatment would apply to the following notices:
     A notice required under Rev. Proc. 94-42 relating to 
retroactive plan amendments that reduce accrued benefits described in 
section 412(d)(2) of the Code;
     A notice required under section 101(j) of ERISA if an 
amendment is adopted to comply with the benefit limitation requirements 
of section 436 of the Code (section 206(g) of ERISA);
     A notice required under section 418D of the Code (section 
4244A(b) of ERISA) for an amendment that reduces or eliminates accrued 
benefits attributable to employer contributions with respect to a 
multiemployer plan in reorganization;
     A notice required under section 418E of the Code (section 
4245(e) of ERISA), relating to the effects of the insolvency status for 
a multiemployer plan; and
     A notice required under section 4281 of ERISA and 29 CFR 
4281.32 for an amendment of a multiemployer plan reducing benefits 
pursuant to section 4281(c) of ERISA.
    In general, commentators did not object to this treatment under the 
2008 proposed regulations. However, some commentators argued that the 
regulations should not apply the excise tax under section 4980F of the 
Code if the plan were to fail to satisfy the requirements of the other 
applicable notice. For example, a commentator suggested that if the 
notice requirements under section 101(j) of ERISA are not satisfied for 
an amendment adopted to comply with section 436 of the Code (or section 
206(g) of ERISA), the plan should still be treated as having provided 
section 204(h) notice even though participants receive no notice of the 
amendment. However, there is no statutory basis for this suggestion, 
and the final regulations do not make this change. Thus, in any case in 
which notice is required to be given under section 101(j) of ERISA and, 
in addition, section 204(h) notice is required for the related plan 
amendment under section 4980F of the Code (and section 204(h) of 
ERISA), the plan sponsor either could provide two notices--at the times 
and in the manner required under each such section--or could provide a 
notice under section 101(j) of ERISA at the time and in the manner 
required under section 101(j). In this respect, providing section 
101(j) notice constitutes a safe harbor for purposes of any requirement 
to provide section 204(h) notice. However, in general (and depending on 
the facts and circumstances), the failure to provide notice under both 
section 101(j) of ERISA and section 4980F of the Code (and section 
204(h)) of ERISA), where required, would violate section 101(j) of 
ERISA and, separately, Code section 4980F (as well as section 204(h) of 
ERISA).
    With respect to amendments made in order to comply with the benefit 
limitations provided by section 436 of the Code, some commentators 
asked that the rules in the final regulations be clarified to provide 
explicitly that a plan that is never required to provide a notice under 
ERISA section 101(j) (or is not required to do so for a long period of 
time) is not treated as failing to satisfy ERISA section 204(h) or Code 
section 4980F. Commentators asserted that this should be the case even 
though a section 204(h) notice was not sent when the plan adopted 
general conditional language authorizing the benefit restrictions to 
become effective if and when required. Under the standards set forth in 
the existing regulations at Sec.  54.4980F-1, A-5(a) and A-6, whether 
an amendment to comply with section 436 requires section 204(h) notice 
depends on whether it is reasonably expected that the amendment will 
result in a reduction, taking into account facts and circumstances at 
the time of the amendment (in either the rate of future benefit accrual 
or early retirement benefits or retirement-type subsidies) and, if so, 
whether such reduction will be significant. A plan would still be 
required to provide notice under section 101(j) of ERISA when a benefit 
limitation is triggered under the rules of section 436 of the Code. The 
provision in these final regulations under which providing timely 
section 101(j) notice satisfies any section 204(h) notice requirement 
for a section 436 amendment has the effect of mooting questions such as 
when and whether an amendment to comply with section 436 requires 
section 204(h) notice. Accordingly, no special rules have been adopted 
to address these comments.
    A conforming change was made to Q&A-8 of the regulation for plan 
amendments with retroactive effective dates. The final regulations 
provide that whether an amendment reducing the rate of future benefit 
accrual provides for a reduction that is significant is determined 
based on reasonable expectations taking into account the relevant facts 
and circumstances at the time the amendment is adopted, or earlier, at 
the time of the effective date of the amendment.
    As stated earlier, a plan is treated as having timely complied with 
the requirements to provide a section 204(h) notice if the plan 
satisfies the requirements for providing one of the notices listed 
earlier in this section. Note that this special treatment does not 
apply if a plan is amended to implement benefit reductions independent 
of the reductions permitted under the relevant notice requirement. 
Thus, if a plan that is subject to the requirements of section 436 of 
the Code (section 206(g) of ERISA) is amended to cease all benefit 
accruals independent of the amendment implementing the limitations 
required under section 436(e) (section 206(g)(4) of ERISA) (for 
example, an amendment implementing a permanent cessation of benefit 
accruals), the section 204(h) notice is required if the plan amendment 
provides for a significant reduction in the rate of future benefit 
accrual (treating elimination or reduction of an early retirement 
benefit or retirement-type subsidy as a reduction in the rate of future 
benefit accrual). A section 101(j) notice, however, is not required to 
be provided as a result of such an independent plan amendment.

Timing and Content Rules for Multiemployer Plans in Critical Status

    Section 432 of the Code, relating to multiemployer plans that are 
in endangered or critical status (as defined in section 432(b)), 
permits a plan amendment to be adopted that reduces prior accruals 
under certain

[[Page 61275]]

circumstances. With respect to any such amendment for a plan that is in 
critical status, section 432(e)(8)(C) requires that notice be provided 
to participants, beneficiaries, contributing employers, and certain 
employee organizations of any reduction in adjustable benefits. The 
2008 proposed regulations included a rule under which the timing and 
content of a notice under 432(e)(8)(C) also satisfies the timing and 
content requirements for a section 204(h) notice. As a result, under 
the proposed regulations, any notice for a multiemployer plan in 
critical status that satisfies the timing and content requirements 
under section 432(e)(8)(C) would satisfy the timing and content 
requirements of a section 204(h) notice. Currently, the IRS and the 
Treasury Department are establishing requirements for a notice required 
under section 432(e)(8)(C), including the content requirements. The 
interaction of the section 432(e)(8)(C) notice with the requirements 
for a section 204(h) notice will be addressed as part of the section 
432 regulation project.
    The final regulations add the notice required under section 
432(b)(3)(D) to the list of similarly situated benefit reduction 
notices discussed in the preamble to these regulations under the 
heading, ``Interaction of the Section 204(h) Notice Requirements with 
Other Notice Requirements Relating to Plan Amendments.'' As mentioned 
in the background section of the preamble to these regulations, section 
432(b)(3)(D) generally requires notice to plan participants and 
beneficiaries, within 30 days after a plan receives its annual 
certification, on whether the plan is in endangered or critical status. 
If the plan is in critical status, section 432(b)(3)(D) provides that 
the notice must provide certain information to participants and 
beneficiaries, including the possibility that adjustable benefits may 
be reduced and a description of who might be subject to the reductions. 
Section 432(f)(2)(A) generally states that, effective on the date that 
notice is provided that a plan is in critical status, the plan must not 
pay any payment in excess of the monthly amount paid under a single-
life annuity (notwithstanding the anti-cutback rule in section 
411(d)(6)). Thus, the payment of single-sum distributions would not be 
permitted under section 432(f)(2)(A) after a plan provides notification 
that the plan is in critical status. The final regulations provide that 
if a plan provides the notice under section 432(b)(3)(D) in accordance 
with the applicable timing and content standards for such a notice with 
respect to an amendment, the plan is treated as having complied with 
any requirement to provide a section 204(h) notice with respect to the 
amendment.

Delegation of Authority to the Commissioner

    Like the 2008 proposed regulations, these final regulations 
delegate authority to the Commissioner of the Internal Revenue Service 
to publish revenue rulings, notices, or other guidance published in the 
Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter) under section 4980F of the Code (which would also apply to 
section 204(h) of ERISA) that the Commissioner determines to be 
necessary or appropriate for a section 204(h) amendment that applies 
with respect to benefits accrued before the applicable amendment date 
but that does not violate section 411(d)(6) of the Code. This 
delegation of authority provides the Commissioner with greater 
flexibility to develop special rules to address special circumstances 
in the future, such as future statutory changes. This delegation of 
authority also extends to circumstances in which a section 204(h) 
amendment may require another notice in addition to a section 204(h) 
notice, as long as the amendment is permitted to reduce accrued 
benefits, regardless of whether that amendment actually reduces 
benefits accrued before the adoption date of the amendment. This 
delegation would permit the Commissioner to treat plans providing other 
notices with timing and content requirements similar to a section 
204(h) notice as having complied with the requirement to provide a 
section 204(h) notice.

Effective/Applicability Dates

    These rules in these final regulations are generally applicable to 
section 204(h) amendments that are effective on or after January 1, 
2008. With respect to the timing rules on providing a section 204(h) 
notice for a plan amendment that has a retroactive effective date and 
the clarification of the cross-references in Q&A-7(b), these special 
rules apply to section 204(h) amendments adopted in plan years 
beginning after July 1, 2008. With respect to any section 204(h) 
amendment to a lump sum-based benefit formula (or any amendment adopted 
pursuant to section 701 of PPA '06), the special rules under the 
regulations relating to an amendment that applies with respect to 
benefits accrued before the applicable amendment date apply to 
amendments adopted after December 21, 2006. The special 30-day timing 
rule for providing a section 204(h) notice applies to such amendments 
effective on or after December 21, 2006, and no later than December 31, 
2008. The Treasury Department and the IRS anticipate issuing guidance 
in the near future relating to the application of section 4980F to plan 
amendments that are adopted, in accordance with section 1107 of PPA 
'06, to comply with the requirements of section 411(b)(5)(B)(i), 
relating to market rates of return. As provided in Announcement 2009-82 
(available on the IRS Web site at http://www.irs.gov/pub/irs-drop/a-09-82.pdf), this future guidance may provide a special timing rule for 
when section 204(h) notice must be provided.
    The regulations also reflect special statutory effective dates for 
provisions in PPA '06. Section 402 of PPA '06 applies to section 204(h) 
amendments adopted in plan years ending after August 17, 2006. Section 
4980F(e)(1) of the Code, as amended by section 502(c) of PPA '06, 
applies to section 204(h) amendments adopted in plan years beginning 
after December 31, 2007.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to this regulation. Pursuant to the 
Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified 
that the collection of information in this regulation would not have a 
significant impact on a substantial number of small entities. This 
certification is based on the fact that this regulation only provides 
guidance on how to satisfy existing collection of information 
requirements. Accordingly, a Regulatory Flexibility Analysis is not 
required. Pursuant to section 7805(f) of the Code, the notice of 
proposed rulemaking preceding this regulation was submitted to the 
Small Business Administration for comment on its impact on small 
business.

Drafting Information

    The principal author of these regulations is Pamela R. Kinard of 
the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt 
and Government Entities), Internal Revenue Service. However, personnel 
from other offices of the Internal Revenue Service and Treasury 
Department participated in their development.

[[Page 61276]]

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 54

    Excise taxes, Pensions, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR parts 1 and 54 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.411(d)-3 is amended by revising the first sentence of 
paragraph (a)(1).
    The revision reads as follows:


Sec.  1.411(d)-3  Section 411(d)(6) protected benefits.

    (a) Protection of accrued benefits--(1) General rule. Under section 
411(d)(6)(A), a plan is not a qualified plan (and a trust forming a 
part of such plan is not a qualified trust) if a plan amendment 
decreases the accrued benefit of any plan participant, except as 
provided in section 412(d)(2) (section 412(c)(8) for plan years 
beginning before January 1, 2008), section 4281 of the Employee 
Retirement Income Security Act of 1974 as amended (ERISA), or other 
applicable law (see, for example, sections 418D and 418E of the 
Internal Revenue Code, and section 1107 of the Pension Protection Act 
of 2006, Public Law 109-280 (120 Stat. 780, 1063)). * * *
* * * * *

PART 54--PENSION EXCISE TAXES

0
Par. 3. The authority citation for part 54 continues to read in part as 
follows:

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

    Section 54.4980F-1 also issued under 26 U.S.C. 4980F. * * *

0
Par. 4. Section 54.4980F-1 is amended by:
0
1. Revising the second sentence of paragraph A-1(a).
0
2. Revising paragraph A-7(b).
0
3. Revising paragraph A-8(a) and redesignating paragraph A-8(d) as A-
8(e) and adding new paragraph A-8(d).
0
4. Revising the first sentence of paragraphs A-9(a), A-9(b), and A-
9(c), and revising paragraph A-9(d)(1).
0
5. Adding paragraphs A-9(f) and A-9(g).
0
6. Revising the first sentence of paragraph A-10(a).
0
7. Revising paragraph A-11(a)(1).
0
8. Adding paragraphs A-18(a)(4) and A-18(a)(5).
0
9. Revising paragraph A-18(b)(1) and adding paragraphs A-18(b)(3)(i), 
A-18(b)(3)(ii), and A-18(b)(3)(iii).
    The additions and revisions read as follows:


Sec.  54.4980F-1   Notice requirements for certain pension plan 
amendments significantly reducing the rate of future benefit accrual.

* * * * *
    A-1. (a) * * * The notice is required to be provided to plan 
participants and alternate payees who are applicable individuals (as 
defined in Q&A-10 of this section), to certain employee organizations, 
and to contributing employers under a multiemployer plan (as described 
in Q&A-10(a) of this section). * * *
* * * * *
    A-7. * * *
    (b) Plan provisions not taken into account--(1) In general. Plan 
provisions that do not affect the rate of future benefit accrual of 
participants or alternate payees are not taken into account in 
determining whether there has been a reduction in the rate of future 
benefit accrual.
    (2) Interaction with section 411(d)(6). Any benefit that is not a 
section 411(d)(6) protected benefit as described in Sec. Sec.  
1.411(d)-3(g)(14) and 1.411(d)-4, Q&A-1(d) of this chapter, or that is 
a section 411(d)(6) protected benefit that may be eliminated or reduced 
as permitted under Sec.  1.411(d)-3(c), (d), or (f), or under Sec.  
1.411(d)-4, Q&A-2(a)(2), (a)(3), (b)(1), or (b)(2)(ii) through 
(b)(2)(xi) of this chapter, is not taken into account in determining 
whether an amendment is a section 204(h) amendment. Thus, for example, 
provisions relating to the right to make after-tax deferrals are not 
taken into account.
* * * * *
    A-8. (a) General rule. Whether an amendment reducing the rate of 
future benefit accrual or eliminating or reducing an early retirement 
benefit or retirement-type subsidy provides for a reduction that is 
significant for purposes of section 4980F (and section 204(h) of ERISA) 
is determined based on reasonable expectations taking into account the 
relevant facts and circumstances at the time the amendment is adopted, 
or, if earlier, at the effective date of the amendment.
* * * * *
    (d) Plan amendments reflecting a change in statutorily mandated 
minimum present value rules. If a defined benefit plan offers a 
distribution to which the minimum present value rules of section 
417(e)(3) apply (other than a payment to which section 411(a)(13)(A) 
applies) and the plan is amended to reflect the changes to the 
applicable interest rate and applicable mortality table in section 
417(e)(3) made by the Pension Protection Act of 2006, Public Law 109-
780 (120 Stat. 780) (PPA '06) (and no change is made in the dates on 
which the payment will be made), no section 204(h) notice is required 
to be provided.
* * * * *
    A-9. (a) 45-day general rule. Except as otherwise provided in this 
Q&A-9, section 204(h) notice must be provided at least 45 days before 
the effective date of any section 204(h) amendment. * * *
    (b) 15-day rule for small plans. Except for amendments described in 
paragraphs (d)(2) and (g) of this Q&A-9, section 204(h) notice must be 
provided at least 15 days before the effective date of any section 
204(h) amendment in the case of a small plan. * * *
    (c) 15-day rule for multiemployer plans. Except for amendments 
described in paragraphs (d)(2) and (g) of this Q&A-9, section 204(h) 
notice must be provided at least 15 days before the effective date of 
any section 204(h) amendment in the case of a multiemployer plan. * * *
    (d) Special timing rule for business transactions--(1) 15-day rule 
for section 204(h) amendment in connection with an acquisition or 
disposition. Except for amendments described in paragraphs (d)(2) and 
(g) of this Q&A-9, if a section 204(h) amendment is adopted in 
connection with an acquisition or disposition, section 204(h) notice 
must be provided at least 15 days before the effective date of the 
section 204(h) amendment.
* * * * *
    (f) Special timing rule for certain plans maintained by commercial 
airlines. See section 402 of PPA '06 for a special rule that applies to 
certain plans maintained by an employer that is a commercial passenger 
airline or the principal business of which is providing catering 
services to a commercial passenger airline. Under this special rule, 
section 204(h) notice must be provided at least 15 days before the 
effective date of the amendment.
    (g) Special timing rules relating to certain section 204(h) 
amendments that reduce section 411(d)(6) protected benefits--(1) Plan 
amendments permitted to reduce prior accruals. This paragraph (g) 
generally provides special rules with respect to a plan amendment that 
would not violate section 411(d)(6)

[[Page 61277]]

even if the amendment were to reduce section 411(d)(6) protected 
benefits, which are limited to accrued benefits that are attributable 
to service before the applicable amendment date. For example, this 
paragraph (g) applies to amendments that are permitted to be effective 
retroactively under section 412(d)(2) of the Code (section 412(c)(8) 
for plan years beginning before January 1, 2008), section 418D of the 
Code, section 418E of the Code, section 4281 of ERISA, or section 1107 
of PPA '06. See, generally, Sec.  1.411(d)-3(a)(1).
    (2) General timing rule for amendments to which this paragraph (g) 
applies. For an amendment to which this paragraph (g) applies, the 
amendment is effective on the first date on which the plan is operated 
as if the amendment were in effect. Thus, except as otherwise provided 
in this paragraph (g), a section 204(h) notice for an amendment to 
which paragraph (a) of this section applies that is adopted after the 
effective date of the amendment must be provided, with respect to any 
applicable individual, at least 45 days before (or such other date as 
may apply under paragraph (b), (c), (d), or (f) of this Q&A-9) the date 
the amendment is put into operational effect.
    (3) Special rules for section 204(h) notices provided in connection 
with other disclosure requirements--(i) In general. Notwithstanding the 
requirements in this Q&A-9 and Q&A-11 of this section, if a plan 
provides one of the notices in paragraph (g)(3)(ii) of this Q&A-9, in 
accordance with the applicable timing and content rules for such 
notice, the plan is treated as timely providing a section 204(h) notice 
with respect to a section 204(h) amendment.
    (ii) Notice requirements. The notices in this paragraph (g)(3)(ii) 
are--
    (A) A notice required under any revenue ruling, notice, or other 
guidance published under the authority of the Commissioner in the 
Internal Revenue Bulletin to affected parties in connection with a 
retroactive plan amendment described in section 412(d)(2) (section 
412(c)(8) for plan years beginning before January 1, 2008);
    (B) A notice required under section 101(j) of ERISA if an amendment 
is adopted to comply with the benefit limitation requirements of 
section 206(g) of ERISA (section 436 of the Code);
    (C) A notice required under section 432(b)(3)(D) of the Code for an 
amendment adopted to comply with the benefit restrictions under section 
432(f)(2);
    (D) A notice required under section 418D, or section 4244A(b) of 
ERISA, for an amendment that reduces or eliminates accrued benefits 
attributable to employer contributions with respect to a multiemployer 
plan in reorganization;
    (E) A notice required under section 418E, or section 4245(e) of 
ERISA, relating to the effects of the insolvency status for a 
multiemployer plan; and
    (F) A notice required under section 4281 of ERISA for an amendment 
of a multiemployer plan reducing benefits pursuant to section 4281(c) 
of ERISA.
    (4) Delegation of authority to Commissioner. The Commissioner may 
provide special rules under section 4980F, in revenue rulings, notices, 
or other guidance published in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2)(ii)(b) of this chapter), that the Commissioner determines 
to be necessary or appropriate with respect to a section 204(h) 
amendment--
    (A) That applies to benefits accrued before the applicable 
amendment date but that does not violate section 411(d)(6); or
    (B) For which there is a required notice relating to a reduction in 
benefits and such notice has timing and content requirements similar to 
a section 204(h) notice with respect to a significant reduction in the 
rate of future benefit accruals.
* * * * *
    A-10. (a) In general. Section 204(h) notice must be provided to 
each applicable individual, to each employee organization representing 
participants who are applicable individuals, and, for plan years 
beginning after December 31, 2007, to each employer that has an 
obligation to contribute (within the meaning of section 4212(a) of 
ERISA) to a multiemployer plan. * * *
* * * * *
    A-11. (a) Explanation of notice requirement--(1) In general. 
Section 204(h) notice must include sufficient information to allow 
applicable individuals to understand the effect of the plan amendment. 
In order to satisfy this rule, a plan administrator providing section 
204(h) notice must generally satisfy paragraphs (a)(2), (a)(3), (a)(4), 
(a)(5), and (a)(6) of this Q&A-11. See paragraph (g)(3) of Q&A-9 of 
this section for special rules relating to section 204(h) notices 
provided in connection with certain other written notices. See also 
paragraph (g)(4) of Q&A-9 of this section for a delegation of authority 
to the Commissioner to provide special rules.
* * * * *
    A-18. (a) * * *
    (4) Special effective date for certain section 204(h) amendments 
made by plans of commercial airlines. Section 402 of PPA `06 applies to 
section 204(h) amendments adopted in plan years ending after August 17, 
2006.
    (5) Special effective date for rule relating to contributing 
employers. Section 502(c) of PPA '06, which amended section 4980F(e)(1) 
of the Internal Revenue Code, applies to section 204(h) amendments 
adopted in plan years beginning after December 31, 2007.
    (b) Regulatory effective date--(1) General effective date. Except 
as otherwise provided in this paragraph (b) of this section, Q&A-1 
through Q&A-18 of this section apply to amendments with an effective 
date that is on or after September 1, 2003.
* * * * *
    (3) Effective dates for Q&A-9(g)(1), (g)(3), and (g)(4)--(i) 
General effective date. Except as otherwise provided in Q&A-
18(b)(3)(ii) or (b)(3)(iii) of this section, Q&A-9(g)(1), (g)(3), and 
(g)(4) of this section apply to amendments that are effective on or 
after January 1, 2008.
    (ii) Effective dates for Q&A-9(g)(2) and Q&A-7(b). Except as 
otherwise provided in Q&A-18(b)(3)(iii) of this section, Q&A-9(g)(2) 
and Q&A-7(b) of this section apply to section 204(h) amendments adopted 
in plan years beginning after July 1, 2008.
    (iii) Special rules for section 204(h) amendments to an applicable 
defined benefit plan. Except as otherwise provided in paragraph 
(b)(3)(i) or (b)(3)(ii) of this Q&A-18, with respect to any section 
204(h) notice provided in connection with a section 204(h) amendment to 
an applicable defined benefit plan within the meaning of section 
411(a)(13)(C)(i) to limit distributions as permitted under section 
411(a)(13)(A) for distributions made after August 17, 2006, that is 
made pursuant to section 701 of PPA '06, paragraphs (g)(1) and (g)(2) 
of Q&A-9 of this section apply to amendments that are effective after 
December 21, 2006. For such an amendment that is effective not later 
than December 31, 2008, section 204(h) notice does not fail to be 
timely if the notice is provided at least 30 days, rather than 45 days, 
before the date that the amendment is first effective.

Steve T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: November 12, 2009.
Michael Mundaca,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E9-28078 Filed 11-23-09; 8:45 am]
BILLING CODE 4830-01-P