[Federal Register Volume 80, Number 118 (Friday, June 19, 2015)]
[Proposed Rules]
[Pages 35262-35280]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-14948]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-102648-15]
RIN 1545-BM66


Suspension of Benefits Under the Multiemployer Pension Reform Act 
of 2014

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking, notice of proposed rulemaking by 
cross-reference to temporary regulations, and notice of public hearing.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations relating to 
multiemployer pension plans that are projected to have insufficient 
funds, at some point in the future, to pay the full benefits to which 
individuals will be entitled under the plans (referred to as plans in 
``critical and declining status''). The Multiemployer Pension Reform 
Act of 2014 (``MPRA'') amended the Internal Revenue Code to incorporate 
suspension of benefits provisions that permit these multiemployer plans 
to reduce pension benefits payable to participants and beneficiaries if 
certain

[[Page 35263]]

conditions are satisfied. MPRA requires the Secretary of the Treasury, 
in consultation with the Pension Benefit Guaranty Corporation and the 
Secretary of Labor, to approve or deny applications by these plans to 
reduce benefits. As required by MPRA, these proposed regulations, 
together with temporary regulations being published at the same time, 
provide guidance implementing these statutory provisions. These 
proposed regulations would affect active, retired, and deferred vested 
participants and beneficiaries of multiemployer plans that are in 
critical and declining status as well as employers contributing to, and 
sponsors and administrators of, those plans.

DATES: Comments must be received by August 18, 2015. Outlines of topics 
to be discussed at the public hearing scheduled for September 10, 2015 
must be received by August 18, 2015.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-102648-15), room 
5205, 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-
102648-15), 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-102648-15). 
The public hearing will be held in the Amphitheater of the Ronald 
Reagan Building and International Trade Center, 1300 Pennsylvania Ave. 
NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, the 
Department of the Treasury MPRA guidance information line at (202) 622-
1559; concerning submission of comments or the hearing, Regina Johnson 
at (202) 317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)).
    The collection of information in the paragraphs of these proposed 
regulations that cross-reference the temporary regulations that are 
being published elsewhere in this issue of the Federal Register is 
required for a multiemployer defined benefit plan in critical and 
declining status to satisfy the criteria for approval of an application 
for a suspension of benefits, including providing notice of the 
application to specified individuals (containing an individualized 
estimate of the size of the benefit suspension) and other interested 
parties. The collection is also required for a plan sponsor to obtain 
approval of the ballot for the vote on the suspension of benefits that 
follows approval of the application.
    The collection of information in the paragraphs of these proposed 
regulations that do not cross-reference the temporary regulations is 
required for a multiemployer defined benefit plan in critical and 
declining status to maintain an annual written record of its 
determinations that all reasonable measures to avoid insolvency have 
been taken and that the plan is not projected to avoid insolvency 
without a suspension of benefits.
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Attn: Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with copies to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 
20224. Comments on the collection of information should be received by 
August 18, 2015. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    For the paragraphs of the proposed regulations that cross-reference 
the temporary regulations:
    Estimated total average annual reporting or recordkeeping burden: 
13,888 hours.
    Estimated average annual burden per recordkeeper: 496 hours.
    Estimated number of recordkeepers: 28.
    For the paragraphs of the proposed regulations that do not cross-
reference the temporary regulations:
    Estimated total average annual reporting or recordkeeping burden: 
140 hours.
    Estimated average annual burden per recordkeeper: 5 hours.
    Estimated number of recordkeepers: 28.
    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

    Section 432(e)(9) \1\ of the Internal Revenue Code (Code) permits 
the plan sponsor of a multiemployer plan that is projected to have 
insufficient funds, at some point in the future, to pay the full 
benefits to which individuals will be entitled under the plan (referred 
to as a plan in ``critical and declining status'') to reduce the 
pension benefits payable to participants and beneficiaries under the 
plan if certain conditions are satisfied (referred to as a ``suspension 
of benefits''). MPRA requires the Secretary of the Treasury, in 
consultation with the Pension Benefit Guaranty Corporation (PBGC) and 
the Secretary of Labor (generally referred to in this preamble as the 
Treasury Department, PBGC, and Labor Department, respectively), to 
issue appropriate guidance to implement the provisions of section 
432(e)(9). This document contains proposed regulations under section 
432(e)(9) that, together with temporary regulations that are being 
published elsewhere in this issue of the Federal Register and a revenue 
procedure being published in the Internal Revenue Bulletin, Rev. Proc. 
2015-34, implement section 432(e)(9), as required by the statute. The 
Treasury Department consulted with the PBGC and the Labor Department on 
these proposed regulations.
---------------------------------------------------------------------------

    \1\ Section 432(e)(9) was added to the Internal Revenue Code by 
the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 
780 (2006)) (PPA '06) and amended by the Multiemployer Pension 
Reform Act of 2014, Division O of the Consolidated and Further 
Continuing Appropriations Act, 2015, Public Law 113-235 (128 Stat. 
2130 (2014)) (MPRA).
---------------------------------------------------------------------------

    The temporary regulations, which are applicable immediately, 
provide

[[Page 35264]]

sufficient guidance to enable a plan sponsor that wishes to apply for 
approval of a suspension of benefits to prepare and submit such an 
application, and to enable the Department of the Treasury to begin the 
processing of such an application. The temporary regulations provide 
general guidance regarding section 432(e)(9), including guidance 
regarding the meaning of the term ``suspension of benefits,'' the 
general conditions for a suspension of benefits, and the implementation 
of a suspension after a participant vote. This notice of proposed 
rulemaking requests comments on the provisions of the temporary 
regulations, and the provisions of the temporary regulations and 
proposed regulations are expected to be integrated and issued as a 
single set of final regulations with any changes that are made 
following consideration of the comments.
    The proposed regulations included in this document are not 
applicable immediately. The proposed regulations provide additional 
guidance regarding section 432(e)(9), including guidance relating to 
the standards that will be applied in reviewing an application for 
suspension of benefits and the statutory limitations on a suspension of 
benefits. For further background on the statutory provisions that these 
proposed regulations and the temporary regulations that are 
incorporated by cross-reference into these proposed regulations are 
designed to implement, see the preamble to the temporary regulations in 
the Rules and Regulations section of this issue of the Federal 
Register.
    The regulations implementing the statutory suspension of benefits 
provisions have been divided, as described, into proposed regulations 
and temporary regulations in order to balance the interest in 
considering public comments on rules before they apply with the evident 
statutory intent, reflected in MPRA, to implement the statutory 
provisions without undue delay. Although the Treasury Department has 
issued proposed and temporary regulations under section 432(e)(9), it 
is expected that no application proposing a benefit suspension will be 
approved prior to the issuance of final regulations. If a plan sponsor 
chooses to submit an application for approval of a proposed benefit 
suspension in accordance with the proposed and temporary regulations 
before the issuance of final regulations, then the plan sponsor may 
need to revise the proposed suspension (and potentially the related 
notices to plan participants) or supplement the application to take 
into account any differences in the requirements relating to 
suspensions of benefits that might be included in the final 
regulations.
    Rev. Proc. 2015-34 prescribes the specifics of the application 
process for approval of a proposed benefit suspension. The revenue 
procedure also provides a model notice that a plan sponsor proposing a 
benefit suspension may use to satisfy the statutory notice requirement.

Conditions for Suspensions

    As a condition for suspension of benefits, the statute requires a 
plan sponsor to determine, in a written record to be maintained 
throughout the period of the benefit suspension, that although all 
reasonable measures to avoid insolvency have been taken (and continue 
to be taken during the period of the benefit suspension), the plan is 
still projected to become insolvent unless benefits are suspended. In 
making this determination, the plan sponsor may take into account 
factors including a specified list of 10 statutory factors.\2\ See 
section 432(e)(9)(C)(ii).
---------------------------------------------------------------------------

    \2\ These 10 factors are current and past contribution levels; 
levels of benefit accruals (including prior reductions in the rate 
of benefit accruals); prior adjustable benefit reductions and 
suspensions of benefits; the impact on plan solvency of the 
subsidies and ancillary benefits available to active participants; 
compensation levels of active participants relative to employees in 
the participants' industry generally; competitive and other economic 
factors facing contributing employers; the impact of benefit and 
contribution levels on retaining active participants and bargaining 
groups under the plan; the impact of past and anticipated 
contribution increases under the plan on employer attrition and 
retention levels; and measures undertaken by the plan sponsor to 
retain or attract contributing employers.
---------------------------------------------------------------------------

Limitations on Suspensions

    Section 432(e)(9)(D) contains limitations on the benefits that may 
be suspended, some of which apply to plan participants and 
beneficiaries on an individual basis and some of which apply on an 
aggregate basis. Under the statute, an individual's monthly benefit may 
not be reduced below 110 percent of the monthly benefit that is 
guaranteed by the PBGC under section 4022A of the Employee Retirement 
Income Security Act of 1974, Public Law 93-406 (88 Stat. 829 (1974)), 
as amended (ERISA) on the date of the suspension. In addition, no 
benefits based on disability (as defined under the plan) may be 
suspended.
    In the case of a participant or beneficiary who has attained age 75 
as of the effective date of a suspension, the statute provides that the 
suspension may not exceed the applicable percentage of the individual's 
maximum suspendable benefit (the age-based limitation). The maximum 
suspendable benefit is the maximum amount of an individual's benefit 
that would be suspended without regard to the age-based limitation. The 
applicable percentage is a percentage that is determined by dividing 
(i) the number of months during the period that begins with the month 
after the month in which the suspension is effective and ends with the 
month in which that participant or beneficiary attains the age of 80 by 
(ii) 60 months.
    Section 432(e)(9)(D) also requires the aggregate benefit 
suspensions (considered, if applicable, in connection with a plan 
partition under section 4233 of ERISA (partition)) to be reasonably 
estimated to achieve, but not materially exceed, the level that is 
needed to avoid insolvency.
    Under the statute, any suspension of benefits must be equitably 
distributed across the participant and beneficiary population, taking 
into account factors that may include one or more of a list of 11 
statutory factors.\3\ See section 432(e)(9)(D)(vi). Finally, with 
regard to a suspension of benefits that is made in combination with a 
plan partition, the suspension may not occur before the effective date 
of the partition.
---------------------------------------------------------------------------

    \3\ These 11 factors are age and life expectancy; length of time 
in pay status; amount of benefit; type of benefit; extent of a 
subsidized benefit; extent of post-retirement benefit increases; 
history of benefit increases and reductions; years to retirement for 
active employees; any discrepancies between active employees and 
retirees; extent to which participants are reasonably likely to 
withdraw support for the plan, resulting in accelerated employer 
withdrawal; and the extent to which the benefits are attributed to 
service with an employer that failed to pay its withdrawal 
liability.
---------------------------------------------------------------------------

Benefit Improvements

    Section 432(e)(9)(E) sets forth rules relating to benefit 
improvements made while a suspension of benefits is in effect. Under 
this provision, a benefit improvement is defined as a resumption of 
suspended benefits, an increase in benefits, an increase in the rate at 
which benefits accrue, or an increase in the rate at which benefits 
become nonforfeitable under the plan.
    The statute also provides that, while a suspension of benefits is 
in effect, a plan sponsor generally has discretion to provide benefit 
improvements. However, a sponsor may not increase plan liabilities by 
reason of any benefit improvement for any participant or beneficiary 
who is not in pay status (in other words, those who are not yet 
receiving benefits, such as active employees or deferred vested 
employees) unless (1) this benefit improvement is accompanied by an 
equitable distribution of benefit improvements for those who have begun

[[Page 35265]]

to receive benefits (typically, retirees), and (2) the plan actuary 
certifies that, after taking those benefit improvements into account, 
the plan is projected to avoid insolvency indefinitely.\4\ Whether an 
individual is in pay status for this purpose is generally based on 
whether the individual's benefits began before the first day of the 
plan year for which the benefit improvement took effect.
---------------------------------------------------------------------------

    \4\ Avoidance of insolvency is determined by reference to 
section 418E under which a plan is insolvent if it is unable to pay 
scheduled benefits for a year. Pursuant to section 432(e)(9)(E)(iv), 
this restriction does not apply to certain benefit improvements if 
the Treasury Department determines either that the benefit 
improvements are reasonable and provide for only de minimis 
increases in plan liabilities or that the benefit improvements are 
required as a condition of qualification or to comply with other 
applicable law.
---------------------------------------------------------------------------

    In order for benefit improvements to be equitably distributed, the 
projected value of the total liabilities attributable to benefit 
improvements for participants and beneficiaries who are not in pay 
status may not exceed the projected value of the liabilities 
attributable to benefit improvements for participants and beneficiaries 
who are in pay status. See section 432(e)(9)(E)(ii). The plan sponsor 
must equitably distribute any increase in total liabilities 
attributable to the benefit improvements among the participants and 
beneficiaries who are in pay status, taking into account the factors 
relevant to the equitable distribution of benefit suspensions among 
participants and beneficiaries (described in section 432(e)(9)(D)(vi)) 
and the extent to which their benefits were suspended.
    The statute allows a plan sponsor to increase plan liabilities 
through a resumption of benefits for participants and beneficiaries in 
pay status without providing any benefit improvements for those who are 
not yet in pay status, but only if it equitably distributes the value 
of resumed benefits among participants and beneficiaries in pay status, 
taking into account the factors relevant to the equitable distribution 
of benefit suspensions.
    The restrictions on benefit improvements in section 432(e)(9)(E) 
apply in addition to any other applicable limitations on increases in 
benefits that apply to a plan, except with respect to resumptions of 
suspended benefits only for participants and beneficiaries in pay 
status (described in the preceding sentence).

Suspension Applications

    Section 432(e)(9)(G) describes the process for approval or 
rejection of a plan sponsor's application for a suspension of benefits. 
Under the statute, the Treasury Department, in consultation with the 
PBGC and the Labor Department, must approve an application upon finding 
that the plan is eligible for the suspensions and has satisfied the 
criteria of sections 432(e)(9)(C), (D), (E), and (F). In evaluating 
whether a plan sponsor has met the criteria in section 432(e)(9)(C)(ii) 
(a plan sponsor's determination that, although all reasonable measures 
have been taken, the plan will become insolvent if benefits are not 
suspended), the plan sponsor's consideration of factors under that 
clause must be reviewed. The statute also requires that the plan 
sponsor's determinations in an application for a suspension of benefits 
be accepted unless they are clearly erroneous.

Participant Vote on Proposed Benefit Reduction

    If a suspension application is approved, the proposed suspension 
then goes to a vote of plan participants and beneficiaries. See section 
432(e)(9)(H). The vote will be administered by the Treasury Department, 
in consultation with the PBGC and the Labor Department, within 30 days 
after approval of the suspension application. The plan sponsor is 
required to provide a ballot for a vote (subject to approval by the 
Treasury Department, in consultation with the PBGC and the Labor 
Department). The statute specifies information that the ballot must 
include.\5\ If a majority of plan participants and beneficiaries do not 
vote to reject the suspension, the statute requires the Treasury 
Department to issue a final authorization to suspend benefits within 
seven days after the vote.
---------------------------------------------------------------------------

    \5\ This information includes a statement from the plan sponsor 
in support of the suspension; a statement in opposition to the 
suspension compiled from comments received in response to the 
Federal Register notice issued by Treasury within 30 days of 
receiving the suspension application; a statement that the 
suspension has been approved by the Secretary of the Treasury, in 
consultation with the PBGC and the Secretary of Labor; a statement 
that the plan sponsor has determined that the plan will become 
insolvent unless the suspension takes effect; a statement that 
insolvency of the plan could result in benefits lower than benefits 
paid under the suspension; and a statement that insolvency of the 
PBGC would result in benefits lower than benefits otherwise paid in 
the case of plan insolvency.
---------------------------------------------------------------------------

Explanation of Provisions

I. Overview

    These proposed regulations provide guidance on certain requirements 
under section 432(e)(9) regarding suspension of benefits for 
multiemployer defined benefit plans in critical and declining status. 
The proposed regulations cross-reference certain requirements that are 
addressed in the temporary regulations issued in the Rules and 
Regulations section of this issue of the Federal Register. In addition 
to the proposed and temporary regulations, the procedural requirements 
for submitting an application to suspend benefits, as well as a model 
notice, are provided in Rev. Proc. 2015-34.

II. General Rules on Suspension of Benefits

    Under the temporary regulations, once a plan is amended to suspend 
benefits, a plan may pay or continue to pay a reduced level of benefits 
pursuant to the suspension only if the terms of the plan are consistent 
with the requirements of section 432(e)(9) and the regulations. The 
proposed regulations would provide that a plan's terms are consistent 
with the requirements of section 432(e)(9) even if they provide that, 
instead of a suspension of benefits occurring in full on a specified 
effective date, the amount of a suspension will phase in or otherwise 
change in a definite, pre-determined manner as of a specified future 
effective date or dates. However, the proposed regulations would 
provide that a plan's terms are inconsistent with the statutory 
requirements if they provide that the amount of a suspension will 
change contingent upon the occurrence of any other specified future 
event, condition, or development. For example, a plan is not permitted 
to provide that an additional or larger suspension of benefits is 
triggered if the plan's funded status deteriorates. Similarly, a plan 
is not permitted to provide that, contingent upon a specified future 
event, condition, or development, a suspension of benefits will be 
automatically reduced (except upon a failure to satisfy the annual 
requirement, described in the proposed regulations, that the plan 
sponsor determine that the plan is projected to become insolvent unless 
benefits are suspended).
    In the case of an individual who has commenced benefits, the 
proposed regulations provide that the effective date of a suspension of 
benefits is the first date as of which a portion of the individual's 
benefits are not paid as a result of the suspension. In the case of an 
individual who has not yet commenced benefits, the effective date of a 
suspension of benefits is the first date as of which the participant's 
accrued benefit is reduced as a result of the suspension. The effective 
date of a suspension may not precede the date on which a final 
authorization to suspend benefits is issued.

[[Page 35266]]

    If a suspension of benefits provides for more than one reduction in 
benefits over time, such that benefits are scheduled to be reduced by 
an additional amount after benefits are first reduced pursuant to the 
suspension, then each date as of which benefits are reduced is treated 
as a separate effective date of the suspension, which would require, 
for example, that the age-based limitation be separately applied as of 
each effective date. However, if the effective date of the final 
scheduled reduction in benefits in a series of reductions pursuant to a 
suspension is less than three years after the effective date of the 
first reduction, the effective date of the first reduction will be 
treated as the effective date of all subsequent reductions pursuant to 
that suspension. For example, if a suspension provides that benefits 
will be reduced by a specified percentage effective January 1, 2017, by 
an additional percentage effective January 1, 2018, and by an 
additional percentage effective January 1, 2019, with no subsequent 
changes scheduled, it would meet the three-year condition to treat 
January 1, 2017 as the effective date for all three reductions. 
However, if the suspension provided for a further reduction effective 
January 1, 2020, the suspension would not be treated as satisfying the 
three-year condition and therefore would be treated under the proposed 
regulations as having four separate effective dates.

III. Conditions for Suspensions

    The regulations provide that a plan may not suspend benefits unless 
the plan sponsor makes initial and annual determinations that the plan 
is projected to become insolvent unless benefits are suspended, 
although all reasonable measures to avoid insolvency have been taken. 
These determinations are based on the nonexclusive list of factors 
described in section 432(e)(9)(C)(ii).
    Under the proposed regulations, a plan sponsor satisfies the 
annual-plan-sponsor determinations requirement for a plan year only if 
the plan sponsor determines, no later than the last day of the plan 
year, that (1) all reasonable measures to avoid insolvency have been 
taken, and (2) the plan is projected to become insolvent unless the 
suspension of benefits continues (or another suspension of benefits 
under section 432(e)(9) is implemented) for the plan. For this purpose, 
the projection of the plan's insolvency must be made using the 
standards that apply for purposes of determining whether a suspension 
is sufficient to avoid insolvency and not materially in excess of the 
level needed to avoid insolvency that are described in paragraph IV.B.1 
of this preamble.
    If there is favorable actuarial experience so that the plan could 
avoid insolvency even if the benefit suspension were reduced (but not 
eliminated), the plan sponsor may wish to adopt a benefit increase that 
partially restores suspended benefits in order to share that favorable 
experience with the participants. The statute contemplates this 
circumstance by providing in section 432(e)(9)(E) the requirements for 
such a partial restoration of suspended benefits and for other benefit 
improvements. Moreover, if favorable actuarial experience would allow 
the plan to avoid insolvency if the benefit suspension were eliminated 
entirely, the proposed regulations would require the plan sponsor to 
eliminate the suspension.
    The proposed regulations provide that, in order to satisfy the 
annual-plan-sponsor determinations requirement, the plan sponsor must 
maintain a written record of its annual determinations. The written 
record must be included in an update to the rehabilitation plan, 
whether or not there is otherwise an update for that year or, if the 
plan is no longer in critical status, in the documents under which the 
plain is maintained (so that it is available to plan participants and 
beneficiaries). The plan sponsor's consideration of factors required 
for its determination of whether all reasonable measures have been 
taken must be reflected in that determination.
    If a plan sponsor fails to satisfy the annual-plan-sponsor 
determinations requirement for a plan year (including maintaining the 
written record), then the suspension of benefits expires as of the 
first day of the next plan year. For example, if in a plan year the 
plan sponsor is unable to determine that all reasonable measures to 
avoid insolvency have been taken, then the plan sponsor must take those 
additional reasonable measures before the end of the plan year in order 
to avoid the expiration of the suspension as of the first day of the 
next plan year.

IV. Limitations on Suspensions

    The proposed and temporary regulations reflect the individual and 
aggregate limitations on a suspension of benefits under section 
432(e)(9)(D).\6\ The temporary regulations provide that after applying 
the individual limitations, the overall size and distribution of the 
suspension is subject to the aggregate limitations.
---------------------------------------------------------------------------

    \6\ The temporary regulations refer to section 432(e)(9)(D)(vii) 
for additional rules applicable to certain plans.
---------------------------------------------------------------------------

A. Individual Limitations

1. Guarantee-Based Limitation
    The temporary regulations provide that benefits may not be 
suspended below 110 percent of the monthly benefit payable to a 
participant, beneficiaries, or alternate payee that would be guaranteed 
by the PBGC under section 4022A of ERISA if the plan were to become 
insolvent as of the effective date of the suspension.
    The proposed regulations provide that under section 4022A of ERISA, 
the monthly benefit of a participant or beneficiary that would be 
guaranteed by the PBGC with respect to a plan if the plan were to 
become insolvent as of the effective date of the suspension is 
generally based on section 4022A(c)(1) of ERISA. Under section 
4022A(c)(1) of ERISA, that guaranteed amount is a dollar amount 
multiplied by the participant's years and months of credited service as 
of the date as of which the guarantee is determined. The dollar amount 
is 100 percent of the accrual rate up to $11, plus 75 percent of the 
lesser of (1) $33, or (2) the accrual rate, if any, in excess of $11. 
The accrual rate is a participant's or beneficiary's monthly benefit 
(described in section 4022A(c)(2)(A) of ERISA) by the participant's 
years of credited service (described in section 4022A(c)(3) of ERISA) 
as of the effective date of the suspension.
    The proposed regulations provide a number of examples of how the 
PBGC guarantee is calculated. These examples reflect the interpretation 
of section 4022A of ERISA provided by the PBGC.
    In determining the participant's monthly benefit for purposes of 
the accrual rate, only nonforfeitable benefits (other than benefits 
that become nonforfeitable on account of plan termination) are taken 
into account, pursuant to section 4022A(a) of ERISA. The proposed 
regulations treat benefits that are forfeitable on the effective date 
of a suspension as nonforfeitable, provided that the participant is in 
covered employment on that date and would have a nonforfeitable right 
to those benefits upon completion of vesting service following that 
date. For example, if an active participant had only three out of five 
years necessary for the participant's benefit to become 100 percent 
vested under a plan as of the effective date of a suspension, the 
participant's accrued benefit will be treated as 100 percent vested as 
of that date.
2. Disability-Based Limitation
    The temporary regulations incorporate the statutory requirement

[[Page 35267]]

that benefits based on disability may not be suspended. For this 
purpose, disability is defined in accordance with the definition of 
that term in the plan. The proposed regulations would provide rules for 
implementing this limitation.
    The proposed regulations provide that benefits based on disability 
means the entire amount paid to a participant pursuant to the 
participant becoming disabled, regardless of whether a portion of that 
amount would have been paid if the participant had not become disabled. 
For example, assume that a participant with an accrued benefit of 
$1,000 per month, payable at age 65, becomes entitled under the plan to 
an early retirement benefit at age 55 on account of a disability (as 
defined in the plan). Under the plan, the participant (absent 
disability) would be entitled to a reduced early retirement benefit of 
$600 per month commencing at age 55, but the reduction for early 
retirement does not apply because the participant became entitled to a 
benefit on account of a disability. The participant's disability 
benefit payment of $1,000 per month commencing at age 55 is a benefit 
based on disability, even though the participant would have received a 
portion of these benefits at retirement regardless of the disability.
    The proposed regulations also provide that if a participant begins 
receiving an auxiliary or other temporary disability benefit and the 
sole reason the participant ceases receiving that benefit is 
commencement of retirement benefits, the benefit based on disability 
after commencement of retirement benefits is the lesser of (1) the 
periodic payment the participant was receiving immediately before the 
participant's retirement benefits commenced, or (2) the total periodic 
payments to the participant under the plan.
    For example, assume that a participant begins receiving a 
disability pension of $1,000 per month payable at age 55. When the 
participant reaches age 65, the participant's disability pension is 
discontinued and the participant elects to commence payment of the 
participant's accrued benefit in the form of an actuarially equivalent 
joint and survivor annuity payable in the amount of $850 per month. 
Before age 65, the participant's benefit based on disability is $1,000 
per month. After age 65, the participant's benefit based on disability 
is $850 per month. (Alternatively, if the participant had elected to 
commence payment of the participant's accrued benefit in the form of a 
single life annuity payable in the amount of $1,000 per month, the 
participant's benefit based on disability after age 65 would be $1,000 
per month.) A suspension of benefits is not permitted to apply to any 
portion of those benefits at any time.
3. Age-Based Limitation
    The proposed regulations would provide that no suspension of 
benefits is permitted to apply to a participant, beneficiary, or 
alternate payee who has commenced receiving benefits as of the 
effective date of the suspension and has reached age 80 no later than 
the end of the month that includes the effective date of the 
suspension. For example, assume that a suspension of benefits has an 
effective date of December 1, 2017. If a retiree is 79 years old on 
December 1, 2017, and turns 80 on December 15, 2017, a suspension of 
benefits is not permitted to apply to the retiree's monthly benefit.
    In addition, no more than the applicable percentage of the maximum 
suspendable benefit may be suspended for a participant, beneficiary, or 
alternate payee who has commenced receiving benefits as of the 
effective date of the suspension and has reached age 75 by the end of 
the month that includes the effective date of the suspension.
    The maximum suspendable benefit is the portion of an individual's 
benefits that would be suspended without regard to the age-based 
limitation, after the application of the guarantee-based limitation and 
the disability-based limitation, described earlier in paragraphs IV.A.1 
and IV.A.2 of this preamble.
    The applicable percentage is the percentage obtained by dividing: 
(1) The number of months during the period beginning with the month 
after the month in which the suspension of benefits is effective and 
ending with the month during which the participant or beneficiary 
attains the age of 80, by (2) 60.
    The proposed regulations explain how to apply the age-based 
limitation if benefits have not commenced to either a participant or 
beneficiary as of the effective date of the suspension. If the 
participant is alive on the effective date, the participant is treated 
as having commenced benefits on that date. If the participant is 
deceased on the effective date, the beneficiary is treated as having 
commenced benefits on that date.
    The age-based limitation applies to a suspension of benefits in 
which an alternate payee has an interest, whether or not the alternate 
payee has commenced benefits as of the effective date of the 
suspension. If the alternate payee's right to the suspended benefits 
derives from a qualified domestic relations order within the meaning of 
section 414(p)(1)(A) (QDRO) under which the alternate payee shares in 
each benefit payment but the participant retains the right to choose 
the time and form of payment with respect to the benefit to which the 
suspension applies (shared payment QDRO), the applicable percentage for 
the alternate payee is calculated by using the participant's age as of 
the effective date of the suspension. If the alternate payee's right to 
the suspended benefits derives from a QDRO under which the alternate 
payee has a separate right to receive a portion of the participant's 
retirement benefit to be paid at a time and in a form different from 
that chosen by the participant (separate interest QDRO), the applicable 
percentage for the alternate payee is calculated by substituting the 
alternate payee's age as of the effective date of the suspension for 
the participant's age.
    If the age-based limitation applies to a participant on the 
effective date of the suspension, then the age-based limitation also 
applies to the beneficiary of the participant, based on the age of the 
participant on the effective date of the suspension.

B. Aggregate Limitations

1. Avoidance of Insolvency
    The proposed regulations reflect the requirement in section 
432(e)(9)(D)(iv) that any suspension of benefits, in the aggregate 
(considered, if applicable, in combination with a partition of the 
plan), must be at a level that is reasonably estimated to enable the 
plan to avoid insolvency and not materially exceed the level that is 
necessary to enable the plan to avoid insolvency.
    A suspension of benefits (considered, if applicable, in combination 
with a partition of the plan) will satisfy the requirement that it is 
at a level that is reasonably estimated to enable the plan to avoid 
insolvency if: (1) For each plan year throughout an extended period 
beginning on the first day of the plan year that includes the effective 
date of the suspension, the plan's solvency ratio is projected on a 
deterministic basis to be at least 1.0; (2) based on stochastic 
projections reflecting variance in investment return, the probability 
that the plan will avoid insolvency throughout the extended period is 
more than 50 percent; and (3) unless the plan's projected funded 
percentage (within the meaning of section 432(j)(2)) at the end of the 
extended period using a deterministic projection exceeds 100 percent, 
then the projection shows that at all times during the last five plan 
years of that period, there is no projected decrease in either the 
plan's

[[Page 35268]]

solvency ratio or its available resources (as defined in section 
418E(b)(3)). In the case of a plan that is not large enough to be 
required to select a retiree representative, the determination of 
whether a benefit suspension (considered, if applicable, in combination 
with a plan partition) will satisfy the requirement that it is at a 
level that is reasonably estimated to enable the plan to avoid 
insolvency is permitted to be made without regard to clause (2).
    A plan's solvency ratio for a plan year means the ratio of the 
plan's available resources (as defined in section 418E(b)(3)) for the 
plan year to the scheduled benefit payments under the plan for the plan 
year. An extended period means a period of at least 30 plan years. 
However, in the case of a temporary suspension of benefits that is 
scheduled to cease as of a date that is more than 25 years after the 
effective date of the suspension, the extended period must be 
lengthened so that it ends no earlier than five plan years after the 
cessation of the suspension.
    Under the proposed regulations, a suspension of benefits will 
satisfy the requirement that the suspension be at a level that is 
reasonably estimated to not materially exceed the level necessary for 
the plan to avoid insolvency if an alternative, similar but smaller 
suspension of benefits, under which the dollar amount of the suspension 
for each participant and beneficiary were reduced by five percent, 
would not be sufficient to enable the plan to satisfy the requirement 
that the suspension be at a level that is reasonably estimated to 
enable the plan to avoid insolvency. In addition, if the PBGC issues an 
order partitioning the plan, then a suspension of benefits with respect 
to the plan will be deemed to satisfy this requirement. This test based 
on a five percent reduction of a suspension is roughly comparable to 
the common use in accounting standards of a five-percent threshold for 
materiality.
    The proposed regulations would require the actuarial projections 
used for purposes of these requirements to reflect the assumption that 
the suspension of benefits continues indefinitely (or, if the 
suspension expires on a specified date by its own terms, until that 
date). The actuarial assumptions and methods used for the actuarial 
projections must be reasonable in accordance with the rules of section 
431(c)(3). The actuary's selection of assumptions about future covered 
employment and contribution levels (including contribution base units 
and average contribution rate) is permitted to be based on information 
provided by the plan sponsor, which must act in good faith in providing 
the information. In addition, to the extent that the actuarial 
assumptions used for the projections differ from those used to certify 
whether the plan is in critical and declining status pursuant to 
section 432(b)(3)(B)(iv), a justification for that difference generally 
must be provided.
    The cash flow projections must be based on the fair market value of 
assets as of the end of the most recent calendar quarter, projected 
benefit payments that are consistent with the projected benefit 
payments under the most recent actuarial valuation, and appropriate 
adjustments to projected benefit payments to include benefits for new 
hires who are reflected in the projected contribution amounts. The 
projected cash flows relating to contributions, withdrawal liability 
payments, and benefit payments must also be adjusted to reflect 
significant events that occurred after the most recent actuarial 
valuation. Significant events include: (1) A plan merger or transfer; 
(2) the withdrawal or the addition of employers that changed projected 
cash flows relating to contributions, withdrawal liability payments, or 
benefit payments by more than five percent; (3) a plan amendment, a 
change in a collective bargaining agreement, or a change in a 
rehabilitation plan that changed projected cash flows relating to 
contributions, withdrawal liability, or benefit payments by more than 
five percent; or (4) any other event or trend that resulted in a 
material change in the projected cash flows.
    The application for suspension must include a disclosure of the 
total contributions, total contribution base units and average 
contribution rate, withdrawal liability payments, and the rate of 
return on plan assets for each of the 10 plan years preceding the plan 
year in which the application is submitted. In addition, the 
application must include deterministic projections of the plan's 
solvency ratio over the extended period using two alternative 
assumptions that the plan's future rate of return was lower than the 
assumed rate of return by (1) one percentage point and (2) two 
percentage points.
    The application must include deterministic projections of the 
plan's solvency ratio over the extended period using two alternative 
assumptions for the future contribution base units. These alternatives 
are that the future contribution base units (1) continue under the same 
trend as the plan experienced over the past 10 years, and (2) continue 
under that 10-year trend reduced by one percentage point.
    The application must include an illustration, prepared on a 
deterministic basis, of the projected value of plan assets, the accrued 
liability of the plan (calculated using the unit credit funding 
method), and the funded percentage for each year in the extended 
period.
2. Equitable Distribution
    The proposed regulations would require any suspension of benefits 
to be equitably distributed across the participant and beneficiary 
population. If a suspension of benefits applies differently to 
different categories or groups of participants and beneficiaries, then 
the suspension of benefits is equitably distributed across the 
participant and beneficiary population only if under the suspension: 
(1) Within each such category or group, the individuals are treated 
consistently; (2) any difference in treatment among the different 
categories or groups is based on relevant factors reasonably selected 
by the plan sponsor; and (3) any such difference in treatment is based 
on a reasonable application of the relevant factors.
    The proposed regulations contain examples illustrating the 
equitable distribution rules.

V. Benefit Improvements

    The proposed regulations set forth rules for the application of 
section 432(e)(9)(E), regarding benefit improvements. The proposed 
regulations provide that a plan satisfies the criteria in section 
432(e)(9)(E) only if, during the period that any suspension of benefits 
remains in effect, the plan sponsor does not implement any benefit 
improvement except as provided in the proposed regulations.
    Section 432(e)(9)(E)(vi) and the proposed regulations define the 
term benefit improvement to mean, with respect to a plan, a resumption 
of suspended benefits, an increase in benefits, an increase in the rate 
at which benefits accrue, or an increase in the rate at which benefits 
become nonforfeitable under the plan. In the case of a suspension of 
benefits that expires as of a date that is specified in the original 
plan amendment providing for the suspension, the resumption of benefits 
solely from the expiration of that period is not treated as a benefit 
improvement.

A. Limitations on Benefit Improvements for Those Not in Pay Status

    The proposed regulations provide that, during the period any 
suspension of benefits under a plan remains in effect, the plan sponsor 
may not increase the liabilities of the plan by reason of any benefit 
improvement for any participant or beneficiary who was

[[Page 35269]]

not in pay status for any plan year before the plan year for which the 
benefit improvement takes effect, unless several conditions are 
satisfied.
    One condition is that the present value of the total liabilities 
for a benefit improvement for participants and beneficiaries whose 
benefit commencement dates occurred before the first day of the plan 
year for which the benefit improvement takes effect is not less than 
the present value of the total liabilities for a benefit improvement 
for participants and beneficiaries who were not in pay status by that 
date. For this purpose, present value is the present value as of the 
first day of the plan year in which the benefit improvement is proposed 
to take effect, using actuarial assumptions in accordance with section 
431.
    The plan sponsor must also equitably distribute the benefit 
improvement among participants and beneficiaries whose benefit 
commencement dates occurred before the first day of the plan year in 
which the benefit improvement is proposed to take effect. The 
evaluation of whether a benefit improvement is equitably distributed 
must take into account the factors relevant to whether a suspension of 
benefits is equitably distributed, described in paragraph IV.B.2 of 
this preamble, and the extent to which the benefits of the participants 
and beneficiaries were suspended.
    In addition, the plan actuary must certify that, after taking into 
account the benefit improvement, the plan is projected to avoid 
insolvency indefinitely. This certification must be made using the 
standards that apply for purposes of determining whether a suspension 
is sufficient to avoid insolvency that are described in paragraph 
IV.B.1 of this preamble.
    These limitations do not apply to a resumption of suspended 
benefits or plan amendment that increases liabilities with respect to 
participants and beneficiaries not in pay status by the first day of 
the plan year in which the benefit improvement took effect that: (1) 
The Treasury Department, in consultation with the PBGC and the Labor 
Department, determines to be reasonable and which provides for only de 
minimis increases in plan liabilities, or (2) is required as a 
condition of qualification under section 401 or to comply with other 
applicable law, as determined by the Treasury Department.

B. Limitations on Benefit Improvements for Those in Pay Status

    Under the proposed regulations, the plan sponsor may increase 
liabilities of the plan by eliminating some or all of the suspension 
that applies solely to participants and beneficiaries in pay status at 
the time of the resumption, provided that the plan sponsor equitably 
distributes the value of those resumed benefits among participants and 
beneficiaries in pay status, taking into account factors relevant to 
whether a suspension of benefits is equitably distributed. Such a 
resumption of benefits is not subject to the limitations on a benefit 
improvement under section 432(f) (relating to restrictions on benefit 
increases for plans in critical status).

C. Other Limitations on Benefit Increases

    The proposed regulations would provide that the limitations on 
benefit improvements generally apply in addition to other limitations 
on benefit increases that apply to a plan. Except for a resumption of 
suspended benefits described in paragraph V.B. of this preamble, the 
limitations on a benefit improvement are in addition to the limitations 
in section 432(f) and any other applicable limitations on increases in 
benefits imposed on a plan.

VI. Notice of Proposed Suspension

    Section 432(e)(9)(F)(iii) states that notice must be provided in a 
form and manner prescribed in guidance and that notice may be provided 
in written, electronic, or other appropriate form to the extent such 
form is reasonably accessible to persons to whom the notice is required 
to be provided. The temporary regulations include rules implementing 
the statutory notice requirements in section 432(e)(9)(F). The proposed 
regulations would provide that notice must exclusively be provided in 
written or electronic form (that is, there is no other appropriate 
form).

VII. Approval or Denial of an Application for Suspension of Benefits

    A plan sponsor cannot implement a suspension of benefits unless, 
among other things, its application for a proposed suspension of 
benefits is approved. The temporary regulations contain rules regarding 
the submission and review of an application, and related guidelines and 
procedures are set forth in Rev. Proc. 2015-34. The temporary 
regulations provide that a complete application will be deemed approved 
unless, within 225 days after a complete application is received, the 
Treasury Department notifies the plan sponsor that its application does 
not satisfy one or more of the requirements for approval. The proposed 
regulations would provide that, if necessary under the circumstances, 
the Treasury Department and the plan sponsor may mutually agree in 
writing to stay the 225-day period. Any such agreement would be 
expected to be used only in unusual circumstances.
    As required by section 432(e)(9)(G)(iv), the proposed regulations 
provide that in evaluating whether the plan sponsor has satisfied the 
condition (in section 432(e)(9)(C)(ii)) that it determine that all 
reasonable measures to avoid insolvency within the meaning of section 
418E have been taken, the Treasury Department, in consultation with the 
PBGC and the Labor Department, will review the plan sponsor's 
consideration of each of the factors enumerated in section 
432(e)(9)(C)(ii) and each other factor it took into account in making 
that determination. The proposed regulations, like the statute, do not 
require the plan sponsor to take any particular measure or measures to 
avoid insolvency but do require, in the aggregate, that the plan 
sponsor take all reasonable measures to avoid insolvency. In accordance 
with section 432(e)(9)(G)(v), the proposed regulations provide that, in 
evaluating the plan sponsor's application, the Treasury Department will 
accept the plan sponsor's determinations under section 432(e)(9)(C)(ii) 
unless the Treasury Department concludes, in consultation with the PBGC 
and the Labor Department, that the determinations were clearly 
erroneous. This statutory structure reflects the view that particular 
measures to avoid insolvency may be inappropriate for some plans and 
requires the Treasury Department to review the plan sponsor's 
consideration of the appropriateness of each of the statutory factors, 
but recognizes that the plan sponsor is generally in a better position 
than the Treasury Department to determine the most effective measures 
that a particular plan should take to avoid insolvency.
    The proposed regulations provide that an application to suspend 
benefits will not be approved unless the plan sponsor certifies that, 
if it receives final authorization to suspend benefits (described in 
paragraph VIII. of this preamble), chooses to implement the suspension, 
and adopts a plan amendment to implement the suspension, it will timely 
amend the plan to provide that (1) the suspension of benefits will 
cease as of the first day of the first plan year following the first 
plan year in which the plan sponsor fails to make the annual 
determinations in section 432(e)(9)(C)(ii); and (2) any future benefit 
improvement must satisfy the section 432(e)(9)(E) rules for benefit 
improvements.

[[Page 35270]]

VIII. Participant Vote on Proposed Benefit Reduction

    Section 432(e)(9)(H)(ii) provides that if an application for a 
suspension of benefits is approved, then the Treasury Department, in 
consultation with the PBGC and the Labor Department, will administer a 
vote of all plan participants and all beneficiaries of deceased 
participants (eligible voters). Any suspension of benefits will take 
effect only after the vote and after a final authorization to suspend 
benefits. Many of the rules relating to the vote are set forth in the 
temporary regulations. However, both the temporary and the proposed 
regulations reserve, for later issuance, provisions on the 
administration of the vote.
    The proposed regulations would provide that if an application for 
suspension is approved, the plan sponsor must take reasonable steps to 
inform eligible voters about the proposed suspension and the vote. This 
includes all eligible voters who can be contacted by reasonable efforts 
pursuant to section 432(e)(9)(F). Anyone whom the plan sponsor has been 
able to locate through these means (or who has otherwise been located 
by the plan sponsor) must be sent a ballot.
    The proposed regulations would require the plan sponsor to provide 
a ballot for the vote \7\ that includes the following:
---------------------------------------------------------------------------

    \7\ The ballot is subject to approval by the Treasury 
Department, in consultation with the PBGC and the Labor Department. 
See section 432(e)(9)(H) and Sec.  1.432(e)(9)-1T(h).
---------------------------------------------------------------------------

     A description of the proposed suspension and its effect, 
including the effect of the suspension on each category or group of 
individuals affected by the suspension and the extent to which they are 
affected;
     A description of the factors considered by the plan 
sponsor in designing the benefit suspension, including but not limited 
to the factors in section 432(e)(9)(D)(vi);
     A description of whether the suspension will remain in 
effect indefinitely or will expire by its own terms (and, if it will 
expire by its own terms, when that will occur);
     A statement from the plan sponsor in support of the 
proposed suspension;
     A statement in opposition to the proposed suspension 
compiled from comments received pursuant to the solicitation of 
comments in the Federal Register notice with respect to the 
application;
     A statement that the proposed suspension has been approved 
by the Secretary of the Treasury, in consultation with the PBGC and the 
Secretary of Labor;
     A statement that the plan sponsor has determined that the 
plan will become insolvent unless the proposed suspension takes effect 
(including the year in which insolvency is projected to occur without a 
suspension of benefits), and an accompanying statement that this 
determination is subject to uncertainty;
     A statement that insolvency of the plan could result in 
benefits lower than benefits paid under the proposed suspension and a 
description of the projected benefit payments in the event of plan 
insolvency;
     A statement that insolvency of the PBGC would result in 
benefits lower than benefits otherwise paid in the case of plan 
insolvency;
     A statement that the plan's actuary has certified that the 
plan is projected to avoid insolvency, taking into account the proposed 
suspension of benefits (and, if applicable, a proposed partition plan), 
and an accompanying statement that the actuary's projection is subject 
to uncertainty;
     A statement that the suspension will go into effect unless 
a majority of eligible voters vote to reject the suspension and that, 
therefore, a failure to vote has the same effect on the outcome of the 
vote as a vote in favor of the suspension;
     A copy of the individualized estimate that was provided as 
part of the earlier notice described in section 432(e)(9)(F) (or, if 
that individualized estimate is no longer accurate, a corrected version 
of that estimate); and
     A description of the voting procedures, including the 
deadline for voting.
    A proposed suspension is generally permitted to be implemented 
unless rejected by a majority vote of all eligible voters. In 
determining whether a majority of all eligible voters have voted to 
reject the suspension under section 432(e)(9)(H)(ii), the proposed 
regulations would treat any eligible voters to whom ballots have not 
been provided (because the individuals could not be located) as voting 
to reject the suspension at the same rate (in other words, in the same 
percentage) as those to whom ballots have been provided.
Proposed Effective Date
    These regulations are proposed to be effective on and after the 
date of publication in the Federal Register of the Treasury decision 
adopting these rules as final regulations. Until regulations finalizing 
these proposed regulations are issued, taxpayers may not rely on the 
rules set forth in these proposed regulations.
Availability of IRS Documents
    For copies of recently issued revenue procedures, revenue rulings, 
notices and other guidance published in the Internal Revenue Bulletin, 
please visit the IRS Web site at http://www.irs.gov or contact the 
Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20402.
Special Analyses
    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact 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.
    The Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6) requires 
an agency to consider whether the rules it proposes will have a 
significant economic impact on a substantial number of small entities. 
In this case, the IRS and Treasury believe that the regulations likely 
would not have a ``significant economic impact on a substantial number 
of small entities.'' 5 U.S.C. 605. This certification is based on the 
fact that the number of small entities affected by this rule is 
unlikely to be substantial because it is unlikely that a substantial 
number of small multiemployer plans in critical and declining status 
will suspend benefits under section 432(e)(9). Pursuant to section 
7805(f) of the Code, this notice of proposed rulemaking has been 
submitted to the Chief Counsel of 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 
to the Treasury Department and the IRS as prescribed in this preamble 
under the ADDRESSES heading. The Treasury Department and the IRS 
request comments on all aspects of the proposed rules (including both 
the provisions set forth in this notice of proposed rulemaking and the 
provisions set forth in the cross-referenced temporary regulations). 
Comments are specifically requested on the demonstration of avoidance 
of insolvency, including the rules related to the use of the extended 
period for this purpose. In addition, comments are requested on the 
rules

[[Page 35271]]

relating to the demonstration that the suspension is not materially in 
excess of the level necessary to avoid insolvency.
    All comments will be available for public inspection and copying at 
www.regulations.gov or upon request. Please Note: All comments will be 
made available to the public. Do not include any personally 
identifiable information (such as Social Security number, name, 
address, or other contact information) or confidential business 
information that you do not want publicly disclosed. All comments may 
be posted on the Internet and can be retrieved by most Internet search 
engines.
    A public hearing on these proposed regulations has been scheduled 
for September 10, 2015, beginning at 9:00 a.m. in the Amphitheater of 
the Ronald Reagan Building and International Trade Center, 1300 
Pennsylvania Ave. NW., Washington, DC.
    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 August 18, 2015, 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 August 18, 2015. A period of up to 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.
    For information about the hearing, see the FOR FURTHER INFORMATION 
CONTACT section of this preamble.
Contact Information
    For general questions regarding these regulations, please contact 
the Department of the Treasury at (202) 622-1559 (not a toll-free 
number). For information regarding a specific application for a 
suspension of benefits, please contact the Department of the Treasury 
at (202) 622-1534 (not a toll-free number).

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

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 1.432(e)(9)-1 is added to read as follows:


Sec.  1.432(e)(9)-1  Benefit suspensions for multiemployer plans in 
critical and declining status.

    (a) General rules on suspension of benefits--(1) General rule. [The 
text of the proposed amendments to Sec.  1.432(e)(9)-1(a)(1) is the 
same as Sec.  1.432(e)(9)-1T(a)(1) published elsewhere in this issue of 
the Federal Register.]
    (2) Adoption of plan terms inconsistent with suspension 
requirements--(i) General rule. [The text of the proposed amendments to 
Sec.  1.432(e)(9)-1(a)(2)(i) is the same as Sec.  1.432(e)(9)-
1T(a)(2)(i) published elsewhere in this issue of the Federal Register.]
    (ii) Changes in level of suspension. A plan's terms are consistent 
with the requirements of section 432(e)(9) even if the plan provides 
that, instead of a suspension of benefits occurring in full on a 
specified effective date, the amount of a suspension will phase in or 
otherwise change in a definite, pre-determined manner as of a specified 
future effective date or dates. However, a plan's terms are 
inconsistent with the requirements of section 432(e)(9) if they provide 
that the amount of a suspension will change contingent upon the 
occurrence of any other specified future event, condition, or 
development. For example, a plan is not permitted to provide that an 
additional or larger suspension of benefits is triggered if the plan's 
funded status deteriorates. Similarly, a plan is not permitted to 
provide that, contingent upon a specified future event, condition, or 
development, a suspension of benefits will be automatically reduced 
(except upon a failure to satisfy the annual requirement, described in 
paragraph (c)(4) of this section, that the plan sponsor make 
determinations that the plan is projected to avoid insolvency unless 
benefits are suspended).
    (3) Organization of the regulation. This paragraph (a) contains 
definitions and general rules relating to a suspension of benefits by a 
multiemployer plan under section 432(e)(9). Paragraph (b) of this 
section defines a suspension of benefits and describes the length of a 
suspension, the treatment of beneficiaries and alternate payees under 
this section, and the requirement to select a retiree representative. 
Paragraph (c) of this section contains rules for the actuarial 
certification and plan-sponsor determinations that must be made in 
order for a plan to suspend benefits. Paragraph (d) of this section 
describes limitations on suspensions of benefits. Paragraph (e) of this 
section describes limitations on benefit improvements that may be made 
while a suspension of benefits is in effect. Paragraph (f) of this 
section describes the requirement to provide notice in connection with 
an application to suspend benefits. Paragraph (g) of this section 
describes the approval or denial of an application for a suspension of 
benefits. Paragraph (h) of this section contains certain rules relating 
to the vote on an approved suspension, systemically important plans, 
and the issuance of a final authorization to suspend benefits.
    (4) Definitions. The following definitions apply for purposes of 
this section--(i) Pay status. [The text of the proposed amendments to 
Sec.  1.432(e)(9)-1(a)(4)(i) is the same as Sec.  1.432(e)(9)-
1T(a)(4)(i) published elsewhere in this issue of the Federal Register.]
    (ii) Plan sponsor. [The text of the proposed amendments to Sec.  
1.432(e)(9)-1(a)(4)(ii) is the same as Sec.  1.432(e)(9)-1T(a)(4)(ii) 
published elsewhere in this issue of the Federal Register.]
    (iii) Effective date of suspension of benefits--(A) In general. In 
the case of an individual who has commenced benefits, the effective 
date of a suspension of benefits is the first date as of which a 
portion of the individual's benefits are not paid as a result of the 
suspension. In the case of an individual who has not yet commenced 
benefits, the effective date of a suspension of benefits is the first 
date as of which the individual's accrued benefit is reduced as a 
result of the suspension.
    (B) Phased-in suspension. If a suspension of benefits provides for 
more than one reduction in benefits over time, such that benefits are 
scheduled to be reduced by an additional amount after benefits are 
first reduced pursuant to the suspension, then each date as of which 
benefits are reduced is treated as a separate effective date of the 
suspension. However, if the effective date of the final scheduled 
reduction in benefits in a series of reductions pursuant to a 
suspension is less than three years later than the effective date of 
the first reduction, the effective date of the first reduction will be 
treated as the effective date of all subsequent reductions pursuant to 
that suspension.
    (C) Effective date may not be retroactive. The effective date of a 
suspension may not precede the date on which a final authorization to 
suspend benefits is issued pursuant to paragraph (h)(6) of this 
section.
    (b) Definition of suspension of benefits and related rules. [The 
text of the proposed amendments to Sec.  1.432(e)(9)-1(b) is the same 
as

[[Page 35272]]

Sec.  1.432(e)(9)-1T(b) published elsewhere in this issue of the 
Federal Register.]
    (c) Conditions for suspension--(1) In general--(i) Actuarial 
certification and initial-plan-sponsor determinations. [The text of the 
proposed amendments to Sec.  1.432(e)(9)-1(c)(1)(i) is the same as 
Sec.  1.432(e)(9)-1T(c)(1)(i) published elsewhere in this issue of the 
Federal Register.]
    (ii) Annual requirement to make plan-sponsor determinations. As 
provided in paragraph (c)(5) of this section, the suspension will 
continue only if the plan sponsor continues to make the annual-plan-
sponsor determinations described in paragraph (c)(4) of this section.
    (2) Actuarial certification. [The text of the proposed amendments 
to Sec.  1.432(e)(9)-1(c)(2) is the same as Sec.  1.432(e)(9)-1T(c)(2) 
published elsewhere in this issue of the Federal Register.]
    (3) Initial-plan-sponsor determinations. [The text of the proposed 
amendments to Sec.  1.432(e)(9)-1(c)(3) is the same as Sec.  
1.432(e)(9)-1T(c)(3) published elsewhere in this issue of the Federal 
Register.]
    (4) Annual-plan-sponsor determinations--(i) General rule. A plan 
satisfies the annual-plan-sponsor determinations requirement of this 
paragraph (c)(4) for a plan year only if the plan sponsor determines, 
no later than the last day of the plan year, that--
    (A) All reasonable measures to avoid insolvency have been and 
continue to be taken; and
    (B) The plan is not projected to avoid insolvency (determined using 
the standards described in paragraphs (d)(5)(ii), (iv), and (v) of this 
section, substituting the current plan year for the plan year that 
includes the effective date of the suspension) unless the suspension of 
benefits continues (or another suspension of benefits under section 
432(e)(9) is implemented) for the plan.
    (ii) Factors. In making its determination that all reasonable 
measures to avoid insolvency have been and continue to be taken, the 
plan sponsor may take into account the non-exclusive list of factors in 
paragraph (c)(3)(ii) of this section.
    (iii) Requirement to maintain written record. The plan sponsor must 
maintain a written record of the annual-plan-sponsor determinations 
made under this paragraph (c)(4). The written record must be included 
in an update to the rehabilitation plan, whether or not there is 
otherwise an update for that year (or, if the plan is no longer in 
critical status, must be included in the documents under which the 
plain is maintained). The written record of the determinations must 
describe the plan sponsor's consideration of factors, as described in 
paragraph (c)(4)(ii) of this section.
    (5) Failure to make annual-plan-sponsor determinations. If a plan 
sponsor fails to satisfy the annual-plan-sponsor determinations 
requirement of paragraph (c)(4) of this section for a plan year 
(including maintaining the written record described in paragraph 
(c)(4)(iii) of this section), then the suspension of benefits will 
cease to be in effect beginning as of the first day of the next plan 
year.
    (d) Limitations on suspension--(1) In general. [The text of the 
proposed amendments to Sec.  1.432(e)(9)-1(d)(1) is the same as Sec.  
1.432(e)(9)-1T(d)(1) published elsewhere in this issue of the Federal 
Register.]
    (2) Guarantee-based limitation--(i) General rule. [The text of the 
proposed amendments to Sec.  1.432(e)(9)-1(d)(2)(i) is the same as 
Sec.  1.432(e)(9)-1T(d)(2)(i) published elsewhere in this issue of the 
Federal Register.]
    (ii) PBGC guarantee. Under section 4022A of the Employee Retirement 
Income Security Act of 1974, Public Law 93-406 (88 Stat. 829 (1974)), 
as amended (ERISA), the monthly benefit of a participant or beneficiary 
that would be guaranteed by the Pension Benefit Guaranty Corporation 
(PBGC) with respect to a plan if the plan were to become insolvent as 
of the effective date of the suspension is generally based on section 
4022A(c)(1) of ERISA. Under that section, the monthly benefit that 
would be guaranteed if the plan were to become insolvent as of the date 
as of which the guarantee is determined is the product of--
    (A) 100 percent of the accrual rate up to $11, plus 75 percent of 
the lesser of--
    (1) $33; or
    (2) The accrual rate, if any, in excess of $11; and
    (B) The number of the participant's years and months of credited 
service as of that date.
    (iii) Calculation of accrual rate. The accrual rate, as defined in 
section 4022A(c)(2) of ERISA, is calculated by dividing--
    (A) The participant's or beneficiary's monthly benefit, described 
in section 4022A(c)(2)(A) of ERISA; by
    (B) The participant's years of credited service, described in 
section 4022A(c)(3) of ERISA, as of the effective date of the 
suspension.
    (iv) Special rule for non-vested participants. For purposes of this 
paragraph (d)(2), a participant's nonforfeitable benefits under section 
4022A(a) of ERISA include benefits that are forfeitable as of the 
effective date of the suspension, provided that the participant would 
have a nonforfeitable right to those benefits if the participant 
continued to earn vesting service following that date.
    (v) Examples. The following examples illustrate the limitation on a 
suspension of benefits in this paragraph (d)(2). Unless otherwise 
stated, the amount of guarantee payable by PBGC in these examples is 
based on section 4022A(c) of ERISA, and the rules under section 
4022A(d) of ERISA (guarantee for benefits reduced under section 
411(a)(3)(E)), section 4022A(e) of ERISA (benefits ineligible for 
guarantee), and section 4022A(h) of ERISA (guarantee for benefits 
accrued as of July 30, 1980) do not apply. In these examples, unless 
otherwise stated, the monthly benefits are nonforfeitable, are based on 
benefits that have been in effect for at least 60 months as of the 
effective date of the suspension, and are no greater than the monthly 
benefit that would be payable at normal retirement age in the form of a 
single life annuity.

    Example 1. (i) Facts. A participant is receiving a benefit of 
$1,500 per month. The participant has 30 years of credited service 
under the plan.
    (ii) Calculation of accrual rate. The participant's accrual rate 
is $50, calculated by dividing the participant's monthly benefit 
payment ($1,500) by the participant's years of credited service 
(30).
    (iii) Calculation of monthly PBGC-guaranteed benefit. The first 
$11 of the accrual rate is fully guaranteed, and the next $33 of the 
accrual rate is 75% guaranteed ($33 x .75 = $24.75). The 
participant's monthly guaranteed benefit per year of credited 
service is $35.75 ($11 + $24.75 = $35.75). The PBGC guarantee 
formula is then applied to produce the amount of guarantee payable 
by PBGC, which is $1,072.50 ($35.75 x 30 years = $1,072.50).
    (iv) Calculation of guarantee-based limitation. A suspension of 
benefits may not reduce the participant's benefits below the 
guarantee-based limitation, which is equal to 110% of the amount of 
guarantee payable by PBGC. That monthly amount is $1,179.75 
($1,072.50 x 1.1 = $1,179.75).
    Example 2. (i) Facts. The facts are the same as in Example 1, 
except that the participant is deceased and the participant's 
beneficiary is receiving a monthly benefit of $750 under a 50% joint 
and survivor annuity.
    (ii) Calculation of accrual rate. The beneficiary's accrual rate 
is $25, calculated by dividing the beneficiary's monthly benefit 
payment ($750) by the participant's years of credited service (30).
    (iii) Calculation of monthly PBGC-guaranteed benefit. The first 
$11 of the accrual rate is fully guaranteed, and the next $14 ($25 - 
$11 = $14) of the accrual rate is 75% guaranteed ($14 x .75 = 
$10.50). The beneficiary's monthly guaranteed benefit is $21.50 per 
year of credited service ($11 + $10.50 = $21.50). The PBGC guarantee

[[Page 35273]]

formula is then applied to produce the amount of guarantee payable 
by PBGC, which is $645 ($21.50 x 30 years = $645).
    (iv) Calculation of guarantee-based limitation. A suspension of 
benefits may not reduce the beneficiary's benefits below the 
guarantee-based limitation, which is equal to 110% of the monthly 
amount of guarantee payable by PBGC. That monthly guarantee-based 
limitation amount is $709.50 ($645 x 1.1 = $709.50).
    Example 3. (i) Facts. A participant would be eligible for a 
monthly benefit of $1,000 payable as a single life annuity at normal 
retirement age, based on the participant's 25 years of credited 
service. The plan also permits a participant to receive a benefit on 
an unreduced basis as a single life annuity at early retirement age 
and permits participants to receive an early retirement benefit in 
the form of a Social Security level income option. Under the Social 
Security level income option, the participant receives a monthly 
benefit of $1,600 prior to normal retirement age (which is the 
plan's assumed Social Security retirement age) and $900 after normal 
retirement age.
    (ii) Calculation of accrual rate. For purposes of calculating 
the accrual rate, the monthly benefit that is used to calculate the 
PBGC guarantee does not exceed the monthly benefit of $1,000 that 
would be payable at normal retirement age. In calculating the 
accrual rate, the amount of guarantee payable by PBGC would be based 
on a monthly benefit of $1,000 prior to normal retirement age and 
$900 after normal retirement age. Before normal retirement age, the 
participant's accrual rate is $40, determined by dividing the 
participant's monthly benefit payment ($1,000) by years of credited 
service (25). After normal retirement age, the participant's accrual 
rate is $36, calculated by dividing the participant's monthly 
benefit payment ($900) by the participant's years of credited 
service (25).
    (iii) Calculation of monthly PBGC-guaranteed benefit. Before 
normal retirement age, the first $11 of the accrual rate is fully 
guaranteed, and the next $29 of the accrual rate is 75% guaranteed 
($29 x .75 = $21.75). The participant's monthly guaranteed benefit 
per year of credited service is $32.75 ($11 + $21.75 = $32.75). The 
PBGC guarantee formula is then applied to produce the amount of 
guarantee payable by PBGC, which is $818.75 ($32.75 x 25 years = 
$818.75). After normal retirement age, the first $11 of the accrual 
rate is fully guaranteed, and the next $25 of the accrual rate is 
75% guaranteed ($25 x .75 = $18.75). The participant's monthly 
guaranteed benefit per year of credited service is $29.75 ($11 + 
$18.75 = $29.75). The PBGC guarantee formula is then applied to 
produce the amount of guarantee payable by PBGC, which is $743.75 
after normal retirement age ($29.75 x 25 years = $743.75).
    (iv) Calculation of guarantee-based limitation. A suspension of 
benefits may not reduce the participant's benefits below the 
guarantee-based limitation, which is equal to 110% of the monthly 
amount of guarantee payable by PBGC. That monthly guarantee-based 
limitation amount is $900.63 ($818.75 x 1.1 = $900.63) before normal 
retirement age and $818.13 ($743.75 x 1.1 = $818.13) after normal 
retirement age.
    Example 4. (i) Facts. A participant would be eligible for a 
monthly benefit of $1,000 payable as a single life annuity at normal 
retirement age, based on the participant's 20 years of credited 
service. The plan provides an actuarial increase for delaying 
benefits until after normal retirement age. The participant delays 
commencement of benefits until after normal retirement age and the 
participant's monthly benefit is $1,200 instead of $1,000.
    (ii) Calculation of accrual rate. For purposes of calculating 
the accrual rate, the monthly benefit that is used to calculate the 
PBGC guarantee does not exceed the monthly benefit of $1,000 that 
would be payable at normal retirement age. Thus, in determining the 
accrual rate, the PBGC guarantee would be based on a monthly benefit 
of $1,000, whether benefits are paid at or after normal retirement 
age. The participant's accrual rate is $50, calculated by dividing 
the participant's monthly benefit payment ($1,000) by the 
participant's years of credited service (20).
    (iii) Calculation of monthly PBGC-guaranteed benefit. The first 
$11 of the accrual rate is fully guaranteed, and the next $33 of the 
accrual rate is 75% guaranteed ($33 x .75 = $24.75). The 
participant's monthly guaranteed benefit per year of credited 
service is $35.75 ($11 + $24.75 = $35.75). The PBGC guarantee 
formula is then applied to produce the amount of guarantee payable 
by PBGC, which is $715 ($35.75 x 20 years = $715).
    (iv) Calculation of guarantee-based limitation. A suspension of 
benefits may not reduce the participant's benefits below the 
guarantee-based limitation, which is equal to 110% of the monthly 
amount of guarantee payable by PBGC. That monthly guarantee-based 
limitation amount is $786.50 ($715 x 1.1 = $786.50).
    Example 5. (i) Facts. A plan provides that a participant who has 
completed at least five years of service will have a nonforfeitable 
right to 100% of an accrued benefit (and will not have a 
nonforfeitable right to any portion of the accrued benefit prior to 
completing five years of service). The plan implements a suspension 
of benefits on January 1, 2017. As of that date, a participant has 
three years of vesting service, and none of the participant's 
benefits are nonforfeitable under the terms of the plan.
    (ii) Calculation of nonforfeitable benefits. For purposes of 
applying the guarantee-based limitation, the participant is 
considered to have a nonforfeitable right to 100% of the accrued 
benefit under the plan as of January 1, 2017.

    (3) Age-based limitation--(i) No suspension for participants or 
beneficiaries who are age 80 and older. No suspension of benefits is 
permitted to apply to a participant, beneficiary, or alternate payee 
who--
    (A) Has commenced benefits as of the effective date of the 
suspension; and
    (B) Has attained 80 years of age no later than the end of the month 
that includes the effective date of the suspension.
    (ii) Limited suspension for participants and beneficiaries between 
ages 75 and 80. No more than the applicable percentage of the maximum 
suspendable benefit may be suspended for a participant, beneficiary, or 
alternate payee who--
    (A) Has commenced benefits as of the effective date of the 
suspension; and
    (B) Has attained 75 years of age no later than the end of the month 
that includes the effective date of the suspension.
    (iii) Maximum suspendable benefit--(A) In general. For purposes of 
this paragraph (d)(3), the maximum suspendable benefit with respect to 
a participant, beneficiary, or alternate payee is the portion of the 
individual's benefits that would otherwise be suspended pursuant to 
this section (that is, the amount that would be suspended without 
regard to the limitation in this paragraph (d)(3)).
    (B) Coordination of limitations. An individual's maximum 
suspendable benefit is calculated after the application of the 
guarantee-based limitation under paragraph (d)(2) of this section and 
the disability-based limitation under paragraph (d)(4) of this section.
    (iv) Applicable percentage. For purposes of this paragraph (d)(3), 
the applicable percentage is the percentage obtained by dividing--
    (A) The number of months during the period beginning with the month 
after the month in which the suspension of benefits is effective and 
ending with the month during which the participant or beneficiary 
attains the age of 80, by
    (B) 60.
    (v) Applicability of age-based limitation to benefits paid to 
beneficiaries. If the age-based limitation in this paragraph (d)(3) 
applies to a participant on the effective date of the suspension, then 
the age-based limitation also applies to the beneficiary of the 
participant, based on the age of the participant on the effective date 
of the suspension.
    (vi) Rule for benefits that have not commenced at the time of the 
suspension. If benefits have not commenced to either a participant or 
beneficiary as of the effective date of the suspension, then in 
applying this paragraph (d)(3)--
    (A) If the participant is alive on the effective date of the 
suspension, the participant is treated as having commenced benefits on 
that date; and
    (B) If the participant is deceased on effective date of the 
suspension, the

[[Page 35274]]

beneficiary is treated as having commenced benefits on that date.
    (vii) Rules for alternate payees. The age-based limitation in this 
paragraph (d)(3) applies to a suspension of benefits in which an 
alternate payee has an interest, whether or not the alternate payee has 
commenced benefits as of the effective date of the suspension. For 
purposes of this paragraph (d)(3), the applicable percentage for an 
alternate payee is calculated by--
    (A) Using the participant's age as of the effective date of the 
suspension, if the alternate payee's right to the suspended benefits 
derives from a qualified domestic relations order within the meaning of 
section 414(p)(1)(A) (QDRO) under which the alternate payee shares in 
each benefit payment but the participant retains the right to choose 
the time and form of payment with respect to the benefit to which the 
suspension applies (shared payment QDRO); or
    (B) Substituting the alternate payee's age as of the effective date 
of the suspension for the participant's age, if the alternate payee's 
right to the suspended benefits derives from a QDRO under which the 
alternate payee has a separate right to receive a portion of the 
participant's retirement benefit to be paid at a time and in a form 
different from that chosen by the participant (separate interest QDRO).
    (viii) Examples. The following examples illustrate the rules of 
this paragraph (d)(3):

    Example 1. (i) Facts. The plan sponsor of a plan in critical and 
declining status is implementing a suspension of benefits, effective 
December 1, 2017, that would reduce all benefit payments under the 
plan by 30%. On that date, a retiree is receiving a monthly benefit 
of $1,500 (which is not a benefit based on disability) and has 28 
years of credited service under the plan. If none of the limitations 
in section 432(e)(9)(D)(i), (ii), and (iii) were to apply, a 30% 
suspension would reduce the retiree's monthly benefit by $450, to 
$1,050. Under the guarantee-based limitation in section 
432(e)(9)(D)(i), the retiree's monthly benefit could not be reduced 
by more than $398.90, to $1,101.10 (1.1 x (28 x ($11 + (.75 x 
$33)))). The retiree is 77 years old on the effective date of the 
suspension, turns 78 on December 15, 2017, and turns 80 on December 
15, 2019.
    (ii) Maximum suspendable benefit. Because the retiree is not 
receiving a benefit based on disability under section 
432(e)(9)(D)(iii), the retiree's maximum suspendable benefit is 
$398.90 (which is equal to the lesser of reduction that would apply 
pursuant to the 30% suspension ($450) or the amount of reduction 
that would be permitted under the guarantee-based limitation 
($398.90)).
    (iii) Applicable percentage. Because the retiree is between ages 
75 and 80 on the effective date of the suspension, the reduction is 
not permitted to exceed the applicable percentage of the retiree's 
maximum suspendable benefit. The number of months during the period 
beginning with January 2018 (the month after the month that includes 
the effective date of the suspension) and ending with December 2019 
(the month in which the retiree turns 80) is 24. The applicable 
percentage is equal to 40% (24 months divided by 60).
    (iv) Age-based limitation. The retiree's maximum suspendable 
benefit is $398.90 and the applicable percentage is 40%. Thus, under 
the age-based limitation, the retiree's benefit may not be reduced 
by more than $159.56 ($398.90 x .40 = $159.56). Because the retiree 
was receiving a monthly benefit of $1,500, the suspension of 
benefits may not reduce the retiree's monthly benefit below 
$1,340.44 ($1,500 - $159.56 = $1,340.44).
    Example 2. (i) Facts. The facts are the same as Example 1, 
except that the retiree is 79 years old on December 1, 2017, and 
turns 80 on December 15, 2017.
    (ii) Age-based limitation. The suspension is not permitted to 
apply to the retiree because the retiree will turn 80 by the end of 
the month (December 2017) in which the suspension is effective.
    Example 3. (i) Facts. The facts are the same as Example 1, but 
on the effective date of the suspension, the retiree is receiving a 
benefit in the form of a 50% joint and survivor annuity for himself 
and a contingent beneficiary who is age 71. The retiree dies in 
October 2018.
    (ii) Application of age-based limitation to contingent 
beneficiary. Because the retiree had attained age 78 in the month 
that included the effective date of the suspension, the age-based 
limitation on the suspension of benefits for a 78-year-old 
individual applies to the retiree. The age-based limitation also 
applies to the contingent beneficiary, even though the contingent 
beneficiary had not commenced benefits under the plan as of the 
effective date of the suspension and had not attained age 75 by the 
end of the month containing the effective date of the suspension.
    (iii) Maximum suspendable benefit. The contingent beneficiary's 
amount of guarantee payable by PBGC is based on the benefit the 
beneficiary would have received from the plan before the suspension 
($750). The beneficiary's accrual rate is $26.7857 (calculated by 
dividing the monthly benefit payment ($750) by years of credited 
service (28)) and the beneficiary's amount of guarantee payable by 
PBGC is $639.50 (28 x ($11 + (.75 x $15.7857))). The beneficiary's 
maximum suspendable benefit is $46.55 (which is equal to the lesser 
of reduction that would apply pursuant to the 30% suspension ($225) 
or the amount of reduction that would be permitted under the 
guarantee-based limitation ($46.55, which is equal to ($750 - 1.1 x 
639.50)).
    (iv) Applicable percentage. The applicable percentage for the 
beneficiary is based on the retiree's age of 78 on the effective 
date of the suspension. Accordingly, the applicable percentage for 
the beneficiary is 40%.
    (v) Age-based limitation. The beneficiary's maximum suspendable 
benefit is $46.55 and the applicable percentage is 40%. Thus, under 
the age-based limitation, the beneficiary's benefit may not be 
reduced by more than $18.62 ($46.55 x .40 = $18.62). Therefore, as a 
result of the retiree's age-based limitation, the suspension of 
benefits may not reduce the beneficiary's monthly benefit below 
$731.38 ($750 - $18.62 = $731.38).
    Example 4. (i) Facts. The facts are the same as Example 3, 
except that on the effective date of the suspension the retiree is 
age 71 and the retiree's contingent beneficiary is age 77.
    (ii) Application of age-based limitation to contingent 
beneficiary. Because the retiree had not reached age 75 as of the 
effective date of the suspension, the age-based limitation on the 
suspension of benefits does not apply to the retiree. The age-based 
limitation also does not apply to the retiree's contingent 
beneficiary, even though the contingent beneficiary had attained age 
77 as of the effective date of the suspension, because the 
contingent beneficiary had not yet commenced benefits on that date. 
The beneficiary's post-suspension benefit may not be less than 
minimum benefit payable pursuant to the guarantee-based limitation, 
which is $703.45 ($639.50 x 1.1 = $703.45).
    Example 5. (i) Facts. The facts are the same as in Example 4, 
except that the retiree died in October 2017, prior to the December 
1, 2017 effective date of the suspension of benefits. The retiree's 
beneficiary commenced benefits on November 1, 2017.
    (ii) Application of age-based limitation to contingent 
beneficiary. Because the retiree's beneficiary had commenced 
benefits before the effective date of the suspension and had reached 
age 75 by the end of the month that includes the effective date of 
the suspension, the age-based limitation applies to the beneficiary 
based on the beneficiary's age on the effective date of the 
suspension.

    (4) Disability-based limitation--(i) General rule [The text of the 
proposed amendments to Sec.  1.432(e)(9)-1(d)(4)(i) is the same as 
Sec.  1.432(e)(9)-1T(d)(4)(i) published elsewhere in this issue of the 
Federal Register.]
    (ii) Benefits based on disability--(A) In general. For purposes of 
this section, benefits based on disability means the entire amount paid 
to a participant pursuant to the participant becoming disabled, without 
regard to whether a portion of that amount would have been paid if the 
participant had not become disabled.
    (B) Rule for auxiliary or other temporary disability benefits. If a 
participant begins receiving an auxiliary or other temporary disability 
benefit and the sole reason the participant ceases receiving that 
benefit is commencement of retirement benefits, the benefit based on 
disability after commencement of retirement benefits is the lesser of--
    (1) The periodic payment the participant was receiving immediately 
before the participant's retirement benefits commenced; or

[[Page 35275]]

    (2) The total periodic payments to the participant under the plan.
    (C) Examples. The following examples illustrate the disability-
based limitation on a suspension of benefits under this paragraph 
(d)(4):

    Example 1. (i) Facts. A participant with a vested accrued 
benefit of $1,000 per month, payable at age 65, becomes disabled at 
age 55. The plan applies a reduction to the monthly benefit for 
early commencement if the participant commences benefits before age 
65. For a participant who commences receiving benefits at age 55, 
the actuarially adjusted early retirement benefit is 60% of the 
accrued benefit. However, the plan also provides that if a 
participant becomes entitled to an early retirement benefit on 
account of disability, as defined in the plan, the benefit is not 
reduced. On account of a disability, the participant commences an 
unreduced early retirement benefit of $1,000 per month at age 55 
(instead of the $600 monthly benefit the participant would receive 
if the participant were not disabled). The participant continues to 
receive $1,000 per month after reaching age 65.
    (ii) Conclusion. The participant's disability benefit payment of 
$1,000 per month commencing at age 55 is a benefit based on 
disability, even though the participant would have received a 
portion of these benefits at retirement regardless of the 
disability. Thus, both before and after attaining age 65, the 
participant's entire monthly payment amount ($1,000) is a benefit 
based on disability. A suspension of benefits is not permitted to 
apply to any portion of the participant's benefit at any time.
    Example 2. (i) Facts. The facts are the same as Example 1, 
except that the terms of the plan provide that when a disabled 
participant reaches age 65, the disability pension is discontinued 
by reason of reaching age 65, and the retirement benefits commence. 
In this case, the amount of the participant's retirement benefits is 
the same as the amount that the participant was receiving 
immediately before commencing retirement benefits, or $1,000.
    (ii) Conclusion. Before age 65, the participant's disability 
benefit payment of $1,000 per month commencing at age 55 is a 
benefit based on disability. After age 65, the periodic payment of 
$1,000 per month that the participant was receiving immediately 
before commencing retirement benefits is a benefit based on 
disability. Thus, both before and after attaining age 65, the 
participant's entire monthly payment amount ($1,000) is a benefit 
based on disability. A suspension of benefits is not permitted to 
apply to any portion of the participant's benefit at any time.
    Example 3. (i) Facts. The facts are the same as Example 2, 
except that upon reaching age 65, the participant elects to commence 
payment of retirement benefits not in the form of a single life 
annuity payable in the amount of $1,000 per month but instead in the 
form of an actuarially equivalent joint and survivor annuity payable 
in the amount of $850 per month.
    (ii) Conclusion. Before age 65, the participant's benefit based 
on disability is $1,000 per month. After age 65, the participant's 
benefit based on disability is $850 per month. Thus, a suspension of 
benefits is not permitted to apply to any portion of those benefits 
at any time.
    Example 4. (i) Facts. A participant's disability pension is a 
specified amount unrelated to the participant's accrued benefit. The 
participant's disability benefit commencing at age 55 is $750 per 
month. Upon reaching age 65, the participant's disability pension is 
discontinued by reason of reaching age 65 and the participant elects 
to receive an accrued benefit payable in the amount of $1,000 per 
month.
    (ii) Conclusion. Before age 65, the participant's benefit based 
on disability is $750 per month. After age 65, the participant's 
benefit based on disability continues to be $750 per month (even 
though the participant's payment is $1,000 per month), because the 
benefit based on disability is the lesser of the periodic disability 
pension the participant was receiving immediately before retirement 
benefits commenced ($750) and the periodic payment to the 
participant under the plan ($1,000). Thus, a suspension of benefits 
is not permitted to reduce the participant's benefit based on 
disability ($750 per month) at any time.
    Example 5. (i) Facts. The facts are the same as Example 2, 
except that when the participant attains age 65, the participant's 
monthly benefit payment increases from $1,000 to $1,300 as a result 
of the plan providing additional accruals during the period of 
disability, as if the participant was not disabled.
    (ii) Conclusion. As in Example 2, before age 65, the 
participant's benefit payment of $1,000 per month commencing at age 
55 is a benefit based on disability. After age 65, the participant's 
benefit payment of $1,300 per month is a benefit based on disability 
because the $1,300 is payable based on additional accruals earned 
pursuant to the participant becoming disabled. Thus, both before and 
after attaining age 65, the participant's entire monthly payment 
amount is a benefit based on disability. A suspension of benefits is 
not permitted to apply to any portion of the participant's benefit 
at any time.
    Example 6. (i) Facts. The facts are the same as Example 3 of 
paragraph (d)(2)(v) of this section, except that the Social Security 
level income option is only available to a participant who incurs a 
disability as defined in the plan.
    (ii) Conclusion. Before normal retirement age, the participant's 
benefit payment of $1,600 per month is a benefit based on 
disability. After normal retirement age, the participant's benefit 
based on disability is $900, which is the lesser of the $1,600 
periodic payment that the participant was receiving immediately 
before the participant's normal retirement benefit commenced and the 
participant's $900 normal retirement benefit. Thus, a suspension of 
benefits is not permitted to apply to any portion of those benefits 
($1,600 per month before and $900 per month after normal retirement 
age) at any time.
    Example 7. (i) Facts. A plan applies a reduction to the monthly 
benefit for early commencement if a participant commences benefits 
before age 65. The plan also provides that if a participant becomes 
disabled, as defined in the plan, the benefit that is paid before 
normal retirement age is not reduced for early retirement. Under the 
plan, when a disabled participant reaches age 65, the disability 
pension is discontinued by reason of reaching age 65 and the 
retirement benefits commence. A participant with a vested accrued 
benefit of $1,000 per month, payable at age 65, becomes disabled at 
age 55. On account of the disability, the participant commences 
benefits at age 55 in the amount of $1,000 per month (instead of the 
$600 monthly benefit the participant could have received at that age 
if the participant were not disabled). The participant recovers from 
the disability at age 60, and the participant's disability benefits 
cease. At age 60, the participant immediately elects to begin an 
early retirement benefit of $800.
    (ii) Conclusion. The participant's disability benefit payment of 
$1,000 per month commencing at age 55 is a benefit based on 
disability, even though the participant would have received a 
portion of these benefits at retirement regardless of the 
disability. Because the participant ceased receiving disability 
benefits on account of the participant no longer being disabled (and 
not solely on account of commencing retirement benefits), the 
participant's early retirement benefit of $800 per month that began 
after the disability benefit ended is not a benefit based on 
disability.

    (5) Limitation on aggregate size of suspension--(i) General rule. 
Any suspension of benefits (considered, if applicable, in combination 
with a partition of the plan under section 4233 of ERISA (partition)) 
must be at a level that is reasonably estimated to--
    (A) Enable the plan to avoid insolvency; and
    (B) Not materially exceed the level that is necessary to enable the 
plan to avoid insolvency.
    (ii) Suspension sufficient to avoid insolvency--(A) General rule. A 
suspension of benefits (considered, if applicable, in combination with 
a partition of the plan) will satisfy the requirement that it is at a 
level that is reasonably estimated to enable the plan to avoid 
insolvency if--
    (1) For each plan year throughout an extended period (as described 
in paragraph (d)(5)(ii)(C) of this section) beginning on the first day 
of the plan year that includes the effective date of the suspension, 
the plan's solvency ratio is projected on a deterministic basis to be 
at least 1.0;
    (2) Based on stochastic projections reflecting variance in 
investment return, the probability that the plan will avoid insolvency 
throughout the extended period is more than 50 percent; and
    (3) Unless the plan's projected funded percentage (within the 
meaning of section 432(j)(2)) at the end of the

[[Page 35276]]

extended period using a deterministic projection exceeds 100 percent, 
then the projection shows that at all times during the last five plan 
years of that period, there is no projected decrease in either the 
plan's solvency ratio or its available resources (as defined in section 
418E(b)(3)).
    (B) Solvency ratio. For purposes of this section, a plan's solvency 
ratio for a plan year means the ratio of--
    (1) The plan's available resources (as defined in section 
418E(b)(3)) for the plan year; to
    (2) The scheduled benefit payments under the plan for the plan 
year.
    (C) Extended period. For purposes of this section, an extended 
period means a period of at least 30 plan years. However, in the case 
of a temporary suspension of benefits that is scheduled to cease as of 
a date that is more than 25 years after the effective date, the 
extended period must be lengthened so that it ends no earlier than five 
plan years after the cessation of the suspension.
    (iii) Suspension not materially in excess of level necessary to 
avoid insolvency--(A) General rule. A suspension of benefits will 
satisfy the requirement under paragraph (d)(5)(i)(B) of this section 
that the suspension be at a level that is reasonably estimated to not 
materially exceed the level necessary for the plan to avoid insolvency 
only if an alternative, similar but smaller suspension of benefits, 
under which the dollar amount of the suspension for each participant 
and beneficiary is reduced by five percent would not be sufficient to 
enable the plan to satisfy the requirement to avoid insolvency under 
paragraph (d)(5)(i)(A) of this section.
    (B) Special rule for partitions. If the PBGC issues an order 
partitioning the plan, then a suspension of benefits with respect to 
the plan will be deemed to satisfy the requirement under paragraph 
(d)(5)(i)(B) of this section that the suspension be at a level that is 
reasonably estimated to not materially exceed the level necessary for 
the plan to avoid insolvency.
    (iv) Actuarial basis for projections--(A) In general. This 
paragraph (d)(5)(iv) sets forth rules for the actuarial projections 
that are required under this paragraph (d)(5). The projections must 
reflect the assumption that the suspension of benefits continues 
indefinitely (or, if the suspension expires on a specified date by its 
own terms, until that date).
    (B) Reasonable actuarial assumptions and methods. The actuarial 
assumptions and methods used for the actuarial projections must be 
reasonable, in accordance with the rules of section 431(c)(3). The 
actuary's selection of assumptions about future covered employment and 
contribution levels (including contribution base units and average 
contribution rate) may be based on information provided by the plan 
sponsor, which must act in good faith in providing the information. In 
addition, to the extent that the actuarial assumptions used for the 
deterministic projection differ from those used to certify whether the 
plan is in critical and declining status pursuant to section 
432(b)(3)(B)(iv), a justification for that difference must be provided. 
Similarly, to the extent that the actuarial assumptions used for the 
stochastic projection differ from those used for the deterministic 
projection (other than the rate of investment return), a justification 
for that difference must be provided.
    (C) Initial value of plan assets and cash flow projections. Except 
as provided in paragraph (d)(5)(iv)(D) of this section, the cash flow 
projections must be based on--
    (1) The fair market value of assets as of end of the most recent 
calendar quarter;
    (2) Projected benefit payments that are consistent with the 
projected benefit payments under the most recent actuarial valuation; 
and
    (3) Appropriate adjustments to projected benefit payments to 
include benefits for new hires who are reflected in the projected 
contribution amounts.
    (D) Requirement to reflect significant events. The projected cash 
flows relating to contributions, withdrawal liability payments, and 
benefit payments must also be adjusted to reflect significant events 
that occurred after the most recent actuarial valuation. Significant 
events include--
    (1) A plan merger or transfer;
    (2) The withdrawal or the addition of employers that changed 
projected cash flows relating to contributions, withdrawal liability 
payments, or benefit payments by more than five percent;
    (3) A plan amendment, a change in a collective bargaining 
agreement, or a change in a rehabilitation plan that changed projected 
cash flows relating to contributions, withdrawal liability payments, or 
benefit payments by more than five percent; or
    (4) Any other event or trend that resulted in a material change in 
the projected cash flows.
    (v) Simplified determination for smaller plans. In the case of a 
plan that is not large enough to be required to select a retiree 
representative under paragraph (b)(4) of this section, the 
determination of whether the benefit suspension (or a benefit 
suspension in combination with a partition of the plan) will satisfy 
the requirement that it is at a level that is reasonably estimated to 
enable the plan to avoid insolvency is permitted to be made without 
regard to paragraph (d)(5)(ii)(A)(2) of this section.
    (vi) Additional disclosure--(A) Disclosure of past experience for 
critical assumptions. The application for suspension must include a 
disclosure of the total contributions, total contribution base units 
and average contribution rate, withdrawal liability payments, and the 
rate of return on plan assets for each of the 10 plan years preceding 
the plan year in which the application is submitted.
    (B) Sensitivity of results to investment return assumptions. The 
application must include deterministic projections of the plan's 
solvency ratio over the extended period using two alternative 
assumptions for the plan's rate of return. These alternatives are that 
the plan's future rate of return will be lower than the assumed rate of 
return used under paragraph (d)(5)(iv)(B) of this section by--
    (1) One percentage point; and
    (2) Two percentage points.
    (C) Sensitivity of results to industry level assumptions. The 
application must include deterministic projections of the plan's 
solvency ratio over the extended period using two alternative 
assumptions for the future contribution base units. These alternatives 
are that the future contribution base units--
    (1) Continue under the same trend as the plan experienced over the 
past 10 years; and
    (2) Continue under the trend identified in paragraph 
(d)(5)(vi)(C)(1) of this section reduced by one percentage point.
    (D) Projection of funded percentage. The application must include 
an illustration, prepared on a deterministic basis, of the projected 
value of plan assets, the accrued liability of the plan (calculated 
using the unit credit funding method), and the funded percentage for 
each year in the extended period.
    (6) Equitable distribution--(i) In general. Any suspension of 
benefits must be equitably distributed across the participant and 
beneficiary population, taking into account factors, with respect to 
participants and beneficiaries and their benefits, that may include one 
or more of the factors described in paragraph (d)(6)(ii) of this 
section. If a suspension of benefits applies differently to different 
categories or groups of participants and beneficiaries, then the 
suspension of benefits is equitably distributed across the

[[Page 35277]]

participant and beneficiary population only if under the suspension--
    (A) Within each such category or group, the individuals are treated 
consistently;
    (B) Any difference in treatment among the different categories or 
groups is based on relevant factors reasonably selected by the plan 
sponsor, such as the factors described in paragraph (d)(6)(ii) of this 
section; and
    (C) Any such difference in treatment is based on a reasonable 
application of the relevant factors.
    (ii) Factors that may be considered--(A) In general. In accordance 
with paragraph (d)(6)(i)(B) of this section, if there is any difference 
in the application of the suspension of benefits between one 
classification of participants and beneficiaries and another 
classification of participants and beneficiaries, that difference must 
be based reasonably on the statutory factors (described in paragraph 
(d)(6)(ii)(B) of this section) and any other factors reasonably 
selected by the plan sponsor. For example, it would be reasonable for a 
plan sponsor to conclude that the statutory factor described in 
paragraph (d)(6)(ii)(B)(3) of this section (amount of benefit) is a 
factor that should be taken into account as justifying a lesser benefit 
reduction for participants or beneficiaries whose benefits are closer 
to the level of the PBGC guarantee than for others. In addition, it 
would be reasonable for a plan sponsor to conclude that the presumed 
financial vulnerability of certain participants or beneficiaries who 
are reasonably deemed to be in greater need of protection than other 
participants or beneficiaries is a factor that should be taken into 
account as justifying a lesser benefit reduction (as a percentage or 
otherwise) for those participants or beneficiaries than for others.
    (B) Statutory factors. Factors that may be selected as a basis for 
differences in the application of a suspension of benefits include, 
when reasonable under the circumstances, the following statutory 
factors:
    (1) The age and life expectancy of the participant and/or 
beneficiary;
    (2) The length of time that benefits have been in pay status;
    (3) The amount of benefits;
    (4) The type of benefit, such as survivor benefit, normal 
retirement benefit, or early retirement benefit;
    (5) The extent to which a participant or beneficiary is receiving a 
subsidized benefit;
    (6) The extent to which a participant or beneficiary has received 
post-retirement benefit increases;
    (7) The history of benefit increases and reductions for 
participants and beneficiaries;
    (8) The number of years to retirement for active employees;
    (9) Any differences between active and retiree benefits;
    (10) The extent to which active participants are reasonably likely 
to withdraw support for the plan, accelerating employer withdrawals 
from the plan and increasing the risk of additional benefit reductions 
for participants in and out of pay status; and
    (11) The extent to which a participant's or beneficiary's benefits 
are attributable to service with an employer that failed to pay its 
full withdrawal liability.
    (iii) Reasonable application of factors. A suspension of benefits 
will not satisfy the requirement to be equitably distributed if it is 
based on an unreasonable application of the factors referred to in 
paragraph (d)(6)(ii) of this section. For example, it would constitute 
an unreasonable application of the factor described in paragraph 
(d)(6)(ii)(B)(3) of this section (amount of benefit) if that factor 
were used to justify a larger suspension for participants with smaller 
benefits.
    (iv) Examples. The following examples illustrate the rules on 
equitable distribution of a suspension of benefits in this paragraph 
(d)(6). As a simplifying assumption for purposes of these examples, it 
is assumed that the facts of each example describe all of the factors 
that are included in the application discussed in the example 
(provided, however, that, in the case of a plan described in section 
432(e)(9)(D)(vii), the examples are not intended to illustrate the 
application of section 432(e)(9)(D)(vii) or its effect on the analysis 
or conclusions in the examples). Throughout these examples, the 
guarantee-based, age-based, and disability-based limitations of section 
432(e)(9)(D)(i), (ii), and (iii) are referred to as the individual 
limitations on benefit suspensions.

    Example 1. (i) Facts. A suspension of benefits provides that, 
subject to the individual limitations on benefit suspensions, 
benefits for all participants and beneficiaries are reduced by the 
same percentage, and explains the rationale for this reduction.
    (ii) Conclusion. The suspension of benefits is equitably 
distributed across the participant and beneficiary populations.
    Example 2. (i) Facts. A suspension of benefits provides that, 
subject to the age-based and disability-based limitations of section 
432(e)(9)(D)(ii) and (iii), the portion of each participant's and 
beneficiary's benefit that exceeds the guarantee-based limitation of 
section 432(e)(9)(D)(i) is reduced by the same percentage, and 
explains the rationale for this reduction.
    (ii) Conclusion. The suspension of benefits is equitably 
distributed across the participant and beneficiary populations. The 
result would be the same if, instead, the suspension of benefits 
applies only to benefits that exceed a multiple (in excess of 100%) 
of the guarantee-based limitation.
    Example 3.  (i) Facts. A plan was previously amended to provide 
an ad hoc 15% increase to the benefits of all participants and 
beneficiaries (including participants who, at the time, were no 
longer earning service under the plan, which therefore included 
retirees and deferred vested participants). The plan sponsor applies 
for a suspension of benefits. Under the suspension of benefits, 
subject to the individual limitations on benefit suspensions, 
benefits for all participants and beneficiaries who were no longer 
earning service under the plan at the time of the ad hoc amendment 
are reduced by eliminating the amendment for those individuals. The 
suspension application explains why the benefit reduction is based 
on the statutory factors in paragraph (d)(6)(ii)(B)(6) of this 
section (the extent to which a participant or beneficiary has 
received post-retirement benefit increases), including application 
of the reduction to those who, at the time of the previous benefit 
increase, were either retired participants or deferred vested 
participants, and in paragraph (d)(6)(ii)(B)(7) of this section (the 
history of benefit increases and reductions), and why it is 
reasonable to apply the factors in this manner.
    (ii) Conclusion. The suspension of benefits is equitably 
distributed across the participant and beneficiary populations. This 
is because the difference in treatment among the different groups of 
participants is based on whether a participant has received post-
retirement benefit increases (in this case, whether a participant 
was earning service under the plan at the time of the benefit 
increase amendment), which under these facts is a relevant factor 
that may be reasonably selected by the plan sponsor, and the 
difference in treatment between the groups of participants 
(eliminating the amendment only for benefits with respect to 
participants who were no longer earning service at the time of the 
amendment) is based on a reasonable application of that factor.
    Example 4.  (i) Facts. A plan contains a provision that provides 
a ``thirteenth check'' in plan years for which the investment return 
is greater than 7% (which was the assumed rate of return under the 
plan's actuarial valuation). The plan sponsor applies for a 
suspension of benefits. Under the suspension of benefits, subject to 
the individual limitations on benefit suspensions, benefits for all 
participants and beneficiaries are reduced by eliminating the 
``thirteenth check'' for all those individuals. The suspension 
application explains why the benefit reduction is based on the 
statutory factors in paragraph (d)(6)(ii)(B)(6) of this section (the 
extent to which a participant or beneficiary has received post-
retirement benefit increases) and in paragraph

[[Page 35278]]

(d)(6)(ii)(B)(7) of this section (the history of benefit increases 
and reductions), and why it is reasonable to apply the factors in 
this manner.
    (ii) Conclusion. The suspension of benefits is equitably 
distributed across the participant and beneficiary populations.
    Example 5.  (i) Facts. A plan was previously amended to reduce 
future accruals from $60 per year of service to $50 per year of 
service. The plan sponsor applies for a suspension of benefits. 
Under the suspension of benefits, subject to the individual 
limitations on benefit suspensions, the accrued benefits for all 
participants and beneficiaries are reduced to $50 per year of 
service (and applies the plan's generally applicable adjustments for 
early retirement and form of benefit). The suspension application 
explains why the benefit reduction is based on the statutory factor 
in paragraph (d)(6)(ii)(B)(7) of this section (the history of 
benefit increases and reductions), and why it is reasonable to apply 
the factors in this manner.
    (ii) Conclusion. The suspension of benefits is equitably 
distributed across the participant and beneficiary populations. This 
is because the difference in treatment among the different groups of 
participants is based on the history of benefit reductions and a 
discrepancy between active and retiree benefits, which under these 
facts are relevant factors that may be reasonably selected by the 
plan sponsor, and the difference in treatment between the groups of 
participants (reducing the $60 benefit multiplier to $50 per year of 
service for those participants who had accrued any benefits under 
the $60 multiplier) is based on a reasonable application of those 
factors.
    Example 6.  (i) Facts. The facts are the same as in Example 5, 
except that no plan amendments have previously reduced future 
accruals or other benefits for active participants. Under the 
suspension of benefits, subject to the individual limitations on 
benefit suspensions, benefits for deferred vested participants, 
retirees and beneficiaries who have commenced benefits are reduced, 
but no reduction applies to active participants. The suspension of 
benefits is not accompanied by any reductions in future accruals or 
other benefits for active participants.
    (ii) Conclusion. The suspension of benefits is not equitably 
distributed across the participant and beneficiary populations. This 
is because, under these facts, no relevant factor (such as a 
previous reduction in benefits applicable only to active 
participants) has been reasonably selected by the plan sponsor to 
justify the proposed difference in treatment among the categories.
    Example 7.  (i) Facts. The facts are the same as in Example 6, 
except that the suspension of benefits provides for a reduction that 
applies to both active and inactive participants. However, the 
reduction that applies to active participants is smaller than the 
reduction that applies to inactive participants because the plan 
sponsor concludes, as explained and supported in the application for 
suspension, that active participants are reasonably likely to 
withdraw support for the plan if any larger reduction is applied.
    (ii) Conclusion. The suspension of benefits is equitably 
distributed across the participant and beneficiary populations. This 
is because the difference in treatment among the different groups of 
participants is based on the extent to which active participants are 
reasonably likely to withdraw support for the plan, which under 
these facts is a relevant factor that may reasonably be selected by 
the plan sponsor, and the difference in treatment between the two 
groups of participants (applying a greater suspension to inactive 
than to active participants) is based on a reasonable application of 
that factor.
    Example 8.  (i) Facts. A suspension of benefits provides that, 
subject to the individual limitations on benefit suspensions, the 
benefits for participants and beneficiaries attributable to service 
with an employer that failed to pay its full withdrawal liability 
are reduced by 50%. The plan sponsor applies for a suspension of 
benefits. As explained in the suspension application, the present 
value of the benefit reduction with respect to the former employees 
of one such employer is significantly greater than the unpaid 
withdrawal liability for that employer. Benefits for participants 
and beneficiaries attributable to service with all other employers 
are reduced by 10%.
    (ii) Conclusion. The suspension of benefits is not equitably 
distributed across the participant and beneficiary populations. This 
is because although the difference in treatment among the different 
groups of participants is based on a relevant factor that may 
reasonably be selected by the plan sponsor, the difference in 
treatment between the groups of participants is not based on a 
reasonable application of that factor.
    Example 9.  (i) Facts. A suspension of benefits provides that, 
subject to the individual limitations on benefit suspensions, the 
benefits for all participants and beneficiaries are reduced by the 
same percentage, except that the benefits for employees and former 
employees of a particular employer that is actively represented on 
the plan's Board of Trustees are reduced by a specified lesser 
percentage.
    (ii) Conclusion. The suspension of benefits is not equitably 
distributed across the participant and beneficiary populations. This 
is because, under these facts, no relevant factor has been 
reasonably selected by the plan sponsor to justify the difference in 
treatment among the groups of employees.
    Example 10.  (i) Facts. The facts are the same as in Example 9, 
except that the particular employer whose employees and former 
employees are subject to the lesser benefit reduction is the union 
that also participates in the plan.
    (ii) Conclusion. The suspension of benefits is not equitably 
distributed across the participant and beneficiary populations. This 
is because, under these facts, no relevant factor has been 
reasonably selected by the plan sponsor to justify the difference in 
treatment among the groups of employees.
    Example 11.  (i) Facts. A suspension of benefits provides that, 
subject to the individual limitations on benefit suspensions, the 
monthly benefit of all participants and beneficiaries is reduced to 
110% of the monthly benefit that is guaranteed by the PBGC under 
section 4022A of ERISA. The plan sponsor applies for a suspension of 
benefits. As explained in the suspension application, this is 
because the plan sponsor is applying to the PBGC for a partition of 
the plan, which requires the plan sponsor to have implemented the 
maximum benefit suspensions under section 432(e)(9).
    (ii) Conclusion. The suspension of benefits is equitably 
distributed across the participant and beneficiary populations.
    Example 12.  (i) Facts. The facts are the same as in Example 1, 
except that the suspension of benefits provides that the protection 
for benefits based on disability also includes payments to a 
beneficiary of a participant who had been receiving benefits based 
on disability at the time of death.
    (ii) Conclusion. The suspension of benefits is equitably 
distributed across the participant and beneficiary populations 
because this suspension design is a reasonable application of the 
statutory factor in paragraph (d)(6)(ii)(B)(4) of this section (type 
of benefit).

    (7) Effective date of suspension made in combination with 
partition. [The text of the proposed amendments to Sec.  1.432(e)(9)-
1(d)(7) is the same as Sec.  1.432(e)(9)-1T(d)(7) published elsewhere 
in this issue of the Federal Register.]
    (e) Benefit improvements--(1) Limitations on benefit improvements. 
This paragraph (e) sets forth rules for the application of section 
432(e)(9)(E). A plan satisfies the criteria in section 432(e)(9)(E) 
only if, during the period that any suspension of benefits remains in 
effect, the plan sponsor does not implement any benefit improvement 
except as provided in this paragraph (e). Paragraph (e)(2) of this 
section describes limitations on a benefit improvement for participants 
and beneficiaries who are not yet in pay status. Paragraph (e)(3) of 
this section describes limitations on a benefit improvement for 
participants and beneficiaries who are in pay status. Paragraph (e)(4) 
of this section provides that the limitations in this paragraph (e) 
generally apply in addition to other limitations on benefit increases 
that apply to a plan. Paragraph (e)(5) of this section defines benefit 
improvement.
    (2) Limitations on benefit improvements for those not in pay 
status--(i) Equitable distribution for those in pay status and solvency 
projection. During the period that any suspension of benefits under a 
plan remains in effect, the plan sponsor may not increase the 
liabilities of the plan by reason of any benefit improvement for any 
participant or beneficiary who was not in pay status for any plan year 
before the plan year for which the benefit improvement takes effect, 
unless--
    (A) The present value of the total liabilities for a benefit 
improvement for

[[Page 35279]]

participants and beneficiaries whose benefit commencement dates were 
before the first day of the plan year for which the benefit improvement 
takes effect is not less than the present value of the total 
liabilities for a benefit improvement for participants and 
beneficiaries who were not in pay status by that date;
    (B) The plan sponsor equitably distributes the benefit improvement 
among the participants and beneficiaries whose benefit commencement 
dates were before the first day of the plan year in which the benefit 
improvement is proposed to take effect; and
    (C) The plan actuary certifies that after taking into account the 
benefit improvement, the plan is projected to avoid insolvency 
indefinitely.
    (ii) Rules of application--(A) Present value determination. For 
purposes of paragraph (e)(2)(i)(A) of this section, the present value 
of the total liabilities for a benefit improvement is the present value 
as of the first day of the plan year in which the benefit improvement 
is proposed to take effect, using actuarial assumptions in accordance 
with section 431.
    (B) Factors relevant to equitable distribution. The evaluation of 
whether a benefit improvement is equitably distributed for purposes of 
paragraph (e)(2)(i)(B) of this section must take into account the 
relevant factors described in paragraph (d)(6)(ii)(B) of this section 
and the extent to which the benefits of the participants and 
beneficiaries were suspended.
    (C) Actuarial certification. The certification in paragraph 
(e)(2)(i)(C) of this section must be made using the standards described 
in paragraphs (d)(5)(ii), (iv), and (v) of this section, substituting 
the plan year that includes the effective date of the benefit 
improvement for the plan year that includes the effective date of the 
suspension.
    (iii) Special rule for certain benefit increases. The limitations 
of this paragraph (e) do not apply to a resumption of suspended 
benefits or plan amendment that increases liabilities with respect to 
participants and beneficiaries not in pay status by the first day of 
the plan year in which the benefit improvement took effect that--
    (A) The Secretary of the Treasury, in consultation with the PBGC 
and the Secretary of Labor, determines to be reasonable and which 
provides for only de minimis increases in the liabilities of the plan; 
or
    (B) Is required as a condition of qualification under section 401 
or to comply with other applicable law, as determined by the Secretary 
of the Treasury.
    (3) Limitation on resumption of suspended benefits only for those 
in pay status. The plan sponsor may increase liabilities of the plan by 
eliminating some or all of the suspension that applies solely to 
participants and beneficiaries in pay status at the time of the 
resumption, provided that the plan sponsor equitably distributes the 
value of those resumed benefits among participants and beneficiaries in 
pay status, taking into account the relevant factors described in 
paragraph (d)(6)(ii)(B) of this section. A resumption of benefits that 
is described in this paragraph (e)(3) is not subject to the limitations 
on a benefit improvement under section 432(f) (relating to restrictions 
on benefit increases for plans in critical status).
    (4) Additional limitations. Except as provided in paragraph (e)(3) 
of this section, the limitations on a benefit improvement under this 
paragraph (e) are in addition to the limitations in section 432(f) and 
any other applicable limitations on increases in benefits imposed on a 
plan.
    (5) Definition of benefit improvement--(i) In general. For purposes 
of this paragraph (e), the term benefit improvement means, with respect 
to a plan, a resumption of suspended benefits, an increase in benefits, 
an increase in the rate at which benefits accrue, or an increase in the 
rate at which benefits become nonforfeitable under the plan.
    (ii) Effect of expiration of suspension. In the case of a 
suspension of benefits that expires as of a date that is specified in 
the plan amendment implementing the suspension, the resumption of 
benefits solely from the expiration of that period is not treated as a 
benefit improvement.
    (f) Notice requirements--(1) In general. [The text of the proposed 
amendments to Sec.  1.432(e)(9)-1(f)(1) is the same as Sec.  
1.432(e)(9)-1T(f)(1) published elsewhere in this issue of the Federal 
Register.]
    (2) Content of notice. [The text of the proposed amendments to 
Sec.  1.432(e)(9)-1(f)(2) is the same as Sec.  1.432(e)(9)-1T(f)(2) 
published elsewhere in this issue of the Federal Register.]
    (3) Form and manner--(i) Timing. [The text of the proposed 
amendments to Sec.  1.432(e)(9)-1(f)(3)(i) is the same as Sec.  
1.432(e)(9)-1T(f)(3)(i) published elsewhere in this issue of the 
Federal Register.]
    (ii) Method of delivery of notice--(A) Written or electronic 
delivery. [The text of the proposed amendments to Sec.  1.432(e)(9)-
1(f)(3)(ii)(A) is the same as Sec.  1.432(e)(9)-1T(f)(3)(ii)(A) 
published elsewhere in this issue of the Federal Register.]
    (B) No alternative method of delivery. A notice under this 
paragraph (f) must be provided in written or electronic form.
    (iii) Additional information in notice. [The text of the proposed 
amendments to Sec.  1.432(e)(9)-1(f)(3)(iii) is the same as Sec.  
1.432(e)(9)-1T(f)(3)(iii) published elsewhere in this issue of the 
Federal Register.]
    (iv) No false or misleading information. [The text of the proposed 
amendments to Sec.  1.432(e)(9)-1(f)(3)(iv) is the same as Sec.  
1.432(e)(9)-1T(f)(3)(iv) published elsewhere in this issue of the 
Federal Register.]
    (4) Other notice requirement. [The text of the proposed amendments 
to Sec.  1.432(e)(9)-1(f)(4) is the same as Sec.  1.432(e)(9)-1T(f)(4) 
published elsewhere in this issue of the Federal Register.]
    (5) Examples. [The text of the proposed amendments to Sec.  
1.432(e)(9)-1(f)(5) is the same as Sec.  1.432(e)(9)-1T(f)(5) published 
elsewhere in this issue of the Federal Register.]
    (g) Approval or denial of an application for suspension of 
benefits--(1) Application. [The text of the proposed amendments to 
Sec.  1.432(e)(9)-1(g)(1) is the same as Sec.  1.432(e)(9)-1T(g)(1) 
published elsewhere in this issue of the Federal Register.]
    (2) Solicitation of comments. [The text of the proposed amendments 
to Sec.  1.432(e)(9)-1(g)(2) is the same as Sec.  1.432(e)(9)-1T(g)(2) 
published elsewhere in this issue of the Federal Register.]
    (3) Approval or denial--(i) Deemed approval. [The text of the 
proposed amendments to Sec.  1.432(e)(9)-1(g)(3)(i) is the same as 
Sec.  1.432(e)(9)-1T(g)(3)(i) published elsewhere in this issue of the 
Federal Register.]
    (ii) Notice of denial. [The text of the proposed amendments to 
Sec.  1.432(e)(9)-1(g)(3)(ii) is the same as Sec.  1.432(e)(9)-
1T(g)(3)(ii) published elsewhere in this issue of the Federal 
Register.]
    (iii) Special rules for systemically important plans. [The text of 
the proposed amendments to Sec.  1.432(e)(9)-1(g)(3)(iii) is the same 
as Sec.  1.432(e)(9)-1T(g)(3)(iii) published elsewhere in this issue of 
the Federal Register.]
    (iv) Agreement to stay 225-day period. The Secretary of the 
Treasury and the plan sponsor may mutually agree in writing to stay the 
225-day period described in paragraph (g)(3)(i) of this section.
    (4) Consideration of certain factors. In evaluating whether the 
plan sponsor has satisfied the requirement of paragraph

[[Page 35280]]

(c)(3)(i)(A) of this section, the Secretary of the Treasury, in 
consultation with the PBGC and the Secretary of Labor, will review the 
plan sponsor's consideration of each of the factors under paragraph 
(c)(3)(ii) of this section (and any other factor that the plan sponsor 
considered).
    (5) Standard for accepting plan sponsor determinations. In 
evaluating the plan sponsor's application, the Secretary of the 
Treasury will accept the plan sponsor's determinations in paragraph 
(c)(3) of this section unless the Secretary concludes, in consultation 
with the PBGC and the Secretary of Labor, that the determinations were 
clearly erroneous.
    (6) Plan-sponsor certifications with respect to plan amendments. 
The plan sponsor's application described in paragraph (g)(1) of this 
section will not be approved unless the plan sponsor certifies that if 
the plan sponsor receives final authorization to suspend as described 
in paragraph (h)(6) of this section with respect to the proposed 
benefit suspension (or, in the case of a systemically important plan, a 
proposed or modified benefit suspension), the plan sponsor chooses to 
implement the suspension, and the plan sponsor adopts the amendment 
described in paragraph (a)(1) of this section, then it will timely 
amend the plan to provide that--
    (i) If the plan sponsor fails to make the annual determinations 
under section 432(e)(9)(C)(ii), then the suspension of benefits will 
cease as of the first day of the first plan year following the plan 
year in which the plan sponsor fails to make the annual-plan-sponsor 
determinations in paragraph (c)(4) of this section; and
    (ii) Any future benefit improvement must satisfy the requirements 
of section 432(e)(9)(E).
    (7) Special Master. [The text of the proposed amendments to Sec.  
1.432(e)(9)-1(g)(7) is the same as Sec.  1.432(e)(9)-1T(g)(7) published 
elsewhere in this issue of the Federal Register.]
    (h) Participant vote on proposed benefit reduction--(1) Requirement 
for vote--(i) In general. [The text of the proposed amendments to Sec.  
1.432(e)(9)-1(h)(1)(i) is the same as Sec.  1.432(e)(9)-1T(h)(1)(i) 
published elsewhere in this issue of the Federal Register.]
    (ii) Communication by plan sponsor. The plan sponsor must take 
reasonable steps to inform eligible voters about the proposed 
suspension and the vote. This includes all eligible voters who may be 
contacted by reasonable efforts in accordance with paragraph (f)(1) of 
this section. Anyone whom the plan sponsor has been able to locate 
through these means (or who has otherwise been located by the plan 
sponsor) must be sent a ballot described in paragraph (h)(3) of this 
section.
    (2) Administration of vote. [Reserved]
    (3) Ballots--(i) In general. The plan sponsor must provide a ballot 
for the vote that includes the following--
    (A) A description of the proposed suspension and its effect, 
including the effect of the suspension on each category or group of 
individuals affected by the suspension and the extent to which they are 
affected;
    (B) A description of the factors considered by the plan sponsor in 
designing the benefit suspension, including but not limited to the 
factors in paragraph (d)(6)(ii) of this section;
    (C) A description of whether the suspension will remain in effect 
indefinitely or will expire by its own terms (and, if it will expire by 
its own terms, when that will occur);
    (D) A statement from the plan sponsor in support of the proposed 
suspension;
    (E) A statement in opposition to the proposed suspension compiled 
from comments received pursuant to the solicitation of comments 
pursuant to paragraph (g)(2) of this section;
    (F) A statement that the proposed suspension has been approved by 
the Secretary of the Treasury, in consultation with the PBGC and the 
Secretary of Labor;
    (G) A statement that the plan sponsor has determined that the plan 
will become insolvent unless the proposed suspension takes effect 
(including the year in which insolvency is projected to occur without a 
suspension of benefits), and an accompanying statement that this 
determination is subject to uncertainty;
    (H) A statement that insolvency of the plan could result in 
benefits lower than benefits paid under the proposed suspension and a 
description of the projected benefit payments in the event of plan 
insolvency;
    (I) A statement that insolvency of the PBGC would result in 
benefits lower than benefits otherwise paid in the case of plan 
insolvency;
    (J) A statement that the plan's actuary has certified that the plan 
is projected to avoid insolvency, taking into account the proposed 
suspension of benefits (and, if applicable, a proposed partition plan), 
and an accompanying statement that the actuary's projection is subject 
to uncertainty;
    (K) A statement that the suspension will go into effect unless a 
majority of all eligible voters vote to reject the suspension and that, 
therefore, a failure to vote has the same effect on the outcome of the 
vote as a vote in favor of the suspension;
    (L) A copy of the individualized estimate that was provided as part 
of the earlier notice described in section 432(e)(9)(F) (or, if that 
individualized estimate is no longer accurate, a corrected version of 
that estimate); and
    (M) A description of the voting procedures, including the deadline 
for voting.
    (ii) Additional rules. [The text of the proposed amendments to 
Sec.  1.432(e)(9)-1(h)(3)(ii) is the same as Sec.  1.432(e)(9)-
1T(h)(3)(ii) published elsewhere in this issue of the Federal 
Register.]
    (iii) Ballot must be approved. [The text of the proposed amendments 
to Sec.  1.432(e)(9)-1(h)(3)(iii) is the same as Sec.  1.432(e)(9)-
1T(h)(3)(iii) published elsewhere in this issue of the Federal 
Register.]
    (4) Implementing suspension following vote--(i) In general. [The 
text of the proposed amendments to Sec.  1.432(e)(9)-1(h)(4)(i) is the 
same as Sec.  1.432(e)(9)-1T(h)(4)(i) published elsewhere in this issue 
of the Federal Register.]
    (ii) Effect of not sending ballot. Any eligible voters to whom 
ballots have not been provided (because the individuals could not be 
located) will be treated as voting to reject the suspension at the same 
rate (in other words, in the same percentage) as those to whom ballots 
have been provided.
    (5) Systemically important plans. [The text of the proposed 
amendments to Sec.  1.432(e)(9)-1(h)(5) is the same as Sec.  
1.432(e)(9)-1T(h)(5) published elsewhere in this issue of the Federal 
Register.]
    (6) Final authorization to suspend. [The text of the proposed 
amendments to Sec.  1.432(e)(9)-1(h)(6) is the same as Sec.  
1.432(e)(9)-1T(h)(6) published elsewhere in this issue of the Federal 
Register.]
    (i) [Reserved].

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2015-14948 Filed 6-17-15; 11:15 am]
 BILLING CODE 4830-01-P