On May 2, 2019, the Bureau issued the ANPR. The ANPR was published in the Federal Register on May 8, 2019. The ANPR seeks comment, data, and information from the public relating to whether to make changes to the data points the Bureau's October 2015 final rule implementing HMDA added to Regulation C or revised to require additional information. The ANPR also seeks comment, data, and information from the public relating to the requirement that institutions report certain business- or commercial-purpose transactions under Regulation C.

The comment period for the ANPR was set to close on July 8, 2019. The Bureau has received multiple written requests asking that the Bureau extend the comment period. The requests indicated that additional time would enable interested parties to more thoroughly consider and respond to the questions presented in the ANPR. For example, a group of three industry trade associations asked that the Bureau extend the comment period from 60 to 90 days so that, among other things, they would have sufficient time to survey their members about the questions presented in the ANPR. A group of 18 consumer advocacy and other non-profit organizations asked that the Bureau reissue the ANPR and allow for a new 90-day comment period after the release of the national loan level dataset for the data collected by financial institutions in 2018 and the Bureau's annual overview of residential mortgage lending based on that data (collectively, the 2018 HMDA Data). 1 These organizations noted that 2018 was the first year that HMDA and Regulation C have required institutions to collect and report the data points that are the subject of the ANPR.

The Bureau has balanced interested parties' desire to have additional time to consider the issues raised in the ANPR, gather data, and prepare their responses, with the need to proceed expeditiously to consider comments and determine whether to issue a proposed rule. The Bureau expects the 2018 HMDA Data to be released in late summer. In light of these factors, the Bureau believes that an extension of the ANPR comment period to October 15, 2019 is appropriate and will allow interested parties adequate time to consider the 2018 HMDA Data before submitting their comments on the ANPR. The Bureau does not, however, believe it is necessary or appropriate to reissue the ANPR with a new 90-day comment period. The ANPR comment period will now close October 15, 2019.

Authority for This Rulemaking

The FAA's authority to issue rules on aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is issued under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General Requirements.” Under that section, the FAA is charged with promoting safe flight of civil aircraft in air commerce by prescribing regulations and minimum standards for the design, material, construction, quality of work, and performance of aircraft that the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority. It revises the safety standards for the flammability characteristics, and thus the design, material, and construction, of transport category airplanes.

This proposed amendment would eliminate and modify certain flammability and fire protection requirements of title 14, Code of Federal Regulations (14 CFR) part 25. The proposed changes would organize these requirements based on the type of fire—in-flight or post-crash—that is likely to affect a given component, part, or material, rather than basing such standards on the part's composition or function. In addition, the proposal would extend the fire protection requirements to any extensively used material  1 located in inaccessible areas.

The FAA proposes to convert the testing methods in appendix F to part 25 from regulations into guidance material. The proposal would also eliminate redundant or non-value-added tests when a more severe test is acceptable.

This proposal would replace mandatory testing methods with performance-based standards for flammability and fire protection. This change would improve safety and standardization and would be applicable to materials currently used to construct parts and components as well as to new materials that become available in the future. As discussed in section III.E of the NPRM, all of the proposed changes are interrelated. These proposals to remove or simplify requirements are only possible, from a safety perspective, because of other proposed changes that would compensate for removing requirements.

These revised regulations would affect applicants seeking new type certificates for transport category airplanes. These revised regulations would not apply to transport category airplanes currently in production under existing type certificates, unless the FAA approves a manufacturer's request to comply with an amendment level that incorporates these proposed changes, or a manufacturer triggers the requirement via an application for a significant product-level change under § 21.101.

Over a 19-year period of analysis, the FAA estimates the total present value costs of this proposed rule to be $71.1 million at a seven percent discount rate, with annualized costs of $6.9 million due to the extension of fire protection requirements to extensively used material in inaccessible areas. Over the same 19-year period, the FAA estimates the total quantified cost savings of this proposed rule to be $119.8 million at a seven percent discount rate, with annualized cost savings of $11.6 million. The cost savings would result from the elimination and streamlining of some tests, which would be made possible by the extension of fire protection requirements to inaccessible areas. Over the same 19-year period, the proposed rule would result in a net cost savings (cost savings minus costs) of $48.7 million at a seven percent discount rate, with annualized net cost savings of $4.8 million. The following table summarizes the costs and cost savings of this proposed rule.

Airplane occupant safety benefits were not quantified. However, the proposed new safety requirements to extend the fire protection requirements to any extensively used material located in inaccessible areas would result in a safety benefit by reducing the likelihood of a fatal accident from a fire in an inaccessible area. FAA testing has indicated that typical in-service ducts can quickly spread fire from a small fire source in an inaccessible area, while ducts that would meet the new requirement can resist that small size fire and not propagate flames. Thus, the FAA believes there are safety benefits to this proposed rule in addition to cost savings.

Current part 25 regulations organize fire protection requirements for components in airplane interior compartments by the function, and sometimes composition, of each component. Appendix F to part 25 details comprehensive, mandatory testing methods. Each part of appendix F provides the test method required for a specific type of part or material, with the exception of part I, which applies to nearly all parts and materials and contains multiple test methods. While this method of organization is useful in standardizing the applicable tests and ensuring consistency among test results, regardless of the testing facility, it can create difficulties when an applicant wishes to deviate from the detailed test provisions, for example to implement improvements. Also, a given component can be subject to multiple regulatory requirements depending on the component's composition, and the requirements may conflict with one another. In addition, it can be difficult to determine the applicable requirements, especially when applicants propose new components or materials that are not listed in § 25.853 and for which testing methods have not yet been developed. A final problem is that, with the exception of thermal/acoustic insulation and electrical wiring, the current fire protection requirements only apply to components and materials in occupiable areas or cargo compartments. The current requirements do not apply to components, parts, and materials in other areas, even if extensively used, and such components can be critical for fire safety.

The regulations governing the flammability of materials on transport category airplanes have evolved significantly since their adoption in 1964. 2 When initially adopted, these regulations mandated the most fire-resistant materials practically available at that time, without consideration of the types of fires to which each material might be exposed. The regulations described flammability requirements in terms of the objective—materials had to be at least flash resistant, 3 and certain types of parts had to be flame resistant, 4 a more stringent requirement. Until 1984, FAA flammability regulations only required applicants to demonstrate that proposed materials could resist small ignition sources such as a lit match or cigarette. The flammability requirements only applied to materials in compartments that could be occupied by passengers or crew.

Beginning with the 1984 adoption of improved flammability standards for seat cushions, the FAA revised the flammability requirements for other specific parts and components, including large surface areas, cargo compartment liners, and thermal/acoustic insulation. The FAA also revised and expanded mandatory test methods to ensure consistency in testing methodology and results. The FAA based these revised requirements on the type of fire threat (in-flight and post-crash) expected for a given component. However, the regulations continued to set standards for specific components, based on their function or construction.

Since the adoption of those flammability requirements, research into fire safety identified significant differences between the hazards posed by a post-crash fire and those posed by an in-flight fire.

Post-crash fires, or “fuel fires” since they are primarily fed by spilled aviation fuel, present two primary hazards to the airplane's occupants. First, a fuel fire can be a significant source of smoke and toxic gases. If these gases enter the cabin, they can cause injury and significantly reduce survivability. Second, a fuel fire can ignite cabin materials, which can accelerate the fire's growth. Research  5 by the FAA has found that the best way to prevent the first hazard—smoke and toxic gases—is to prevent the fire from penetrating the fuselage. The best way to prevent the second hazard—ignition of cabin materials—is to minimize the heat release  6 of cabin materials, so that they do not contribute significant energy to the fire. Post-crash fires can also reduce the time available for evacuation. The FAA studied the time necessary to complete evacuation and determined that roughly 90 percent of actual evacuations are completed within 5 minutes. 7 This proposal specifically references that 5-minute time when discussing protection under post-crash fire conditions. Proposed § 25.853(d) would add general flammability requirements to provide occupants time to evacuate during post-crash fires.

In contrast, the primary hazard from in-flight fires is to the continued safe flight and landing of the airplane. In-flight fires have historically only been a direct hazard to continued safe flight and landing when they begin in an area inaccessible to a person with a hand-held fire extinguisher. These areas tend to be in cargo compartments or behind interior panels, such as sidewalls or ceilings. The principal risk with such fires is that they grow and spread without the ability of the flightcrew to access and combat them, and then degrade critical systems and occupant survivability. The components, parts, and materials with the most potential to contribute to an in-flight fire hazard are the most extensive, including insulation, wiring, air ducts, and structure. FAA research determined that materials that self-extinguish and do not propagate a flame provide an acceptable level of safety. In-flight fires in areas that are readily accessible to a person with a hand-held fire extinguisher are still a concern, but are much less likely to evolve into a threat to the airplane. Therefore, these two types of fires (in-flight and post-crash) require different flammability standards.

Several elements of fire safety research were involved in the development of these flammability requirements. First, the FAA analyzed accident and incident data to identify the nature of the fire and its potential to affect the airplane and its occupants. Next, the threat was replicated (to the extent possible), and detailed measurements were made to characterize the key parameters  8 of the type of fire and its potential effect on the airplane and occupants. Finally, a laboratory test was developed that correlated with, and was derived from, the type of fire, so that repeatable and reproducible results could be obtained to assess the adequacy of proposed designs. This latter step was an evolutionary process as test protocols (test methods and test equipment) were continuously refined. Once the results for a particular protocol were reliable and repeatable, the FAA selected that test protocol, even though improvements in methods and equipment are expected to continue. A key consideration in this proposal is the availability of approved test methods in advisory material  9 to support all of the proposed requirements.

In light of the problems with the current part 25 regulations previously discussed, the FAA recognized that it needs a new approach to the regulatory structure of flammability requirements. Since amendments to the regulations since the 1980s had been based on an assessment of the type of fire, but not structured that way in the regulatory text, the FAA determined that the regulations should align with the type of fire that could threaten the airplane. However, because of the scope of the change under consideration, the FAA tasked the Aviation Rulemaking Advisory Committee (ARAC)  10 to review the FAA's proposed approach and provide recommendations. ARAC assigned the task to the Materials Flammability Working Group (MFWG) under the Transport Airplane and Engines Issues Group (TAEIG), an ARAC subcommittee. The MFWG reviewed the proposed concept and, in a report  11 dated July 2012, recommended its adoption along with several associated advisory circulars (ACs). The MFWG also raised several questions that required FAA resolution prior to rulemaking, including consideration of an approved materials list, availability of advisory material, and means to address so-called rogue failures.

When drafting the NPRM, the FAA determined that a more comprehensive estimate of costs and benefits was necessary. Therefore, the FAA put the rulemaking project on hold and re-tasked ARAC  12 to provide an estimate of costs and benefits. The FAA provided assumptions to use in making those estimates. ARAC reassigned the task to the MFWG. The MFWG completed the task and submitted a report  13 in October 2015. This proposal is based on recommendations and information provided in both MFWG reports and addresses the open issues raised by the MFWG.

The current regulatory structure in the primary regulations that this action proposes to amend, §§ 25.853, 25.855, 25.856, and 25.1713, organizes the flammability requirements by the type of testing required for a specific part or component. Section 25.853 applies to parts and components that are located in compartments that can be occupied by crew or passengers, and requires compliance with the applicable parts of appendix F to part 25. Section 25.855 states similar requirements that are applicable to cargo or baggage compartments; § 25.856 provides requirements for thermal/acoustic insulation materials; and § 25.1713 addresses electrical wiring components. Each of these sections requires compliance with a particular test method in appendix F.

For example, § 25.853(a) requires that all materials used in occupiable compartments meet the test criteria (Bunsen burner) in part I of appendix F to part 25. Section 25.853(d) requires certain interior components, including partitions, ceilings, and wall panels, to also meet the heat release rate (HRR)  14 and smoke emission test requirements in parts IV and V of appendix F. This proposal would eliminate the requirement to meet the tests in part I of appendix F for components required to comply with § 25.853(d), since the Bunsen burner tests do not add any level of safety for components that meet part IV of appendix F.

This proposed amendment would revise § 25.853 to apply to general categories of parts or components rather than to specific items. For example, § 25.853(d)(1) would apply to large surface area components, rather than to partitions, ceilings, and wall panels. It would set performance standards for those components based on the type of fire the component is likely to be exposed to and whether or not its location is accessible during flight.

Stating the requirements as performance standards would make them applicable to parts and materials that are not listed in the current regulations and to new materials in emerging areas of aviation design. These include materials used in inaccessible portions of the fuselage, escape slides, and the use of flammable metals in the cabin.

The mandatory testing methods in appendix F to part 25 would be removed. Instead, appendix F would allow applicants to omit certain tests if the material passes certain more severe tests. Advisory material would provide the details of approved test methods. By moving compliance testing methods to advisory material, applicants would have more flexibility to propose alternative methods, and the FAA would have more flexibility to approve improved testing methods.

This proposal would also standardize the required number of test samples, and pass rate, among the various tests. Proposed § 25.853(b) would require a minimum of three specimen sets for any test used to show compliance.

Because fewer post-crash flammability requirements currently apply to airplanes designed to carry 19 or fewer passengers, many of the proposed simplifications would only apply to larger airplanes. For the same reason, for airplanes designed to carry 19 or fewer passengers, fewer in-flight flammability tests would be eliminated by meeting post-crash flammability test requirements. Thus, applicants for type certification of airplanes with 19 or fewer passengers might not benefit from the same degree of simplified testing, as would applicants seeking approval of larger airplanes.

Sections 25.853 and 25.855 require Bunsen burner testing of all materials used in interior compartments, and in certain parts of cargo compartments, even if an additional, more severe test is required. Bunsen burner tests, detailed in part I of the current appendix F to part 25, have multiple variations that are used to determine the resistance of materials to flame, flame penetration, or flame propagation. Although Bunsen burner tests would be an acceptable means of compliance for several requirements, this proposal would eliminate the requirement for Bunsen burner testing when a required test method simulates a post-crash fire. Bunsen burner testing to address in-flight fire threats would be less frequently required, since extensively used materials would be required to meet a more stringent standard, and materials and parts that are not extensively used may show their in-flight fire resistance by more than one means.

Two other requirements intended to protect the airplane from in-flight fires, proposed § 25.853(c)(1)(i) regarding parts or components that are accessible to the flightcrew during flight, and proposed § 25.853(c)(2)(iv) regarding floor liners in cargo compartments, would require that those parts, components, and materials be self-extinguishing when exposed to a small flame, 15 unless another regulation requires the materials to meet a higher standard, such as a post-crash test. Applicants would typically use the 12-second vertical Bunsen burner test to show that the materials are self-extinguishing. This proposal would eliminate the requirement for materials to pass horizontal Bunsen burner tests because other requirements would ensure acceptable flammability characteristics of any other materials for which that test is currently applied. This includes parts currently listed in appendix F, part I, paragraph (a)(1)(iv) of part 25, such as clear plastic windows and signs, which would fall under one of the proposed requirements for a more stringent test, unless the applicant is able to show the part or material serves a necessary function and has no suitable substitute material.

For post-crash fires on transport category airplanes with 19 or fewer passengers, this proposal would, as a practical matter, retain the requirement, currently in appendix F, part I, paragraph (b)(4) of part 25, that the applicant conduct a 60-second vertical Bunsen burner test for large surface interior materials. That test, unlike the 12-second vertical test, screens out materials, such as certain thermoplastics, that have unacceptable flammability performance, even though the test method is not specifically designed to represent post-crash fires. Because of the greater evacuation capability inherent in these smaller airplanes, they are not, and would not under this proposal, be subject to the more severe post-crash, fire-based standards for interior materials and lower lobe  16 fire penetration proposed in §§ 25.853(d)(2) and 25.856(b), respectively.

This proposal would also continue to require, in § 25.853(c)(1)(i), that waste receptacles (compartments) and cargo compartment liners resist fire penetration. One means of compliance would continue to be the 45-degree orientation Bunsen burner test, which is currently described in part I of appendix F to part 25, but would be removed from part 25 and made available in guidance material. However, if an applicant proposes to construct waste compartments from the same materials as will be used for other interior features that are required to meet the HRR test, 17 no Bunsen burner test would be required. The fire containment test for the waste compartments would still be required. Most cargo compartment liners, as components in an inaccessible area, would still be required by proposed § 25.853(c)(2) to meet the flammability performance standard currently encompassed by the oil burner test in part III of appendix F. Exceptions would include liners on the floor and certain aspects of Class E cargo compartment liners, which would only need to pass the 45-degree Bunsen burner test, i.e., resist penetration by a small flame (proposed § 25.853(c)(iv)).

Finally, for materials that must be self-extinguishing under current regulations, the FAA has reviewed the detailed pass/fail criteria for the vertical Bunsen burner test in appendix F, part I, paragraph (b)(4) of part 25 and concluded that those criteria could also be simplified. The current pass/fail criteria are regulatory and involve burn length, after-flame time, extinguishing time of any drips, and, in some cases, after-glow time. These criteria would no longer be regulatory. Instead, proposed AC 25.853-4X would describe one means of compliance that incorporates only the criteria of burn length and that the material be self-extinguishing. The self-extinguishing criteria would apply to drips as well as the test sample.

Currently, § 25.853(c) requires that seat cushions, except those on flight crewmember seats, meet the test requirements of part II of appendix F to part 25, which involves the use of an oil burner. The oil burner test for cushions simulates the effect of a post-crash fire by exposing the material to a high-intensity open flame to evaluate its burn resistance and other characteristics.

This proposal would extend this level of flammability performance to any cushion, including flight crewmember seats and mattresses on berths. When the FAA adopted its current flammability rule  18 for seat cushions, the materials available to applicants were limited, and it was not clear that flightcrew could achieve the posture and comfort necessary to safely operate the airplane using materials that complied with the oil burner test. However, since that time, advances in cushion materials have essentially eliminated this issue and any reason for different treatment of flight crewmember seats. Mattresses or other cushions on berths should meet the same standards. The omission of cushions on berths in the current § 25.853(c) was largely an oversight in the way the FAA worded the rule. 19

Proposed § 25.853(d)(3) would create a performance-based standard for the flammability of seat cushions. In the event that a post-crash fire enters the airplane, the seat cushions would have to resist involvement in that fire, and not propagate it. (Resist, for the purposes of this proposed rule, means to not become involved in a fire to the extent that survivability is adversely affected, commensurate with the historical benefit provided by the oil burner test. Involvement, for the purposes of this proposed rule, means ignition, pyrolysis, or combustion.) Since the oil burner test represents the hazard posed by a post-crash fire, it would continue to be, in most cases, an acceptable test to show compliance with this proposed rule. However, in certain applications, an applicant could show compliance with the HRR test. The oil burner test measures both flame spread and material consumption rates, and the HRR test only measures the latter. Therefore, an applicant's use of the HRR test will generally be limited to designs where flame spread does not affect safety, and would, in most circumstances, apply to small cushions or cushions such as padding on an angled surface. Proposed appendix F to part 25 would allow this substitution of one test method for another.

The proposed revisions to § 25.853 would no longer require cushions to meet a Bunsen burner test because the oil burner test, which most applicants would use to demonstrate the flammability performance of their cushions, is more severe. Although the Bunsen burner test would not be required for seat cushions, applicants could still choose to generate Bunsen burner test data, where that data may be used to support substitution of upholstery (dress covers) under the provisions of proposed § 25.853(e)(3).

This proposal would also remove the mandatory and detailed testing methods from appendix F to part 25. Instead, AC 25.853-2X, would provide guidance on acceptable tests, including the oil burner test and use of the HRR test.

Currently, the requirements to conduct the HRR test, in § 25.853(d) and part IV of appendix F to part 25, apply to specific interior features: Interior ceiling and wall panels, partitions, galley structures, large cabinets, and cabin stowage compartments that are in a passenger compartment that may be occupied during takeoff and landing.

This proposal would replace this requirement with performance-based standards in § 25.853(d)(2) applicable to any large  20 surface area in the same compartment, based on the type of fire it may be exposed to, and without regard to whether a particular surface is associated with a specific feature. These revisions, therefore, would extend the flammability requirements to all large surface areas within the portions of the fuselage currently covered by the HRR tests. This proposal would remove the details of HRR tests from appendix F to part 25. HRR tests would be one means of compliance, and detailed in proposed AC 25.853-1A.

A design development that the FAA did not anticipate following the 1986 adoption of part IV of appendix F to part 25, which details the HRR test, and a change to § 25.853(a) to require the HRR test (at amendment 25-61  21 ), was industry's use of large area panels on seat assemblies. 22 Because § 25.853(d) at amendment 25-83  23 (paragraph (a) at amendment 25-61) does not list seats, the FAA has applied special conditions to address fire protection of these large-area parts. The proposed revisions to § 25.853 would eliminate the need for these special conditions, since the revisions would apply to any component or part that is a large surface within the fuselage.

The FAA also proposes, however, that this broader standard only apply to items more than 15 inches above the floor because full-scale fire tests  24 show that (with the exception of materials near the fire entry point) the materials very near the floor do not significantly contribute to a post-crash fire until conditions have become non-survivable. Therefore, in order to simplify compliance demonstrations and focus the requirement on the most critical components, proposed § 25.853(d)(2)(i) would only apply to large-surface components and parts that are more than 15 inches from the cabin floor. For example, a kick panel that extends upward from the floor to 16 inches above the floor would be required to pass the HRR test. For airplanes with more than one passenger deck, the 15-inch dimension would apply to each deck separately. The FAA based the 15-inch dimension on test data and the objective of such materials not adversely affecting safety. This provision is relieving and should reduce costs. The proposal to exclude surfaces 15 inches and below would not apply to large area surfaces on seats because seats could be located in or near a fire's entry point through the fuselage and, therefore, would be more likely to be involved in a post-crash fire. FAA full-scale fire tests have shown that there could be an adverse impact on safety if parts on seats that are less than 15 inches from the floor did not meet the heat release requirements. 25

This proposal would remove the requirement for testing of smoke emissions. The smoke emissions test, detailed in the current part V of appendix F to part 25 that is required by § 25.853(d), measures the smoke emissions characteristics of materials used in cabin components. The smoke emissions test is currently required in addition to the HRR test. The FAA adopted the smoke emissions test requirement at amendment 25-66  26 after concluding that smoke may hamper emergency egress and is, therefore, a survivability factor in the event of a fire. Thus, all materials, parts, and components that must meet the HRR test requirements are also required to pass the smoke emissions test in accordance with current § 25.853(d).

However, FAA research data have also shown that, for the materials and configurations typically used in transport category airplanes, the heat release of the materials used drives occupant survivability, rather than the materials' smoke emission. Heat release dictates how quickly the conditions progress to flashover. 27 Before flashover, conditions are largely survivable. Due to the importance of heat release, the FAA initially adopted regulations (at amendment 25-61) that only contained requirements for the HRR test and did not address smoke emission.

In fact, the data do not correlate smoke emission test results with post-crash survivability as they do with heat release. The FAA is unaware of any data showing that smoke emission testing has contributed to fire safety in an actual accident. Although the rule has been in effect for more than 20 years and has prevented applicants from using certain materials, the FAA has concluded, pursuant to the following discussions, that the smoke emission testing requirement is not adding to post-crash fire safety. The smoke emission requirement may be contributing to in-flight fire safety, but the extent of that contribution is unknown. However, by adding standards for extensively used materials in inaccessible areas, the potential contribution to an in-flight fire from materials that would no longer be subject to the smoke emission requirement will be minimized. For example, the proposal would eliminate the test that measures smoke emissions for certain large surface area parts, such as sidewalls. If a fire was to propagate on ducting behind the sidewall (an inaccessible area), it could spread to a sidewall that had not been tested for smoke emission, and the quantity of smoke could become a risk to continued safe flight and landing. If the ducting met the flammability standard in this proposal, the fire would not reach the sidewall, and the quantity of smoke would be minimal. Thus, the relief in the smoke emission requirements for sidewalls depends on improving the standards for ducting. This philosophy of interdependency is true throughout the proposal.

The MFWG discussed smoke emission testing at length during its activity leading to this proposal, but the MFWG did not reach a consensus on whether the FAA should retain a requirement for smoke emission testing. Some members were concerned that the removal of the requirement could lead to applicants using materials with excessive smoke emission properties, if those materials offered weight or cost advantages. Other members believed the FAA could eliminate the smoke emission test requirement because smoke emissions had not been correlated to post-crash survivability, and FAA data suggested it was not needed. Also, most airplane manufacturers have their own design standards that include tests for smoke emissions. These internal manufacturer requirements were in place before the FAA adopted the current regulatory requirement; therefore, the FAA expects they would remain in use to some extent if the regulatory requirement were removed. Thus, the FAA anticipates that some of the smoke emission testing that existed before the current regulatory requirement would continue to take place if this proposed amendment removed the regulatory requirement. In other words, manufacturers might choose to maintain the design standards that were in place before amendment 25-66  28 was adopted. Amendment 25-66 imposed a certification process that drives costs, in terms of the quantity of tests, the documentation necessary, and the engineering assessments to identify the correct tests. These costs would be relieved by this proposed rule and are included in the cost savings estimates.

Based on this information, the FAA proposes to remove the requirement for testing of smoke emissions. However, because smoke is an important survivability parameter, and materials that have high smoke emission without significant HRR are theoretically possible, § 25.853 of this proposal would establish a general performance standard that components must maintain occupant survivability during a post-crash fire. One means of showing compliance would be HRR testing, described in chapter A4 of FAA Report No. DOT/FAA/TC-17/55, “Aircraft Materials Fire Test Handbook,” Revision 3, dated June 2019. If data from the HRR testing does not ensure the post-crash fuel fire performance of a given material, an applicant could show compliance via another means. The FAA anticipates, however, that HRR tests will be adequate to determine the post-crash fire performance of components made from materials currently in use such as phenolic, epoxy, and thermoplastic.

Proposed § 25.853(c)(2) would set performance standards requiring all Class C, and certain Class E and F, cargo compartment ceiling and sidewall liners to resist penetration by a fire within that compartment and protect the airplane's structure and critical systems from the effects of those fires. The section on cargo or baggage compartments would include a reference (§ 25.855(c)) requiring compliance with the applicable provisions of § 25.853(c). In addition, as a minor editorial change, this proposal eliminates the term “panels” from “liner panels,” the term used in the current regulation. Most liners are panels. However, many components serving the role of the cargo compartment liner are not panels, and the term can sometimes be confusing. The proposed rule would simply refer to cargo compartment liners, but there would be no change in the scope of the requirement.

Currently, § 25.855(b) requires any Class B through E, and certain Class F, cargo compartments to have a liner. Section 25.855(c) requires the ceiling and sidewall liner panels of Class C and F cargo compartments to meet the requirements currently in part III of appendix F to part 25, the oil burner test (proving resistance to flame penetration). The requirement for cargo compartment liners to resist fire penetration would be retained, as a performance standard, in § 25.853(c)(2)(ii). Proposed § 25.853(c)(1)(iii) would continue to require Class B cargo compartment liners, as well as any other cargo compartment liners, to resist penetration from a small ignition source. This requirement is currently met using the less severe 45-degree Bunsen burner test required by appendix F, part I, paragraph (a)(2)(ii) of part 25. A Class F cargo compartment is not required to have a liner if it has other means of containing a fire and protecting critical systems and structure, but if it does have a liner, it is currently required by § 25.855(b)(2) to meet the oil burner test like Class C cargo compartments.

With this proposal, all Class E cargo compartment liners necessary to protect critical systems and structure would be required to meet standards identical to those required of Classes C and F, under proposed § 25.853(c)(2)(iii). The FAA's rationale for requiring the same performance of those cargo compartment liners is that any cargo compartment liner necessary to protect the airplane structure or its systems should also protect against in-flight cargo fires.

The oil burner test would continue to be an acceptable means of showing that the liner resists penetration as that test represents the hazard posed by in-flight cargo fires, but this proposal would remove the requirement to pass the test in part III of appendix F to part 25, which would become an optional means of compliance under proposed AC 25.853-1A.

Other methods of meeting the proposed performance standards for Class E cargo compartments could be the use of fire containment covers or containers, or dedicated shrouds to protect flight-critical systems. In such cases, proposed § 25.853(c)(2)(iv) would still require the liner to resist penetration from a small ignition source, which could be shown by passing the 45-degree Bunsen burner test, which also would be described in proposed AC 25.853-1A.

In addition, application of § 25.855(c) has often resulted in multiple tests for a given liner configuration or slight variants of the configuration. This regulation would be replaced by the performance standards discussed previously, and proposed AC 25.855-1X would provide guidance on simplified methods that should reduce the testing required to show compliance.

Lastly, this proposal would eliminate the requirement in § 25.855(d) to test the flammability of materials used in the construction of items such as cargo covers and tiedown equipment within a Class C cargo compartment. Section 25.855(d) currently applies to all other materials used in the construction of the cargo or baggage compartment and requires testing according to part I of appendix F to part 25, the Bunsen burner tests, for any such materials. This proposal would add an exception to § 25.855(d) for materials located entirely within a Class C cargo or baggage compartment. The rationale for this proposed relief is that Class C compartments are already required by § 25.857(c) to withstand and contain a fire from cargo or baggage of arbitrary flammability characteristics, and these compartments must have a fire suppression system. Materials used within the Class C compartment would be no more flammable than the cargo itself. Since the cargo makes up most of the potential fire load, requiring all of these materials or components to be tested does not add to safety. However, this proposal would not provide similar relief for other classifications of cargo compartments because those compartments use different approaches to fire protection.

These proposed changes would apply to cargo compartments, not cargo containers, even though the National Transportation Safety Board has recommended improved flammability standards for cargo containers. Cargo containers  29 are used in a variety of applications, including within Class C cargo compartments. Unlike the cargo compartments that house them, cargo containers are usually not part of the airplane type design, and so are not directly affected by the requirements of part 25. The FAA often approves cargo containers in accordance with Technical Standard Order (TSO) C90d, “Cargo Pallets, Nets and Containers (Unit Load Devices),” which contains minimum performance standards for the container itself, without regard to the type of compartment where the container will be used. The FAA's analysis of potential regulatory actions with respect to cargo containers is ongoing and independent of this proposal.

Thermal/acoustic insulation protects the airplane and occupants from temperature and acoustic extremes, and it is often located in places not accessible to the flightcrew during flight. This proposal would remove the requirement for radiant panel testing of thermal/acoustic insulation, currently in § 25.856(a) and part VI of appendix F to part 25. This proposal would instead require that thermal/acoustic insulation comply with proposed § 25.853(c)(2)(i), which would set performance standards for all extensively used parts, components, and assemblies that are not accessible to the flightcrew during flight. The proposed performance is that the parts not propagate the largest fire that, by itself, would not be a hazard to the airplane. The reason this standard was selected, originally by the MFWG, is to prevent the risk that a fire that is any larger would be a hazard to the airplane and its occupants, regardless of the materials used.

One means of showing compliance with the proposed performance standards for inaccessible materials would be the radiant panel test method, which determines the flammability and flame propagation characteristics of thermal/acoustic insulation when it is exposed to both a radiant heat source and a flame. This method would be detailed in proposed AC 25.856-1A.

In contrast, thermal/acoustic insulation that is accessible to the flightcrew during flight would only be required to be self-extinguishing when exposed to a small flame, as set forth in proposed § 25.853(c)(1)(i).

For airplanes with a passenger capacity of 20 or more, this proposal would revise § 25.856(b) to state two performance standards, that thermal/acoustic insulation installed in the lower half of the fuselage resist penetration of a post-crash fuel fire and provide at least 5 minutes of survivability in the occupied portions of the airplane. Section 25.856(b) currently requires that thermal/acoustic insulation installed in the lower half of the fuselage meet the burnthrough resistance (or oil burner) test in part VII of appendix F to part 25 unless the FAA determines that the insulation would not contribute to fire penetration resistance. If thermal/acoustic insulation is not installed, there is currently no requirement that the airplane resist post-crash fire penetration.

The MFWG recommended that the FAA expand the applicability of the burnthrough resistance requirement beyond just insulation, to require a means of providing post-crash fire penetration protection. For some airplane designs, that approach could require some other type of fire barrier, in areas where insulation is not installed, that would have to meet the same performance standards as thermal/acoustic insulation.

The FAA is not proposing to adopt the MFWG recommendation to expand the applicability of the burnthrough resistance requirement. It is difficult to quantify the benefits of requiring a fire penetration barrier, since the majority of in-production airplanes are largely insulated in the lower lobe. Adding a fire barrier to areas not traditionally insulated, such as the wing box or certain cargo areas, would provide some, albeit limited, fire safety benefit. In addition, with the increased use of composite skin structure, some airplane models have fire penetration resistance without using insulation. However, if the FAA were to separately require fire penetration resistance for the entire lower lobe, applicants would incur substantial development costs, including increased testing, and more significantly, increased airplane weight. The FAA cannot, at present, justify these costs against the potential benefits they would provide. Instead, proposed § 25.856(b) would allow for another means of providing fire penetration resistance, and proposed AC 25.856-2B would address the use of fuselage structure in an equivalent means of providing fire penetration resistance. These provisions should reduce the administrative actions necessary if an applicant chooses to provide a fire penetration barrier by means other than insulation.

Proposed § 25.853(d)(5) would incorporate a requirement from TSO-C69C, “Emergency Evacuation Slides, Ramps, Ramp/Slides, and Slide/Rafts,” for applicants to conduct tests to ensure the continued functioning of escape systems when those systems are exposed to the effects of radiant heat from a post-crash fuel fire. Since all escape slides currently comply with the radiant heat resistance requirement of TSO-C69C, this proposal would add no compliance burden. Compliance with TSO-C69C would also provide the necessary data for compliance with the new part 25 requirement. Proposed AC 25.853-6X would contain details of the radiant heat test method and pass/fail criteria and would include refinements developed since the TSO-C69C was last updated.

The fire containment requirements for waste receptacles would remain the same with this proposal. However, because of the reorganization of § 25.853, this proposal would move the waste receptacle requirements from § 25.853(h) to proposed § 25.853(c)(1)(ii). In addition, proposed § 25.853(c)(1)(ii) would require at least one test specimen to show compliance. This change is necessary because proposed § 25.853(b) adds a general test requirement that three specimen sets be used to show compliance with proposed §§ 25.853(c) and (d). Requiring one test specimen for waste receptacles is consistent with the current § 25.853(h), which requires demonstration by test.

Waste receptacles face the threat of an in-flight fire occurring within the receptacle. The current § 25.853(h) addresses this threat, but the requirement does not specify a test method from appendix F to part 25 as do the other paragraphs of the current § 25.853. AC 25-17A, Change 1, “Transport Airplane Cabin Interiors Crashworthiness Handbook,” dated May 24, 2016, currently summarizes an acceptable method of compliance for waste receptacles. This method would be updated in chapter B1 of FAA Report No. DOT/FAA/TC-17/55, in order to reflect current knowledge about in-flight fire sources and typical waste materials.

The FAA is proposing new fire safety standards that would apply to all materials that are extensively used within and including the fuselage but are not accessible in flight. Proposed § 25.853(c) would set a performance standard of prohibiting the flammability characteristics of parts, components, and materials involved in an in-flight fire from creating a hazard to the occupants or to the continued safe flight of the airplane. For the purposes of this proposed rule, the “flammability characteristics” of a part, component, or assembly (or the materials from which they are made) are all of the ways those items respond to a particular fire threat. Such flammability characteristics include the material's ease of ignition, its tendency to propagate a flame, and its HRR, as well as other parameters correlated with heat release, including the emission of smoke and toxic gases.

Proposed § 25.853(c)(2)(i) would set the performance standard that extensively used parts, components, and assemblies must not propagate the largest fire that, by itself, would not be a hazard to the airplane.

When the FAA adopted the flammability requirements for thermal/acoustic insulation in 2003 (amendment 25-111), 30 the FAA's regulatory evaluation estimated that the requirements would mitigate  31 roughly half the potentially catastrophic in-flight fires that might occur over a 20-year period. In order to more completely address the risk due to in-flight fire, the FAA determined that all extensively used materials in inaccessible areas should have the same level of fire resistance as thermal/acoustic insulation, currently addressed in § 25.856(a). Therefore, proposed § 25.853(c)(2)(i) would set the same performance standard for extensively used parts in inaccessible areas that is in the current § 25.856(a).

To further explain the reason for this proposal, the parts and materials of primary concern in inaccessible areas are electrical wiring, ducting, and composite structure. Each of these is “extensively used,” in the meaning set forth in this proposal, and could permit a fire to propagate inside the airplane. Since the areas in question are not accessible by the flightcrew, there is no effective way to fight the fire, so the flammability (flame propagation) resistance of the materials is paramount in in-flight fire safety. This proposal would also revise § 25.856(a), which states the requirements for thermal/acoustic insulation, to require the same performance standards as § 25.853(c)(2)(i). This would have the effect of limiting the applicability of the in-flight flame propagation requirement to thermal/acoustic insulation that is located in an area that is inaccessible in flight. Proposed AC 25.853-5X would provide additional detail on the types of components that are affected by this requirement, as well as methods of compliance.

Section 25.1713, “Fire protection: EWIS,” applies to electrical wire and cable wherever it is used. Materials used in any electrical wire and cable insulation, including protective shrouds, are considered extensively used. This proposal would restate the current fire protection requirements relative to whether the wire is installed within or outside the fuselage. For electrical wiring interconnected systems (EWIS) components installed within the fuselage, under proposed § 25.1713(c)(2) the insulation would have to meet the performance standards in proposed § 25.853(c), which includes different standards for installations in areas that are accessible and inaccessible in-flight, and in a post-crash environment. For EWIS installed outside the fuselage, because such areas are inaccessible, proposed § 25.1713(c)(1) would require that such components not propagate the largest fire that, by itself, would not be a hazard to the airplane. This proposal would also add a new paragraph (d) to § 25.853 to require testing, except for wiring installations that would not pose a risk to fire safety. Proposed AC 25.853-5X would provide accepted test methods for showing compliance with the new performance standards.

Other extensively used materials include nonmetallic or flammable metals used in some fuselage construction today. Since the use of these materials in this manner constitutes a novel or unusual design feature, the FAA has addressed the issue of in-flight fire safety for designs using these materials through special conditions. Those special conditions are intended to ensure that the use of nonmetallic or flammable metal structure does not reduce the level of in-flight fire safety from the level that would have been provided with a traditional metallic fuselage. Proposed § 25.853(a) would include the fuselage in the fire protection requirements regardless of the type of material used in its construction and would eliminate the need for such special conditions. Proposed § 25.853(d)(4) would require that flammable metals used in cabin construction be able to resist a post-crash fire, and that they be readily extinguishable. “Readily extinguishable,” in this instance, means that a fire extinguishing system in common use in aviation (including a hand-held fire extinguisher or airport emergency response) can promptly extinguish the materials, rather than spreading the fire or otherwise making the fire worse.

Under § 25.853(c)(2) of this proposal, the back sides of many existing interior features ( e.g., galleys, sidewalls, ceilings) would meet the definition of extensively used and would, therefore, be required to show by test their fire propagation resistance. However, the FAA has assessed the performance of these materials, both in service and in testing. Since the materials' fire propagation resistance has been satisfactory, and because they are subject to other flammability requirements, the FAA does not see a need to require additional tests for the portion of these parts that face inaccessible areas. Therefore, proposed appendix F to part 25 and proposed AC 25.853-1A would summarize conditions under which methods of compliance other than testing would be acceptable in order to meet the in-flight fire requirements for inaccessible areas.

Proposed § 25.853(c)(2)(v) would require that all other parts, components, and materials located in inaccessible areas be self-extinguishing when exposed to a small flame or electrical arc. However, since these would by definition be components that are not extensively used, an applicant could document a process whereby the flammability of parts used in inaccessible areas is controlled to meet the required level of safety of the proposed rule. Specifically, an applicant could show that its design/production system includes provisions such that parts used in inaccessible areas have only known flammability characteristics, or any parts that do have unknown flammability characteristics are insignificant in the event of a fire. Proposed AC 25.853-1A would discuss this in more detail.

Proposed § 25.853(e) would allow applicants to substantiate certain components without the testing required by § 25.853(b). Section 25.853(e) would establish five classes of parts that would not require certification testing in order to show compliance. Each individual class would be based on a combination of factors that affect fire safety and complexity of certification. The classes maintain the level of safety provided in the current regulations.

The applicant would have to prove that the part or component meets the criteria of one of the five classes listed in proposed § 25.853(e), in order to obtain the FAA's approval to exempt those parts from testing. Proposed AC 25.853-1A would provide examples that would qualify for this relief and guidance for justifying it.

The classes are as follows:

• Class 1 parts are small (each able to fit, in its entirety, within a cube measuring two inches on each side) and separated from one another so that they will not propagate a fire.

• Class 2 parts are larger than Class 1 parts and are self-extinguishing. These parts would be limited in size to a volume of 113 cubic inches and an exposed area of 200 square inches.

• Class 3 parts are those that the applicant can show, through a method acceptable to the Administrator, are a size, construction, or location that their flammability characteristics do not threaten the airplane or its occupants. By threaten, the FAA means pose a risk to continued safe flight and landing or a hazard to the occupants.

• Class 4 parts are those that are essential to the safety of the airplane, its occupants, or the functionality  32 of the airplane and cannot reasonably be made from a material that meets the flammability requirements without compromising the part's integrity or functionality. Although this paragraph provides an exception, the FAA expects the proposed design would come as closely as possible to full compliance, including the use of best available materials and showing that there is no adverse effect on safety.

• Class 5 parts are those that have already passed a more stringent test as outlined in appendix F to part 25.

All of these provisions would apply to testing requirements for both the in-flight and post-crash fires.

The FAA is proposing these exceptions because the current general exclusion of small parts from testing requirements in part I of appendix F to part 25 has been problematic. There is currently no definition of small parts in the flammability regulations, only examples. Since testing is not required, the flammability characteristics of those small parts can be unknown. In addition, there is no consideration of accessibility, extensive use, or potential type of fire exposure. Adopting different classes of parts would simplify the requirements and bring standardization to those situations where parts are not tested. Proposed AC 25.853-1A would provide examples that would qualify for this relief and guidance on justifying it.

This proposal would remove the detailed pass/fail criteria from appendix F to part 25. Section 25.853(b) of this proposal would define the number of specimen sets required for tests that the applicant uses to show compliance. The applicable proposed AC would provide approved number of passing samples for certain testing methods.

The detailed pass/fail criteria, currently in appendix F to part 25, are specific to the test method. Depending on what the test is measuring, the pass/fail criteria relate to the key parameters of interest ( e.g., burn length, extinguishing time, HRR) necessary to meet the level of safety that the requirement. The pass/fail criteria are based on a required number of test samples and the number of samples that meet the specified criteria. All of the current test methods require at least three sets of test samples, which may include more than one specimen depending on the test method.

Some current test methods require the average value of the test results to be at or below a certain level; others require that no sample can fail. For example, the seat cushion test in current appendix F to part 25 requires that two thirds of the test samples meet certain criteria as well as the average of all test samples. One of the key ongoing difficulties with these criteria is how to recover from failure of a single sample, where that sample may be an outlier. For those methods that require an average, simply testing more samples improves the statistical significance of the average, and has generally been acceptable (although the FAA must approve in advance the number of additional samples to be tested). For test methods that do not permit any sample to exceed specified values, a failure of one sample is problematic, since one failure would violate the criteria no matter how many additional samples are tested. Such failures are often attributed to so-called “rogue” samples: Samples that have some irregular characteristic that makes their performance unrepresentative of the material (part or component) in general. While rogue samples undoubtedly occur, it is often difficult to pinpoint their cause.

This proposal would address this issue in § 25.853(b) by standardizing the number of samples and required pass rate: 80 percent for every new or improved test method, based on a minimum of three test sample sets. The effect would be that if only three samples are tested, all must pass. If one of the three samples fails, then at least two additional samples would be needed to obtain an 80 percent passing rate. This standard would be effectively relieving for tests on thermal/acoustic insulation and Class C cargo compartment liners because those methods in part III of appendix F to part 25 currently permit no failures. In contrast, this method could be more stringent for Bunsen burner and HRR tests because it could require more samples. The method is similar to the method currently required for testing seat cushions. However, since this proposal would eliminate many Bunsen burner tests and the test for smoke emissions (all in appendix F), even if an applicant needed additional samples to show compliance, the total number of required tests should be very close to the number required today. Also, samples that are invalidated due to an assignable cause could still be discarded and replaced with new samples.

Most of the test methods currently in use would continue to be acceptable for certification. An applicant could choose to use these existing methods to show compliance with the relevant portions of this proposal. However, the FAA considers the revised versions of these test methods, as documented in FAA Report No. DOT/FAA/TC-17/55, to be more reliable than the previous versions. The only test methods currently required that would not be carried forward under this proposal are the horizontal Bunsen burner test and the test for smoke emissions. If an applicant uses a current test method to comply with a performance standard in this proposal, then the applicant should use existing pass/fail criteria (including all measured parameters). In that case, an applicant would be trading the lower reliability of the older test method against the need to prepare additional test samples. For new tests, such as those for extensively used materials in inaccessible areas, at this time there are no proven optional methods to those presented in the proposed guidance, which includes the 80-percent criteria.

The table below identifies each test method; the current location of the detailed test method in regulatory requirements and non-regulatory procedures; and the location where each test method could be found, in non-regulatory procedures, if this proposal is adopted.

While the previous test methods, as shown in the table above, would continue to be acceptable, the FAA will not continue to refine these methods to improve their repeatability and reproducibility. The FAA's future focus on refining and improving test methods will be on the new and improved test methods documented in FAA Report No. DOT/FAA/TC-17/55, since these are now the preferred methods and would become the preferred methods of compliance with the performance standards of this proposal.

The FAA is proposing to substantively change appendix F to part 25 by removing its many specifications for flammability tests and adding a list of flammability test methods that applicants can use in lieu of other test methods. The FAA would remove and update the detailed testing criteria from the current appendix F, although it would continue to be available in advisory material. This proposal would provide flexibility for applicants in showing compliance with the proposed revisions to the fire protection standards in § 25.853.

Currently, appendix F to part 25 is divided into seven parts, each providing details of different test methods, with variations for specific airplane parts, and acceptable outcomes for each test variation. Because of the importance of maintaining standardization, these test methods are very detailed and, therefore, lengthy. Since appendix F to part 25 is a regulation, applicants must get the FAA's approval to depart from any of the test details. As the test methods have become more complicated and sophisticated over time, following every detail has become more important in obtaining reliable results. Conversely, as technology advances, providing more opportunities to refine and improve the test methods, requests for deviation from appendix F to part 25 have become more frequent. To deal with these requests, the FAA issued a policy statement to permit use of FAA Report No. DOT/FAA/AR-00/12 as an acceptable method of compliance for many of the test methods in appendix F to part 25. The FAA also developed a method for updating the handbook, so that improvements could be implemented quickly and used by industry without extensive administrative burden.

Given this experience, the FAA has determined that the detailed test methods should no longer be regulatory.

In conjunction with this proposal, the detailed test methods would be contained in ACs (see section III.D, “Advisory Materials” of this NPRM), which are easier to update than a regulation and allow for more flexibility as refinements and improvements to the test methods become available. As with any advisory material, the method would not be mandatory, but applicants would have to justify and obtain approval of other compliance methods.

To improve the effectiveness of the handbook approach to compliance, a new document would serve as a compendium of the relevant test methods. The associated ACs would reference this compendium, and the FAA would update it as advances and improvements in test methods and equipment are developed. However, the original version and subsequent versions of the compendium would remain an acceptable method of compliance with these proposed regulations, unless the FAA discovers a deficiency in a given version, or changes the regulatory requirements after notice and comment.

This proposal would add provisions to appendix F to part 25 that would allow applicants to demonstrate compliance with a requirement in one of the proposed paragraphs of § 25.853 via a test method at least as rigorous as one acceptable for showing compliance with the original requirement. Appendix F to part 25 would contain a table of these performance standards indicating whether showing compliance with one standard would be sufficient to satisfy showing compliance with another. This table would help applicants determine the relative severity of the testing methods that the FAA would find acceptable for showing compliance and, therefore, would allow applicants to eliminate redundant or non-value-added testing. Since the critical performance parameters ( e.g., flame propagation and fire penetration) differ according to the type of fire (in-flight or post-crash fuel fire), the proposed revisions to appendix F to part 25 would clarify which types of compliance tests the FAA would find acceptable as substitutions for a given type of fire threat.

This would allow a successful result on other, more stringent, testing to prove that a given material will not pose a hazard in that type of fire. For example, appendix F to part 25 would allow applicants to use a successful HRR test to show compliance with the requirement to pass a Bunsen burner test, or to use a post-crash fire test method, coupled with experience for certain classes of materials, to show compliance with an otherwise required in-flight fire test method. The FAA has determined that, for certain classes of materials, complying with one requirement provides sufficient data to show compliance with another, subject to certain conditions. Each instance where compliance with the post-crash requirements is sufficient to meet the in-flight requirement would be discussed in more detail in proposed AC 25.853-1A.

An example of the allowable use of a post-crash requirement to meet an in-flight requirement would be for the back sides of the large interior surfaces (sidewalls, ceilings, floors, galleys, etc.) not exposed to the cabin. As discussed previously, these surfaces would be subject to proposed § 25.853(c)(2), which would require that, for in-flight fires, extensively used materials in inaccessible areas not propagate the largest fire that, by itself, would not be a hazard to the airplane. The vertical flame propagation test is currently the expected means of compliance to this standard. However, with the exception of floor panels, the types of materials used for these applications have not been a safety concern for in-flight fires, and these materials would still have to meet the stringent requirements related to heat release for the post-crash environment. With the proposed hierarchy table in appendix F to part 25, if these materials pass the HRR tests, they would not also have to pass the vertical flame propagation test.

The same allowance is true for the back side of cargo compartment liners, even though they are subject to a different probable type of fire threat (post-crash fuel fires) and required by appendix F to be tested using the oil burner test. Although the oil burner and vertical flame propagation tests are not universal substitutes for each other, the materials on the back of cargo compartment liners have exhibited satisfactory behavior in the presence of in-flight fires, as demonstrated by FAA testing, and should not require further testing by the vertical flame propagation test. Should new materials be developed whose performance in an in-flight fire has not been established, then the proposed rule would provide the means to address and allow them, and both test methods may be necessary to demonstrate that compliance. This would be indicated in the note to the table in proposed appendix F to part 25.

As a final note, the FAA recognizes that its current regulations provide flexibility for an applicant via the repeated provision allowing “other approved test methods.” However, this provision does not adequately address the need for consistency in test methods because it is optional, and each applicant could seek approval of a unique alternative method. This can result in the same material passing one applicant's test and failing another, even though both test methods could be approved by the FAA. The FAA expects that this proposal would provide the same level of flexibility, but increased consistency over time as consensus on testing methods develops.

Special Federal Aviation Regulation (SFAR) 109 to part 25 also requires compliance with certain paragraphs of § 25.853 that would be changed by this proposal. Consequently, the FAA would modify SFAR 109 so that those requirements continue after § 25.853 is amended.

Certain sections of 14 CFR parts 27 and 29, for normal and transport category rotorcraft, currently require testing in accordance with appendix F to part 25. Although this proposal would remove those testing requirements from appendix F for transport category airplanes, the FAA does not propose to remove or change those requirements for normal and transport category rotorcraft. Therefore, this proposal would add an amendment level to the appendix F references in §§ 27.1365, 29.853, and 29.1359 to continue those requirements after appendix F is amended.

The proposed rule would also remove certain testing requirements regarding average burn length from paragraphs (a)(1) and (a)(2) of § 29.853 because those requirements are redundant with current appendix F to part 25.

Operational rules in certain sections of 14 CFR parts 91, 121, 125, and 135 also currently require testing in accordance with §§ 25.853 and 25.856 and appendix F to part 25. The FAA proposes to add the phrase “or as subsequently amended” to §§ 91.613, 121.312, 121.314, 125.113, 135.169, and 135.170, so that airplanes approved in accordance with the amendment resulting from this proposal would be able to comply with the operational rules. The “or” in that phrase serves the purpose of making compliance with this proposal or a later amendment optional.

In addition, appendix L to part 121 contains information regarding referenced sections of part 25 that have subsequently changed through amendments. Appendix L would also be updated to conform to this proposal.

These changes to parts 25, 27, 29, 91, 121, 125, and 135 would have no substantive impact on safety or the cost of compliance.

This proposal also contains some editorial changes to existing regulatory language, where that language does not reflect how the rule is applied, or its intent. Specifically, current § 25.853(e) excepts certain compartments from compliance with § 25.853(d) if they are isolated by a door that would be closed during an emergency landing condition. In practice, this exception has been applied when such compartments are isolated by a door that is closed for taxi, takeoff, and landing, in general. The proposal is changed accordingly and will have no impact on the requirement. The proposal moves this exception in § 25.853(e) for parts inside of compartments isolated from the main passenger cabin to a new § 25.853(d)(2)(ii).

Current § 25.853(h) requires that disposal receptacles be made from materials that are “fire resistant.” The term “fire resistant” is defined in 14 CFR part 1 as having properties equivalent to aluminum alloy appropriate for the purpose. In practice, the means of compliance has been by meeting the test method specified in current part I of appendix F for Class B cargo compartment liners, which is to resist penetration by a small flame. The proposal would state the requirement in that way to avoid any ambiguity regarding the level of protection required. This will also have no impact since it aligns the rule language with how the requirement has historically been actually met.

This proposal contains only minor editorial changes to the requirements related to smoking in § 25.853(f) and (g). The requirements would remain the same, but the paragraphs would be renumbered and restated for clarity.

The FAA is developing six new ACs and revising three ACs that will be published for public comment concurrently with this NPRM. These proposed ACs can be found in the same public docket as this NPRM. The draft ACs would provide guidance for acceptable means, but not the only means, of showing compliance with proposed §§ 25.853, 25.855, and 25.856. The FAA will accept public comments on the following proposed ACs on the “Aviation Safety Draft Documents Open for Comment” web page at http://www.faa.gov/aircraft/draft_docs/:

1. AC 25.853-1A, “Flammability Requirements for Transport Category Airplanes.”

2. AC 25.853-2X, “Flammability Requirements for Aircraft Seat Cushions.”

3. AC 25.853-3X, “Flammability Testing Requirements for Commonly Constructed Parts, Construction Details, and Materials Used on Transport Category Airplanes.”

4. AC 25.853-4X, “Vertical Bunsen Burner Tests.”

5. AC 25.853-5X, “Flammability Requirements for Materials in Inaccessible Areas of Transport Category Airplanes.”

6. AC 25.853-6X, “Flammability Requirements for Escape System Materials for Transport Category Airplanes.”

7. AC 25.855-1X, “Flammability Requirements of Cargo Liners for Transport Category Airplanes.”

8. AC 25.856-1A, “Thermal/Acoustic Insulation Flame Propagation Test Method Details.”

9. AC 25.856-2B, “Fuselage Burnthrough Protection.”

The FAA is also revising Report No. DOT/FAA/AR-00/12 to update the test methods contained within this report, as described previously. This interim report will be published concurrently with this NPRM as FAA Report No. DOT/FAA/TC-17/55, and it can be found in the same public docket as this NPRM.

This proposal would revise the flammability standards for transport category airplanes, but would not impose any requirements to retrofit existing airplanes or conduct a production-cut in on new airplanes. Since this proposal would simplify or remove some of the flammability requirements, some applicants may wish to use the standards of this proposal instead of an earlier amendment level. Applicants may elect to apply the later amendment under § 21.17 or seek exceptions in accordance with § 21.101.

Section 21.17(e) permits an applicant for a type certificate to elect compliance with an amendment effective after the date of application, as long as all “directly related” amendments, as determined by the FAA, are complied with as well.

The FAA has considered which regulatory amendments must be regarded as “directly related” and, therefore, applied together under § 21.17. An analysis of what is “directly related” requires examination of which provisions have been made more flexible and which have been made more stringent because these factors are often causally related. In some areas, the additional flexibility is the result of a requirement that has become more stringent. The primary areas of increased flexibility are the proposed removal of the testing requirements in appendix F, and the proposed removal of the smoke emission requirement. The removal of the appendix F testing requirements is only possible, from a safety perspective, because of the additional performance standards for inaccessible areas. The main area where requirements would become more stringent is extensively used components in inaccessible regions of the airplane. These areas are mainly threatened by in-flight fires, although improved flammability resistance of materials can also benefit post-crash safety. Therefore, the FAA considers the entire proposal to be interrelated, such that all the proposed changes could be characterized as “directly related” to each other. However, the FAA expects that a practical application of the “directly related” provision could simplify compliance under § 21.17 and maximize safety, as discussed below.

Among those components that would be subjected to new test methods under this proposal, composite fuselage structure is already subject to meeting special conditions, and this proposal would codify the requirements in those conditions. Also, aviation-grade electrical wiring is for the most part already compliant with the proposed flammability requirements. Ducting is one area, however, where many of the currently used parts would not meet the proposed requirement for extensively used materials in inaccessible areas, and where a significant safety benefit would accrue from the higher standard. The type of fire that primarily threatens ducting is in-flight. However, accidents have shown that ducting can spread and intensify post-crash fires. Thus, the safety improvement that would result from applying the proposed standards to ducts would enhance fire safety with regard to both types of fire, and the FAA considers this safety enhancement integral to the proposed changes that would reduce or eliminate other testing.

Therefore, an applicant that elects compliance with the amendment level that results from this proposal, in order to take advantage of the provisions that reduce or eliminate tests, would also have to ensure that ducting complies with the new standards proposed in § 25.853(c)(2).

The exception to the requirement to apply directly related changes when an applicant elects compliance with the later amendment would be the substitution of tests in proposed appendix F to part 25. Such substitution is already allowed under the current flammability rules, which repeatedly allow applicants to show compliance by “other equivalent method.” Applicants could apply proposed appendix F to part 25 to models approved under earlier certification bases without affecting safety and without applying other portions of the proposal. An applicant's selection of the amendment that most materially contributes to safety could eliminate the need to run multiple tests on many parts with the recognition that some tests are sufficiently stringent that they would satisfy the concerns addressed by other tests. Substituting some tests would neither eliminate the need to conduct smoke emissions tests, nor alter the applicability of current requirements. Proposed appendix F to part 25 would simply permit substitution of one test method for another, where the substitute method has been determined to be more stringent.

• Example 1: An applicant for a supplemental type certificate desires to use only the new appendix F that would result from this proposal. In this case, the applicant would be limited to applying the hierarchy of appendix F, and no other relief.

• Example 2: An applicant for a change to a type certificate (either through amended or supplemental type certification) desires to elect compliance with the entire amendment that results from this proposal. The applicant must comply with § 25.853(c)(2)(i) as it pertains to air ducting, even if the air ducting is unchanged or not affected by the proposed design change. Any other provision of the proposed rule could then be included at the applicant's choosing.

Section 21.101(a) requires design change applicants to meet the standards in effect on the date of application that are applicable to the change and areas affected by the change, unless exceptions are requested and are granted under the provisions of § 21.101(b). Section 21.101(b) allows the applicant to show compliance with an earlier amendment level for changes found to be not significant, or found to not materially contribute to safety, or found to be impractical. The FAA does not regard any of the standards proposed here as impractical. The degree to which application of these standards would “materially contribute to safety” will depend on the current design.

As discussed previously, acceptable wiring would be documented in proposed AC 25.853-5X and include wiring already widely used by applicants; the safety of composite fuselage structure will have been covered by special conditions; and ducting may comply with these proposed standards, even though certification testing has not been performed. In those cases, an applicant may be able to argue that including the later amendment would not materially contribute to safety, but that use of other provisions ( e.g., those that would eliminate tests) of the proposal would provide significant benefits to the applicant. In that case, the FAA agrees that compliance with the later amendment could be acceptable to eliminate tests, provided improved design features used to justify the exception are a condition of the certification basis in the “Additional Design Requirements and Conditions” section of the type certificate data sheet.

The following examples illustrate how this could work in practice:

• Example 1: An applicant for a significant product-level change seeks exception, under § 21.101(b), from the amendment that results from this proposal on the basis that full compliance would not materially contribute to safety. As discussed above, an exception would have to be based on substantial compliance with this proposal, such that few components are not in compliance, and they would not be significant from a fire safety standpoint.

• Example 2: An applicant applies for a fuselage length change. The change is considered a significant product-level change per the guidance in AC 21.101-1B. AC 21.101-1B also states that the simultaneous introduction of a new cabin interior is considered related since occupant safety considerations are impacted by a cabin length change. The FAA considers this proposed amendment to be directly related to occupant safety. As such, for a fuselage change, this proposed amendment would be an applicable requirement for the airplane ( e.g., changed and unchanged areas of the airplane would need to meet the requirement). The applicant may request an exception under § 21.101 by showing compliance with this proposal to a substantial extent, such that the few parts not in compliance would not be significant from a fire safety standpoint.

Changes to Federal regulations must undergo several economic analyses. First, Executive Order 12866 and Executive Order 13563 direct that each Federal agency shall propose or adopt a regulation only upon a reasoned determination that the benefits of the intended regulation justify its costs. Second, the Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires agencies to analyze the economic impact of regulatory changes on small entities. Third, the Trade Agreements Act (Pub. L. 96-39 as amended) prohibits agencies from setting standards that create unnecessary obstacles to the foreign commerce of the United States. In developing U.S. standards, the Trade Agreements Act requires agencies to consider international standards and, where appropriate, that they be the basis of U.S. standards. Fourth, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires agencies to prepare a written assessment of the costs, benefits, and other effects of proposed or final rules that include a Federal mandate likely to result in the expenditure by State, local, or tribal governments, in the aggregate, or by the private sector, of $100 million or more annually (adjusted for inflation with base year of 1995). This portion of the preamble summarizes the FAA's analysis of the economic impacts of this proposed rule. We suggest readers seeking greater detail read the full regulatory evaluation, a copy of which we have placed in the docket for this rulemaking.

In conducting these analyses, FAA has determined that this proposed rule: (1) Has benefits that justify its costs; (2) is not an economically “significant regulatory action” as defined in section 3(f) of Executive Order 12866; (3) is not “significant” as defined in DOT's Regulatory Policies and Procedures; (4) would not have a significant economic impact on a substantial number of small entities; (5) would not create unnecessary obstacles to the foreign commerce of the United States; and (6) would not impose an unfunded mandate on State, local, or tribal governments, or on the private sector by exceeding the threshold identified above. These analyses are summarized below.

By extending fire protection requirements to any extensively used material located in inaccessible areas the proposal is likely to be beneficial by reducing the likelihood of a fatal accident. Over a 19-year period of analysis, the FAA estimates the total present value cost savings of this proposed rule to be $119.8 million at a seven percent discount rate, with annualized cost savings of $11.6 million. The cost savings would result from the elimination and streamlining of some tests, which would be made possible by the extension of fire protection requirements to inaccessible areas. Over the same 19-year period, the FAA estimates the total present value costs of this proposed rule to be $71.1 million at a seven percent discount rate, with annualized costs of $6.9 million due to the extension of fire protection requirements to extensively used material in inaccessible areas. A full explanation of how these costs and cost savings were estimated may be found in the regulatory impact assessment accompanying this NPRM. The present value net cost savings (cost savings minus cost) is $48.7 million, with annualized net cost savings of $4.7 million. The following table summarizes the costs and cost savings of this proposed rule.

Manufacturers of part 25 transport category airplanes would be potentially affected by the proposed rule.

• Totals converted to 2016 constant dollars. 33

• Time horizon for analysis 19 years. 34

• Fifty percent of the current $42.8 million annual costs for smoke emissions testing is incurred by domestic airplane manufacturers. 35

• Cost savings from eliminating smoke emissions tests would increase linearly to the level of the current cost savings over 25 years. 36

• Large transport category aircraft. 37

○ One manufacturer.

○ Four type certificates.

○ Twenty-seven airplanes produced annually.

○ Nineteen-year production period.

• Small transport category aircraft. 38

○ One manufacturer.

○ Three type certificates.

○ Twenty-one airplanes produced annually.

○ Fifteen-year production cycle.

The proposed new safety requirements to extend the fire protection requirements to any extensively used material  38 located in inaccessible areas would result in a safety benefit by reducing the likelihood of a fatal accident from a fire in an inaccessible area. This benefit was not quantified. Even though there has fortunately not been a catastrophic in-flight fire of a passenger carrying airplane since the Swissair accident in 1998, the continued occurrence of in-flight fire incidents and the growing number of devices using lithium ion batteries increase the risk of a catastrophic accident, a risk that this proposal would reduce.

Over a 19-year period of analysis, the FAA estimates the total present value costs of this proposed rule to be $71.1 million at a seven percent discount rate, with annualized costs of $6.9 million, which would result from extending the standards developed for thermal/acoustic insulation to all extensively used materials in inaccessible areas. A full explanation of how these costs were estimated may be found in the regulatory impact assessment accompanying this NPRM.

Over the same 19-year period, the FAA estimates the total quantified cost savings of this proposed rule to be $119.8 million at a seven percent discount rate, with annualized cost savings of $11.6 million. The cost savings would result from the elimination and streamlining of some tests, which would be made possible by the extension of fire protection requirements to inaccessible areas. The total net cost savings of the proposed rule at a seven percent discount rate would be $48.7 million, with annualized net cost savings of $4.7 million.

Numerous provisions within this proposal would result in minimal to no cost to possibly small cost savings. These include provisions that continue to accept previous test methods or current systems in addition to proposing new ones, those that maintain current requirements or current practice, and small edits to maintain consistency with the current rule.

Also included are conforming changes to parts 27, 29, 121, 125, 135, and appendix L to part 121. These sections make reference to, or require testing in accordance with, certain sections of appendix F to part 25. Because sections of appendix F would be removed, some changes refer to the new location of the requirements. The proposed changes to these parts also include language to operating requirements. This new language would give operators the choice of meeting the proposed requirements, or complying with the old requirements. For airplanes type certificated in accordance with the proposed requirements, this change would enable them to be in compliance with the operating rules, while allowing aircraft manufactured under existing type certificates and the current fleet to comply with the old requirements. Therefore, this proposed rule would impose no retrofit requirements on the current fleet or a production cut-in to aircraft manufactured under existing type certificates. Consequently, these provisions would impose minimal to no cost.

The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) (RFA) establishes “as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives of the rule and of applicable statutes, to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.” The RFA covers a wide range of small entities, including small businesses, not-for-profit organizations, and small governmental jurisdictions.

Agencies must perform a review to determine whether a rule would have a significant economic impact on a substantial number of small entities. Under Section 603 of the RFA, the FAA has prepared an initial regulatory flexibility analysis addressing the following:

• A description of the reasons why the action by the agency is being considered.

• A succinct statement of the objectives of, and legal basis for, the proposed rule.

• A description and, where feasible, an estimate of the number of small entities to which the proposed rule will apply.

• A description of the projected reporting, recordkeeping, and other compliance requirements of the proposed rule, including an estimate of the classes of small entities that would be subject to the requirement and the types of professional skills necessary for preparation of the report or record.

• An identification, to the extent practicable, of all relevant federal rules that may duplicate, overlap, or conflict with the proposed rule.

• A description of any significant alternatives to the proposed rule that accomplish the stated objectives of applicable statutes, and that minimize any significant economic impact of the proposed rule on small entities.

The FAA is publishing this proposed rule to simplify flammability regulations and provide a higher level of safety for transport category airplanes. The current regulations are complicated, sometimes conflicting, sometimes redundant, occasionally incomplete, and may be obsolete for dealing with present-day airplanes. Simplifying these regulations can lead to cost savings.

A key safety benefit of this proposed rule is the extension of fire protection requirements to any extensively used material located in inaccessible areas. FAA research found airplanes are at risk due to flammable materials in inaccessible areas. FAA testing has indicated that typical in-service ducts can quickly spread fire from a small fire source in an inaccessible area, while ducts that would meet the new requirement can resist that small size fire and not propagate flames. Also, due to the rapidly increasing number of events due to lithium battery fires, the chances of a lithium battery fire in the cabin getting to an inaccessible area are increasing.

The FAA's authority to issue rules on aviation safety is found in Title 49 of the United States Code. Subtitle I, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency's authority.

This rulemaking is issued under the authority described in Subtitle VII, Part A, Subpart III, Section 44701, “General Requirements.” Under that section, the FAA is charged with promoting safe flight of civil aircraft in air commerce by prescribing regulations and minimum standards for the design, material, construction, quality of work, and performance of aircraft that the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority. It revises the safety standards for the flammability characteristics, and thus the design, material, and construction, of transport category airplanes.

This proposed rule would affect U.S. manufacturers of part 25 transport category airplanes requesting a new type certificate. According to the small business administration, the size standard for aircraft manufacturers (NAICS code 336411) to be considered a small business is 1,500 employees or less. None of the manufacturers who manufacture transport category airplanes have fewer than 1,500 employees; therefore, none of them are small businesses.

The proposed rule might also indirectly affect businesses that modify transport category airplanes. At this time, the FAA has not identified any affected small entities without larger U.S. or foreign ownership or business relationships. The FAA requests comments on this finding.

Requirements are governed by 14 CFR part 21 and are not changing with this proposal. Applicants are required to show compliance under § 21.20, and this will continue to apply. Therefore, the proposed rule would not impose additional reporting, recordkeeping, or other compliance requirements on small entities.

There are no federal rules that may duplicate, overlap, or conflict with this proposal.

The FAA considered two alternatives to the proposed rule. The first alternative was to not make any changes to the fire protection requirements. This would leave in place complicated, conflicting, redundant, occasionally incomplete, and obsolete regulations. Cost savings would not be achieved. This alternative would also not extend fire protection requirements to extensively used materials located in inaccessible areas. This would leave airplanes at risk due to flammability materials in inaccessible areas.

The FAA also considered making only some of the proposed changes; however, this would provide limited benefit and no safety improvement. This is because the significant safety improvements facilitate the significant simplifications in the proposal. Without the safety enhancements, the amount of simplification would be limited. If the FAA proposed only the safety enhancements, the resulting cost would be difficult to quantitatively balance against the resulting safety improvement. The proposal intends to achieve a significant reduction in costs and simplify the requirements, while substantively improving safety.

The FAA expects this proposed rule would not result in a significant economic impact on a substantial number of small entities. The FAA requests comments on this finding.

The Trade Agreements Act of 1979 (Pub. L. 96-39), as amended by the Uruguay Round Agreements Act (Pub. L. 103-465), prohibits Federal agencies from establishing standards or engaging in related activities that create unnecessary obstacles to the foreign commerce of the United States. Pursuant to these Acts, the establishment of standards is not considered an unnecessary obstacle to the foreign commerce of the United States, so long as the standard has a legitimate domestic objective, such as the protection of safety, and does not operate in a manner that excludes imports that meet this objective. The statute also requires consideration of international standards and, where appropriate, that they be the basis for U.S. standards.

The FAA has assessed the potential effect of this proposed rule and determined that it does not exclude imports that meet the safety objective. As a result, this proposed rule is not considered as creating an unnecessary obstacle to foreign commerce.

The proposed rule would impose the same costs and cost savings on domestic and international manufacturers selling airplanes to airlines that wish to operate within the United States because U.S.-registered transport category airplanes must comply with part 25 in order to be operated within the United States. Therefore, the same cost relief would accrue to all manufacturers selling airplanes to airlines operating within the U.S. However, the effect this proposed rule would have on sales of domestically produced airplanes relative to airplanes produced by foreign companies to airlines operating abroad and not in the U.S. might be either an advantage due to cost savings or a disadvantage due to increased costs, depending on the standards to which foreign airplanes are manufactured.

Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4) requires each Federal agency to prepare a written statement assessing the effects of any Federal mandate in a proposed or final agency rule that may result in an expenditure of $100 million or more (in 1995 dollars) in any one year by State, local, and tribal governments, in the aggregate, or by the private sector; such a mandate is deemed to be a “significant regulatory action.” The FAA currently uses an inflation-adjusted value of $155.0 million in lieu of $100 million.

This proposed rule does not contain such a mandate; therefore, the requirements of Title II of the Act do not apply.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires that the FAA consider the impact of paperwork and other information collection burdens imposed on the public. The FAA has determined that there would be no new requirement for information collection associated with this proposed rule.

In keeping with U.S. obligations under the Convention on International Civil Aviation, it is FAA policy to conform to International Civil Aviation Organization (ICAO) Standards and Recommended Practices to the maximum extent practicable. The FAA has determined that there are no ICAO Standards and Recommended Practices that correspond to these proposed regulations.

FAA Order 1050.1E identifies FAA actions that are categorically excluded from preparation of an environmental assessment or environmental impact statement under the National Environmental Policy Act in the absence of extraordinary circumstances. The FAA has determined this rulemaking action qualifies for the categorical exclusion identified in paragraph 5-6.6 and involves no extraordinary circumstances.

The FAA has analyzed this proposed rule under the principles and criteria of Executive Order 13132, “Federalism.” The agency has determined that this action would not have a substantial direct effect on the States, or the relationship between the Federal Government and the States, or on the distribution of power and responsibilities among the various levels of government and, therefore, would not have Federalism implications.

The FAA analyzed this proposed rule under Executive Order 13211, “Actions Concerning Regulations that Significantly Affect Energy Supply, Distribution, or Use” (May 18, 2001). The agency has determined that it would not be a “significant energy action” under the executive order and would not be likely to have a significant adverse effect on the supply, distribution, or use of energy.

Executive Order 13609, “Promoting International Regulatory Cooperation,” promotes international regulatory cooperation to meet shared challenges involving health, safety, labor, security, environmental, and other issues and to reduce, eliminate, or prevent unnecessary differences in regulatory requirements. The FAA has analyzed this action under the policies and agency responsibilities of Executive Order 13609, and has determined that this action would have no effect on international regulatory cooperation.

Executive Order 13771 titled “Reducing Regulation and Controlling Regulatory Costs,” directs that, unless prohibited by law, whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed. In addition, any new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs. Only those rules deemed significant under section 3(f) of Executive Order 12866, “Regulatory Planning and Review,” are subject to these requirements.

As determined in section IV.A, above, this is not a significant rule under Executive Order 12866. Accordingly, this rule is not subject to the requirements of Executive Order 13771.

The FAA invites interested persons to participate in this rulemaking by submitting written comments, data, or views. The agency also invites comments relating to the economic, environmental, energy, or federalism impacts that might result from adopting the proposals in this document. The most helpful comments reference a specific portion of the proposal, explain the reason for any recommended change, and include supporting data. To ensure the docket does not contain duplicate comments, commenters should send only one copy of written comments, or if comments are filed electronically, commenters should submit only one time.

The FAA will file in the docket all comments it receives, as well as a report summarizing each substantive public contact with FAA personnel concerning this proposed rulemaking. Before acting on this proposal, the FAA will consider all comments it receives on or before the closing date for comments. The FAA will consider comments filed after the comment period has closed if it is possible to do so without incurring expense or delay. The agency may change this proposal in light of the comments it receives.

Proprietary or Confidential Business Information: Commenters should not file proprietary or confidential business information in the docket. Such information must be sent or delivered directly to the person identified in the FOR FURTHER INFORMATION CONTACT section of this document, and marked as proprietary or confidential. If submitting information on a disk or CD ROM, mark the outside of the disk or CD ROM, and identify electronically within the disk or CD ROM the specific information that is proprietary or confidential.

Under 14 CFR 11.35(b), if the FAA is aware of proprietary information filed with a comment, the agency does not place it in the docket. It is held in a separate file to which the public does not have access, and the FAA places a note in the docket that it has received it. If the FAA receives a request to examine or copy this information, it treats it as any other request under the Freedom of Information Act (5 U.S.C. 552). The FAA processes such a request under Department of Transportation procedures found in 49 CFR part 7.

An electronic copy of rulemaking documents may be obtained from the internet by—

1. Searching the Federal eRulemaking Portal ( http://www.regulations.gov );

2. Visiting the FAA's Regulations and Policies web page at http://www.faa.gov/regulations_policies; or

3. Accessing the Government Printing Office's web page at http://www.gpo.gov/fdsys/.

Copies may also be obtained by sending a request to the Federal Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence Avenue SW, Washington, DC 20591, or by calling (202) 267-9680. Commenters must identify the docket or notice number of this rulemaking.

All documents the FAA considered in developing this proposed rule, including economic analyses and technical reports, may be accessed from the internet through the Federal eRulemaking Portal referenced in item (1) above.

In consideration of the foregoing, the Federal Aviation Administration proposes to amend chapter 1 of title 14, Code of Federal Regulations as follows:

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2019-0492; Product Identifier 2019-NM-045-AD” at the beginning of your comments. The FAA specifically invites comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. The FAA will consider all comments received by the closing date and may amend this NPRM because of those comments.

The FAA will post all comments, without change, to http://www.regulations.gov, including any personal information you provide. The FAA will also post a report summarizing each substantive verbal contact the agency receives about this NPRM.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2019-0047, dated March 11, 2019 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Airbus SAS Model A330-200, A330-200 Freighter, and A330-300 series airplanes. The MCAI states:

You may examine the MCAI in the AD docket on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2019-0492.

This NPRM does not propose to supersede AD 2019-01-05. Rather, the FAA has determined that a stand-alone AD is more appropriate to address the changes in the MCAI. This proposed AD would require revising the existing maintenance or inspection program, as applicable, to incorporate new or more restrictive airworthiness limitations. Accomplishment of the proposed actions would then terminate all of the requirements of AD 2019-01-05.

EASA AD 2019-0047 added new tasks that replaced tasks in each of two EASA ADs: 2013-0201 (which corresponds to FAA AD 2014-16-22) and 2017-0044 (which corresponds to FAA AD 2017-25-13). Accomplishment of the new tasks as specified by this proposed AD terminates the requirements of FAA ADs 2014-16-22 and 2017-25-13 for Airbus SAS Model A330-200, A330-200 Freighter, and A330-300 series airplanes.

Airbus has issued A330 Airworthiness Limitations Section (ALS) Part 4, System Equipment Maintenance Requirements (SEMR), Revision 07, dated October 15, 2018, including Airbus A330 Airworthiness Limitations Section (ALS) Part 4—System Equipment Maintenance Requirements (SEMR), Variation 7.1, dated November 5, 2018. This service information describes airworthiness limitations for system equipment maintenance requirements. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI and service information referenced above. The FAA is proposing this AD because the agency evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop on other products of the same type design.

This proposed AD would require revising the existing maintenance or inspection program, as applicable, to incorporate new or more restrictive airworthiness limitations.

The MCAI specifies that if there are findings from the ALS inspection tasks, corrective actions must be accomplished in accordance with Airbus maintenance documentation. However, this proposed AD does not include that requirement. Operators of U.S.-registered airplanes are required by general airworthiness and operational regulations to perform maintenance using methods that are acceptable to the FAA. The FAA considers those methods to be adequate to address any corrective actions necessitated by the findings of ALS inspections required by this proposed AD.

The FAA estimates that this proposed AD affects 107 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:

The FAA has determined that revising the existing maintenance or inspection program takes an average of 90 work-hours per operator, although the FAA recognizes that this number may vary from operator to operator. In the past, the FAA has estimated that this action takes 1 work-hour per airplane. Since operators incorporate maintenance or inspection program changes for their affected fleet(s), the FAA has determined that a per-operator estimate is more accurate than a per-airplane estimate. Therefore, the FAA estimates the total cost per operator to be $7,650 (90 work-hours × $85 per work-hour).

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.

The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

1. Is not a “significant regulatory action” under Executive Order 12866;

2. Will not affect intrastate aviation in Alaska; and

3. Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2019-0498; Product Identifier 2019-NM-073-AD” at the beginning of your comments. The FAA specifically invites comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. The FAA will consider all comments received by the closing date and may amend this NPRM based on those comments.

The FAA will post all comments the agency receives, without change, to http://www.regulations.gov, including any personal information you provide. The FAA will also post a report summarizing each substantive verbal contact received about this NPRM.

The EASA, which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2019-0093, dated April 26, 2019 (“EASA AD 2019-0093”) (also referred to as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for certain Airbus SAS Model A330-202, -243, -243F, -302, -323, and -343 airplanes. The MCAI states:

EASA AD 2019-0093 describes procedures for an inspection to determine the part number and serial number of the SGRAs, and replacement of each affected part with a serviceable part.

This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to a bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI referenced above. The FAA is proposing this AD because the agencey evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop in other products of the same type design.

This proposed AD would require accomplishing the actions specified in EASA AD 2019-0093 described previously, as incorporated by reference, except for any differences identified as exceptions in the regulatory text of this AD and except as discussed under “Differences Between this Proposed AD and the MCAI.”

In the FAA's ongoing efforts to improve the efficiency of the AD process, the FAA worked with Airbus and EASA to develop a process to use certain EASA ADs as the primary source of information for compliance with requirements for corresponding FAA ADs. As a result, EASA AD 2019-0093 will be incorporated by reference in the FAA final rule. This proposed AD would, therefore, require compliance with the provisions specified in EASA AD 2019-0093, through that incorporation, except for any differences identified as exceptions in the regulatory text of this proposed AD. Service information specified in EASA AD 2019-0093 that is required for compliance with EASA AD 2019-0093 will be available on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2019-0498 after the FAA final rule is published.

EASA AD 2019-0093 requires that operators report to Airbus when all affected parts have been replaced. This AD, however, does not include that requirement. The FAA has determined that reporting may be done at the discretion of the operators, but reporting is not necessary. Only two U.S.-registered airplanes are affected. Reporting would not provide useful statistical information to Airbus. Further, any affected part must be sent to the parts manufacturer for repair, which will provide the visibility of a discrepant part that was initially installed.

The FAA estimates that this proposed AD affects 2 airplanes of U.S. registry. The FAA estimates the following costs to comply with this proposed AD:

The FAA estimates the following costs to do any necessary on-condition action that would be required based on the results of any required actions. The FAA has no way of determining the number of aircraft that might need this on-condition action:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.

The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation: Is not a “significant regulatory action” under Executive Order 12866; Will not affect intrastate aviation in Alaska; and Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under the ADDRESSES section. Include “Docket No. FAA-2019-0521; Product Identifier 2019-NM-047-AD” at the beginning of your comments. The agency specifically invites comments on the overall regulatory, economic, environmental, and energy aspects of this NPRM. The agency will consider all comments received by the closing date and may amend this NPRM because of those comments.

The FAA will post all comments we receive, without change, to http://www.regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM.

The European Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union, has issued EASA Airworthiness Directive 2019-0053, dated March 14, 2019 (referred to after this as the Mandatory Continuing Airworthiness Information, or “the MCAI”), to correct an unsafe condition for all Saab AB, Saab Aeronautics Model SAAB 2000 airplanes. The MCAI states:

You may examine the MCAI in the AD docket on the internet at http://www.regulations.gov by searching for and locating Docket No. FAA-2019-0521.

Saab AB, Saab Aeronautics (Formerly Known as Saab AB, Saab Aerosystems) has issued Service Bulletin 2000-28-027, dated January 15, 2019. This service information describes procedures for a one-time detailed inspection of the magnetic fuel level indicator for cracks and replacement of cracked magnetic fuel level indicators. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

This product has been approved by the aviation authority of another country, and is approved for operation in the United States. Pursuant to our bilateral agreement with the State of Design Authority, the FAA has been notified of the unsafe condition described in the MCAI and service information referenced above. The agency is proposing this AD because the agency evaluated all the relevant information and determined the unsafe condition described previously is likely to exist or develop on other products of the same type design.

This proposed AD would require accomplishing the actions specified in the service information described previously, except as discussed under “Differences Between this Proposed AD and the MCAI or Service Information.”

Saab Service Bulletin 2000-28-027, dated January 15, 2019, specifies to return faulty parts to the manufacturer. This proposed AD would not include that requirement.

The FAA estimates that this proposed AD affects 11 airplanes of U.S. registry. The agency estimates the following costs to comply with this proposed AD:

The agency estimates the following costs to do any necessary on-condition action that would be required based on the results of any required actions. The agency has no way of determining the number of aircraft that might need this on-condition action:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: “General requirements.” Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This proposed AD is issued in accordance with authority delegated by the Executive Director, Aircraft Certification Service, as authorized by FAA Order 8000.51C. In accordance with that order, issuance of ADs is normally a function of the Compliance and Airworthiness Division, but during this transition period, the Executive Director has delegated the authority to issue ADs applicable to transport category airplanes and associated appliances to the Director of the System Oversight Division.

The FAA determined that this proposed AD would not have federalism implications under Executive Order 13132. This proposed AD would not have a substantial direct effect on the States, on the relationship between the national Government and the States, or on the distribution of power and responsibilities among the various levels of government.

For the reasons discussed above, I certify this proposed regulation:

(1) Is not a “significant regulatory action” under Executive Order 12866;

(2) Will not affect intrastate aviation in Alaska; and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

Background

This document sets forth proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 413(c) of the Internal Revenue Code (Code). Section 413(c) provides rules for the qualification of a plan maintained by more than one employer. 1 A section 413(c) plan is often referred to as a multiple employer plan (MEP).

Final regulations under section 413 were published in the Federal Register on November 9, 1979, 44 FR 65061 (the final section 413 regulations). The final section 413 regulations apply to multiple employer plans described in section 413(c) and to collectively bargained plans described in section 413(b) (plans that are maintained pursuant to certain collective-bargaining agreements between employee representatives and one or more employers).

Pursuant to section 413(c) and the final section 413 regulations, all of the employers maintaining a MEP (participating employers) are treated as a single employer for purposes of certain section 401(a) qualification requirements. For example:

• Under section 413(c)(1) and § 1.413-2(b), the rules for participation under section 410(a) and the regulations thereunder are applied as if all employees of each of the employers who maintain the plan are employed by a single employer;

• Under section 413(c)(2) and § 1.413-2(c), in determining whether a MEP is, with respect to each participating employer, for the exclusive benefit of its employees (and their beneficiaries), all of the employees participating in the plan are treated as employees of each such employer; and

• Under section 413(c)(3) and § 1.413-2(d), the minimum vesting standards under section 411 are applied as if all employers who maintain the plan constitute a single employer.

Other rules are applied separately to each participating employer. 2 For example, under § 1.413-2(a)(3)(ii), the minimum coverage requirements of section 410(b) generally are applied to a MEP on an employer-by-employer basis.

A plan is not described in section 413(c) unless it is maintained by more than one employer  3 and is a single plan under section 414(l). 4 See §§ 1.413-2(a)(2)(i) and 1.413-1(a)(2). Under § 1.414(l)-1(b), a plan is a single plan if and only if, on an ongoing basis, all of the plan assets are available to pay benefits to employees who are covered by the plan and their beneficiaries.

Under § 1.413-2(a)(3)(iv) (sometimes referred to as the “unified plan rule”), the qualification of a MEP is determined with respect to all employers maintaining the MEP. Consequently, § 1.413-2(a)(3)(iv) provides that “the failure by one employer maintaining the plan (or by the plan itself) to satisfy an applicable qualification requirement will result in the disqualification of the MEP for all employers maintaining the plan.” Section 1.416-1, Q&A G-2, includes a similar rule relating to the qualification of a MEP, providing that a failure by a MEP to satisfy section 416 with respect to employees of one participating employer means that all participating employers in the MEP are maintaining a plan that is not a qualified plan. 5

Section 1101(a) of the Pension Protection Act of 2006 (PPA '06), Public Law 109-280 (120 Stat. 780 (2006)), provides that the Secretary has full authority to establish and implement EPCRS  6 (or any successor program) and any other employee plans correction policies, including the authority to waive income, excise, or other taxes to ensure that any tax, penalty, or sanction is not excessive and bears a reasonable relationship to the nature, extent, and severity of the failure. Section 1101(b) of PPA '06 provides that the Secretary shall continue to update and improve EPCRS (or any successor program), giving special attention to a number of items, including special concerns and circumstances that small employers face with respect to compliance and correction of compliance failures. EPCRS has been updated and expanded several times, most recently in Rev. Proc. 2019-19, 2019-19 I.R.B. 1086. In addition, as provided for in Section 1101 of PPA '06, the Treasury Department and the IRS are authorized to establish and implement other employee plans correction policies, outside of EPCRS.

On August 31, 2018, President Trump issued Executive Order 13847 (83 FR 45321 (Sept. 6, 2018)), titled “Strengthening Retirement Security in America” (Executive Order). The Executive Order states that it shall be the policy of the Federal Government to expand access to workplace retirement plans for American workers and that enhancing workplace retirement plan coverage is critical to ensuring that American workers will be financially prepared to retire. The Executive Order also states that, “[e]xpanding access to [MEPs], under which employees of different private-sector employers may participate in a single retirement plan, is an efficient way to reduce administrative costs of retirement plan establishment and maintenance and would encourage more plan formation and broader availability of workplace retirement plans, especially among small employers.”  7

The Executive Order directs the Secretary of the Treasury to “consider proposing amendments to regulations or other guidance, consistent with applicable law and the policy set forth in . . . this order, regarding the circumstances under which a MEP may satisfy the tax qualification requirements . . . , including the consequences if one or more employers that sponsored or adopted the plan fails to take one or more actions necessary to meet those requirements.”  8 The Executive Order further directs the Secretary of the Treasury to consult with the Secretary of Labor in advance of issuing any such proposed guidance, and the Secretary of Labor to take steps to facilitate the implementation of any guidance, as appropriate and consistent with applicable law.

Stakeholders have expressed concerns about the risk that the actions of one or more participating employers might disqualify a MEP  9 and that some employers are reluctant to join MEPs without an exception to the unified plan rule. In particular, they have said that the cooperation of participating employers is needed for compliance and when a participating employer refuses to take the steps needed to maintain qualification, the entire plan is at risk of being disqualified. Stakeholders assert that without an exception to the unified plan rule, many employers perceive that the benefits of joining a MEP are outweighed by the risk of plan disqualification based on the actions of an uncooperative participating employer.

In accordance with the Executive Order and the policy of expanding workplace retirement plan coverage, these proposed regulations, which were developed in consultation with the Secretary of Labor, would provide an exception to the unified plan rule for certain defined contribution MEPs. Under the proposed regulations, a defined contribution MEP would be eligible for the exception to the unified plan rule on account of certain qualification failures due to actions or inaction by a participating employer, if the conditions set forth in the proposed regulations are satisfied. The exception generally would be available if the participating employer in a MEP is responsible for a qualification failure that the employer is unable or unwilling to correct. It would also be available if the participating employer fails to comply with the section 413(c) plan administrator's request for information about a qualification failure that the section 413(c) plan administrator reasonably believes might exist. For the exception to the unified plan rule to apply, certain actions are required to be taken, including, in certain circumstances, a spinoff of the assets and account balances attributable to participants who are employees of such an employer to a separate plan and a termination of that plan.

For purposes of applying the exception to the unified plan rule, under the proposed regulations: (1) A section 413(c) plan administrator is defined as the plan administrator of a MEP, determined under the rules of section 414(g); (2) a participating employer is defined as one of the employers maintaining a MEP; (3) an unresponsive participating employer is defined as a participating employer in a MEP that fails to comply with reasonable and timely requests from the section 413(c) plan administrator for information necessary to determine compliance with a qualification requirement or fails to comply with reasonable and timely requests from the section 413(c) plan administrator to take actions that are needed to correct a failure to satisfy a qualification requirement as it relates to the participating employer; and (4) an employee is defined as a current or former employee of a participating employer.

The exception to the unified plan rule would apply only in the case of certain types of failures to satisfy the qualification requirements, referred to in the proposed regulations as participating employer failures. A participating employer failure is defined as either a known qualification failure or a potential qualification failure. A known qualification failure is defined as a failure to satisfy a qualification requirement with respect to a MEP that is identified by the section 413(c) plan administrator and is attributable solely to an unresponsive participating employer. A potential qualification failure is a failure to satisfy a qualification requirement with respect to a MEP that the section 413(c) plan administrator reasonably believes might exist, but the section 413(c) plan administrator is unable to determine whether the qualification requirement is satisfied solely due to an unresponsive participating employer's failure to provide data, documents, or any other information necessary to determine whether the MEP is in compliance with the qualification requirement as it relates to the participating employer. For purposes of the definitions of known qualification failure and potential qualification failure, an unresponsive participating employer includes any employer that is treated as a single employer with that unresponsive participating employer under section 414(b), (c), (m), or (o).

Under the exception to the unified plan rule in the proposed regulations, a defined contribution MEP would not be disqualified on account of a participating employer failure, provided that the following conditions are satisfied: (1) The MEP satisfies certain eligibility requirements (such as a requirement to have established practices and procedures to promote compliance and a requirement to adopt relevant plan language); (2) the section 413(c) plan administrator provides notice and an opportunity for the unresponsive participating employer to take remedial action with respect to the participating employer failure; (3) if the unresponsive participating employer fails to take appropriate remedial action with respect to the participating employer failure, the section 413(c) plan administrator implements a spinoff; and (4) the section 413(c) plan administrator complies with any information request that the IRS or a representative of the spun-off plan makes in connection with an IRS examination of the spun-off plan, including any information request related to the participation of the unresponsive participating employer in the MEP for years prior to the spinoff. A spinoff may either be a spinoff that is initiated by the unresponsive participating employer and implemented by the section 413(c) plan administrator, or a spinoff-termination implemented by the section 413(c) plan administrator pursuant to plan terms.

Under the proposed regulations, a threshold condition for the exception to the unified plan rule is that the MEP meet certain eligibility requirements. Specifically, the proposed regulations would require the section 413(c) plan administrator to have established practices and procedures (formal or informal) that are reasonably designed to promote and facilitate overall compliance with applicable Code requirements, including procedures for obtaining information from participating employers. In addition, the plan document would need to include language describing the procedures that would be followed to address participating employer failures, including the procedures that the section 413(c) plan administrator would follow if, after receiving notice from the section 413(c) plan administrator, an unresponsive participating employer fails to take appropriate remedial action or to initiate a spinoff from the MEP pursuant to the regulations. 10 Finally, a MEP is not eligible for the exception to the unified plan rule if, as of the date that the first notice is provided to an unresponsive participating employer, the MEP is under examination. For a description of the first notice, see part II.B. of this Explanation of Provisions section, entitled Notice Requirements.

For purposes of the proposed regulations, a plan is under examination if: (1) The plan is under an Employee Plans examination (that is, an examination of a Form 5500 series, “Annual Return/Report of Employee Benefit Plan,” or other examination by the Employee Plans Office of the Tax Exempt and Government Entities Division of the IRS (Employee Plans) (or any successor IRS office that has jurisdiction over qualified retirement plans)); (2) the plan is under investigation by the Criminal Investigation Division of the IRS (or its successor); or (3) the plan is treated as under an Employee Plans examination under special rules. Under these special rules, for example, a plan is under an Employee Plans examination if the section 413(c) plan administrator, or an authorized representative, has received verbal or written notification of an impending Employee Plans examination, or of an impending referral for an Employee Plans examination, or if a plan has been under an Employee Plans examination and the plan has an appeal pending with the IRS Office of Appeals (or its successor), or is in litigation with the IRS, regarding issues raised in the Employee Plans examination.

This definition of the term under examination is similar to the definition in EPCRS. See Rev. Proc. 2019-19, section 5.08. However, unlike in EPCRS, a plan is not under examination for purposes of these proposed regulations merely because it is maintained by an employer that is under an Exempt Organizations examination (that is, an examination of a Form 990 series or other examination by the Exempt Organizations Office of the Tax Exempt and Government Entities Division of the IRS).

The proposed regulations would require the section 413(c) plan administrator to provide up to three notices regarding a participating employer failure to the unresponsive participating employer; with the third notice, if applicable, also being provided to participants and beneficiaries and the Department of Labor. 11

The first notice must describe the participating employer failure (or failures), as well as the remedial actions the unresponsive participating employer would need to take to remedy the failure and the employer's option to initiate a spinoff. The first notice must also explain the consequences under plan terms if the unresponsive participating employer neither takes appropriate remedial action with respect to the participating employer failure nor initiates a spinoff, including the possibility that a spinoff of the plan assets and account balances attributable to the employees of that employer into a separate single-employer plan would occur, followed by a termination of that plan (as discussed in this preamble under the heading Spinoff-Termination ).

If, by the end of the 90-day period following the date the first notice is provided, the unresponsive participating employer neither takes appropriate remedial action nor initiates a spinoff, then no later than 30 days after the expiration of that 90-day period, the section 413(c) plan administrator must provide a second notice to that employer. The second notice must include the information required to be included in the first notice, and must also inform the employer that if it fails either to take appropriate remedial action or to initiate a spinoff within 90 days after the second notice then a notice describing the participating employer failure and the consequences of not correcting that failure will be provided to participants who are employees of the unresponsive participating employer (and their beneficiaries) and to the Department of Labor.

If, by the end of the 90-day period following the date the second notice is provided, the unresponsive participating employer neither takes appropriate remedial action nor initiates a spinoff, then no later than 30 days after the expiration of that 90-day period, the section 413(c) plan administrator must provide a third notice to the unresponsive participating employer, to participants who are employees of that employer (and their beneficiaries), and to the Department of Labor. 12 The third notice must include the information required to be included in the first notice, the deadline for employer action, and an explanation of any adverse consequences to participants in the event that a spinoff-termination occurs, and state that the notice is being provided to participants who are employees of the unresponsive participating employer (and their beneficiaries) and to the Department of Labor.

The proposed regulations provide that after the unresponsive participating employer has received notice of the participating employer failure, the employer has the opportunity to either take appropriate remedial action or initiate a spinoff. The final deadline for an unresponsive participating employer to take one of these actions is 90 days after the third notice is provided. The consequences of the employer's failure to meet this deadline are described in this Explanation of Provisions section under part II.E., entitled Spinoff-Termination.

The proposed regulations provide that an unresponsive participating employer takes appropriate remedial action with respect to a potential qualification failure if the employer provides data, documents, or any other information necessary for the section 413(c) plan administrator to determine whether a qualification failure exists. If (1) the unresponsive participating employer provides this information, (2) the section 413(c) plan administrator determines that, based on this information, a qualification failure exists that is attributable solely to that employer, and (3) the participating employer fails to comply with reasonable and timely requests from the section 413(c) plan administrator to take actions that are needed to correct that qualification failure, then the qualification failure becomes a known qualification failure. In that case, the MEP would be eligible for the exception to the unified plan rule with respect to the known qualification failure by satisfying the conditions with respect to that known qualification failure, taking into account the rules described in this Explanation of Provisions section under part II.D., entitled Actions by Section 413(c) Plan Administrator Relating to Remedial Action or Employer-Initiated Spinoff. An unresponsive participating employer takes appropriate remedial action with respect to a known qualification failure if the employer takes action, such as making corrective contributions, that corrects, or enables the section 413(c) plan administrator to correct, the known qualification failure.

As an alternative to taking appropriate remedial action with respect to a potential or a known qualification failure, an unresponsive participating employer may, after receiving notice of the participating employer failure, initiate a spinoff by directing the section 413(c) plan administrator to spin off plan assets and account balances held on behalf of employees of that employer to a separate single-employer plan established and maintained by that employer in a manner consistent with plan terms. In that case, the section 413(c) plan administrator must implement that spinoff, as described in this Explanation of Provisions section under part II.D., entitled Actions by Section 413(c) Plan Administrator Relating to Remedial Action or Employer-Initiated Spinoff.

For purposes of applying the conditions of the exception to the unified plan rule to a potential qualification failure that becomes a known qualification failure, actions taken (including notices provided) when the failure was a potential qualification failure are not taken into account. For example, a notice that the section 413(c) plan administrator provided in connection with the potential qualification failure would not satisfy the notice requirements for the known qualification failure. However, in determining whether the MEP is under examination as of the date of the first notice describing the known qualification failure, the section 413(c) plan administrator will be treated as providing that notice on the date the first notice was provided with respect to the related potential qualification failure, but only if the following conditions are satisfied: (1) After determining that a qualification failure exists, the section 413(c) plan administrator makes a reasonable and timely request to the participating employer to take actions that are needed to correct the failure, and (2) as soon as reasonably practicable after the participating employer fails to respond to that request, the section 413(c) plan administrator provides the first notice with respect to the known qualification failure.

The Treasury Department and the IRS anticipate revising EPCRS to provide that, if a 413(c) plan administrator provides the first notice with respect to a participating employer failure under a MEP at a time that the plan is not under examination, then the MEP will not be considered to be under examination for purposes of determining whether the participating employer failure is eligible to be corrected under the Self Correction Program or Voluntary Correction Program components of EPCRS. It is anticipated that this application of the term under examination under EPCRS will be conditioned on the 413(c) plan administrator complying with applicable conditions for the exception to the unified plan rule and, for a known qualification failure with respect to which the unresponsive participating employer takes appropriate remedial action, taking any remaining action necessary to correct the qualification failure as soon as reasonably practicable.

If an unresponsive participating employer takes appropriate remedial action with respect to a known qualification failure, then the section 413(c) plan administrator must take any remaining action necessary to correct the qualification failure. If the section 413(c) plan administrator fails to take any remaining action necessary to correct the known qualification failure, the exception to the unified plan rule will not apply and the section 413(c) plan may be disqualified on account of that failure.

If, instead of taking appropriate remedial action (as described in part II.C. of this Explanation of Provisions, entitled Actions by Unresponsive Participating Employer ), an unresponsive participating employer initiates a spinoff of plan assets and account balances held on behalf of employees of that employer to a separate single-employer plan established and maintained by that employer, the section 413(c) plan administrator must implement and complete a spinoff of the plan assets and account balances held on behalf of the employees of the employer that are attributable to employment by the employer within 180 days of the date on which it was initiated. The section 413(c) plan administrator must also report the spinoff to the IRS (in the manner prescribed by the IRS in forms, instructions, and other guidance).

If, after the first notice of a participating employer failure is provided, the unresponsive participating employer neither takes appropriate remedial action nor initiates a spinoff by the date that is 90 days after the third notice is provided, then, for the exception to the unified plan rule to apply, there must be a spinoff of the plan assets and account balances held on behalf of employees of the unresponsive participating employer that are attributable to their employment with that employer to a separate plan, followed by a termination of that plan. The spinoff-termination must be pursuant to plan terms and in accordance with the proposed regulations. The MEP will satisfy this condition, if, as soon as reasonably practicable after the deadline for action by the unresponsive participating employer, the section 413(c) plan administrator: (1) Provides notice of the spinoff-termination to participants who are employees of the unresponsive participating employer (and their beneficiaries); (2) stops accepting contributions from the unresponsive participating employer; (3) implements a spinoff, in accordance with the transfer requirements of section 414(l) and the anti-cutback requirements of section 411(d)(6), of the plan assets and account balances held on behalf of employees of the unresponsive participating employer that are attributable to their employment by that employer to a separate single-employer plan and trust that has the same plan administrator, trustee, and substantive plan terms as the MEP; and (4) terminates the spun-off plan and distributes assets of the spun-off plan to plan participants and beneficiaries as soon as reasonably practicable after the plan termination date. 13

In terminating the spun-off plan, the section 413(c) plan administrator must:

• Reasonably determine whether, and to what extent, the survivor annuity requirements of sections 401(a)(11) and 417 apply to any benefit payable under the plan and take reasonable steps to comply with those requirements (if applicable);

• Provide each participant and beneficiary with a nonforfeitable right to his or her accrued benefits as of the date of plan termination, subject to income, expenses, gains, and losses between that date and the date of distribution; and

• Notify the participants and beneficiaries of their rights under section 402(f).

In providing notice of the spinoff-termination to participants (and their beneficiaries), the section 413(c) plan administrator must provide information relating to the spinoff-termination to participants who are employees of the unresponsive participating employer (and their beneficiaries), including the following: (1) Identification of the MEP and contact information for the section 413(c) plan administrator; (2) the effective date of the spinoff-termination; (3) a statement that no more contributions will be made to the MEP; (4) a statement that as soon as practicable after the spinoff-termination, participants and beneficiaries will receive a distribution from the spun-off plan; and (5) a statement that before the distribution occurs, participants and beneficiaries will receive additional information about their options with respect to that distribution.

The section 413(c) plan administrator must report the spinoff-termination to the IRS (in the manner prescribed by the IRS in forms, instructions, and other guidance).

Any notices required to be provided under the proposed regulations may be provided in writing or in electronic form. For notices provided to participants and beneficiaries, see generally § 1.401(a)-21 for rules permitting the use of electronic media to provide applicable notices to recipients with respect to retirement plans.

In the case of any plan that is spun off in accordance with the proposed regulations, any participating employer failure that would have affected the qualification of a MEP, but for the application of the exception to the unified plan rule, will be a qualification failure with respect to the spun-off plan. In the case of an employer-initiated spinoff, see EPCRS (or its successors) for rules relating to correcting qualification failures.

Under the authority provided by section 1101 of PPA '06, the proposed regulations provide that distributions made from a spun-off plan that is terminated in accordance with these regulations would not, solely because of the participating employer failure, fail to be eligible for favorable tax treatment accorded to distributions from qualified plans (including that the distributions will be treated as eligible rollover distributions under section 402(c)(4)), except as provided in the next paragraph. Under section 1101 of PPA '06, Congress gave the Secretary broad authority to establish employee plans correction policies. In developing a correction policy for MEPs, it is appropriate to treat distributions to rank-and-file participants following a spinoff-termination as eligible for tax-favored treatment in order to ensure that the tax or sanction is not excessive and bears a reasonable relationship to the nature of the failure. 14

The regulations also provide that, notwithstanding the general rule regarding favorable tax treatment for distributions from a plan following spinoff-termination, the IRS reserves the right to pursue appropriate remedies under the Code against any party (such as the owner of the participating employer) who is responsible for the participating employer failure resulting in the spinoff-termination. The IRS may pursue appropriate remedies against a responsible party even in the party's capacity as a participant or beneficiary under the plan that is spun off and terminated (such as by not treating a plan distribution made to the responsible party as an eligible rollover distribution). This is similar to the approach adopted in EPCRS with respect to terminating orphan plans. See Rev. Proc. 2019-19, section 6.02(2)(e)(i).

The proposed regulations also provide that the Commissioner may provide additional guidance, such as in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin, or in forms and instructions, that the Commissioner determines to be necessary or appropriate with respect to the requirements of the regulations.

These regulations generally are proposed to apply on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register . Until regulations finalizing these proposed regulations are issued, taxpayers may not rely on the rules set forth in these proposed regulations.

For copies of recently issued revenue procedures, revenue rulings, notices and other guidance published in the Internal Revenue Bulletin, please visit the IRS website at www.irs.gov or contact the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

Executive Orders 13771, 13563, and 12866 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits, including potential economic, environmental, public health and safety effects, distributive impacts, and equity. Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules, and promoting flexibility. The Executive Order 13771 designation for any final rule resulting from the proposed regulation will be informed by comments received. The preliminary Executive Order 13771 designation for this proposed rule is deregulatory.

The proposed regulation has been designated by the Office of Information and Regulatory Affairs (OIRA) as significant under Executive Order 12866 pursuant to the Memorandum of Agreement (MOA, April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations.

The U.S. retirement system is comprised of three main pillars of savings: Social Security, workplace pension plans, and individual savings. Yet, roughly 30% of American workers lack access to an employer-sponsored savings vehicle (See Table 1 in Section 7 of this Regulatory Impact Analysis, entitled Tables ). This is particularly true for employees at small firms, who are roughly half as likely to have access to a retirement plan compared to employees at large firms. This would lead to larger firms enjoying a competitive advantage in labor markets. One factor that may prevent small firms from offering a plan includes the high administrative costs associated with compliance. In order to receive preferential tax treatment, a plan must meet certain criteria specified in the Code and ensuring that those requirements are met can be costly. Furthermore, the costs associated with managing funds in retirement plans tends to be higher for a smaller pool of assets (See Table 3 in Section 7, later), which is more likely to be the case for smaller firms with fewer employees.

One solution that has developed for reducing these administrative and asset management costs is the MEP, through which different employers can form a single plan to take advantage of economies of scale. Under the current regulations under section 413(c), however, the unified plan rule creates a situation whereby should one employer fail to comply with the qualification requirements, then the preferential tax status for a qualified plan is lost for the entire MEP. The proposed regulation provides an exception to the unified plan rule for certain defined contribution MEPs, permitting compliant participating employers to continue to maintain a qualified plan if certain conditions are satisfied. Reducing the perceived risk that a MEP will be disqualified could lead to more small employers to adopt these plans.

Based on the latest available data, as shown in Table 2, there are about 4,630 defined contribution MEPs with approximately 4.4 million total participants, 3.7 million of whom are active participants. Defined contribution MEPs hold about $181 billion in assets. Fifty-six percent of defined contribution MEP participants are in MEPs with 10,000 or more participants, and 98% are in MEPs with 100 or more participants. As noted earlier, about 30% of employees do not have access to a retirement savings plan through their employer. The proposed regulation, which is limited to defined contribution MEPs, may encourage both the creation of new defined contribution MEPs and the expansion of existing defined contribution MEPs. As a result of the proposed regulation, the cost of providing some existing employer-sponsored retirement plans could fall, and some employees would gain access to employer-sponsored retirement plans.

The analysis in this section compares the proposed regulation to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these proposed regulations.

Generally, employees rarely choose to save for retirement outside of the workplace, despite having options to save in tax-favored savings vehicles on their own; only about 10% of households without access to an employer-sponsored plan made contributions to traditional or Roth IRAs for 2014. 15 Thus, the availability of workplace retirement plans is a significant factor affecting whether individuals save for their retirement. Yet, despite the advantages of workplace retirements plans, access to such plans for employees of small businesses is relatively low.

The MEP structure may address significant concerns from employers about the costs to set up and administer retirement benefit plans. In order to participate in a MEP, employers would simply execute a participation agreement or similar instrument setting forth the rights and obligations of the MEP and participating employers. Each participating employer would then be participating in a single plan, rather than sponsoring its own separate plan. The individual employers would not be directly responsible for the MEP's overall compliance with reporting and disclosure obligations. Accordingly, the MEP structure may address small employers' concerns regarding the cost associated with fiduciary liability of sponsoring a retirement plan by effectively transferring much of the legal risks and responsibilities to professional fiduciaries who would be responsible for managing plan assets and selecting investment menu options, among other things. Participating employers' continuing involvement in the day-to-day operations and administration of their MEP generally would be limited to enrolling employees and forwarding employee and employer contributions to the plan. Thus, participating employers would keep more of their day-to-day focus on managing their businesses, rather than their retirement plans.

The proposed regulation would reduce the risk to small businesses participating in a MEP. Currently, if one participating employer fails to meet the qualification requirements in the Code for preferential tax treatment, then the entire plan may be disqualified, and employers participating in a MEP and their employees would lose the tax benefits of participating in a qualified retirement plan (deduction for contributions, exclusion of investment returns, deferred income recognition for employees). As a result, the current rule imposes an undue burden on employers who satisfied their requirements but happened to have a bad actor among their plan's other employers. The proposed regulation minimizes this burden by allowing noncompliant or unresponsive participating employers to be dealt with separately while the other participating employers maintain a qualified plan. Thus, the risk taken on by any one participating employer when joining a MEP is reduced as the employer no longer needs to consider the actions of other participating employers over which the employer exerts no control. The proposed regulation may therefore encourage formation of additional MEPs, as well as expanded participation in existing MEPs.

Because more plan formation and broader availability of such plans is likely to occur due to the proposed regulations, especially among small employers, the Treasury Department has determined that the proposed regulation would increase access to retirement plans for many American workers. However, the Treasury Department does not have sufficient data to determine precisely the likely extent of increased participation by small employers under the proposed regulation.

Most MEPs could be expected to benefit from scale advantages that small businesses do not currently enjoy and to pass on some of the savings to participating employers and employees. Grouping small employers together into a MEP may facilitate savings through administrative efficiencies (economies of scale) and potentially through price negotiation (market power).

As scale increases, MEPs would spread fixed costs over a larger pool of participating employers and employee participants. Scale efficiencies can be very large with respect to asset management and may be smaller, but still meaningful, with respect to recordkeeping. Also, as scale increases, so does the negotiating power of MEPs. Negotiating power matters when competition among financial services providers is less than perfect, and they can command greater profits than in an environment with perfect competition. Very large plans may exercise their own market power to negotiate lower prices, translating into savings for member employees and employee participants.

Sometimes, scale efficiencies would not translate into savings for small employer members and their employee participants because regulatory requirements applicable to large MEPs may be more stringent than those applicable to most separate small plans. For example, some small plans are exempt from annual reporting requirements, and many others are subject to more streamlined reporting requirements than larger plans. But in most cases, the savings from the scale efficiency of MEPs would be greater than the savings from scale efficiencies that other providers of bundled financial services may offer to small employers.

First, the legal status of MEPs as a single large plan may streamline certain regulatory burdens under the Code and title I of ERISA. For example, a MEP can file a single annual return/report and obtain a single bond in lieu of the multiple reports and bonds necessary when other providers of bundled financial services administer many separate plans.

Second, relative to separate small employer plans, a MEP operating as a large single plan would likely secure substantially lower prices from financial services companies. Asset managers commonly offer proportionately lower prices, relative to assets invested, to larger investors, under so-called tiered pricing practices. For example, investment companies often offer lower-priced mutual fund share classes to customers whose investments in a fund surpass specified break points. These lower prices may reflect scale economies in any or all aspects of administering larger accounts, such as marketing, distribution, asset management, recordkeeping, and transaction processing. MEPs that are larger would likely qualify for lower pricing compared with separate plans of small employers. MEP participants that benefit from lower asset-based fees would enjoy superior investment returns net of fees.

The availability and magnitude of scale efficiencies may be different with respect to different retirement plan services. For example, asset management generally enjoys very large-scale efficiencies. Investors of all kinds generally benefit by investing in large co-mingled pools. Even within large pools, however, small investors often pay higher fees than larger ones. Investors with more assets to invest may pay lower costs when using mutual funds as investment vehicles.

As with asset management, scale efficiencies often are available with respect to other plan services. For example, the marginal costs of services such as marketing and distribution, account administration, and transaction processing often decrease as customer size increases. Similarly, small pension plans sometimes incur high distribution costs, reflecting commissions paid to agents and brokers who sell investment products to plans. MEPs, as large customers, may enjoy scale efficiencies in the acquisition of such services. It is also possible, however, that the cost to MEPs of servicing many small employer-members may diminish or even offset such efficiencies. Stated differently, MEPs' scale efficiencies may not always exceed the scale efficiencies from other providers of bundled financial services used by small employers that sponsor separate plans. In addition, even if MEPs are able to enjoy scale efficiencies greater than the scale efficiencies available from other providers of bundled financial services, the scale efficiencies of MEPs catering to small businesses would still likely be smaller than the scale efficiencies enjoyed by very large single-employer plans.

By reducing the risk to employers of participating in a MEP, the proposed regulation would allow more MEPs to be established and to pursue scale advantages. It would also extend scale advantages to some existing MEPs that otherwise might have been too small to achieve them and to small employers that absent the proposed regulation would have offered separate plans (or no plans), but that under this proposed regulation may participate in a MEP.

While MEP's scale advantages may be smaller than the scale advantages enjoyed by very large single-employer plans, it nonetheless is illuminating to consider the savings historically enjoyed by the latter. For an illustration of how much investment fees vary based on the amount of assets in a 401(k) plan, see Table 3 in Section 7 of this Regulatory Impact Analysis entitled Tables. The table focuses on mutual funds, which are the most common investment vehicle in 401(k) plans, and shows that the average expense ratio is inversely related to plan size. There are some important caveats to interpreting Table 3. The first is that it does not include data for most of the smallest plans since plans with fewer than 100 participants generally are not required to submit audited financial statements with their Form 5500. The second is that there is variation across plans in whether and to what degree the cost of recordkeeping is included in the expense ratios.

Another method for comparing plan size advantages is a broader measure called “total plan cost” calculated by BrightScope that includes fees reported on the audited Form 5500. As Table 4 shows, total plan cost yields generally similar results about the cost differences facing small and large plans. Deloitte Consulting LLP, for the Investment Company Institute, conducted a survey of 361 defined contributions plans. 16 The study calculates the “all-in” fee that is comparable across plans, and included both administrative and investment fees paid by the plan and participants. Generally, small plans with 10 or fewer participants are paying approximately 50 basis points more than plans with more than 1,000 participants. Generally, small plans with 10 or fewer participants are paying about 90 basis points more than large plans with more than 50,000 participants.

The research studies described under this heading, Reduced Fees and Administrative Costs, show that small plans and their participants generally pay higher fees than large plans and their participants. Because this rule would give many small employers the incentive to join a MEP, some of which may become very large plans, many of these employers would likely incur lower fees. Many employers that are not currently offering any retirement plan may join a MEP, leading their employees to save for retirement. Many employers already sponsoring a retirement plan might decide to join a MEP instead. If there are lower fees in the MEPs than in their previous plans, those lower fees would translate into higher savings.

The potential for MEPs to enjoy reporting cost savings merits separate attention because this potential is shaped not only by economic forces, but also the reporting requirements applicable to different plans. On the one hand, a MEP, as a single ERISA plan, can file a single report and conduct a single audit, while separate plans may be required to file separate reports and conduct separate audits. On the other hand, a MEP, as a large plan generally is subject to more stringent reporting and audit requirements than a small plan, which likely files no or streamlined reports and undergoes no audits. With respect to reporting and audits, MEPs may offer more savings to medium-sized employers (with 100 or more retirement plan participants) that are already subject to more stringent reporting and audit requirements than to small employers. Small employers that otherwise would have fallen outside of reporting and audit requirements sometimes would incur slightly higher costs by joining MEPs. This cost increase may still be offset by benefits described in other sections. From a broader point of view, if auditing becomes more prevalent because small employers join MEPs, that would lead to more and better quality data that would improve security for employers, participants and beneficiaries.

Sponsors of ERISA-covered retirement plans generally must file a Form 5500 annually, with all required schedules and attachments. The cost burden incurred to satisfy the Form 5500 related reporting requirements varies by plan type, size and complexity. Analyzing the 2016 Form 5500 filings, the Department of Labor estimates that the average cost to file the Form 5500 is as follows: $276 per filer for small (generally less than 100 plan participants) single-employer defined contribution plans eligible for Form 5500-SF; $437 per filer for small single-employer defined contribution plans not eligible to file Form 5500-SF; and $1,686 per filer for larger (generally 100 participants or more) single-employer defined contribution plans, plus the cost of an audit.

Additional schedules and reporting may be required for large and complex plans. For example, large retirement plans are required to attach auditor's reports to their Form 5500. Most small plans are not required to obtain or attach such reports. Hiring an auditor and obtaining an audit report can be costly for plans, and audit fees may increase as plans get larger or if plans are more complex. A recent report states that the fee to audit a 401(k) plan ranges between $6,500 and $13,000. 17

If an employer joins a MEP, it may save some costs associated with filing Form 5500 and fulfilling audit requirements to the extent the MEP is considered a single plan under ERISA. Thus, one Form 5500 and audit report would satisfy the reporting requirements, and each participating employer would not need to file its own, separate Form 5500 and, for large plans or those few small plans that do not meet the small plan audit waiver, an audit report. Assuming reporting costs are shared by participating employers within a MEP, an employer joining a MEP can save virtually all the reporting costs discussed above. Large plans may enjoy even higher cost savings if audit costs are taken into account.

It is less clear whether the self-employed would experience similar reporting cost savings by joining a MEP. The Department of Labor estimated these potential cost savings by comparing the reporting costs of an employer that participates in a MEP rather than sponsoring its own plan. However, several retirement savings options are already available for self-employed persons, and most have minimal or no reporting requirements. For example, both SEP IRA and SIMPLE IRA plans are available for small employers and the self-employed and neither option requires Form 5500 filings. Solo 401(k) plans are also available for self-employed persons, and they may be exempt from the Form 5500-EZ reporting requirement if plan assets are less than $250,000. Thus, if self-employed individuals join a MEP, they would be unlikely to realize reporting cost savings. In fact, it is possible that their reporting costs may slightly increase, because the self-employed would share reporting costs with other MEP participating employers that they would otherwise not incur. 18

The potential for bonding cost savings in MEPs merits separate attention. As noted above, ERISA section 412 and related regulations generally require every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan to be bonded. ERISA's bonding requirements are intended to protect employee benefit plans from risk of loss due to fraud or dishonesty on the part of persons who handle plan funds or other property, generally referred to as plan officials. A plan official must be bonded for at least 10 percent of the amount of funds he or she handles, subject to a minimum bond amount of $1,000 per plan with respect to which the plan official has handling functions. In most instances, the maximum bond amount that can be required under ERISA with respect to any one plan official is $500,000 per plan; however, the maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities. 19

Under the proposed regulation, MEPs generally might enjoy lower bonding costs than would an otherwise equivalent collection of small, separate plans, for two reasons. First, it might be less expensive to buy one bond covering a large number of individuals who handle plan funds than a large number of bonds covering the same individuals separately or in small, more numerous groups. Second, the number of people handling plan funds and therefore subject to ERISA's bonding requirement in the context of a MEP may be smaller than in the context of an otherwise equivalent collection of smaller, separate plans.

The various effects of this rule, if finalized, may lead in aggregate to increased retirement savings. As discussed above, many employees would likely go from not having any access to a retirement plan to having access through a MEP. This has the potential to result in an increase in retirement savings, on average, for this group of employees. While some employees may choose not to participate, surveys indicate that a large number would participate. For a defined contribution pension plan, about 73 percent of all employees with access participate in the plan. 20 Among employees whose salary tends to be in the lowest 10 percent of the salary range, this figure is about 40 percent. 21 One reason that these take-up rates are relatively high is that many plans use automatic enrollment to enroll newly hired employees, as well as, sometimes existing employees. Automatic enrollment is particularly prevalent among large plans; in 2017 about 74 percent of plans with 1,000-4,999 participants used automatic enrollment, while only about 27 percent of plans with 1-49 participants did. 22

Some workers may be saving in an IRA, either in an employer-sponsored IRA, payroll deduction IRA, or on their own. If they begin participating in a MEP 401(k), they would have the opportunity to take advantage of higher contribution limits, and some individuals may begin receiving employer contributions when participating in a MEP when they did not previously.

In general, MEPs may offer participants a way to save for retirement with lower overall costs. In particular, the fees are likely to be lower than in most small plans and in retail IRAs. The savings in fees would result in higher investment returns and thus higher retirement savings.

The increased prevalence of MEPs would allow small employers the opportunity to offer retirement benefits that are comparable to what large employers provide. Since employees value retirement benefits, this development would tend to shift talented employees toward small businesses. Moreover, certain groups such as secondary earners in high income families who have high marginal tax rates, and therefore larger benefits from tax-preferred savings, might now be more inclined to work for small businesses as those businesses might now offer a retirement plan. Such shifts would make small businesses more competitive. The ensuing reallocation of talent across different sectors of the economy would increase efficiency.

While the proposed regulation effectively lowers the cost of participation in a MEP among employers, the rule may also lead to increased levels of noncompliance. For example, the section 413(c) plan administrator may become less diligent about ensuring that participating employers within a MEP are responsible employers. By potentially increasing noncompliance, the proposed regulation would impose new costs on section 413(c) plan administrators who are ultimately responsible for managing unresponsive employers. In particular, for a plan to maintain its tax-favored status, the section 413(c) plan administrator is required to send notice to an unresponsive employer giving it 90 days to remedy the situation. If the unresponsive employer fails to comply, the plan administrator must send a second notice and then a final notice if the unresponsive employer still fails to comply after specified time periods. In the event of the initiation of the spinoff process, in which assets associated with an unresponsive employer are separated into a new plan that is then terminated, additional costs from the resulting compliance measures will be incurred by the section 413(c) plan administrator, who among other things is tasked with notifying all impacted participants and beneficiaries. These additional costs may be directly passed on to unresponsive employers. However, it's possible that section 413(c) plan administrators may spread these costs across all participating employers that would either absorb or pass those costs on to their employees.

The proposed regulation may also indirectly lead to an increase in investment fees by increasing uncertainty in the size of a MEP's asset pool. For example, a plan may shrink considerably when assets of an unresponsive participating employer are spun off depending on that employer's share of the total asset pool. Since the cost savings in investment fees is derived from economies of scale, introducing uncertainty in plan size might induce management companies to increase prices to account for that risk. This cost would likely be spread across all employers participating in the MEP that might then pass those costs on to their employees.

More general concerns pertaining to MEPs include their potential for abuse, such as fraud, mishandling of plan assets, or charging excessive fees. 23 Relative to single-employer plans, MEPs may be more susceptible to abuse since coordination across participating employers may lead to confusion regarding each individual firm's fiduciary responsibilities. On the other hand, the enhanced disclosure and audit requirements applicable to large plans, together with the increased number of employers participating in a plan, might call attention to abuses that would have otherwise gone unnoticed had a small employer established its own plan.

The Treasury Department and the IRS considered alternatives to the proposed regulation. One alternative would have been to extend the proposed regulations to include defined benefit MEPs. However, this alternative was rejected because defined benefit plans raise additional issues, including issues arising from the minimum funding requirements and spinoff rules, such as the treatment in such a spinoff of any plan underfunding or overfunding. Commenters are asked, in the Comments and Requests for Public Hearing section of the preamble, to address those issues, as well as the circumstances in which the exception to the unified plan rule should be available to defined benefit plans.

The Treasury Department and the IRS also considered whether the proposed regulation should include a more streamlined process for a section 413(c) plan administrator to satisfy the requirements for the exception to the unified plan rule. However, the notice requirements are intended to ensure that the affected participating employers and their employees are aware of the adverse consequences if the unresponsive participating employer neither takes appropriate remedial action nor initiates a spinoff, and the timing requirements are intended to give the unresponsive participating employer an adequate opportunity to take that remedial action or initiate a spinoff. These procedural requirements strike a balance between providing protection for unresponsive participating employers and their employees and not unduly burdening defined contribution MEPs. In the Comments and Requests for Public Hearing section of the preamble, commenters are asked to address whether the regulations should add mechanisms to avoid the potential for repetitive notices, as well as whether additional procedures should be added to facilitate the resolution of disputes between a section 413(c) plan administrator and an unresponsive participating employer.

Background

This document contains proposed regulations under section 4968 of the Internal Revenue Code (Code) to amend part 53 of the Excise Tax Regulations (26 CFR part 53). Section 4968 of the Code, added by section 13701 of the Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054, 2167-68, (2017) (TCJA), imposes on each applicable educational institution, as defined in section 4968(b)(1), an excise tax equal to 1.4 percent of the institution's net investment income, and, as described in section 4968(d), a portion of certain net investment income of certain related organizations, for the taxable year.

Section 4968(b)(1) defines the term “applicable educational institution” as an eligible educational institution (as defined in section 25A(f)(2)) which during the preceding taxable year had at least 500 tuition-paying students, more than 50 percent of whom were located in the United States, is not a state college or university as described in the first sentence of section 511(a)(2)(B), and had assets (other than those assets used directly in carrying out the institution's exempt purpose) the aggregate fair market value of which was at least $500,000 per student of the institution.

Section 4968(b)(2) provides that, for purposes of section 4968(b)(1), the number of students of an institution (including for purposes of determining the number of students at a particular location) shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis).

Section 4968(c) provides that, for purposes of section 4968, “net investment income” shall be determined under rules similar to the rules of section 4940(c).

Section 4968(d)(1) provides that, for purposes of determining aggregate fair market value of an educational institution's assets not used directly in carrying out its exempt purpose  1 and for purposes of determining an institution's net investment income, the assets and net investment income of any related organization with respect to the institution shall be treated as assets and net investment income, respectively, of the educational institution, with two exceptions. First, no such amount shall be taken into account with respect to more than one educational institution. Second, unless such organization is controlled by such institution or is described in section 509(a)(3) (relating to supporting organizations) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account.

Section 4968(d)(2) provides that the term “related organization,” with respect to an educational institution, means (1) any organization which controls, or is controlled by, such institution; (2) is controlled by one or more persons that also control such institution; or (3) is a supported organization (as defined in section 509(f)(3)), or a supporting organization (as described in section 509(a)(3)), during the taxable year with respect to the educational institution.

The Conference Report for the TCJA, H. Rept. 115-466, 115th Cong., 1st sess., December 15, 2017 (Conference Report), at 555, states that Congress intended that the Secretary of the Treasury promulgate regulations to carry out the intent of section 4968, including regulations that describe: (1) Assets that are used directly in carrying out an educational institution's exempt purpose; (2) the computation of net investment income; and (3) assets that are intended or available for the use or benefit of an educational institution.

In June 2018, the Treasury Department and the IRS issued Notice 2018-55 (2018-26 I.R.B. 773) (Notice) to provide interim guidance on certain issues related to the application of the tax imposed by section 4968. Specifically, Notice 2018-55 states that, in the case of property held on December 31, 2017, and continuously thereafter to the date of its disposition, the Treasury Department and the IRS intend to propose regulations stating that basis for purposes of determining gain (but not loss) shall be deemed to be not less than the fair market value of such property on December 31, 2017, plus or minus all adjustments after December 31, 2017, and before the date of disposition consistent with the regulations under section 4940(c). The Notice provides that, if the disposition of an asset would result in a capital loss, basis rules that are consistent with the regulations under section 4940(c) will apply. Accordingly, if the value of the asset declines after December 31, 2017, the taxpayer will recognize no gain; however, the taxpayer will recognize a loss only if the proceeds from the sale of the asset are less than the basis of the property as calculated without the special rule in the Notice to increase the basis to fair market value on December 31, 2017. The Notice additionally states that the Treasury Department and the IRS expect the proposed regulations to provide that losses from sales or other dispositions of property generally shall be allowed only to the extent of gains, with no capital loss carryovers or carrybacks, and that losses from sales or other dispositions of property by related organizations will be allowed to offset overall net gains from other related organizations or the applicable educational institution. The Notice provides that applicable educational institutions may rely on the Notice before the issuance of the proposed regulations. Finally, the Notice requests comments on any of the issues addressed in the Notice and on any additional guidance that is needed and whether, and what type of, transitional relief may be necessary.

The Treasury Department and the IRS received two comments in response to Notice 2018-55, which were considered in drafting these proposed regulations. The comments are available at http://www.regulations.gov or upon request.

Section 4968(a) imposes a 1.4 percent excise tax on the net investment income of each applicable educational institution. Section 4968(b) provides that an applicable educational institution is an “eligible educational institution” (as defined in section 25A(f)(2)) if: (i) It had at least 500 tuition-paying students during the preceding taxable year; (ii) more than 50 percent of its tuition-paying students are located in the United States; (iii) it is not a state college or university as described in the first sentence of section 511(a)(2)(B); and (iv) the aggregate fair market value of its assets (other than those assets used directly in carrying out the institution's exempt purpose) was at least $500,000 per student of the institution at the end of the preceding taxable year. Section 53.4968-1(a) of these proposed regulations sets forth definitions to determine whether an entity is an applicable educational institution that is subject to the tax.

Although, pursuant to section 4968(a), the tax on net investment income for each taxable year is based on the net investment income of an applicable educational institution for such taxable year, for purposes of determining whether an institution is an “applicable educational institution” subject to the tax, section 4968(b) provides that the number of an institution's tuition-paying students and the aggregate fair market value of the institution's assets (and the assets of any related organization) are based on the preceding taxable year's number and value.

Section 4968(b)(1) defines “applicable educational institution,” in part, as an eligible educational institution defined in section 25A(f)(2). In accordance with section 4968(b), the proposed regulations provide that an applicable educational institution must be described in section 25A(f)(2) and the regulations thereunder. Section 25A(f)(2) provides that, for purposes of the allowance of American Opportunity and Lifetime Learning credits, the term “eligible educational institution” means an institution (1) which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088) (HEA), as in effect on the enactment of section 25A (1997), and (2) which is eligible to participate in a program under title IV of the HEA (relating to the United States federal student financial aid programs). The Treasury Department and the IRS anticipate that colleges and universities already know whether they are described in section 25A, but request comments on whether further guidance is needed for purposes of applying section 4968.

Section 4968(b)(1) defines “applicable educational institution,” in part, by reference to the number of its students and the amount of its assets per student. Section 4968 does not define the term “student.” However, section 4968(b)(2) does provide that the number of students of an institution shall be based on the daily average number of full-time students attending an institution, with part-time students taken into account on a full-time student equivalent basis. As described in part 1(A) of this Explanation of Provisions section, the definition of the term “applicable educational institution” in section 4968(b), which references students in some of its definitional criteria, relies on the definition of “eligible educational institution” as defined in section 25A(f)(2).

For purposes of section 25A, the term “eligible student” is defined in section 25A(b)(3) to mean a student who (1) meets the requirements of section 484(a)(1) of the HEA (20 U.S.C. 1091(a)(1)), and (2) is carrying at least half the normal full-time work load for the course of study the student is pursuing. Section 484(a)(1) of the HEA (20 U.S.C. 1091(a)(1)) provides that, in order to receive any grant, loan, or work assistance under the general provisions relating to student assistance programs under the HEA, a student must be enrolled or accepted for enrollment in a degree, certification, or other program (including a program of study abroad approved for credit by the eligible institution at which such student is enrolled) leading to a recognized educational credential at an institution of higher education that is an eligible institution in accordance with the provisions of section 1094 of title 20 of the U.S. Code, except as provided in section 1091(b)(3) and (4) of the HEA, 2 and not enrolled in an elementary or secondary school.

The Treasury Department and the IRS consider the definition of eligible student under section 25A to be an appropriate basis for the definition of student for purposes of section 4968; however, the requirement found in section 25A(b)(3)(B) that a student must carry at least half the normal full-time work load for the course of study the student is pursuing is not relevant for purposes of section 4968. Section 4968(b)(2) does not contain a requirement that a student must carry at least half the normal full-time work load to be considered a student for purposes of the asset measurement requirement; instead, it states that part-time students are taken into account on a full-time student equivalent basis.

Furthermore, section 4968(b)(2) contains a requirement that the number of students of an institution be based on the daily average number of students attending the institution. Therefore, the Treasury Department and the IRS do not view the portion of the rule found in Section 484(a)(1) of the HEA that is incorporated into the definition of “student” in section 25A(b)(3)(B) and includes an individual merely “accepted for enrollment” as appropriate to the application of section 4968 since such an individual may not yet be attending the institution.

Accordingly, the proposed regulations generally follow the standard in section 484(a)(1) of the HEA referenced by section 25A(b)(3)(A) to provide that the term “student” for section 4968 purposes means a person enrolled in a degree, certification, or other program (including a program of study abroad approved for credit by the eligible institution at which such student is enrolled) leading to a recognized educational credential at an eligible educational institution, and not enrolled in an elementary or secondary school. See proposed § 53.4968-1(a)(3)(i). However, the proposed definition of student does not include individuals merely accepted for enrollment, nor does it contain a requirement that the student have at least half the normal full-time work load. Furthermore, the time limitations in section 25A(b)(2) (such as that the American Opportunity Tax Credit is allowed only for 4 taxable years) are not part of the definition of “eligible student” and thus are not incorporated into the definition of student for section 4968 purposes.

Putting together the section 4968(b)(2) requirement that a student be “attending” an institution and the proposed definition that a student is an individual enrolled in a degree, certification, or other program leading to a recognized educational credential at an eligible educational institution, in applying the requirements under section 4968(b)(1), the proposed regulations require that a student be both enrolled at and attending the institution. The Treasury Department and the IRS request comments on whether further guidance is needed on the definitions of “student,” “enrolled,” or “attending.”

Consistent with section 4968(b)(1)(D), the proposed regulations provide that an educational institution determines the fair market value of assets per student based upon the total number of all students, as defined in proposed § 53.4968-1(a)(3)(i), attending an eligible educational institution, not just the number of tuition-paying students.

Section 4968(b)(1) defines “applicable educational institution,” in part, with respect to how many tuition-paying students attend the institution. Specifically, under section 4968(b)(1)(A) an institution must have had at least 500 tuition-paying students during the preceding taxable year, and under 4968(b)(1)(B), more than 50 percent of its tuition-paying students must have been located in the United States. Section 4968 does not define the term “tuition-paying.”

As described in part 1(A) of this Explanation of Provisions section, section 25A provides certain education credits relating to qualified tuition and related expenses paid by certain eligible students. Section 25A(f)(1) and § 1.25A-2(d) provide, in relevant part, that the term “qualified tuition and related expenses” means tuition and fees required for the enrollment or attendance at an eligible educational institution for courses of instruction at such institution. Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual's degree program.

The Treasury Department and the IRS propose to base the definition of “tuition-paying” for purposes of section 4968 on the definition of qualified tuition and related expenses that is provided in section 25A(f)(1) and the regulations thereunder, without regard to section 25A(f)(1)(D). Thus, the proposed regulations provide that tuition-paying means the payment of tuition and fees required for the enrollment or attendance of a student for courses of instruction at an eligible educational institution but does not include any separate payment for supplies or equipment required during a specific course once a student is enrolled in and attending the course (for example, art supplies). Tuition-paying also does not include payment of room and board or other personal living expenses, and if a student is required to pay a fee (such as a comprehensive fee or a bundled fee) to an eligible educational institution that combines charges for tuition with charges for personal expenses such as room and board, then the student is a tuition-paying student. The Treasury Department and the IRS note that, notwithstanding the reference to “enrollment” for purposes of identifying tuition and fees, the tuition-paying student must also be attending the educational institution for purposes of determining if there are at least 500 tuition-paying students.

For purposes of section 4968, the proposed regulations also provide that whether a student is “tuition-paying” is determined after taking into account any scholarships provided directly by the educational institution and any work study programs operated directly by the educational institution. However, scholarship payments provided by third parties, even if administered by the institution, are considered payments of tuition on behalf of the student. Accordingly, a student will be considered a tuition-paying student for purposes of section 4968 if payment of any tuition or a fee is required for the enrollment or attendance of the student for courses of instruction after the application of any scholarships offered directly by the institution or work study program operated directly by the institution.

Section 4968(b)(1)(B) provides, in part, that at least 50 percent of an applicable educational institution's tuition-paying students attending the institution must have been located in the United States. The statute clearly refers to the location of the students, not the location of the educational institution or an instructor. Accordingly, the proposed regulations provide that a student is considered to have been located in the United States if the student resided in the United States for at least a portion of the time the student attended the educational institution. Like the other requirements of section 4968(b), this measurement is based on the applicable educational institution's preceding taxable year.

For example, a student that attended an educational institution in the preceding taxable year who is citizen of a foreign country is considered to have been a student located in the United States if the student resided in the United States for at least a portion of the time the student attended the educational institution. Furthermore, a student attending the educational institution in the preceding taxable year who was studying abroad in a foreign country is considered to have been a student located in the United States if the student resided in the United States for at least a portion of the time the student attended the educational institution. However, if a student did not reside in the United States for any portion of the time the student attended the education institution during the preceding taxable year, then that student would not be considered to have been located in the United States for purposes of section 4968(b)(1)(B) (although he or she may still be considered a student for purposes of section 4968(b)(1)(D)). The Treasury Department and the IRS request comments on whether further guidance is needed relating to whether a student is considered to have been located in the United States in a preceding taxable year.

Section 4968(b)(2) provides, in part, that the number of students of an applicable educational institution (including for purposes of determining the number of students at a particular location) is based on the daily average number of full-time students attending such institution, with part-time students taken into account on a full-time student equivalent basis. Section 4968 does not define the terms “full-time” and “part-time” for purposes of the full-time equivalent rule in section 4968(b)(2), nor does it provide how to determine a full-time student equivalent or a daily average. Section 1.25A-3(d)(1)(ii) of the Income Tax Regulations provides for section 25A purposes that the standard for what is half the normal full-time work load is determined by each eligible educational institution; however, the standard for half-time may not be lower than the applicable standard for half-time established by the HEA.

Unlike section 25A, section 4968 does not require that a student be carrying at least half the normal full-time work load for the course of study the student is pursuing in order to be considered a student. However, the Treasury Department and the IRS otherwise view the standard provided in § 1.25A-3(d)(1)(ii) as a helpful model in applying the full-time equivalent requirement in section 4968(b)(2) and propose to follow a similar approach.

Accordingly, these proposed regulations provide that, for purposes of section 4968(b)(2), the determinations of full-time students, part-time students, full-time student equivalents, and daily average of students attending the institution are made by each applicable educational institution as long as the determinations are consistent with the institution's practices in determining full-time and part-time status for other purposes. For example, it may be reasonable for an institution to determine that two students, each carrying half a full-time load, are equivalent to one full-time student. However, the standards an institution uses may not be lower than the applicable standards established by the Department of Education under the HEA.

The Treasury Department and the IRS seek comments on whether more specific guidance is required concerning the determination of full-time student, part-time student, full-time equivalent, or daily average number of full-time students attending the institution.

To be included within the definition of applicable educational institution under section 4968(b)(1), an institution must have assets (other than those assets which are used directly in carrying out the institution's exempt purpose) the aggregate fair market value of which is at least $500,000 per student. The phrase “assets which are used directly in carrying out the institution's exempt purpose” is not defined in section 4968, but a similar phrase is used in section 4942.

For purposes of section 4942, a private foundation must determine its minimum investment return as part of its calculation of its distributable amount for any taxable year. Minimum investment return is defined in section 4942(e) as 5 percent of the excess of the aggregate fair market value of all assets of the foundation “other than those which are used (or held for use) directly in carrying out the foundation's exempt purpose,” over the acquisition indebtedness with respect to such assets.

Since section 4968 contains a phrase similar to the language used in section 4942 (other than the omission of the parenthetical “or held for use”), the Treasury Department and the IRS propose generally to follow § 53.4942(a)-2(c) for purposes of determining whether an educational institution's assets are used directly in carrying out the institution's exempt purpose, without regard to provisions relating to private foundation assets “held for use.” The Treasury Department and the IRS seek comments on whether the use of the principles of the section 4942 regulations for this purpose creates any concerns.

Consistent with section 4942, the proposed regulations provide in § 53.4968-1(a)(4)(i) that an asset is used directly in carrying out an institution's exempt purpose only if the asset is actually used by the institution in carrying out its exempt purpose. Administrative assets, real estate, and physical property used by the institution directly in its exempt activities are all examples of such exempt purpose assets. In addition, a reasonable cash balance necessary to cover current administrative expenses and other normal and current disbursements directly connected with the educational institution's exempt activities is considered to be used directly in carrying out the institution's exempt purpose. For section 4942 purposes, a reasonable cash balance is defined as 1.5 percent of the fair market value of the private foundation's non-charitable use assets ( i.e., assets not actually used by an institution in carrying out its exempt purpose), determined without regard to the reduction for the reasonable cash balance. For consistency with the 4942 rules, the Treasury Department and the IRS propose that a cash balance of 1.5 percent of the fair market value of the educational institution's non-charitable use assets, determined without regard to the deduction for the reasonable cash balance, will be deemed to be a reasonable cash balance for purposes of section 4968. However, the Treasury Department and the IRS note that the 1.5 percent standard in the section 4942 context is an average monthly amount over the entire taxable year and thus has to take into account fluctuations in cash needs. Thus, in light of the differences in the exempt activities of an educational institution and the section 4968 requirement to measure the assets only at the end of the taxable year, the Treasury Department and the IRS request comments on whether another percentage or other measurement should be deemed to be a reasonable cash balance at the end of the taxable year. The Treasury Department and the IRS specifically request comments supporting why any such other amount would be reasonable, and how utilizing a different amount would be administrable.

The proposed regulations do not address whether a functionally-related business would be considered an exempt use asset for the purposes of this test. Although functionally-related businesses are included as an illustration of an exempt use asset in the section 4942 regulations, it is not clear how the concept of a functionally-related business would apply to an educational institution. The Treasury Department and the IRS request comments on whether and how educational institutions use functionally related businesses in conducting their operations and whether functionally-related businesses should be explicitly included or excluded as examples of exempt use assets in the final regulations.

Whether an asset is used directly by an educational institution to carry out its exempt purpose is determined based on the facts and circumstances. In addition, where property is used both for charitable, educational, or other similar exempt purposes and for other purposes, if the exempt use represents 95 percent or more of the total use, the property is considered to be used exclusively for a charitable, educational, or other similar exempt purpose. If the exempt use represents less than 95 percent of the total use, the institution must make a reasonable allocation between the exempt and nonexempt use.

Similar to the rules under section 4942, the proposed regulations deem certain assets to not be used directly in carrying out an institution's exempt purpose, including assets that are held for the production of income or for investment (for example, stocks, bonds, interest-bearing notes, endowment funds, or, generally, leased real estate), even if the income from such assets is used to carry out the exempt purpose. Similarly, non-exempt use assets include property used for managing endowment funds of the institution.

For purposes of section 4968(b)(1)(D), the value of an institution's non-exempt use assets must be determined as of the last day of each taxable year for which a valuation must be made. In contrast, section 4942(e)(2)(A) provides generally that a foundation's securities for which market quotations are readily available shall be determined on a monthly basis, and that the values of other assets shall be determined at such times and in such manner as the Secretary shall by regulations prescribe.

Section 53.4942(a)-2(c)(4) provides that a private foundation may use any reasonable method to determine the fair market value on a monthly basis of securities for which market quotations are readily available, as long as such method is consistently used, and provides additional valuation guidelines for assets that are not market securities.

Consistent with the proposed rules for determining whether an asset is used directly in carrying out an institution's exempt purpose, the Treasury Department and the IRS propose that, for purposes of valuing the institution's non-exempt use assets, institutions use rules similar to the rules of section 4942(e) and § 53.4942(a)-2(c)(4), with two modifications. First, the phrase “applicable educational institution” is substituted for “private foundation” or “foundation” every place they appear. Second, an institution will have to make such adjustments as are reasonable and necessary to obtain the fair market value of non-exempt use assets as of the last day of the valuation taxable year, rather than any other frequency provided by the section 4942 regulations.

The Treasury Department and the IRS request comments on valuing exempt use assets using the principles of section 4942, as modified by this special timing rule.

Section 4968(a) imposes on each applicable educational institution a tax equal to 1.4 percent of its net investment income for the taxable year. Section 4968(c) provides that net investment income is determined under rules similar to the rules of section 4940(c). Accordingly, the proposed regulations provide in § 53.4968-1(b) that an institution must calculate its net investment income under the rules of section 4940(c) and § 53.4940-1(c) through (f), with certain modifications explained in part 2(B) of this Explanation of Provisions section.

Section 4940(c)(1) defines net investment income as the amount by which the sum of the gross investment income and the capital gain net income exceeds certain specified allowable deductions. Section 4940(c)(1) also states that, except to the extent inconsistent with the provisions of section 4940, net investment income is determined under the principles of subtitle A of the Code.

Section 4940(c)(2) provides that, for purposes of section 4940(c)(1), gross investment income means the gross amount of income from interest, dividends, rents, payments with respect to securities loans (as defined in section 512(a)(5)), and royalties, but not including any such income to the extent included in computing the unrelated business income tax imposed by section 511. The term gross investment income also includes income from sources similar to those specifically listed in the preceding sentence.

Section 4940(c)(3) provides that, for purposes of section 4940(c)(1), there is allowed as a deduction all the ordinary and necessary expenses paid or incurred for the production or collection of gross investment income or for the management, conservation, or maintenance of property held for the production of such income, determined with the following modifications: (1) The deduction provided by section 167 is allowed, but only on the basis of the straight line method of depreciation; and (2) the deduction for depletion provided by section 611 is allowed, but is determined without regard to section 613 (relating to percentage depletion).

Section 4940(c)(4) provides that, for purposes of determining capital gain net income under section 4940(c)(1), (1) no gain or loss from the sale or other disposition of property is taken into account to the extent that any such gain or loss is taken into account for purposes of computing the tax imposed by section 511 on unrelated business taxable income; (2) in the case of property held by a private foundation on December 31, 1969, and continuously thereafter to the date of its disposition, the basis for determining gain is deemed to be not less than the fair market value of such property on December 31, 1969; (3) losses from sales or other dispositions of property are allowed only to the extent of gains from such sales or other dispositions, without capital loss carryovers or carrybacks; and (4) except to the extent provided by regulation, under rules similar to the rules of section 1031 (including the exception under subsection (a)(2) thereof relating to exchanges of real property held primarily for sale), no gain or loss is taken into account with respect to any portion of property used for a period of not less than 1 year for a purpose or function constituting the basis of the private foundation's exemption if the entire property is exchanged immediately following such period solely for property of like kind which is to be used primarily for a purpose or function constituting the basis for such foundation's exemption.

Section 4940(c)(5) provides that, for purposes of section 4940, net investment income is determined by applying section 103 (relating to State and local bonds) and section 265 (relating to expenses and interest relating to tax-exempt income).

Section 4968 does not expressly provide that the tax on net investment income is limited to net investment income derived from assets that are not used directly in carrying out an applicable educational institution's exempt purpose. This lack of a limitation is in contrast to the specific language in section 4968(b)(1)(D) that excludes assets used directly in carrying out an institution's exempt purpose in determining whether the educational institution is an applicable educational institution. Instead, section 4968(c) provides that net investment income shall be determined under rules similar to the rules of section 4940(c). Accordingly, these proposed regulations adopt the rules provided in section 4940(c) and the regulations thereunder, including § 53.4940-1(d)(1), which specifies that “gross investment income” means the gross amounts of income from interest, dividends, rents, royalties (including overriding royalties), and capital gain net income received by a private foundation from all sources, but does not include such income to the extent included in computing the tax imposed by section 511. Under this definition, consistent with specific language in § 53.4940-1(d), interest, dividends, rents, and royalties derived from assets devoted to charitable activities are includible in gross investment income. Therefore, for example, interest received on a student loan would be includible.

The Treasury Department and the IRS request comments on whether specific types of income should be excluded from gross investment income under section 4968 because taxing those types of income would not achieve the congressional intent in enacting section 4968. In explaining why each such type of income should be excluded, please state specifically how the proposed exclusion is still “similar to” the rules of section 4940(c) and the specific characteristics of each type of such income that would warrant deviating from the rules provided in section 4940 and the regulations thereunder.

For example, the rules of section 4940(c) specifically include student loan interest as net investment income. However, the Treasury Department and the IRS recognize that student loans provided directly by an applicable educational institution to its students can be seen as helping the applicable educational institution fulfill its mission of educating its students. Unlike private foundations, colleges and universities educate students and charge tuition as part of their primary exempt activities. Student loans provided by an applicable educational institution to its students arguably can be viewed as a form of deferred tuition which will be paid when the student enters the workforce. Under this rationale, the interest on the student loan may arguably be distinguished from investment income, depending on the interest rate. If the interest is at a market (or higher) rate, it would be difficult to distinguish the interest on the student loan and interest on assets acquired for investment purposes. However, if the interest rate is set at a substantially below-market rate, the difference between the market interest rate and the interest rate on the student loan might be viewed as similar to a scholarship from the school to the student. Under these circumstances, the remaining, below-market rate interest income might be considered distinguishable from income derived from assets acquired primarily for investment purposes.

Any exception for student loan interest that is premised on the utilization of an interest rate that is substantially lower than a market rate would potentially present tax administrative challenges for both the IRS and taxpayers in determining the relevant market-rate and an acceptable lower rate, and in adjusting to rate changes during the course of the loan. Comments advocating an exception for the interest received on student loans should explain how these concerns could be addressed. It would be helpful if such comments also provide information regarding the number of student loans applicable educational institutions make each year, how they set the interest rates on those loans, and whether the rates are set below market, or at market rates.

Allowing an exception from net investment income for certain categories of student loan interest would raise the question of why only those categories of exempt function income are excluded from net investment income. Many other categories of income derived from exempt functions also help an applicable educational institution fulfill its exempt purposes. Private foundations might also argue that many of their types of income help them fulfill their exempt purposes. The Treasury Department and the IRS request comments on why interest income on student loans provided by an applicable educational institution to its students is a logical place to draw the line at the type of income that should be excluded from the net investment income tax, especially given the reference to student loan income in § 1.4940-1(d).

Similarly, under section 4940(c), net investment income includes rents. The Treasury Department and the IRS recognize that colleges and universities offer various types of housing (such as dormitories or apartments) for use by students, non-students (for example, during the summer), and faculty. The Treasury Department and the IRS request comments on the differences, if any, among the housing arrangements, whether any of the arrangements include the signing of leases, the various amounts charged by a college or university related to provision of housing and meals, and particular factors that distinguish room and board payments from students living in a dormitory from rental income that institutions receive.

Consistent with the requirement in section 4968(c) to calculate net investment income under rules similar to the rules under section 4940(c), these proposed regulations generally follow the rules for determining gain upon the sale or other disposition of property that have been used for section 4940(c) purposes since 1969. Section 4940(c)(1) provides that, except to the extent inconsistent with the provisions of section 4940, net investment income is determined under the principles of subtitle A. Subtitle A encompasses all of the income tax provisions (sections 1 through 1564) of the Code, including the basis rules in section 1015 (basis of property acquired by gift is generally the same as the donor's basis). Accordingly, under the proposed regulations, an applicable education institution computes gain on the sale or disposition of donated property using the donor's basis. The Treasury Department and the IRS request comments on whether a special rule excluding any appreciation in a gift of donated property that occurred before the date of receipt by the applicable educational institution should be included in the final regulations and how such a special rule would be consistent with the statutory language of section 4968.

The proposed regulations provide in § 53.4968-1(b)(3) that an institution should substitute “applicable educational institution” for “private foundation” or “foundation” every place it appears in § 53.4940-1(c) through (f). In addition, the proposed regulations provide that the rule in § 53.4940-1(d)(3) does not apply because it is narrowly focused on section 302 stock redemptions by corporations that are disqualified persons when the redemptions are part of a transaction designed to reduce section 4943 excess business holdings. Colleges and universities are not subject to section 4943, so they cannot have excess business holdings that could be the subject of a section 302 stock redemption by a disqualified person corporation.

As provided by section 3 of Notice 2018-55 (2018-26 I.R.B. 773), in following the rule in section 4940(c)(4), the proposed regulations substitute “December 31, 2017” for “December 31, 1969” every place it occurs. In addition, in response to a comment requesting clarification of the basis rules for assets held in a partnership on December 31, 2017, these proposed regulations also provide that if an applicable educational institution held an interest in a partnership (including through one or more tiers of partnerships) on December 31, 2017, and continuously thereafter, and the partnership held assets on December 31, 2017, and continuously thereafter to the date of disposition, the partnership's basis in its assets with respect to the applicable educational institution for purposes of determining the applicable educational institution's share of gain upon sale or disposition of the assets shall be not less than the fair market value of such asset on December 31, 2017, plus or minus all adjustments after December 31, 2017, and before the date of disposition. For purposes of applying this special partnership basis rule, an institution must obtain documentation from the partnership to substantiate the claim.

Finally, consistent with section 4 of Notice 2018-55 and section 4940(c)(4)(C), the proposed regulations provide that in applying § 53.4940-1(f), overall net losses from sales or other dispositions of property by one related organization (or by the applicable educational institution) shall reduce (but not below zero) overall net gains from such sales or other dispositions by other related organizations (or by the applicable educational institution).

Section 4968(d)(1) provides, in part, that for purposes of determining the aggregate fair market value of the assets and net investment income of an educational institution, the assets and net investment income of any related organization with respect to the educational institution shall be treated as assets and net investment income, respectively, of the educational institution.

For this purpose, the statute provides two special rules: (1) No such amount shall be taken into account with respect to more than 1 educational institution, and (2) unless such organization is controlled by such institution or is described in section 509(a)(3) (relating to supporting organizations) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account. Section 53.4968-1(c) of these proposed regulations provides definitions and special rules relating to related organizations.

Section 4968(d)(2) provides that the term “related organization” means, with respect to an applicable educational institution, any organization which (1) controls, or is controlled by, such institution; (2) is controlled by 1 or more persons which also control such institution; or (3) is a supported organization (as defined in section 509(f)(3)) or a supporting organization (as described in section 509(a)(3)) during the taxable year with respect to such institution.

Section 4968(d)(2) does not define the term “control.” The concept of controlled entities is found in numerous other areas of the Code, including section 4960, which was enacted at the same time as section 4968. Consistent with the position taken in Notice 2019-09, “Interim Guidance Under Section 4960” (2019-04 I.R.B. 403), for purposes of defining “control” within the meaning of section 4968(d), these proposed regulations provide rules based on the definition of control under section 512(b)(13)(D) and the regulations thereunder, which includes the constructive ownership rules of section 318, and that generally align with the definition of related organization for purposes of the annual reporting requirements on Form 990. The Treasury Department and the IRS request comments on whether there are any circumstances in which this definition of control should be modified in the context of section 4968.

Thus, the proposed regulations provide in § 53.4968-1(c)(1) that the term “control” means (1) in the case of a corporation, ownership (by vote or value) of more than 50 percent of the stock of the corporation; (2) in the case of a partnership, ownership of more than 50 percent of the profits interests or capital interests in such partnership; (3) in the case of a trust with beneficial interests, ownership of more than 50 percent of the beneficial interests in the trust; or (4) in the case of a nonprofit organization or other organization without owners or persons having beneficial interests (nonstock organization), including a governmental entity, that more than 50 percent of the directors or trustees of the applicable educational institution or nonstock organization are either representatives of, or are directly or indirectly controlled by, the other entity or that more than 50 percent of the directors or trustees of the nonstock organization are either representatives of, or are directly or indirectly controlled by, one or more persons that control the applicable educational institution. For purposes of this paragraph, a “representative” means a trustee, director, agent, or employee, and control includes the power to remove a trustee or director and designate a new trustee or director. Finally, section 318, which contains rules for determining constructive ownership of stock, applies for purposes of determining ownership of stock in a corporation, and similar principles apply for purposes of determining ownership of an interest in any other entity. The Treasury Department and the IRS do not propose to adopt the test for control under section 414(b) and (c), which generally uses the same test for control of a nonprofit organization as section 512(b)(13)(D) except that it replaces the 50-percent threshold with an 80-percent threshold. Instead, the proposed regulations adopt the control test under section 512(b)(13)(D) to align more closely with other exempt organization control tests and to ensure consideration of available assets consistent with congressional intent that would not occur under the higher 80 percent control threshold that was established for qualified plans.

Since the net investment that a taxable entity provides to an applicable educational institution has already been taxed under section 1, the Treasury Department and the IRS do not consider it consistent with congressional intent to tax the income again under section 4968. Furthermore, with regard to the assets of a taxable entity that is a related organization defined in section 4968(d)(2)(A) or (B), the institution likely already has included the value of the stock in its non-exempt use assets; however, the stock value may differ from the value of the taxable entity's underlying assets. The Treasury Department and the IRS request comments on how to account for this difference without double-counting the assets, as well as comments on the treatment of taxable entities that are related organizations for purposes of section 4968.

As noted above, section 4968(d)(1)(A) provides, in part, that for purposes of determining the aggregate fair market value of an institution's assets and its net investment income, the assets and net investment income of any related organization with respect to the educational institution shall be treated as assets and net investment income, respectively, of the educational institution. However section 4968(d)(1)(A) provides an exception under which no such amount shall be taken into account with respect to more than 1 educational institution.

In order to effectuate section 4968(d)(1)(A), the proposed regulations provide in § 53.4968-1(c)(2)(ii)(A) that, in any case in which an organization is a related organization with respect to more than 1 educational institution, the assets and net investment income of the related organization must be allocated between the educational institutions being supported by the related organization. The proposed regulations provide that such allocation must be made in a reasonable manner, taking into account all facts and circumstances, and must be consistently applied across all related organizations. The Treasury Department and the IRS request comments on whether more specific guidance is required concerning the allocation of a related organization's assets and net investment income between multiple educational institutions being supported by the same related organization, and if so, what such additional guidance should provide.

For purposes of attributing assets and net investment income of related organizations to applicable educational institutions, section 4968(d)(1)(B) provides that, unless a related organization is controlled by the educational institution or is described in section 509(a)(3) with respect to such institution for the taxable year, assets and net investment income of the related organization that are not intended or available for the use or benefit of the educational institution shall not be taken into account. Put another way, if a related organization controls the educational institution or is controlled by 1 or more persons which also control such institution but is not described in section 509(a)(3) with respect to the educational institution for the taxable year, then the assets and net investment income of the related organization are taken into account as assets and net investment income of the educational institution only if the assets and net investment income are intended or available for the use and benefit of the educational institution. However, if a related organization is either controlled by the educational institution or is described in section 509(a)(3) with respect to such institution for the taxable year, then all the assets and net investment income of the related organization are considered assets and net investment income of the educational institution, except as provided below.

The Conference Report description of section 4968 repeats section 4968(d)(1)(B) and adds, “[f]or example, assets of a related organization that are earmarked or restricted for (or fairly attributable to) the educational institution would be treated as assets of the educational institution, whereas assets of a related organization that are held for unrelated purposes (and are not fairly attributable to the educational institution) would be disregarded.” H. Rept. 115-466, 115th Cong., 1st sess., at 555 (December 15, 2017).

Thus, the proposed regulations provide in § 53.4968-1(c)(2)(ii)(B) that when a related organization controls an educational institution or is controlled by 1 or more persons which also control such institution and is not described in section 509(a)(3) with respect to the educational institution, the assets and net investment income of a related organization must be allocated between those intended or available for the use and benefit of an educational institution and those not intended or not available for the use and benefit of that educational institution. Such allocation must be made in a reasonable manner, taking into account all facts and circumstances, and must be consistently applied across all related organizations.

The proposed regulations further explain that assets and net investment income of such a related organization are intended or available for the use and benefit of an educational institution if such assets and net investment income are specifically earmarked or restricted for the benefit of, or are otherwise fairly attributable to, the educational institution. Conversely, assets and net investment income of a related organization are not intended or available for the use and benefit of an educational institution if such assets and net investment income are specifically earmarked or restricted for another entity or for unrelated purposes or are otherwise not fairly attributable to the educational institution. For purposes of this required allocation, the Treasury Department and the IRS request comments on situations in which an organization's assets or net investment income is not specifically earmarked or restricted for the benefit of any particular organization but is otherwise fairly attributable to the educational institution or to another organization. For example, absent any earmarking or restriction, should total distributions from a related organization to an applicable educational institution in one taxable year establish a presumption for section 4968 purposes that at least an equal amount is fairly attributable to the applicable educational institution for the following taxable year, absent demonstrated facts and circumstances supporting attribution of a lesser amount?

Because section 4968(d)(1)(B) carves out organizations that are controlled by an institution or are described in section 509(a)(3) with respect to such institution for the taxable year from this special rule, the proposed regulations provide that if the related organization is controlled by the educational institution or is described in section 509(a)(3) with respect to the educational institution, the assets and net investment income of the related organization must be taken into account as assets and net investment income of the educational institution, regardless of whether the assets and net investment income are earmarked or restricted for the benefit of, or otherwise fairly attributable to, the educational institution and even if they are specifically earmarked or restricted for another entity or for unrelated purposes or are otherwise not fairly attributable to the educational institution. However, the special rule in section 4968(d)(1)(A) continues to apply, such that the assets and net investment income of the related organization are not taken into account by more than one educational institution. See part 3(B) of the Explanation of Provisions section.

In recognition that section 509(a)(3) Type III supporting organizations, unlike section 509(a)(3) Type I and Type II supporting organizations, are not controlled by their supported organizations, 3 and because applicable educational institutions may not be able to get information from their Type III supporting organizations, the proposed regulations provide a special rule in § 53.4968-1(c)(2)(ii)(B)( 3 )( ii ) for related organizations of an educational institution that were Type III supporting organizations with respect to the applicable educational institution on December 31, 2017. The proposed regulations provide that an applicable educational institution with a related organization that was a Type III supporting organization with respect to the applicable educational institution on December 31, 2017, may take into account only the assets and net investment income of the related Type III supporting organization that are intended or available for the use and benefit of the applicable educational institution, as described in this part 3(C) of the Explanation of Provisions section. An applicable educational institution can determine whether the assets and net investment income of such a Type III supporting organization are intended or available for the use and benefit of the applicable educational institution using any reasonable method. A method using all the distributions received from the Type III supporting organization subject to this special rule as net investment income of the applicable educational institution each year will be deemed to be reasonable. Similarly, a method using the distributions received from the Type III supporting organization to calculate the percentage of the Type III supporting organization's total net income that was distributed to the applicable educational institution, and using the same percentage to calculate the value of the underlying assets of the Type III supporting organization that are intended or available for the use and benefit of the applicable educational institution each year, will be deemed to be reasonable. The Treasury Department and the IRS request comments on whether additional guidance pertaining to Type III supporting organizations is needed.

Executive Orders 12866 and 13563 direct agencies to assess costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility.

The proposed regulations have been designated by the Office of Management and Budget's (OMB) Office of Information and Regulatory Affairs (OIRA) as subject to review under Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and OMB regarding review of tax regulations. OIRA has determined that the proposed rulemaking is significant and subject to review under Executive Order 12866 and section 1(b) of the Memorandum of Agreement. Accordingly, the proposed regulations have been reviewed by OMB.

The Conference Report, at 555, states that Congress intended that the Secretary promulgate regulations to carry out the intent of section 4968. These proposed regulations are in response to this congressional intent. The proposed regulations provide guidance for determining the excise tax applicable to the net investment income of certain private colleges and universities, as provided by the TCJA. The regulations are intended to clarify which educational institutions are subject to the excise tax under section 4968 (excise tax) and how net investment income is calculated for purposes of this excise tax.

Prior to these proposed regulations, the Treasury Department and the IRS have not issued formal guidance on the definitions of these terms or on the rules under which net investment income for purposes of the excise tax in section 4968 were determined. 4 As a result, there was a degree of taxpayer uncertainty as to the definitions of the various terms and whether net investment income would be determined under rules identical to or similar to the rules of section 4940(c), and if the latter, what the deviations from the rules of section 4940(c) would be.

Pursuant to section 6(a)(3)(B) of Executive Order 12866, the following qualitative analysis provides further details regarding the anticipated impacts of the proposed regulations. After describing briefly the statute and the proposed regulations in Part II, the baseline used for the analysis is described in Part III of this Special Analyses section. Part IV of this Special Analyses section describes the types of entities affected by the proposed regulations. Part V of this Special Analyses section provides a qualitative assessment of the potential economic effects, including the benefits and costs, of the proposed regulations compared to the baseline.

Section 4968 imposes a 1.4 percent excise tax on the net investment income of applicable educational institutions. Under the statute, an “applicable educational institution” is an eligible educational institution (which is described in section 481 of the Higher Education Act of 1968) that has at least 500 tuition-paying students during the preceding taxable year, more than 50 percent of the tuition-paying students of which are located in the United States, is not a state college or university, and the fair market value of the assets of which (other than those assets which are used directly in carrying out the institution's exempt purpose) is at least $500,000 per student at the end of the preceding taxable year. Under section 4968, net investment income is determined under rules “similar to” the rules of section 4940(c) (the rules for calculation of the net investment income of private foundations). In addition, the assets and net investment income of related organizations are generally treated as the assets and net investment income of the educational institution.

Section 4968 does not define the terms “student,” “tuition-paying student,” or “assets used directly in carrying out the institution's exempt purpose.” Section 4968(c) states that, for the purposes of the excise tax in section 4968, net investment income shall be determined under rules “similar to” the rules of section 4940(c), but does not define what is meant by “similar to.” Section 4968 does not define the term “control” as it relates to a “related organization with respect to an educational institution.” The proposed regulations provide general definitional guidance with respect to these and other terms and rules relevant to the statute. A brief discussion of this guidance follows.

The proposed regulations define “student” to mean, in general, “a person enrolled in a degree, certification, or other program (including a program of study abroad approved for credit by the eligible institution at which such student is enrolled) leading to a recognized educational credential at an institution, and who is not enrolled in an elementary or secondary school.” The proposed regulations define “tuition-paying” to mean, in general, “the payment of any tuition or fees required for the enrollment or attendance of a student for a course of instruction at an educational institution.” These definitions follow similar definitions in section 25A of the Code. The proposed regulations also provide guidance for determining whether a student is located in the U.S. and for counting full-time and full-time equivalent students.

The proposed regulations define “assets used directly in carrying out an institution's exempt purpose” to mean, in general, assets “actually used by the institution in carrying out its exempt purpose.” Whether an asset qualifies “must be determined based on all the facts and circumstances.” If the property's “exempt use represents 95 percent or more of the total use, the property is considered to be used exclusively for an exempt purpose. If the exempt use of such property represents less than 95 percent of the total use, the institution must make a reasonable allocation between such exempt and nonexempt uses.”

The proposed regulations state that the valuation of assets not used directly in carrying out an institution's exempt purpose is determined under the rules of section 4942 and its regulations, with two modifications. First, “educational institution” is substituted for “private foundation” or “foundation” each place they appear. Second, the educational institution must obtain the fair market value of assets on the last day of the preceding taxable year rather than at other times provided by the regulations under section 4942.

Consistent with 4968(c), the proposed regulations state that net investment income will be determined under the rules of section 4940(c) and its regulations, with five modifications. First, “applicable educational institution” is substituted for “private foundation” or “foundation” each place they appear. Second, the regulations relating to the treatment of certain distributions in redemption of stock do not apply to applicable educational institutions. Third, December 31, 2017, replaces December 31, 1969 (the date used for the excise tax on net investment income of private foundations under section 4940(c)), to determine the basis of assets held on December 31, 2017, for purposes of calculating the excise tax. Fourth, if an applicable educational institution held an interest in a partnership on December 31, 2017, and continuously thereafter, and the partnership held assets on December 31, 2017, and continuously thereafter to the date of disposition, generally the basis of those assets for determining the applicable educational institution's share of gain upon sale or disposition of the assets is not less than the fair market value of such assets on December 31, 2017, plus or minus adjustments provided under the regulations for section 4940 after December 31, 2017, and before the date of disposition. Fifth, overall net losses from sales or other dispositions of property by one related organization or by the applicable educational institution may reduce (but not below zero) overall net gains from such sales or other dispositions by other related organizations or by the applicable educational institution.

Following the rules for section 4960, the proposed regulations define the term “control,” as it relates to a “related organization with respect to an educational institution,” generally to mean ownership of more than 50 percent of (a) the stock of a corporation, (b) the profits interests or capital interests in a partnership, or (c) the beneficial interests of a trust. For a nonstock corporation, control means (a) more than 50 percent of the directors or trustees of the applicable educational institution or nonstock organization are either representatives of, or are directly or indirectly controlled by, the other entity, or (b) more than 50 percent of the directors or trustees are representatives of, or are directly or indirectly controlled by, one or more persons that control the applicable educational institution. The proposed regulations apply the principles of section 318 for purposes of determining ownership of stock in a corporation and apply similar principles for purposes of determining ownership of an interest in any other entity.

The proposed regulations also provide an allocation rule to effectuate section 4968(d)(1)(A) (providing that income be taken into account by no more than one institution) and 4968(d)(1)(B) (providing that only assets available for use by the institution be taken into account in determining the aggregate amount of assets), in the case of related organizations.

The Treasury Department and the IRS have assessed the benefits and costs of the proposed regulations relative to a no-action baseline reflecting anticipated Federal income tax-related behavior in the absence of these proposed regulations.

One researcher used data from the Integrated Post-Secondary Education Data System (IPEDS) on endowment values at the end of the 2015-2016 academic year and enrollment data to estimate the number of institutions at risk of having liability under this excise tax. 5 Under the assumption that none of the assets in the endowment are for exempt purposes, he estimates that 23 institutions are likely to be currently subject to tax. Using the same IPEDS data, another researcher estimated that in 2016, among four-year public and not-for-profit private institutions located in the United States with at least 500 full-time equivalent students, and excluding endowments held at the university system level, there were 27 endowments worth at least $500,000 per student. 6 These estimates do not take into account all of the provisions of the statute and regulations. For example, limiting this set of institutions to the not-for-profit private institutions subject to tax and excluding assets that are used for the institutions' exempt purpose would reduce the number of affected institutions. On the other hand, as both authors note, because the $500,000 per student threshold for the aggregate fair market value of assets (other than those assets which are used directly in carrying out the institution's exempt purpose) that in part determines whether the excise tax in section 4968 applies to an educational institution is not indexed for inflation, the number of institutions to which the excise tax in section 4968 applies is expected to increase over time. In addition, these studies did not consider assets held by related organizations; including such assets could increase the number of affected schools.

The proposed regulations clarify a number of definitions related to the excise tax in section 4968. In the absence of guidance, affected taxpayers would have to calculate their tax liability without the definitions and clarifications provided by the proposed regulations, a situation that is generally considered more burdensome and could lead to greater conflicts with tax administrators. The proposed regulations make use of a number of existing statutory and regulatory provisions in defining students, tuition, exempt purpose, fair market value, net investment income and related organizations. Many taxpayers will already be familiar with these definitions. Thus, although the Treasury Department and the IRS project that the proposed regulations will reduce taxpayer compliance burden, including determining whether the excise tax applies to the institution and the time needed to file the return, and the costs of tax administration, including monitoring the compliance of taxpayers with the excise tax, relative to the no-action baseline, it is possible that the proposed regulations will have other economic effects.

The guidance provided in the proposed regulations also ensures that the excise tax liability is calculated similarly across taxpayers, avoiding situations where one taxpayer receives preferential treatment over another taxpayer for fundamentally similar economic activity. For example, in the absence of these proposed regulations, an applicable educational institution may have uncertainty over whether it is subject to the excise tax under section 4968 and what assets are used in determining the net investment income for purposes of the excise tax under section 4968. As a result, in the absence of guidance, similar institutions might take different positions and pay different amounts of tax, introducing economic inefficiency and inequity.

Based on this analysis, the Treasury Department and the IRS anticipate the net economic contribution of the proposed regulations will be modest, and will be positive relative to not issuing any such guidance and conditional on the relevant statutes. However, as stated earlier in the preamble, the Treasury Department and the IRS request comments on a number of aspects of the proposed regulations, which could include comments on the economic effects, any behavioral changes caused, or the unintended costs and benefits of the proposed regulations.

These proposed regulations provide further clarity on the Treasury Department and IRS policy choices regarding the treatment of investment income under section 4968, including the relationship to section 4940(c). Treasury Department and IRS requests comment on the proposed definitions and treatment of investment income in these regulations.

The collection of information in these proposed regulations is in §§ 53.4968-1(a)(2), (3), and (4), and 53.4968-1(b) and (c)(1) and (2). This information is required to determine whether an educational institution is an applicable educational institution, as defined in section 4968(b); to calculate net investment income as defined in section 4968(c); and to determine the assets and net investment income of related organizations that are treated as assets and net investment income of applicable educational institutions, as defined in section 4968(d). In 2016, the IRS released and invited comments on drafts of an earlier version of Form 4720 in order to give members of the public the opportunity to benefit from certain specific amendments made to the Code. The IRS received no comments on Form 4720 during the comment period. Consequently, the IRS made Form 4720 available on December 9, 2016 for use by the public. The IRS is contemplating making additional changes to Form 4720 based on these regulations. The IRS intends that the burden of the collections of information will be reflected in the burden associated with Form 4720, OMB approval number 1545-0052.

The burden associated with Form 4720 is included in the aggregated burden estimates for OMB control number 1545-0052 (listing a total estimated burden time for all Form 4720 filers of 88,839 hours and total estimated monetized costs of $8.441 million ($2017)). The burden estimates provided for Form 4720 are aggregate amounts that relate to all filers associated with the form, and will in the future include, but not isolate, the estimated burden of only those information collections associated with these proposed regulations. These numbers are therefore unrelated to the future calculations needed to assess the burden imposed by these regulations, specific burden estimates for which are not currently available. The Treasury Department and the IRS have not estimated the burden, including that of any new information collections, related to the requirements under the proposed regulations.

The expected burden for private colleges and universities that are applicable to this rule as described in section 4968(b) is listed below:

Estimated number of respondents: 40.

Estimated average annual burden hours per response: 32 hours, 27 minutes.

Estimated total annual burden: $123,336 (2017).

Estimated frequency of collection: Annual.

The Treasury Department and the IRS request comments on all aspects of information collection burdens related to the proposed regulations, including estimates for how much time it would take to comply with the paperwork burdens described above for each relevant form and ways for the IRS to minimize the paperwork burden. Proposed revisions (if any) to these forms that reflect the information collections contained in these final regulations will be made available for public comment at https://apps.irs.gov/app/picklist/list/draftTaxForms.html and will not be finalized until after these forms have been approved by OMB under the PRA. Comments on these forms can be submitted at https://www.irs.gov/forms-pubs/comment-on-tax-forms-and-publications.

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 return information are confidential, as required by 26 U.S.C. 6103.

Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these proposed regulations would not have a significant economic impact on a substantial number of small entities. As discussed elsewhere in this preamble, this rule merely provides definitions regarding the applicability of the section 4968 excise tax to certain private colleges and universities. The requirements in this regulation fall only on educational institutions the aggregate fair market values of the non-charitable use assets of which are at least $500,000 per student of the institution and that have at least 500 tuition-paying students (for a minimum investment asset value of $250,000,000).

This proposed rule would not affect a substantial number of small entities. Only about 1 percent of four-year colleges and universities (less than 30 out of over 2,400 institutions in the National Center for Education Statistics' Integrated Post-Secondary Education System Data for 2016) are expected to be affected by the tax. In addition, they are likely to have income from all sources exceeding $27.5 million, the threshold established by the Small Business Administration for an educational institution to be considered a small entity. This is because at a modest 4 percent rate of return, the minimum endowment alone would generate income of $10 million. To generate another $17.5 million in income would require receipts of $35,000 per student if the school had only the minimum number of students, compared to average tuition and fees at a four-year private school, which was $39,529  7 in 2015-16. Therefore, this rule is not likely to affect a substantial number of small entities.

Notwithstanding this certification, the Treasury Department and the IRS invite comments on the impact this rule may have on small entities.

Pursuant to section 7805(f) of the Code, this proposed rule has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small entities.

Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are timely submitted to the IRS as prescribed in the preamble under the ADDRESSES section. All comments submitted will be made available at https://www.regulations.gov or upon request.

A public hearing may be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register .

The principal authors of these regulations are Melinda Williams and Amber L. MacKenzie, Office of Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment Tax). However, other personnel from the Treasury Department and the IRS participated in their development.

IRS Revenue Procedures, Revenue Rulings, Notices, and other guidance cited in this document are published in the Internal Revenue Bulletin (or Cumulative Bulletin) and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov.

Accordingly, 26 CFR part 53 is proposed to be amended as follows:

On May 1, 2014, MSHA published a final rule, “Lowering Miners' Exposure to Respirable Coal Mine Dust, Including Continuous Personal Dust Monitors” (79 FR 24814) (Dust rule). The purpose of the Dust rule is to reduce occupational lung diseases in coal miners. As MSHA noted in the preamble to the Dust rule, the health effects from occupational exposure to respirable coal mine dust consist of interstitial and obstructive pulmonary diseases (79 FR 24819) that can lead to permanent disability and death.

Interstitial lung diseases, like coal workers' pneumoconiosis (CWP) and silicosis, may have a significant latency period between exposure and disease. The health effects from exposure to respirable coal mine dust may not be realized for 10 or more years until the disease becomes clinically apparent. In addition, the chronic effects of interstitial lung diseases, such as CWP and silicosis, may progress or worsen even after miners are no longer exposed to respirable coal mine dust. Thus, miners' exposure to respirable coal mine dust before final implementation of the Dust rule on August 1, 2016, may continue to contribute to the development of lung diseases in coal miners. New miners hired after August 1, 2016, are the only cohort of coal miners who are unaffected by exposures that occurred before full implementation of the Dust rule.

In the preamble to the Dust rule, MSHA stated its intent to take the lead in conducting a retrospective study beginning February 1, 2017 (79 FR 24867), with an unspecified completion date. Since the Dust rule, went into effect, MSHA has studied more than 250,000 respirable dust samples taken by mine operators who use the CPDM and by MSHA inspectors who use the gravimetric sampler. MSHA's analysis shows that more than 99 percent of the samples were in compliance with MSHA's respirable coal mine dust standards. The sample data allows MSHA to evaluate the effectiveness of dust controls in mines and whether the rule results in reduced levels of respirable coal dust. This data is available on MSHA's website and is updated on a periodic basis.

MSHA continues to evaluate respirable dust controls and best practices for compliance with the rule's requirements. MSHA also meets with mine operators and miners to provide mine-specific compliance and technical assistance and continues to consult with the Department of Health and Human Services' National Institute for Occupational Safety and Health (NIOSH).

On July 9, 2018 (83 FR 31710), MSHA published a “Request for Information on a Retrospective Study of Respirable Coal Mine Dust Rule” (RFI). The comment period is scheduled to close on July 9, 2019. The Agency has determined that extending the comment period until July 9, 2022, will give interested parties more time to provide ongoing input on developing the framework for a study to assess the impact of the Dust rule. Furthermore, due to the significant latency period between exposure to respirable coal mine dust and when occupational lung disease becomes clinically apparent, MSHA anticipates a long-term, ongoing need for comments on this issue so that it always has the most current information.

The Agency will continue to make comments received public, including comments on engineering controls and best practices that lower miners' exposure to respirable coal mine dust by publishing the comments as they are received on the Agency's website and at www.regulations.gov.

I. Table of Abbreviations CFR Code of Federal Regulations COTP Captain of the Port Sector Upper Mississippi River DHS Department of Homeland Security FR Federal Register NPRM Notice of proposed rulemaking § Section U.S.C. United States Code II. Background, Purpose, and Legal Basis

The Captain of the Port Sector Upper Mississippi River (COTP) proposes to amend regulations contained in § 100.801 of the Title 33 of the Code of Federal Regulations (CFR) (33 CFR 100.801) to accurately reflect annual and recurring marine events taking place in the Eighth Coast Guard District. Currently, the text of 33 CFR 100.801 only refers to Table 1, however, the section contains Tables 1 through 7. Additionally, the COTP proposes to amend and update 33 CFR 100.801 Table 2 titled Sector Upper Mississippi River Annual and Recurring Marine Events to accurately reflect marine events occurring on a regular basis in the Sector Upper Mississippi River. We propose to remove events that no longer occur or do not meet the criteria of a marine event, and to add new events that do meet the criteria of a marine event. In addition, the COTP proposes to amend Table 2 by updating the details of one marine event, and by rearranging the Table to display events first by the body of water on which they take place (alphabetically), second by the date(s) on which those events occur, and third by mile marker (descending).

This proposed rule will ensure that the public is accurately informed of annual and recurring events taking place within the Sector Upper Mississippi River Captain of the Port Zone, that the table of annual and recurring events is easy to read, and will considerably reduce administrative burden to both the Coast Guard and recurring marine event sponsors. The Coast Guard is proposing this rulemaking under authority in 46 U.S.C. 70034 (previously 33 U.S.C. 1231).

The Coast Guard encourages the public to participate in this proposed rulemaking through the comment process so that any necessary changes that are not already contained in this proposed rule can be identified and implemented in a timely and efficient manner.

33 CFR 100.801 contains regulations related to marine parades and regattas. From time to time, this section requires amendment to properly reflect marine events recurring within the Eighth Coast Guard District. This rulemaking proposes amending 33 CFR 100.801 to replace six references to “Table 1” with the words “Tables 1 through 7.”

Additionally, this rulemaking proposes the removal of nine marine events that either no longer take place or do not meet the criteria of a marine event, the addition five marine events, updating details for one marine event, and reorganizing marine events first by the body of water on which they take place (alphabetically), second by the date(s) on which those events occur, and third by mile marker (descending), as follows:

This rulemaking proposes removing these nine marine events from Table 2 of 33 CFR 100.801:

Throughout this document wherever “we,” “us,” or “our” is used, we mean the EPA.

The purpose of the ANPRM (84 FR 24064) was to solicit broad feedback on different approaches to establish an ERC bank for ozone precursors. Such ERCs may be generated and used for several air quality planning purposes. Specifically, the credits could be used in assisting in achievement of the ozone National Ambient Air Quality Standard (NAAQS), general conformity demonstrations, and nonattainment new source review (NNSR) permitting related to development of new VOC and NO X emissions sources in the Uinta Basin Ozone Nonattainment Area in Utah. The EPA designated portions of the “Uinta Basin” region nonattainment for the 2015 Ozone NAAQS, effective August 3, 2018.

We received requests from the Western Energy Alliance (WEA) and the Utah Petroleum Association (UPA) on June 24, 2019, and from the Ute Tribal Business Committee on June 25, 2019, to extend the comment period. In response, we are extending the comment period to August 7, 2019. 1

Throughout this document whenever “we,” “us,” or “our” is used, we mean EPA. This supplementary information section is arranged as follows:

EPA is proposing to take several related actions. EPA is proposing to determine that the Columbus nonattainment area is attaining the 2015 ozone NAAQS, based on quality-assured and certified monitoring data for 2016-2018 and that this area has met the requirements for redesignation under section 107(d)(3)(E) of the CAA. EPA is thus proposing to change the legal designation of the Columbus area from nonattainment to attainment for the 2015 ozone NAAQS. EPA is also proposing to approve, as a revision to the Ohio SIP, the state's maintenance plan (such approval being one of the CAA criteria for redesignation to attainment status) for the area. The maintenance plan is designed to keep the Columbus area in attainment of the 2015 ozone NAAQS through 2030. Finally, EPA finds adequate and is proposing to approve the newly-established 2023 and 2030 MVEBs for the Columbus area. The comment period for the adequacy of the MVEBs began on May 2, 2019, with EPA's posting of the availability of the submittal on EPA's Adequacy website (at https://www.epa.gov/state-and-local-transportation/state-implementation-plans-sip-submissions-currently-under-epa ). The comment period ended on June 1, 2019. EPA did not receive any requests for this submittal, or adverse comments on this adequacy submittal. In a letter dated June 5, 2019, EPA informed Ohio EPA that we found the 2023 and 2030 MVEBs to be adequate for use in transportation conformity analyses. Please see section V. B. of this rulemaking, “What is the status of EPA's adequacy determination for the proposed VOC and NO X MVEBs for the Columbus area,” for further explanation of this process. Based on the above, we find adequate, and are proposing to approve, the State's 2023 and 2030 MVEBs for transportation conformity purposes.

EPA has determined that ground-level ozone is detrimental to human health. On October 1, 2015, EPA promulgated a revised 8-hour ozone NAAQS of 0.070 parts per million (ppm). See 80 FR 65292 (October 26, 2015). Under EPA's regulations at 40 CFR part 50, the 2015 ozone NAAQS is attained in an area when the 3-year average of the annual fourth highest daily maximum 8-hour average concentration is equal to or less than 0.070 ppm, when truncated after the thousandth decimal place, at all of the ozone monitoring sites in the area. See 40 CFR 50.19 and appendix U to 40 CFR part 50.

Upon promulgation of a new or revised NAAQS, section 107(d)(1)(B) of the CAA requires EPA to designate as nonattainment any areas that are violating the NAAQS, based on the most recent 3 years of quality assured ozone monitoring data. The Columbus area was designated as a marginal nonattainment area for the 2015 ozone NAAQS on June 4, 2018 (83 FR 25776) (effective August 3, 2018).

Section 107(d)(3)(E) of the CAA allows redesignation of an area to attainment of the NAAQS provided that: (1) The Administrator (EPA) determines that the area has attained the NAAQS; (2) the Administrator has fully approved the applicable implementation plan for the area under section 110(k) of the CAA; (3) the Administrator determines that the improvement in air quality is due to permanent and enforceable reductions in emissions resulting from implementation of the applicable SIP, applicable Federal air pollutant control regulations, and other permanent and enforceable emission reductions; (4) the Administrator has fully approved a maintenance plan for the area as meeting the requirements of section 175A of the CAA; and (5) the state containing the area has met all requirements applicable to the area for the purposes of redesignation under section 110 and part D of the CAA.

On April 16, 1992, EPA provided guidance on redesignations in the General Preamble for the Implementation of Title I of the CAA Amendments of 1990 (57 FR 13498) and supplemented this guidance on April 28, 1992 (57 FR 18070). EPA has provided further guidance on processing redesignation requests in the following documents:

1. “Ozone and Carbon Monoxide Design Value Calculations,” Memorandum from Bill Laxton, Director, Technical Support Division, June 18, 1990;

2. “Maintenance Plans for Redesignation of Ozone and Carbon Monoxide Nonattainment Areas,” Memorandum from G.T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, April 30, 1992;

3. “Contingency Measures for Ozone and Carbon Monoxide (CO) Redesignations,” Memorandum from G.T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, June 1, 1992;

4. “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992 (the “Calcagni Memorandum”);

5. “State Implementation Plan (SIP) Actions Submitted in Response to Clean Air Act (CAA) Deadlines,” Memorandum from John Calcagni, Director, Air Quality Management Division, October 28, 1992;

6. “Technical Support Documents (TSDs) for Redesignation of Ozone and Carbon Monoxide (CO) Nonattainment Areas,” Memorandum from G.T. Helms, Chief, Ozone/Carbon Monoxide Programs Branch, August 17, 1993;

7. “State Implementation Plan (SIP) Requirements for Areas Submitting Requests for Redesignation to Attainment of the Ozone and Carbon Monoxide (CO) National Ambient Air Quality Standards (NAAQS) On or After November 15, 1992,” Memorandum from Michael H. Shapiro, Acting Assistant Administrator for Air and Radiation, September 17, 1993;

8. “Use of Actual Emissions in Maintenance Demonstrations for Ozone and CO Nonattainment Areas,” Memorandum from D. Kent Berry, Acting Director, Air Quality Management Division, November 30, 1993;

9. “Part D New Source Review (Part D NSR) Requirements for Areas Requesting Redesignation to Attainment,” Memorandum from Mary D. Nichols, Assistant Administrator for Air and Radiation, October 14, 1994; and

10. “Reasonable Further Progress, Attainment Demonstration, and Related Requirements for Ozone Nonattainment Areas Meeting the Ozone National Ambient Air Quality Standard,” Memorandum from John S. Seitz, Director, Office of Air Quality Planning and Standards, May 10, 1995.

For redesignation of a nonattainment area to attainment, the CAA requires EPA to determine that the area has attained the applicable NAAQS (CAA section 107(d)(3)(E)(i)). An area is attaining the 2015 ozone NAAQS if it meets the 2015 ozone NAAQS, as determined in accordance with 40 CFR 50.15 and appendix U of part 50, based on 3 complete, consecutive calendar years of quality-assured air quality data for all monitoring sites in the area. To attain the NAAQS, the 3-year average of the annual fourth-highest daily maximum 8-hour average ozone concentrations (ozone design values) at each monitor must not exceed 0.070 ppm. The air quality data must be collected and quality-assured in accordance with 40 CFR part 58 and recorded in EPA's Air Quality System (AQS). Ambient air quality monitoring data for the 3-year period must also meet data completeness requirements. An ozone design value is valid if daily maximum 8-hour average concentrations are available for at least 90% of the days within the ozone monitoring seasons, 1 on average, for the 3-year period, with a minimum data completeness of 75% during the ozone monitoring season of any year during the 3-year period. See section 4 of appendix U to 40 CFR part 50.

EPA has reviewed the available ozone monitoring data from monitoring sites in the Columbus area for the 2016-2018 period. These data have been quality assured, are recorded in the AQS, and have been certified. These data demonstrate that the Columbus area is attaining the 2015 ozone NAAQS. The annual fourth-highest 8-hour ozone concentrations and the 3-year average of these concentrations (monitoring site ozone design values) for each monitoring site are summarized in Table 1.

The Columbus area's 3-year ozone design value for 2016-2018 is 0.069 ppm, 2 which meets the 2015 ozone NAAQS. Therefore, in today's action, EPA proposes to determine that the Columbus area is attaining the 2015 ozone NAAQS.

EPA will not take final action to determine that the Columbus area is attaining the NAAQS nor to approve the redesignation of this area if the design value of a monitoring site in the area violates the NAAQS after proposal but prior to final approval of the redesignation. Preliminary 2019 data to date indicate that this area continues to attain the 2015 ozone NAAQS. As discussed in section IV.D.3. below, Ohio EPA has committed to continue monitoring ozone in this area to verify maintenance of the 2015 ozone NAAQS.

As criteria for redesignation of an area from nonattainment to attainment of a NAAQS, the CAA requires EPA to determine that the state has met all applicable requirements under section 110 and part D of title I of the CAA ( see section 107(d)(3)(E)(v) of the CAA) and that the state has a fully approved SIP under section 110(k) of the CAA ( see section 107(d)(3)(E)(ii) of the CAA). EPA finds that Ohio has met all applicable SIP requirements, for purposes of redesignation, under section 110 and part D of title I of the CAA (requirements specific to nonattainment areas for the 2015 ozone NAAQS). Additionally, EPA finds that all applicable requirements of the Ohio SIP for the area have been fully approved under section 110(k) of the CAA. In making these determinations, EPA ascertained which CAA requirements are applicable to the Columbus area and the Ohio SIP and, if applicable, whether the required Ohio SIP elements are fully approved under section 110(k) and part D of the CAA. As discussed more fully below, SIPs must be fully approved only with respect to currently applicable requirements of the CAA.

The September 4, 1992 Calcagni memorandum (see “Procedures for Processing Requests to Redesignate Areas to Attainment,” Memorandum from John Calcagni, Director, Air Quality Management Division, September 4, 1992) describes EPA's interpretation of section 107(d)(3)(E) of the CAA. Under this interpretation, a state and the area it wishes to redesignate must meet the relevant CAA requirements that are due prior to the state's submittal of a complete redesignation request for the area. See also the September 17, 1993, Michael Shapiro memorandum and 60 FR 12459, 12465-66 (March 7, 1995) (redesignation of Detroit-Ann Arbor, Michigan to attainment of the 1-hour ozone NAAQS). Applicable requirements of the CAA that come due subsequent to the state's submittal of a complete request remain applicable until a redesignation to attainment is approved, but are not required as a prerequisite to redesignation. See section 175A(c) of the CAA. Sierra Club v. EPA, 375 F.3d 537 (7th Cir. 2004). See also 68 FR 25424, 25427 (May 12, 2003) (redesignation of the St. Louis/East St. Louis area to attainment of the 1-hour ozone NAAQS).

1. Ohio has met all applicable requirements of section 110 and part D of the CAA applicable to the Columbus area for purposes of redesignation.

Section 110(a)(2) of the CAA delineates the general requirements for a SIP. Section 110(a)(2) provides that the SIP must have been adopted by the state after reasonable public notice and hearing, and that, among other things, it must: (1) Include enforceable emission limitations and other control measures, means or techniques necessary to meet the requirements of the CAA; (2) provide for establishment and operation of appropriate devices, methods, systems and procedures necessary to monitor ambient air quality; (3) provide for implementation of a source permit program to regulate the modification and construction of stationary sources within the areas covered by the plan; (4) include provisions for the implementation of part C prevention of significant deterioration (PSD) and part D new source review (NSR) permit programs; (5) include provisions for stationary source emission control measures, monitoring, and reporting; (6) include provisions for air quality modeling; and, (7) provide for public and local agency participation in planning and emission control rule development.

Section 110(a)(2)(D) of the CAA requires SIPs to contain measures to prevent sources in a state from significantly contributing to air quality problems in another state. To implement this provision, EPA has required certain states to establish programs to address transport of certain air pollutants, e.g., NO X SIP call. 3 However, like many of the 110(a)(2) requirements, the section 110(a)(2)(D) SIP requirements are not linked with a particular area's ozone designation and classification. EPA concludes that the SIP requirements linked with the area's ozone designation and classification are the relevant measures to evaluate when reviewing a redesignation request for the area. The section 110(a)(2)(D) requirements, where applicable, continue to apply to a state regardless of the designation of any one particular area within the state. Thus, we believe these requirements are not applicable requirements for purposes of redesignation. See 65 FR 37890 (June 15, 2000), 66 FR 50399 (October 19, 2001), 68 FR 25418, 25426-27 (May 13, 2003).

In addition, EPA believes that other section 110 elements that are neither connected with nonattainment plan submissions nor linked with an area's ozone attainment status are not applicable requirements for purposes of redesignation. The area will still be subject to these requirements after the area is redesignated to attainment of the 2008 ozone NAAQS. The section 110 and part D requirements which are linked with a particular area's designation and classification are the relevant measures to evaluate in reviewing a redesignation request. This approach is consistent with EPA's existing policy on applicability ( i.e., for redesignations) of conformity and oxygenated fuels requirements, as well as with section 184 ozone transport requirements. See Reading, Pennsylvania proposed and final rulemakings, 61 FR 53174-53176 (October 10, 1996) and 62 FR 24826 (May 7, 1997); Cleveland-Akron-Loraine, Ohio final rulemaking, 61 FR 20458 (May 7, 1996); and Tampa, Florida final rulemaking, 60 FR 62748 (December 7, 1995). See also the discussion of this issue in the Cincinnati, Ohio ozone redesignation (65 FR 37890, June 19, 2000), and the Pittsburgh, Pennsylvania ozone redesignation (66 FR 50399, October 19, 2001).

We have reviewed Ohio's SIP and have concluded that it meets the general SIP requirements under section 110 of the CAA, to the extent those requirements are applicable for purposes of redesignation. 4

Section 172(c) of the CAA sets forth the basic requirements of air quality plans for states with nonattainment areas that are required to submit them pursuant to section 172(b). Subpart 2 of part D, which includes section 182 of the CAA, establishes specific requirements for ozone nonattainment areas depending on the areas' nonattainment classifications.

The Columbus area was classified as marginal under subpart 2 for the 2015 ozone NAAQS. As such, the area is subject to the subpart 1 requirements contained in section 172(c) and section 176. Similarly, the area is subject to the subpart 2 requirements contained in section 182(a) (marginal nonattainment area requirements). A thorough discussion of the requirements contained in section 172(c) and 182 can be found in the General Preamble for Implementation of Title I (57 FR 13498).

CAA Section 172(b) requires states to submit SIPs meeting the requirements of section 172(c) no later than 3 years from the date of the nonattainment designation. For the Columbus nonattainment area, SIPs required under CAA section 172 are due August 3, 2021. No requirements applicable for purposes of redesignation under part D became due prior to Ohio EPA's submission of the complete redesignation request, and, therefore, none are applicable to the area for purposes of redesignation.

EPA has previously approved Ohio's NSR program on January 10, 2003 (68 FR 1366) and February 25, 2010 (75 FR 8496). Nonetheless, EPA has determined that, since PSD requirements will apply after redesignation, areas being redesignated need not comply with the requirement that a NSR program be approved prior to redesignation, provided that the area demonstrates maintenance of the NAAQS without part D NSR. A more detailed rationale for this view is described in a memorandum from Mary Nichols, Assistant Administrator for Air and Radiation, dated October 14, 1994, entitled, “Part D New Source Review Requirements for Areas Requesting Redesignation to Attainment.” Ohio has demonstrated that the Columbus area will be able to maintain the 2015 ozone NAAQS without part D NSR in effect; therefore, EPA concludes that the state need not have a fully approved part D NSR program prior to approval of the redesignation request. See rulemakings for Detroit, Michigan (60 FR 12467-12468, March 7, 1995); Cleveland-Akron-Lorain, Ohio (61 FR 20458, 20469-20470, May 7, 1996); Louisville, Kentucky (66 FR 53665, October 23, 2001); and Grand Rapids, Michigan (61 FR 31834-31837, June 21, 1996). Ohio's PSD program will become effective in the Columbus area upon redesignation to attainment. EPA approved Ohio's PSD program on January 22, 2003 (68 FR 2909) and February 25, 2010 (75 FR 8496).

Section 176(c) of the CAA requires states to establish criteria and procedures to ensure that Federally supported or funded projects conform to the air quality planning goals in the applicable SIP. The requirement to determine conformity applies to transportation plans, programs and projects that are developed, funded or approved under title 23 of the United States Code (U.S.C.) and the Federal Transit Act (transportation conformity) as well as to all other Federally supported or funded projects (general conformity). State transportation conformity SIP revisions must be consistent with Federal conformity regulations relating to consultation, enforcement and enforceability that EPA promulgated pursuant to its authority under the CAA.

EPA interprets the conformity SIP requirements  5 as not applying for purposes of evaluating a redesignation request under section 107(d) because state conformity rules are still required after redesignation and Federal conformity rules apply where state conformity rules have not been approved. See Wall v. EPA, 265 F.3d 426 (6th Cir. 2001) (upholding this interpretation); see also 60 FR 62748 (December 7, 1995) (redesignation of Tampa, Florida). Nonetheless, Ohio has an approved conformity SIP for the Columbus area. See 80 FR 11133 (March 2, 2015).

Section 182(a)(1) requires states to submit a comprehensive, accurate, and current inventory of actual emissions from sources of VOC and NO X emitted within the boundaries of the ozone nonattainment area within two years of designation. For the Columbus area, this submission is due August 3, 2020. Because it will become due after Ohio's submission of a complete redesignation request for the Columbus area, it is not an applicable requirement for purposes of redesignation.

Under section 182(a)(2)(A), states with ozone nonattainment areas that were designated prior to the enactment of the 1990 CAA amendments were required to submit, within six months of classification, all rules and corrections to existing VOC reasonably available control technology (RACT) rules that were required under section 172(b)(3) prior to the 1990 CAA amendments. The Columbus area is not subject to the section 182(a)(2) RACT “fix up” requirement for the 2015 ozone NAAQS because it was designated as nonattainment for this standard after the enactment of the 1990 CAA amendments and because Ohio complied with this requirement for the Columbus area under the prior 1-hour ozone NAAQS. See 59 FR 23796 (May 9, 1994) and 60 FR 15235 (March 23, 1995).

Section 182(a)(2)(B) requires each state with a marginal ozone nonattainment area that implemented or was required to implement a vehicle inspection and maintenance (I/M) program prior to the 1990 CAA amendments to submit a SIP revision for an I/M program no less stringent than that required prior to the 1990 CAA amendments or already in the SIP at the time of the CAA amendments, whichever is more stringent. For the purposes of the 2015 ozone NAAQS and the consideration of Ohio's redesignation request for this standard, the Columbus area is not subject to the section 182(a)(2)(B) requirement because the Columbus area was designated as nonattainment for the 2015 ozone NAAQS after the enactment of the 1990 CAA amendments.

Section 182(a)(2)(C), under the heading “Corrections to the State implementation plans—Permit programs” contains a requirement for states to submit NSR SIP revisions to meet the requirements of CAA sections 172(c)(5) and 173 within 2 years after the date of enactment of the 1990 CAA Amendments. For the purposes of the 2015 ozone NAAQS and the consideration of Ohio's redesignation request for this standard, the Columbus area is not subject to the section 182(a)(2)(C) requirement because the Columbus area was designated as nonattainment for the 2015 ozone NAAQS after the enactment of the 1990 CAA amendments.

Section 182(a)(4) specifies the emission offset ratio for marginal areas but does not establish a SIP submission deadline. EPA's December 6, 2018 implementation rule for the 2015 ozone NAAQS clarifies that nonattainment NSR permit program requirements applicable to the 2015 NAAQS are due 3 years from the effective date of the nonattainment designation, i.e., August 3, 2021. See 83 FR 62998, 63001. This approach is based on the provision in CAA section 172(b) requiring the submission of plans or plan revisions “no later than 3 years from the date of the nonattainment designation.” Because this requirement will become due after Ohio's submission of a complete redesignation request for the Columbus area, it is not an applicable requirement for purposes of redesignation.

While Ohio has not submitted a nonattainment NSR SIP revision to address the 2015 ozone NAAQS, Ohio currently has a fully-approved part D NSR program in place. In addition, EPA approved Ohio's PSD program on January 22, 2003 (68 FR 2909) and February 25, 2010 (75 FR 8496). As discussed above, Ohio has demonstrated that the Columbus area will be able to maintain the 2015 ozone NAAQS without part D NSR in effect; therefore, EPA concludes that the state need not have a fully approved part D NSR program prior to approval of the redesignation request. The state's PSD program will become effective in the Columbus area upon redesignation to attainment.

Section 182(a)(3) requires states to submit periodic emission inventories and a revision to the SIP to require the owners or operators of stationary sources to annually submit emission statements documenting actual VOC and NO X emissions. As discussed below in section IV.D.4. of this proposed rule, Ohio will continue to update its emissions inventory at least once every 3 years. With regard to stationary source emission statements, this submission is due August 3, 2020. Because it will become due after Ohio's submission of a complete redesignation request for the Columbus area, it is not an applicable requirement for purposes of redesignation.

Therefore, EPA finds that the Columbus area has satisfied all applicable requirements for purposes of redesignation under section 110 and part D of title I of the CAA.

2. The Columbus area has a fully approved SIP for purposes of redesignation under section 110(k) of the CAA.

At various times, Ohio has adopted and submitted, and EPA has approved, provisions addressing the various SIP elements applicable for the ozone NAAQS. As discussed above, EPA has fully approved the Ohio SIP for the Columbus area under section 110(k) for all requirements applicable for purposes of redesignation under the 2015 ozone NAAQS. EPA may rely on prior SIP approvals in approving a redesignation request ( see the Calcagni memorandum at page 3; Southwestern Pennsylvania Growth Alliance v. Browner, 144 F.3d 984, 989-990 (6th Cir. 1998); Wall v. EPA, 265 F.3d 426), plus any additional measures it may approve in conjunction with a redesignation action ( see 68 FR 25426 (May 12, 2003) and citations therein).

To redesignate an area from nonattainment to attainment, section 107(d)(3)(E)(iii) of the CAA requires EPA to determine that the air quality improvement in the area is due to permanent and enforceable reductions in emissions resulting from the implementation of the SIP and applicable Federal air pollution control regulations and other permanent and enforceable emission reductions. EPA has determined that Ohio has demonstrated that that the observed ozone air quality improvement in the Columbus area is due to permanent and enforceable reductions in VOC and NO X emissions resulting from state measures adopted into the SIP and Federal measures.

In making this demonstration, the state has calculated the change in emissions between 2014 and 2016. The reduction in emissions and the corresponding improvement in air quality over this time period can be attributed to a number of regulatory control measures that the Columbus area and upwind areas have implemented in recent years. In addition, Ohio EPA provided an analysis to demonstrate the improvement in air quality was not due to unusually favorable meteorology. Based on the information summarized below, EPA finds that Ohio has adequately demonstrated that the improvement in air quality is due to permanent and enforceable emissions reductions.

1. Permanent and enforceable emission controls implemented.

Clean Air Interstate Rule (CAIR)/Cross State Air Pollution Rule (CSAPR). CAIR created regional cap-and-trade programs to reduce sulfur dioxide (SO 2 ) and NO X emissions in 27 eastern states, including Ohio, that contributed to downwind nonattainment and maintenance of the 1997 ozone NAAQS and the 1997 fine particulate matter (PM 2.5 ) NAAQS. See 70 FR 25162 (May 12, 2005). EPA approved Ohio's CAIR regulations into the Ohio SIP on February 1, 2008 (73 FR 6034), and September 25, 2009 (74 FR 48857). In 2008, the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) initially vacated CAIR, North Carolina v. EPA, 531 F.3d 896 (D.C. Cir. 2008), but ultimately remanded the rule to EPA without vacatur to preserve the environmental benefits provided by CAIR, North Carolina v. EPA, 550 F.3d 1176, 1178 (D.C. Cir. 2008). On August 8, 2011 (76 FR 48208), acting on the D.C. Circuit's remand, EPA promulgated CSAPR to replace CAIR and thus addressed the interstate transport of emissions contributing to nonattainment and interfering with maintenance of the two air quality standards covered by CAIR as well as the 2006 PM 2.5 NAAQS. CSAPR requires substantial reductions of SO 2 and NO X emissions from electric generating units (EGUs) in 28 states in the Eastern United States.

The D.C. Circuit's initial vacatur of CSAPR  6 was reversed by the United States Supreme Court on April 29, 2014, and the case was remanded to the D.C. Circuit to resolve remaining issues in accordance with the high court's ruling. EPA v. EME Homer City Generation, L.P., 134 S. Ct. 1584 (2014). On remand, the D.C. Circuit affirmed CSAPR in most respects, but invalidated without vacating some of the CSAPR budgets as to a number of states. EME Homer City Generation, L.P. v. EPA, 795 F.3d 118 (D.C. Cir. 2015). The remanded budgets include the Phase 2 NO X ozone season emissions budgets for Ohio. On September 7, 2016, in response to the remand, EPA finalized an update to CSAPR requiring further reductions in NO X emissions from EGUs beginning in May 2017. This final rule was projected to result in a 20% reduction in ozone season NO X emissions from EGUs in the eastern United States, a reduction of 800,000 tons in 2017 compared to 2015 levels.

There are no EGUs in the Columbus area. However, the reduction in NO X emissions from the implementation of CSAPR results in lower concentration of transported ozone entering the Columbus area upon implementation of the phase 2 budgets in 2017 and throughout the maintenance period.

Reductions in VOC and NO X emissions have occurred statewide and in upwind areas as a result of Federal emission control measures, with additional emission reductions expected to occur in the future. Federal emission control measures include the following.

Tier 2 Emission Standards for Vehicles and Gasoline Sulfur Standards. On February 10, 2000 (65 FR 6698), EPA promulgated Tier 2 motor vehicle emission standards and gasoline sulfur control requirements. These emission control requirements result in lower VOC and NO X emissions from new cars and light duty trucks, including sport utility vehicles. With respect to fuels, this rule required refiners and importers of gasoline to meet lower standards for sulfur in gasoline, which were phased in between 2004 and 2006. By 2006, refiners were required to meet a 30 ppm average sulfur level, with a maximum cap of 80 ppm. This reduction in fuel sulfur content ensures the effectiveness of low emission-control technologies. The Tier 2 tailpipe standards established in this rule were phased in for new vehicles between 2004 and 2009. EPA estimates that, when fully implemented, this rule will cut NO X and VOC emissions from light-duty vehicles and light-duty trucks by approximately 76 and 28%, respectively. NO X and VOC reductions from medium-duty passenger vehicles included as part of the Tier 2 vehicle program are estimated to be approximately 37,000 and 9,500 tons per year, respectively, when fully implemented. As projected by these estimates and demonstrated in the onroad emission modeling for the Columbus area, much of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period, as older vehicles are replaced with newer, compliant model years.

Tier 3 Emission Standards for Vehicles and Gasoline Sulfur Standards. On April 28, 2014 (79 FR 23414), EPA promulgated Tier 3 motor vehicle emission and fuel standards to reduces both tailpipe and evaporative emissions and to further reduce the sulfur content in fuels. The rule will be phased in between 2017 and 2025. Tier 3 sets new tailpipe standards for the sum of VOC and NO X and for particulate matter. The VOC and NO X tailpipe standards for light-duty vehicles represent approximately an 80% reduction from today's fleet average and a 70% reduction in per-vehicle particulate matter (PM) standards. Heavy-duty tailpipe standards represent about a 60% reduction in both fleet average VOC and NO X and per-vehicle PM standards. The evaporative emissions requirements in the rule will result in approximately a 50% reduction from current standards and apply to all light-duty and onroad gasoline-powered heavy-duty vehicles. Finally, the rule lowers the sulfur content of gasoline to an annual average of 10 ppm by January 2017. As projected by these estimates and demonstrated in the onroad emission modeling for the Columbus area, some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period, as older vehicles are replaced with newer, compliant model years.

Heavy-Duty Diesel Engine Rules. In July 2000, EPA issued a rule for onroad heavy-duty diesel engines that includes standards limiting the sulfur content of diesel fuel. Emissions standards for NO X , VOC and PM were phased in between model years 2007 and 2010. In addition, the rule reduced the highway diesel fuel sulfur content to 15 parts per million by 2007, leading to additional reductions in combustion NO X and VOC emissions. EPA has estimated future year emission reductions due to implementation of this rule. Nationally, EPA estimated that 2015 NO X and VOC emissions would decrease by 1,260,000 tons and 54,000 tons, respectively. Nationally, EPA estimated that by 2030 NO X and VOC emissions will decrease by 2,570,000 tons and 115,000 tons, respectively. As projected by these estimates and demonstrated in the onroad emission modeling for the Columbus area, some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period, as older vehicles are replaced with newer, compliant model years.

Nonroad Diesel Rule. On June 29, 2004 (69 FR 38958), EPA issued a rule adopting emissions standards for nonroad diesel engines and sulfur reductions in nonroad diesel fuel. This rule applies to diesel engines used primarily in construction, agricultural, and industrial applications. Emission standards are phased in for 2008 through 2015 model years based on engine size. The SO 2 limits for nonroad diesel fuels were phased in from 2007 through 2012. EPA estimates that when fully implemented, compliance with this rule will cut NO X emissions from these nonroad diesel engines by approximately 90%. As projected by these estimates and demonstrated in the nonroad emission modeling for the Columbus area, some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period.

Nonroad Spark-Ignition Engines and Recreational Engine Standards. On November 8, 2002 (67 FR 68242), EPA adopted emission standards for large spark-ignition engines such as those used in forklifts and airport ground-service equipment; recreational vehicles such as off-highway motorcycles, all-terrain vehicles, and snowmobiles; and recreational marine diesel engines. These emission standards are phased in from model year 2004 through 2012. When fully implemented, EPA estimates an overall 72% reduction in VOC emissions from these engines and an 80% reduction in NO X emissions. As projected by these estimates and demonstrated in the nonroad emission modeling for the Columbus area, some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period.

Category 3 Marine Diesel Engine Standards. On April 30, 2010 (75 FR 22896) EPA issued emission standards for marine compression-ignition engines at or above 30 liters per cylinder. Tier 2 emission standards apply beginning in 2011, and are expected to result in a 15 to 25% reduction in NO X emissions from these engines. Final Tier 3 emission standards apply beginning in 2016 and are expected to result in approximately an 80% reduction in NO X from these engines. As projected by these estimates and demonstrated in the nonroad emission modeling for the Columbus area, some of these emission reductions occurred by the attainment years and additional emission reductions will occur throughout the maintenance period.

2. Emission reductions.

Ohio is using a 2014 emissions inventory as the nonattainment year. This is appropriate because it was one of the years used to designate the area as nonattainment. Ohio is using 2016 as the attainment year, which is appropriate because it is one of the years in the 2016-2018 period used to demonstrate attainment.

Area and nonroad mobile emissions were collected from data available on EPA's Air Emissions Modeling website. 7 Using Emissions Modeling platform 2011v6.3, Ohio EPA collected data for the 2011 National Emissions Inventory (NEI) year, version 2011el, and the 2017 projected inventory, version 2017ek. Tons per summer day (TPSD) emissions were then derived by dividing July emissions by the number of days in July. 2014 emissions were derived by interpolating between 2011 and 2017 (2011el and 2017ek). 2016 emissions were assumed to be equivalent to the 2017 projected emissions (2017ek).

Ohio EPA compiled 2014 and 2016 actual point source emissions from state inventory databases. TPSD emissions were then derived by applying a conversion factor to the annual emissions. The conversion factor was derived from the emissions modeling platform 2011v6.3 as the ratio of the average July day to annual emissions for the non-EGU sector.

Onroad mobile source emissions were developed in conjunction with the Ohio EPA, the Ohio Department of Transportation, the Mid-Ohio Regional Planning Commission (MORPC), and the Licking County Area Transportation Study (LCATS) and were calculated from emission factors produced by EPA's Motor Vehicle Emission Simulator model, MOVES2014a, and data extracted from the region's travel-demand model.

Using the inventories described above, Ohio's submittal documents changes in VOC and NO X emissions from 2014 to 2016 for the Columbus area. Emissions data are shown in Tables 2 through 6.

As shown in Table 6, NO X and VOC emissions in the Columbus area declined by 18.89 TPSD and 12.00 TPSD, respectively, between 2014 and 2016.

3. Meteorology.

To further support Ohio's demonstration that the improvement in air quality between the year violations occurred and the year attainment was achieved, is due to permanent and enforceable emission reductions and not unusually favorable meteorology, an analysis was performed by Ohio EPA. Ohio analyzed the maximum fourth-high 8-hour ozone values for May, June, July, August, and September, for years 2000 to 2017.

First, the maximum 8-hour ozone concentration at each monitor in the Columbus area was compared to the number of days where the maximum temperature was greater than or equal to 80 °F. While there is a clear trend in decreasing ozone concentrations at all monitors, there is no such trend in the temperature data.

Ohio EPA also examined the relationship between the average summer temperature for each year of the 2000-2017 period and the fourth-high 8-hour ozone concentration. Given the similarity of ozone concentrations observed at each monitor and the regional nature of ozone formation, Ohio EPA conducted this analysis using the average fourth-high 8-hour ozone concentration from all monitors in the Columbus, OH area. While there is some correlation between average summer temperatures and ozone concentrations, this correlation does not exist over the study period. The linear regression lines for each data set demonstrate that the average summer temperatures have increased over the 2000 to 2017 period, while average ozone concentrations have decreased. Because the correlation between temperature and ozone formation is well established, these data suggest that reductions in precursors are responsible for the reductions in ozone concentrations in the Columbus area, and not unusually favorable summer temperatures.

Finally, Ohio EPA analyzed the relationship between average summertime relative humidity and average fourth-high 8-hour ozone concentrations. The data did not show a correlation between relative humidity and ozone concentrations.

As discussed above, Ohio identified numerous Federal rules that resulted in the reduction of VOC and NO X emissions from 2014 to 2016. In addition, Ohio EPA's analyses of meteorological variables associated with ozone formation demonstrate that the improvement in air quality in the Columbus area between the year violations occurred and the year attainment was achieved is not due to unusually favorable meteorology. Therefore, EPA finds that Ohio has shown that the air quality improvements in the Columbus area are due to permanent and enforceable emissions reductions.

As one of the criteria for redesignation to attainment section 107(d)(3)(E)(iv) of the CAA requires EPA to determine that the area has a fully approved maintenance plan pursuant to section 175A of the CAA. Section 175A of the CAA sets forth the elements of a maintenance plan for areas seeking redesignation from nonattainment to attainment. Under section 175A, the maintenance plan must demonstrate continued attainment of the NAAQS for at least 10 years after the Administrator approves a redesignation to attainment. Eight years after the redesignation, the state must submit a revised maintenance plan which demonstrates that attainment of the NAAQS will continue for an additional 10 years beyond the initial 10-year maintenance period. To address the possibility of future NAAQS violations, the maintenance plan must contain contingency measures, as EPA deems necessary, to assure prompt correction of the future NAAQS violation.

The Calcagni Memorandum provides further guidance on the content of a maintenance plan, explaining that a maintenance plan should address five elements: (1) An attainment emission inventory; (2) a maintenance demonstration; (3) a commitment for continued air quality monitoring; (4) a process for verification of continued attainment; and (5) a contingency plan. In conjunction with its request to redesignate the Columbus area to attainment for the 2015 ozone NAAQS, Ohio EPA submitted a SIP revision to provide for maintenance of the 2015 ozone NAAQS through 2030, more than 10 years after the expected effective date of the redesignation to attainment. As discussed below, EPA proposes to find that Ohio's ozone maintenance plan includes the necessary components and approve the maintenance plan as a revision of the Ohio SIP.

1. Attainment inventory.

EPA is proposing to determine that the Columbus area has attained the 2015 ozone NAAQS based on monitoring data for the period of 2016-2018. Ohio EPA selected 2016 as the attainment emissions inventory year to establish attainment emission levels for VOC and NO X . The attainment emissions inventory identifies the levels of emissions in the Columbus area that are sufficient to attain the 2015 ozone NAAQS. The derivation of the attainment year emissions was discussed above in section IV.C.2. of this proposed rule. The attainment level emissions, by source category, are summarized in Tables 4 and 5 above.

2. Has the state documented maintenance of the ozone standard in the Columbus area?

Ohio has demonstrated maintenance of the 2015 ozone NAAQS through 2030 by assuring that current and future emissions of VOC and NO X for the Columbus area remain at or below attainment year emission levels. A maintenance demonstration need not be based on modeling. See Wall v. EPA, 265 F.3d 426 (6th Cir. 2001), Sierra Club v. EPA, 375 F. 3d 537 (7th Cir. 2004). See also 66 FR 53094, 53099-53100 (October 19, 2001), 68 FR 25413, 25430-25432 (May 12, 2003).

Ohio is using emissions inventories for the years 2023 and 2030 to demonstrate maintenance. 2030 is more than 10 years after the expected effective date of the redesignation to attainment and 2023 was selected to demonstrate that emissions are not expected to spike in the interim between the attainment year and the final maintenance year. The emissions inventories were developed as described below.

Point, area and nonroad mobile emissions were collected from data available on EPA's Air Emissions Modeling website. 3 Using Emissions Modeling platform 2011v6.3, Ohio EPA collected data for the 2023 and 2028 projected inventories. Tons per summer day (TPSD) emissions were then derived by dividing July emissions by the number of days in July. For interim year 2023, version 2023el was used without modification except for adjustments to emissions for ten point sources, based on more recent source specific information. 2030 emissions were derived by extrapolating from version 2028el. As with the 2023 inventory, adjustments were made to the emissions for ten point sources based on more recent source specific information.

Onroad mobile source emissions were developed through the combined effort of Ohio EPA, the Ohio Department of Transportation, MORPC, and LCAT and were calculated from emission factors produced by EPA's MOVES2014a model and data extracted from the region's travel-demand model. Emissions data are shown in Tables 7 through 11 below.