Executive Summary

On April 6, 2023, OPM issued an interim final rule (88 FR 20383) to establish the Postal Service Health Benefits (PSHB) Program within the Federal Employees Health Benefits (FEHB) Program as required by the Postal Service Reform Act of 2022 (PSRA), Public Law 117-108. The interim final rule amended subparts A, C, and E of 5 CFR part 890 related to the FEHB Program and 48 CFR chapter 16, the OPM Federal Employees Health Benefits Acquisition Regulation (FEHBAR). The interim final rule also added a new subpart P to 5 CFR part 890 regulating the new PSHB Program within the FEHB Program.

OPM is making several changes between the interim final rule and this final rule:

• In § 890.1604, OPM is clarifying the requirements to enroll in Medicare Part B by expressly providing that the exceptions referring to events occurring “as of January 1, 2025” includes events that occur on January 1, 2025.

• Section 890.1604(c) is reserved in anticipation of future rulemaking.

• In § 890.1604(e), OPM is clarifying that a Postal Service annuitant or their family member who is required to be enrolled in Medicare Part B must promptly notify OPM or the Postal Service, in writing, if they choose not to enroll in or to disenroll from Medicare Part B.

• In § 890.1604, OPM is removing reference to the Postal Service as the entity to receive documentation of overseas residency to qualify for an exception to the Part B enrollment requirement.

• In § 890.1606(e), OPM is correcting a typographical error by removing the word “the” before “January 1 of the next year.”

These changes do not affect OPM's estimation of the regulatory impact of the PSHB Program.

To the greatest extent possible, OPM aligned the rules pertaining to PSHB plans with the regulations governing FEHB plans. Where there was no existing rule applicable to FEHB plans, OPM implemented rules to provide the greatest flexibility for Postal Service employees, Postal Service annuitants, and their family members. An example of this is the rules pertaining to disenrollment from PSHB for Medicare eligible annuitants who are not enrolled in Medicare Part B despite the requirement to be so enrolled. OPM is defining such a circumstance as a termination of coverage, with rights to a temporary extension of coverage and conversion rights, rather than a cancellation of coverage.

The PSHB Program includes health benefits plans available to Postal Service employees, Postal Service annuitants, and their eligible family members starting January 1, 2025. For these individuals, eligibility for enrollment or coverage in FEHB plans based on Postal Service employment will end after December 31, 2024, and they will be able to enroll in or be covered only by PSHB plans starting January 1, 2025. Subject to limited exceptions, Postal Service annuitants who retire and become entitled to Medicare Part A after January 1, 2025, and their family members who are entitled to Medicare Part A will be required to enroll in Medicare Part B as a condition of eligibility to enroll in the PSHB Program.

The exceptions to the Medicare Part B enrollment requirement for PSHB enrollment described at § 890.1604 are:

• Individuals who are Postal Service annuitants on or before January 1, 2025, and who are not both entitled to Medicare Part A and enrolled in Medicare Part B on January 1, 2025;

• Individuals who, on January 1, 2025, are Postal Service employees and are aged 64 and over;

• Postal Service annuitants and family members residing outside the United States and its territories who demonstrate their residency;

• Postal Service annuitants and their family members enrolled in certain Department of Veterans Affairs (VA) health care benefits. This exemption is derived from 5 U.S.C. 8903c(e)(3)(A)(iv)(II), which refers to individuals “enrolled in health care benefits provided by the VA under subchapter II of chapter 17 of title 38, United States Code.” Subchapter II of chapter 17 of title 38, U.S.C. governs who is eligible for various VA health care benefits, including eligibility for VA hospital care and medical services. There is a limited class of veterans who are not required to enroll in the system of patient enrollment referred to in 38 U.S.C. 1705(a) in order to receive VA benefits described in subchapter II of chapter 17 of title 38, United States Code. As such, this regulation is drafted to include all veterans described in 38 U.S.C. 1710, including those who are not required to enroll in the VA's system of patient enrollment referred to in 38 U.S.C. 1705(a);

• Postal Service annuitants and family members eligible for health services provided by the Indian Health Service; and

• A family member of a Postal Service annuitant who is not required to enroll in Medicare Part B, based on a statutory exception, in order to be eligible for PSHB coverage.

OPM will contract with carriers to offer two categories of health benefits plans through the broad umbrella of the FEHB Program, established under 5 U.S.C. 8901 et seq. OPM's authority to contract for FEHB plans and OPM's authority to contract for PSHB plans are in separate parts of the FEHB statute. First, pursuant to 5 U.S.C. 8902, OPM may contract with carriers to offer FEHB plans. Second, pursuant to 5 U.S.C. 8903c, OPM may now contract with carriers to offer PSHB plans through the PSHB Program within the FEHB Program. The broad umbrella of the FEHB Program comprises both FEHB plans and PSHB plans. OPM started the process of approving carrier participation in the PSHB Program when the interim final rule became effective on June 5, 2023.

This rule finalizes the interim final rule at 88 FR 20383 with minimal changes, as discussed further in the preamble, due to comments received during the 60-day comment period and a minor technical correction.

Section 101 of the PSRA adds new section 8903c to 5 U.S.C. chapter 89 and directs OPM to establish the PSHB Program within the FEHB Program for Postal Service employees, Postal Service annuitants, and their eligible family members. OPM will administer the PSHB Program in accordance with 5 U.S.C. chapter 89, and implementing regulations (5 CFR parts 890 and 892 and 48 CFR chapter 16), including these amended regulations. In general, the provisions of the FEHB Program apply to the PSHB program; however, there are a number of provisions that are unique to the PSHB program. See 5 U.S.C. 8903c(c)(3).

The PSHB Program was authorized under the Title I Postal Service Financial Reforms provisions in the PSRA in furtherance of Congress's objective to “improve the financial position of the Postal Service while increasing transparency and accountability of the Postal Service's operations, finances, and performance.”  1 OPM issued an interim final rule to set forth standards to implement section 101 of the PSRA to establish the PSHB Program. The first Open Season for the PSHB Program will begin on November 11, 2024, and run through December 9, 2024, and the first contract year will begin January 2025.

Section 102 of the PSRA (“The USPS Fairness Act”) amends 5 U.S.C. 8909a, which was established in the Postal Accountability and Enhancement Act of 2006 (Pub. L. 109-435), and required the Postal Service to pre-fund health benefits costs for its retirees. Section 102 of the PSRA repeals the requirement to pay actuarially determined normal cost and amortization payments into the Postal Service Retiree Health Benefits Fund (PSRHBF) established at 5 U.S.C. 8909a, and cancels any unpaid amounts previously required to be paid under section 8909a. 2 Section 102(b) requires OPM to calculate an amount that the Postal Service will pay annually into the PSRHBF using a formula set forth at 8909a(d)(1). This amount will be calculated by June 30 of each year beginning in 2026.

Section 101 of Title I of the PSRA directs OPM to “establish the Postal Service Health Benefits Program within the Federal Employees Health Benefits Program” under 5 U.S.C. chapter 89. The PSRA specifies that “[e]xcept as otherwise provided . . . any [PSHB] contract . . . shall be consistent with the requirements of this chapter for contracts under section 8902 with carriers to offer health benefits plans.” Therefore, generally, the requirements of the FEHB Program will apply to the PSHB Program, unless otherwise set forth in the PSRA or in 5 CFR part 890.

The PSHB Program is required by statute to begin in January 2025 and will be the health benefits program available to Postal Service employees, Postal Service annuitants, and their eligible family members. Further, Medicare-eligible Postal Service annuitants and their Medicare-eligible family members will be required to enroll in Medicare Part B as a condition of enrollment in PSHB. There are several statutory exceptions to the Medicare Part B enrollment requirement, including current Postal Service annuitants and their family members who are not enrolled in Part B, Postal Service employees who have reached the age of 64 and their family members, Postal Service annuitants and their family members residing abroad, and Postal Service annuitants and their family members eligible for VA health care or Indian Health Service services.

The PSRA requires OPM to direct PSHB Carriers to coordinate PSHB coverage with Medicare for enrollees and their family members covered by Medicare. This coordination must include Part D prescription drug coverage for Medicare Part D-eligible individuals. In the initial contract year, the PSRA requires OPM to contract with health insurance carriers to provide coverage with benefits and cost-sharing equivalent to FEHB plans offered by the same carrier, except to the extent needed to integrate Medicare Part D prescription drug benefits.

The PSRA requires OPM to share information with other agencies to implement the statutory requirements, including the Medicare Part B enrollment requirement and the Medicare Part B special enrollment period administered by the Social Security Administration (SSA).

The PSRA establishes the PSHB Program within the FEHB Program. The FEHB Program was established in 1960 and provides a choice of health plans, including fee-for-service plans and health maintenance organizations, to approximately 8.2 million covered individuals including employees of the Federal Government, Federal retirees (referred to as annuitants due to their eligibility for an annuity), members of their families, former spouses, and other groups statutorily eligible as enumerated in 5 U.S.C. 8901 or set forth in other authorizing legislation. Currently, Postal Service employees, Postal Service annuitants, and their family members are also eligible for FEHB pursuant to 39 U.S.C. 1005.

Health benefits plans offered under the FEHB Program cover a wide range of health services including routine physical exams, primary and specialist provider visits, inpatient hospital care, outpatient care, surgery, laboratory and diagnostic tests, prescription drugs, and mental health services. Required benefits are listed in broad categories at 5 U.S.C. 8904 and include “hospital benefits”, “surgical benefits”, “medical care and treatment”, and “obstetrical benefits”, among others. Eligible individuals, including Postal Service employees, Postal Service annuitants, and their eligible family members, can have additional dental and vision coverage through the Federal Employees Dental and Vision Insurance Program.

OPM negotiates the benefits, coverage, and premium details of each plan in the FEHB Program with health benefits carriers each year. Each year, OPM issues guidance for health benefits carriers preparing health benefits plan proposals. The guidance for the 2025 plan year is available here: https://www.opm.gov/healthcare-insurance/carriers/fehb/2024/2024-04.pdf. This guidance references OPM's commitment to ensuring that the Federal Government offers competitive, comprehensive health insurance benefits and includes OPM's policy goals and initiatives for the year. The guidance outlines technical requirements for each proposal, including benefit package details such as actuarial value, benefit changes from the previous year, and the drug formulary.

Carriers offering PSHB plans, as part of the FEHB Program, will be subject to the same or similar guidance as is issued to FEHB plans. The PSRA requires that carriers offering PSHB plans will, to the greatest extent practicable, offer benefits and cost-sharing ( e.g., deductibles, copayments, and coinsurance) equivalent to the benefits and cost-sharing for FEHB plans for that carrier in the initial contract year.

Generally, an enrollment in a health benefits plan under the FEHB Program may be continued into retirement if the enrollee has been enrolled in a health benefits plan under the FEHB Program for five years before retiring or, if less than five years, for all periods in which they were eligible to enroll. Enrollees in an FEHB plan can also enroll in Medicare when they become eligible for Medicare regardless of whether they are retired or still actively employed. Medicare is the primary payer for annuitants who are enrolled in an FEHB plan and covered by Medicare. The rules for continuing a PSHB enrollment into retirement parallel those applicable for FEHB but the Medicare enrollment requirements differ for PSHB as discussed in the next section.

Under the PSRA, Postal Service employees whose Government contribution under chapter 89 is paid by the Postal Service, Postal Service annuitants whose Government contribution under chapter 89 is required to be paid under 5 U.S.C. 8906(g)(2), and family members of those Postal Service employees and Postal Service annuitants are eligible for coverage under the PSHB Program. Starting January 2025, these Postal Service employees and Postal Service annuitants may not enroll in an FEHB plan. The major difference in eligibility between PSHB plans and FEHB plans is that, generally, as a condition of eligibility in the PSHB Program, the PSRA requires that Postal Service annuitants and their eligible family members who are entitled to Medicare Part A (also referred to as “covered Medicare individuals”), must enroll in Medicare Part B, unless an exception applies. Those exceptions are described in the Executive Summary and at § 890.1604 and are discussed more fully in the section “Regulatory Changes in This Final Rule.”

A “covered Medicare individual” under section 8903c(a)(1) means an individual who is entitled to Medicare Part A, excluding an individual who is eligible to enroll under section 1818 or 1818A of the Social Security Act (42 U.S.C. 1395i-2, 1395i-2a). Individuals entitled to Medicare Part A under 1818 are individuals age 65 or older who are not otherwise entitled to premium-free Medicare Part A, typically due to not having the required work history for premium-free Part A. Individuals entitled to enroll under 1818A are disabled individuals who lose Medicare coverage solely because they have exceeded the amounts allowed for substantial gainful work. 3 These individuals are exempt from the Medicare Part B enrollment requirement that applies to most other Postal Service annuitants and their family members.

For purposes of the FEHB Program, 5 U.S.C. 8901(5) defines a “member of family” of employees and annuitants to include spouses and children under 22 years of age, subject to exception, including natural children, adopted children, stepchildren, and foster children. The enactment of the Affordable Care Act in 2010 required health insurers to cover dependents until age 26. At that time, OPM issued updates to its regulations codified at 5 CFR 890.302(b) and (c) to reflect that change, which defines FEHB covered family members to include such children until they reach the age of 26, subject to exception. The PSHB Program will align with 5 CFR part 890 regarding the definition of family members for all purposes, including the Medicare SEP opportunity.

The PSRA adds new definitions to chapter 89. Section 8903c(a)(9) defines a Postal Service employee as “an employee of the Postal Service enrolled in a health benefits plan under this chapter whose Government contribution is paid by the Postal Service.” Under section 8903c(a)(8), a Postal Service annuitant “means an annuitant enrolled in a health benefits plan under this chapter whose Government contribution is required to be paid under section 8906(g)(2).” Therefore, individuals not meeting the statutory definition of a Postal Service annuitant or Postal Service employee are not eligible to enroll in a PSHB plan. If such individuals are eligible for enrollment in an FEHB plan, they may enroll or continue enrollment in such plan.

The PSRA does not establish a distinct category for Postal Service compensationers, those employees who sustain workplace-related illness or injury, receive workers' compensation payments through the Department of Labor's Office of Workers' Compensation Programs (OWCP) because of that illness or injury, and who are determined by the Secretary of Labor to be unable to return to duty. Section 8901 of title 5, U.S.C. includes “an employee who receives monthly compensation under subchapter I of chapter 81 of this title and who is determined by the Secretary of Labor to be unable to return to duty” in the definition of annuitant. 4 However, the PSRA definition of Postal Service annuitant is limited to those who are enrolled in a health benefits plan under 5 U.S.C. chapter 89, whose Government contribution is required to be paid under section 8906(g)(2).

Section 8906(g)(2) authorizes Government contributions for health benefits for individuals who become Postal Service annuitants “by reason of retirement” and their survivors. These contributions are paid first by the Postal Service Retiree Health Benefits Fund with any remaining amount paid by the Postal Service. The description in 8906(g)(2) does not include Postal Service compensationers, as they have not become annuitants by reason of retirement. Postal Service compensationers are more closely aligned with the 8903c(a) definition of Postal Service employee, whose Government contribution is paid by the Postal Service.

The definition of Postal Service employee, rather than Postal Service annuitant, will include Postal Service compensationers. Postal Service compensationers will not be subject to the Medicare Part B enrollment requirement, regardless of Medicare Part A entitlement.

The FEHB Program's enrollment functions are decentralized processes that utilize independent systems at different Federal agencies. For purposes of the PSHB Program, OPM will shift certain responsibilities from the employing office to a centralized enrollment system which will be administered by OPM. The centralized enrollment system will be an electronic enrollment solution for all PSHB stakeholder groups including enrollees, the Postal Service and other employing offices, and PSHB Carriers. The centralized enrollment system will include an online portal to enter and process enrollment transactions ( e.g., uploading verification of eligibility), robust decision support tools, and a customer support center to assist enrollees via phone, email, or online chat. Persons who are unable to access the online portal will be able to enroll through other means such as phone, fax, or mail. The interim final rule included regulatory provisions in §§ 890.1605, 890.1606, 890.1608, and 890.1614 specifying that OPM will assume responsibility for the following health benefits actions for the PSHB Program: enrollment, changes of enrollment, correction of errors, election not to enroll, and disenrollment of enrollees and removal of family members.

OPM received a total of 71 comments on the interim final rule. Most of these were from individual Postal Service employees, Postal Service annuitants, and their family members. There were also several detailed comment letters from stakeholders including health insurers and employee organizations. In addition to comments supporting the policies in the interim final rule, OPM received comments raising questions or expressing concerns with aspects of the interim final rule, mostly from individual Postal Service employees, Postal Service annuitants, and their family members.

Many public comments expressed support for the alignment between the FEHB and PSHB Programs. Commenters expressed support for issues in the rule including the January 1—December 31 plan year for PSHB plans, OPM's approach to automatic enrollment of Postal Service employees and Postal Service annuitants who do not elect a PSHB plan during the transitional Open Season, OPM's integration of Medicare Part D prescription drug benefits for Medicare enrollees, OPM's member-centric approach allowing for an additional enrollment opportunity for Postal Service annuitants or family members who are inadvertently not enrolled in Medicare Part B, despite the requirement as a condition to maintain PSHB enrollment, and OPM's establishment of centralized enrollment through a new electronic enrollment system for PSHB.

In reviewing comments received in response to the interim final rule and feedback received, OPM determined a need to provide additional specification on several topics that were beyond the scope of the interim final rule. Accordingly, OPM will soon issue a proposed rule that further explains and expands on the implementation of the PSHB Program to provide clarity for PSHB Carriers, other agencies, and Postal Service employees, annuitants, and their family members before the Program begins enrollment for 2025. Topics OPM plans to address in more detail in the proposed rule include: reconsideration of initial decisions concerning PSHB eligibility; application of the Medicare Part B requirement and associated exceptions in specific scenarios; allocation of Reserves credits; calendar year alignment of government contribution requirements; financial reporting and actuarial calculations; premium payment prioritization from the Postal Service Retiree Health Benefits Fund; and Medicare Part D integration. A summary of the comments received during the 60-day comment period and OPM's responses follows; however, OPM notes that additional details on the topics listed above will be provided through the new rulemaking.

The interim final rule detailed the process by which Postal Service employees, Postal Service annuitants, and their family members will transition from FEHB plan coverage to PSHB plan coverage for plan year 2025. Medicare covered Postal Service annuitants who retire after January 1, 2025, and the Medicare covered members of family are required to enroll in Medicare Part B to remain enrolled in a PSHB plan, with limited exceptions.

Comments: OPM received several comments with concerns about the effect of the new program on Postal Service annuitants and their family members. Specifically, the commenters are concerned about two new requirements: the requirement to transition from an FEHB plan to a PSHB plan and the requirement for most Postal Service annuitants and their Medicare-covered family members to enroll in Medicare Part B to maintain enrollment in the PSHB Program. A theme of the concerns is that many Postal annuitants plan their retirement based on the benefits packages available at the time of their employment and the PSHB Program changes those plans involuntarily.

Response: Pursuant to 5 U.S.C. chapter 89, the PSHB Program must include Postal Service employees, Postal Service annuitants, and their eligible family members. The law also requires that Medicare covered Postal Service annuitants, with limited exceptions as described in the Executive Summary, enroll in Medicare Part B to maintain enrollment in the PSHB. OPM is required to implement these statutory provisions and is not able to modify these mandates by regulation. As such, OPM will not make a regulatory change in response to these comments.

Comment: A commenter asked that OPM consider creating a hardship exception allowing individuals to continue in their chosen FEHB plan after the PSHB Program begins, should that plan not be offered in PSHB. The commenter stated that some small regional plans may not be available, creating a potential loss of access to coverage under those plans due to the creation of PSHB.

Response: OPM does not have the statutory authority to allow a hardship exception as requested by the commenter. Where a small regional plan is no longer available in the PSHB Program, coverage will nonetheless always be available under one of the nationwide PSHB plans.

Comments: Several commenters requested that Postal annuitants who retired under the Civil Service Retirement System, rather than the Federal Employees Retirement System, be allowed to maintain coverage under an FEHB plan.

Response: OPM does not have the statutory authority to allow an exception based on a Postal Service annuitant's retirement system.

Comments: Several commenters asked why employees of the United States Postal Inspection Service would be required to transition to PSHB.

Response: The United States Postal Inspection Service is part of the United States Postal Service as defined by statute. While certain individuals may receive other Federal benefits, those benefits are not relevant to the definition of Postal Service employee under 5 U.S.C. 8903c(a)(9).

Comments: Several commenters asked if PSHB Program enrollment will count towards the five-year FEHB Program enrollment requirement to retire with FEHB coverage from another agency.

Response: Yes, the five-year requirement under the FEHB Program will continue to be in effect for the PSHB Program. An individual is eligible to continue enrollment in a PSHB plan into retirement if they meet the five-year requirement and were enrolled in a PSHB plan immediately before retirement. The five-year requirement does not change and is not changed by the Medicare Part B enrollment requirement for certain Postal Service annuitants enrolled in PSHB.

A Postal Service annuitant, whose Government contribution is required to be paid under 5 U.S.C. 8906(g)(2), is not eligible to continue enrollment in an FEHB plan. See section 8903c(d). As stated in the preamble of the interim final rule, in order to continue coverage into retirement, enrollees in the PSHB Program will be subject to the FEHB Program requirement of being covered by a plan for the 5 years of service immediately before retirement, or if less than 5 years, for all service since their first opportunity to enroll. See § 890.306.

A Postal Service annuitant who (at the time the individual becomes an annuitant) was enrolled in a health benefits plan under chapter 89, including under section 8903c, can meet that 5-year requirement if they were so enrolled as a Postal Service employee, as an employee defined at 5 U.S.C. 8901(1), or a mix of both in order to maintain health benefits after retirement. Similarly, an annuitant who is not a Postal Service annuitant, whose Government contribution is not required to be paid under 8906(g)(2), may meet the 5-year requirements for continuing FEHB coverage into retirement, if they were enrolled in a plan under chapter 89 as both an employee defined at 5 U.S.C. 8901(1) and as a Postal Service employee.

Comment: One commenter asked if a Postal Service annuitant is eligible to enroll under their spouse's FEHB eligibility rather than moving to the PSHB.

Response: Yes, the PSHB Program does not affect the eligibility of any Postal Service employee or Postal Service annuitant to be covered as a family member under an FEHB plan. In this circumstance, the spouse of the Postal Service annuitant would need to cover the Postal Service annuitant under their FEHB plan during Open Season 2024. The Postal Service annuitant would also need to elect not to enroll in a PSHB plan during the transitional Open Season to avoid automatic enrollment in a PSHB plan.

Many commenters asked about the details of the Medicare Part B enrollment requirement for Postal Service annuitants enrolled in a PSHB plan. OPM is taking the opportunity to clarify in this preamble and regulatory text some details about how the Medicare Part B requirement will be enforced after the launch of the PSHB Program.

The PSRA authorized a Medicare Part B Special Enrollment Period (SEP) for certain Postal Service annuitants and their family members. Codified at section 1837(o) of the Social Security Act (42 U.S.C. 1395p), the six-month special enrollment period will run from April 1 through September 30, 2024. Postal Service annuitants and their family members who are entitled to Medicare Part A but not enrolled in Medicare Part B as of January 1, 2024 are eligible to enroll in Medicare Part B during the SEP. The PSRA allows the Postal Service to pay any applicable Medicare Part B late enrollment penalties for individuals who enroll during this SEP.

As explained below in the section of the preamble discussing the changes included in this final rule, OPM is amending § 890.1604 to clarify the timing aspects of several exceptions that are statutorily required to apply “as of January 1, 2025”.

Comment: A commenter said that many Postal Service annuitants may be unaware of the requirement to enroll in Medicare Part B to maintain PSHB coverage. The commenter requested that such annuitants be automatically enrolled in Medicare Part B.

Response: OPM and the Postal Service are working together on educational materials to explain the transition to PSHB and the Medicare Part B enrollment requirements. They include plain language written materials such as fact sheets and tri-fold mailers, multi-media activities such as a five-part video series available at https://www.keepingposted.org/postal-service-health-benefits.htm, and regular “lunch and learn” virtual seminars. The Postal Service and OPM have been engaged in ongoing communication with Postal Service employees, annuitants, and their family members since late 2022 when OPM published FAQs on its website at https://www.opm.gov/healthcare-insurance/pshb/.

OPM does not have the authority to enroll Postal Service annuitants in Medicare Part B automatically and will not make a regulatory change in response to this comment. Postal Service annuitants or their family members who enroll in Medicare Part B during the Special Enrollment Period may be subject to a Medicare Part B late enrollment penalty. 5 The PSRA allows the Postal Service to pay such late enrollment penalty on behalf of the annuitant or family member.

Comment: Some commenters asked when family members of disabled Postal Service annuitants are required to enroll in Medicare Part B.

Response: A family member of a disabled Postal Service annuitant is required to enroll in Medicare Part B if the family member themselves are a Medicare covered individual. As described in the interim final rule, the Medicare Part B enrollment requirement applies regardless of how the Postal Service annuitant becomes entitled to Medicare Part A, such as age, end stage renal disease or receiving Social Security disability payments for 24 months. A family member of a PSHB enrollee who is a disabled Postal Service annuitant is required to enroll in Medicare Part B if both the Postal Service annuitants and the family member are Medicare covered individuals (meaning that both are entitled to Medicare Part A), unless the family member qualifies for an individual exception as listed in the Executive Summary and at § 890.1604 and discussed more fully in the section “Regulatory Changes in This Final Rule.”

Comment: A commenter asked whether a family member must maintain Part B coverage if the family member is enrolled in Medicare Part B prior to January 1, 2025, but the Postal Service annuitant, under whose PSHB enrollment the family member is covered, is not required to enroll in Part B.

Response: No, a Medicare covered family member is required to be enrolled in Medicare Part B only if the Postal Service annuitant under whose PSHB enrollment the family member is covered, is required to be enrolled in Medicare Part B. OPM is amending § 890.1604 to clarify the requirements and exceptions for enrolling in Medicare Part B, as described in the Executive Summary and in the section “Regulatory Changes in this Final Rule.”

OPM received several comments regarding the details of the requirement for Postal Service annuitants to enroll in Medicare Part B. The interim final rule addressed the requirement in § 890.1604, including several statutory exceptions to that requirement described in the Executive Summary and in the section “Regulatory Changes in This Final Rule.”

Comment: A commenter expressed support for OPM's rule to allow self-attestations as proof of eligibility for health services from the Indian Health Service (IHS). The same commenter asked OPM to confirm that PSHB Carriers will not be responsible for determining whether PSHB enrollees qualify for the exception based on eligibility for IHS health services.

Response: OPM is not authorizing PSHB Carriers to determine whether an individual is excepted from the Medicare Part B enrollment requirement under the IHS exception or any other exceptions under § 890.1604. Under part 890, a carrier may only verify an individual's relationship to the enrollee to confirm whether they are an eligible family member.

Comment: Several commenters requested clarification regarding how the PSHB Program will affect enrollees residing outside the United States especially as it relates to Medicare coverage.

Response: The interim final rule included a list of exceptions to the Medicare Part B enrollment requirement at 5 CFR 890.1604(c). These exceptions included an exception for Medicare covered Postal Service annuitants and Medicare covered members of family residing outside the United States. The PSRA and this final rule requires that individuals residing outside the United States will demonstrate such residency. OPM and the Postal Service are working together to operationalize the details of how individuals will demonstrate residency outside the United States. OPM is amending § 890.1604 to clarify the requirements and exceptions for enrolling in Medicare Part B.

Comment: OPM received several comments from Postal Service employees and Postal Service annuitants currently enrolled in FEHB plans seeking more information about anticipated changes to their medical, physician, and pharmaceutical coverage and health insurance premiums when they are required to enroll in Medicare Part B to maintain coverage under the PSHB Program.

Response: OPM negotiates health benefits and premiums each year with carriers. As delineated in the interim final rule, a carrier's PSHB plan must provide equivalent benefits and cost-sharing to the carrier's FEHB plan in the 2025 contract year. Approved PSHB Carriers will submit benefit and rate proposals for PSHB plans by the end of May 2024. OPM expects that full benefits and premium information for 2025 PSHB plans will be available in September 2024.

OPM is asking carriers to focus on Medicare coordination in both FEHB plans and PSHB plans for 2025. The call letter for the 2025 FEHB and PSHB plan year  6 states “All Carriers must implement a multi-pronged educational outreach effort to eligible enrollees focused on Medicare coordination. . . . FEHB and PSHB Program members for whom Medicare is primary must receive medical and drug coverage equal to or greater than the medical and drug coverage they would have received without Medicare Advantage Prescription Drug Plan (MA-PD) EGWP or Prescription Drug Plan (PDP) EGWP.”

The call letter further ensures robust coordinated coverage by directing carriers that “The PSRA requires PSHB Carriers, in the initial contract year, to provide benefits and cost-sharing that are equivalent to the benefits and cost-sharing of that Carrier's 2025 FEHB plan option, except to the extent needed to integrate Medicare Part D prescription drug benefits. PDP EGWP formularies must, at a minimum, include the same covered drugs under the plan's formulary. Furthermore, every drug covered under a plan option's formulary must be covered at the same or lower cost-share by the plan's PDP EGWP formulary. In circumstances where equivalent drug benefits and cost-sharing (not actuarial equivalence) cannot be met due to limitations in integrating Medicare Part D prescription drug benefits, PSHB Carriers must provide justification explaining why they cannot meet this standard.”

Comment: OPM received many comments regarding changes in premium costs and benefits between FEHB plans and PSHB plans. There were questions about specific covered services and requesting information about whether such services will be covered in a similar way after the launch of the PSHB Program. Several commenters raised concerns about possible cost increases after the launch of the new program.

Response: The PSRA requires that, in the initial contract year, a carrier offering PSHB plans must offer coverage with equivalent benefits and cost-sharing to FEHB plans offered by that carrier, except to the extent needed to integrate Medicare Part D prescription drug benefits. This requirement was codified in the interim final rule at § 890.1610 “Minimum standards for PSHB Program plans and Carriers.”

OPM is approving carriers for participation in the PSHB Program. Approved carriers will submit plan benefit and rate proposals by the end of May 2024, the plan premiums will be made public in September 2024, and more detailed plan brochures will be available prior to Open Season 2024 at https://www.opm.gov/healthcare-insurance/open-season.

In order to ensure that the drug coverage under a PSHB plan's Medicare Part D EGWP is equal to the drug coverage under the PSHB plan, OPM has required that PSHB plans' “PDP EGWP formularies must, at a minimum, include the same covered drugs under the plan's formulary. Furthermore, every drug covered under a plan option's formulary must be covered at the same or lower cost-share by the plan's PDP EGWP formulary.” See supra note 6.

The interim final rule outlined a process for agencies to share relevant information for OPM's administration of the PSHB Program. This included implementing a statutory requirement for OPM and the SSA to share information necessary to identify individuals who may be eligible to enroll in Medicare Part B during the 6-month Medicare special enrollment period (SEP) from April 1, 2024, to September 30, 2024.

Comment: A commenter suggested that coordination of benefits with Medicare at 5 U.S.C. 8910(d) requires OPM to expand PSHB information sharing regulations at 5 CFR 890.1612 to the entire FEHB Program and allow carriers to access that information for coordination and reporting purposes.

Response: OPM agrees that information sharing between agencies is critical to administer the PSHB Program effectively. OPM is not expanding our information sharing effort to the entire FEHB Program since the PSRA's information sharing provisions are intended to implement the PSHB Program and its Medicare enrollment requirement for certain Postal Service annuitants and their family members. Similarly, OPM does not intend to provide the information that is the subject of interagency information sharing agreements to carriers, except in limited circumstances required to operate the PSHB Program as permitted under the Privacy Act.

The interim final rule explained that OPM will develop and implement a centralized enrollment system for the PSHB Program. The centralized enrollment system will be an electronic enrollment solution for PSHB enrollees, the Postal Service and other employing offices (including OPM's Retirement Services office for Postal Service annuitants), and PSHB Carriers. The centralized enrollment system will include an online portal to be used to process enrollment transactions and will include decision support tools and customer support to assist enrollees and their family members.

Comment: Several commenters made specific recommendations about the mechanics and operations of OPM's PSHB central enrollment system. Commenters requested elements such as specific data fields, a total cost calculator, and filtering capabilities.

Response: OPM appreciates the comments and will consider the recommendations in the system design. In July 2023, OPM awarded a contract for the development of the PSHB System. The scope of the project includes enrollment functions and a customer support center that will service PSHB employees, annuitants, and family members. The center will provide services such as eligibility determinations, enrollment support, and enrollment and premium reconciliation and a decision support tool.

That request for proposal (RFP) is available at https://sam.gov/opp/94b39c9c3e504c02ae593ab3fab7a342/view.

The RFP includes nearly 300 distinct requirements, including determining eligibility based on listing all necessary data fields to manage eligibility and enrollment, the ability for users to calculate total costs, and sort and filter plan information. OPM is on track with development of the system and is determining how and when these functionalities will be rolled out. 7

Comment: One commenter requested that OPM continue to provide periodic updates to carriers as the centralized enrollment system is developed, so that carriers can make appropriate adjustments to their systems and processes.

Response: OPM intends to continue regular communications with carriers as OPM's plans for the central enrollment system development. Carriers may contact their OPM contract representatives with specific questions.

The interim final rule included several provisions related to contracting, including requirements for PSHB Carriers and PSHB plans.

Comment: Several commenters had specific recommendations about contracts, including details about the contract effective date and several comments related to accounting principles.

Response: OPM appreciates the comments and notes that PSHB contracting details are outside the scope of the regulation.

The interim final rule implemented the requirement that Postal Service employees and Postal Service annuitants who do not make an PSHB plan election during the transitional Open Season in 2024 will be automatically enrolled in a PSHB plan with coverage effective January 1, 2025.

Comment: A commenter requested clarification on 5 CFR 890.1605(c), regarding how automatic enrollment will work for a carrier that has three FEHB plan options but intends to offer only two PSHB plan options.

Response: In the interim final rule at § 890.1605(c)(2), when a carrier offers more than one PSHB plan or option in 2025, the individual will be automatically enrolled in the PSHB plan and option offered by the carrier that provides equivalent benefits and cost sharing to the individual's 2024 FEHB plan and option, as determined by OPM. In a case where the carrier is not offering a PSHB plan, the individuals enrolled in the carrier's FEHB plan in 2024 will be automatically enrolled in the lowest-cost nationwide PSHB plan option that is not a high deductible health plan and does not charge an association or membership fee. See § 890.1605(c)(3). OPM will apply the FEHB regulation at 5 CFR 890.301(n) to determine the lowest-cost nationwide plan. Per that regulation, OPM can designate an alternate plan for automatic enrollments if circumstances dictate this. All automatic enrollments will be into a PSHB plan of the same enrollment type (self only, self and family, or self plus one) as the 2024 FEHB plan. OPM plans to provide additional details regarding specific automatic enrollment circumstances in future rulemaking.

Comment: One commenter asked for clarity regarding the definition of a carrier for purposes of automatic enrollment and recommended that OPM allow automatic enrollment into the same carrier as under FEHB, regardless of whether the plans available in the PSHB Program are offered under a different contract than the enrollee's current FEHB plan.

Response: In the interim final rule, OPM defined “PSHB Carrier” at 48 CFR 1602.170-20, as follows: “PSHB Carrier means a carrier that enters into a contract with OPM under 5 U.S.C. 8902 to offer a health benefits plan in the PSHB Program.” The interim final rule provided that the enrollee is automatically enrolled into a PSHB plan offered by the same carrier. This is true even though the PSHB plan is under a different contract with OPM than the enrollee's 2024 FEHB plan. OPM will automatically enroll the enrollee into a PSHB plan offered by a different carrier (the lowest-cost nationwide PSHB plan option that is not a high deductible health plan and does not charge an association or membership fee) if the carrier of the enrollee's 2024 FEHB plan does not offer a PSHB plan in 2025.

Comment: One commenter requested that OPM provide outreach and education to Postal Service annuitants and their families regarding the changes to their coverage options under the PSHB Program.

Response: The Postal Service is coordinating with OPM and other agency partners to inform Postal Service employees, Postal Service annuitants, and their family members about the transition to the PSHB Program and their coverage options. This education has been ongoing since late 2022 when OPM published FAQs on its website at https://www.opm.gov/healthcare-insurance/pshb/. Under 5 U.S.C. 8903c(l), the Postal Service is responsible for establishing a Health Benefits Education Program. The Postal Service's Health Benefits Education Program notifies eligible individuals about the PSHB Program, coverage options, and the Medicare Part B enrollment requirement.

In October 2023, USPS published a bulletin announcing an update to its Employee and Labor Relations Manual (ELM) to incorporate the Health Benefits Education Program at https://about.usps.com/postal-bulletin/2023/pb22634/html/welcome.htm. This Program included notifications of PSHB options, Medicare enrollment requirements, links to submit inquiries from employees and annuitants, and navigator activities for program education. The updates included in the October 2023 Postal Bulletin were effective immediately and were incorporated in the ELM as of March 31, 2024.

OPM and the Postal Service have been collaborating on education materials since 2022. Those informational materials include plain language written materials such as fact sheets and tri-fold mailers. There are also multi-media activities such as a five-part video series available at https://www.keepingposted.org/postal-service-health-benefits.htm and regular “lunch and learn” virtual seminars.

The Postal Service's Health Benefits Education Program notifies eligible individuals about the PSHB Program and provides information about coverage options, and the Medicare Part B enrollment requirement.

Additionally, PSHB plan premiums will be made public in September 2024, and more detailed plan brochures will be available prior to Open Season 2024 at https://www.opm.gov/healthcare-insurance/open-season.

As noted in the preamble to the interim final rule, PSHB plans must provide prescription drug benefits through Medicare Part D to Part D-eligible Postal Service annuitants and their Part D-eligible family members. Under 5 U.S.C. 8903c(h), PSHB plans are required to provide prescription drug benefits to these individuals through “employment-based retiree health coverage” either through a “prescription drug plan (PDP)” or a contract with a “PDP sponsor” of a prescription drug plan, as these terms are defined in sections 1860D-22(c)(1), 1860D-41(a)(14), and 1860D-41(a)(13) of the Social Security Act, respectively. A carrier providing prescription drug benefits may, subject to OPM's approval, provide a Medicare Advantage plan with prescription drug benefits (MA-PD) so long as the carrier also provides a PDP.

Comment: Several commenters asked about how the timing of Medicare Part D coverage will align with the January 1-December 31 plan year of the PSHB Program. One commenter requested that OPM review the Centers for Medicare & Medicaid Services (CMS) rules to determine if Medicare Part D coverage needs to begin on the first day of the following month in a PSHB retroactive enrollment to avoid violation of CMS requirements.

Response: OPM appreciates the comment and is actively engaged with key stakeholders to ensure that enrollees and covered family members experience a seamless enrollment process. OPM notes that the proposed rule will provide more information regarding PSHB Program implementation of Medicare Part D coverage.

Comment: One commenter requested that OPM address perceived conflicts between the Internal Revenue Service (IRS) requirements for high deductible health plans with health savings accounts and CMS guidance around Part D prescription drug plans.

Response: OPM, through its guidance, rate and benefits negotiations, contract administration and negotiations process, will ensure that carriers' plan proposals are in compliance with all applicable requirements.

Comment: One commenter raised a concern about OPM's method for automatically enrolling members who do not choose a PSHB plan during the transitional Open Season in 2024. This commenter was concerned about whether members may be automatically enrolled into a plan with a standalone PDP, and whether an MA-PD plan may be more advantageous for such members.

Response: As directed by the PSRA, PSHB Carriers must integrate Medicare Part D into their PSHB plan design through a PDP or a contract with a PDP sponsor. OPM will also consider approving a carrier's MA-PD plan so long as the carrier provides a PDP. Whether a carrier provides Medicare Part D through a PDP or through a PDP and MA-PD does not affect automatic enrollment into a PSHB plan during the transitional Open Season. If an individual wants to be covered by a PDP or MA-PD, if available, under a PSHB plan enrollment then the enrollee may choose a PSHB plan with the desired prescription drug benefits during the transitional Open Season. OPM notes that the proposed rule will provide more information regarding program implementation, including group enrollment and Medicare Part D plans including MA-PD plans.

Comment: One commenter asked that OPM encourage or require PSHB plans to offer health reimbursement arrangements (HRAs) with sufficient funds to offset the cost of any Medicare Part D income-related monthly adjusted amount (IRMAA), or alternatively, to reduce the costs of Part B premiums or other out-of-pocket expenses if not subject to IRMAA.

Response: PSHB Carriers may propose to offer HDHPs with an HRA, and individuals may enroll in such a plan and use the HRA to help pay for qualified medical expenses, Medicare premiums including any applicable IRMAA, and other qualified medical expenses. As demonstrated in the Federal Employees Health Benefits and Postal Service Health Benefits Programs Call Letter for 2025, OPM is working with carriers to inform enrollees about the possible impact of the IRMAA.

The PSRA authorized a 6-month Medicare Part B SEP that will run from April 1 through September 30, 2024. This SEP is codified in the Social Security Act and will allow enrollment in Medicare Part B for Postal Service annuitants who are entitled to Medicare Part A and their family members who are entitled to Medicare Part A and not already enrolled in Medicare Part B. In the interim final rule, OPM included a process to share information with SSA to identify individuals who may be eligible to enroll in Medicare Part B during the SEP.

Medicare-eligible individuals may have several opportunities to sign up for Medicare. More information is available at the CMS website here: https://www.medicare.gov/basics/get-started-with-medicare/sign-up/when-can-i-sign-up-for-medicare. If an individual does not enroll in Medicare Part B at their earliest opportunity, they may be subject to a permanent Medicare Part B late enrollment penalty. 8 The PSRA allows the Postal Service to pay any applicable Medicare Part B late enrollment penalty on behalf of individuals who enroll during the SEP in 2024. If a Medicare-eligible Postal Service annuitant or covered family member not enrolled in Medicare Part B declines to enroll during the PSRA-authorized SEP in 2024, they may be subject to the Medicare late enrollment penalty if they choose to enroll in Medicare Part B at a later date. Such individual may also be eligible other SEPs due to extenuating circumstances. For example, Medicare Part B has an SEP for individuals impacted by an emergency or natural disaster. 9

Comment: A commenter asked if OPM and SSA will include any additional criteria to determine who is eligible for the SEP.

Response: OPM does not have the authority to establish eligibility criteria for the Medicare Part B SEP. Under the PSRA, the SEP is available to a Postal Service annuitant who is entitled to Medicare Part A and who is an annuitant as of January 1, 2024 and their family members who are entitled to Medicare Part A, excluding those eligible to enroll in Medicare under section 1818 or 1818A of the Social Security Act.

Comment: A commenter requested further clarification regarding the SEP for PSHB, asking specifically if OPM intends to create an appeals process for those who believe that they are eligible for SEP but were misinformed or were never informed.

Response: OPM is coordinating with SSA and the Postal Service to prepare for the 6-month Medicare Part B SEP. The PSRA requires that OPM establish a process to provide information to SSA about Postal Service annuitants and covered family members who may be eligible for Medicare Part B during the PSRA SEP. Any appeals related to an individual's eligibility to enroll in Medicare Part B would be handled by SSA according to that agency's procedures. OPM does not have the authority to enroll individuals in Medicare Part B or to handle appeals of SSA's enrollment decisions.

Comment: A commenter requested clarification as to whether any PSHB plan information will be available at the beginning or during the SEP to allow individuals eligible to enroll in Medicare Part B during the SEP to consider the PSHB plans in deciding whether to enroll in Part B.

Response: The PSRA authorized a 6-month Medicare Part B SEP that will run from April 1 through September 30, 2024. OPM expects to make PSHB premium rate information available in September 2024. PSHB plan benefit information, including detailed plan brochures, will be ready according to OPM's standard schedule for releasing such information before Open Season begins. Due to the plan application and contract negotiation schedule, there is no opportunity to make this information available sooner.

Comment: A commenter asked if OPM would consider extending the SEP to ensure Medicare Part B decisions and PSHB decisions can be made at the same time.

Response: The Medicare Part B SEP is established by statute under the PSRA and is administered by SSA. The authorizing language for the SEP, codified in the Social Security Act at section 1837(o)(1)(B) (42 U.S.C 1395p(o)(1)(B)) states that eligible individuals “may elect to be enrolled under this part during a special enrollment period during the 6-month period beginning on April 1, 2024.” OPM does not have the legal authority to extend the Medicare Part B SEP.

Comment: A commenter asked when individuals would be notified about SEP eligibility.

Response: OPM is coordinating with SSA and the Postal Service to identify individuals who may be eligible to enroll in Medicare Part B during the 2024 SEP. In January 2024, the Postal Service mailed informational postcards that included information about the PSRA Medicare Part B SEP to Postal Service annuitants and family members who were not enrolled in Medicare Part B. The Postal Service mailed notifications to eligible individuals in March 2024.

Comment: A commenter made a recommendation about the timing of the maximum Government contribution calculation and recommends that OPM release the maximum Government contribution earlier to create fair competition between all carriers.

Response: In the interim final rule, OPM addressed the Postal Service contribution at § 890.1613(b). OPM must determine the Government contribution consistent with the timing requirements at 5 U.S.C. 8906 and 5 CFR 890.501. OPM will endeavor to release PSHB and FEHB rates as soon as possible, no later than September 2024, and in a manner that does not impede fair competition.

Comment: One commenter recommended that OPM promote fair allocation of carrier reserves.

Response: OPM issued Carrier Letter 2023-13 (CL 2023-13) in July 2023 available at https://www.opm.gov/healthcare-insurance/carriers/fehb/2024/2024-04.pdf outlining a methodology to allocate FEHB plan reserves from FEHB plans to PSHB plans. In short, reserves will be allocated based on 2024 premium income attributable to the Postal Service and non-Postal Service populations for each plan option. OPM considered incorporating a risk component in the allocation of reserves; however, OPM determined the method outlined in CL 2023-13 is most consistent with current FEHB practice. As explained in CL 2023-13, OPM intends to use a similar approach for allocating medical loss ratio (MLR) credits between FEHB plans and PSHB plans offered by the same carrier.

Comment: One commenter inquired about the effect of PSHB on Postal Service annuitants who are eligible to continue their health insurance plan and pay the employee share of premium out of pocket directly to the National Finance Center and not as a deduction from their annuity.

Response: All payment options that are available for FEHB plans, including direct pay, will be available for enrollees in PSHB plans. Note that, if an annuitant pays both the employee share and the Government's share of premium, then the annuitant is not within the statutory definition of a Postal Service annuitant and is not subject to transition to a PSHB plan and will remain eligible for enrollment in an FEHB plan.

OPM is amending § 890.1604 in response to comments requesting clarification around the requirements for certain Postal Service annuitants and their family members to enroll in Medicare Part B, as discussed in the previous section. Specifically, OPM is clarifying how we are implementing the statutory language at 5 U.S.C. 8903c(e).

OPM is making this change to provide more clarity as to the applicability of exceptions to the Medicare Part B enrollment requirement under 5 CFR 890.1604. The statutory language in 5 U.S.C. 8903c(e), “as of” January 1, 2025, can be interpreted to either include or exclude events occurring on January 1, 2025. To avoid potential confusion and to ensure that Postal Service employees and annuitants can make informed decisions about their health coverage during important life events, OPM is revising the regulatory text to provide additional clarity on eligibility for the Medicare Part B exceptions.

Therefore, OPM is clarifying timing aspects of several exceptions to the requirement to enroll in Medicare Part B. Specifically, OPM is clarifying that the statutory exception at 5 U.S.C. 8903c(e)(3)(A)(i), which applies to individuals “as of” January 1, 2025, includes individuals who are annuitants “on or before” January 1, 2025, and who were not both entitled to Medicare Part A and enrolled in Medicare Part B “on” January 1, 2025. OPM is making this change to ensure that the regulations are clear and specific when the exceptions are applicable so that all individuals can make informed decisions. For example, a Postal Service employee's last day of service is December 31, 2024. Because this individual will be an annuitant on January 1, 2025, the individual is eligible for an exception to the requirement to enroll in Medicare Part B under 5 CFR 890.1604(d)(1)(i). This clarification also applies to employees age 64 on or before January 1, 2025. For example, a Postal Service employee turning age 64 on January 1, 2025, is eligible for an exception to the Medicare Part B requirement under 5 CFR 890.1604(d)(1)(ii) because they will be age 64 on January 1, 2025. This clarification is included in § 890.1604(d)(1)(i) and (ii).

OPM is revising the regulatory text of § 890.1604 related to demonstrating residency outside the United States to provide more operational flexibility to the Postal Service and OPM by removing the specific entity that will receive information about overseas residency. These changes are in § 890.1604(d)(1)(iii) for annuitants and § 890.1604(d)(2)(ii) for family members.

We are reserving § 890.1604(c) in anticipation of future rulemaking.

OPM is revising § 890.1604(e) (now codified at § 890.1604(f) due to insertion of the new, reserved paragraph (c)) to clarify that a Postal Service annuitant or their family member who is required to be enrolled in Medicare Part B must promptly notify OPM or the Postal Service, in writing, if they choose not to enroll in or to disenroll from Medicare Part B as described in § 890.1608(e). This implements the PSRA requirement codified at 5 U.S.C. 8903c(g)(3)(D) that OPM issue regulations allowing individuals to cancel coverage in writing to the Postal Service, while allowing flexibility for OPM to also take these cancellations in writing.

Under part 890, OPM has imposed similar responsibilities on individuals to inform OPM of any changes that may affect their or their family member's eligibility or coverage, for instance, if an individual is covered under another insurance plan. ( See 5 CFR 890.302(a)(2)(ii), “To ensure that no person receives benefits under more than one enrollment, each enrollee must promptly notify the insurance carrier as to which person(s) will be covered under his or her enrollment; see also 5 CFR 890.1605(d)(2) “The enrollee must affirmatively notify the PSHB Carrier, employing office, or OPM of any changes to members of family;” and § 890.808(b)(4), “The former spouse will be required to certify that he or she meets the requirements . . . and that he or she will notify the employing office within 31 days of an event that results in failure to meet one or more of the requirements.”).

OPM is correcting a typo in § 890.1606(e) by removing the word “the” before “January 1 of the next year.” This correction does not affect the PSHB Program or policy.

The changes outlined in this section do not affect OPM's estimation of the regulatory impact of the PSHB Program.

This final rule follows an interim final rule implementing sections 101 and 102 of the PSRA, which direct OPM to establish the PSHB Program for Postal Service employees, annuitants, and their eligible family members. These sections of the PSRA amend 5 U.S.C. chapter 89, which identifies: the individuals who, starting in January 2025, will be eligible to enroll in a PSHB plan and may not remain in an FEHB plan under their Postal Service employment or retirement; those who must enroll in Medicare Part B to maintain enrollment in PSHB; the health benefits plans that should be offered to the greatest extent practicable; PSHB plan requirements; the need for automatic enrollment in certain circumstances; contributions by the Postal Service; how reserves for PSHB plans are to be structured; requirements for information sharing; and other requirements necessary for PSHB Program implementation.

The PSHB Program is contained within chapter 89, which governs the FEHB Program generally. The PSRA confirms that PSHB plans are subject to the same provisions as FEHB plans unless they are inconsistent with the PSRA. OPM is given the discretion to make such determinations.

Section 101 of the PSRA, codified at 5 U.S.C. 8903c, directs OPM to issue regulations establishing the PSHB Program and gives OPM the discretion to include “any provisions necessary to implement this section.” Section 8903c(g) addresses the topics for which Congress specifically instructed OPM to promulgate rules, clarifies how existing rules for the FEHB Program will apply to the PSHB Program, and provides new requirements regarding eligibility and enrollment, information sharing with other agencies, PSHB Carrier requirements, and other rules that will govern the PSHB Program. This rule finalizes the provisions of the interim final rule and provides transparency into how OPM is implementing the PSRA, memorializes processes and procedures that will apply, and give individuals who will be impacted as much information about the PSHB Program as early as possible.

Overall, the PSRA and the PSHB Program, through this final rule, promote the financial stability and long-term viability of the Postal Service, which provides a crucial role for society with respect to communication, commerce, and political participation. The Postal Service was established as a basic and fundamental service for the public to provide prompt, reliable, and efficient nationwide postal services, including mail and package delivery. With the Postal Service's wide reach in providing essential services to nearly everyone in the U.S. in some form, its long-term stability is crucial. The PSRA helps improve the Postal Service's financial position. Ultimately, a financially sustainable Postal Service ensures that it can continue to fulfill its universal service mission and make the investments needed to support service excellence and network efficiency and to introduce enhanced products and services for its customers.

This societal benefit will result primarily from the removal of the prefunding obligation related to future retiree health benefits and the shifting of insurance coverage costs away from the Postal Service to Medicare, and ultimately to taxpayers, who together with beneficiaries, fund Medicare. The Postal Service is generally self-funded, and the Postal Service, along with its employees, pay taxes to fund Medicare each year, but many of its employees do not enroll in Medicare after they retire. Therefore, unlike other employers who offer retiree health benefits and pay Medicare taxes, the Postal Service has not been able to ensure that its retiree health care program fully utilizes Medicare. Enabling the Postal Service to generally require its annuitants who are entitled to Medicare Part A to enroll in Medicare Part B when eligible ensures that the Postal Service can utilize Medicare in a similar manner as other employers, which strengthens its financial position and therefore its ability to continue its critical public service mission.

From a societal perspective, the primary costs associated with the implementation of the PSHB Program will be administrative and operational costs necessary to initiate and maintain the program, including development of information technology (IT) systems, education and outreach, and additional administrative staffing for the design, maintenance, and oversight of the increased quantity of health plans. These costs will be largest in the initial start-up phase and will be borne by Federal agencies, as well as carriers offering both FEHB plans and PSHB plans. The PSRA appropriated $94 million in implementation funding for OPM and other Federal agencies for these administrative and operational costs. Pursuant to section 101(d)(4) of the PSRA, the Postal Service deposited the appropriated funds into the Treasury as a miscellaneous receipt from the Postal Service Fund in fiscal year 2022.

Most of the impact from the PSRA and this regulation will occur via distributional effects. The principal transfer will be the shifting of premium costs from the Postal Service and PSHB members to Medicare as a result of the Medicare Part B enrollment requirements and the integration of Medicare Part D coverage into PSHB plans. This Part D integration could also result in a portion of costs being transferred to the pharmaceutical industry via the statutory manufacturer discounts provided to Part D, in conjunction with discounts negotiated with individual FEHB plans. Further, integrating Part D coverage into PSHB plans may result in a transfer of costs to carriers, particularly those with little Medicare experience, who may need to contract with third-party vendors to assist with integration, increasing administrative costs. The segmentation of the current FEHB risk pool will result in premiums reflective of each separate risk pool's health care utilization and costs, which are estimated to be higher for Postal Service enrollees compared with non-postal. 10 This may result in a slight reduction in FEHB premiums following implementation.

Ultimately, the total costs and benefits associated with the PSRA and this final rule are highly uncertain because enrollee and carrier reactions to the effects on Medicare, the FEHB Program, and the new PSHB Program are unknown. In accordance with Office of Management and Budget (OMB) Circular A-4, the following sections outline the benefits, costs, and transfers associated with section 101 of the PSRA and this final rule in more detail. Where specific costs were quantifiable, they are included in table 1. As described below, the rule is expected to result in estimated average annualized costs of $50.6 million at a 3% discount rate and $50.2 million at a 7% discount rate over the eleven-year period of 2022-2032. In addition, the rule is expected to result in estimated average annualized net transfers from the Postal Service to Medicare of $347 million at a 3% discount rate and $343.3 million at a 7% discount rate over the eight-year period of 2025-2032.

The regulatory baseline for the final rule is the FEHB Program as it is currently administered, as the eligible population under both programs will largely remain the same. Postal Service employees, Postal Service annuitants, and their eligible family members are currently eligible for FEHB coverage. This population totals approximately 915,000 enrollees and 1.9 million total covered lives. There are nearly 700,000 Postal Service annuitants, including about 123,000 survivor annuitants. Of the Postal Service annuitants, about 500,000 are currently enrolled in the FEHB Program. A majority of these are Self-Only enrollments while 200,000 are Self Plus One or Self and Family enrollments.

Beginning in the 2025 plan year, the PSHB Program will be the only health benefits program available through the Postal Service to Postal Service employees, Postal Service annuitants, and their eligible family members. Unless they meet a specified exception, as previously outlined, Postal Service Medicare covered annuitants and their Medicare covered members of family will be required to enroll in Part B or will risk losing their eligibility to continue enrollment in the PSHB Program. Once an annuitant loses eligibility for enrollment in PSHB, it cannot be reinstated. As with the regulatory baseline, those covered by a PSHB plan will also be responsible for Medicare premiums.

Currently, Postal Service annuitants and their family members who are participating in FEHB are not required to enroll in Medicare Part B, regardless of Medicare eligibility status. Based on 2021 data, OPM estimates that 75% of Postal Service annuitants aged 65 and over have enrolled in Medicare Part B. There will be approximately 121,000 Postal Service annuitants and their eligible family members eligible to enroll in Part B during the six-month SEP beginning April 1, 2024.

Prior to the PSRA, the Postal Service paid the Government contribution for all Postal Service employees and annuitants enrolled in FEHB. The Government contribution was paid directly by the Postal Service for employees and from the PSRHBF for annuitants. In addition, the Postal Service was required under the Postal Accountability and Enhancement Act of 2006 to fully prefund retiree health benefits. Section 102 of the PSRA (“The USPS Fairness Act”) amended 5 U.S.C. 8909a to remove this prefunding requirement and replace it with a new calculation for annual payments into the PSRHBF beginning in 2026. The law maintains the requirement that the Postal Service continue to pay the Government contribution—directly for employees or through the PSRHBF for annuitants. The Postal Service is also required to pay the Medicare Part B late enrollment penalty for any Medicare covered annuitants and members of family who enroll in Part B during the 2024 SEP. As with the regulatory baseline, there is no Government contribution towards Part B premiums.

Carriers that participate in the PSHB Program will generally be subject to the same minimum requirements for plan design that exist for FEHB plans under the FEHB Program, but PSHB plans will be required to integrate Part D prescription drug benefits for Postal Service Medicare covered annuitants and Medicare covered members of family. In addition, carriers that are offering both PSHB plans and FEHB plans will need to offer equivalent benefits and cost sharing in the initial year, other than as needed to integrate Part D coverage.

The interim final rule implemented the requirements of the PSRA. That rule built on the statute by offering clarity and efficient implementation. The timely promulgation of the interim final rule allowed other Federal agencies, PSHB Carriers, and enrollees to begin necessary education and deliberation. This final rule corrects a typographic error in the interim final rule and clarifies some exceptions to the Medicare Part B enrollment requirement.

The Postal Service will benefit from fewer costs because of the removal of the past-due pre-funding payments and future pre-funding obligations related to the retiree health benefits costs and from having a retiree health benefits program in which more annuitants are enrolled in Medicare. With fewer costs for retiree health benefits, the Postal Service will be better positioned to improve its financial stability. A more financially stable Postal Service would benefit the country overall. The Postal Service plays a critical role in the nation's communications, commerce, and voting infrastructure. In rural and remote communities especially, many of which lack adequate broadband access and rely heavily on mail service, the Postal Service's universal service mandate ensures crucial access to essentials including medicine and food. 11

Within these communities, the Postal Service is often the only delivery service carrier with a door-to-door network and is heavily relied on by other delivery service carriers to provide “last mile” deliveries. According to the Postal Service Office of Inspector General, the Postal Service provided vital services during the COVID-19 pandemic, including the delivery of critical items such as medications, stimulus payments, election ballots, and record levels of home package deliveries. 12 A Government Accountability Office Report found that the Postal Service experienced a 9 percent decline in total mail volume in 2020 when compared to 2019, but package volume rose by 32 percent over the same period. 13 This underscores the importance of a stable Postal Service to the Nation.

With greater financial stability for the Postal Service, current Postal Service employees, Postal Service annuitants, and their family members will also see greater stability in their future health insurance coverage and other benefits.

Medicare covered annuitants may be eligible, depending on whether they meet statutory income and resource thresholds, for the low-income cost-sharing subsidies and premium subsidies that are part of the Medicare part D program, under section 1860D-14 of the Social Security Act.

Implementation of the PSRA and this final rule necessitates the administration and oversight of new health benefits plans, including substantial member education and outreach efforts, additional interagency coordination and the creation of new IT processes to satisfy new statutory eligibility and enrollment requirements, creating startup and ongoing costs to agencies, enrollees, and carriers. Table 1 summarizes the assessment of the administrative costs associated with this regulatory action.

This table illustrates OPM's best estimate of costs, including startup and ongoing maintenance costs given the information available from OPM and other agencies at this time. The costs are still subject to modification as the program implementation continues. For the purposes of this regulatory impact assessment (RIA), Startup Costs were defined as upfront, non-recurring costs associated with the PSRA implementation, including regulatory review costs, and are represented as aggregate total expenditures for the years leading up to and immediately following the PSHB implementation. Ongoing Costs were defined as recurring costs ( e.g., salary costs) beginning in the years preceding or immediately following the PSRA implementation and expected to persist through at least FY2032. All ongoing costs are presented as fully loaded, annual totals. Given that onboarding and development will occur during the run-up period, ongoing costs are expected to gradually ramp up between FY2022-FY2025 and become fully loaded by the beginning of FY2026. These estimates for ongoing costs are preliminary, and funding for ongoing costs would be subject to the annual budget process.

Table 2 depicts the projected allocation of total startup and ongoing costs by year for fiscal years (FY) 2022 through 2032. Given that operations and maintenance activities are occurring in the run-up period, albeit at a different intensity, and a portion of start-up costs were allocated for go-live and post go-live support ( e.g., call centers), the expected costs for FY2022-FY2025 are composed of both startup and ongoing costs. Beginning in FY2026, expected costs are all attributable to recurring operational and maintenance activities.

The following sections contain underlying details for the cost estimates presented in table 1, including, where appropriate, the assumptions and methodology used by individual agencies in preparing them. For the purposes of this regulatory impact assessment (RIA), Startup Costs were defined as upfront, non-recurring costs associated with the PSRA implementation, including regulatory review costs, and are represented as aggregate total expenditures for the years leading up to and immediately following the PSHB implementation. Ongoing Costs were defined as recurring costs ( e.g., salary costs) beginning in the years preceding or immediately following the PSRA implementation and expected to persist through at least FY2032. All ongoing costs are presented as fully loaded, annual totals. These estimates for ongoing costs are preliminary, and funding for ongoing costs would be subject to the annual budget process.

Startup Costs: OPM estimates a total of $81.6 million in start-up costs for the development and administration of the PSHB Program. This estimate includes $68.3 million of IT and IT contract costs for system development and updates, including the creation of the centralized enrollment system. The centralized enrollment system will consolidate data from multiple agencies, including the Postal Service, SSA, CMS, IHS, and VA, to create a centralized platform for verifying eligibility and processing enrollments. While a centralized enrollment system was not mandated by the PSRA, it will create efficiencies through the elimination of decentralized duplicative and manual processes and improve interagency communication. It is expected to yield long term cost-savings that will help offset significant upfront costs of development. Additional IT and IT contract costs are anticipated for updating existing systems, including Benefits Plus and the audit resolution tracking system, and developing new resources to improve customer experience, including the creation of an enrollment Decision Support Tool.

The remaining $13.4 million in estimated startup costs include $3.6 million for non-IT contractor support and regulatory review throughout implementation and $9.8 million for additional supplies, equipment, training, and communication related to the PSRA. All costs were estimated based on 2022 dollars and contract rates.

Ongoing Costs: As this is a new program, additional staffing and resources will be essential to establish and administer the PSHB. OPM estimates a total of $49.3 million in annual, ongoing costs related to the PSRA. This estimate consists of $24.4 million in annual salary costs for additional full-time employees (FTEs) necessary for contract oversight, program operations, systems maintenance, customer service, policy support, and general support. Additionally, OPM anticipates $21 million in annual IT and IT contract costs for ongoing system development and maintenance support, and an additional $1.7 million in annual, non-IT contract costs related to oversight and management of the increased number of health benefits plans within the PSHB and FEHB populations. Finally, OPM estimates an additional $2.2 million in annual costs for training, communications and overhead related to the PSHB program and the annual Open Season period.

The above costs are represented as fully loaded annual projections based on 2022 dollars. Salaries and overhead (benefits, equipment, etc.) were based on 2022 pay tables and Washington, DC metro area locality adjustment, an overhead percentage of 34%, and award and transit subsidies. This adjustment factor was used in lieu of a standard wage rate to more accurately reflect the historical trends in benefit costs for OPM employees, based on the anticipated locations and experience-levels of the aforementioned positions. Additionally, the wage rate is meant to capture overhead costs which were already represented in separate categories. All recurring costs are projected to be fully loaded beginning in FY2025 and to persist through at least FY2032. Given that development and onboarding will occur in the run-up to the PSHB implementation, OPM anticipates that annual costs related to the PSRA will increase steadily between FY2022 and FY2024.

Startup Costs: The Postal Service estimates $11.5 million in start-up costs for updating systems, development of training materials, and the development and maintenance of the Health Benefits Education Program. These estimates were calculated based on anticipated system configuration and assumed effort level and are subject to change based on additional requirements that may be required of the Postal Service.

Ongoing Costs: In preparation for and following implementation of the PSHB, the Postal Service estimates an additional $1.4 million in annual costs for increased staffing and communication needs. Specifically, the Postal Service estimates $0.9 million in salary costs for 6 additional FTEs, including 4 Program and 2 IT FTEs, and an additional $0.5 million towards increased outreach, education, and communication. Given the general retirement eligibility ages in comparison to the Medicare eligibility age, there will be a 3- to-5-year gap between the time of retirement until Medicare enrollment. It will be critical during the initial implementation of the Program and for the subsequent 5-10 years to send constant communications regarding plan options and healthcare costs, along with information about Medicare Part B eligibility periods and how and when to enroll. Additional resources will also be needed to monitor enrollee compliance for the Medicare Part B enrollment exceptions requirements on an ongoing basis. Although recruitment, onboarding, and development costs will gradually ramp up preceding implementation, the ongoing costs are expected to become fully realized beginning in FY25 and will likely persist for a period of 5-10 years following implementation, at which point the Postal Service will reevaluate resourcing needs. All costs were estimated in terms of 2022 dollars and pay scales.

Startup Costs: OWCP estimates a total of $72,500 in startup costs related to the PSRA. These include an estimated $50,000 in staff time for training on the PSRA changes and implementation, and $22,500 for pre- and post-implementation mailings to approximately 12,500 claimants and beneficiaries regarding changes to health benefit coverage. All costs were estimated based on 2022 dollars and pay scales.

Ongoing Costs: Beginning in 2025, OWCP estimates an additional $2,000 of annual, recurring costs for the creation and distribution of mailing announcements and customer service response letters related to the PSHB Open Season.

Startup Costs: The VA anticipates startup costs for system updates and development to meet the information sharing requirements outlined in § 890.1612 of the regulation. In total, the VA estimates $395,000 worth of IT contractor development work will be needed to integrate the existing Veteran Verification process with the centralized Enrollment and Eligibility System. The estimated costs are based on the anticipated number of scrum teams and sprints required to build this functionality and the projected firm-fixed-price contract rates. All costs were estimated in 2022 dollars.

Startup Costs: SSA estimates $7.3 million in startup costs for staffing support and system updates related to the PSHB implementation. These include an estimated $5.16 million in staffing costs for project management, policy and business process development, and additional technician support for the initial SEP. Additionally, SSA anticipates $2.17 million in up-front costs for system enhancements that will be necessary to support data exchanges and the initial SEP.

Ongoing Costs: SSA anticipates approximately 3 FTEs will be needed to support the PSHB following implementation, with estimated salary and overhead costs totaling $408,000 annually. These costs are based on the anticipated workload for processing annual enrollments and exceptions related to the Medicare coverage requirements for postal annuitants and family members. Additionally, SSA anticipates a small cost for the ongoing data exchange with OPM, although this cost cannot be determined until the data exchange is completed and will ultimately be reimbursed by OPM.

Indian Health Service (IHS) estimates de minimis costs for PSHB implementation. This is based upon the assumption that self-attestation will be utilized for Postal Service annuitants and family members to provide proof of eligibility for IHS health services for purposes of an exception to the Medicare Part B requirement.

Carriers will also have startup costs to participate in the PSHB Program, although the magnitude of these costs is unknown and will likely vary by carrier. Based on the 2021 FEHB headcount, OPM estimates that 41 FEHB Carriers provide coverage to Postal Service enrollees, and they will therefore be impacted by implementation of the PSHB Program. OPM has received applications for participation in the PSHB Program from 36 carriers, all of which currently participate in the FEHB Program. These carriers are expected to incur additional costs associated with the creation and administration of separate PSHB plans. These costs will likely be incurred for internal training, updating enrollment processes and information systems, updating financial systems, and development of proposals specific to the PSHB Program.

In developing plan options for the PSHB, carriers will not simply be able to duplicate FEHB plan designs as the requirement to integrate Part D coverage is substantively different. While large carriers may be able to leverage existing experience integrating Medicare Part D coverage in their other books of business, the need to apply and submit a different PSHB proposal will be a cost to carriers. PSHB Carriers will continue to incur annual costs to offer plans as there will need to be two sets of proposals, contract negotiations, and enrollment processing for carriers offering both PSHB and FEHB plans. This will likely create additional staffing costs on an ongoing basis.

Existing and future Postal Service annuitants may incur additional costs in navigating both Medicare and PSHB enrollment decisions, particularly in the initial years following implementation. Prior to the PSHB Program Open Season, a six-month SEP will be offered to provide Postal Service annuitants and their family members who are entitled to Medicare Part A with the opportunity to enroll in Medicare Part B. This enrollment window will take place before PSHB benefits and premiums are set, meaning participants will not know the details of the PSHB premiums when making their Medicare election during the SEP. This could create additional burden and confusion for participants and may result in suboptimal enrollment decisions.

As with the training and communications costs for the first year, Postal Service employees may continue to need training as they approach retirement. They may generally experience new costs associated with interacting with a new set of options, especially if they have already planned to take certain actions upon retirement which are now infeasible under the PSRA. Additionally, as is true currently under FEHB, retirement will not be a PSHB qualifying life event. Postal Service annuitants will need to understand how their PSHB plan election will work with the Part B requirement upon retirement or wait for Open Season alignment in both Medicare and the PSHB to make a suitable choice for their health care insurance needs.

The main impact of section 101 of the PSRA and these rules will be a transfer of costs from the Postal Service to Medicare, which is funded by taxpayers, including the Postal Service and its beneficiaries. Additionally, a portion of prescription drug costs will likely be transferred to pharmaceutical manufacturers due to applicable point-of-sale discounts received by Medicare Part D enrollees. Table 3 summarizes the projected changes in annual premium expenditures for each of the primary stakeholders. These projections were obtained from separate, independent analyses performed by CMS, the Postal Service, and OPM, which were produced at different points in time and with different underlying methods and assumptions and are therefore intended to summarize the directional transfer of costs among the different stakeholders, not the overall budgetary impacts of the PSRA. Additionally, all estimates were based on FEHB and Medicare coverage as of 2023, and do not incorporate any changes expected from the Inflation Reduction Act or Carrier Letter 2023-02. 14 Details on the methods and assumptions utilized by each agency are provided in the table 3 footnotes.

The mandatory Medicare Part B enrollment for all future Postal Service Medicare covered annuitants enrolled in PSHB starting in 2025, as well as the optional Part B enrollment for current annuitants who are entitled to Part A, will shift a portion of Government share of premium costs for these individuals away from the Postal Service and will shift some of their healthcare costs to Medicare.

Medicare Part B enrollment and the shift of healthcare costs to Medicare will lower the aggregate costs among the PSHB population as Medicare will cover a larger portion of healthcare costs for Postal Service annuitants and family members that would have previously been covered by a plan. Given that premiums are based on average per member costs of the combined pool of annuitants and employees, this will likely result in lower premiums for PSHB plans compared to current FEHB premium amounts. This will reduce costs for the Postal Service and Postal Service employees. Currently in FEHB, approximately 75% of retirees from the Postal Service are enrolled in Medicare Part B and pay the Part B premium. Some of the 25% of the retirees from the Postal Service without Medicare Part B may decide to enroll in Part B to coordinate with their PSHB coverage that starts in 2025. Those individuals and their family members will incur an increased cost for Part B premium that they otherwise would not incur if the retiree chose not to enroll in Part B. Because these individuals will ultimately be subject to premiums for both Medicare and PSHB plans, on net their premiums may be higher than FEHB premiums. At the same time, being covered by Medicare in conjunction with a PSHB plan may also reduce out-of-pocket expenses ( e.g., co-payments and co-insurance) for Postal Service annuitants compared to those that would otherwise have been incurred. In addition, because Medicare will pay primary for the costs of medical coverage, for those enrolled in Part B, costs of coverage are expected to be lower for the PSHB Program and could result in lower PSHB premiums than they would have been without the integration of Medicare. Furthermore, we anticipate that some PSHB plans will reimburse all or part of Part B premiums, as is currently the case with some FEHB plans.

As required in the PSRA, the Postal Service will need to pay to HHS the monthly late enrollment penalties for any Medicare Part B enrollments that occur during the 2024 SEP. These late enrollment penalties are assessed to enrollees as a monthly increase in Medicare Part B premiums. We estimate that approximately 100,000 Postal Service annuitant aged 65+ currently enrolled in the FEHB Program are not enrolled in Medicare Part B and, thus, would be eligible for the SEP. For these individuals, the late enrollment penalties will be paid by the Postal Service.

The summary above is based on baseline assumptions that plan enrollment, carrier participation, and healthcare utilization will remain consistent following implementation of the PSHB Program. It is likely that implementation of the PSHB Program and the additional Medicare enrollment requirements will impact some or all of these baseline assumptions, which will have downstream effects for cost and utilization within both the PSHB and FEHB populations. The magnitude and directionality of these effects will depend on several factors that are presently uncertain.

Individual carriers will likely weigh the costs and benefits of offering FEHB plans and PSHB plans. Shifting enrollment numbers and additional implementation costs may lead some carriers to scale back or discontinue offering both FEHB and PSHB plans. This would impact the number of available plan options for both PSHB and FEHB enrollees, as well as the likelihood that enrollees will be able to remain enrolled in a plan with the same carrier and have a consistent choice of plans and options from year to year. However, as noted below, it is likely that the PSRA will increase the total number of plans covering the Postal Service and non-Postal Service population notwithstanding that plan choices for each population may vary.

PSHB enrollees required to enroll in Medicare Part B would be subject to additional premiums, which may impact the likelihood of their enrollment in PSHB plans. It is estimated that around 25% of Postal Service annuitants who are otherwise eligible for Part B are not currently enrolled. It is possible they declined Part B coverage because they were satisfied with their FEHB coverage or felt that the additional Medicare premium costs were too high, although it is also possible that they were not fully aware of the benefits of Medicare enrollment on their overall health care expenses over the course of their lifetimes. Assuming that a similar percentage of future Postal Service annuitants would have made a similar determination, these individuals may now be required to enroll as a condition of PSHB eligibility. This may result in some Postal Service annuitants dropping PSHB coverage altogether if they determine that PSHB and Part B coverage together is unaffordable or duplicative for their health care circumstances, though this number may be limited since it would require those annuitants to forgo PSHB coverage for the rest of their lifetimes unless individuals enroll in a Medicare Advantage plan. This could potentially result in adverse selection within the PSHB plans, referring to the tendency for individuals with higher health risks to disproportionately elect more generous coverage. Ultimately, this would increase the average risk and costs within the PSHB enrolled population, creating upward pressure on premiums. Additionally, some carriers may elect not to offer or discontinue PSHB plans if they anticipate or experience lower than expected enrollment.

The additional Medicare Part B and Part D coverage may also induce a moral hazard effect due to the more robust coverage and lower cost-sharing. Moral hazard refers to the tendency of individuals to increase health care utilization and spending in response to greater coverage or lower out-of-pocket costs. If an individual is required to enroll in Medicare, they may feel more compelled to utilize the benefits, increasing overall health care consumption. This effect could increase utilization of both necessary and unnecessary health services upon introduction of increased coverage and lower cost sharing. Increased utilization among these individuals would increase the overall per member costs within the PSHB plans which may result in higher premiums and potentially impact health outcomes.

Because not all carriers will offer both FEHB plans and PSHB plans, the result is smaller risk pools within each plan option, which could lead to greater uncertainty with respect to costs. With smaller risk pools, each enrollee's health status has a larger impact on total costs. This can create greater variability in annual premiums. Smaller risk pools increase individual plans' exposure to high-cost outlier events, as there are fewer low or average-cost enrollees to offset these costs. Administrative costs would also be spread across smaller risk pools. To ensure financial solvency in such scenarios, plans may seek to price this additional risk exposure into premiums, resulting in an increase in the aggregate costs for all PSHB plan and FEHB plan enrollees compared to the baseline.

At present, there remains a great deal of uncertainty with respect to the longer-term impacts on plan enrollment, carrier participation, plan design, and plan premiums. It is possible that a number of FEHB Carriers will elect not to participate in the PSHB Program or to drop their current FEHB plan offerings. Consolidation within the FEHB and PSHB markets would likely benefit larger carriers and may yield some efficiencies through greater economies of scale, although on aggregate, it is expected that PSHB implementation will result in a greater number of total plans across both the FEHB and PSHB Programs and increased administrative costs and premiums. Fewer options within the PSHB Program may also simplify plan choice for employees and annuitants, saving time on plan comparisons.

Enrollment in the PSHB Program, particularly among individuals who are required to enroll in Medicare Part B, is also uncertain. For future Postal Service annuitants, the requirement to enroll in Part B after retirement represents an additional cost. This will likely factor into individual retirement planning decisions and could potentially lead to employees remaining in the workforce longer to delay these additional costs. Likewise, lower-risk individuals may determine that their Medicare coverage, including Part B coverage is sufficient for their health care needs and opt out of PSHB enrollment. These aspects could impact PSHB Program risk pools and influence carriers' decisions on whether to continue offering plans in the PSHB Program. Each of these scenarios could trigger potential downstream effects on utilization and premiums and will be important to monitor.

There are no feasible alternatives to the final rule as it implements section 8903c, as added by the PSRA, which establishes the PSHB Program and is mandated by the law. Therefore, OPM does not have the discretion to forego issuing regulations altogether. However, we considered alternatives to certain aspects of this regulation.

OPM recognizes that, for a small portion of Postal Service annuitants and their family members who take advantage of the Medicare Part B SEP from April 1 to September 30, 2024, there may be confusion about having two separate health plan enrollment opportunities given that the PSHB Program Open Season for plan year 2025 will occur from November 11 through December 9, 2024. As with FEHB plans, however, OPM's rate review process for PSHB plans will not be completed until September 2024, which makes simultaneous enrollment in Medicare Part B and PSHB plans impossible. If OPM were to open PSHB plan enrollment at the same time as the Medicare SEP, without completing the PSHB rate review process, enrollees would be selecting PSHB plans without knowing the monthly cost of their PSHB plan premium, which does not resolve the conflict.

We explored an opportunity for Postal Service annuitants to “pre-enroll” in PSHB plans prior to OPM completing its PSHB rate review process. Combining the opportunity to pre-enroll in a PSHB plan with the Medicare SEP would allow Postal Service annuitants to complete both actions simultaneously. Alternatively, Postal Service annuitants could be automatically enrolled in a PSHB plan at the same time they enroll in Medicare Part B. Automatic pre-enrollment in PSHB would relieve these Postal Service annuitants from two separate enrollment periods. However, we found both of these options would be undesirable for enrollees and their family members for several reasons.

Allowing individuals to pre-enroll in PSHB plans during the SEP means they would sign up for a plan without knowing their PSHB premium obligation. Similarly, because OPM will not have certified the PSHB plans by the time the Medicare SEP occurs, there would be no way for an individual to know whether a given carrier will be participating in the PSHB Program for the next plan year, let alone what the final contract would look like. In general, while allowing those annuitants taking advantage of the Medicare SEP to simultaneously pre-enroll in a PSHB plan seems like it could reduce confusion and frustration from having two separate enrollment obligations, the timing of simultaneous PSHB pre-enrollment and the Medicare SEP would mean choosing a PSHB plan with unknown benefits and premiums and likely having to review the selection again during the PSHB Open Season period to ensure that the plan an individual pre-enrolled in actually makes sense for them once plan details are finalized and approved by OPM.

Much of the rationale for considering PSHB plan pre-enrollment can be achieved by providing information about automatic enrollment to Postal Service employees, Postal Service annuitants, and their family members. Postal Service annuitants who wish to keep their plan or take as little action as possible can have their needs met as easily with automatic enrollment after Open Season ends instead of OPM implementing a new pre-enrollment or automatic pre-enrollment. In addition, under 5 CFR 890.301(f)(2), the OPM Director has the authority to modify the dates for Open Season or hold additional Open Seasons. These authorities and flexibilities exist under current regulations and may be exercised without needing to make any specific provisions under this rulemaking.

OPM is developing a centralized enrollment system simultaneously with the implementation of the PSHB Program. As explained above, the centralized enrollment system will shift certain responsibilities from the employing office to a new system which will function as an electronic enrollment solution for all PSHB stakeholder groups. Developing a centralized enrollment system for the PSHB Program allows OPM to take advantage of IT solutions and create a modern enrollment system for Postal Service employees, Postal Service annuitants, and their family members. OPM considered maintaining the existing enrollment processes that apply to enrollment in FEHB plans but ultimately determined that the establishment of the PSHB provided an ideal opportunity to utilize new technologies and centralization processes that will improve the experience of PSHB stakeholders.

OPM considered keeping the effective date of coverage for coverage under PSHB Plans as the first day of the first pay period of the calendar year for Postal Service employees, as it is for FEHB Plans. Keeping the same effective date of coverage for PSHB Plans as the effective date of coverage for FEHB Plans that Postal Service employees are familiar with would not result in implementation costs or risk confusing existing enrollees.

The benefits of a January 1 effective date, however, outweigh the costs and risks of implementation and educating enrollees, as implementation costs are incurred only one time and after several years there will be little to no ongoing enrollee education needs. Conversely, the benefits of the January 1 date will remain indefinitely. A calendar year start date is convenient and is consistent with the industry standard and many similar programs, including health savings accounts, the Federal Employees Dental and Vision Insurance Program, and the cutoff date for certain exceptions to the Medicare Part B enrollment requirement for Postal Service Medicare covered annuitants and their covered members of family who qualify for an exception.

OPM has examined the impact of this rule as required by Executive Orders 12866, 13563, and 14094, which direct agencies to assess all 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). The Office of Management and Budget has determined that this rule is a “significant regulatory action” under section 3(f)(1) of Executive Order 12866, as amended by Executive Order 14094.

The Director of OPM certifies this regulation will not have a significant economic impact on a substantial number of small entities.

OPM has examined this rule in accordance with Executive Order 13132, Federalism, and has determined that this rule will not have any negative impact on the rights, roles and responsibilities of State, local, or Tribal governments.

This regulation meets the applicable standard set forth in Executive Order 12988, Civil Justice Reform.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending by State, local, and Tribal governments in any 1 year of $100 million in 1995 dollars, updated annually for inflation. In 2023, that threshold was approximately $183 million. This final rule does not mandate any requirements for State, local, or Tribal governments, or for the private sector.

Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (also known as the Congressional Review Act) (5 U.S.C. 801 et seq. ) requires rules (as defined in 5 U.S.C. 804) to be submitted to Congress before taking effect. OPM will submit to Congress and the Comptroller General of the United States a report regarding the issuance of this action before its effective date, as required by 5 U.S.C. 801. OMB's Office of Information and Regulatory Affairs has determined that this rule meets the criteria in 5 U.S.C. 804(2).

Notwithstanding any other provision of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with a collection of information subject to the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) (PRA), unless that collection of information displays a currently valid OMB Control Number.

In the interim final rule, OPM requested comment on what, if any, information collection activities may be required by this rulemaking, including any comments on whether to create a new information collection or revise the information collection for SF-2809, Health Benefits Election Form, under OMB Control number 3206-0160. A commenter recommended that OPM update the existing Standard Form (SF) 2809 for Postal Service employees and Postal Service annuitants rather than developing a new form under PSHB to accommodate the needs of the PSHB Program. OPM agrees with this suggestion and will update the SF-2809 to include PSHB enrollments. OPM notes that there is a corresponding health benefits election form for retirees, OPM 2809 (OMB control number 3206-0141). OPM will also update the OPM-2809 to include PSHB enrollments. The revised forms would be made available prior to Open Season for the PSHB Program, which will begin on November 11, 2024. OPM is publishing a separate notice regarding modifications to these forms and will provide opportunities to comment as required by the PRA. An initial notice of proposed changes to these information collections with a 60-day comment period is published elsewhere in this issue of the Federal Register . In that notice, in addition to the changes to the forms, OPM proposes to combine OMB Control number 3206-0160 and OMB Control number 3206-0141 into a single information collection.

The information collection for form SF-2809 (OMB Control Number 3206-0160) is currently approved with an estimated public burden of 9,000 hours. The information collection (OMB Control number 3206-0141) associated with that form is currently approved with an estimated public burden of 11,667 hours.

A list of routine uses associated with these forms can be found in the Privacy Act System of Records Notice (SORN), OPM/CENTRAL 1 Civil Service Retirement and Insurance, available at https://www.opm.gov/information-management/privacy-policy/sorn/opm-sorn-central-1-civil-service-retirement-and-insurance-records.pdf.

Participants in the 6-month Medicare Part B SEP will use form CMS 40B, Application for Enrollment in Medicare—Part B (Medical Insurance) (OMB control number 0938-1230) to enroll in Medicare Part B.

For reasons stated in the preamble, OPM is adopting the interim rule amending 5 CFR part 890 published on April 6, 2023, at 88 FR 20383, as final with the following changes:

Table of Contents I. Background and Purpose II. Discussion of Comments A. Summary of Comments B. Foreign Entity C. Government of a Foreign Country D. Subject to the Jurisdiction E. Owned by, Controlled by, or Subject to the Direction F. Other Comments III. Explanation of Final Interpretation and Changes From the Proposed Interpretive Rule A. Purpose B. Foreign Entity C. Government of a Foreign Country D. Subject to the Jurisdiction E. Owned by, Controlled by, or Subject to the Direction IV. Regulatory Review V. Final Interpretive Rule on the Definition of Foreign Entity of Concern A. Overview B. Foreign Entity C. Government of a Foreign Country D. Subject to the Jurisdiction E. Owned by, Controlled by, or Subject to the Direction VI. Approval of the Office of the Secretary I. Background and Purpose

Section 40207 of BIL (42 U.S.C. 18741) provides DOE $6 billion to support domestic battery material processing, manufacturing, and recycling. Section 40207(b)(3)(C) directs DOE to prioritize material processing applicants that will not use battery material supplied by or originating from a “foreign entity of concern” (FEOC). Similarly, section 40207(c)(3)(C) directs DOE to prioritize manufacturing applicants who will not use battery material supplied by or originating from a FEOC and prioritize recycling applicants who will not export recovered critical materials to a FEOC. FEOC is defined in BIL section 40207(a)(5). The relevant paragraph lists five grounds upon which a foreign entity is considered a FEOC, described in subparagraphs (A) through (E). Subparagraphs (A), (B), and (D) address entities designated as foreign terrorist organizations by the Secretary of State, included on the Specially Designated Nationals and Blocked Persons List (SDN List) maintained by the Department of the Treasury's Office of Foreign Assets Control (OFAC), and alleged by the Attorney General to have been involved in various illegal activities, including espionage and arms exports, for which a conviction was obtained, respectively. Subparagraph (C) states that a foreign entity is a FEOC if it is “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation (as defined in [10 U.S.C. 4872(d)(2)]).” The “covered nations” are the People's Republic of China (PRC), the Russian Federation, the Democratic People's Republic of North Korea, and the Islamic Republic of Iran (10 U.S.C. 4872(d)(2)). BIL section 40207(a)(5) provides no further definition of the term “foreign entity” or of the terms used in subparagraph (C).

Subparagraph (E) of BIL section 40207(a)(5) provides an additional means by which an entity may be designated to be a FEOC: a foreign entity is a FEOC if it is “determined by the Secretary [of Energy], in consultation with the Secretary of Defense and the Director of National Intelligence, to be engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States.” The Secretary of Energy has not exercised this authority, as of this date.

In addition to affecting which entities DOE will prioritize as part of its BIL section 40207 Battery Materials Processing and Battery Manufacturing and Recycling Grant Programs, the “Foreign Entity of Concern” term is cross-referenced in section 30D of the Internal Revenue Code (IRC) (26 U.S.C. 30D), as amended by the Inflation Reduction Act of 2022 (IRA). Section 30D provides a tax credit for new clean vehicles, including battery electric vehicles. Section 30D(d)(7) excludes from the definition of “new clean vehicle” “(A) any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle (as described in [section 30D(e)(1)(A)]) were extracted, processed, or recycled by a [FEOC] (as defined in section 40207(a)(5) [of BIL] (42 U.S.C. 18741(a)(5))), or (B) any vehicle placed in service after December 31, 2023, with respect to which any of the components contained in the battery of such vehicle (as described in section 30D(e)(2)(A)) were manufactured or assembled by a [FEOC] (as so defined).”

On December 4, 2023, DOE published in the Federal Register its notice of proposed interpretive rule and request for comments related to the definition of FEOC contained in section 40207(a)(5) of BIL (88 FR 84082). The comment period closed on January 3, 2024.

After careful consideration of available information related to the battery supply chain and comments received, DOE is now issuing this final guidance regarding which foreign entities qualify as FEOCs, under BIL 40207(a)(5)(C), as a result of being “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation.” For the purposes of this document, DOE uses the term “interpretive rule” and “guidance” interchangeably. At a future date, DOE may decide to initiate a separate rulemaking to implement the Secretary's “determination authority” contained in BIL section 40207(a)(5)(E) (42 U.S.C. 18741(a)(5)(E)).

To get the benefit of input from the public and interested stakeholders, the Department specifically requested comments on its proposed interpretation of the terms discussed in its proposed interpretive rule (88 FR 84082). The proposed interpretive rule was intended to solicit public feedback on DOE's interpretation to better understand stakeholder perspectives prior to implementation of finalized guidance. The Department considered all comments received during the public comment period and modified its proposed approach, as appropriate, based on public comment as described in section III of this document.

This final guidance proceeds as follows: Section II of this document provides a discussion of comments received and DOE's response to those comments; section III of this document provides an explanation of final interpretation and changes from the proposed interpretive rule; section IV of this document provides information on Regulatory Review of this interpretive guidance; section V of this document provides DOE's final interpretive rule on the definition of Foreign Entity of Concern; and section VI of this document provides the approval of the Office of the Secretary.

DOE received 84 comment submissions in response to the proposed interpretive rule. Comments were received from original equipment manufacturers; cell producers; materials suppliers; component suppliers; trade organizations; a nonprofit organization; a consultant; foreign governments; and individuals. Forty-two—half of the total comments received—were from anonymous sources. Several comments included confidential business information, along with a non-confidential version to be uploaded to the docket for public viewing. Additionally, at the request of the governments of the Republic of Korea, Chile, and Australia, DOE met with delegations from each country. Meeting notes of these ex parte communications have been posted to the public docket. Commenters generally expressed support for the issuance of guidance, welcoming additional clarity on the definition of the term “foreign entity of concern.” Many comments raised specific concerns about the feasibility of compliance without bright-line administrable standards to govern which entities qualify as FEOCs. Many other submissions raised specific concerns about rules that too narrowly construe the term FEOC, raising concerns about manipulation of the battery supply chain by covered nations. Other submissions were more general in nature and did not provide specific comments on the proposed interpretive rule itself. All submissions were carefully reviewed, and DOE thanks the public for its engagement. DOE's responses to comment within the scope of this interpretive rule have been grouped by the topic area to which they pertain and are summarized as follows.

Comment: Multiple commenters sought clarity on how the guidance intends to treat a U.S.-headquartered company with its principal place of business in the United States but operating in a covered nation. Specifically, the commenters questioned whether such a U.S. entity's operations within a covered nation can be considered a FEOC under the guidance even if the U.S. entity does not fall into the definition of “foreign entity.”

Response: The guidance includes in the definition of “foreign entity” any “partnership, association, corporation, organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country.” If a U.S.-headquartered company has operations in a foreign country but has not organized under the laws of that country, then the guidance would not consider them to be a foreign entity. However, entities that operate within covered nations are typically required to be organized under the laws of that nation, and if that is the case, then such entities will be considered foreign entities, and thus subject to the jurisdiction of the covered nation's government. In this scenario, even though the operations of the U.S. entity located in the covered nation are considered a FEOC, this designation would not flow back to the U.S. entity's operations in the United States or other third-party countries.

Comment: One commenter requested that DOE provide a definitive list of individuals who are considered to be current or former senior government officials and therefore considered part of the “government of a foreign country.” The commenter argued that determining which officials are considered “senior” and whether their family members hold interests in a company will not always be readily apparent.

Response: While DOE understands the commenter's concern, DOE declines to make this change. Compiling a complete list of current and former senior government officials would prove challenging given that the list would likely be subject to frequent change, difficult to predict, and very likely underinclusive. Furthermore, DOE does not have the resources to do so for every company that may be in the battery supply chain; however, individual participants in the battery supply chain will be in a position to individually analyze their specific upstream suppliers and ask those suppliers to provide information necessary for such an evaluation. DOE's guidance provides additional clarity for such evaluation by identifying markers of when an individual official should be considered “senior,” and in the case of the People's Republic of China (PRC), identifying particular Chinese Communist Party (CCP) entities whose current and former members should be considered senior foreign political figures.

Comment: Several other commenters requested that DOE provide greater clarity for the definition of “senior foreign political figure,” particularly regarding whether (a) there is a time period that may pass after which a former official can no longer be considered a part of the government of a foreign country; (b) what level an official must be to be considered “senior;” and (c) for the PRC, whether “senior foreign political figure” is limited to individuals with membership on the CCP entities identified in the guidance.

Response: There is no designated amount of time for how long an individual may be a former official and avoid being considered a “senior foreign political figure.” The concerns that arise from representing the government in a senior role and from membership on the CCP bodies identified in the guidance, for which former membership is considered, do not dissipate over time just because an individual no longer represents that government or political body.

The standard for determining whether a particular individual is a “senior” figure under the guidance is whether the individual exercises “substantial authority over policy, operations, or the use of government-owned resources.” In the context of the PRC, the guidance identifies particular CCP entities whose members should be considered to be senior officials of a “dominant or ruling foreign political party.” These bodies do not constitute all senior foreign political figures in the PRC, however. Apart from roles within a dominant political party, a senior official who works for the government of a covered nation in an official capacity, whether at a government ministry, for a state-owned enterprise (SOE), or within the military, may also be considered a “senior foreign political figure.” DOE declines to specify particular government positions that qualify as “senior,” but believes the standard provided ( i.e., “a position of substantial authority over policy, operations, or the use of government-owned resources”) provides a reasonable standard with which to evaluate companies in the battery supply chain.

Comment: Other commenters argued that a determination of senior political figure ownership and involvement in private companies would be unduly onerous and may not be feasible. Relatedly, one commenter asked for greater clarity on what level of diligence and processes companies are expected to undertake to determine whether individuals or their family members who control entities within their supply chain qualify as senior foreign political figures.

Response: DOE's guidance has been drafted to provide a reasonable interpretation of the statutory definition of FEOC contained in 42 U.S.C. 18741(a), while taking into account administrability concerns. While outside the scope of this guidance, for the purposes of determining eligibility for the 30D tax credit, the Treasury Department's final regulations on Clean Vehicle Credits under Sections 25E and 30D; Transfer of Credits; Critical Minerals and Battery Components; Foreign Entities of Concern published elsewhere in this issue of the Federal Register and associated guidance (Rev. Proc. 2023-38) identify due diligence measures, including the potential for attestations of compliance from companies within a manufacturer's supply chain, that can be used to provide reasonable assurance that an entity's supply chain is free of FEOCs, including control by senior foreign political figures.

Comment: One commenter noted that the proposed interpretive rule suggests that local or subnational government-owned enterprises are considered to be part of the “government of a foreign country” and questioned whether all SOEs should be considered part of the “government of a foreign country” such that an entity controlled by an SOE at a level of 25% or more would also be a FEOC.

Response: DOE agrees that all SOEs, whether local or national, should be considered to be instrumentalities of a national or subnational government, and thus part of the “government of a foreign country.” As such, a national SOE's voting rights, equity interests, or board seats in an entity can be combined with a local SOE's ownership of the same entity to reach the 25% FEOC threshold for control of that entity.

Comment: One commenter asked for clarity as to whether, with respect to the PRC, a “dominant or ruling political party” in the interpretation of “government of a foreign country” refers only to the central party, or to local party apparatuses as well.

Response: The guidance includes local and subnational government officials in the definition of government of a foreign country, and therefore senior government officials at the local and subnational level should be considered to be part of the government of a foreign country. When it comes to senior officials from a dominant or ruling party, DOE's final interpretive guidance also makes clear that the list of specific CCP entities that are considered part of the “government of a foreign country,” includes current, but not former, members of local or provincial Chinese People's Political Consultative Conferences (CPPCC).

Comment: One commenter urged DOE to clearly define the term “principal place of business” in the guidance.

Response: DOE intends for the term “principal place of business” to be interpreted consistent with standard practice. The guidance is informed by the United States Supreme Court's formulation in Hertz Corp. v. Friend, in which a principal place of business is considered to be the “place where a corporation's officers direct, control, and coordinate the corporation's activities [and] in practice it should normally be the place where the corporation maintains its headquarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the `nerve center.' ” 559 U.S. 77, 92-93 (2010).

Comment: Multiple commenters argued that all subsidiaries of FEOCs should be considered FEOCs themselves, even when the parent entity is only a FEOC via jurisdiction due to it being headquartered within a covered nation.

Response: DOE declines to make this change. DOE's interpretive guidance is intended to clarify the statutory terms in a way that gives effect to the purpose of the statutory provisions to which it applies. The term FEOC within section 40207, as it applies to both DOE's battery materials processing and battery manufacturing and recycling grant programs and to the 30D tax credit, is intended to both reduce reliance upon covered nations in the battery supply chain and provide a pathway for companies in the United States and third-party countries to increase production of critical minerals, battery components, and battery materials. At this time, DOE concludes that United States or third-party country subsidiaries of entities that are headquartered within a covered nation do not necessarily pose the same risk to the battery supply chain as subsidiaries that are FEOCs by virtue of the government of a covered nation holding, directly or indirectly, 25% or more of the equity interests, board seats, or voting rights of the subsidiary. This is due to: (a) their location within the United States or third-party countries; and (b) the lack of direct control by the government of a covered nation. In addition, DOE's interpretation serves the intended purpose of the statute by providing a pathway for the onshoring and friend-shoring of critical minerals, battery components, and battery materials. This contrasts with the primary purpose of the CHIPS and Science Act of 2022, and the implementation of the Department of Commerce's substantially similar FEOC provision, which concerns the prevention of transfers of semiconductor technology to covered nation governments.

Comment: More than one of the commenters that urged that all subsidiaries of FEOCs be considered FEOCs themselves, expressed concern that companies headquartered in the PRC, even when privately held with no formal control by the government of the PRC, may receive significant government subsidy, grants, and debt financing to pursue expansion outside of the PRC. One of these commenters urged DOE to aggressively assess whether such companies are actually private or are engaged in activities designed to avoid FEOC designation.

Response: DOE considered whether to expand the definition of “control” under this interpretive rule to incorporate companies that are controlled by the government of a covered nation by virtue of significant investments by that government of the kind identified by the commenters ( e.g., subsidies, grants, or debt financing) from the government of a covered nation. However, DOE has not yet identified a sufficiently bright-line rule for such investments that would be administrable by entities in the battery supply chain or by vehicle manufacturers. Accordingly, DOE declines to make this change to the interpretive guidance at this time. With respect to its evaluation of applications for domestic battery material processing, manufacturing, and recycling grants under section 40207 of BIL, DOE notes that it will conduct a holistic risk evaluation process related to research, technology, and economic security. Such evaluation will include consideration of financial support by countries of concern, including the PRC. In addition, DOE may consider government investment as part of its exercise of the Secretary of Energy's authority under BIL section 40207(a)(5)(E) to designate an entity a FEOC if it is “engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States.” Furthermore, DOE will continue to monitor the battery supply chain market and may consider revisiting this issue in the future through updated interpretive guidance defining control by the government of a covered nation based on significant investments from that government. Any information that may assist DOE in monitoring the battery supply chain market may be submitted to the email address identified in the “For Further Information” section of this document.

Comment: Several commenters asked whether, when calculating an entity's voting rights, equity interests, or board seats held by the government of a covered nation, the guidance requires that these calculations be made in combination or independently.

Response: DOE responds with the following clarification. The 25% threshold applies to each metric independently, not in combination. For example, and assuming no other relevant circumstances, if an entity has 20% of its voting rights, 10% of its equity interests, and 15% of its board seats each held by the government of a covered nation, these percentages would not be combined to equal 45% control, but would each be evaluated independently, resulting in the entity being controlled at the level of the highest metric ( i.e., 20%) and thus not considered a FEOC. That said, DOE recognizes that significant levels of government control in all three metrics may still raise concerns. As such, as indicated above in response to a previous comment, DOE may incorporate such considerations into its evaluation of applications for grants under section 40207 of BIL, through utilization of the Secretary's authority under BIL section 40207(a)(5)(E), or through revisions to the interpretive guidance upon evidence of evasive gamesmanship with respect to the 25% threshold.

Comment: One commenter asked for greater clarity on what constitutes voting rights, equity interests, and board seats for the purposes of calculating whether a 25% controlling interest exists. Specifically, the commenter asked (a) whether DOE intended to refer to “traditional voting rights belonging to common stockholders or the voting rights of owners” or to “the voting rights of a board;” (b) how to calculate the value of an individual board seat; and (c) what constitutes equity interests for the purposes of the guidance.

Response: As previously stated, DOE notes that each of these metrics of control is intended to be calculated independently. For “voting rights,” DOE intends to refer to the voting rights of owners, as suggested by the commenter. This means that the voting power of owners of different types of stock, to the extent this information is reasonably ascertainable, should be considered in calculating whether a FEOC controls 25% of the voting rights in an entity. For “board seats,” DOE intends for the value of a board seat to equal the value of its voting power on the board. So, if one board seat is held by a representative of the government of a covered nation and that seat holds 25% of the board voting power, then that entity would be considered a controlled FEOC. For “equity interests,” DOE intends to refer to percent value of the ownership interest, to include capital or profit interests and contingent equity interests, in the company held by an individual or entity, with the amount of contingent interest that can be reasonably determined included for the purpose of determining FEOC compliance.

Comment: Several commenters raised concerns that the analysis required to evaluate the FEOC compliance of a manufacturer's supply chain, including the voting rights, board seats, and equity interests for privately held companies, will be unduly burdensome and create administrability problems. Other commenters, however, stated that the FEOC guidance is stringent but, for the most part, workable.

Response: DOE's guidance has been drafted to give a reasonable interpretation to the statutory definition of FEOC contained in 42 U.S.C. 18741(a), while taking into account administrability concerns. The due diligence measures required for determining FEOC compliance for purposes of determining eligibility for the 30D tax credit and for DOE's BIL 40207 grant programs are outside the scope of this guidance.

Comment: One commenter stated that the 25% threshold for control is too bright-line and will allow an entity to drop its covered nation government ownership stake to 24.9% to avoid being deemed a controlled FEOC. Several other commenters stated their support for the 25% bright-line threshold and the guidance's alignment with the Department of Commerce's FEOC definition in its Final Rule on Preventing the Improper Use of CHIPS Act Funding (CHIPS Rule) as published in the Federal Register on September 25, 2023 (88 FR 65600).

Response: DOE declines to make a change. The guidance attempts, to the greatest degree possible, to establish bright-line rules to allow individual entities seeking to take advantage of BIL section 40207 and IRC section 30D to readily evaluate whether their upstream suppliers should or should not be considered FEOCs. Without that clarity, individual entities would be unable to properly evaluate their supply chains. To the extent that an entity changes its ownership structure to fall below the 25% threshold, DOE views such restructuring as a desirable dilution of covered nation government control, consistent with the purposes of the FEOC restrictions in BIL section 40207 and IRC section 30D, as DOE understands them.

Comment: Similarly, another commenter stated that DOE's interpretation of indirect control allows for an entity to alter its ownership structure to skirt the FEOC ban, by nesting control and allowing control to defuse through levels of subsidiaries.

Response: DOE declines to make a change. First, not all ownership stakes dilute in a tiered ownership structure. Specifically, DOE notes that the guidance makes clear that the controlling stake of a parent company with 50% or more interest in a subsidiary does not attenuate. Thus, the covered nation government's level of control would not attenuate in a situation where there exist tiers of subsidiaries that are owned at a level of 50% or more. Second, DOE's approach to calculating indirect control recognizes the reality that, in the case of multiple tiers of minority control by a covered nation government, the actual ability of the covered nation government to influence the operations of a subsidiary may become materially attenuated.

Comment: One commenter asked for clarification on why DOE used the parenthetical phrase “(including the government of a foreign country that is a covered nation)” in the interpretation of “control,” since the focus of the guidance relates to control by the government of a covered nation.

Response: The interpretation of “control” in the guidance is meant to encompass both situations where the government directly controls an entity and when the government may indirectly control an entity through another entity that is not itself the government of a covered nation. In addition, the “control” definition is also embedded into the interpretation of “foreign entity,” to identify situations where a U.S. entity is considered to be “foreign” as a result of control. The parenthetical is intended to make clear that “control” refers to both direct and indirect control by the government, and control within the interpretation of “foreign entity.”

Comment: Several commenters asked for clarification on how to evaluate levels of control within a joint venture. Specifically, the commenters questioned whether a joint venture should be evaluated using the licensing and contracting provision of the guidance or if joint ventures should be evaluated solely under the 25% control prong.

Response: DOE responds by clarifying that whether a FEOC holds a controlling interest in a JV entity (through voting rights, equity interests, or board seats) is determined under the 25% control threshold. Thus, a separate entity that exists as a 50-50 JV, in which one of the members of the JV is a FEOC, would be considered to be a FEOC. In a situation where a FEOC maintains less than 25% control of a JV, the JV agreement would not confer “effective control” of the JV entity unless, by its terms, it gives a FEOC the right to determine the quantity or timing of production; to determine which entities may purchase or use the output of production; to restrict access to the site of production to the contractor's own personnel; or the exclusive right to maintain, repair, or operate equipment that is critical to production.

Comment: One commenter asked for clarification as to whether the “effective control” definition only applies when the other entity (licensor/contractor) is a FEOC.

Response: DOE responds that the “effective control” definition in the guidance is only relevant as it relates to licenses and contracts with an entity considered to be a FEOC. The language of the guidance has been edited to clarify.

Comment: Multiple commentors asked for clarification on whether the “effective control” test in the definition of “owned by, controlled by, or subject to the direction” applies only when the licensor or contractor is a FEOC because it is subject to at least 25% control by the government of a covered nation or also when the licensor or contractor is a FEOC due to being “subject to the jurisdiction” of a covered nation.

Response: DOE responds by clarifying that an entity can be subject to effective control through a license or contract with any entity that is deemed a FEOC, whether via the 25% threshold for control or via jurisdiction. The proximity of a FEOC to the government of a covered nation, even when the government does not have a controlling stake in the company, raises similar concerns in the context of a license or contract with a non-FEOC, and the non-FEOC should retain the identified rights to avoid effective control by the FEOC.

Comment: One commenter suggested that DOE modify the fifth right to be reserved within a license or contract with a FEOC, which requires that IP and technology that is the subject of the contract be accessible to the non-FEOC entity “notwithstanding any export control or other limit on the use of intellectual property imposed by a covered nation subsequent to execution.” The commenter suggested that the provision could be interpreted to call for the defiance of foreign laws.

Response: To ensure that a license or contract with a FEOC does not result in effective control, a non-FEOC should reserve the listed rights at the time of entering into the license or contract. DOE's view is that new export controls would not be applicable to IP that has already been transferred, i.e., IP licenses with an effective date prior to implementation of a new export control. That said, it is not DOE's intent that this language place a manufacturer in the position of having to violate a foreign law. Therefore, DOE has edited the fifth right to state that the parties to the given license or contract commit that the non-FEOC party will retain access to and use of any intellectual property, information, and data critical to production “for the duration of the contractual relationship.”

Comment: One commenter requested confirmation on their understanding of the first and fifth rights identified by DOE to be retained by a non-FEOC entity entering into a license or contract with a FEOC. Specifically, the commenter stated its understanding that the first right would allow the non-FEOC entity to acquire information from the FEOC related to the quantity of critical minerals or components necessary to manufacture a battery or battery component, and the fifth right would allow the non-FEOC entity to obtain assistance from the FEOC in operating, maintaining, and repairing equipment critical to production.

Response: The commenter is correct that the non-FEOC entity would be able to obtain information and assistance from the FEOC as described above. The determining factor as to whether the retained rights have prevented “effective control” by a FEOC under the guidance is whether the non-FEOC entity has the right of access and the authority to make decisions. In order to fully exercise those rights, however, it may be necessary for the non-FEOC entity to obtain information and assistance from the FEOC entity.

Comment: In the context of the “effective control” definition and the safe harbor rights identified in the guidance, one commenter requested that DOE provide a limited exception or transition period for licenses and contracts that were signed between enactment of the IRA and the issuance of DOE's proposed interpretive guidance, if the non-FEOC entity can establish that the FEOC entity does not have effective control through alternate means.

Response: DOE's guidance is limited to providing an interpretation of the statutory term “foreign entity of concern,” and related terms. Whether to provide an exception or transition period to eligibility for a particular program or incentive is out of scope of this interpretive guidance.

Comment: Several commenters urged DOE to create a definitive list of entities considered to be FEOCs.

Response: DOE declines to make this change. The criteria for “foreign entities of concern” were articulated in the Infrastructure Investment and Jobs Act (IIJA). DOE recognizes that, for some of the criteria, in particular the criteria related to foreign entities that have been alleged by the Attorney General to have been involved in certain activities for which a conviction was obtained, there may not be a consolidated, readily available list. For the criteria that are the subject of this guidance ( i.e., a foreign entity that is “owned by, controlled by, or subject to the jurisdiction or direction of the government of a covered nation”), DOE is not in a position to provide a comprehensive list of every entity that qualifies as a FEOC. Providing a definitive list of FEOCs could result in attempts to evade the rule through corporate restructuring that does not change actual control and would be overly burdensome on DOE to create and maintain such a list for the entire battery supply chain. Accordingly, the guidance provides standards to assist companies in determining whether the particular entities in their battery supply chain are FEOCs. These companies are better positioned than DOE to conduct due diligence on and obtain certifications from entities within their supply chain, with whom they maintain a contractual relationship. DOE expects that, given the guidance provided in this final interpretive rule, relevant entities can exercise appropriate diligence to identify entities that fall within the criteria articulated in the IIJA.

Comment: Several commenters urged DOE to establish a voluntary pre-review process to allow manufacturers to submit to DOE potential licenses and contracts with FEOCs to determine whether it would lead to effective control by the FEOC. Several of the commenters also requested that such a pre-review process be structured in a confidential manner.

Response: While DOE requested comment on the desirability of establishing and the potential structure of a pre-review process for licenses and contracts, DOE is declining to establish such process at this time. Instead, as established in the Treasury Department's 30D rule and associated guidance, DOE will play a pivotal role in reviewing all of the documentation that is provided to the IRS for the purpose of determining eligibility for the 30D tax credit. DOE's review of licenses and contracts for effective control will take place through that process.

Comment: Multiple commenters urged DOE to use the determination authority provided in section 40207(a)(5)(E) of BIL to allow the Secretary of Energy, in consultation with the Secretary of Defense and the Director of National Intelligence, to designate an individual entity as a FEOC “engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States.”

Response: DOE responds that it continues to consider whether and how to use the determination authority in BIL section 40207(a)(5)(E).

Comment: One commenter urged DOE to clearly define the terms of “critical minerals,” “components,” and “materials” in this guidance.

Response: DOE declines to make this change. The definitions identified by the commenter are relevant to DOE's interpretative guidance only insofar as it applies to eligibility for the 30D tax credit. The Treasury Department has defined these terms in the relevant regulations.

Comment: Several commenters suggested that the U.S. Government should consider providing extensions of time for compliance with FEOC sourcing rules or waivers of any penalties involving `unintentional' transactions with entities later determined to be FEOCs as the industry tries to implement these new rules. Another commenter expressed strong support for phasing out the Treasury Department's transition rule for non-traceable critical minerals.

Response: DOE's guidance is limited to providing an interpretation of the statutory term “foreign entity of concern,” and related terms. As such, comments related to extensions of time to allow for a transition period, waiver of penalties associated with an unintentional interaction with a FEOC, or transition rule phase-outs are outside the scope of this interpretive guidance.

Comment: One commenter expressed concerns that the Federal government has failed to provide a harmonized definition of the term “foreign entity of concern,” specifically noting its belief that DOE and the Treasury Department, for the purposes of the 30D tax credit, do not have a common definition of FEOC.

Response: DOE and the Treasury Department have harmonized their FEOC definitions for the purposes of implementing the 30D tax credit, as Treasury has incorporated DOE's FEOC guidance into its 30D rule.

Comment: One commenter expressed concern that some critical minerals producers would not be able to certify compliance with FEOC rules because they use a mixture of ingredients from FEOC and non-FEOC sources that cannot be separated physically.

Response: DOE's guidance is limited to providing an interpretation of the statutory term “foreign entity of concern,” and related terms. This comment is out of scope of this interpretive guidance.

Comment: Several commenters requested clarification from DOE as to what sort of documentation and materials DOE would deem sufficient to certify FEOC compliance with the Internal Revenue Service for the purposes of the 30D tax credit and for the battery ledger identified in the Treasury Department's 30D rule. For instance, one commenter asked whether a guarantee letter from a third-party manufacturer or supplier that confirms it is a non-FEOC is sufficient to substantiate its non-FEOC status to the IRS.

Response: DOE's guidance is limited to providing an interpretation of the statutory term “foreign entity of concern” and related terms, and this comment is outside the scope of this interpretive guidance. The due diligence measures required for determining FEOC compliance for purposes of determining eligibility for the 30D tax credit and for DOE's BIL 40207 grant programs are outside the scope of this guidance.

Comment: DOE received several comments, both positive and negative, about the relative merits of the Inflation Reduction Act. Some of these commenters stated that the IRA will support energy reliability, clean energy production, and a variety of other goals. Other commenters stated that IRA provisions limiting eligibility for government incentives ( e.g., excluding new clean cars from eligibility if they source from FEOCs) is discriminatory, protectionist, and violates basic principles of the World Trade Organization.

Response: DOE notes that all of these comments are directed at the underlying statute, which is outside the scope of this interpretive guidance.

The term FEOC, as used in both BIL section 40207 and IRC section 30D, is intended to address upstream supply chains of individual entities that may benefit from direct or indirect Federal government financial support. As such, the interpretations proposed here are intended to be structured as, to the greatest degree possible, bright-line rules that allow individual entities to readily evaluate whether their supply chain includes FEOCs. In the case of the Battery Materials Processing and Battery Manufacturing and Recycling Grants programs in BIL section 40207, a bright-line rule will afford eligible entities using their grants for battery materials processing or advanced battery component manufacturing greater clarity in avoiding using battery materials supplied by or originating from a FEOC; similarly, such a rule will afford those eligible entities using their grants for battery recycling greater clarity in avoiding the export of recovered critical materials to a FEOC.

DOE's final interpretive rule does not make any changes to its interpretation of the term “foreign entity.” To be considered a FEOC under BIL section 40207(a)(5) (42 U.S.C. 18741(a)(5)), the statute requires that the entity be a “foreign entity.” However, section 40207 does not define “foreign entity.”

The interpretation of “foreign entity” in this final guidance aligns closely with the definition of “foreign entity” contained in the 2021 National Defense Authorization Act (NDAA) (15 U.S.C. 4651(6)), which informs certain Department of Commerce programs related to semiconductors. Both the interpretation in this guidance and the 2021 NDAA definitions define foreign entities to include three main categories of entities: (1) a government of a foreign country and a foreign political party; (2) a natural person who is not a lawful permanent resident of the United States, citizen of the United States, or any other protected individual (as such term is defined in 8 U.S.C. 1324b(a)(3) (addressing unfair immigration-related employment practices)); or (3) a partnership, association, corporation, organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country.

DOE's interpretation specifically provides that entities organized under the laws of the United States that are subject to the ownership, control, or direction of another entity that qualifies as a foreign entity will also qualify as “foreign entities” for the purposes of BIL section 40207(a)(5)(C). The 2021 NDAA definition of foreign entity allows for U.S. entities to be considered foreign in this way and also provides an additional list of criteria by which such persons may be considered foreign due to their relationship with the three main categories of foreign entities. While these criteria are relevant for the purposes of the Department of Commerce programs at issue, which are primarily concerned with preventing the transfer of semiconductor technology to covered nation governments, DOE assesses that the criteria are not necessary for the purpose of evaluating covered nation-associated risk to the battery supply chains, because the natural persons and corporate entities that are relevant to the battery supply chain are already encompassed in the identified criteria for “foreign entity.” DOE's interpretation ensures that the government of a covered nation cannot evade the FEOC restriction simply by establishing a U.S. subsidiary, while otherwise maintaining ownership or control over that subsidiary.

DOE's final interpretive rule makes minor, clarifying changes to its interpretation of the term “government of a foreign country.” The term “government of a foreign country” is a term used to determine whether an entity is “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country.” It is also used in the interpretation of “foreign entity” in paragraph (i) of section V.B of this document.

DOE's interpretation of the term “government of a foreign country” contained within this notice includes subnational governments, which can have significant ownership or control of firms in the vehicle supply chain. In the covered nations at issue here, there exist many subnational and local government-owned entities, that play a large role in their nation's economies, and local SOEs are a large driver of regional economies. This term also includes instrumentalities, which include separate legal entities that are organs of a state but where ownership may be unclear, such as a utility or public financial institution. This interpretation aligns with the definition of “foreign government” promulgated by the Department of the Treasury in its regulations implementing the Committee on Foreign Investment in the United States (CFIUS) program (31 CFR 800.221). That definition includes “national and subnational governments, including their respective departments, agencies, and instrumentalities.”

DOE's interpretation of the term “government of a foreign country” also includes senior foreign political figures. This inclusion recognizes the reality of government influence over business entities in covered nations, which is often exercised through individuals representing the government on corporate boards or acting at the direction of the government or to advance governmental interests when serving as an equity owner or through voting rights in an otherwise privately held business. This interpretation aligns with the Defense Department's National Industrial Security Program Operating Manual (NISPOM) regulatory definition of “foreign interest” (32 CFR 117.3) and associated “foreign ownership, control or influence” (FOCI) regulations (32 CFR 117.11), which recognize as FOCI the influence of a representative of a foreign government with the power to direct or decide issues related to a U.S. entity. In addition, in order to deal with the situation in which officials leave their official positions in order to exert the same type of influence on behalf of the government, the interpretation also includes former senior government officials and former senior party leaders. Inclusion of former officials is consistent with regulatory definitions in other contexts. As stated in response to comments above, the guidance does not limit the “former” designation to a particular period of time, as the concerns arising from membership on the CCP bodies identified below, do not dissipate over time just because an individual no longer serves as a member of that body. For example, the Bank Secrecy Act (BSA) private banking account regulations (relating to due diligence program requirements for private banking accounts established, maintained, administered, or managed in the United States for foreign persons) administered by the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) include both current and former officials in the definition of “senior foreign political figure” (31 CFR 1010.605(p)). Those regulations provide further interpretation of the term “senior official” that DOE has also included to provide additional clarity.

DOE's final interpretive rule clarifies that “senior foreign political figure” includes both individuals who are senior officials in the government and senior officials within a dominant or ruling political party, as well as family members of such individuals. In the specific context of the PRC, DOE considers “senior foreign political figure” to include (a) individuals currently or formerly in senior roles within the PRC government, at the central and local levels; (b) individuals currently or formerly in senior roles within the Chinese Communist Party (CCP) and bodies and commissions under the Central Committee; (c) current and former members of the CCP Central Committee, the Politburo Standing Committee, the Politburo, the National People's Congress and Provincial Party Congresses, and the national Chinese People's Political Consultative Conference (CPPCC); and (d) current but not former members of local or provincial CPPCCs.

Finally, the inclusion of immediate family members of senior foreign political figures in the interpretation of “government of a foreign country” aligns with the BSA private banking regulation. Those regulations include the immediate family members of a senior foreign political figure in their definition of “senior foreign political figure” (31 CFR 1010.605(p)(1)(iii)). Immediate family members in those regulations mean spouses, parents, siblings, children, and a spouse's parents and siblings (31 CFR 1010.605(p)(2)(ii)).

DOE's final interpretive rule does not make any changes to its interpretation of the term “subject to the jurisdiction.” If an entity is “subject to the jurisdiction” of a government of a foreign country that is a covered nation, the entity is a FEOC. DOE's interpretation provides an objective standard, consistent with the common understanding of “jurisdiction,” rather than a subjective standard that relies upon an individual nation's understanding of its own jurisdictional reach. As such, the interpretation first recognizes that any organization formed under the laws of the government of a covered nation is a national of that nation and therefore subject to its direct legal reach. Cf. 28 U.S.C. 1332(c)(1) (noting that, for the purposes of diversity jurisdiction, “a corporation shall be deemed to be a citizen of every . . . foreign state by which it has been incorporated and of the . . . foreign state where it has its principal place of business”). In addition and as stated above in response to comments, determining an entity's principal place of business under the guidance should be guided by the United States Supreme Court's formulation in Hertz Corp. v. Friend, in which a principal place of business is considered to be the “place where a corporation's officers direct, control, and coordinate the corporation's activities [and] in practice it should normally be the place where the corporation maintains its headquarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the `nerve center.' ” 559 U.S. 77, 92-93 (2010).

Second, DOE's interpretation accounts for the fact that several critical segments of the battery supply chain today are predominantly processed and manufactured within covered nation boundaries, 1 and recognizes that a covered nation will be able to exercise legal control (potentially forcing an entity to cease production or cease exports) over an entity with respect to any critical minerals that are physically extracted, processed, or recycled, any battery components that are manufactured or assembled, and any battery materials that are processed within those boundaries, even if the entity is not legally formed under the laws of the covered nation. See Fourth Restatement (Foreign Relations) (2018) section 408 (stating that “[i]nternational law recognizes a state's jurisdiction to prescribe law with respect to persons, property, and conduct within its territory”). At the same time, DOE's interpretation recognizes that such an entity, which is not legally formed in a covered nation but has production activities inside a covered nation, may also have separate production activities that occur outside the covered nation. In that case, the covered nation does not have jurisdiction over those outside production activities. Therefore, under the guidance, an entity that is not legally incorporated in a covered nation could nevertheless be considered a FEOC under the jurisdiction prong with respect to the particular critical minerals, battery components, or battery materials that are subject to the jurisdiction of a covered nation. But the entity would not be considered a FEOC with respect to its activities related to other critical minerals, battery components, or battery materials that are not subject to the jurisdiction of a covered nation.

Finally, when an entity is a FEOC due to it being “subject to the jurisdiction” of a covered nation, subsidiaries of the FEOC are not automatically considered to be FEOCs themselves based solely on their parent being a covered nation jurisdictional entity. A subsidiary entity would be considered a FEOC itself, however, if it is also either (1) “subject to the jurisdiction” of the covered nation, pursuant to section V.D of this document, or (2) “controlled by” a covered nation government (including via direct or indirect control, such as through joint ventures, or via contracts that confer effective control to a FEOC), pursuant to section V.E of this document.

DOE's interpretation is supported by statutory and regulatory choices made in similar contexts, including: the 2021 NDAA definition of “foreign entity” (15 U.S.C. 4651(6)); and the NISPOM regulatory definition of “foreign interest” (32 CFR 117.3). The interpretation of “subject to the jurisdiction” provides clarity to original equipment manufacturers (OEM) that removing FEOCs from their supply chain will require removal of any critical minerals, battery components, and battery materials that are directly produced within the boundary of a covered nation.

DOE's interpretive rule is largely consistent with the proposal but makes some clarifying edits in response to comments. If an entity is “owned by, controlled by, or subject to the direction” (hereinafter “control”) of a government of a foreign country that is a covered nation, the entity is a FEOC. The term is also used in paragraph (iv) of DOE's interpretation of foreign entity to account for situations where a U.S. entity is sufficiently controlled to be considered foreign. DOE's interpretation provides for both (1) control via the holding of 25% or more of an entity's board seats, voting rights, or equity interest, and (2) control via license or contract conferring rights on a person that amount to a conferral of control.

As previously stated in response to comments, DOE considered whether to expand the definition of “control” under this interpretive rule to incorporate companies that are controlled by the government of a covered nation by virtue of significant investments by that government of the kind identified by commenters ( e.g., subsidies, grants, or debt financing). However, DOE has not yet identified a sufficiently bright-line rule for such investments that would be administrable by vehicle manufacturers in the context of the Treasury Department's 30D tax credit. Accordingly, DOE declines to make a change to the interpretive guidance at this time, but may incorporate consideration of such government investments into its evaluation of applications for domestic battery material processing, manufacturing, and recycling grants under section 40207 of BIL, or through utilization of the Secretary's exercise of her authority under BIL section 40207(a)(5)(E) to designate an entity a FEOC if it is “engaged in unauthorized conduct that is detrimental to the national security or foreign policy of the United States.” Furthermore, DOE will continue to monitor the battery supply chain market and may consider revisiting this issue in the future through updated interpretive guidance defining control by the government of a covered nation based on significant investments from that government. Any information that may assist DOE in monitoring the battery supply chain market may be submitted to the email address identified in the “For Further Information” section of this document.

DOE's interpretation of control is informed by careful analysis of corporate structure within the battery supply chain. In the battery industry, the primary methods by which a parent entity, including the government of a foreign country, exercises control over another entity is through voting rights, equity interests, and/or its boards of directors. Parent entities may exercise control via majority equity interest, voting rights, or board seats, and also through minority holdings. Furthermore, parent entities may act in concert with other investors to combine minority holdings in order to exercise control. As a result, an effective measure of control is one that considers multiple permutations of majority and minority holdings of equity interest, voting rights, and board seats that can cumulatively confer control. In response to comments, DOE's final interpretation clarifies that each of these metrics—voting rights, equity interests, and board seats—are evaluated independently. As noted above, and assuming no other relevant circumstances, if an entity has 20% of its voting rights, 10% of its equity interests, and 15% of its board seats each held by the government of a covered nation, these percentages would not be combined to equal 45% control, but would result in the entity being controlled at the level of the highest metric ( i.e., 20%), and thus, not considered a FEOC. That said, DOE recognizes that significant levels of government control in all three metrics may still raise concerns. As such, as indicated above in response to comments, DOE may incorporate such considerations into its evaluation of applications for grants under section 40207 of BIL, through utilization of the Secretary's designation authority under BIL section 40207(a)(5)(E), or through revisions to the interpretive guidance upon evidence of evasive gamesmanship with respect to the 25% threshold.

While there are several prominent companies within the battery supply chain that are majority-owned by covered nation governments, particularly in the upstream mining segment, the predominant form of state ownership and influence in most segments of the battery supply chain is through minority shareholding, voting rights, or board seats. DOE has evaluated a range of supply chain entities for which covered nation governments and officials with cumulative holdings between 25% and 50% have meaningful influence over corporate decision-making, even in cases of subsidiary entities operating in other jurisdictions and in the case of multiple minority shareholders acting in concert. However, DOE's assessment of the battery supply chain strongly suggests that minority control can attenuate with multiple tiers of separation between the state and the firm performing the covered activity.

DOE recognizes that a bright-line metric for control will be necessary to ensure that OEMs can feasibly evaluate the presence of FEOCs within their supply chains. Informed by empirical evidence in the battery supply chain and choices made in other regulatory contexts, as discussed further below, DOE's interpretation establishes a 25% threshold and guidance on calculating the attenuation of control in a tiered ownership structure. In the case of majority control by a covered nation government, that control is not diluted such that outright ownership (50%+) confers full control. This ensures that a covered nation government is still considered to control, indirectly, a majority-owned subsidiary of a government-controlled company. However, multiple layers of minority control by a government may become so attenuated that an entity would no longer be classified as a FEOC. This bright-line threshold and guidance on how to calculate control will enable an evaluation of battery supply chains and facilitate any required reporting or certification of whether that supply chain includes products produced by a FEOC. This same analysis applies to joint ventures, such that if the government of foreign country that is a covered nation controls, either directly or indirectly, 25% or more of a joint venture, then that joint venture is a FEOC.

DOE's interpretation is supported by choices made in a variety of statutory and regulatory regimes, while the identified methods of control account for specific circumstances present in the battery industry. DOE takes a broad approach to the interests that count towards the 25% threshold, considering board seats, voting rights, or equity interest. This is consistent with FOCI regulations, which evaluate ownership based on equity ownership interests sufficient to provide “the power to direct or decide issues affecting the entity's management or operations” (32 CFR 117.11(a)(1)). The interpretation that the interests of two entities with an agreement to act in concert may be combined to establish a controlling interest is similar to concepts in Securities and Exchange Commission rules defining beneficial ownership in instances of shareholders acting in concert (17 CFR 240.13d-5) and CFIUS regulations that consider arrangements to act in concert to determine, direct, or decide important matters affecting an entity as one means by which two or more entities may establish control over another entity (31 CFR 800.208(a)). Different thresholds of control are used in different statutory and regulatory contexts ( see, for example, 26 U.S.C. 6038(e)(2), (3) (defining control with respect to a corporation to mean actual or constructive ownership by a person of stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote or 50% of the total value of shares of all classes of stock of a corporation, and control with respect to a partnership to generally mean actual or constructive ownership of a more than 50% capital or profit interest in a partnership); and 26 U.S.C. 368(c) (defining control with respect to certain corporate transactions to mean the ownership of stock possessing at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation)). However, there are a number of analogous regulatory contexts in which a 25% threshold for considering an entity controlled is used. For instance, the Department of Commerce's CHIPS Rule, implementing a very similar FEOC provision, uses a 25% threshold with respect to voting interest, board seats, or equity interest. The State Department, in its International Traffic in Arms Regulation (ITAR) regulations, established a presumption of foreign control where foreign persons own 25% or more of the outstanding voting securities of an entity, unless one U.S. person controls an equal or larger percentage (22 CFR 120.65). FinCEN's BSA private banking account regulations (31 CFR 1010.605(j)(1)(i)) and Beneficial Ownership Reporting Rule (31 CFR 1010.380(d)) also contain 25% ownership thresholds. See also 15 CFR 760.1(c) (defining “controlled in fact” using a 25% threshold for cases where no other person controls an equal or larger percentage of voting securities). In some of these other contexts, the 25% calculation is based on a particular form of control ( e.g., only voting rights). DOE's interpretation broadens the ways in which an entity can be controlled at a 25% level, because doing so accords with statutory concerns related to the corporate structure of the battery industry.

In response to comments above, DOE also clarified that “equity interests” refers to all ownership interests, including capital or profit interests and contingent equity interests. “Contingent equity interests” is a defined term in the CFIUS regulations (31 CFR 800.207), and DOE intends for the concept of contingent equity interests in the interpretive rule to be understood largely consistent with the CFIUS regulations. For the purpose of determining FEOC compliance, the amount of the contingent interest that can be reasonably determined, as understood in 31 CFR 800.308(a)(3), should be included in the 25% control calculation, without consideration of whether conversion is imminent or within the control of the equity-owning entity as set forth in 31 CFR 800.308(a)(1-2).

DOE's interpretation of indirect control includes guidance on how to calculate the attenuation of control in a tiered ownership structure. In the case of majority control at any level, that control is not attenuated such that outright ownership (50%+) confers full control. The proposed approach recognizes the reality that a parent entity that holds a majority of the voting rights, equity interests, or board seats in a subsidiary has unilateral control over that subsidiary and can direct that subsidiary's ability to exercise influence and control over its own subsidiaries. However, in the case of multiple tiers of minority control by a government, the actual ability of the government to influence the operations of a subsidiary may become materially attenuated. This understanding of how to calculate a parent entity's indirect ownership and control of sub-entities is similar to OFAC's 50% Rule, under which “any entity owned in the aggregate, directly or indirectly, 50% or more by one or more blocked persons is itself considered to be a blocked person.” See U.S. Dept. of the Treasury, Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked (Aug. 13, 2014).

As previously stated, when calculating whether an entity is a FEOC based on whether the government of a covered nation directly or indirectly holds 25% or more of its voting rights, equity interest, or board seats, DOE's interpretation would not factor in any voting share, equity interest, or board seats held by an entity that is a FEOC solely by virtue of being subject to the covered nation's jurisdiction.

The following scenarios illustrate indirect control in a multi-tiered ownership structure, which could contain more tiers than illustrated here. For simplicity, these examples only evaluate control via voting rights and assume no other relevant circumstances.

1. If Entity A cumulatively holds 25% of Entity B's voting rights, then Entity A directly controls Entity B. If Entity B cumulatively holds 50% of Entity C's voting rights, then Entities B and C are treated as the same entity, and Entity A also indirectly controls Entity C.

○ If Entity A is the government of a foreign country that is a covered nation, Entities B and C are both FEOCs.

2. If Entity A cumulatively holds 50% of Entity B's voting rights, then Entity A is the direct controlling “parent” of Entity B, and Entities A and B are treated as the same entity. If Entity B cumulatively holds 25% of Entity C's voting rights, then Entity C is understood to be directly controlled by Entity B and indirectly controlled by Entity A.

○ If Entity A is the government of a foreign country that is a covered nation, Entities B and C are both FEOCs.

3. If Entity A cumulatively holds 25% of Entity B's voting rights, then Entity A directly controls Entity B. If Entity B cumulatively holds 40% of Entity C's voting rights, then Entity B directly controls Entity C. However, because Entity A does not hold 50% of the voting rights of Entity B, and Entity B does not hold 50% of the voting rights of Entity C, Entity A's indirect control of Entity C is calculated proportionately (25% × 40% = 10%). Based on that proportionate calculation, Entity A will be considered to hold only a 10% interest in Entity C, which is insufficient to meet the 25% threshold for control contemplated under this proposed guidance.

○ If Entity A is the government of a foreign country that is a covered nation, Entity B is a FEOC. But Entity A holds only a 10% interest in Entity C, which is less than the 25% threshold requirement to deem Entity C controlled by Entity A. Therefore, Entity C is not a FEOC via the indirect control of Entity A.

DOE is concerned that if its interpretation of the term “control” covered only direct and indirect holding of board seats, voting rights, and equity interest by the government of a covered nation, then a government may seek to evade application of the rule by instead exercising its control over a FEOC that enters into a license or contract with a non-FEOC entity such that the non-FEOC serves as the producer of record while the FEOC maintains effective control over production. Because such arrangements would defeat congressional intent, DOE's interpretation of “control” includes “effective control” through contracts or licenses with a FEOC that warrant treating the FEOC as if it were the true entity responsible for any production. DOE's interpretive rule clarifies that “effective control” through a license or contract can be exercised by any entity designated as a FEOC, whether through 25% control by the government of a covered nation or through jurisdiction. The proximity of a FEOC to the government of a covered nation, even when the government does not have a controlling stake in the company, raises similar concerns in the context of a license or contract with a non-FEOC, and the non-FEOC should retain the identified rights to avoid effective control by the FEOC.

Many contractual and licensing arrangements do not raise these concerns. Therefore, to provide a reasonably bright-line test for evaluation of battery supply chains that may include numerous contracts and licenses, DOE's interpretation in section V.E of this document contains a safe harbor for evaluation of “effective control.” A non-FEOC entity that can demonstrate that it has reserved certain rights to itself or another non-FEOC through contract would not be deemed to be a FEOC solely based on its contractual relationships.

DOE also recognizes that even if an entity's contractual relationship with a FEOC confers effective control over the production of particular critical minerals, battery components, or battery materials, for purposes of determining eligibility for the 30D tax credit and for and DOE's BIL 40207 grant program, the contracting entity would not necessarily be controlled by the government of a covered nation for critical minerals, battery components, or battery materials that were not produced pursuant to that contract or license. Therefore, under the guidance, an entity could be considered a FEOC with respect to the particular critical minerals, battery components, or battery materials that are effectively produced by the FEOC under a contract or license but not with respect to other critical minerals, battery components, or battery materials that are produced by the entity outside the terms of the contract or license with a FEOC.

The concept that an entity can be controlled via contract is supported by choices made in various regulatory contexts, including CFIUS regulations that include an understanding that control can be established via contractual arrangements to determine, direct, or decide important matters affecting an entity (31 CFR 800.208(a)). Further, intellectual property can be licensed restrictively, or even misused, to give the intellectual property owner rights beyond the typical ability to exclude others from making, using, selling, and/or copying the intellectual property for a limited time. In this scenario, even if a non-FEOC entity owns a facility, which is not separately 25% controlled by the government of a covered nation, the facility and/or its operations could still be effectively controlled by a FEOC licensor or contractor through other mechanisms. Accordingly, DOE's definition of effective control identifies criteria that would indicate that a license or contract provides the licensor or contractor with the ability to make business or operational choices that otherwise would rest with the licensee or principal. The criteria selected reflect various known mechanisms in restrictive or overreaching licenses, such as lack of access by the licensee or principal to information and data ( e.g., control parameters or specification and quantities of material input for equipment) that are necessary to operate equipment critical to production at necessary quality and throughput levels. This lack of access could be tantamount to the licensor or contractor having effective control over the licensee or principal.

DOE considers this guidance to be a final interpretive rule under the Department's authority to interpret section 40207(a)(5) of the Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5)). As an interpretive rule, this rule is exempt from the notice-and-comment rulemaking requirements of the Administrative Procedure Act (APA) (5 U.S.C. 553(b)(A)). Because no notice of proposed rulemaking is required, the Regulatory Flexibility Act does not require an initial or final regulatory flexibility analysis (5 U.S.C. 603(a), 604(b)).

This interpretive rule is significant guidance under Executive Order 12866 because of the substantial public interest and policy importance with respect to the interpretation of the definition of a FEOC. It also affects a variety of entities and other Federal agencies. This interpretive rule has, thus, been reviewed by the Office of Management and Budget (OMB), Office of Information and Regulatory Affairs (OIRA).

The Department has determined that this final interpretive rule does not impose any new or revise any existing recordkeeping, reporting, or disclosure requirements on the public that would be considered information collections requiring approval by the OMB in accordance with the Paperwork Reduction Act (44 U.S.C. 3501-3521).

Finally, as required by 5 U.S.C. 801, DOE will report to Congress on the promulgation of this interpretive rule prior to its effective date. The report will state that OIRA has determined that the rule does not meet the criteria set forth in 5 U.S.C. 804(2).

DOE clarifies the term “foreign entity of concern” by providing interpretations for the following terms within BIL section 40207(a)(5)(C) (42 U.S.C. 18741(a)(5)(C)): “foreign entity;” “government of a foreign country;” “subject to the jurisdiction;” and “owned by, controlled by, or subject to the direction.” These terms are interpreted separately, recognizing that the terms have unique meaning. DOE also interprets additional terms as necessary to provide clarity.

For DOE's final guidance, an entity is determined to be a FEOC under BIL section 40207(a)(5)(C) if it meets the definition of a “foreign entity,” (section V.B of this document) and either is “subject to the jurisdiction” of a covered nation government (section V.D of this document) or is “owned by, controlled by, or subject to the direction” (section V.E of this document) of the “government of a foreign country” (section V.C of this document) that is a covered nation.

DOE interprets “foreign entity” to mean:

(i) A government of a foreign country;

(ii) A natural person who is not a lawful permanent resident of the United States, citizen of the United States, or any other protected individual (as such term is defined in 8 U.S.C. 1324b(a)(3));

(iii) A partnership, association, corporation, organization, or other combination of persons organized under the laws of or having its principal place of business in a foreign country; or

(iv) An entity organized under the laws of the United States that is owned by, controlled by, or subject to the direction (as interpreted in subsection E) of an entity that qualifies as a foreign entity in paragraphs (i)-(iii).

DOE interprets “government of a foreign country” to mean:

(i) A national or subnational government of a foreign country;

(ii) An agency or instrumentality of a national or subnational government of a foreign country;

(iii) A dominant or ruling political party ( e.g., Chinese Communist Party (CCP)) of a foreign country; or

(iv) A current or former senior foreign political figure.

Senior foreign political figure means (a) a senior official, either in the executive, legislative, administrative, military, or judicial branches of a foreign government (whether elected or not), (b) a senior official of a dominant or ruling foreign political party, and (c) an immediate family member (spouse, parent, sibling, child, or a spouse's parent and sibling) of any individual described in (a) or (b). In order to be considered “senior,” an official should be or have been in a position of substantial authority over policy, operations, or the use of government-owned resources.

DOE interprets that a foreign entity is “subject to the jurisdiction” of a covered nation government if:

(i) The foreign entity is incorporated or domiciled in, or has its principal place of business in, a covered nation; or

(ii) With respect to the critical minerals, components, or materials of a given battery, the foreign entity engages in the extraction, processing, or recycling of such critical minerals, the manufacturing or assembly of such components, or the processing of such materials, in a covered nation.

DOE interprets that an entity is “owned by, controlled by, or subject to the direction” of another entity (including the government of a foreign country that is a covered nation) if:

(i) 25% or more of the entity's board seats, voting rights, or equity interest, with each metric evaluated independently, are cumulatively held by that other entity, whether directly or indirectly via one or more intermediate entities; or

(ii) With respect to the critical minerals, battery components, or battery materials of a given battery, the entity has entered into a licensing arrangement or other contract with another entity (a contractor) that entitles that other entity to exercise effective control over the extraction, processing, recycling, manufacturing, or assembly (collectively, “production”) of the critical minerals, battery components, or battery materials that would be attributed to the entity.

Cumulatively held. For the purposes of determining control by a foreign entity (including the government of a foreign country), control is evaluated based on the combined interest in an entity held, directly or indirectly, by all other entities that qualify under the above interpretation of “foreign entity.” Additionally, if an entity that qualifies as a “government of a foreign country that is a covered nation” enters into a formal arrangement to act in concert with another entity or entities that have an interest in the same third-party entity, the cumulative board seats, voting rights, or equity interests of all such entities are combined for the purpose of determining the level of control attributable to each of those entities.

Indirect control. For purposes of determining whether an entity indirectly holds board seats, voting rights, or equity interest in a tiered ownership structure:

• If a “parent” entity (including the government of a foreign country) directly holds 50% or more of a “subsidiary” entity's board seats, voting rights, or equity interest, then the parent and subsidiary are treated as equivalent in the evaluation of control, as if the subsidiary were an extension of the parent. As such, any holdings of the subsidiary are fully attributed to the parent.

• If a “parent” entity directly holds less than 50% of a “subsidiary” entity's board seats, voting rights, or equity interest, then indirect ownership is attributed proportionately.

Section III.E.i of this document, contains multiple examples illustrating how to determine when an entity is indirectly controlled under this interpretive rule.

Effective control means the right of the FEOC contractor, whether the entity is a FEOC via 25% control or via jurisdiction, in a contractual relationship to determine the quantity or timing of production; to determine which entities may purchase or use the output of production; to restrict access to the site of production to the contractor's own personnel; or the exclusive right to maintain, repair, or operate equipment that is critical to production.

In the case of a contract with a FEOC, a contractual relationship will be deemed to not confer effective control to the FEOC if the applicable agreement(s) reserves expressly to one or more non-FEOC entities all of the following rights:

(i) To determine the quantity of critical mineral, component, or material produced (subject to any overall maximum or minimum quantities agreed to by the parties prior to execution of the contract);

(ii) To determine, within the overall contract term, the timing of production, including when and whether to cease production;

(iii) To use the critical mineral, component, or material for its own purposes or, if the agreement contemplates sales, to sell the critical mineral, component, or material to entities of its choosing;

(iv) To access all areas of the production site continuously and observe all stages of the production process; and

(v) At its election, to independently operate, maintain, and repair all equipment critical to production and to access and use any intellectual property, information, and data critical to production, for the duration of the contractual relationship.

The Secretary of Energy has approved publication of this notification of final interpretive rule.

This document of the Department of Energy was signed on April 18, 2024, by Giulia Siccardo, Director, Office of Manufacturing and Energy Supply Chains, pursuant to delegated authority from the Secretary of Energy. That document with the original signature and date is maintained by DOE. For administrative purposes only, and in compliance with requirements of the Office of the Federal Register, the undersigned DOE Federal Register Liaison Officer has been authorized to sign and submit the document in electronic format for publication, as an official document of the Department of Energy. This administrative process in no way alters the legal effect of this document upon publication in the Federal Register .

I. Executive Summary

The Office is adopting the Final Rule to establish an ongoing data collection for certain non-centrally cleared bilateral transactions in the U.S. repo market. The Final Rule will require reporting by certain covered reporters for repo transactions that are not centrally cleared and have no tri-party custodian. The purpose is to enhance the ability of the Council, Council member agencies, and the Office to identify and monitor risks to financial stability. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), the Office is authorized to issue rules and regulations to collect and standardize data that supports the Council in fulfilling its duties and purposes, such as identifying risks to U.S. financial stability. In a 2022 statement on nonbank financial intermediation, the Council supported a recommendation that the Office consider ways to obtain better data on the NCCBR market segment, and in July 2022 and February 2024, the Office consulted with the Council on efforts to collect NCCBR data. 1

This collection requires reporting on NCCBR transactions, which currently comprise the majority of repo activity by several key categories of financial companies, such as hedge funds. This collection will provide visibility and transparency into a crucial segment of the U.S. repo market, the one remaining market segment for which transaction-level data is not available to regulators. 2

Collection of information on the NCCBR segment of the repo market is critical to understanding potential financial stability risks. The data to be collected under the Final Rule will enable the Office to monitor risks in this market. Because the Council's duties relate to monitoring and responding to potential financial stability risks, the collection will support the Office's statutory mandate to support the work of the Council.

The Office issued its Notice of Proposed Rule Making (“NPRM” or “proposed rules”) for a 60-day public comment period, ending on March 10, 2023. 3 In response, the Office received more than 30 comment letters conveying a range of perspectives. 4 Although the majority of commenters supported the proposed collection, noting the potential benefits to the monitoring of risks to financial stability, several identified issues that the Office has addressed in the discussion below and, in some cases, through regulatory text changes reflected in the Final Rule. In making these changes, the Office intends to minimize the burden of the Final Rule while ensuring that the purposes of the collection as expressed in the NPRM and below are met.

Since the publication of the NPRM, two new regulations were adopted that are relevant to the Office's collection. The Office believes that one of these will materially affect this collection. On December 13, 2023, the U.S. Securities and Exchange Commission (SEC) adopted rules under the Securities Exchange Act of 1934 (“Exchange Act”) to amend the standards applicable to covered clearing agencies for U.S. Treasury securities. The final rules require that every direct participant of the covered clearing agency submit for clearance and settlement all repo activity collateralized by U.S. Treasury securities to which it is a counterparty (the “SEC's central clearing rules”). 5 On February 6, 2024, the SEC also adopted new rules to further define the phrase “as part of a regular business” as used in the statutory definitions of “dealer” and “government securities dealer.”  6 The Office has considered the likely impact of these rules on its NCCBR collection, as described below.

The following discussion summarizes the proposed rules, the comments received, and the Office's responses to those comments, including modifications reflected in the Final Rule.

As noted in the NPRM, the collection of data pursuant to this Final Rule will support the Council, its member agencies, and the Office in carrying out their responsibilities through the use of the data to identify and monitor potential financial stability risks in the U.S. repo market.

The repo market can be divided into four segments, which span the different combinations of centrally cleared and non-centrally cleared, tri-party, and bilateral repo. 7 For three of these segments, data are currently collected by regulators. The collection under the Final Rule has been designed to fill a critical gap in regulators' information on the overall repo market by collecting data on the NCCBR segment, the last segment for which regulators do not have a transaction-level data source.

As noted in the NPRM, the need for a collection of data on this segment of the market to assist policymakers' understanding of the repo market has been recognized by the Council since 2016, when it first called for the Office to establish a permanent repo data collection. 8 This lack of visibility was felt acutely following two recent episodes of stress in repo markets. The first of these recent episodes involved a spike in repo market rates in September 2019 and the second a decline in Treasury prices, which spilled over to the repo market through higher rates, in March 2020. For both of these episodes, substantial portions of activity in these crucial funding markets could not be observed. In the wake of these episodes, market participants and the official sector have pointed to this segment as a critical blind spot in a market that plays a key role in financial stability. 9

Both of these episodes illustrate that the NCCBR market segment may be subject to the systemic vulnerabilities discussed below and perhaps has become even more central to the functioning of U.S. securities and short-term funding markets. Though these vulnerabilities are present to a greater or lesser extent across the four segments of the repo market, certain characteristics of the NCCBR segment may be especially prone to such vulnerabilities and exacerbate the risks in other segments.

In the NPRM, the Office noted the framework set forth in its centrally cleared repo rule  10 for understanding activity in the overall repo market and the associated vulnerabilities across five functions that repo provides: (1) a low-risk cash investment, (2) monetization of assets, (3) transformation of collateral, (4) facilitation of hedging, and (5) more generally, a support for secondary market liquidity and pricing efficiency. 11

Certain characteristics of the NCCBR market segment may increase the potential for risks to financial stability relative to other segments. However, data gaps have limited the ability of financial regulators to monitor risks and vulnerabilities in this segment. Additionally, because abrupt changes in these characteristics can have financial stability consequences, addressing data gaps is important.

The NPRM highlighted collateral risk as a key motivation for the collection. The NCCBR market segment generally involves riskier collateral than other repo segments, because centrally cleared markets are limited to Fedwire-eligible collateral, such as Treasuries and agency bonds. Data from the Federal Reserve Bank of New York's Primary Dealer Statistics show that 95% of primary dealer repo lending against non-Fedwire-eligible collateral (including asset-backed securities, corporate debt, and other securities) is conducted through the NCCBR market segment. These collateral types are riskier than Treasury and agency securities. Supported by riskier collateral, the NCCBR market segment may be more exposed to the risks associated with monetizing assets.

The NCCBR market segment also has counterparty complexity that warrants attention. Many counterparties in this market are not as active in the centrally cleared or tri-party repo markets, which are market segments about which more data are available to financial regulators. The NCCBR market segment facilitates a large amount of cash borrowing by highly leveraged entities such as hedge funds. 12 As a result, financial regulators and market participants do not have sufficient information on the overall complexity and extent of hedge funds' daily repo borrowing to assess potential risks. For instance, financial regulators did not have access to sufficient data to understand the risk management practices of Long-Term Capital Management (LTCM). 13 LTCM, a hedge fund that failed in 1998, built up large counterparty exposures through NCCBR. 14 The firm conducted its repo and reverse-repo transactions with 75 different counterparties, many of which were reportedly unaware of the nature of LTCM's total exposure. These large exposures created through repo were a key source of systemic stress from LTCM's failure, as liquidations of the underlying collateral in bankruptcy could have resulted in significantly depressed prices and broader market disruptions. 15 While transparency into other segments of the repo market has increased since 1998, the NCCBR market segment has remained opaque.

NCCBR market participants engage in varying risk management conventions, but insufficient information regarding these conventions is available to enable an assessment of their efficacy. These conventions include, but are not limited to, margining and settlement practices. For instance, the variation in margining practices across competing intermediaries may create competitive pressures that drive margins to lower levels than what prudent risk management would indicate. 16 There may also exist widely subscribed margining practices which could exacerbate financial stability vulnerabilities in times of stress. For instance, the cross-margining of repo, derivatives, and futures exposures could result in lower precautionary risk buffers, even in the presence of leverage, than if cross-margining practices were not in place. In times of stress, inadequate margins may be insufficient to buffer payment failures between firms and can result in consequential financial contagion. Additionally, risks exist in relation to operational aspects of the transaction lifecycle. For instance, the Treasury Market Practices Group found that settlement practices vary widely and expressed concern that “bespoke bilateral processes may reflect differences in the level of understanding among market participants of the inherent risks of Securities Financing Transaction (SFT) clearing and settlement.”  17 Collectively, NCCBR risk management concerns interrelationships between firms within this and other markets and spans risks that are not uniquely contained in the NCCBR segment.

Activity across the different segments of the repo market is linked. For example, the NCCBR market segment can serve as a close substitute for centrally cleared bilateral repo. This is particularly the case in the sponsored segment of the market for customers that are not direct clearing members of the Fixed Income Clearing Corporation (FICC), a subsidiary of the Depository Trust & Clearing Corporation, such as hedge funds and money market funds. These customers can participate in transactions with clearing members and have such transactions submitted to FICC for central clearing. As a result, migration to and from sponsored repo is also an area of interest for regulators concerned with a proper assessment of dealer balance sheets. Activity may move between sponsored repo and NCCBR in times of stress or in response to incentives created by financial reporting dates. Dealers' decisions to transact in NCCBR or in sponsored repo may also be affected by factors that affect the degree to which various constraints are binding for the dealers, including regulatory ratios and counterparty credit limits. Examples of these factors include changes in the supply of cash to the repo market from money market funds and the netting benefits provided by sponsored repo. To understand these shifts between NCCBR and sponsored repo, data on outstanding commitments in the NCCBR market segment are required.

The development of guaranteed repo is another factor that may affect flows between NCCBR and sponsored repo. A guaranteed repo is a repo in which the performance of one or both counterparties are guaranteed by a third-party guarantor. This is typically, but not exclusively, used to account for potential variation in value of the collateral provided by the cash borrower. Because guaranteed repo replicates the profile of offsetting legs of the same repo transaction with different counterparties yet has different balance sheet implications, guaranteed repo may be an alternative to sponsored repo. Since guaranteed repos would represent a similar exposure to offsetting repo transactions, it is essential to include these activities in this collection to gain a full understanding of the NCCBR segment of the repo market.

In addition to the specific data gaps noted above, because the NCCBR market segment has no central counterparty or tri-party custodian and due to the lack of transparency, lack of standardized risk management practices, the presence of riskier collateral underlying some trades, and counterparties with large exposures in the market, these data will provide insights into potential financial system vulnerabilities. 18 Many of the counterparties involved in the NCCBR segment, such as non-banks and non-primary dealers, are difficult to monitor with existing regulatory collections. Transaction-level data will provide the official sector with the granularity necessary to understand the exposures of market participants on a high-frequency basis. This is essential in a market where monthly or quarterly reporting may not provide timely indications of future stress or provide detailed data on recent periods of stress. Additionally, data on collateral will enable regulators to monitor exposures to particular classes of securities, margining practices that protect participants from fluctuations in collateral values, and the potential transmission of stress from the repo markets to securities markets or other markets. Timestamps and details of trading venues will allow regulators to monitor activity in a market that is often segmented and in which intraday liquidity concerns can play a key role in the creation or propagation of stress.

Thus, the collection of transaction-level data on the NCCBR segment of the repo market marks a significant step in carrying out the Council's recommendation to expand and make permanent the collection of data on the U.S. repo market. 19 It will assist the Council's effective identification and monitoring of emerging threats to the stability of the U.S. financial system by closing the remaining gap in coverage of the U.S. repo market, following the Office's previous rulemaking on the centrally cleared repo market. By collecting data from certain brokers, dealers, and other financial companies with more than $10 billion in extended guarantees and outstanding NCCBR cash borrowing, the Office initially expects to observe more than 90% of NCCBR transactions by volume, with approximately 40 covered reporters in Category 1 (as discussed below) expected at the time of publication of the Final Rule.

On December 13, 2023, the SEC adopted a final rule on central clearing in the U.S. Treasury market, and on February 12, 2024, the SEC adopted a final rule expanding dealer registration. This section discusses the effects of these rules on the Office's collection under the Final Rule.

The SEC's central clearing rules, adopted December 13, 2023, are designed to facilitate additional clearing of transactions involving U.S. Treasury securities. The rules require covered clearing agencies in the U.S. Treasury market to require that any direct participant of such covered clearing agency submit for clearance and settlement all the eligible secondary-market transactions to which the direct participant is a counterparty. 20 The compliance date for the SEC's requirements for the central clearing of repo transactions is June 30, 2026. After that date, the Office anticipates that a large portion of Treasury repo transactions will migrate from the NCCBR segment to the centrally cleared segments.

The Office has considered the effect of the SEC's central clearing rules on the riskiness of transactions that will remain in the NCCBR segment, the size of the NCCBR segment, the Office's coverage of the NCCBR segment, and the Office's coverage of repo transactions overall.

The Office expects transparency and financial stability of the repo market to improve following the implementation of the SEC's central clearing rules. However, the Office's collection will continue to be essential for monitoring a substantial portion of the riskiest trades in the repo market and will provide visibility into a segment that may grow and change in response to future developments.

Impact on the riskiness of NCCBR transactions: One reason that the collection of data from the NCCBR segment will remain important is that this segment will retain substantially all of the risks described above. While Treasury repo trades by financial companies that are members of covered clearing agencies will largely be centrally cleared as a result of the SEC's central clearing rules, the remaining trades will likely be riskier, such as those backed with lower-quality collateral or those with smaller, riskier financial companies that currently cannot be members of clearing agencies. Because the FICC is limited to Fedwire-eligible collateral, considerable volume in the NCCBR segment is backed by collateral that is generally considered to be riskier, such as private-label asset backed securities (ABS) and corporate debt. 21 22 This collateral will comprise a larger share of the NCCBR segment after the migration of Treasury repo to central clearing. Similarly, the FICC imposes certain limits on direct membership that ensure only sounder counterparties can become direct and sponsoring members. Thus, after the SEC's central clearing rules are fully implemented, the remaining trades in the NCCBR segment will generally be conducted by riskier counterparties.

Impact on the size of the NCCBR segment: The Office expects the size of the NCCBR segment to shrink significantly when most Treasury -collateralized repo activity moves to central clearing. Although there is uncertainty associated with the effect of the SEC's central clearing rules on the structure of the repo market, the Office expects the rules to change the scope of the transactions reported under the Final Rule due to the reduction in the total volume of transactions in the NCCBR segment. In the NPRM, the Office estimated that the proposed rules' coverage of the NCCBR segment would be greater than 90%; using the same methodology, this segment coverage would decline to 75% after implementation of the SEC's central clearing rules.

However, because the NCCBR segment will materially change following full implementation of the SEC's central clearing rules, different estimation methodologies might be warranted. Accordingly, the Office developed two additional estimates. The first estimate assumes that all Treasury-collateralized repo activity moves into central clearing following full implementation of the SEC's central clearing rules. The second estimate assumes a modest amount of Treasury-collateralized repo remains in NCCBR. Certain exemptions to the SEC's central clearing rules make this modest amount realistic, as discussed below.

In the first estimate, the collection would cover 56% of the remaining NCCBR segment volume. The Office believes that this scenario is unlikely because it assumes that all Treasury repo will migrate to central clearing. In the second estimate, the collection would cover 75% of NCCBR volume if as little as 15% of the Treasury volume remains in the NCCBR segment. The assumption that 15% of volume remains is reasonable because certain Treasury-collateralized repo transactions are exempt from the SEC central clearing rules, including certain inter-affiliate trades. The Office's 2022 NCCBR pilot data collection suggests that the percentage of total NCCBR trading volume that is inter-affiliate may be much greater than 15%.

In addition, other Treasury repo transactions may be exempt from central clearing because they are not allowed under the FICC's sponsored clearing model. For example, trades with embedded optionality, such as open repos, are not allowed in sponsored repo, and it is uncertain how many of those trades will remain in the NCCBR segment after full implementation of the SEC's central clearing rules. Exceptions to the SEC's central clearing rules could therefore result in the collection covering more than 75% of the remaining NCCBR volume.

Under these two estimates, the NCCBR market segment would shrink from $2.3 trillion daily outstanding volume as of Q4 2021 to between roughly $300 billion and $600 billion daily outstanding volume. Although this will be a significant reduction in the size of the NCCBR segment, the Office believes a market of this size is large enough to warrant continued monitoring in light of the risks particular to this segment, as highlighted above and considered further below. A number of multibillion-dollar market segments are important to financial stability and are subject to reporting. For example, the Office currently collects information on the centrally cleared tri-party segment of the market, conducted under FICC's General Collateral Finance (GCF) Repo Service, which had $450 billion outstanding on January 22, 2024. While the GCF segment is similar in magnitude to what the Office projects for the NCCBR collection subsequent to the implementation of the SEC's central clearing rules, collateral quality is much lower in the NCCBR segment, because GCF is limited to Treasury and agency collateral. Further, counterparty risk in NCCBR is higher both because of the presence of a central counterparty in GCF and because FICC imposes limits on direct membership.

Additionally, although the sizes of exposures to the NCCBR segment are likely to be smaller once the SEC's central clearing rules are implemented, exposures of this scale can still pose risks to financial stability. For example, the Council's Hedge Fund Working Group found that the failure of Archegos Capital, which had approximately $30 billion in capital borrowed through total return swaps that are in many ways similar to NCCBR transactions, “transmitted material stress to large, interconnected financial institutions.”  23

Impact on the collection's coverage of the NCCBR segment: As stated above, the Office expects that the collection will cover between 56% and 75% of the transaction volume that remain in the NCCBR market segment. Because overall volumes in the NCCBR segment will decrease, the Office also expects the number of covered reporters to decrease. The Office estimates the number of covered reporters to decrease from 40 to 6 to 15, respectively, under the two estimates described above.

Notwithstanding these changes, the Office believes collecting this data remains important. The remaining entities in this market will continue to be the largest participants in the repo market, and this market will still make up a material portion of their balance sheets, so capturing this exposure will be important for monitoring how financial stress in the NCCBR segment might spill over into the other segments of the repo market. The Office continues to view the $10 billion exposure threshold as a reasonable size for a financial company to be considered material in this segment and notes that although the NPRM included a question on this threshold, no commenters expressed concern with this number. Additionally, the Office believes that reporting by Category 1 and Category 2 covered reporters (as discussed below) with exposures above this threshold will provide material coverage of the NCCBR segment to monitor risks without imposing undue reporting burdens on the industry.

As further support for maintaining the $10 billion materiality threshold proposed in the NPRM, the Office notes that even exposures below the $10 billion threshold can have financial stability consequences, especially in short-term funding markets such as the repo market where run risk is present. For instance, the run on the Reserve Primary Fund, a money market mutual fund that failed to redeem investors at the $1.00 net asset value per share in September 2008 following the collapse of Lehman Brothers, was triggered by the fund's exposure to $785 million of commercial paper issued by Lehman Brothers. This exposure was far less than the Office's aggregate repo cash borrowing threshold of $10 billion in NCCBR, yet the Reserve Primary Fund contributed materially to a crisis of confidence in the financial system. The risks were illustrated by a 2013 study that found an additional 20 money market mutual funds faced par redemption challenges similar to the Reserve Primary Fund during the same week. 24 While those money market mutual fund exposures may have varied, the financial instability resulted from a source much smaller than the materiality threshold in the Final Rule.

Impact on the Office's overall coverage of the repo market: The combination of the SEC's central clearing rules and the Office's NCCBR data collection will significantly improve visibility into transactions that currently take place in the NCCBR segment. While the SEC's rules will have the effect of channeling more Treasury repo transactions into central clearing, the Office's Final Rule will cover data gaps that currently exist and could develop in NCCBR. Additionally, the Final Rule will provide transparency with respect to potential future market changes. An example of such a change is guaranteed repo, which could emerge as an alternative to centrally cleared repo. The Final Rule will provide insight into any changes in the size of the NCCBR market segment. Further, the Final Rule will provide transparency into repo activity involving collateral that is not eligible for central clearing. Therefore, after the implementation of the SEC's central clearing rules, the NCCBR collection will continue to fill a critical data gap because without the collection, regulators would have limited insight into risks in this segment.

On February 6, 2024, the SEC adopted new rules to further define the phrase “as a part of a regular business” as used in the statutory definitions of “dealer” and “government securities dealer.”  25 These new rules could affect the collection under the Final Rule because, as described in the NPRM and below, registered dealers and government securities dealers are subject to the requirement to report their transactions to the Office if their NCCBR activity exceeds the materiality threshold in the Final Rule. While the SEC's recent amendments will expand the population of dealers and government securities dealers, those changes are unlikely to expand the number of NCCBR covered reporters at this time, because companies that are newly defined as dealers or government securities dealers are unlikely to pass the materiality threshold in the Final Rule. The Office expects that substantially all newly registered dealers and government securities brokers and dealers will be either principal trading firms (PTFs) or hedge funds employing high-frequency trading (HFT) strategies. In both cases, these firms employ strategies that involve rapid trading throughout the day, matching buyers and sellers, and exploiting spreads between bid and ask prices. For firms that do not carry significant inventories, like some PTFs or HFTs, participation in repo is likely negligible since they have no inventories to fund. As a result, the Office expects that few, if any, of the additional firms registering as dealers or government securities dealers under the SEC's recent amendments will be subject to NCCBR reporting, so the implementation of these SEC rules should have limited effect on the NCCBR collection.

The data to be collected pursuant to the Final Rule will be used by the Office to fulfill its purpose, responsibilities, and duties under Title I of the Dodd-Frank Act, including improving the Council's and Council member agencies' monitoring of the financial system and identification and assessment of potential financial stability risks. The data reported in this collection will facilitate the identification and evaluation of potential repo market vulnerabilities and trends that could be destabilizing or indicate stresses in the financial system. For example, risks might be reflected in indicators of the volume or cost of funding in the repo market, differentiated by the type and credit quality of participants, quality of underlying collateral, and tenor of transactions. Analyzing the collateral data from this collection together with other available data will enable a clearer understanding of collateral flows in securities markets and associated potential financial stability risks.

One use of the data will be to monitor the transition between the time that the NCCBR collection commences and when, under the SEC's central clearing rules, certain Treasury repo trades will be required to migrate to central clearing. 26 The NCCBR collection will provide contemporaneous information to regulators and policymakers on the progress of market participants in moving to central clearing. Because the SEC's central clearing rules will involve significant changes in market structure and there is uncertainty regarding how markets will respond to its implementation, this information on progress and risks associated with the transition will be invaluable.

The Office may also use the data to sponsor and conduct additional research. This research may include using these data to help fulfill the Office's duties and purposes under the Dodd-Frank Act relating to the responsibility of the Office's Research and Analysis Center to support the Council. 27 For example, access to data on NCCBRs will allow the Office to conduct research related to the Council's monitoring of potential risks arising from securities financing activities and nonbank financial companies.

As noted in the NPRM, and consistent with the Dodd-Frank Act, the Office may share the data collection and information with the Council, Council member agencies, and the Bureau of Economic Analysis and will also make the data available to the Council and member agencies as necessary to support their regulatory responsibilities. The NPRM also noted that data and information shared as described above must be maintained with at least the same level of security as used by the Office and may not be shared with any individual or entity without the permission of the Council. Such sharing will be subject to the confidentiality and security requirements of applicable laws, including the Dodd-Frank Act. 28 Pursuant to the Dodd-Frank Act, the submission of any non-publicly available data to the Office under this collection will not constitute a waiver of or otherwise affect any privilege arising under federal or state law to which the data or information is otherwise subject. 29

After consulting with Council member agencies as consistent with the Dodd-Frank Act, the Office further advised in the NPRM that certain data, including aggregate or summary data from this collection, may be provided to financial industry participants and the general public to increase market transparency and facilitate research on the financial system. In doing so, it is important that intellectual property rights are not violated, business confidential information is properly protected, and the sharing of such information poses no significant threats to the U.S. financial system. 30

Commenters identified concerns about data privacy and security, anonymization, and aggregation of the data when disclosing data as described above. One commenter encouraged the Office to require in the Final Rule that data be anonymized and aggregated prior to being disclosed to the public. One commenter stated that anonymization and aggregation of publicly reported data was required to prevent covered reporters from violating privacy regulations or contractual confidentiality terms. Other commenters indicated that disclosure of data not anonymized or aggregated could lead to negative effects for markets and market participants and depending on the timing and nature of the disclosure, disclosure of even aggregate repo transactions could inadvertently reveal proprietary information of financial companies. One comment letter recommended that the Office consult in advance with market participants regarding the timing and granularity of any disclosure. Another commenter recommended that public disclosure occur after two business days from the date of the report.

The Office reiterates that data will be available to the public and financial industry participants only to the extent that intellectual property rights are not violated, business confidential information is properly protected, and the sharing of such information poses no significant threats to the U.S. financial system. 31 The Office further confirms that it will not disclose raw data to the public and that any work product disclosed to the public will consist only of anonymized, aggregated, or otherwise masked data.

One comment letter requested that the Office clarify how it will anonymize the aggregated data for public reporting. The Office employs a number of techniques to protect underlying raw data from public disclosure, including the use of anonymization, summaries, aggregation, masking, compliance with applicable data security and privacy laws, and compliance with internal review and approval protocols designed to protect the underlying data from public disclosure.

One commenter recommended that when sharing data from the collection with other regulators, the Office should make clear that the information is confidential and subject to all applicable laws and regulations regarding subsequent sharing of the information. The commenter also recommended that Office employees and consultants be subject to additional confidentiality requirements regarding the use or dissemination of data collected under the Final Rule. Another comment letter requested that the Office specify any IT security protocols that will be used to guarantee the security of the data that will be collected. The Office has a statutory responsibility to ensure that data collected by the Office is kept securely and protected from unauthorized disclosure; and data shared with other regulatory agencies must be maintained with at least the same level of security as is used by the Office. 32 Additionally, for purposes of preventing unauthorized access to data or loss of data, the Federal Information Security Modernization Act of 2014 (FISMA) requires that federal agencies, including the Office and federal regulatory agencies, provide information security protections commensurate with the risk and magnitude of harm resulting from unauthorized access, use, or disclosure of information collected by or on behalf of an agency. The information collected pursuant to the Final Rule will be handled in accordance with the Office's data access, security, and control policies and procedures. The Office will comply with applicable privacy and data protection laws and regulations, including but not limited to FISMA, and will require that any regulatory agencies that receive business confidential information utilize appropriate confidentiality and security protocols in compliance with FISMA and other applicable laws.

The regulatory text lists the requirements specifically relevant to this collection. This includes a table describing the data elements that covered reporters will be required to submit. As outlined below, the Office is publishing reporting instructions and technical guidance on the Office's website regarding matters such as data submission mechanics and formatting in connection with the Final Rule.

The Final Rule establishes the scope of entities subject to reporting. Specifically, reporting is required by financial companies (as defined in the Final Rule) that fall within either of two categories:

• Category 1: a securities broker, securities dealer, government securities broker, or government securities dealer whose average daily outstanding commitments to borrow cash and extend guarantees in NCCBR transactions with counterparties over all business days during the prior calendar quarter is at least $10 billion, 33 and

• Category 2: any financial company that is not a securities broker, securities dealer, government securities broker, or government securities dealer and that has over $1 billion in assets or assets under management, whose average daily outstanding commitments to borrow cash and extend guarantees in NCCBR transactions, including commitments of all funds for which the company serves as an investment adviser, with counterparties that are not securities brokers, securities dealers, government securities brokers, or government securities dealers over all business days during the prior calendar quarter is at least $10 billion.

The Office intends to consider a financial company to have assets or assets under management exceeding $1 billion if the company meets one or more of the following criteria:

• if the firm is an investment adviser registered pursuant to the Investment Advisers Act of 1940 provides continuous and regular supervisory or management services to securities portfolios valued in the aggregate at $1 billion or more in assets under that law;

• if the firm files a required disclosure of its balance sheet with a federal or state financial regulator and has more than $1 billion in assets under any such disclosure;

• if the firm discloses its assets to investors or creditors in audited financial statements, and has more than $1 billion in assets under that disclosure;

• if the firm has disclosed assets in filings with the Internal Revenue Service and has more than $1 billion in assets under that disclosure.

As noted in the NPRM, the Office distinguishes between assets and assets under management in the criteria above in light of the manner in which an agent acts on the part of other parties. Investment advisers provide investment management services as fiduciaries, using a wide variety of models and vehicles. They engage in activities such as entering into repo, acting as cash borrowers, and buying and selling derivatives on behalf of clients. These activities can take place at the managed fund or portfolio level or at the adviser level with the resulting trades subsequently allocated to their managed funds or portfolios. Unlike other financial companies, the value of these assets is not fully reflected on the balance sheet of the adviser. As a result, the use of assets under management better represents the market value of investment activities provided and should be used in the threshold computation.

The Office received several comments relating to investment advisers within the framework of the proposed rules. One commenter stated that reporting by an investment adviser based on its aggregate assets under management is inappropriate, as investment advisers merely execute investment strategies on behalf of their managed funds, with each fund having an individualized strategy that may include repo transactions. It further stated that trading of fund assets and positions is never executed with the adviser as the principal obligor, but rather must be allocated to the appropriate fund as the principal obligor. The commenter suggested that the Office instead use the assets under management of individual funds since, notwithstanding any execution of trades on a bunched or similar basis, each individual fund is the principal obligor, and the investment adviser must act consistent with each fund's investment strategy. As the commenter acknowledged, trading may be executed on a bunched basis across multiple funds to obtain consistent pricing for each fund with allocation to individual funds to follow, consistent with the Office's stated reasoning for aggregating assets across funds in the calculation of assets under management. These transactions are conducted on the adviser level, and the Office believes that limiting the threshold calculation to individual funds would lead to an incomplete picture of the repo market, because the data would no longer contain the necessary context for determining the financial stability risks implied by an investment adviser's transactions. For example, margining practices are a risk the collection may be used to monitor. Since haircuts are a transaction term often negotiated at the level of the investment adviser, it is important to have the full set of transactions negotiated with a given haircut to assess the riskiness of margining practices. For these reasons, the Office does not consider the issue of principal obligor status to be important for the purposes of this type of monitoring.

Another commenter asserted that investment advisers to private funds are already subject to significant oversight and compliance obligations and, in the context of systemic risk, report extensive information on Form PF regarding collateral and counterparty exposures, among other information. They also stated that the scope of entities covered by the proposed rules would result in duplicative and costly reporting requirements on investment advisers, which, in turn, would dilute the quality of the data reported and increase costs to funds' investors. However, although investment advisers may be subject to other oversight and compliance obligations as noted in the NPRM, based on its review of existing data collections, the Office has found no other transaction-level, daily collection of this data. Moreover, commenters on the NPRM did not identify a duplicative data collection at this level of granularity and frequency that would otherwise enable the Office adequately to monitor financial stability risks in this market.

Another commenter similarly suggested that registered investment advisers (RIAs) be excluded from eligibility for Category 2 reporting, and that Category 1 be extended to include banking entities. The commenter stated that if Category 1 were to be extended in such a manner, an RIA would be unlikely to undertake covered transactions with a financial company that was not in Category 1, and as a result, the inclusion of RIAs in Category 2 would be redundant. It also asserted that if Category 1 were not extended to include banking entities, the potential for an RIA to become subject to Category 2 reporting could lead to Category 2 entities generally preferring to transact with Category 1 entities (where this does not impact the price at which they transact), leading to distortions. Accordingly, it suggested that excluding RIAs from Category 2 would not ultimately reduce the effectiveness of the Office's data collection. However, this commenter provided no data to support this assertion, and the Office sees such concerns about trading preferences as speculative in nature. In relation to this commenter's proposal to extend the definition of Category 1 covered reporters, the Office has declined to add banking entities to the enumerated categories of entities contained in Category 1, as discussed below. Additionally, given the gaps in visibility into this market, the risks from leveraged funds that are operated by RIAs, and the potential for future developments in this market that shift activity away from traditional intermediaries, the Office continues to view the collection of data from RIAs as essential to its ability to effectively monitor financial stability risks.

Several commenters stated that inter-affiliate repo transactions should not be required to be reported and should not count toward the Category 1 and Category 2 covered reporter thresholds. One commenter noted that inter-affiliate transactions occur for operational reasons, and another commenter noted that these transactions are typically risk transfers with no market impact. They additionally suggested that data on transactions between affiliates would not be useful for understanding the repo market. The Office believes that reporting on these trades can provide insight into the fragilities and sources of financing within entities and between financial companies. Additionally, in contrast to the views expressed by the commenters, recent research shows that transactions between affiliates can play an important role in repo markets. 34 Information on these transactions is important for risk monitoring purposes. For instance, large transfers of cash from banks to affiliated dealers can indicate decreasing liquidity for dealers that could be an early warning indicator of stress. Another example of inter-affiliate transactions that are important to monitor from a financial stability perspective are those in which broker-dealers engage in centrally cleared trades on behalf of affiliated asset managers and then conduct back-to-back non-centrally cleared legs between the broker-dealers and the affiliated asset managers. While one commenter stated that collecting data on these types of transactions would be duplicative of information already collected by FICC, it is in fact an example of the importance of collecting inter-affiliate transactions, because exposures to repo would be incorrectly attributed to broker-dealer affiliates instead of asset managers without data on this back-to-back leg. As the Office's intention is to collect information on the full scope of financial activity in repo markets and inter-affiliate transactions are valuable for financial stability monitoring, inter-affiliate transactions are to be considered when calculating Category 1 and Category 2 reporting thresholds and should be reported.

Another commenter suggested that other categories of potential covered reporters be removed from the rules' coverage. The commenter stated that subjecting buy-side entities, such as advisers of private funds that predominantly enter into transactions with financial intermediaries like broker-dealers or banks or their affiliates, to reporting would be unwarranted. The Office understands that, at present, the majority of NCCBR transactions involving private funds, funds managed by RIAs, and other buy-side entities is likely conducted with Category 1 counterparties. However, as noted in the NPRM, without a comprehensive collection, the extent of transactions without a Category 1 counterparty is not knowable. Additionally, even if today it is unlikely that an investment adviser, adviser to a private fund, or other buy-side financial company would undertake a transaction with a non-Category 1 financial company, the NPRM explicitly noted the Office's intention to cover potential future changes in repo market structure. These may include peer-to-peer repo that bypasses Category 1 financial companies.

Another commenter suggested that money market funds and mutual funds be exempted from reporting because such funds do not generally enter repo transactions in the role of borrower and are unlikely to have outstanding commitments to borrow cash in the bilateral repo markets that meet the reporting threshold. The Office agrees that money market funds are generally unlikely to borrow cash in repo markets and generally do not play roles resembling intermediaries in these markets, and the Office does not generally expect money market funds to fall within the scope of Category 1 or Category 2. However, mutual funds have been known to borrow in repo markets. To the extent an adviser for mutual funds may manage a number of investment vehicles or relationships that in the aggregate could exceed the reporting threshold, including them in the data collection would enhance the ability of the collection to provide information regarding run risks and liquidity risks. 35

Several commenters suggested that the Office add banks to the set of financial companies covered by Category 1. One commenter stated that while U.S. broker-dealers represent a significant proportion of market activity, sizable positions are also maintained by foreign and domestic banks, including U.S. branches of foreign banks. Another commenter stated that there would be duplicative reporting from asset managers and funds if banks are included in Category 1. The Office has attempted in the structure of the Final Rule to limit duplicative reporting by financial companies. For instance, the exclusion of brokers and dealers from the reporting threshold calculation for Category 2 limits the scope of Category 2 covered reporters. However, requiring Category 2 companies to remove transactions with Category 1 companies from their reports under the Final Rule could increase their reporting burdens. In some cases, determining whether a transaction has already been reported may be more costly for covered reporters than simply reporting the duplicate transaction. Additionally, the Office notes that reducing the potential for dual reporting by assigning reporting responsibility solely to the dealer would not be possible in cases where the dealer is not subject to reporting requirements, such as a dealer that is not a U.S. financial company. Therefore, in the interest of keeping the determination of reporting obligations clear, the Office will continue with the reporting structure as outlined in the NPRM.

Another commenter suggested that the reporting burden would be lower if banks were included in Category 1 because banks may be affiliated with other Category 1 covered reporters. Commenters noted that if banks were included in Category 1, transactions with banks would be excluded from the Category 2 threshold calculation, making it less likely that certain financial companies would qualify as Category 2 covered reporters. Two comment letters also asserted that if Category 1 is not expanded to include banks, it could lead to migration of repo trades from other entities to Category 1 financial companies.

The NPRM included within Category 1 SEC-registered brokers, dealers, government securities brokers, and government securities dealers. While many repo transactions by financial companies occur with counterparties other than those types of entities included in Category 1, the Office believes that the vast majority of transactions occur with Category 1 entities.

Analysis by the Office of data from call reports suggests that over 90% of gross repo by U.S. depository institutions is conducted by depository institutions that are registered as government securities dealers. Therefore, as stated in the NPRM, the Office continues to believe that nearly all NCCBR trades are intermediated by either dealers or are intermediated by financial companies that may be required to report under the Category 1 criteria, such as government securities dealers. 36 As such, the Office believes that any duplicative reporting from asset managers and others resulting from the exclusion of banks from Category 1 would be minimal. Additionally, unless incorporated or organized under federal or state law, U.S. branches of foreign banks are not considered financial companies as defined under the Final Rule. As a result, submissions by Category 2 covered reporters under the Final Rule would be the only way these trades would be reported to the Office. Additionally, in relation to the repo activities for foreign banks, as the NPRM noted, because of the lack of transparency in the existing market and the possibility of trades that bypass traditional intermediaries, 37 it is essential to include financial companies that are large cash borrowers from sources other than Category 1 to ensure a robust framework for monitoring financial stability in the repo market going forward.

One commenter suggested that RIAs be excluded from the Final Rule if Category 1 were extended to include banking entities. The commenter also noted that it would be unlikely that a fund managed by an RIA would undertake a covered transaction with an entity that was not in Category 1 and therefore, the inclusion of RIAs in Category 2 would be redundant. As discussed above, the Office has not added banking entities to Category 1. Nevertheless, the Office understands that it may be likely that RIAs currently conduct the majority of their NCCBR transactions with Category 1 financial companies, including banking entities' affiliates that are registered government securities dealers. However, without a comprehensive data collection, the extent of transactions without a Category 1 counterparty is unknown. Additionally, even if it is unlikely a fund managed by an RIA would undertake a transaction with a non-Category 1 financial company, the Office in the NPRM explicitly stated its intention to cover potential future expansions in repo such as peer-to-peer repo that bypasses Category 1 financial companies. To the extent that funds managed by RIAs engage in repo transactions exclusively with Category 1 entities, they would not be covered reporters under Category 2. However, if RIAs were to be excluded entirely from the Final Rule, any transactions with counterparties outside of Category 1 would not be captured, leaving a crucial gap in the ability of regulators to effectively monitor financial stability risks in this market.

The same commenter asserted that banking entities should be added to Category 1 because the definition of “financial company” used in 12 U.S.C. 5381 is limited because it relates to the operation of the Orderly Liquidation Authority under Title II of the Dodd-Frank Act. As a result, the commenter stated, such term should instead reference the definition in 12 U.S.C. 5344. For the reasons stated above, the Office has declined to add banking entities to Category 1.

One commenter also requested clarification on several points of interpretation related to Category 1 financial companies. First, the commenter incorrectly asserted that the NPRM's preamble text indicated that the reporting requirements would only apply in the context of a covered reporter that is a cash borrower, and that they believed that the Office intended to limit Category 1 to the enumerated financial companies when acting as cash borrowers and requested confirmation of such an understanding. Notwithstanding the fact that the same section of the NPRM also explicitly included the extension of guarantees within the transactional threshold applicable to Category 1 financial companies, the regulatory text in both the NPRM and the Final Rule makes clear that Category 1 is not limited to financial companies when acting as cash borrowers, but also includes financial companies when extending guarantees.

Second, the commenter noted that one instance of the description of Category 1 financial companies in the preamble to the NPRM did not explicitly reference the $10 billion materiality threshold and asked whether the Office intended to include a materiality threshold in both categories of financial companies. The NPRM and the Final Rule make clear that the $10 billion threshold applies to both Category 1 and Category 2 financial companies.

Third, the commenter requested clarification as to whether Category 1 is intended to cover only principal transactions (and not agency transactions) by financial companies. Consistent with the explanation in the NPRM, the Category 1 calculation should include obligations of the financial company and guarantees extended by the financial company. For purposes of calculating the Category 1 threshold, a financial company should exclude transactions in which it acts as an agent—such that it incurs no obligation and extends no guarantee. Unlike investment advisers, the Office is not aware of dealers, brokers, government securities dealers, or government securities brokers that package their trades together with those of their clients that use the dealers or brokers as their agent. The case in which a Category 1 financial company acts as an agent for a customer but not as an investment adviser is therefore distinct from the case of investment advisers conducting batched trades on behalf of the funds they advise as described above.

Fourth, the commenter requested clarification as to whether, when a financial company is registered as a government securities broker or dealer for certain limited activities, the proposed rules would apply only to those certain limited activities of the registered financial company or whether all activity of the financial company would be captured by the Category 1 calculation. As set forth in the regulatory text in both the NPRM and the Final Rule, all commitments to borrow cash or extend guarantees in NCCBR transactions should be included in the determination of total commitments for the purposes of reporting, regardless of whether the firm is acting in its capacity as a government securities broker or dealer or in some other capacity. Similarly, all commitments to borrow cash or lend cash in repo or transactions where guarantees are extended by the firm should be reported to the Office.

Finally, the commenter requested clarification, for the purpose of determining the $10 billion threshold in Category 2, about whether foreign banks and foreign broker-dealers should be treated as Category 1 financial companies and how transactions should be considered if the foreign entity is an affiliate of a U.S. bank or broker-dealer. As set forth in the Final Rule, for purposes of calculating the $10 billion threshold, potential Category 2 covered reporters should exclude repo borrowing and guarantees extended to counterparties that are securities brokers, securities dealers, government securities brokers, or government securities dealers (as each such term is defined in the Final Rule), regardless of whether those counterparties are Category 1 covered reporters. If a counterparty is an affiliate of a securities broker, securities dealer, government securities broker, or government securities dealer (as each such term is defined in the Final Rule), but is not one of these types of financial companies, transactions with the counterparty should be included in the calculation of the Category 2 threshold.

Consistent with the NPRM, the Final Rule defines a non-centrally cleared bilateral repurchase agreement transaction as an agreement in which one party agrees to sell securities to a second party in exchange for the receipt of cash, and the simultaneous agreement of the former party to later reacquire the same securities (or any subsequently substituted securities) from that same second party in exchange for the payment of cash; or an agreement of a party to acquire securities from a second party in exchange for the payment of cash, and the simultaneous agreement of the former party to later transfer back the same securities (or any subsequently substituted securities) to the latter party in exchange for the receipt of cash. In all cases, the agreement neither involves a tri-party custodian nor is cleared through a central counterparty. This definition includes, but is not limited to, transactions that are executed under a Master Repurchase Agreement (MRA) or Global Master Repurchase Agreement (GMRA), or which are agreed to by the parties as subject to the provisions of 11 U.S.C. 559. Notwithstanding the above, transactions conducted under a Securities Lending Agreement (SLA), a Master Securities Lending Agreement (MSLA), or Global Master Securities Lending Agreement (GMSLA) are not considered repurchase agreements, nor are repurchase agreements arising from either participation in a commercial mortgage loan or the initial securitization of a residential mortgage loan. The Office has chosen to exclude SLA, MSLA, and GMSLA transactions from the Final Rule because reporting of data related to such transactions to the Office could be redundant (and therefore unnecessary) in light of the required reporting of securities lending information to a registered national securities association as provided for in the SEC's recent securities lending transparency rules. 38

The NPRM requested comment on whether sell/buy-back transactions should be excluded from the Final Rule. While sell/buy-back agreements accomplish similar goals to repo transactions, the Office proposed not to include sell/buy-back agreements with the understanding that these agreements are recorded differently from MRA, GMRA, MSLA, and GMSLA agreements and may have different characteristics and names from the preceding types. 39 In response, one commenter noted that sell/buy-backs are now almost entirely documented ( e.g., under the Buy/Sell Back Annex to the GMRA and a similar annex to the SIFMA MRA). Further, this commenter noted that differences in methods of quoting and terminology of sell/buy-back agreements are legacies that are insubstantial and have dwindled in importance. Excluding sell/buy-backs from the Final Rule could be costly in requiring covered reporters to distinguish between nearly identically documented agreements and might also enable covered reporters to avoid disclosing a transaction by executing such economically similar transactions under a different form of agreement. Therefore, sell/buy-back agreements are included within the scope of transactions covered under the Final Rule.

Several commenters posed questions regarding guarantees, specifically with respect to the calculation of reporting thresholds and whether various guarantee arrangements fall within the scope of reporting. As noted in the NPRM, the extension of a guarantee to a repo transaction replicates the profile of traditional repo intermediation by offsetting direct transactions with the counterparties to the guaranteed repo, and therefore its inclusion in the data collection is essential to providing regulators a complete picture of the repo market. Guarantees encompass any agreement pursuant to which a financial company that is not one of the two direct counterparties to a repo transaction commits to provide protection against the risk of a failure to perform for that repo transaction under the terms of the repo by one of the direct counterparties. For every transaction, including guaranteed repo transactions, all the data elements should be reported as detailed below and in the reporting instructions.

One commenter asked whether, for purposes of determining if a financial company has met the position thresholds to be a covered reporter, the financial company should aggregate the repos in which the firm is a cash borrower together with the repos for which the firm is a guarantor on behalf of a cash borrower, and whether a separate file should be submitted for guarantee arrangements. The same commenter also asked whether a firm would be considered a covered reporter if its repo cash borrowings exceed the applicable threshold for the prior quarter, but the firm does not guarantee any repos (or the firm's repo guarantees do not exceed the applicable threshold). Data on guarantee arrangements should be submitted in the same file. The $10 billion threshold for Category 1 or Category 2 is calculated based on the aggregate combined amount of a financial company's cash borrowings in NCCBR transactions and the guarantees extended by the financial company in NCCBR transactions.

One commenter asked whether the $10 billion threshold calculation include repo transactions with and guarantees extended to affiliates. A repo transaction or an extension of a guarantee to an affiliate creates an exposure of the covered reporter to its affiliate. The resulting risks are within scope of the Final Rule's purpose, and the transaction should be reported and included in the total transaction volume used for the Category 1 and Category 2 thresholds.

Another commenter asked whether indemnified repo entered into as part of cash collateral reinvestment associated with securities lending should be included under guarantees. Because these transactions replicate the profile of offsetting legs between a securities lender and the securities lending agent and between the securities lending agent and a third party, and because the resulting risks are within scope of the Final Rule's purpose, this would be reported to the Office. However, the commenter asserted that nearly all of the indemnified repo is done with Category 1 financial companies as counterparties or is centrally cleared. The Office notes that guarantees extended to centrally cleared repo transactions, sponsored repo transactions, and tri-party transactions are not covered by the scope of this Final Rule, and that transactions with Category 1 financial companies are not included in the calculation of reporting thresholds for Category 2 financial companies, reducing the potential for duplicative reporting associated with indemnified repo.

Two commenters requested clarification around whether “shortfall guarantees,” transactions in which a financial company offers a guarantee only on the uncollateralized portion of a repo, would be considered guarantees and if so, whether reporters should consider the full amount of the repo transaction being guaranteed or only the size of the shortfall guarantee when calculating their repo commitments. A shortfall guarantee replicates the exposure of an intermediary standing between a cash borrower and a cash lender, since repo transactions are all collateralized and the loss the intermediary is exposed to is the size of the uncollateralized portion of the repo transaction. As such, the resulting risks are within scope of the Final Rule's purpose and should be included in reporting and, since the exposure replicated is the same as the exposure the intermediary would undertake if it were intermediating the full amount of the transaction, the amount used to calculate a potential covered reporter's transaction volume should be the full amount. To illustrate, for $95 lent against a market value of $90 in collateral, the measurement of guarantee obligations used to calculate transaction volume should be reported as $95 rather than a shortfall exposure. Since the cash amount being guaranteed is the $95, rather than the shortfall value, this is considered the exposure for the purpose of the threshold calculation. This exposure would then be added to the total commitments by the borrower to borrow cash or lend cash in repo transactions for the purposes of calculating the total threshold based on repo exposure, and the repo transaction would be reported in the same file as other transactions. One of the commenters requested clarification on the manner by which a covered reporter should report the various data elements for a guarantee that does not have a specified cap, or a guarantee on behalf of a non-U.S. entity. For all guarantee transactions, regardless of the existence of any cap or whether the relevant entity is a U.S. entity, the reported data elements should cover the entirety of the underlying transaction.

The NPRM noted that some transactions covered under the proposed rules would likely be with counterparties outside of the United States, noting the potential benefit of greater information on cross-border exposures associated with repo borrowing and the concern of potential circumvention. 40 This would include transactions by the covered reporter settled internationally or denominated in currencies other than in U.S. dollars. Some commenters sought clarification of how the rules would apply to a U.S. branch of a foreign financial company, a foreign branch or affiliate of a U.S. financial company, or a transaction conducted internationally. As noted in the NPRM, the definition of “financial company” includes only entities that are incorporated or organized under Federal or state law, including subsidiaries. Entities that are not incorporated or organized under Federal or state law, or branches of entities that are not incorporated or organized under Federal or state law, are not subject to the Final Rule's reporting requirements. However, as stated in the NPRM, transactions conducted outside the United States by covered reporters are within scope, because their exclusion could allow covered reporters to avoid reporting by settling a transaction outside the U.S., and these transactions contain information on cross-border exposures that are relevant for financial stability monitoring. 41 Therefore, transactions conducted by financial companies (as defined in the Final Rule) that are settled or otherwise take place outside of the United States as well as transactions settled in currencies other than the U.S. dollar are included both in the transactions reported to the Office and in the volumes used to determine the Category 1 and Category 2 thresholds.

One commenter suggested that the rules should exclude transactions by non-U.S. sub-advisers under the management of a U.S. adviser as well as de minimis transactions between Category 2 financial companies denominated in currencies other than U.S. dollars. This commenter suggested these transactions be excluded from the collection because such information is not relevant to regulators' understanding of the U.S. repo market and de minimis transactions pose little systemic risk to the United States. Also, they suggested that the burden of reporting these transactions outweighs the benefit. The Office does not agree with these reasons. Financial companies can flexibly utilize financing from sources outside the United States as needed. Excluding transactions of a non-U.S. sub-adviser under the management of a U.S. adviser or transactions denominated in other currencies could eliminate important information about cross-border exposures relevant to financial stability. Additionally, the practice of structuring transactions into smaller cash amounts does not remove their relevance to financial stability analysis. As a result, the Office declines to exclude these transactions. These transactions should be included both in the transactions reported to the Office and in the volumes used to determine Category 1 and Category 2 disclosure thresholds.

Pursuant to § 1610.11(c) of the Final Rule, covered reporters must submit information on all NCCBR transactions in which the covered reporter participates. The word “all” should be interpreted broadly; the set of transactions to be included in a covered reporter's disclosures is wider than that used to determine whether a financial company is a covered reporter. Transactions should be reported regardless of whether the covered reporter is a cash lender or cash borrower, a direct participant, guarantor, or other relevant third party. Further, covered reporters should report transactions in this market segment regardless of the tenor, optionality, or the collateral underlying the transaction. Additionally, covered reporters should report transactions regardless of the domicile of the other entities taking part in the transaction or the location in which the transaction is settled. Additionally, the covered reporter should report all transactions that occur within the larger organization (including affiliates and subsidiaries of the covered reporter) to which the covered reporter participates. Along the same lines, Category 2 reporters should report any transactions that occur with potential or actual Category 1 reporters.

The Final Rule requires reporting on NCCBR trades, including detailed reporting about the securities used to collateralize these trades and contractual details of the underlying repurchase agreements.

As adopted, the required data elements are listed in the table in section § 1610.11(c) of the Final Rule's text. The table is tailored to capture information regarding covered transactions in a manner that the Office believes largely reflects the data generated by covered reporters in the ordinary course of business. This table lists each required element and a brief description of that element.

While commenters addressed the data elements in varying ways, for ease of reference, the following discussion follows the order of the data elements as they appear in the table of data elements in the NPRM. Additional instructions relating to data submission mechanics and the formatting of individual data elements will be contained in reporting instructions published concurrently with the Final Rule.

One commenter suggested that these elements were unnecessary because the Legal Entity Identifiers (LEIs) of the cash lender and cash borrower were to be collected and, because LEIs are unambiguous values, LEIs should be sufficient to identify the parties to the transaction. LEIs are not available in every circumstance and the Office has therefore determined that the cash lender and cash borrower names should remain as required data elements.

Two commenters requested more guidance on the meaning of this element and the manner of reporting. Guarantees in the context of this element are to be understood as having the same meaning as stated above in section III.b “Scope of Transactions.” As proposed in the NPRM, guarantees must be reported simply with an indicator for whether the covered reporter issued a guarantee with respect to the transaction. The Office will provide further clarification on data submission mechanics in the reporting instructions.

Two commenters asked that this field be dropped from the collection. As discussed below in this section under “Risk Management,” the Office is not including the netting set data element in the collection at this time.

One commenter asked for clarification of the word “respondent” in the data element explanation provided in the NPRM. This term means “covered reporter” in this instance, and the Office has made corresponding changes in the Final Rule.

One commenter asked if this field would be a free-text field or if the Office would provide specific values for a covered reporter to select. It is a free-text field for the name of the trading platform used to perform/submit the corresponding transaction. The Office will provide examples in the reporting instructions.

One commenter asked for clarification on the use of this element in the cases of open and evergreen repos and made a suggestion about the ability to distinguish between open and evergreen repos. For the purposes of this collection, the Office will collect the Minimum Maturity Date for all transactions. To preserve the granularity between repos with different optionality structures, the Office will provide a field for special instructions, notes, or comments that should be used, among other things, to differentiate between these different transaction types. Examples and clarifications will be provided in the reporting instructions.

One commenter requested clarification as to whether the cash lender internal identifier or cash borrower internal identifier should be reported when the covered reporter itself is the relevant counterparty. This field should always be reported, including when the covered reporter is the direct counterparty to the transaction. Covered reporters are free to develop their own internal identifiers for self-identification.

One commenter suggested removing this element because some financial companies do not track this value on a historical basis and the Office would have this information previously reported by the firm (and associated to the same transaction identifier reported by the firm) as long as the firm was a covered reporter as of the inception of the repo. However, removing this field would mean that it would never be collected, even for the date the transaction was initiated. On this basis, the Office deems the suggestion unworkable. The element is retained in the collection.

Two commenters questioned how to calculate this value for floating-rate repos. The Office clarifies in the Reporting Instructions that it does not expect this value to be calculated for floating-rate repos. The field should still be provided in accordance with the reporting instructions.

One commenter requested that accrued interest not be included in daily reporting of this element or that including accrued interest in this field be optional, with the addition of another field for reporters to indicate whether accrued interest was included. The commenter stated that the Office could calculate the accrued interest data based on the start leg amount and the spread and benchmark for the applicable transaction identifier. The Office understands that this element is not solely composed of start leg cash value and accrued interest and may also contain other adjustments. Moreover, the purpose of this field is to collect the reporter's assessment of its current cash amounts without having to infer these adjustments. The Office therefore does not see the need for a separate data element and declines to change the reporting of the field.

One commenter requested confirmation that this field would be reportable for both fixed- and floating-rate repo transactions and, if so, whether a firm would report the sum of the benchmark rate and the spread in this field in the case of a floating-rate transaction. The Office will clarify this in the reporting instructions.

One commenter requested clarification as to whether this field was intended to identify the benchmark used for determining the rate for the floating-rate transaction and if so, suggested renaming the field. The Office confirms that the identification of the benchmark name is the data to be reported and has made clarifying revisions in the Final Rule.

One commenter asked if this is a free-text field. It is not. The Office will enumerate the choices available for this field in the reporting instructions.

One commenter suggested removing this element because some financial companies do not track this value on a historical basis and the Office would have this information previously reported by the firm (and associated to the same transaction identifier reported by the firm) as long as the firm was a covered reporter as of the inception of the repo. However, removing this field would mean that it would never be collected, even for the date the transaction was initiated. On this basis, the Office deems the suggestion unworkable. The element is retained in the collection.

One commenter suggested removing this element because some financial companies do not track this value on a historical basis and that the Office would have this information previously reported by the firm (and associated with the same transaction identifier reported by the firm) as long as the firm was a covered reporter as of the inception of the repo. However, removing this field would mean that it would never be collected, even for the date the transaction was initiated. On this basis, the Office deems the suggestion unworkable. The element is retained in the collection.

As noted above, some commenters addressed data element issues on a more thematic basis. One commenter requested clarification as to whether matching unique transaction identifiers (UTIs) with a counterparty would be necessary for reporting. It is not contemplated for this collection that matching elements across reporters, including UTIs, will be necessary.

Several commenters stated that the collection of data should be restricted to transactions that use U.S. Treasuries as the underlying collateral, due to the operational complexity and burden of reporting trades backed by other collateral. Two of these commenters incorrectly asserted that the Office's interest in the proposed collection was driven solely by stability and liquidity in the U.S. Treasury securities market and that the operational build-out to cover non-U.S. dollar-denominated securities, U.S. agency debt, or U.S. corporate debt would provide questionable insight into overall systemic stability in U.S. or global financial markets. The collection is intended to fill a critical gap in regulators' information on the repo market by collecting data on the NCCBR market segment, in order to provide a comprehensive view of the last segment for which regulators do not have a transaction-level data source. 42 The NPRM specifically contemplated collateral other than U.S. Treasuries by noting the need to better understand collateral risk, which has implications for financial stability, and that the NCCBR market segment generally contains riskier collateral than other segments because the cleared market segments are limited to Fedwire-eligible collateral. 43

As additionally noted in the NPRM, collecting data on collateral will provide valuable insight into financial stability matters because vulnerabilities associated with two of the five repo market functions-monetization of assets and transformation of collateral-allow for the propagation of shocks from the repo market to the secondary market for the underlying collateral or for a shock in one of these securities markets to propagate to the repo market and then potentially spread into other markets. 44 The collateral underlying a repurchase agreement is crucial to assessing the exposures and risk management in the repo market. Information about securities delivered into repo will allow the Office to assess common risk exposures across counterparties. The fields proposed will also allow the Office to assess the extent to which specific securities are tied to the repo market and therefore the potential for spillovers from the repo market into the underlying securities market, with potential effects on liquidity and price efficiency. The Office continues to believe that understanding paths of potential spillovers through various collateral classes is critical to monitoring stability in the repo market.

One commenter stated that there would be additional complexity of reporting trades that use other collateral on the basis that these trades are less standardized. While standardization is not the primary purpose of this collection, as noted in the NPRM, standardization in this decentralized market as a result of the Final Rule's reporting process may also improve the ability to reconcile records between financial companies in the event of severe market stresses. 45

Additionally, the Office believes that the reporting thresholds established by the Final Rule will restrict the collection to large, sophisticated financial companies for which the cost of reporting information on all trades will be relatively minor. Further, as discussed below, the compliance timelines for both Category 1 and Category 2 covered reporters have been lengthened in the Final Rule compared to those proposed in the NPRM, which the Office believes will allow covered reporters ample time to set up and test for reporting.

Finally, one commenter suggested a staged approach to reporting, in which the collection is initially limited to trades backed by U.S. Treasury securities and would provide the Office with a significant portion of the remaining segment of the repo market for which it currently does not have information, without imposing unduly burdensome reporting obligations on market participants. It also asserted that such an approach would prove less disruptive to the orderly operation of the repo market and give the Office valuable information regarding the compliance costs of implementing a repo reporting regime before it imposes additional reporting obligations. For the same reasons as noted above, the Office has an interest in collecting data with respect to all types of collateral, and in light of the anticipated sophistication of covered reporters and the additional time provided for a newly qualifying financial company to begin reporting, the Office declines to adopt a two-stage reporting timeline with respect to collateral type. For all of the reasons noted above, the Office is not limiting the collection of data in the Final Rule only to those transactions that use U.S. Treasuries as the underlying collateral.

In the NPRM, the Office proposed to collect information on a covered reporter's risk management practices. The Office sought to collect information on whether the covered reporter nets counterparty exposures across asset classes and instruments outside of repo and the terms on which netting occurs when the covered reporter does not net counterparty exposures across asset classes and instruments outside of repo.

The Office received two comments on its proposal to collect data on netting. One commenter stated that reporting the field as proposed was not workable because netting is not captured on a trade-by-trade basis and does not represent an economic term of a trade like the other proposed fields. It also stated that if the Office intends to review netting as it relates to capital, other existing rules govern the collections of that information by federal financial regulators.

The other commenter stated that given the various netting arrangements that could apply, reporting as proposed would require financial companies to make subjective and complex interpretations for each reported position. It also stated that netting could be based on a written agreement or the specific course of dealing and policies and procedures of each party. Finally, the commenter requested that the Office provide additional clarity as to the specific types of netting that the Office intended to cover and how netting should be reported in order to achieve consistent reporting across covered reporters.

The Office has concluded that while additional information on netting arrangements, including cross-product margining, would be useful for financial stability monitoring, the range of netting practices and documentation, along with the resultant potential inconsistency in reporting, suggest that other means of gathering such information might be more effective. Therefore, the Final Rule does not include this field. However, the financial stability rationale for the collection of information on netting arrangements and other risk management practices was not contested by comment letters. Such a collection may be addressed by the Office in the future.

In its NPRM, the Office stated that it was reviewing options for the submission process and implementation of the collection and, should the proposed rules be adopted, may require submission either through the Office or through a collection agent. 46

Two commenters suggested that the Office consider using a collection agent, although they identified different candidates. Based on the Office's experience with the Ongoing Data Collection of Centrally Cleared Transactions in the U.S. Repurchase Agreement Market, the Office has determined it has the ability to efficiently manage the collection of data under the Final Rule. The Office has developed and launched a data collection utility and specifies under the Final Rule that covered reporters are required to submit data directly to the Office rather than through a collection agent. However, the Office reserves the option to designate a collection agent in the future.

One commenter requested clarification as to whether, when a firm reports data for a particular observation date, it should report its positions as of the close of business on that observation date, whether a repo that is opened and closed on the same day is reportable, and whether reporting applies only to U.S. business days. The Office has considered this issue and made changes to the regulatory text in the Final Rule to include the definition of a business day. In addition to transactions that are opened or rolled over, the NPRM was clear that transactions that open and close on the same day must be reported as part of that business day's data submission. The Final Rule also adds a definition of File observation date, and this definition is consistent with the usage in the NPRM.

One commenter asked whether a covered reporter's reporting responsibilities under the rules could be delegated to a counterparty or platform in order to manage reporting costs and provided an explanation of potential benefits of doing so. The Office distinguishes between trade-by-trade delegation to a counterparty or trading platform and delegation of its daily data submission (and any corrections thereto) to a provider of outsourced processing. The Office acknowledges that outsourcing certain business processes is an accepted industry practice for some financial companies, including those that may be covered reporters under the Final Rule. On the other hand, delegation that might spread the daily data submission of a covered reporter across several filings or from day to day among various entities is unworkable from an operational perspective and could create risks of errors in reported data. In light of these considerations, the Office will allow covered reporters to use a third party to submit data on their behalf, subject to the following constraints:

• The covered reporter may delegate a maximum of one third party at a time for daily file submission and corrections.

• The completed file is consistently submitted from a single source (either the covered reporter or the delegated third party), and the source may not change without advance notice to the Office.

• The covered reporter provides the Office at least 90 days advance notice of any proposed change to the submitter of the daily file.

Adherence to the above-listed constraints will allow covered reporters to use third parties to meet operational needs while furthering data quality. In any case, the covered reporter will remain fully responsible for the data submission and compliance with the Final Rule; any issues will be addressed directly between the covered reporter and the Office.

Under the NPRM, covered reporters were to submit the required data for each business day by 11 a.m. Eastern Time on the following business day. Several commenters stated that this reporting deadline should be extended for reasons of data quality and burden. One of these commenters also stated that financial companies also should have the ability to report between T+1 and T+3 because for some financial companies the positions would have matured off their system after T+1, and it would be difficult to determine what was outstanding three days before the filing deadline. Two commenters mentioned cross-border transactions as difficulties to T+1 reporting, with one commenter additionally asserting that a T+1 reporting requirement could discourage covered reporters from entering into NCCBR transactions, particularly with respect to repo transactions with non-U.S. counterparties.

Taking concerns regarding burdens and data quality and availability into account, the Office believes that 11 a.m. Eastern Time T+1 is an appropriate reporting deadline. Non-U.S. trades are likely to take place earlier in the 24-hour cycle than U.S. transactions, because most non-U.S. markets close earlier in the 24-hour cycle than U.S. markets, so for any given day a transaction on a foreign market already has more time for processing. Since this deadline occurs after most international financial exchanges have closed for the evening, the Office does not believe that this reporting cadence will materially affect choice of venue or otherwise distort the market.

Additionally, following the same logic out of consideration of the operating hours of international financial exchanges, the Final Rule defines “business day” as the period beginning at 6 p.m. Eastern Time on any day that the Fedwire Funds Service is open to 6 p.m. Eastern Time on the next day that the Fedwire Funds Service is open. 47 For example, the business day of January 24, 2024, began at 6 p.m. Eastern Time on January 23, 2024, and ended at 6 p.m. Eastern Time on January 24, 2024.

One commenter additionally noted the need for some covered reporters to build reporting systems to comply with the rules and therefore recommended T+3 should be used. The Office rejects this reasoning because a T+1 system should generally be similar in implementation to a T+3 system. Further, another commenter noted that existing systems for some covered reporters would be burdened by waiting until T+3 to report.

Overall, the Office has concluded that the T+1 proposal of the NPRM to be appropriate for both covered reporters and the Office. Allowing transactions to be submitted across multiple days would affect the ability of the Office to manage submissions, resubmissions due to errors, and overall data quality. This conclusion is based in part on the Office's experience with the cleared repo data collection, which has been that even a relatively high-volume system—one with more transactions per day than any one covered reporter under the Final Rule will have—works efficiently at a T+1 cadence.

The NPRM stated that if the proposal were to be adopted, the Final Rule would go into effect 60 days after its publication in the Federal Register and that covered reporters would be required to comply with the Final Rule 90 days after its effective date. The Office believed this implementation period would provide adequate time for covered reporters to comply with the proposed requirements but sought public comment on this matter.

Five commenters responded to the Office's questions related to the implementation timeline. Each requested more time to allow for building infrastructure and resources to meet compliance and reporting requirements. Several provided examples of activities that would need to be completed before compliance, such as changes to user interfaces, databases, and other existing systems, as well as implementing systems for processing rejections, resubmissions, and modifications and automating the process for generating and reporting the daily file.

Two of these commenters stated that the Office should allow 18 months for covered entities to begin reporting, in part due to the need to calculate the reporting thresholds. Both stated that the Office should consider a tiered or incremental approach for reporting, with one citing the European Securities and Markets Authority's (ESMA's) Securities Financing Transactions Regulation (SFTR) as an example. The other commenter recommended that the Office start with imposing a reporting obligation on Category 1 covered reporters, suggesting that after receiving their data for a period of time, the Office may learn that it has sufficient visibility into the repo market such that Category 2 entities would no longer need to report. Two of these commenters stated that the Office should allow 12 months for covered entities to begin reporting. Two commenters also pointed out that a longer implementation timeline was needed because the rules would add to several other global regulatory changes underway that will affect financial companies' reporting obligations. Several commenters tied their requests for additional implementation time to the date the Office finalizes technical specifications or reporting instructions that cover matters like report formats and connectivity protocols.

One commenter asserted as another reason for an extended reporting implementation timeline that the Office's collection of centrally cleared repo transactions allowed for a longer implementation timeframe while covering only a single reporting entity, as opposed to the multiple reporting parties expected under the Office's proposed collection of NCCBR transactions. However, the Office's centrally cleared repo collection is not an analogous basis for comparison. The Office's earlier collection required more than 70 data elements across three separate data file submissions. In comparison, this collection requires only a single data file to be submitted with 32 data elements.

Two commenters noted that the NPRM did not specify whether the Office or a collection agent would receive the data submissions. One asserted that once the collection agent is specified, the Office should issue technical details for notice and comment to maximize efficiency and consistency. The Office has previously engaged on these topics with market participants, regulators responsible for financial data collections, and industry associations through its NCCBR data collection and outreach pilot of 2022. 48 It is with this knowledge that the Office's Technical Guidance, including such matters as data submission mechanics and formatting, have been developed and are being published in concert with the Final Rule at https://www.financialresearch.gov/data/non-centrally-cleared-bilateral-repo-data/. The Office does not intend to solicit additional public input on its Reporting Instructions nor its Technical Guidance at this time. These documents, along with the Final Rule, confirm that covered reporters will be required to submit their data directly to the Office. Additionally, the Technical Guidance will provide information on how to transmit data to the Office in the manner described in the Reporting Instructions.

Two commenters discussed the need for testing, with one requesting that the Office provide details regarding testing facilities and processes. This commenter further recommended that one month be allocated for testing submissions. The Office has considered this comment and will accept covered reporter data as of the Final Rule's effective date. The Office agrees that testing is important and expects that most covered reporters will use the time between the effective date and compliance date to submit data on a test basis. The Office encourages all covered reporters to test submissions as early as possible but at least 90 days before their compliance deadline.

The Office acknowledges that covered entities may need to establish or adapt their infrastructure to comply with their reporting obligations. However, as stated in the NPRM, the collection of these data is key to the Council's effective identification and monitoring of emerging threats to the stability of the U.S. financial system and any significant delay to reporting would hinder such efforts. To strike a balance in addressing these competing concerns, the Office is extending the amount of time that covered reporters have to comply with the Final Rule. The timeline has been extended in the Final Rule for Category 1 covered reporters by approximately 66%, from the proposed 90 days after the effective date to 150 days after the effective date, and for Category 2 covered reporters by 200%, from the proposed 90 days after the effective date to 270 days after the effective date. The Office believes that by extending the overall implementation timeline, as well as establishing staggered compliance dates, with an additional 120 days for Category 2 covered reporters compared to Category 1 covered reporters, it has appropriately addressed the identified concerns. The effective date of the rule remains as proposed at 60 days after the Final Rule is published.

One commenter requested clarification of the basis for determining whether financial companies meet reporting thresholds based on various compliance date scenarios. Consistent with the NPRM, the reporting threshold is met when a financial company's average daily total outstanding commitments to borrow cash and extend guarantees through NCCBR contracts over all business days during the prior calendar quarter is at least $10 billion. 49

One commenter had questions about implementation time for financial companies that begin to meet reporting thresholds after the Final Rule's effective date. The NPRM stated that any financial company that becomes a covered reporter after the effective date of this section shall comply with the reporting requirements pursuant to this section on the first business day of the third full calendar quarter following the calendar quarter when such financial company becomes a covered reporter. 50 In light of the revised timeline for financial companies that qualify as covered reporters as of the Final Rule's effective date, and to improve consistency and clarity, the Office is also revising the timeline for financial companies that become covered reporters after the Final Rule's effective date. For a Category 1 company that becomes a covered reporter after the effective date, the compliance date has been revised to 150 days after the last day of the calendar quarter when the company becomes a covered reporter. For a Category 2 company that becomes a covered reporter after the Final Rule's effective date, the timeline has been revised to 270 days after the last day of the calendar quarter when the company becomes a covered reporter.

The Final Rule enumerates all compliance timelines in terms of days, and not quarters, to eliminate any confusion when interpreting the compliance timelines discussed above. Where the NPRM previously instructed financial companies that become covered reporters after the Final Rule's effective date to comply on the first business day of a quarter, the Final Rules will now articulate a compliance date that is a set number of days after the last day of the calendar quarter when such financial company becomes a covered reporter. The following table illustrates these timelines.

One commenter requested clarification on what happens when a covered reporter falls below the reporting thresholds and subsequently meets the thresholds again. As the NPRM stated, a covered reporter whose volume falls below the $10 billion threshold for at least four consecutive calendar quarters would have its reporting obligations cease. 51 However, if that same financial company once again meets the reporting threshold, it is subject to the same requirements as any financial company that becomes a covered reporter after the Final Rule's effective date, as illustrated in Figure 2.

As contemplated in the NPRM, the Office is publishing concurrently with the Final Rule specific reporting instructions and technical guidance on the Office's website at https://www.financialresearch.gov/data/non-centrally-cleared-bilateral-repo-data/ regarding matters such as data submission mechanics and formatting. The Office may update these materials from time to time and will publish any updates on its website.

The information collection contained in the Final Rule has been reviewed and approved by the Office of Management and Budget (“OMB”) under OMB Control No. 1505-0279. In accordance with the requirements of the Paperwork Reduction Act (the “PRA”), the Office may not conduct or sponsor, and a covered reporter is not required to respond to, an information collection unless it displays a currently valid OMB control number.

Commenters on the proposed rules generally acknowledged the need for the Office to collect certain information on repo transactions in support of the work of the Council, its member agencies, and the Office in connection with identifying and monitoring risks to financial stability.

Commenters also requested various modifications to, or relief from, aspects of the proposed rules that they stated would entail burdens that outweighed the benefits to the Office. This included recommendations from expected covered reporters for a phased implementation process over a longer period of time than the Office had proposed. However, none of the commenters provided comments, empirical data, estimates of costs or benefits, or other analyses directly addressing matters pertaining to the PRA discussion.

The Office's ability to collect non-centrally cleared repo data through this collection derives in part from the authority to promulgate regulations regarding the type and scope of financial transaction and position data from financial companies on a schedule determined by the Director of the Office in consultation with the Council. 52 In a 2022 statement on nonbank financial intermediation, the Council supported a recommendation made by the Council's Hedge Fund Working Group that the Office consider ways to collect NCCBR data  53 and, in July 2022 and February 2024, the Office consulted with the Council on efforts to collect NCCBR data. 54

The Office also has authority to promulgate regulations pursuant to the Office's general rulemaking authority under Dodd-Frank Act section 153, which authorizes the Office to issue rules, regulations, and orders to the extent necessary to carry out certain purposes and duties of the Office. 55 In particular, the purposes and duties of the Office include supporting the Council in fulfilling its purposes and duties, and supporting Council member agencies, by collecting data on behalf of the Council and providing such data to the Council and Council member agencies, and standardizing the types and formats of data reported and collected. 56 The Office must consult with the Chairperson of the Council prior to the promulgation of any rules under section 153  57 —these consultations occurred both before and after the publication of the NPRM.

As noted above, commenters generally did not provide comments, empirical data, or other analyses directly addressing the Office's estimates in the PRA discussion. As outlined in detail above, the Final Rule incorporates changes from the proposed rules to provide for a phased implementation process over a longer period of time than the Office had proposed. However, this change does not impact the scope of financial companies subject to the requirements of the Final Rule, nor the estimated annual burden on a covered reporter once the Final Rule is fully implemented.

As a result, the Office's estimate of an annual burden of 756 hours per covered reporter remains unchanged. This figure is arrived at by estimating the daily reporting time to be approximately 3 hours for each submission and multiplying that figure by an average of 252 business days in a year, the typical number of days per year that do not fall either on weekends or on holidays widely observed by the market.

To estimate hourly wages for purposes of this Final Rule, the Office used data from the May 2022 Bureau of Labor Statistics Occupational Employment Statistics for credit intermediation and related activities (NAICS 522000). For hourly compensation, a figure of $91 per hour was used, which is an average of the 90th percentile wages in seven different categories of employment (compliance officers, accountants and auditors, lawyers, management occupations, financial analysts, software developers, and statisticians), plus an additional 44.5 percent to cover subsequent wage gains and non-wage benefits, which yields an estimate of $131 per hour.

In addition, and as described in the NPRM, each covered reporter must also obtain and maintain an LEI. Those costs have reduced since the publication of the NPRM, with the initial application now costing $50 and the annual renewal costing $40.

Using these assumptions, the Office estimates the recurring total estimated annual cost to a covered reporter is $99,076.

Congress enacted the Regulatory Flexibility Act (the “RFA”) to address concerns related to the effects of agency rules on small entities. 58 The Office is sensitive to the impact its rules may impose on small entities. The RFA requires agencies either to provide an initial regulatory flexibility analysis with a proposed rule for which general notice of proposed rulemaking is required, or to certify that the proposed rule will not have a significant economic impact on a substantial number of small entities. 59 In accordance with section 3(a) of the RFA, the Office is certifying that the Final Rule will not have a significant economic impact on a substantial number of small entities.

As discussed above, this collection will apply to certain brokers, dealers, and other financial companies whose average daily outstanding commitments to borrow cash and extend guarantees in NCCBR with certain counterparties over all business days during the prior calendar quarter is at least $10 billion.

Under regulations issued by the Small Business Administration, a “small entity” includes those firms within the “Finance and Insurance” sector with asset sizes that vary from $15 million in assets up to $850 million in assets. 60 For purposes of the RFA, entities that are banks are considered small entities if their assets are less than or equal to $850 million. The level of the activity-based threshold under the Final Rule ensures that any respondent will be well beyond these small entity definitions.

Pursuant to the Regulatory Flexibility Act, 5 U.S.C. 605(b), it is hereby certified that this final rule will not have a significant economic impact on a substantial number of small entities.

This rule is not a major rule pursuant to the Congressional Review Act (CRA), 5 U.S.C. 801 et seq.

For the reasons stated in the preamble, the Office of Financial Research amends 12 CFR part 1610 as follows:

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all RRD Model Trent 1000-A, Trent 1000-A2, Trent 1000-AE, Trent 1000-AE2, Trent 1000-C, Trent 1000-C2, Trent 1000-CE, Trent 1000-CE2, Trent 1000-D, Trent 1000-D2, Trent 1000-E, Trent 1000-E2, Trent 1000-G, Trent 1000-G2, Trent 1000-H, Trent 1000-H2, Trent 1000-J2, Trent 1000-K2, and Trent 1000-L2 engines. The NPRM published in the Federal Register on January 24, 2024 (89 FR 4582). The NPRM was prompted by EASA AD 2023-0113, dated June 1, 2023 (EASA AD 2023-0113) (also referred to as the MCAI), issued by EASA, which is the Technical Agent for the Member States of the European Union. The MCAI states that occurrences have been reported of finding wear in the CSV assembly of certain HMUs. This wear can reduce the fuel flow output when the engine is operated at high power conditions and lead to thrust reduction. To address this unsafe condition, the manufacturer published service information that specifies procedures to remove certain HMUs from service and replace with a serviceable part. The MCAI also specifies an implementation schedule, based on engine flight-hour (EFH) limits, for replacement of each affected part with a serviceable part and prohibits installation or reinstallation of affected HMUs that have exceeded the allowable EFH limit unless the HMU is a serviceable part or the CSV assembly has been replaced.

In the NPRM, the FAA proposed to require removing certain HMUs from service and replacing with a serviceable part. The NPRM also proposed to prohibit installation of certain HMUs unless the HMU is a serviceable part or the CSV assembly has been replaced. The FAA is issuing this AD to address the unsafe condition on these products.

You may examine the MCAI in the AD docket at regulations.gov under Docket No. FAA-2024-0036.

The FAA received one comment from Boeing which supported the NPRM without change.

These products have been approved by the aviation authority of another country and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI referenced above. The FAA reviewed the relevant data, considered the comment received, and determined that air safety requires adopting the AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. Except for minor editorial changes, this AD is adopted as proposed in the NPRM.

The FAA reviewed EASA AD 2023-0113, which specifies procedures for removing certain part-numbered HMUs from service and replacing with a serviceable part. The MCAI also specifies prohibiting installation or reinstallation of an affected HMU on any engine unless the HMU is a serviceable part.

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 ADDRESSES .

The FAA estimates that this AD affects 28 engines installed on airplanes, of U.S. registry.

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 AD will not have federalism implications under Executive Order 13132. This AD will 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 that this AD:

(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 amends 14 CFR part 39 as follows:

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to CFM Model LEAP-1A23, LEAP-1A24, LEAP-1A24E1, LEAP-1A26, LEAP-1A26CJ, LEAP-1A26E1, LEAP-1A29, LEAP-1A29CJ, LEAP-1A30, LEAP-1A32, LEAP-1A33, LEAP-1A33B2, and LEAP-1A35A engines. The NPRM published in the Federal Register on January 11, 2024 (89 FR 1847). The NPRM was prompted by detection of melt-related freckles in the billet, which may reduce the life of certain HPT rotor interstage seals. In the NPRM, the FAA proposed to require removing the affected HPT rotor interstage seals from service and replacing with a part eligible for installation. The FAA is issuing this AD to address the unsafe condition on these products.

The FAA received no comments on the NPRM or on the determination of the costs.

The FAA reviewed the relevant data and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. Except for minor editorial changes, this AD is adopted as proposed in the NPRM.

The FAA reviewed CFM Service Bulletin LEAP-1A-72-00-0492-01A-930A-D, Issue 001-00, dated April 6, 2023, which provides the serial numbers of the affected HPT rotor interstage seals and specifies procedures for replacement of the HPT rotor interstage seal. 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.

The FAA estimates that this AD affects 1 engine installed on an airplane of U.S. registry.

The FAA estimates the following costs to comply with this AD:

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 AD will not have federalism implications under Executive Order 13132. This AD will 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 that this AD:

(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 amends 14 CFR part 39 as follows:

Table of Contents I. Background II. Waiver of Identical Targets for Common Performance Measures III. Waiver of Notice and Comment IV. Regulatory Analyses and Notices I. Background

The NHTSA and the FHWA share three common performance measures in their highway safety programs—total fatalities, rate of fatalities, and total serious injuries—and have shared these common performance measure for many years. Both NHTSA and FHWA regulations require States to submit identical targets for the three common performance measures—in NHTSA's triennial Highway Safety Plan (HSP) and in FHWA's Highway Safety Improvement Program (HSIP) annual report. See 23 CFR 1300.11(b)(3)(ii)(C) and 490.209(a)(1), respectively.

On November 15, 2021, the President signed into law the “Infrastructure Investment and Jobs Act” (known also as the Bipartisan Infrastructure Law, or BIL), Public Law 117-58. The BIL provided additional grant funds to States and changed several requirements to support States in their efforts to strengthen their highway safety programs. Among other things, the BIL required that all performance targets submitted to NHTSA in the triennial HSP demonstrate constant or improved performance. 23 U.S.C. 402(d)(4)(A)(ii).

The NHTSA published a final rule implementing the Highway Safety Grant Program under the BIL on February 6, 2023, at 88 FR 7780. The rule provides direction to States on procedures for meeting the statutory requirements governing their highway safety grant programs and applications. In addition to changing from performance targets submitted to NHTSA in an annual HSP to a triennial HSP, the rule requires States to submit constant or improved targets for the common performance measures and that these targets be identical to the targets that are reported by the State department of transportation (State DOT) in the HSIP annual report. See 23 CFR 1300.11(b)(3)(ii)(B).

On June 5, 2023, NHTSA and FHWA amended the uniform procedures implementing the State Highway Safety Grant Program to waive, for FY 2024, the requirement that targets for the common performance measures be identical to targets in the State Highway Safety Improvement Program. 88 FR 36472. The amendment was in response to questions from stakeholders about the interplay between NHTSA's and FHWA's current regulations.

On January 25, 2024, FHWA released a notice of proposed rulemaking concerning its performance measures that addresses and seeks comment on this issue. 89 FR 4857. Stakeholders continue to raise questions about the interplay between NHTSA's and FHWA's current regulations; however, the FHWA has not yet completed a new regulation implementing any changes to its performance measures since the passage of BIL.

In this rulemaking, FHWA amends 23 CFR 490.209(a)(1) to waive, for FY 2025, the requirement that the State DOT targets shall be identical to the targets established by the State Highway Safety Office (HSO) for common performance measures reported in the State's HSP. The NHTSA amends 23 CFR 1300.12 to revise paragraph (b)(1)(ii) to provide that States may update the triennial HSP to amend common performance measures only if necessary, in order to submit identical performance targets to FHWA in the HSIP annual report. As a result of FHWA's waiver in this document, this amendment will mean that States may not amend the common performance targets submitted in the FY 24 triennial HSP in the FY 25 Annual Grant Application. With these changes, State HSOs will continue to use the non-identical targets submitted in the FY 24 triennial HSP and State DOTs have the flexibility to submit non-identical targets for the common performance measures for FY 2025 in the 2024 HSIP annual reports.

While NHTSA and FHWA are affording States flexibility to continue to use non-identical targets for FY 2025 highway safety programs, HSOs and State DOTs are nevertheless encouraged to continue to collaborate as they work together to implement a Safe System Approach and reduce deaths and serious injuries on our roadways.

The NHTSA and FHWA find good cause to issue, without notice and comment, and to make effective immediately, this time-limited waiver of the requirement for identical targets, in accordance with 5 U.S.C. 553(b)(B) and 5 U.S.C. 553(d)(1). The Administrative Procedure Act provides that when an agency, for good cause, finds that notice and public comment are impractical, unnecessary, or contrary to the public interest, the agency may issue a final rule without providing notice and an opportunity for public comment (5 U.S.C. 553(b)(B)). For the same reason, the rule can become effective immediately. See 5 U.S.C. 553(d)(1). The safety programs of NHTSA and FHWA are governed by different statutory provisions, and FHWA has not completed its notice and comment rulemaking on the National Performance Management Measures since the passage of BIL. The NHTSA and FHWA recognize the importance of allowing time for States to provide comments on the FHWA program, but also recognize that HSOs must meet the upcoming statutory August 1 deadline to submit their Annual Grant Applications, which includes amendments to their triennial HSPs for the NHTSA program and State DOTs must meet the August 31 deadline to submit their safety performance targets in their HSIP annual reports. States' efforts to develop their FY 2025 Annual Grant Applications are underway at this time, and it is critical that States be provided certainty about application criteria. With these considerations in mind, NHTSA finds it in the public interest to amend the regulation to clarify that, States may only amend common performance targets only if necessary to submit identical targets to FHWA in the HSIP, and to make this amendment effective immediately.

Likewise, FHWA finds it in the public interest to waive the regulatory requirement in 23 CFR 490.209(a)(1) that the State DOT targets shall be identical to the targets established by the State HSO for the common performance measures, for fiscal year 2025, and to make this waiver effective immediately.

The NHTSA and FHWA have considered the impact of this rulemaking action under E.O. 12866 (as amended by E.O. 14094), E.O. 13563, and the DOT's regulatory policies and procedures. This rulemaking document was not reviewed by the Office of Management and Budget (OMB) under E.O. 12866. This action is not expected to impose any costs because it makes limited revisions to the uniform procedures implementing State highway safety grant programs. This rulemaking has been determined to be not “significant” under the DOT's regulatory policies and procedures and the policies of OMB.

The Regulatory Flexibility Act (RFA) of 1980 (5 U.S.C. 601 et seq. ) requires agencies to evaluate the potential effects of their proposed and final rules on small businesses, small organizations, and small governmental jurisdictions. Section 605 of the RFA allows an Agency to certify a rule, in lieu of preparing an analysis, if the proposed rulemaking is not expected to have a significant economic impact on a substantial number of small entities. The Small Business Regulatory Enforcement Fairness Act amended the RFA to require Federal agencies to provide a statement of the factual basis for certifying that an action would not have a significant economic impact on a substantial number of small entities.

This final rule makes limited revisions to the uniform procedures implementing State highway safety grant programs, which were previously determined to not have a significant impact on a substantial number of small entities. The grant programs impacted by this rule will affect only State governments, which are not considered to be small entities as that term is defined by the RFA. Therefore, the Agencies certify that this action will not have a significant impact on a substantial number of small entities and find that the preparation of a Regulatory Flexibility Analysis is unnecessary.

Executive Order 13132 on “Federalism” requires NHTSA and FHWA to develop an accountable process to ensure “meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications.” 64 FR 43255 (August 10, 1999). “Policies that have federalism implications” are defined in the E.O. to include regulations that have “substantial direct effects 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.” Under E.O. 13132, an Agency may not issue a regulation with federalism implications that imposes substantial direct compliance costs and that is not required by statute unless the Federal Government provides the funds necessary to pay the direct compliance costs incurred by State and local governments or the agency consults with State and local governments in the process of developing the proposed regulation. An Agency also may not issue a regulation with federalism implications that preempts a State law without consulting with State and local officials.

The Agencies have analyzed this rulemaking action in accordance with the principles and criteria set forth in E.O. 13132. The limited revisions made by this rulemaking provide flexibility to State applicants. The Agencies have therefore determined that this final rule would not have sufficient federalism implications as defined in the order to warrant formal consultation with State and local officials or the preparation of a federalism summary impact statement.

Pursuant to E.O. 12988 (61 FR 4729 (February 7, 1996)), “Civil Justice Reform,” the Agencies have considered whether this rule would have any retroactive effect. The Agencies conclude that it would not have any retroactive or preemptive effect, and judicial review of it may be obtained pursuant to 5 U.S.C. 702. That section does not require that a petition for reconsideration be filed prior to seeking judicial review. This action meets applicable standards in sections 3(a) and 3(b)(2) of E.O. 12988, Civil Justice Reform, to minimize litigation, eliminate ambiguity, and reduce burden.

Under the procedures established by the Paperwork Reduction Act of 1995, a person is not required to respond to a collection of information by a Federal Agency unless the collection displays a valid OMB control number. This rulemaking does not establish any new information collection requirements.

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 expenditures by State, local or Tribal governments, in the aggregate, or by the private sector, of more than $100 million annually (adjusted annually for inflation with base year of 1995). This rulemaking would not meet the definition of a Federal mandate because any potential resulting annual State expenditures would not exceed the minimum threshold. The program is voluntary and States that choose to apply and qualify would receive grant funds.

The NHTSA and FHWA have considered the impacts of this rulemaking action for the purposes of the National Environmental Policy Act. The Agencies have determined that this rulemaking would not have a significant impact on the quality of the human environment and qualifies for the categorical exclusion at 23 CFR 771.117(c)(20).

Executive Order 13211 (66 FR 28355, May 18, 2001) applies to any rulemaking that: (1) is determined to be economically significant as defined under E.O. 12866, and is likely to have a significantly adverse effect on the supply of, distribution of, or use of energy; or (2) that is designated by the Administrator of the Office of Information and Regulatory Affairs as a significant energy action. This rulemaking is not likely to have a significantly adverse effect on the supply of, distribution of, or use of energy. This rulemaking has not been designated as a significant energy action. Accordingly, this rulemaking is not subject to E.O. 13211.

The Agencies have analyzed this rulemaking under E.O. 13175 and have determined that this action would not have a substantial direct effect on one or more Indian Tribes, would not impose substantial direct compliance costs on Indian Tribal governments, and would not preempt Tribal law. Therefore, a Tribal summary impact statement is not required.

Please note that anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the Federal Register published on April 11, 2000 (65 FR19477) or you may visit https://dms.dot.gov.

In consideration of the foregoing, NHTSA and FHWA amend 23 CFR parts 490 and 1300 as follows:

This document contains final regulations in 26 CFR parts 26, 301, and 602 that provide guidance on the application of section 2642(g)(1) of the Internal Revenue Code (Code), which describes the circumstances and procedures under which an extension of time will be granted to make certain allocations and elections related to the GST tax.

Congress added section 2642(g)(1) to the Code by enacting section 564 of the EGTRRA, Public Law 107-16, section 564, 115 Stat. 91 (2001). Section 2642(g)(1) directs the Secretary of the Treasury or her delegate (Secretary) to issue regulations prescribing the circumstances and procedures under which an extension of time will be granted to make an allocation of GST exemption, as described in section 2631 of the Code, to a transfer, and the following three elections under section 2632 of the Code: (1) an election under section 2632(b)(3) not to have the deemed (automatic) allocation of GST exemption apply to a direct skip (generally, a transfer subject to gift or estate tax made to a person more than one generation below the transferor); (2) an election under section 2632(c)(5)(A)(i) not to have the deemed (automatic) allocation of GST exemption apply to an indirect skip or to transfers made to a particular trust; and (3) an election under section 2632(c)(5)(A)(ii) to treat any trust as a GST trust for purposes of section 2632(c). In determining whether to grant relief, section 2642(g)(1) directs that all relevant circumstances be considered, including evidence of intent contained in the trust instrument or the instrument of transfer.

The legislative history accompanying section 2642(g)(1) indicates that Congress believed that, in appropriate circumstances, an individual should be granted an extension of time to allocate GST exemption regardless of whether any period of limitations had expired. Those circumstances include situations in which the taxpayer intended to allocate GST exemption and the failure to allocate the exemption was inadvertent. H.R. Conf. Rep. No. 107-84, 202 (2001).

After the enactment of section 2642(g)(1), the IRS issued Notice 2001-50 (2001-2 CB 189), which provided guidance for transferors seeking an extension of time to make an allocation of GST exemption or an election described in sections 2632(b)(3) or (c)(5). Notice 2001-50 provides, generally, that relief will be granted under § 301.9100-3 of the Procedure and Administration Regulations (regarding requests of extensions of time for certain regulatory elections) if the taxpayer satisfies the requirements of those regulations and establishes to the satisfaction of the Commissioner of Internal Revenue or his delegate (Commissioner) that the taxpayer acted reasonably and in good faith and that a grant of the requested relief will not prejudice the interests of the government. If relief is granted under § 301.9100-3 and the allocation is made, the amount of GST exemption allocated to the transfer is the Federal gift or estate tax value of the property as of the date of the transfer and the allocation is effective as of the date of the transfer. Notice 2001-50 will be made obsolete upon the publication of this Treasury decision in the Federal Register .

On August 2, 2004, the IRS issued Rev. Proc. 2004-46 (2004-2 CB 142), which provides a simplified alternate method to obtain an extension of time to allocate GST exemption in certain situations. Generally, this method is available only with respect to an inter vivos transfer to a trust from which a GST may be made and only if each of the following requirements is met: (1) The transfer qualified for the gift tax annual exclusion under section 2503(b) of the Code; (2) the sum of the amount of the transfer and all other gifts by the transferor to the donee in the same year did not exceed the applicable annual exclusion amount for that year; (3) no GST exemption was allocated to the transfer; (4) the taxpayer has unused GST exemption to allocate to the transfer as of the filing of the request for relief; and (5) no taxable distributions or taxable terminations have occurred as of the filing of the request for relief.

On August 9, 2004, the IRS issued Rev. Proc. 2004-47 (2004 CB 169), which provides alternative relief for taxpayers who failed to make a reverse qualified terminable interest property (QTIP) election on an estate tax return.

On April 17, 2008, proposed regulations (REG-147775-06) were published in the Federal Register (73 FR 20870). The proposed regulations provided guidance on the application of section 2642(g)(1) by identifying the standards that the IRS will apply in determining whether to grant a transferor or a transferor's estate an extension of time to make an allocation of GST exemption, as described in section 2631, to property transferred by the transferor and the following three elections under section 2632: (1) an election under section 2632(b)(3) not to have the automatic allocation of GST exemption apply to a direct skip; (2) an election under section 2632(c)(5)(A)(i) not to have the automatic allocation of GST exemption apply to an indirect skip or to transfers made to a particular trust; and (3) an election under section 2632(c)(5)(A)(ii) to treat any trust as a GST trust for purposes of section 2632(c). In addition to proposing these standards, the proposed regulations included procedural requirements for establishing eligibility for the requested relief, including identification of the various persons from whom affidavits would be required.

In order to evaluate the necessity for and determine the burden imposed by the requirement to produce affidavits under proposed § 26.2642-7(h), the proposed regulations requested comments specifically as to (1) whether the affidavits are necessary for the proper performance of the functions of the IRS, including whether the information provided by the affidavits will have practical utility, (2) the accuracy of the estimated burden associated with preparing the affidavits, (3) how the quality, utility, and clarity of the information to be provided by the affidavits may be enhanced, (4) how the burden of providing the affidavits may be minimized, including through the application of automated collection techniques or other forms of information technology, and (5) estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide the affidavits.

The proposed regulations also identified situations that do not satisfy the standards for granting relief, and thus when the IRS will not grant the requested relief.

The IRS received a total of five comments, three of which explicitly addressed the procedural requirements of proposed § 26.2642-7(h), redesignated in the final regulations as § 26.2642-7(i). After careful consideration of the comments received on the proposed regulations, this Treasury decision adopts the proposed regulations with clarifying changes and additional modifications in response to comments as described in the Summary of Comments and Explanation of Revisions. Relief provided under section 2642(g)(1) will be granted through the IRS private letter ruling program.

Section 301.9100-1 generally provides that the Commissioner has the discretion to grant a reasonable extension of time under the rules set forth in §§ 301.9100-2 and 301.9100-3 to make a regulatory election under all subtitles of the Code, except subtitles E, G, H, and I (section 9100 provisions). On and after the date of publication of these final regulations, relief under section 2642(g)(1) no longer will be granted under § 301.9100-3. In addition, because these final regulations provide a replacement for the automatic six-month extension under § 301.9100-2(b) without substantive difference, the extension under § 301.9100-2(b) no longer will be available to transferors or transferor's estates qualifying for relief under proposed § 26.2642-7(h)(1), redesignated in the final regulations as § 26.2642-7(i)(1), on and after the date of publication of these final regulations. Accordingly, the final regulations amend §§ 301.9100-2(b) and 301.9100-3 to provide that relief under section 2642(g)(1) cannot be obtained through the provisions of §§ 301.9100-2(b) and 301.9100-3. However, requests that are pending with the IRS on the date of publication of these final regulations will continue to be processed under the section 9100 provisions unless the taxpayer requesting relief opts to withdraw the request and instead seek relief under these final regulations. In that case, the taxpayer's user fee will be refunded and a new user fee will be required with the new request. Furthermore, the procedures contained in Revenue Procedure 2004-46 and Revenue Procedure 2004-47 will remain effective for transferors within the scope of those revenue procedures.

The Department of the Treasury (Treasury Department) and the IRS are mindful that the proposed regulations were issued 16 years ago on April 17, 2008. Insofar as there have been no intervening legislative or regulatory changes regarding allocations of GST exemption or GST elections and because the issues addressed by the commenters on the proposed regulations continue to remain relevant, the Treasury Department and the IRS have determined that a new notice of proposed rulemaking or a further opportunity for public comment would be unlikely to generate different comments and, moreover, would unnecessarily delay further this rulemaking to the continued detriment of taxpayers seeking relief. In addition, the IRS has a ruling position that, because of the provisions of the 2008 proposed regulations, relief cannot be granted in certain otherwise appropriate situations until the 2008 proposed regulations have been superseded by the issuance of these final regulations. For such situations, the issuance of a new notice of proposed rulemaking or a reopening of the comment period would further delay, and in some cases prevent, the grant of needed relief to taxpayers.

The Treasury Department and the IRS currently are developing a new rulemaking that will complement these final regulations. In contrast to these final regulations, which address the standards for granting relief under section 2642(g)(1) for a failure to make a timely allocation or election, the forthcoming proposed regulations would address the practical effect of a grant of relief and would clarify the interplay between affirmative allocations and automatic allocations. Paragraphs in these final regulations have been reserved to accommodate the forthcoming proposed regulations.

Section 2642(g)(1) gives the Secretary the authority to issue regulations setting forth the “circumstances and procedures” under which extensions of time will be granted to make certain allocations of GST exemption and elections, taking into consideration all relevant circumstances, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant. Section 2642(g)(1) makes the late allocations and elections referenced in that section eligible for consideration for relief. Because deadlines prescribed by statute are not eligible for relief under § 301.9100-3, section 2642(g)(1)(B) concludes with the sentence, for purposes of determining whether to grant relief under this paragraph, the time for making the allocation (or election) shall be treated as if not expressly prescribed by statute. Some commenters maintained that this sentence, creating eligibility for a grant of relief, limits the authority of the Treasury Department and the IRS to issue regulations that provide standards for relief that are more restrictive than those under § 301.9100-3. Neither the statute nor its legislative history suggests that the standards for relief under section 2642(g)(1) are required to be equivalent or limited to the standards set forth in § 301.9100-3, nor is there any implication that the enactment of section 2642(g) prohibits or forecloses the possibility of any future change to the regulatory standards in § 301.9100-3. Nevertheless, the final regulations adopt burden reducing provisions as explained later in this preamble.

Proposed § 26.2642-7(d)(2) provides a nonexclusive list of circumstances (the underlying facts of which may be either helpful or harmful to the taxpayer's request for relief) that the IRS will consider in determining whether the transferor or the transferor's executor acted reasonably and in good faith.

Commenters requested that the Treasury Department and the IRS modify proposed § 26.2642-7(d)(2) to provide that the transferor or the executor of the transferor's estate will be deemed to have acted reasonably and in good faith if the taxpayer establishes the existence of any one of the various factors listed in § 26.2642-7(d)(2). Alternatively, commenters requested that § 26.2642-7(d)(2) be clarified to denote the sufficiency or relative importance of the factors listed.

Section 2642(g)(1) directs the Treasury Department and the IRS to issue regulations that “prescribe such circumstances and procedures” under which the IRS will grant relief. Since the enactment of section 2642(g) and through the IRS private letter ruling program, the IRS has applied a facts and circumstances methodology in considering requests for relief. Given the inherent complexity of the GST exemption rules, no single factor can be determinative. While § 301.9100-3(b)(1) deems the reasonableness and good faith requirements to have been met if the taxpayer establishes any one of the factors therein, that rule is expressly made subject to the requirement of the absence of the use of hindsight and the other factors described in § 301.9100-3(b)(3) and (c), and thus is not a one-factor test. Accordingly, proposed § 26.2642-7(d)(2) seeks to delineate the many factors implicit in such a facts and circumstances inquiry, and the final regulations adopt the same methodology.

The IRS's experience with requests for relief under section 2642(g)(1) indicates that no one factor has more importance in all cases than any other factor. Further, the satisfaction of one factor alone may or may not be sufficient, in the context of the facts and circumstances of that particular taxpayer, to persuade the IRS that relief under section 2642(g)(1) is warranted. Therefore, the recommendation to allow one factor to be determinative has not been adopted in the final regulations. Nevertheless, the final regulations clarify that not all of these factors may be relevant in a particular situation (and those that are not relevant would not need to be addressed in the request for relief). In addition, based on all the facts and circumstances, a single factor listed in § 26.2642-7(d)(2) may (or may not) be determinative.

Section 301.9100-3(b)(1)(i) provides that a taxpayer is deemed to have acted reasonably and in good faith if the taxpayer requests relief before the failure to make the regulatory election is discovered by the IRS. A commenter requested that this circumstance be added to the factors listed in this provision. Thus, a taxpayer would be considered to have acted reasonably and in good faith if the taxpayer's request for relief was filed before the failure to make the allocation or regulatory election is discovered by the IRS. For purposes of section 2642(g)(1), the Treasury Department and the IRS have determined that this circumstance is not material because, in the context of a request for relief under section 2642(g)(1), the Treasury Department and the IRS believe that the party that first discovers the failure to make the allocation or election (be it the IRS or the taxpayer) generally has no correlation with the taxpayer's good faith or reasonable action. Particularly because of the significant length of time that often elapses between the transfer and the discovery of a missed GST election or allocation, the discovery by the IRS does not necessarily signify a lack of good faith or reasonable action by the taxpayer. At the same time, the taxpayer's discovery generally does not guarantee the existence of good faith and reasonable action by the taxpayer. Therefore, this factor has not been added to the final regulations. However, a delay in requesting relief, after the need for relief is discovered, may have an adverse effect on the availability of relief. See, for example, the circumstances described in § 26.2642-7(d)(3)(ii) and (e)(3).

Proposed § 26.2642-7(d)(2)(iv) provides that one of the factors to be considered in determining whether the taxpayer has acted reasonably and in good faith is whether the transferor acted consistently with regard to the allocation of the transferor's GST exemption. Section 26.2642-7(d)(2)(iv) is designed to elicit information relevant to the intent of the transferor with regard to allocating exemption or making an election. For instance, a transferor's pattern of allocating GST exemption in an amount equal to the value of transfers to a trust in three or more years (whether or not consecutive) tends to support an assumption that the transferor intended to have that trust be exempt from GST tax and thus supports a presumed intent to allocate exemption to a transfer to that same trust taking place in a year in which an allocation in fact was not made.

A commenter requested that this provision be clarified to provide that the enactment of the statute itself be deemed to be a change in circumstance that could explain any post-enactment deviations from pre-enactment decisions regarding the allocation of GST exemption. In response to this comment, § 26.2642-7(d)(2)(iv) has been modified in the final regulations to confirm that relief under this provision will not be denied merely because a pattern does not exist or because the existing pattern changed at some point, whether in response to the enactment of a statute or to some other factor unrelated to either a lack of reasonableness or good faith or prejudice to the interests of the government.

One commenter queried the placement of two of the factors under § 26.2642-7(d)(3) pertaining to whether a grant of relief would prejudice the interests of the government. These two factors are (i) the extent to which the requested relief is an attempt to benefit from hindsight, and (ii) the extent to which a delay in the filing of the request for relief was an attempt to deprive the IRS of sufficient time to challenge the claimed identity of the transferor of the transferred property that is the subject of the request for relief, the value of that transferred property for Federal gift or estate tax purposes, or any other aspect of the transfer that is relevant for Federal gift or estate tax purposes. The commenter recommended that these two factors, to the extent they deal with the transferor's subjective intentions, be moved from proposed § 26.2642-7(d)(3) to proposed § 26.2642-7(d)(2), which relates to reasonableness and good faith.

While these two factors may reflect unreasonableness or bad faith on the part of the transferor or the transferor's executor, each of these factors also represents an instance in which granting relief would prejudice the interests of the government. Therefore, the Treasury Department and the IRS have not adopted this suggestion in the final regulations.

Proposed § 26.2642-7(d)(3)(i) provides, in part, that one of the relevant factors in determining whether the government's interests would be prejudiced is whether the grant of the requested relief would permit an economic advantage or other benefit that would not have been available if the allocation or election had been timely made. A commenter suggested that the definition of the term “economic advantage” is vague and may be overbroad, in that no request for relief is ever made unless the grant of relief will be advantageous to the taxpayer by producing an economic advantage in the form of a reduction of tax liability. This provision, however, is intended to limit the reference to economic advantage to an advantage that may not have been available through a timely allocation or election. One example of an economic advantage that would not have been available at the time of a timely allocation of GST exemption would be a request to allocate exemption to only one of two trusts (specifically, to the trust with the greater appreciation) if the two trusts were created on the same date with the same beneficiaries but with different assets. Therefore, the Treasury Department and the IRS have not adopted this suggestion in the final regulations.

Proposed § 26.2642-7(d)(3)(ii) provides, in part, that the expiration of any period of limitations on the assessment or collection of transfer taxes prior to the filing of a request for relief will not by itself prohibit a grant of relief. The proposed regulation further states that the combination of the expiration of a period of limitations with the fact that the asset or interest was valued with the use of a valuation discount will not by itself prohibit a grant of relief. A commenter indicated that the relevance of the use of valuation discounts and the period of limitations in determining whether to grant section 2642(g)(1) relief is not clear. The commenter stated that the use of valuation discounts that are consistent with established valuation methods neither prejudices the government nor constitutes an act of bad faith and therefore should not be considered, even in combination with other factors, in determining whether relief should be granted. The commenter also stated that any consideration given to the expiration of the period of limitations is contrary to the legislative history of section 2642(g), which clearly directs that the IRS is to disregard the expiration of any period of limitations in considering requests for relief. The commenter maintains that the IRS should not use hindsight to deny relief simply because the IRS failed to challenge the valuation of transferred property or any other aspect of the transaction reported on a return prior to the expiration of a limitations period.

The sentences of proposed § 26.2642-7(d)(3)(ii) that discuss the expiration of the period of limitations and the use of valuation discounts as factors that are considered for relief are removed from the final regulations. Section 26.2642-7(d)(3)(iv) is added to the final regulations to confirm that, subject to the considerations related to the timing of the request for relief described in § 26.2642-7(d)(3)(ii), the expiration of the period of limitations on the assessment or collection of transfer taxes prior to the filing of a request for relief generally is not relevant to the determination of whether the requirements for a grant of relief under section 2642(g)(1) have been met. Section 26.2642-7(d)(3)(iv) provides, however, that if the IRS concludes that the value of the transferred asset or assets as reported by the transferor or the executor of the transferor's estate on the Federal gift or estate tax return was so understated that it is likely to have satisfied the definition of a “gross valuation misstatement” as defined in section 6662(h)(2)(C) of the Code, the IRS will consider the purported transfer tax undervaluation in determining whether a grant of relief would prejudice the interests of the government. This provision is tied to the definition of a gross valuation misstatement to confirm that the perceived understatement in value would have to be exceptional in degree to raise the possibility of prejudice to the interests of the government. This provision is relevant only if the period of limitations on assessment or collection for transfer tax purposes expired before the filing of the request for relief.

Proposed § 26.2642-7(d)(3)(iii) provides that the occurrence and effect of an intervening taxable termination or taxable distribution will be considered in determining whether the interests of the government would be prejudiced by granting relief. The proposed regulations further state that the interests of the government may be prejudiced if a taxable termination or taxable distribution occurred between the time for making a timely allocation of GST exemption or a timely election described in section 2632(b)(3) or (c)(5) and the time at which the request for relief under this section was filed. A commenter requested that this language be removed from the final regulations and replaced with a sentence or example indicating that the existence of a GST tax liability when relief is requested is not relevant in determining whether relief under section 2642(g)(1) will be granted. Alternatively, the commenter requested that the final regulations provide that these rules not apply if the period of limitations on the assessment of resulting GST tax has not expired when relief is requested. In addition, the commenter requested that the final regulations provide transferors with the option of paying the GST tax resulting from the taxable termination or taxable distribution occurring prior to submission of the request for relief, or of forfeiting any refund of GST tax to which the transferor otherwise would be entitled upon the grant of relief.

These recommendations have not been adopted in the final regulations. Although an intervening taxable distribution or taxable termination itself does not necessarily bar a grant of relief under section 2642(g)(1), it may be relevant in identifying the existence of hindsight or in ascertaining the intent of the transferor. In addition, the difficulty and complexity of making all of the related adjustments caused by a grant of relief (including, for example, the grantor's willingness to pay any GST tax liability and any transfer tax consequences of that payment), some of which might also impact other taxpayers, will be a factor to be considered in determining whether the government's interests would be prejudiced.

Proposed § 26.2642-7(e)(1) provides that relief will not be granted to decrease or revoke a timely allocation of GST exemption as described in § 26.2632-1(b)(4)(ii)(A)( 1 ), or to revoke an election under section 2632(b)(3) or (c)(5) made on a timely filed Federal gift or estate tax return. Section 2631(b) provides that an allocation of GST exemption under section 2631(a), once made, is irrevocable. No statute, however, provides that an election made under section 2632(b)(3) or (c)(5) is irrevocable.

Accordingly, proposed § 26.2642-7(e)(1), redesignated in the final regulations as § 26.2642-7(e)(2), does not include the statement that relief is not available to revoke an election under section 2632(b)(3) or (c)(5) made on a timely filed Federal gift or estate tax return. Such relief may be available provided that the requirements of § 26.2642-7 of these final regulations are satisfied. Further, as described below, the final regulations, as they pertain to timely allocations, include three narrow exceptions that allow for relief from affirmative allocations of GST exemption.

Proposed § 26.2642-7(e)(1), redesignated in the final regulations as § 26.2642-7(e)(2), has been further modified to clarify that the allocation and election referred to is an affirmative (not an automatic) allocation or election. The Treasury Department and the IRS will address the effect of a grant of relief on automatic allocations in future guidance to be issued under section 2642(g).

A commenter indicated that it is not clear whether proposed § 26.2642-7(e)(1) also applies to allocations of GST exemption with respect to transfers made at death. This rule has been clarified in the final regulations to encompass transfers made at death and confirms that relief will not be granted to decrease or revoke an affirmative allocation (as opposed to an automatic allocation) of GST exemption, regardless of whether the transfer or the allocation of exemption was made during a transferor's life or upon the transferor's death.

The commenter further requested that the provision be modified to provide that affirmative allocations (as opposed to automatic allocations) of exemption or elections made on a timely filed estate tax return of the estate of a decedent dying prior to 2001 be exempted from this provision because section 2642(g)(1) relief was not available before December 31, 2000. Although this recommendation has not been adopted in the final regulations for all such allocations of exemption, relief from the problem raised by this comment is provided by the third of the exceptions included in the final regulations, as described in the following paragraphs.

The final regulations have been modified to include three narrow exceptions that allow for relief from affirmative allocations and elections. The first exception is that an allocation of GST exemption to a transfer or a trust (other than a charitable lead annuity trust (CLAT) or a trust subject to an estate tax inclusion period (ETIP) before the termination of the lead interest or ETIP, respectively) is void to the extent that the amount allocated exceeds the amount necessary to obtain an inclusion ratio of zero. See § 26.2632-1(b)(4)(i). (The allocation of exemption to a CLAT upon its creation may turn out to be insufficient or excessive for the purpose of making the CLAT fully GST exempt, but the allocation will not be voided. The allocation of exemption to a trust subject to an ETIP does not become irrevocable until the termination of the ETIP.)

The second exception is that an allocation is void if the allocation is made with respect to a trust that, at the time of the allocation, has no GST potential with respect to the transferor making the allocation. For this purpose, a trust has GST potential even if the possibility of a GST is so remote as to be negligible. See § 26.2632-1(b)(4)(i).

The third exception is that a late allocation (as defined in section 2642(b)(3)) will be deemed to be void as part of the relief granted under section 2642(g) if the late allocation was made in an effort to mitigate the tax consequences of the missed allocation that is the subject of the grant of relief and that was not eligible for relief prior to the enactment of section 2642(g)(1). Specifically, such a late allocation is deemed to be void if (1) prior to December 31, 2000, a transfer was made to a trust with GST potential with respect to the transferor; (2) a timely allocation of GST exemption to the trust was not made; (3) prior to December 31, 2000, a late allocation of GST exemption was made to the trust; (4) the late allocation is disclosed as part of the request for relief or during the IRS's consideration of that request; and (5) relief under section 2642(g)(1) is granted to make a timely allocation to the transfer made prior to December 31, 2000.

Finally, the commenter questioned what effect a grant of relief under section 2642(g)(1) has on a timely allocation (whether affirmative or automatic) of the same transferor's GST exemption to a transfer made subsequent to the transfer for which relief is requested. The commenter suggested that, if relief is granted under section 2642(g)(1) to timely allocate GST exemption to an earlier transfer, the GST exemption timely allocated (whether affirmatively or automatically) to a later transfer could be reduced or eliminated. The commenter suggested that the grant of relief for the earlier transfer could be conditioned on payment of the GST tax that may be due if the inclusion ratio with respect to the subsequent transfer is increased by the grant of relief. The Treasury Department and the IRS believe that, because the response to this comment may go beyond the scope of the proposed regulations, this issue is among those they intend to address in subsequent guidance.

Proposed § 26.2642-7(f), redesignated in the final regulations as § 26.2642-7(g), provides that a request for relief does not reopen, suspend, or extend the period of limitations on assessment or collection of any estate, gift, or GST tax under section 6501 of the Code. Thus, the IRS may request that the transferor or the transferor's executor consent under section 6501(c)(4) to an extension of the period of limitations on assessment or collection of any or all gift and GST taxes.

A commenter requested that the references to gift tax be removed from this provision, apparently in an effort to eliminate the possibility that the grant of relief might be conditioned on the taxpayer's agreement to extend the gift tax period of limitations. The commenter's rationale for this request is that the request for relief relates only to the GST tax. The references to gift tax in this provision, however, complement § 26.2642-7(d)(3)(ii) of the final regulations, in effect, by allowing the taxpayer to avoid a finding of prejudice to the interests of the government by agreeing to an extension of the gift tax period of limitations. An agreement to extend the period of limitations is voluntary and declining to agree to an extension would not necessarily mean that relief would be denied, but it is a factor that may be taken into consideration. By retaining this reference to the gift tax, the government would be given adequate time to consider the reported identity of the transferor, the valuation of the transferred interest that will eventually determine the amount of GST exemption that may be allocated to the transfer, or any other aspect of the transfer that is relevant for Federal gift or estate tax purposes. Therefore, this reference has not been deleted from the final regulations.

A taxpayer who seeks relief under section 2642(g)(1) will not be regarded as having filed a claim for refund or credit merely by requesting such relief.

Commenters recommended against requiring affidavits that provide more information than is required under § 301.9100-3(e)(2) and (3). One commenter characterized the proposed procedural requirements as more burdensome than the corresponding procedural requirements under the section 9100 provisions and stated that these “more burdensome” requirements for relief are inconsistent with the statutory mandate in section 2642(g). Since the enactment of section 2642(g), the IRS has issued a significant number of private letter rulings granting relief under section 2642(g)(1). After considering the circumstances in the requests, the IRS has concluded that certain information in addition to that specified in § 301.9100-3(e)(2) and (3) is necessary to determine whether relief should be granted. Accordingly, based on the IRS's experience in evaluating such requests for relief, the Treasury Department and the IRS have not adopted this recommendation in the final regulations.

Another commenter maintained that the affidavits required by proposed § 26.2642-7(h) are not necessary for the proper performance of the functions of the IRS and, therefore, the quality, utility, and clarity of the information to be provided by the affidavits cannot be enhanced. In support, the commenter argued that the affidavits demand more substantiation from taxpayers than is contemplated by section 2642(g)(1)(B). In addition, the commenter asserted that the IRS can grant relief under section 2642(g)(1) without requiring these affidavits if the IRS focuses on the government's interest and the transferor's intent as evidenced in the transfer documents and other supporting documents. Finally, the commenter stated that the IRS could determine from the documents previously filed with the IRS that the period of limitations had expired or that a taxable termination or distribution had occurred, both factors that may be indicative of prejudice to the government.

In the course of issuing private letter rulings under § 301.9100-3, the IRS has determined that, while transfer instruments and other relevant documents provided by the transferor or the transferor's executor provide useful information, these documents do not necessarily provide all of the information needed to evaluate properly a request for relief under section 2642(g)(1). Accordingly, the final regulations retain the requirement that requests for relief include detailed affidavits. However, after consideration of the comments and review of the proposed regulations, the Treasury Department and the IRS have modified the regulations by decreasing the amount of information required in affidavits in order to replicate more closely the requirements of § 301.9100-3(e)(2) and (3). As a result, the final regulations reduce the burden the proposed regulations would have imposed.

Commenters also requested a narrowing of the categories of individuals from whom affidavits will be required. In addition to individuals involved in the preparation of the tax return, proposed § 26.2642-7(h)(3) also includes in this group each tax professional who advised or was consulted on “any aspect of the transfer” or on the trust, and each agent or legal representative of the transferor who participated “in the transaction.” Commenters noted that this group may include advisors, agents, or legal representatives of the transferor who had nothing to do with preparing the return or with the decision or failure to allocate exemption or to make an election on that return.

In response to these comments, the Treasury Department and the IRS have modified the regulations by narrowing the categories of individuals required to submit affidavits under proposed § 26.2642-7(h)(3), redesignated in the final regulations as § 26.2642-7(i)(4). Specifically, the final regulations do not include in this group of required affiants any tax professional unless that professional participated in or provided advice with regard to the GST tax exemption allocation or election, or with regard to the preparation of the return. As a result, the final regulations reduce the burden the proposed regulations would have imposed.

The final regulations, however, also have been modified to confirm that the IRS, consistent with current procedures in the IRS private letter ruling program, may require affidavits and copies of writings from persons not included in the more narrow group described in § 26.2642-7(i)(4) in cases in which the IRS believes additional information is required or would be helpful in making the determination as to whether relief under section 2642(g)(1) will be granted.

Proposed § 26.2642-7(h)(3)(iii) provides that a party making an affidavit must attach to each affidavit copies of any writing (including, without limitation, notes and emails) and other contemporaneous documents within the possession of the affiant relevant to the transferor's intent with regard to the application of GST tax to the transaction. A commenter requested that this provision be modified to provide that a lawyer or accountant is not deemed to possess any documents that are in the possession of his or her law firm or accounting firm. In response to this comment, this provision of the final regulations, redesignated in the final regulations as § 26.2642-7(i)(4)(iii), clarifies that the writings to be submitted under these regulations are those that the affiant discovers by conducting, in good faith, a reasonably diligent search of records in the possession of or accessible to the affiant, or subject to the affiant's control. A reasonably diligent search generally would include, without limitation, a review of the records in the possession or control of the affiant or the firm with which the affiant is employed or associated relating to the transaction or tax return at issue.

Proposed § 26.2642-7(h)(3)(v) provides that, if a person who would be required to provide an affidavit under proposed § 26.2642-7(h)(3)(i) has died or is not competent, the transferor or the transferor's executor must include a statement to that effect in the affidavit of that transferor or executor.

A commenter suggested that this proposed provision would require the transferor or the transferor's executor to determine the competency of a person and that such a requirement would be inappropriate. Further, the commenter noted that, in addition to death and incompetence, serious physical illness or other physical impairment also could render a person unable to provide an affidavit. The commenter recommended that this provision be modified to provide that the transferor or the transferor's executor may satisfy the requirements of this provision with a statement that such transferor or executor, despite his or her best efforts in good faith, was unable to obtain the affidavit required under proposed § 26.2642-7(h)(3)(i) and an explanation of the basis for the transferor's or executor's conclusion, based on his or her best knowledge and reasonable belief that such affidavit was not obtainable.

The corresponding provision in the final regulations (§ 26.2642-7(i)(4)(vi)) has been modified to apply to persons who have died or who are unwilling or unable to provide the required affidavit at the time relief is requested. For purposes of this provision, the term unwilling refers to a person who does not (other than one who is unable to) provide the required affidavit, despite the best efforts of the transferor or the transferor's executor, made in good faith, to obtain the required affidavit. The unwillingness of certain persons to provide an affidavit, however, may be considered by the IRS in determining whether or not to grant the requested relief. In addition, for purposes of this provision, the term unable refers to a permanent condition such as physical or mental incapacity that prevents a person from providing the required affidavit, but not a temporary condition such as a temporary physical or mental incapacity or a person's inability due to a leave of absence, travel, or a contractual requirement such as a confidentiality agreement.

A commenter noted that taxpayers have to pay a user fee when seeking relief under section 2642(g)(1) through the IRS private letter ruling program. The commenter proposed that, given the complexity of the rules and the frequency of changes to the rules, relief under section 2642(g)(1) should be granted without charging a user fee. The commenter noted that, under other circumstances, the IRS has developed simplified procedures that do not necessitate a private letter ruling request and suggested that the compliance burden would be eased significantly if a simplified procedure to administer relief under section 2642(g)(1) were developed.

The Treasury Department and the IRS believe that the most efficient way to address these requests for relief continues to be through the IRS private letter ruling program. The user fee is imposed to recover the government's full cost for providing the service. The Treasury Department and the IRS agree that the compliance burden would be eased significantly if it was possible to develop a simplified procedure to administer relief under section 2642(g)(1). For instance, Rev. Proc. 2004-46 (2004-2 CB 142) and Rev. Proc. 2004-47 (2004-2 CB 169) identify situations in which the Treasury Department and the IRS believe that relief may be granted without adversely affecting the interests of the government. See § 601.601(d)(2)(ii)( b ). The Treasury Department and the IRS are prepared to issue additional revenue procedures or other guidance when they identify situations for which simplified or automatic relief under section 2642(g)(1) would be appropriate and administrable. Until such guidance is issued, however, the IRS private letter ruling program will continue to allow the IRS to obtain and evaluate the information necessary to identify such situations. The user fee would follow the same schedule and amount as rulings under § 301.9100-1. See Appendix A of Rev. Proc. 2024-1, 2024-1 I.R.B. 1, 85.

The IRS had estimated in the proposed regulations that the annual burden to prepare the affidavits was two hours. Many commenters mentioned that the estimated burden was drastically underestimated due to the numerous requirements of the proposed regulations. In response to these comments, the IRS has reconsidered this estimate of the annual burden and has increased the estimated annual burden to 20 hours.

Notice 2001-50, 2001-2 CB 189, is obsolete as of May 6, 2024.

Pursuant to the Memorandum of Agreement, Review of Treasury Regulations under Executive Order 12866 (June 9, 2023), tax regulatory actions issued by the IRS are not subject to the requirements of section 6 of Executive Order 12866, as amended. Therefore, a regulatory impact assessment is not required.

In accordance with the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. (PRA), information collection requirements contained in these final regulations are in § 26.2642-7(i)(3) and (4). These provisions require transferors or the executors of transferors' estates to provide one or more affidavits when requesting relief under section 2642(g)(1) of the Internal Revenue Code. The IRS will use the information in the affidavits to determine whether to grant a transferor or a transferor's estate an extension of time to (1) allocate GST exemption as defined in section 2631, (2) elect under section 2632(b)(3) not to have the automatic allocation of GST exemption apply to a direct skip, (3) elect under section 2632(c)(5)(A)(i) not to have the automatic allocation of GST exemption apply to an indirect skip or to transfers made to a particular trust, and (4) elect under section 2632(c)(5)(A)(ii) to treat any trust as a GST trust for purposes of section 2632(c).

The reporting burden associated with the information collection in the final regulations are included in the aggregate burden estimates for OMB control number 1545-2116. The estimated number of respondents, who are mainly attorneys representing the taxpayers, for each year is estimated to be 50. The estimated burden for each respondent to prepare the private letter ruling request and the accompanying affidavits is 20 hours per respondent. Thus, the total annual burden is estimated to be 1000 hours. It should be noted that the burden is not an annual burden for each taxpayer, as taxpayers do not need to request a private letter ruling each year.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

Books or records relating to a collection of information must be retained as long as their contents might become material in the administration of any Internal Revenue law. Generally, tax returns and tax information are confidential, as required by 26 U.S.C. 6103.

It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. The applicability of these regulations is limited to individuals (or their estates) and trusts, which are not small entities as defined by the Regulatory Flexibility Act (5 U.S.C. 601). Although it is anticipated that there may be a beneficial economic impact for some small entities, including entities that provide tax and legal services that assist individuals in the IRS private letter ruling program, any benefit to those entities would be indirect. Further, this indirect benefit will not affect a substantial number of these small entities because only a limited number of individuals (or their estates) and trusts would submit a private letter ruling request under this rule. Therefore, only a small fraction of tax and legal services entities would generate business or benefit from this rule. Accordingly, a regulatory flexibility analysis is not required.

Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business and no comments were received in response.

Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits and take certain other actions before issuing a final rule that includes any Federal mandate that may result in expenditures in any one year by a State, local, or Tribal government, in the aggregate, or by the private sector, of $100 million in 1995 dollars, updated annually for inflation. This rule does not include any Federal mandate that may result in expenditures by State, local, or Tribal governments, or by the private sector in excess of that threshold.

Executive Order 13132 (entitled “Federalism”) prohibits an agency from publishing any rule that has federalism implications if the rule either imposes substantial, direct compliance costs on State and local governments, and is not required by statute, or preempts State law, unless the agency meets the consultation and funding requirements of section 6 of the Executive order. These proposed regulations do not have federalism implications and do not impose substantial direct compliance costs on State and local governments or preempt State law within the meaning of the Executive order.

The principal author of these regulations is Mayer R. Samuels, Office of the Associate Chief Counsel (Passthroughs and Special Industries), IRS. However, other personnel from the Treasury Department and the IRS participated in their development.

Accordingly, the Treasury Department and the IRS amend 26 CFR parts 26, 301, and 602 as follows:

In accordance with the Privacy Act of 1974, DoD is establishing a new system of records titled “All-domain Anomaly Resolution Office (AARO) Report System,” AARO-0001. This system of records describes the AARO's collection, use, and maintenance of correspondence and reports submitted from current or former U.S. government employees, service members, or contractors with direct knowledge of U.S. Government programs or activities related to Unidentified Anomalous Phenomenon (UAP) dating back to 1945. This system also includes correspondence and reports submitted from members of the general public and government-affiliated personnel on events related to UAP. The submitted information will be used to carry out AARO's mission, including to inform AARO's congressionally directed Historical Record Report.

The Privacy Act permits Federal agencies to exempt eligible records in a system of records from certain provisions of the Act, including the provisions providing individuals with a right to request access to and amendment of their own records and accountings of disclosures of such records. If an agency intends to exempt a particular system of records, it must first go through the rulemaking process to provide public notice and an opportunity to comment on the exemption. The Office of the Secretary is amending 32 CFR part 310 to add a new Privacy Act exemption rule for this system of records. The DoD is claiming an exemption for this system of records because some of its records may contain classified national security information and providing notice, access, amendment, and disclosure of accounting of those records to an individual, as well as certain record-keeping requirements, may cause damage to national security and reveal sensitive sources and methods. The Privacy Act, pursuant to 5 U.S.C. 552a(k)(1), authorizes agencies to claim an exemption for systems of records that contain information properly classified pursuant to executive order. DoD is claiming an exemption from several provisions of the Privacy Act, including various access, amendment, disclosure of accounting, and certain record-keeping and notice requirements, to prevent disclosure of any information properly classified pursuant to executive order, as implemented by DoD Instruction 5200.01, “DoD Information Security Program and Protection of Sensitive Compartmented Information (SCI)” (available at https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/520001p.PDF?ver=cF1II-jcFGP6jfNrnTr8lQ%3d%3d ); DoD Manual 5200.01, Volume 1, “DoD Information Security Program: Overview, Classification, and Declassification” (available at https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodm/520001m_vol1.pdf?ver=2020-08-04-092500-203; and DoD Manual 5200.01, Volume 3, “DoD Information Security Program: Protection of Classified Information” (available at https://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodm/520001m_vol3.pdf?ver=MJfVD-nRd2HTyLSzDse9VQ%3d%3d ).

This rule is being published as a direct final rule as the Department does not expect to receive any significant adverse comments. If such comments are received, this direct final rule will be cancelled and a proposed rule for comments will be published. If no such comments are received, this direct final rule will become effective ten days after the comment period expires.

For purposes of this rulemaking, a significant adverse comment is one that explains (1) why the rule is inappropriate, including challenges to the rule's underlying premise or approach; or (2) why the rule will be ineffective or unacceptable without a change. In determining whether a significant adverse comment necessitates withdrawal of this direct final rule, the Department will consider whether the comment raises an issue serious enough to warrant a substantive response had it been submitted in a standard notice-and-comment process. A comment recommending an addition to the rule will not be considered significant and adverse unless the comment explains how this direct final rule would be ineffective without the addition.

This direct final rule adds to the DoD's Privacy Act exemptions for systems of records found in 32 CFR 310.29. Records in this system of records are only exempt from the Privacy Act to the extent the purposes underlying the exemption pertain to the record.

A notice of a new system of records for AARO-0001 is also published in this issue of the Federal Register .

Executive Orders 12866 (as amended by Executive Order 14094) and 13563 direct agencies to assess all 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, distribute 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. It has been determined that this rule is not a significant regulatory action under these Executive Orders.

The Congressional Review Act, 5 U.S.C. 801 et seq., generally provides that before a rule may take effect, the agency promulgating the rule must submit a rule report, which includes a copy of the rule, to each House of the Congress and to the Comptroller General of the United States. DoD will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States. A major rule may take effect no earlier than 60 calendar days after Congress receives the rule report or the rule is published in the Federal Register , whichever is later. This direct final rule is not a “major rule” as defined by 5 U.S.C. 804(2).

Section 202 of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532) requires agencies to assess anticipated costs and benefits before issuing any rule whose mandates may result in the expenditure by State, local and tribal governments in the aggregate, or by the private sector, in any one year of $100 million in 1995 dollars, updated annually for inflation. This rule will not mandate any requirements for State, local, or Tribal governments, nor will it affect private sector costs.

The Assistant to the Secretary of Defense for Privacy, Civil Liberties, and Transparency has certified that this rule is not subject to the Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities. This rule is concerned only with the administration of Privacy Act systems of records within the DoD. Therefore, the Regulatory Flexibility Act, as amended, does not require DoD to prepare a regulatory flexibility analysis.

The Paperwork Reduction Act (44 U.S.C. 3501 et seq. ) was enacted to minimize the paperwork burden for individuals; small businesses; educational and nonprofit institutions; Federal contractors; State, local and tribal governments; and other persons resulting from the collection of information by or for the Federal government. The Act requires agencies obtain approval from the Office of Management and Budget before using identical questions to collect information from ten or more persons. This rule does not impose reporting or recordkeeping requirements on the public.

Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a rule that has federalism implications, imposes substantial direct requirement costs on State and local governments, and is not required by statute, or has federalism implications and preempts State law. This rule will not have a substantial effect on State and local governments.

Executive Order 13175 establishes certain requirements that an agency must meet when it promulgates a rule that imposes substantial direct compliance costs on one or more Indian Tribes, preempts tribal law, or affects the distribution of power and responsibilities between the Federal Government and Indian Tribes. This rule will not have a substantial effect on Indian Tribal governments.

Accordingly, 32 CFR part 310 is amended as follows:

The Coast Guard will enforce special local regulations in 33 CFR 100.1311 for the Windermere Cup on May 4, 2024, from 8 a.m. to 12 p.m. This action is being taken to provide for the safety of life on navigable waterways during this one-day event. Our regulation for marine events within the Thirteenth Coast Guard District, § 100.1311(a), specifies the location of the regulated area for the Windermere Cup which encompasses waters from Montlake Cut and Union Bay Reach between Portage Bay and Webster Point on Lake Washington in Seattle, WA. During the enforcement period, as reflected in § 100.1311, if you are the operator of a vessel in the regulated area you must comply with directions from the Patrol Commander or any Official Patrol displaying a Coast Guard ensign.

In addition to this notification of enforcement in the Federal Register , the Coast Guard plans to provide notification of this enforcement period and modifications, if any, via the Local Notice to Mariners and marine information broadcasts.

I. Table of Abbreviations BOEM Bureau of Ocean Energy Management CFR Code of Federal Regulations DHS Department of Homeland Security FR Federal Register NPRM Notice of Proposed Rulemaking OCS Outer Continental Shelf NAD 83 North American Datum of 1983 NM Nautical Mile RWF Revolution Wind Farm § Section U.S.C. United States Code WTG Wind Turbine Generator II. Background, Purpose, and Legal Basis

On February 2, 2024, Orsted, an offshore wind farm developer, notified the Coast Guard that they plan to begin construction of the Revolution Wind facilities in the Revolution Wind Farm (RWF) project area within federal waters on the Outer Continental Shelf (OCS), specifically in the Bureau of Ocean Energy Management (BOEM) Renewable Energy Lease Area OCS-A 0486, approximately 15 nautical miles (NM) offshore southeast of Point Judith, Rhode Island, 32 NM southeast of the Connecticut coast and 12 NM southwest of Martha's Vineyard, Massachusetts. Hence, after determining that establishment of safety zones was necessary to provide for the safety of life, property, and the environment during the anticipated construction of the structures, on March 21, 2024, the Coast Guard published a notice of proposed rulemaking (NPRM) titled “Safety Zone; Revolution Wind Farm Project Area, Outer Continental Shelf, Lease OCS-A 0486, Offshore Rhode Island, Atlantic Ocean” (89 FR 20150) to begin construction on June 1st. There we explained the basis for the NPRM and invited comments on our proposed regulatory action related to the establishment of safety zones around the construction of 65 Wind Turbine Generators (WTG) and two Offshore Sub Stations (OSS) located in the RWF project area. 86 comments were received during the comment period that ended April 22, 2024, that are currently being considered before the safety zones are modified or extended.

The Coast Guard is issuing this temporary rule under authority in 5 U.S.C. 553(b)(B). This statutory provision authorizes an agency to issue a rule without prior notice and opportunity to comment when, for good cause, the agency finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” The Coast Guard finds that good cause exists to not complete notice and comment procedures in this case because it would be impracticable and contrary to the public interest of ensuring the safety of mariners transiting the area. After the aforementioned March 21, 2024 NPRM was published, the Coast Guard was informed that construction of RWF project area could begin as soon as May 1, 2024, leaving insufficient time to consider the received comments, and issue a final rule by this anticipated date of construction.

Under 5 U.S.C. 553(d)(3), the Coast Guard also finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register considering the anticipated start of construction on May 1, 2024. Delaying the effective date of this rule would be contrary to public interest because immediate action is needed to respond to the potential safety risks associated with the extremely complex and unusually hazardous construction of these OCS facilities including hydraulic pile driving hammer operations, heavy lift operations, overhead cutting operations, potential falling debris, increased vessel traffic, and stationary barges in close proximity to the facilities and each other, occurring at times within 12 NM of shore.

The Coast Guard is issuing this rule under the authority provided in 14 U.S.C. 544, 43 U.S.C. 1333, and Department of Homeland Security (DHS) Delegation No. 00170.1, Revision No. 01.3. As an implementing regulation of this authority, 33 CFR part 147 permits the establishment of safety zones for non-mineral energy resource permanent or temporary structures located on the OCS for the purpose of protecting life and property on the facilities, appurtenances and attending vessels, and on the adjacent waters within the safety zone (see 33 CFR 147.10). Accordingly, a safety zone established under 33 CFR part 147 may also include provisions to restrict, prevent, or control certain activities, including access by vessels or persons to maintain safety of life, property, and the environment.

This rule establishes 16 temporary 500-meter safety zones around the construction of 16 WTGs on the OCS from May 1, 2024, through 11:59 p.m. on May 31, 2024.

The construction of these facilities is expected to repeatedly include the installation of the monopile type foundations followed by the installation of the upper structures for all 16 facilities. Major construction activity could take place at several locations simultaneously in the lease area for these 16 facilities. The Coast Guard will make notice of each enforcement period via the Local Notice to Mariners and issue a Broadcast Notice to Mariners via marine channel 16 (VHF-FM) as soon as practicable in response to an emergency or hazardous condition.

Additional information about the construction process of the RWF can be found at https://www.boem.gov/renewable-energy/state-activities/revolution-wind.

The 16 temporary 500-meter safety zones around the construction of the WTGs are in the RWF project area, specifically in the BOEM Renewable Energy Lease Area OCS-A 0486, approximately 15 nautical NM offshore southeast of Point Judith, Rhode Island, 32 NM southeast of the Connecticut coast and 12 NM southwest of Martha's Vineyard, Massachusetts.

The positions of each individual safety zone are referred to using a unique alpha-numeric naming convention outlined in the “Rhode Island and Massachusetts Structure Labeling Plot (West)  1 ”.

Aligning with authorities under 33 CFR 147.15, the temporary safety zones will include the area within 500-meters of the center point of the positions provided in the table below expressed in Degrees (°) Minutes (') (DM) based on North American Datum 1983 (NAD 83).

When enforced, no unauthorized vessel or person would be permitted to enter the safety zone without obtaining permission from the First Coast Guard District Commander or a designated representative. Requests for entry into the safety zone would be considered and reviewed on a case-by-case basis. Persons or vessels seeking to enter the safety zone must request authorization from the First Coast Guard District Commander or designated representative via VHF-FM channel 16 or by phone at 617-603-1560 (First Coast Guard District Command Center). If permission is granted, all persons and vessels shall comply with the instructions of the First Coast Guard District Commander or designated representative.

The Proposed Regulatory Text Appears at the End of This Document.

We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. This rule has not been designated a “significant regulatory action,” under Executive Order 12866. Accordingly, the rule has not been reviewed by the Office of Management and Budget (OMB).

Aligning with 33 CFR 147.15, the safety zones established would extend to a maximum distance of 500-meters around the OCS facility measured from its center point. Vessel traffic would be able to safely transit around the proposed safety zones, which would impact a small, designated area in the Atlantic Ocean, without significant impediment to their voyage. This safety zone would provide for the safety of life, property, and the environment during the construction of each structure, in accordance with Coast Guard maritime safety missions.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this proposed rule would not have a significant economic impact on a substantial number of small entities.

This rule may affect owners or operators of vessels intending to transit or anchor in the RWF, some of which might be small entities. However, these safety zones would not have a significant economic impact on a substantial number of these entities because they are temporarily enforced, allow for deviation requests, and do not impact vessel transit significantly. Regarding the enforcement period, although these safety zones would be in effect from May 1, 2024, through May 31, 2024, vessels would only be prohibited from the regulated zone during periods of actual construction activity in conjunction with the period of enforcement. We expect the enforcement period at each location to last for a short period. Additionally, vessel traffic could pass safely around each safety zone using an alternate route. Use of an alternate route likely will cause minimal delay for the vessel in reaching their destination depending on other traffic in the area and vessel speed. Vessels would also be able to request deviation from this rule to transit through a safety zone. Such requests would be considered on a case by-case basis and may be authorized by the First Coast Guard District Commander or a designated representative. For these reasons, the Coast Guard expects any impact of this rulemaking establishing a temporary safety zone around these OCS facilities to be minimal and have no significant economic impact on small entities.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this proposed rule. If the proposed rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please call or email the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This proposed rule would not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132 (Federalism), if it has 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. We have analyzed this proposed rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule would not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this proposed rule under Department of Homeland Security Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have made a preliminary determination that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves the establishment of a safety zone around an OCS facility to protect life, property, and the marine environment. It is categorically excluded from further review under paragraph L60 of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 1. A Record of Environmental Consideration supporting this determination is available in the docket. For instructions on locating the docket, see the ADDRESSES section of this preamble.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to call or email the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places, or vessels.

For the reasons discussed in the preamble, the Coast Guard is amending 33 CFR part 147 as follows:

I. Table of Abbreviations CFR Code of Federal Regulations DHS Department of Homeland Security NPRM Notice of proposed rulemaking § Section U.S.C. United States Code II. Background Information and Regulatory History

The Coast Guard is issuing this temporary rule under authority in 5 U.S.C. 553(b)(B). This statutory provision authorizes an agency to issue a rule without prior notice and opportunity to comment when the agency for good cause finds that those procedures are “impracticable, unnecessary, or contrary to the public interest.” The Coast Guard finds that good cause exists for not publishing a notice of proposed rulemaking (NPRM) with respect to this rule because the event sponsor did not submit notice of the fireworks display to the Coast Guard with sufficient time remaining before the event to publish an NPRM. Delaying the effective date of this rule to wait for a comment period to run would be impracticable and contrary to the public interest by inhibiting the Coast Guard's ability to protect spectators and vessels from the hazards associated with this firework display.

Also, under 5 U.S.C. 553(d)(3), the Coast Guard finds that good cause exists for making this rule effective less than 30 days after publication in the Federal Register . For the same reasons discussed in the preceding paragraph, waiting for a 30-day notice period to run would be impracticable and contrary to the public interest.

The Coast Guard is issuing this rule under authority in 46 U.S.C. 70034. The Captain of the Port Eastern Great Lakes (COTP) has determined that fireworks over the water presents significant risks to public safety and property. This rule is needed to protect personnel, vessels, and the marine environment in the navigable waters within the safety zone while the fireworks display is taking place.

This rule establishes a safety zone from 8:30 p.m. through 10:30 p.m. on June 23, 2024. The safety zone will cover all navigable waters within a 210-foot radius of land launched fireworks over the Presque Isle Bay in Erie, PA at 42°08′19.87″ N 80°05′29.54″ W. The duration of the zone is intended to protect spectators, vessels, and the marine environment in these navigable waters during the fireworks display. No vessel or person will be permitted to enter the safety zone without obtaining permission from the COTP or a designated representative.

We developed this rule after considering numerous statutes and Executive orders related to rulemaking. Below we summarize our analyses based on a number of these statutes and Executive orders, and we discuss First Amendment rights of protestors.

Executive Orders 12866 and 13563 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits. This rule has not been designated a “significant regulatory action,” under section 3(f) of Executive Order 12866, as amended by Executive Order 14094 (Modernizing Regulatory Review). Accordingly, this rule has not been reviewed by the Office of Management and Budget (OMB).

This regulatory action determination is based on size, location, duration and time of day of the regulated area The safety zone will encompass a 210-foot radius of land launched fireworks in the Presque Isle Bay in Erie, PA lasting approximately two hours during the evening when vessel traffic is normally low. Moreover, the Coast Guard would issue a Broadcast Notice to Mariners via VHF-FM marine channel 16 about the zone, and the rule would allow vessels to seek permission to enter the zone.

The Regulatory Flexibility Act of 1980, 5 U.S.C. 601-612, as amended, requires Federal agencies to consider the potential impact of regulations on small entities during rulemaking. The term “small entities” comprises small businesses, not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000. The Coast Guard certifies under 5 U.S.C. 605(b) that this rule will not have a significant economic impact on a substantial number of small entities.

While some owners or operators of vessels intending to transit the safety zone may be small entities, for the reasons stated in section V.A above, this rule will not have a significant economic impact on any vessel owner or operator.

Under section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121), we want to assist small entities in understanding this rule. If the rule would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please call or email the person listed in the FOR FURTHER INFORMATION CONTACT section.

Small businesses may send comments on the actions of Federal employees who enforce, or otherwise determine compliance with, Federal regulations to the Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of the Coast Guard, call 1-888-REG-FAIR (1-888-734-3247). The Coast Guard will not retaliate against small entities that question or complain about this rule or any policy or action of the Coast Guard.

This rule will not call for a new collection of information under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Executive Order 13132, Federalism, if it has 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. We have analyzed this rule under that Order and have determined that it is consistent with the fundamental federalism principles and preemption requirements described in Executive Order 13132.

Also, this rule does not have tribal implications under Executive Order 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian tribes, on the relationship between the Federal Government and Indian tribes, or on the distribution of power and responsibilities between the Federal Government and Indian tribes.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or tribal government, in the aggregate, or by the private sector of $100,000,000 (adjusted for inflation) or more in any one year. Though this rule will not result in such an expenditure, we do discuss the effects of this rule elsewhere in this preamble.

We have analyzed this rule under Department of Homeland Security Directive 023-01, Rev. 1, associated implementing instructions, and Environmental Planning COMDTINST 5090.1 (series), which guide the Coast Guard in complying with the National Environmental Policy Act of 1969 (42 U.S.C. 4321-4370f), and have determined that this action is one of a category of actions that do not individually or cumulatively have a significant effect on the human environment. This rule involves safety zone lasting approximately two hours that will prohibit entry within a 210-foot radius in Presque Isle Bay in Erie, PA for a fireworks display. It is categorically excluded from further review under paragraph L[60a] of Appendix A, Table 1 of DHS Instruction Manual 023-01-001-01, Rev. 1. A Record of Environmental Consideration supporting this determination is available in the docket. For instructions on locating the docket, see the ADDRESSES section of this preamble.

The Coast Guard respects the First Amendment rights of protesters. Protesters are asked to call or email the person listed in the FOR FURTHER INFORMATION CONTACT section to coordinate protest activities so that your message can be received without jeopardizing the safety or security of people, places, or vessels.

For the reasons discussed in the preamble, the Coast Guard amends 33 CFR part 165 as follows:

This final rule makes purely technical, clarifying revisions to the Forest Service's existing planning regulations at 36 CFR 219.4(a)(3) and at 36 CFR 219.19. These purely technical, clarifying revisions do not formulate standards, criteria, or guidelines applicable to Forest Service programs and therefore do not require public notice and opportunity to comment under section 14(a) of the Forest and Rangeland Renewable Resources Planning Act of 1974 (16 U.S.C. 1612(a)).

The Department is revising text in § 219.4(a)(3) and § 219.19 to adhere to guidance set forth by the Office of Science and Technology Policy and the Council on Environmental Quality within the Executive Office of the President on November 30, 2022, titled Guidance for Federal Departments and Agencies on Indigenous Knowledge ( https://www.whitehouse.gov/wp-content/uploads/2022/12/OSTP-CEQ-IK-Guidance.pdf ). The Department is changing the term Native Knowledge to Indigenous Knowledge and updating the associated definition to conform precisely with this guidance. The revised definition is substantially similar in substance to the existing definition and will have no discernable impact on how this concept is applied in Forest Service operations.

Consistent with Executive Order (E.O.) 12866, the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget will determine whether proposed, interim, and final rules that impose, eliminate, or modify requirements on non-Forest Service parties are significant and will review any proposed, interim, or final rules that OIRA has designated as significant. This final rule does not impose, eliminate, or modify requirements on non-Forest Service parties and therefore does not require a significance determination by OIRA. E.O. 13563 reaffirms the principles of E.O. 12866 while calling for improvements in the Nation's regulatory system to promote predictability, to reduce uncertainty, and to use the best, most innovative, and least burdensome tools for achieving regulatory ends. The Department has developed this final rule consistent with E.O. 13563.

Because this final rule does not impose, eliminate, or modify requirements on non-Forest Service parties, it is not a major rule as defined by the Small Business Regulatory Enforcement Fairness Act of 1996 (known as the Congressional Review Act, 5 U.S.C. 804(2)).

This final rule will make only technical, clarifying revisions to existing Forest Service regulations at 36 CFR part 219, subpart A. Forest Service regulations at 36 CFR 220.6(d)(2) (73 FR 43093) exclude from documentation in an environmental assessment or environmental impact statement “rules, regulations, or policies to establish service-wide administrative procedures, program processes, or instructions.” The Department has concluded that this final rule falls within this category of actions and that no extraordinary circumstances exist which would require preparation of an environmental assessment or environmental impact statement.

The Department has considered this final rule under the requirements of the Regulatory Flexibility Act (5 U.S.C. 602 et seq. ). This final rule will not have any direct effect on small entities as defined by the Regulatory Flexibility Act. The final rule will not impose recordkeeping requirements on small entities; will not affect their competitive position in relation to large entities; and will not affect their cash flow, liquidity, or ability to remain in the market. Therefore, the Department has determined that this final rule will not have a significant economic impact on a substantial number of small entities pursuant to the Regulatory Flexibility Act.

The Department has considered this final rule under the requirements of E.O. 13132, Federalism. The Department has determined that the final rule conforms with the federalism principles set out in this E.O.; will not impose any compliance costs on the states; and will not have substantial direct effects on the states, on the relationship between the Federal Government and the states, or on the distribution of power and responsibilities among the various levels of government. Therefore, the Department has concluded that the final rule does not have federalism implications.

The Department has reviewed this final rule in accordance with the requirements of E.O. 13175, Consultation and Coordination with Indian Tribal Governments. The Department has determined that national Tribal consultation is not necessary for the final rule. The final rule, which will make only technical, clarifying revisions to existing Forest Service regulations in 36 CFR part 219, subpart A, does not impose, eliminate, or modify requirements on non-Forest Service parties and therefore does not have any direct effects on Tribes.

The Department has considered the final rule under the requirements of E.O. 12898, Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations. The final rule, which will make only technical, clarifying revisions to existing Forest Service regulations in 36 CFR part 219, subpart A, does not impose, eliminate, or modify requirements on non-Forest Service parties and therefore will not result in disproportionately high and adverse impacts on minority or low-income populations or the exclusion of minority and low-income populations from meaningful involvement in decision making.

The Department has analyzed the final rule in accordance with the principles and criteria in E.O. 12630, Governmental Actions and Interference With Constitutionally Protected Property Rights. The Department has determined that the final rule will not pose the risk of a taking of private property.

The Department has reviewed the final rule under E.O. 13211, Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use. The Department has determined that the final rule will not constitute a significant energy action as defined in E.O. 13211, and OIRA has not otherwise designated the final rule as a significant energy action.

The Department has analyzed the final rule in accordance with the principles and criteria in E.O. 12988, Civil Justice Reform. Upon issuance of the final rule, (1) all state and local laws and regulations that conflict with the final rule or that impede its full implementation will be preempted, (2) no retroactive effect will be given to this final rule, and (3) it will not require administrative proceedings before parties may file suit in court challenging its provisions.

Pursuant to Title II of the Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538), signed into law on March 22, 1995, the Department has assessed the effects of the final rule on state, local, and Tribal governments, and the private sector. The final rule will not compel the expenditure of $100 million or more by any state, local, or Tribal government or anyone in the private sector. Therefore, a statement under section 202 of the Act is not required.

The final rule does not contain information collection requirements as defined in 5 CFR part 1320 that are not already required by law or not already approved for use. Accordingly, the review provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) and its implementing regulations at 5 CFR part 1320 do not apply.

Therefore, for the reasons set forth in the preamble, the Department is amending chapter II of title 36 of the Code of Federal Regulations as follows:

Throughout this document, “we,” “us,” and “our” refer to the EPA.

On February 2, 2024 (89 FR 7318), the EPA proposed to approve the SIP revision listed in table 1 of this document, addressing the NNSR requirements for the 2015 ozone NAAQS for the Department.

We proposed approval of the submitted SIP revision because we determined that the 2015 ozone certification submitted by the Department fulfills the 40 CFR 51.1314 revision requirement and meets the requirements of CAA sections 110, 172(c)(5), 173, 182(a)(2)(c), 193, and the minimum SIP requirements of 40 CFR 51.165. Our proposed action contains more information on the SIP revision and our evaluation.

The EPA's proposed action provided a 30-day public comment period. During this period, we received one comment in support of this action. The comment outlines the air quality improvements that will result from finalizing this action. The EPA has considered this comment in its final decision to approve the Department's SIP revision.

One favorable comment was received during the 30-day public comment period. Therefore, as authorized in section 110(k)(3) of the Act, the EPA is approving this certification into the Nevada SIP as proposed.

Under the Clean Air Act, the Administrator is required to approve a SIP submission that complies with the provisions of the Act and applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in reviewing SIP submissions, the EPA's role is to approve State choices, provided that they meet the criteria of the Clean Air Act. Accordingly, this action merely approves State law as meeting Federal requirements and does not impose additional requirements beyond those imposed by State law. For that reason, this action:

• Is not a significant regulatory action subject to review by the Office of Management and Budget under Executive Orders 12866 (58 FR 51735, October 4, 1993) and 14094 (88 FR 21879, April 11, 2023);

• Does not impose an information collection burden under the provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq. );

• Is certified as not having a significant economic impact on a substantial number of small entities under the Regulatory Flexibility Act (5 U.S.C. 601 et seq. );

• Does not contain any unfunded mandate or significantly or uniquely affect small governments, as described in the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4);

• Does not have federalism implications as specified in Executive Order 13132 (64 FR 43255, August 10, 1999);

• Is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997) because it approves a State program;

• Is not a significant regulatory action subject to Executive Order 13211 (66 FR 28355, May 22, 2001); and

• Is not subject to requirements of section 12(d) of the National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note) because application of those requirements would be inconsistent with the Clean Air Act.

In addition, the SIP is not approved to apply on any Indian reservation land or in any other area where the EPA or an Indian tribe has demonstrated that a tribe has jurisdiction. In those areas of Indian country, the rule does not have tribal implications and will not impose substantial direct costs on Tribal governments or preempt tribal law as specified by Executive Order 13175 (65 FR 67249, November 9, 2000).

Executive Order 12898 (Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations, 59 FR 7629, February 16, 1994) directs Federal agencies to identify and address “disproportionately high and adverse human health or environmental effects” of their actions on minority populations and low-income populations to the greatest extent practicable and permitted by law. The EPA defines environmental justice (EJ) as “the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.” The EPA further defines the term fair treatment to mean that “no group of people should bear a disproportionate burden of environmental harms and risks, including those resulting from the negative environmental consequences of industrial, governmental, and commercial operations or programs and policies.”

The State did not evaluate environmental justice considerations as part of its SIP submittal; the CAA and applicable implementing regulations neither prohibit nor require such an evaluation. The EPA did not perform an EJ analysis and did not consider EJ in this action. Consideration of EJ is not required as part of this action, and there is no information in the record inconsistent with the stated goal of Executive Order 12898 of achieving environmental justice for people of color, low-income populations, and Indigenous peoples.

This action is subject to the Congressional Review Act, and the EPA will submit a rule report to each House of the Congress and to the Comptroller General of the United States. This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Under section 307(b)(1) of the Clean Air Act, petitions for judicial review of this action must be filed in the United States Court of Appeals for the appropriate circuit by July 5, 2024. Filing a petition for reconsideration by the Administrator of this final rule does not affect the finality of this action for the purposes of judicial review nor does it extend the time within which a petition for judicial review may be filed, and shall not postpone the effectiveness of such rule or action. This action may not be challenged later in proceedings to enforce its requirements. (See section 307(b)(2))

For the reasons stated in the preamble, EPA amends 40 CFR part 52 as follows:

BFT fisheries are managed under the 2006 Consolidated HMS Fishery Management Plan (FMP) and its amendments, pursuant to the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act; 16 U.S.C. 1801 et seq. ) and consistent with the Atlantic Tunas Convention Act (ATCA; 16 U.S.C. 971 et seq. ). HMS implementing regulations are at 50 CFR part 635. Section 635.27 divides the U.S. BFT quota, established by the International Commission for the Conservation of Atlantic Tunas (ICCAT) and as implemented by the United States among the various domestic fishing categories, per the allocations established in the 2006 Consolidated HMS FMP and its amendments. NMFS is required under the Magnuson-Stevens Act at 16 U.S.C. 1854(g)(1)(D) to provide U.S. fishing vessels with a reasonable opportunity to harvest quotas under relevant international fishery agreements such as the ICCAT Convention, which is implemented domestically pursuant to ATCA.

Under § 635.28(a)(1), NMFS files a closure notice with the Office of the Federal Register for publication when a BFT quota (or subquota) is reached or is projected to be reached. Retaining, possessing, or landing BFT under that quota category is prohibited on and after the effective date and time of a closure notice for that category, for the remainder of the fishing year, until the opening of the subsequent quota period or until such date as specified.

The 2024 BFT fishing year, which is managed on a calendar-year basis and subject to an annual calendar-year quota, began January 1, 2024. The Angling category season opened January 1, 2024, and continues through December 31, 2024. As described in § 635.27(a), the current baseline U.S. BFT quota is 1,316.14 metric tons (mt) (not including the 25 mt ICCAT allocated to the United States to account for bycatch of BFT in pelagic longline fisheries in the Northeast Distant Gear Restricted Area per § 635.27(a)(3)). The Angling category baseline quota is 297.4 mt, of which 9.2 mt (3.1 percent of the annual Angling category quota) is sub-allocated for the harvest of large medium and giant (trophy) BFT by vessels fishing under the Angling category quota, with 2.3 mt (25 percent of the annual large medium and giant BFT Angling category quota) allocated for each of the following areas: North of 42° N lat. (the Gulf of Maine area); south of 42° N lat. and north of 39°18′ N lat. (the southern New England area); south of 39°18′ N lat., and outside of the Gulf of Mexico (the southern area); and the Gulf of Mexico region. Trophy BFT measure 73 inches (185 cm) curved fork length or greater. This closure action applies to the southern New England area.

Based on landings data from the NMFS Automated Catch Reporting System, as well as average catch rates and anticipated fishing conditions, the Angling category southern New England area trophy BFT subquota of 2.3 mt has been reached and exceeded. Therefore, retaining, possessing, or landing large medium or giant ( i.e., measuring 73 inches (185 cm) curved fork length or greater) BFT south of 42° N lat. and north of 39°18′ N lat. by persons aboard HMS Angling and HMS Charter/Headboat permitted vessels (when fishing recreationally) must cease at 11:30 p.m. local time on May 2, 2024. This closure will remain effective through December 31, 2024. This action applies to HMS Angling and HMS Charter/Headboat permitted vessels when fishing recreationally for BFT, and is taken consistent with the regulations at § 635.28(a)(1). This action is intended to prevent further overharvest of the Angling category southern New England area trophy BFT subquota.

If needed to ensure available quotas or subquotas are not exceeded or to enhance fishing opportunities, subsequent Angling category adjustments or closures will be published in the Federal Register per §§ 635.27(a)(7) and 635.28(a)(1). Information regarding the Angling category fishery for Atlantic tunas, including daily retention limits for BFT measuring 27 inches (68.5 cm) to less than 73 inches (185 cm), and any further Angling category adjustments, is available at https://www.hmspermits.noaa.gov. During a closure, fishermen aboard HMS Angling and HMS Charter/Headboat permitted vessels when fishing recreationally may continue to catch and release (or tag and release) BFT of all sizes, subject to the requirements of the catch-and-release and tag-and-release programs at § 635.26. All BFT that are released must be handled in a manner that will maximize survival, and without removing the fish from the water, consistent with requirements at § 635.21(a)(1). For additional information on safe handling, see the “Careful Catch and Release” brochure available at https://www.fisheries.noaa.gov/resource/outreach-and-education/careful-catch-and-release-brochure/.

NMFS will continue to monitor the BFT fisheries closely. Per § 635.5(c)(1), HMS Angling and HMS Charter/Headboat permitted vessel owners are required to report the catch of all BFT retained or discarded dead, within 24 hours of the landing(s) or end of each trip, by accessing https://www.hmspermits.noaa.gov, using the HMS Catch Reporting app, or calling (888) 872-8862 (Monday through Friday from 8 a.m. until 4:30 p.m.).

NMFS issues this action pursuant to section 305(d) of the Magnuson-Stevens Act (16 U.S.C. 1855(d)) and regulations at 50 CFR part 635, and this action is exempt from review under Executive Order 12866.

The Assistant Administrator for NMFS (AA) finds that pursuant to 5 U.S.C. 553(b)(B), it is impracticable and contrary to the public interest to provide prior notice of, and an opportunity for public comment on, this action for the following reasons. Specifically, the regulations implementing the 2006 Consolidated HMS FMP and its amendments provide for inseason retention limit adjustments and fishery closures to respond to the unpredictable nature of BFT availability on the fishing grounds, the migratory nature of this species, and the regional variations in the BFT fishery. Providing for prior notice and opportunity to comment is impracticable and contrary to the public interest as this fishery is currently underway and, based on landings information, the Angling category southern New England area fishery subquota has been reached and exceeded. Delaying this action could result in further excessive trophy BFT landings that may result in future potential quota reductions for the Angling category, depending on the magnitude of a potential Angling category overharvest. NMFS must close the southern New England area trophy BFT fishery before additional landings of these sizes of BFT occur. Taking this action does not raise conservation and management concerns, and would support effective management of the BFT fishery. NMFS notes that the public had an opportunity to comment on the underlying rulemakings that established the U.S. BFT quota and the inseason adjustment criteria.

For all of the above reasons, the AA also finds that pursuant to 5 U.S.C. 553(d), there is good cause to waive the 30-day delay in effectiveness.