Rules and Regulations. Final rule

Agency: Social Security Administration (SSA)
Action: Final rule
Citation: FR Doc. 06-6768 · RIN 0960-AG13 · 20 CFR 416

Summary

We are revising our regulations on how we determine an individual's income and resources under the SSI program based on the SSPA of 2004, enacted on March 2, 2004. Some of the provisions of the SSPA make a number of changes in the way we determine income and resources including: How we calculate infrequent or irregular income; what interest and dividend income we exclude; how we count cash military compensation; and when we exclude gifts for tuition or educational expenses from income or resources. We are also applying the exclusions required by the SSPA when we determine the countable income and resources of an ineligible spouse or ineligible parent.

Dates

These final rules are effective September 8, 2006.

Supplementary Information

Electronic Version The electronic file of this document is available on the date of publication in the Federal Register at http://www.gpoaccess.gov/fr/index.html. . Background The basic purpose of the SSI program (title XVI of the Social Security Act (the Act)) is to ensure a minimum level of income to people who are age 65 or older, or blind or disabled, and who have limited income and resources. Section 1611 of the Act provides that SSI payments can be made only to people who have income and resources below specified amounts. Therefore, the amount of income and resources a person has is a major factor in deciding whether the person can receive SSI benefits and in computing the amount of the benefits. Sections 430, 435, and 436 of the SSPA (Pub. L. 108-203), affect how we determine income and resources in the SSI program. Section 430 Section 430 of the SSPA amended section 1612(b) of the Act as follows: • Change the Calculation of Infrequent or Irregular Income from a Monthly to a Quarterly Basis Prior to enactment of the SSPA, we did not count up to $10 of your earned income in a month or $20 of unearned income in a month if it was infrequent or irregular; that is, if you received it only once in a calendar quarter from a single source or if you could not reasonably have expected it. If the total amount of your infrequent or irregular income for a month exceeded $10 of earned income or $20 of unearned income, we could not use this exclusion. Based on section 430 of the SSPA, we will now exclude the first $30 per calendar quarter of earned income and the first $60 per calendar quarter of unearned income if you receive it infrequently or irregularly. This provision applies to benefits payable on or after July 1, 2004. Section 1612(b)(3) of the Act (as amended by section 430(a) of the SSPA) provides that this exclusion is “determined in accordance with criteria prescribed by the Commissioner of Social Security”. Consistent with this provision, we are also revising the definition of infrequent income to prevent a result that we believe is inconsistent with the intent of section 430. Under these final rules, we will consider income to be received infrequently if you receive it only once during a calendar quarter from a single source and you did not receive it in the month immediately preceding that month or in the month immediately subsequent to that month, regardless of whether or not these payments occur in different calendar quarters. We consider income to be received irregularly if you cannot reasonably expect to receive it. • Exclude From Income All Interest and Dividend Income Earned on Countable Resources Prior to enactment of the SSPA, there was no specific exclusion for interest and dividend income you earned on countable and certain excludable resources. Based on section 430 of the SSPA, when we determine your income, we will exclude interest or dividend income you earn on resources that are countable under section 1613(a) of the Act. In addition, we also will not count interest or dividend income you earn on resources that are excluded based on a Federal statute other than section 1613(a) of the Act. These amendments apply to benefits payable on or after July 1, 2004. Section 435 Prior to the enactment of the SSPA, we did not count as unearned income any portion of a grant, scholarship, or fellowship that you used to pay tuition, fees, or other necessary educational expenses. However, we did count any portion that you set aside or actually used for food, clothing, or shelter as income in the month you received it and, to the extent any portion of it was retained, as a resource the month following the month you received it. Under these final rules, any portion of a grant, scholarship or fellowship set aside or used for food or shelter will continue to count as income in the month received or as a resource if retained. Section 435 of the SSPA amended section 1612(b)(7) of the Act to provide that we will also exclude a gift (or portion of a gift) that you use to pay the cost of tuition and fees at any educational (including technical or vocational educational, institution when we determine your income (and the income of your eligible spouse). Additionally, section 435 of the SSPA amended section 1613(a) of the Act to provide that we will exclude from resources for 9 months after the month in which it is received, any grant, scholarship, fellowship, or gift (or portion of a gift) that you use to pay the cost of tuition and fees at an educational (including technical or vocational education) institution. These amendments apply to benefits payable on or after June 1, 2004. We are also extending this resource exclusion to any portion of a grant, scholarship, or fellowship that you retain after the month of receipt. Prior to enactment of the SSPA, section 1612(b)(7) had excluded “any portion” of a grant, scholarship, or fellowship from income. When the SSPA added the resource exclusion, the exclusion covered grants, scholarships, and fellowships, but only specifically referenced portions with respect to gifts. In order to have consistent policy on exclusions related to tuition and educational expenses, we are excluding from resources for 9 months any portion of a grant, scholarship, fellowship, or gift used to pay necessary educational expenses. In addition, we are providing in these final rules that any portion of a grant, scholarship, fellowship, or gift intended to be used for tuition, fees, or other necessary educational expenses that is used for another purpose during the 9-month resource exclusion period will be counted as income in the month it is used for another purpose. Section 436 Under our current rules, your income is counted in the month you receive it rather than in the month you earn it. We count wages and unearned income at the earliest of the following points: • When you receive them, • When they are credited to your account, or • When they are set aside for your use. Members of a uniformed service (as defined in 20 CFR 404.1330) are paid twice per month, and receive one Leave and Earnings Statement (LES) at the beginning of the month, which reflects their earnings for services performed in the prior month. The earnings shown on the monthly LES consist of the money actually paid in the second payment from the previous month and the payment received at the beginning of the current month. The payment received at the beginning of the current month is actually for services performed in the last half of the previous month. Thus, both payments reflected on the LES represent services performed in the previous month. Because wages are counted when paid, the portion of the money that was paid in the previous month must be considered as received in the previous month, not the current month, and the portion paid at the beginning of the current month must be considered in the current month. Prior to enactment of the SSPA, we had to apply a complex formula to the information on the LES for 2 consecutive months to determine one month's wages and unearned income. Section 436 of the SSPA amended section 1611(c) of the Act to provide that remuneration you receive for services performed as a member of a uniformed service may be treated as received in the month in which you earned it, if the Commissioner of Social Security (the Commissioner) determines that this method would promote the economical and efficient administration of the SSI program. This method of counting allows us to count the money shown on the LES for any month as received in that month, thereby eliminating the need to apply a complex formula to determine monthly earnings. Instead, we can determine monthly earnings by simply adding the amounts shown on the LES issued for that month. Extending Exclusions in Section 430, 435, and 436 to the Deeming Process Section 1614(f) of the Act requires that, when we determine an individual's eligibility for SSI benefits, we must consider the income and resources of an ineligible spouse living in the same household, or, in the case of a child under the age of 18, the income and resources of an ineligible parent living in the same household. We use the term “deeming” to identify this process of considering part of an ineligible spouse's or parent's income and resources to be the individual's own income and resources. Section 1614(f) also grants the Commissioner the discretion to waive the deeming of income and resources from an ineligible spouse or parent to an eligible individual when the Commissioner determines that deeming would be inequitable under the circumstances. In addition to adding to our regulations the changes in how we determine an eligible individual's income and resources required by the SSPA, we will apply these changes when determining the countable income and resources of an ineligible spouse or ineligible parent. These changes are: • Change the calculation of infrequent and irregular income from a monthly to a quarterly basis, and revise the definition of infrequent income. • Exclude from income interest or dividends earned on countable resources and resources excluded under other Federal statutes. • Exclude from income gifts used to pay tuition, fees, or other necessary educational expenses at any educational institution, including vocational and technical institutions. • Exclude from resources grants, scholarships, fellowships, or gifts used to pay tuition, fees, or other necessary educational expenses at an educational institution (including vocational or technical institution) for 9 months beginning the month after the month the educational assistance was received. • Consider wages and unearned income from a uniformed service to be received in the month in which such compensation is earned. Extending these changes to the deeming process is consistent with the SSI program's longstanding treatment of income and resources of spouses and parents, as authorized by section 1614(f) of the Act. This treatment avoids using assistance programs that benefit spouses and parents to indirectly support SSI recipients and provides consistent treatment of income and resources throughout the program. Explanation of Changes We are making the following changes to our rules on determining income and resources under the SSI program to implement the provisions of the SSPA: • We are revising §§ 416.1112(c)(2) and 416.1124(c)(6) to reflect the provision of section 430 that changes the calculation of infrequent and irregular income from a monthly to a quarterly basis, and to revise the definition of infrequent income. • We are also adding a new § 416.1124(c)(22) to reflect the provision of section 430 that excludes from income interest or dividends earned on countable resources and resources excluded under other Federal statutes. • We are amending § 416.1124(c)(3) to reflect the provision in section 435 that states that gifts (or portions of gifts) used to pay tuition and fees at any educational institution, including vocational and technical institutions, are excluded from income. • Additionally, we are adding a new § 416.1210(u) and a new § 416.1250 to reflect the provision in section 435 that excludes from resources any grants, scholarships, fellowships, or gifts used to pay tuition and fees at an educational institution (including vocational or technical institution) for 9 months beginning the month after the month the educational assistance was received. • We are amending §§ 416.1111(a) and 416.1123(a), and adding a new § 416.1123(f) to reflect section 436 that states that we may consider wages and unearned income from a uniformed service to be received in the month in which such compensation is earned. We also are making a technical amendment to add a cross-reference in § 416.1123(a) to § 416.1123(e). • Finally, we are amending § 416.1161 by revising paragraph (a)(4) and adding a new paragraph (a)(26) to exclude certain interest and dividends and gifts used to pay educational expenses from the income of an ineligible spouse and ineligible parent for deeming purposes. Public Comments On September 6, 2005, we published proposed rules in the Federal Register at 70 FR 52949 and provided a 60-day comment period for interested persons to comment. We received comments from three organizations and three individuals. We carefully considered all of the comments in publishing these final rules. Because some of the comments were long, we have condensed, summarized and paraphrased them. However, we have tried to present all of the commenter's views adequately and have addressed all of the significant issues raised by the commenters that are within the scope of the proposed rules. We have not addressed in this preamble comments that are outside the scope of this regulatory proceeding. Comment: One commenter expressed confusion about the treatment of gifts for educational purposes when all or some of the excluded funds are used for purposes other than education. The commenter requested that § 416.1250(b) be modified to ensure that only those funds used for non-educational purposes be considered income in the month used and that the remaining funds held for educational purposes continue to be excluded. Response: We have revised § 416.1250(b) to clarify that only those funds used for non-educational purposes would be considered income in the month used, and that the remaining funds held for educational purposes will continue to be excluded. Comment: One commenter suggested that we address reporting responsibilities in these final rules in order to prevent overpayments. The commenter referred to the need to report to us when an individual uses some or all of a gift which was given for educational purposes for a different purpose. As an alternative, the commenter suggested that we revise the current reporting requirement regulations to address this specific issue. Response: Section 416.708(b) and (c) of our current reporting requirements regulations specify that you must report any changes in income and resources. Detailed reporting requirements for specific types of income and resources are an operational issue and not appropriate to include in regulations. However, we reviewed our current operating instructions and determined that reporting requirements related to gifts given for educational use that are used for other purposes should be addressed. We modified our operating instructions. We have made no changes to the final rules based on this comment. Comment: One commenter suggested that we revise the definition of infrequent income to allow exclusion of income received more than once in a calendar quarter. The commenter also made several other suggestions based on a misunderstanding of the proposed regulatory policy related to the source of the income. Response: We are not adopting this comment. The intent of the quarterly basis exclusion was to permit beneficiaries to receive small amounts of income without their benefits being adversely affected, and to simplify program administration by reducing the required benefit adjustment (S. Rept. 108-176, at 40 (2003)). The revised definition provides that to be considered infrequent, the income can only be received once in a calendar quarter from a single source and not also received in consecutive months. Thus, we consider income to be received infrequently if it is received only once during a calendar quarter from a single source and it was not received in the month immediately preceding that month or in the month immediately subsequent to that month. The revised definition does not require that the income only be received from a single source to qualify for exclusion as infrequent. It does, however, prohibit the same type of income received two or more times in a calendar quarter from a single source from being considered infrequent. If you receive the same type of income multiple times from the same source during a quarter or in successive months it denotes a certain frequency of such income that would not meet the definition of infrequent income. However, the definition does permit exclusion of income received multiple times in a quarter from different sources. The same type of income received from different sources within the same calendar quarter can be considered infrequent income. Comment: Two commenters suggested that changes in the definition of infrequent income were disadvantageous. Both commenters suggested that we eliminate the restriction that income cannot be infrequent if it is received in consecutive months. One of the commenters provides an example as illustration. If a person received a Christmas gift in December and a birthday gift in January from the same person, the new definition of infrequent income would only permit exclusion of the December gift. The January gift would not be excludable as infrequent income. Under the previous definition in our regulations, both gifts could be excludable as infrequent income. Response: We disagree with the commenter that we would not be able to exclude the birthday gift in January under these final rules. In the example cited by the commenter, both the December gift and the January gift could still be excludable as irregular income (income you cannot reasonably expect to receive). Under these final rules, there are two separate exclusions: one for infrequent income, and one for irregular income. Thus, the end result is the same-both gifts can be excludable. There is no disadvantage caused by our interpretation of section 430 in this case. If we adopted the commenter's suggestion that income from that same source should be considered “infrequent” if it is received in consecutive months, the new statutory language could be misinterpreted to result in some regular, recurring payments meeting the definition of infrequent income because of the change in the counting period from a monthly time period to a quarterly period. For example, a regular, recurring series of payments could begin in the third month of a calendar quarter. Under the prior definition of infrequent, this first payment could be considered to be infrequent income because it was received once in a calendar quarter from a single source, even if it will be received every month thereafter. We do not believe such a result is consistent with the intent of section 430. As explained in our response to the prior comment, to address this situation, these rules clarify the definition of infrequent in §§ 416.1112(c)(2) and 416.1124(c)(6) so that payments from the same source received in consecutive months are not considered to be infrequent. Other Changes In addition to the changes already discussed, we have made a minor, nonsubstantive change to §§ 416.1111(a) and 416.1123(f) for clarification purposes only. We have changed the wording of those sections to more closely reflect the statutory language that requires a person to be a member of the uniformed services by adding the words “for services performed as a member of” to both sections. We have also made one additional nonsubstantive editorial correction. Regulatory Procedures Executive Order 12866, as Amended by Executive Order 13258 We have consulted with the Office of Management and Budget (OMB) and determined that these final rules meet the criteria for a significant regulatory action under Executive Order 12866, as amended by Executive Order 13258. Thus, they were reviewed by OMB. We have also determined that these final rules meet the plain language requirement of Executive Order 12866, as amended by Executive Order 13258. Regulatory Flexibility Act We certify that these final rules will not have a significant economic impact on a substantial number of small entities as they affect individuals only. Therefore, a regulatory flexibility analysis as provided in the Regulatory Flexibility Act, as amended, is not required. Paperwork Reduction Act These final rules impose no reporting or recordkeeping requirements subject to OMB clearance. (Catalog of Federal Domestic Assistance Program No. 96.006, Supplemental Security Income) List of Subjects in 20 CFR Part 416 Administrative practice and procedure, Aged, Blind, Disability benefits, Public assistance programs, Reporting and recordkeeping requirements, Supplemental Security Income (SSI). Dated: May 4, 2006. Jo Anne B. Barnhart, Commissioner of Social Security. For the reasons set forth in the preamble, we are amending subparts K and L of part 416 of chapter III of title 20 of the Code of Federal Regulations as follows: PART 416—SUPPLEMENTAL SECURITY INCOME FOR THE AGED, BLIND, AND DISABLED Subpart K—[Amended] 1. The authority citation for subpart K of part 416 continues to read as follows: Authority: Secs. 702(a)(5), 1602, 1611, 1612, 1613, 1614(f), 1621, 1631, and 1633 of the Social Security Act (42 U.S.C. 902(a)(5), 1381a, 1382, 1382a, 1382b, 1382c(f), 1382j, 1383, and 1383(b); secs. 211, Pub. L. 93-66, 87 Stat. 154 (42 U.S.C. 1382 note). 2. Section 416.1111 is amended by adding a sentence at the end of paragraph (a) to read as follows: § 416.1111 How we count earned income. (a) * * * We count wages for services performed as a member of a uniformed service (as defined in § 404.1330 of this chapter) as received in the month in which they are earned. 3. Section 416.1112 is amended by revising paragraph (c)(2) to read as follows: § 416.1112 Earned income we do not count. (c) * * * (2) The first $30 of earned income received in a calendar quarter if you receive it infrequently or irregularly. We consider income to be received infrequently if you receive it only once during a calendar quarter from a single source and you did not receive it in the month immediately preceding that month or in the month immediately subsequent to that month. We consider income to be received irregularly if you cannot reasonably expect to receive it. 4. Section 416.1123 is amended by revising paragraph (a) and adding a new paragraph (f) to read as follows: § 416.1123 How we count unearned income. (a) When we count unearned income. We count unearned income at the earliest of the following points: when you receive it or when it is credited to your account or set aside for your use. We determine your unearned income for each month. We describe exceptions to the rule on how we count unearned income in paragraphs (d), (e) and (f) of this section. (f) Uniformed service compensation. We count compensation for services performed as a member of a uniformed service (as defined in § 404.1330 of this chapter) as received in the month in which it is earned. 5. Section 416.1124 is amended by revising the first sentence in paragraph (c)(3), by revising paragraph (c)(6), by removing the word “and” at the end of paragraph (c)(20), by removing the period at the end of paragraph (c)(21) and adding a semicolon in its place followed by the word “and”, and by adding paragraph (c)(22) to read as follows: § 416.1124 Unearned income we do not count. (c) * * * (3) Any portion of a grant, scholarship, fellowship, or gift used or set aside for paying tuition, fees, or other necessary educational expenses. * * * (6) The first $60 of unearned income received in a calendar quarter if you receive it infrequently or irregularly. We consider income to be received infrequently if you receive it only once during a calendar quarter from a single source and you did not receive it in the month immediately preceding that month or in the month immediately subsequent to that month. We consider income to be received irregularly if you cannot reasonably expect to receive it. (22) Interest and dividend income from a countable resource or from a resource excluded under a Federal statute other than section 1613(a) of the Social Security Act. 6. Section 416.1161 is amended by revising paragraph (a)(4), by removing the word “and” at the end of paragraphs (a)(22) and (a)(24), by removing the period at the end of paragraph (a)(25) and adding a semicolon in its place followed by the word “and”, and by adding a new paragraph (a)(26) to read as follows: § 416.1161 Income of an ineligible spouse, ineligible parent, and essential person for deeming purposes. (a) * * * (4) Any portion of a grant, scholarship, fellowship, or gift used or set aside to pay tuition, fees or other necessary educational expenses; (26) Interest and dividend income from a countable resource or from a resource excluded under a Federal statute other than section 1613(a) of the Social Security Act. Subpart L—[Amended] 7. The authority citation for subpart L of part 416 continues to read as follows: Authority: Secs. 702(a)(5), 1602, 1611, 1612, 1613, 1614(f), 1621, 1631 and 1633 of the Social Security Act (42 U.S.C. 902(a)(5), 1381a, 1382, 1382a, 1382b, 1382c(f), 1382j, 1383 and 1383(b); sec. 211, Pub. L. 93-66, 87 Stat. 154 (42 U.S.C. 1382 note). 8. Section 416.1210 is amended by removing the word “and” at the end of paragraph (s), by removing the period at the end of paragraph (t) and adding a semicolon in its place followed by the word “and”, and by adding a new paragraph (u) to read as follows: § 416.1210 Exclusions from resources; general. (u) Any portion of a grant, scholarship, fellowship, or gift used or set aside for paying tuition, fees, or other necessary educational expenses as provided in § 416.1250. 9. Section 416.1250 is added to read as follows: § 416.1250 How we count grants, scholarships, fellowships or gifts. (a) When we determine your resources (or your spouse's, if any), we will exclude for 9 months any portion of any grant, scholarship, fellowship, or gift that you use or set aside to pay the cost of tuition, fees, or other necessary educational expenses at any educational institution, including vocational or technical institutions. The 9 months begin the month after the month you receive the educational assistance. (b)(1) We will count as a resource any portion of a grant, scholarship, fellowship, or gift you (or your spouse, if any) did not use or set aside to pay tuition, fees, or other necessary educational expenses. We will count such portion of a grant, scholarship, fellowship or gift as a resource in the month following the month of receipt. (2) If you use any of the funds that were set aside for tuition, fees, or other necessary educational expenses for another purpose within the 9-month exclusion period, we will count such portion of the funds used for another purpose as income in the month you use them. (3) If any portion of the funds are no longer set aside for paying tuition, fees, or other necessary educational expenses within the 9-month exclusion period, we will count the portion of the funds no longer set aside as income in the month when they are no longer set aside for paying tuition, fees, or other necessary educational expenses. We will consider any remaining funds that are no longer set aside or used to pay tuition, fees, or other educational expenses as a resource in the month following the month we count them as income. (4) We will count any portion of grants, scholarships, fellowships, or gifts remaining unspent after the 9-month exclusion period as a resource beginning with the 10th month after you received the educational assistance. [FR Doc. E6-12942 Filed 8-8-06; 8:45 am] BILLING CODE 4191-02-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9280] RIN 1545-BE10 Section 411(d)(6) Protected Benefits AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. SUMMARY: This document contains final regulations providing guidance on certain issues under section 411(d)(6) of the Internal Revenue Code (Code), including the interaction between the anti-cutback rules of section 411(d)(6) and the nonforfeitability requirements of section 411(a). These regulations also provide a utilization test under which certain plan amendments are permitted to eliminate or reduce certain early retirement benefits, retirement-type subsidies, or optional forms of benefit. These regulations generally affect sponsors of, and participants and beneficiaries in, qualified retirement plans. DATES: Effective Date: These regulations are effective August 9, 2006. Applicability Date: For dates of applicability, see § 1.411(d)-3(j) of these regulations. FOR FURTHER INFORMATION CONTACT: Pamela R. Kinard at (202) 622-6060 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background This document contains amendments to 26 CFR part 1 under section 411(d)(6) of the Code. These regulations revise § 1.411(d)-3 to provide guidance on the application of section 411(d)(6) to a plan amendment that places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits, even if the amendment merely adds a restriction or condition that is permitted under the vesting rules of section 411(a)(3) through (11). These rules are intended to reflect Central Laborers' Pension Fund v. Heinz , 541 U.S. 739 (2004). These regulations also set forth standards for the utilization test, which is a permitted method of eliminating optional forms of benefit that are burdensome to the plan and of de minimis value to plan participants. Section 401(a)(7) provides that a trust does not constitute a qualified trust unless its related plan satisfies the requirements of section 411. Section 411(a) generally provides that an employee's right to the accrued benefit derived from employer contributions must become nonforfeitable within a specified period of service. Section 411(a)(3) provides circumstances under which an employee's benefit is permitted to be forfeited without violating section 411(a). Section 411(a)(3)(B) provides that a right to an accrued benefit derived from employer contributions is not treated as forfeitable solely because the plan provides that the payment of benefits is suspended for such period as the employee is employed, subsequent to the commencement of payment of such benefits, either (1) by the employer who maintains the plan under which such benefits were being paid, in the case of a plan other than a multiemployer plan, or (2) in the case of a multiemployer plan, in the same industry, the same trade or craft, and the same geographic area covered by the plan as when such benefits commenced. The definition of employment for which benefit payments are permitted to be suspended is set forth in 29 CFR 2530.203-3 of the Department of Labor Regulations, which interprets section 203(a)(3)(B) of the Employee Retirement Income Security Act of 1974 (ERISA), as amended, the counterpart to section 411(a)(3)(B) of the Code. Employment that satisfies the conditions described in section 203(a)(3)(B) of ERISA and the regulations are referred to as “section 203(a)(3)(B) service.” See 29 CFR 2530.203-3(c). Under section 411(a)(10), a plan amendment changing the plan's vesting schedule must satisfy certain requirements. Section 411(a)(10)(A) provides that a plan amendment changing any vesting schedule under the plan does not satisfy the minimum vesting standards of section 411(a)(2) if the nonforfeitable percentage of the accrued benefit derived from employer contributions (determined as of the applicable amendment date) 1 of any employee who is a participant in the plan is less than the nonforfeitable percentage computed under the plan without regard to the amendment. Section 411(a)(10)(B) provides that a plan amendment changing any vesting schedule under the plan does not satisfy the minimum vesting standards of section 411(a)(2) unless each participant with at least 3 years of service is permitted to elect to have his or her nonforfeitable percentage computed under the plan without regard to the plan amendment. 1 The term applicable amendment date means the later of the effective date of the amendment or the date that the amendmdent is adopted. See § 1.411(d)-3(g)(4). Section 411(d)(6)(A) provides that a plan is treated as not satisfying the requirements of section 411 if the accrued benefit of a participant is decreased by an amendment of the plan, other than an amendment described in section 412(c)(8) of the Code or section 4281 of ERISA. Section 411(d)(6)(B) provides that a plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy, or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment, is treated as impermissibly reducing accrued benefits. This protection applies with respect to an employee who satisfies the preamendment conditions for the subsidy either before or after the amendment. Section 411(d)(6)(B) also authorizes the Secretary of the Treasury to provide, through regulations, that section 411(d)(6)(B) does not apply to any plan amendment that eliminates an optional form of benefit (other than a plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy). Section 645(b)(1) of the Economic Growth and Tax Relief Reconciliation Act of 2001, Public Law 107-16 (115 Stat. 38) (EGTRRA) amended section 411(d)(6)(B) of the Code to direct the Secretary of the Treasury to issue regulations providing that section 411(d)(6)(B) does not apply to any amendment that reduces or eliminates early retirement benefits or retirement-type subsidies that create significant burdens or complexities for the plan and plan participants unless such amendment adversely affects the rights of any participant in a more than de minimis manner. Section 204(g) of ERISA contains parallel rules to section 411(d)(6) of the Code, including a similar directive to the Secretary of the Treasury to issue regulations providing that section 204(g) of ERISA does not apply to any amendment that reduces or eliminates early retirement benefits or retirement-type subsidies that create significant burdens or complexities for the plan and plan participants unless such amendment adversely affects the rights of any participant in a more than de minimis manner. Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713) and section 204(g) of ERISA, the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed in these regulations for purposes of ERISA, as well as the Code. Thus, these final regulations issued under section 411(d)(6) of the Code also apply for purposes of section 204(g) of ERISA. In Central Laborers' , the plaintiffs were two inactive participants in a multiemployer pension plan who commenced payment of their benefits in 1996 after qualifying for subsidized early retirement payments. The plan terms required that payments be suspended if a participant engaged in “disqualifying employment.” At the time of their commencement of benefits, the plan defined disqualifying employment to include only employment covered by the plan, but not work as a construction supervisor. Both participants were employed as construction supervisors after they commenced payment of benefits. After the two participants' benefit payments had commenced in 1996, the plan was amended in 1998 to expand its definition of disqualifying employment to include any employment in the same trade or craft, industry, and geographic area covered by the plan, and the plan stopped payments to the two participants on account of their disqualifying employment as construction supervisors. The two participants sued to recover the suspended payments, claiming that the amendment expanding the plan's suspension provisions violated section 204(g) of ERISA. The Supreme Court, holding for the two participants, ruled that section 204(g) of ERISA prohibits a plan amendment expanding the categories of post-retirement employment that result in suspension of the payment of early retirement benefits already accrued. The Court held that, while ERISA permits certain conditions that are elements of the benefit itself (such as suspensions under section 411(a)(3)(B) of the Code and section 203(a)(3)(B) of ERISA), such a condition may not be imposed on a benefit after the benefit has accrued, and that the right to receive benefit payments on a certain date may not be limited by a new condition narrowing that right. The Court agreed with the 7th Circuit that “[a] participant's benefits cannot be understood without reference to the conditions imposed on receiving those benefits, and an amendment placing materially greater restrictions on the receipt of the benefit ‘reduces’ the benefit just as surely as a decrease in the size of the monthly benefit.” Central Laborers' , 547 U.S. at 744, quoting Heinz v. Central Laborers' Pension Fund , 303 F.3d 802, 805 (7th Cir. 2002). On July 11, 1988, final regulations (TD 8212) under section 411(d)(6) were published in the Federal Register (53 FR 26050). Those regulations are contained in § 1.411(d)-4 (the 1988 regulations). On August 12, 2005, final regulations (TD 9219) under section 411(d)(6) were published in the Federal Register (70 FR 47109) (the 2005 final regulations). Those 2005 final regulations, which are largely contained in § 1.411(d)-3, set forth conditions under which a plan amendment is permitted to eliminate an optional form of benefit and to eliminate or reduce an early retirement benefit or a retirement-type subsidy that creates significant burdens or complexities for the plan and its participants, but only if the elimination does not adversely affect the rights of any participant in a more than de minimis manner. However, those regulations reserved two topics for later guidance—a utilization test and the interaction of the permitted forfeiture rules under section 411(a) with the anti-cutback rules under section 411(d)(6) after taking into account the decision in Central Laborers'. In connection with the 2005 final regulations, a notice of public rulemaking (REG-156518-04) under section 411(d)(6) of the Code was published in the Federal Register (70 FR 47155) (the 2005 proposed regulations) to address the two reserved topics discussed in this preamble. On December 6, 2005, the IRS held a public hearing on the 2005 proposed regulations. Written comments responding to the notice of public rulemaking were also received. After consideration of all the comments, the 2005 proposed regulations are adopted, as amended by this Treasury Decision. The revisions are discussed in this preamble. Explanation of Provisions Application of Section 411(d)(6) to Plan Amendments Affecting Vesting In applying the holding in Central Laborers' , these regulations retain the rule in the 2005 proposed regulations that provides that a plan amendment that places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits by adding or modifying a plan provision relating to suspension of benefit payments during a period of employment or reemployment violates section 411(d)(6). This rule applies for periods beginning on or after June 7, 2004, the date of the decision in Central Laborers'. For relief limiting the retroactive application of Central Laborers' , see the discussion under the heading “Effective Dates” in this preamble. These regulations also address a broader question of the interaction of the vesting rules in section 411(a) with the requirements of section 411(d)(6), applying the reasoning in Central Laborers' to other situations. These regulations generally retain the rule in the 2005 proposed regulations that a plan amendment that decreases a participant's accrued benefits, or otherwise places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits, violates section 411(d)(6), even if the amendment merely adds a restriction or condition that is otherwise permitted under the vesting rules in section 411(a)(3) through (11). 2 These regulations also provide examples of the application of this rule, including an example illustrating, for changes in a plan's vesting schedule, the protection of a participant's right to have post-amendment vesting of the participant's pre-amendment accrued benefit determined under the old vesting schedule. Of course, these regulations also retain the rule that such a plan amendment is permitted under section 411(d)(6) to the extent it applies to benefits accruing after the applicable amendment date. 2 However, note that section 411(d)(6) does not prohibit a plan amendment that reduces or suspends benefits under a multiemployer plan as permitted under section 411(a)(3)(F) ( e.g. , a plan amendment to reduce benefits as permitted under section 418D or to suspend benefit payments as permitted under section 418E). Some commentators agreed with the rule in the 2005 proposed regulations that adopts the holding and rationale of Central Laborers' , but other commentators raised concerns about the scope of the rule. Several commentators argued that Central Laborers' only addresses the interaction of section 411(d)(6) with the suspension of benefit rules under section 411(a)(3)(B), and does not require the extension of its holding to plan amendments relating to the other vesting provisions under section 411(a). Those commentators recommended that the regulations be revised to narrow the scope of the rule in the 2005 proposed regulations to the fact pattern in Central Laborers'. Other commentators recommended that the final regulations provide that, for a plan amendment changing the plan's vesting schedule, the rule in the 2005 proposed regulations does not apply, so that section 411(a)(10) would provide the exclusive requirements for vesting schedule changes. Some of these commentators supported this request by stating that the rule in the 2005 proposed regulations had the effect of rendering section 411(a)(10) moot. After consideration of the comments relating to the rule in the 2005 proposed regulations, the Treasury Department and the IRS believe that the holding and rationale in the Central Laborers' decision control and, thus, the rule in the 2005 proposed regulations should be retained, subject to a certain modifications. In this regard, the Treasury Department and the IRS note that the protection provided by section 411(a)(10) applies with respect to future accruals, whereas the protection extended by these regulations to changes in a vesting schedule applies only with respect to benefits accrued before the applicable amendment date. However, in light of the comments, these final regulations provide a limited exception from the requirement in the 2005 proposed regulations for a plan changing its vesting computation period. Under this exception, a plan amendment that satisfies the rules for changing a plan's vesting computation period, as set forth in applicable Department of Labor Regulations, 3 does not fail to satisfy the requirements under section 411(d)(6) merely because the plan changes the plan's vesting computation period. 3 See 29 CFR 2530.203-2(c) for rules relating to changing a plan's vesting computation period. See also §§ 1.411(a)-8(b)(3) and 1.411(a)-8T(b)(3). Utilization Test These regulations generally retain the rule in the 2005 proposed regulations that a plan is permitted to be amended to eliminate optional forms of benefit that comprise a generalized optional form 4 for a participant with respect to benefits accrued before the applicable amendment date if certain requirements relating to the use of the generalized optional form are satisfied. Under the utilization test, a plan is not permitted to eliminate any core option 5 offered under the plan and the plan amendment eliminating the generalized optional form cannot apply to an optional form of benefit with an annuity commencement date that is earlier than the number of days in the maximum QJSA explanation period (for example, a 90-day period) after the date the amendment is adopted. The utilization test, along with the redundancy method and the core options method, are three permitted methods for eliminating or reducing section 411(d)(6)(B) protected benefits. See § 1.411(d)-3(c), (d), and (e) of the 2005 final regulations for rules relating to the redundancy and core options methods. 4 The term generalized optional form is defined in § 1.411(d)-3(g)(8) as a group of optional forms of benefit that are identical except for differences due to the actuarial factors that are used to determine the amount of the distributions under those optional forms of benefit and the annuity starting dates. 5 The term core option is defined in § 1.411(d)-3(g)(5) as a straight life annuity, a 75% joint and contingent annuity, a 10-year term certain and life annuity, and the most valuable option for a participant with a short life expectancy. These regulations provide that, in order to eliminate a noncore optional form of benefit under the utilization test, the plan must satisfy two conditions. First, the generalized optional form must have been available to at least a minimum number of participants who are taken into account during the relevant look-back period. Second, no participant must have elected the optional form of benefit that is part of the generalized optional form with an annuity commencement date that is within the look-back period. Under the 2005 proposed regulations, the look-back period was generally the 2 plan years immediately preceding the date on which the plan amendment eliminating the general optional form is adopted. These regulations modify the look-back period from the 2005 proposed regulations to include the portion of the plan year in which the plan amendment is adopted that precedes the date of adoption (the pre-adoption period). Adding the pre-adoption period to the look-back period ensures that participants who elected the generalized optional form with an annuity commencement date within the year of adoption are taken into account. However, in order to reduce burdens for plans, the regulations permit a plan to exclude from the lookback period the calendar month in which the amendment is adopted and the 1 or 2 preceding calendar months (to the extent those preceding months are within the pre-adoption period). These regulations also retain the rule under the 2005 proposed regulations permitting a plan to extend the look-back period to include an additional 1, 2, or 3 plan years. Under the utilization test in the 2005 proposed regulations, the generalized optional form being eliminated must have been available to at least 100 participants who are taken into account during the look-back period. A participant is generally taken into account only if, during the look-back period, the participant was eligible to commence payment of an optional form of benefit that is part of the generalized optional form being eliminated. However, the 2005 proposed regulations provided that a participant is not taken into account if the participant did not elect any optional form of benefit with an annuity commencement date that is within the look-back period, elected an optional form of benefit that includes a single-sum distribution that applies with respect to at least 25% of the participant's accrued benefit, elected an optional form of benefit that was only available during a limited period of time that contained a retirement-type subsidy that was not extended to the generalized optional form being eliminated, or elected an optional form of benefit with an annuity commencement date that is more than 10 years before normal retirement age. Commentators recommended that the regulations be revised to provide an alternative for smaller plans that cannot meet the 100-participant requirement, even with the 5-year look-back rule. Commentators also recommended that the utilization test be revised to permit a plan to use the utilization test to eliminate a general optional form even if a small percentage of participants elected the generalized optional form. The percentages proposed by the commentators ranged from 1% to 5% of the participants. Commentators further recommended that the regulations be revised to permit participants who elected single-sum distributions to be taken into account in determining the applicable number of participants. In light of these comments, these regulations include a number of revisions. In applying the utilization test, the generalized optional form must be available to at least the applicable number of participants who are taken into account. These regulations define the term applicable number of participants as 50 participants. These regulations also set forth a special rule that permits a plan to take into account any participant who elects a single-sum distribution that applied with respect to at least 25% of the participant's accrued benefit, provided the applicable number of participants is increased to 1,000 participants. The Treasury Department and the IRS continue to believe that the utilization test, by its nature, determines which optional forms are considered valuable to participants. This determination is made by reference to participants' elections. The fact that, during a 2-year period, no participant in a substantial number of participant elections elected any optional form of benefit that is within a generalized optional form is a compelling indication that elimination of that generalized optional form would not adversely affect the rights of any participant in a more than de minimis manner. Conversely, if at least one participant in the sample elected the generalized optional form, that election would provide significant evidence that the elimination of the generalized optional form could adversely affect the rights of some other participant in a more than de minimis manner. In addition, a plan that satisfies the requirements of the utilization test is permitted to be amended to eliminate all of the optional forms of benefit that comprise a generalized optional form without having to satisfy separately the requirements of § 1.411(d)-3(e). Thus, these regulations retain the requirement from the 2005 proposed regulations that no participant must have elected any optional form that is part of the generalized optional form that is being eliminated. Other Issues These regulations also include a few modifications to the 2005 final regulations. Specifically, the regulations include specific reference to amendments permitted under sections 418D and 418E (relating to, respectively, to multiemployer plans in reorganization and accrued benefits attributable to employer contributions that are not eligible for the Pension Benefit Guaranty Corporation's guarantee) as not being subject to the requirements of section 411(d)(6). See section 411(a)(3)(F), which permits the reduction and suspension of accrued benefits by a multiemployer plan pursuant to sections 418D and 418E, as well as section 4281 of ERISA. These regulations also revise the method for determining whether an optional form of benefit is within a family of optional forms of benefit for purposes of eliminating redundant optional forms of benefit in situations in which a plan permits a participant to make different distribution elections with respect to two or more separate portions of the participant's accrued benefit. Comments were received recommending that the regulations be revised to permit a plan that provides different elections with respect to separate portions of a participant's benefit (for example, plans with one set of generally applicable distribution options and a second set of distribution options that apply only to a participant's benefit earned while employed by a former employer) to be permitted to apply the redundancy rules separately to each set of distribution options. In light of this comment, these regulations permit a plan to apply the redundancy rules separately to each portion of the participant's benefit to which separate distribution elections apply as if that portion were the participant's entire benefit. This change is similar to the bifurcation rule in § 1.417(a)(3)-1(c)(5)(iii), which permits a plan that permits a participant to make separate distribution elections with respect to two or more portions of the participant's benefit to describe the financial effect and relative value of combined optional forms of benefit separately for each such portion of the benefit, rather than for each optional form of benefit (for example, each combination of possible elections). Effective Dates Applicability Dates for Amendments Relating to Vesting With respect to a plan amendment that places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits by adding or modifying a plan provision relating to suspension of benefit payments, the rules in these regulations apply for periods beginning on or after June 7, 2004. However, for a plan amendment that places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits with respect to vesting, other than a plan amendment relating to a suspension of benefit payments, the rules in these regulations apply to plan amendments adopted after August 9, 2006. Applicability Date for Change to Redundancy Rule Regarding Bifurcation of Benefits The change to the regulations permitting a plan to apply the redundancy rules separately to each portion of a participant's benefit to which separate distribution elections apply is applicable for amendments adopted after August 9, 2006. Applicability Date for Utilization Test The rules provided in the utilization test are applicable for amendments adopted after December 31, 2006. Relief Limiting the Retroactive Application of Central Laborers' Rev. Proc. 2005-23 (2005-18 I.R.B. 991), as modified by Rev. Proc. 2005-76 (2005-50 I.R.B. 1139), limits the retroactive application of Central Laborers' for qualified plans under section 401(a) pursuant to the Commissioner's authority under section 7805(b)(8). Rev. Proc. 2005-23 provides that a qualified plan will not be treated as having failed to satisfy the requirements of section 401(a) merely because a plan amendment that was adopted before June 7, 2004, violated section 411(d)(6) by adding or expanding a provision under which a suspension of benefit provision occurs. To receive this treatment, a plan must adopt a reforming plan amendment, comply operationally with the reforming amendment, and provide to affected participants notice of the right to elect retroactively to commence payment of benefits. All of these actions must be completed on or before January 1, 2007. In response to the 2005 proposed regulations, some commentators expressed concern on how section 411(d)(6) would apply to plan amendments adopted many years in the past when both the rules for interpreting the suspension of benefit provisions under section 411(a)(3)(B) and the rules for satisfying section 411(d)(6) were still being developed. Commentators specifically raised the issue of whether the adoption of a benefit suspension amendment in response to the final suspension of benefit regulations issued by the Department of Labor would violate section 411(d)(6). 6 6 See 29 CFR 2530.203-3, providing rules that permit a plan to withhold permanently a plan participant's benefit payments on account of a continuation of employment or reemployment after the payments commenced. See also Notice 82-23 (1982-2 C.B. 752) (providing guidance on the need to amend and the timing for a plan to be amended to comply with the final suspension of benefit regulations). In light of these comments and taking into account the Supreme Court's suggestion for relief in Central Laborers', 7 the Treasury Department and IRS believe that it is appropriate not to require that a plan correct under Rev. Proc. 2005-23 in order to qualify for relief from disqualification under section 401(a) for a plan amendment that added or expanded a suspension of benefit provision if the amendment was adopted before the effective date of the 1988 regulations under section 411(d)(6). Providing this section 7805(b) treatment for any such amendment is appropriate because it would be difficult to determine whether a plan amendment adding or expanding a suspension of benefit payment that was adopted at that time violated section 411(d)(6). In addition, any correction made for any affected plan participant would likely be insignificant (especially in light of subsequent accruals), while creating significant administrative burdens for the plan. 7 The Court stated in Central Laborers': Nothing we hold today requires the IRS to revisit the tax-exempt status in past years of plans that were amended in reliance on the agency's representations in its manual by expanding the categories of work that would trigger suspension of benefit payments as to already-accrued benefits. The Internal Revenue Code gives the Commissioner discretion to decline to apply decisions of this Court retroactively * * . This would doubtless be an appropriate occasion for exercise of that discretion. Central Laborers', 541 U.S. at 748, n.4. Accordingly, pursuant to the Commissioner's authority under section 7805(b)(8), a plan will not fail to satisfy section 401(a) merely because the plan was amended to add or expand a suspension of benefit provision, provided that the amendment was adopted before January 1, 1989. In the case of collectively bargained plans, this relief applies to plan amendments adopted before January 1, 1991. These dates are based on the effective dates of the 1988 regulations under § 1.411(d)-4 for plans generally existing as of August 1, 1986. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. In addition, because no collection of information is imposed on small entities, the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply, and therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(b) of the Code, the notice of proposed rulemaking preceding these regulations was submitted to the Small Business Administration for comment on its impact on small business. Drafting Information The principal author of these regulations is Pamela R. Kinard of the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and Treasury Department participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1—INCOME TAXES Paragraph 1 . The authority citation for part 1 continues to read in part as follows: Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.411(a)-8 is amended by adding paragraph (c)(3) to read as follows: § 1.411(a)-8 Changes in vesting schedule. (c) * * * (3) Relationship with section 411(d)(6). For additional requirements relating to section 411(d)(6), see § 1.411(d)-3(a)(3). Par. 3. Section 1.411(d)-3 is amended by: 1. Revising the first sentence of paragraph (a)(1). 2. Revising paragraphs (a)(3) and (f). 3. Adding Examples 3 and 4 to paragraph (a)(4), Example 3 to paragraph (b)(4), and Example 6 to paragraph (h). 4. Adding paragraphs (c)(6), (j)(3), (j)(4), and (j)(5). The revisions and additions read as follows: § 1.411(d)-3 Section 411(d)(6) protected benefits. (a) Protection of accrued benefits —(1) General rule. Under section 411(d)(6)(A), a plan is not a qualified plan (and a trust forming a part of such plan is not a qualified trust) if a plan amendment decreases the accrued benefit of any plan participant, except as provided in section 412(c)(8), section 4281 of the Employee Retirement Income Security Act of 1974 as amended (ERISA), or other applicable law (see, for example, sections 418D and 418E of the Internal Revenue Code, and section 1541(a)(2) of the Taxpayer Relief Act of 1997, Public Law 105-34 (111 Stat. 788, 1085)). * * * (3) Application of section 411(a) nonforfeitability provisions with respect to section 411(d)(6) protected benefits —(i) In general. The rules of this paragraph (a) apply to a plan amendment that decreases a participant's accrued benefits, or otherwise places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits, even if the amendment merely adds a restriction or condition that is permitted under the vesting rules in section 411(a)(3) through (11). However, such an amendment does not violate section 411(d)(6) to the extent it applies with respect to benefits that accrued prior to the applicable amendment date. See section 411(a)(10) and § 1.411(a)-8 for additional rules relating to changes in a plan's vesting schedule. (ii) Exception for changes in a plan's vesting computation period. Notwithstanding paragraph (a)(3)(i) of this section, a plan amendment that satisfies the applicable requirements under 29 CFR 2530.203-2(c) (rules relating to vesting computation periods) does not fail to satisfy the requirements of section 411(d)(6) merely because the plan amendment changes the plan's vesting computation period. (4) * * * Example 3. (i) Facts. Employer N maintains Plan C, a qualified defined benefit plan under which an employee becomes a participant upon completion of 1 year of service and is vested in 100% of the employer-derived accrued benefit upon completion of 5 years of service. Plan C provides that a former employee's years of service prior to a break in service will be reinstated upon completion of 1 year of service after being rehired. Plan C has participants who have fewer than 5 years of service and who are accordingly 0% vested in their employer-derived accrued benefits. On December 31, 2007, effective January 1, 2008, Plan C is amended, in accordance with section 411(a)(6)(D), to provide that any nonvested participant who has at least 5 consecutive 1-year breaks in service and whose number of consecutive 1-year breaks in service exceeds his or her number of years of service before the breaks will have his or her pre-break service disregarded in determining vesting under the plan. (ii) Conclusion. Under paragraph (a)(3) of this section, the plan amendment does not satisfy the requirements of this paragraph (a), and thus violates section 411(d)(6), because the amendment places greater restrictions or conditions on the rights to section 411(d)(6) protected benefits, as of January 1, 2008, for participants who have fewer than 5 years of service, by restricting the ability of those participants to receive further vesting protections on benefits accrued as of that date. Example 4. (i) Facts. (A) Employer O sponsors Plan D, a qualified profit sharing plan under which each employee has a nonforfeitable right to a percentage of his or her employer-derived accrued benefit based on the following table: Completed years of service Nonforfeitable percentage Fewer than 3 0 3 20 4 40 5 60 6 80 7 100 (B) In January 2006, Employer O acquires Company X, which maintains Plan E, a qualified profit sharing plan under which each employee who has completed 5 years of service has a nonforfeitable right to 100% of the employer-derived accrued benefit. In 2007, Plan E is merged into Plan D. On the effective date for the merger, Plan D is amended to provide that the vesting schedule for participants of Plan E is the 7-year graded vesting schedule of Plan D. In accordance with section 411(a)(10)(A), the plan amendment provides that any participant of Plan E who had completed 5 years of service prior to the amendment is fully vested. In addition, as required under section 411(a)(10)(B), the amendment provides that any participant in Plan E who has at least 3 years of service prior to the amendment is permitted to make an irrevocable election to have the vesting of his or her nonforfeitable right to the employer-derived accrued benefit determined under either the 5-year cliff vesting schedule or the 7-year graded vesting schedule. Participant G, who has an account balance of $10,000 on the applicable amendment date, is a participant in Plan E with 2 years of service as of the applicable amendment date. As of the date of the merger, Participant G's nonforfeitable right to G's employer-derived accrued benefit is 0% under both the 7-year graded vesting schedule of Plan D and the 5-year cliff vesting schedule of Plan E. (ii) Conclusion. Under paragraph (a)(3) of this section, the plan amendment does not satisfy the requirements of this paragraph (a) and violates section 411(d)(6), because the amendment places greater restrictions or conditions on the rights to section 411(d)(6) protected benefits with respect to G and any participant who has fewer than 5 years of service and who elected (or was made subject to) the new vesting schedule. A method of avoiding a section 411(d)(6) violation with respect to account balances attributable to benefits accrued as of the applicable amendment date and earnings would be for Plan D to provide for the vested percentage of G and each other participant in Plan E to be no less than the greater of the vesting percentages under the two vesting schedules (for example, for G and each other participant in Plan E to be 20% vested upon completion of 3 years of service, 40% vested upon completion of 4 years of service, and fully vested upon completion of 5 years of service) for those account balances and earnings. (b) * * * (4) * * Example 3. (i) Facts. Plan C, a multiemployer defined benefit plan in which participation is limited to electricians in the construction industry, provides that a participant may elect to commence distributions only if the participant is not currently employed by a participating employer and provides that, if the participant has a specified number of years of service and attains a specified age, the distribution is without any actuarial reduction for commencement before normal retirement age. Since the plan's inception, Plan C has provided for suspension of pension benefits during periods of disqualifying employment (ERISA section 203(a)(3)(B) service). Before 2007, the plan defined disqualifying employment to include any job as an electrician in the particular industry and geographic location to which Plan C applies. This definition of disqualifying employment did not cover a job as an electrician supervisor. In 2005, Participant E, having rendered the specified number of years of service and attained the specified age to retire with a fully subsidized early retirement benefit, retires from E's job as an electrician with Employer Y and starts a position with Employer Z as an electrician supervisor. Employer Z is not a participating employer in Plan C but is an employer in the same industry and geographic location as Employer Y. When E left service with Employer Y, E's position as an electrician supervisor was not disqualifying employment for purposes of Plan C's suspension of pension benefit provision, and E elected to commence benefit payments in 2005. In 2006, effective January 1, 2007, Plan C is amended to expand the definition of disqualifying employment to include any job (including supervisory positions) as an electrician in the same industry and geographic location to which Plan C applies. The plan's definition of disqualifying employment satisfies the requirements of section 411(a)(3)(B). On January 1, 2007, E's pension benefits are suspended because of E's disqualifying employment as an electrician supervisor. (ii) Conclusion. Under paragraphs (a)(3) and (b)(1) of this section, the 2007 plan amendment violates section 411(d)(6), because the amendment places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits to the extent it applies with respect to benefits that accrued before January 1, 2007. The result would be the same even if the amendment did not apply to former employees and instead applied only to participants who were actively employed at the time of the applicable amendment. (c) * * * (6) Separate application of redundancy rules for bifurcated benefits. If a plan permits the participant to make different distribution elections with respect to two or more separate portions of the participant's benefit, the rules of this paragraph (c) are permitted to be applied separately to each such portion of the participant's benefit as if that portion were the participant's entire benefit. Thus, for example, if one set of distribution elections applies to a portion of the participant's accrued benefit and another set of distribution elections applies to the other portion of the participant's accrued benefit, then with respect to one portion of the participant's benefit, the determination of whether any optional form of benefit is within a family of optional forms of benefit is permitted to be made disregarding elections that apply to the other portion of the participant's benefit. Similarly, if a participant can elect to receive any portion of the accrued benefit in a single sum and the remainder pursuant to a set of distribution elections, the rules of this paragraph (c) are permitted to be applied separately to the set of distribution elections that apply to the portion of the participant's accrued benefit that is not payable in a single sum (for example, for the portion of a participant's benefit that is not paid in a single sum, the determination of whether any optional form of benefit is within a family of optional forms of benefit is permitted to be made disregarding the fact that the other portion of the participant's benefit is paid in a single sum). (f) Utilization test —(1) General rule. A plan is permitted to be amended to eliminate all of the optional forms of benefit that comprise a generalized optional form (as defined in paragraph (g)(8) of this section) for a participant with respect to benefits accrued before the applicable amendment date if— (i) None of the optional forms of benefit being eliminated is a core option, within the meaning of paragraph (g)(5) of this section; (ii) The plan amendment is not applicable with respect to an optional form of benefit with an annuity commencement date that is earlier than the number of days in the maximum Qualified Joint and Survivor Annuity explanation period (as defined in paragraph (g)(9) of this section) after the date the amendment is adopted; (iii) During the look-back period— (A) The generalized optional form has been available to at least the applicable number of participants who are taken into account under paragraph (f)(3) and (4) of this section; and (B) No participant has elected any optional form of benefit that is part of the generalized optional form with an annuity commencement date that is within the look-back period. (2) Look-back period —(i) In general. For purposes of this paragraph (f), the look-back period is the period that includes— (A) The portion of the plan year in which such plan amendment is adopted that precedes the date of adoption (the pre-adoption period); and (B) The 2 plan years immediately preceding the pre-adoption period. (ii) Special look-back period rules —(A) 12-month plan year. In the look-back period, at least 1 of the plan years must be a 12-month plan year. (B) Permitted 3-month exclusion in the pre-adoption period. A plan is permitted to exclude from the look-back period the calendar month in which the amendment is adopted and the preceding 1 or 2 calendar months to the extent those preceding months are contained within the pre-adoption period. (C) Permission to extend the look-back period. In order to have a look-back period that satisfies the minimum applicable number of participants requirement in paragraph (f)(1)(iii)(A) of this section, the look-back period described in paragraph (f)(2)(i)(B) of this section is permitted to be expanded, so as to include the 3, 4, or 5 plan years immediately preceding the plan year in which the amendment is adopted. Thus, in determining the look-back period, a plan is permitted to substitute the 3, 4, or 5 plan years immediately preceding the pre-adoption period for the 2 plan years described in paragraph (f)(2)(i)(B) of this section. However, if a plan does not satisfy the minimum applicable number of participants requirement of paragraph (f)(1)(iii)(A) of this section using the pre-adoption period and the immediately preceding 5 plan years, the plan is not permitted to be amended in accordance with the utilization test in this paragraph (f). (3) Participants taken into account. A participant is taken into account for purposes of this paragraph (f) only if the participant was eligible to elect to commence payment of an optional form of benefit that is part of the generalized optional form being eliminated with an annuity commencement date that is within the look-back period. However, a participant is not taken into account if the participant— (i) Did not elect any optional form of benefit with an annuity commencement date that was within the look-back period; (ii) Elected an optional form of benefit that included a single-sum distribution that applied with respect to at least 25% of the participant's accrued benefit; (iii) Elected an optional form of benefit that was only available during a limited period of time and that contained a retirement-type subsidy where the subsidy that is part of the generalized optional form being eliminated was not extended to any optional form of benefit with the same annuity commencement date; or (iv) Elected an optional form of benefit with an annuity commencement date that was more than 10 years before normal retirement age. (4) Determining the applicable number of participants. For purposes of applying the rules in this paragraph (f), the applicable number of participants is 50 participants. However, notwithstanding paragraph (f)(3)(ii) of this section, a plan is permitted to take into account any participant who elected an optional form of benefit that included a single-sum distribution that applied with respect to at least 25% of the participant's accrued benefit, but only if the applicable number of participants is increased to 1,000 participants. (5) Default elections. For purposes of this paragraph (f), an election includes the payment of an optional form of benefit that applies in the absence of an affirmative election. (h) * * * Example 6. (i) Facts involving elimination of noncore options using utilization test —(A) In general. Plan G is a calendar year defined benefit plan under which participants may elect to commence distributions after termination of employment in the following actuarially equivalent forms, with spousal consent, if applicable: a straight life annuity; a 50%, 75%, or 100% joint and contingent annuity; or a 5-year, 10-year, or a 15-year term certain and life annuity. A participant is permitted to elect a single-sum distribution if the present value of the participant's nonforfeitable accrued benefit is not greater than $5,000. The annuities offered under the plan are generally available both with and without a social security leveling feature. The social security leveling feature provides for an assumed commencement of social security benefits at any age selected by the participant between the ages of 62 and 67. Under Plan G, the normal retirement age is defined as age 65. (B) Utilization test. In 2007, the plan sponsor of Plan G, after reviewing participants' benefit elections, determines that, during the period from January 1, 2005, through June 30, 2007, no participant has elected a 5-year term certain and life annuity with a social security leveling option. During that period, Plan G has made the 5-year term certain and life annuity with a social security leveling option available to 142 participants who were at least age 55 and who elected optional forms of benefit with an annuity commencement dates during that period. In addition, during that period, 20 of the 142 participants elected a single-sum distribution and there was no retirement-type subsidy available for a limited period of time. Plan G, in accordance with paragraph (f)(1) of this section, is amended on September 15, 2007, effective as of January 1, 2008, to eliminate all 5-year term certain and life annuities with a social security leveling option for all annuity commencement dates on or after January 1, 2008. (ii) Conclusion. The amendment satisfies the requirements of paragraph (f) of this section. First, the 5-year term certain and life annuity with a social security leveling option is not a core option as defined in paragraph (g)(5) of this section. Second, the plan amendment is not applicable with respect to an optional form of benefit with an annuity commencement date that is earlier than the number of days in the maximum QJSA explanation period after the date the amendment is adopted. Third, the 5-year term certain and life annuity with a social security leveling option has been available to at least 50 participants who are taken into account for purposes of paragraph (f) of this section during the look-back period. Fourth, during the look-back period, no participant elected any optional form that is part of the generalized optional form being eliminated (for example, the 5-year term and life annuity with a social security leveling option). (j) * * * (3) Effective dates for rules relating to section 411(a) nonforfeitability provisions —(i) Application of suspension of benefit rules to section 411(d)(6) protected benefits. With respect to a plan amendment that places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits by adding or modifying a plan provision relating to suspension of benefit payments during a period of employment or reemployment, the rules provided in paragraph (a)(3) of this section apply to periods beginning on or after June 7, 2004. (ii) Application of section 411(a) nonforfeitability provisions to section 411(d)(6) protected benefits. With respect to a plan amendment that places greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits other than a plan amendment described in paragraph (j)(3)(i) of this section, the rules provided in paragraph (a)(3) of this section apply to plan amendments adopted after August 9, 2006. (4) Effective date for change to redundancy rule regarding bifurcation of benefits. The rules provided in paragraph (c)(6) of this section are applicable for amendments adopted after August 9, 2006. (5) Effective date for rules relating to utilization test. The rules provided in paragraph (f) of this section are applicable for amendments adopted after December 31, 2006. Mark E. Matthews, Deputy Commissioner for Services and Enforcement. Approved: July 31, 2006. Eric Solomon, Acting Deputy Assistant Secretary of the Treasury (Tax Policy). [FR Doc. E6-12885 Filed 8-8-06; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF HOMELAND SECURITY Coast Guard 33 CFR Part 117 [CGD01-06-105] Drawbridge Operation Regulations; Jamaica Bay and Connecting Waterways, Queens, NY AGENCY: Coast Guard, DHS. ACTION: Notice of temporary deviation from regulations. SUMMARY: The Commander, First Coast Guard District, has issued a temporary deviation from the regulation governing the operation of the Marine Parkway Bridge across Jamaica Bay at mile 3.0, at Queens, New York. Under this temporary deviation, the Marine Parkway Bridge need not open for the passage of vessel traffic between 7 a.m. and 3 p.m. on August 28, 2006 and August 29, 2006. This deviation is necessary to facilitate scheduled bridge maintenance. DATES: This deviation is effective from August 28, 2006 through August 29, 2006.*