Notices. Final rule; effectiveness of collection-of-information requirements
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/register/2007/12/28/07-6221A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
BILLING CODE 3510-22-S DEPARTMENT OF COMMERCE National Oceanic and Atmospheric Administration 50 CFR Part 679 [Docket No. 0612242964-7332-02; I.D. 080106C] RIN 0648-AS84 Fisheries of the Exclusive Economic Zone Off Alaska; Individual Fishing Quota Program; Community Development Quota Program AGENCY: National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce. ACTION: Final rule; effectiveness of collection-of-information requirements. SUMMARY: NMFS announces approval by the Office of Management and Budget
(OMB)of collection-of-information requirements implementing the Individual Fishing Quota
(IFQ)Program for the fixed-gear commercial Pacific halibut fishery and sablefish fishery. OMB assigned OMB Control Number 0648-0569 to the collection of information contained in these regulations. The intent of this final rule is to announce the effective date of these regulations is January 28, 2008. DATES: The collection of information requirements in §§ 679.42(d) and 679.42(i), published on August 9, 2007 (72 FR 44795), are effective January 28, 2008. ADDRESSES: Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in this final rule may be submitted to NMFS Alaska Region, P.O. Box 21668, Juneau, AK 99802, Attn: Ellen Sebastian, and by email to *David_Rostker@omb.eop.gov* or fax to 202-395-7285. FOR FURTHER INFORMATION CONTACT: Patsy A. Bearden, NMFS, 907-586-7228 or e-mail at *patsy.bearden@noaa.gov* . SUPPLEMENTARY INFORMATION: A final rule that modified the Individual Fishing Quota
(IFQ)Program for the fixed-gear commercial Pacific halibut fishery and sablefish fishery was published in the **Federal Register** on August 9, 2007 (72 FR 44795), and most of the measures were effective September 10, 2007. However, because OMB approval of the reporting requirements contained in this final rule at 50 CFR parts 679.42(d) and 679.42(i) had not been received by the effective date of the rule, the effective date of these collection-of-information requirements were delayed. On October 31, 2007, NMFS received OMB approval for these collection-of-information requirements and assigned OMB Control Number 0648-0569 to them. Consequently, NMFS announces the effectiveness of these regulations relating to IFQ Medical Transfer Application, appeal, and proof-of-ownership documentation for the hired master changes. A complete explanation of the requirements imposed by these regulations and the rationale for them was provided in the proposed rule (72 FR 64218, November l, 2006), and the August 9, 2007 final rule (72 FR 44795). Notwithstanding any other provision of the 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 (PRA), unless that collection-of- information displays a currently valid OMB control number. This rule contains collection-of-information requirements subject to the PRA that have been approved by OMB under control number 0648-0569. Public reporting burden per response is estimated to average 2 hours for Application for Medical Transfer of IFQ; 4 hours for each letter of appeal if an application is denied by NMFS; and 1 hour for each proof-of-ownership document for the hired master changes. The estimated response time includes the time needed for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding these reporting burden estimates or any other aspect of the collection-of-information, including suggestions for reducing the burden, to NMFS and OMB (see ADDRESSES ). List of Subjects in 50 CFR Part 679 Alaska, Fisheries, Recordkeeping and reporting requirements. Dated: December 19, 2007. Samuel D. Rauch III, Deputy Assistant Administrator For Regulatory Programs, National Marine Fisheries Service. [FR Doc. E7-25076 Filed 12-27-07; 8:45 am] BILLING CODE 3510-22-S 72 248 Friday, December 28, 2007 Proposed Rules DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 205 [Docket Number AMS-TM-07-0124; TM-07-12] RIN 0581-AC76 National Organic Program (NOP); Sunset Review
(2008)AGENCY: Agricultural Marketing Service, USDA. ACTION: Advance notice of proposed rulemaking with request for comments. SUMMARY: Sunset of the exempted or prohibited use of substances under the National Organic Program
(NOP)is required by the Organic Foods Production Act of 1990 (OFPA). This ANPR announces the sunset of 11 exempted substances and 1 prohibited substance added to the National List on November 3 and 4, 2003. This ANPR establishes November 3, 2008, as the date by which the sunset review and renewal process must be concluded. This advance notice of proposed rule-making
(ANPR)also begins the public comment process on whether the identified existing exemptions or prohibitions should be continued. Finally, this ANPR discusses how the NOP will manage the sunset review and renewal process. DATES: Comments must be submitted on or before January 28, 2008. ADDRESSES: Interested persons may submit written comments on this ANPR using the following addresses: • Mail: Robert Pooler, Agricultural Marketing Specialist, National Organic Program, USDA-AMS-TMP-NOP, 1400 Independence Avenue., SW., Room 4008-So., Ag Stop 0268, Washington, DC 20250. • Internet: *www.regulations.gov.* Written comments responding to this ANPR should be identified with the docket number AMS-TM-07-0124. You should clearly indicate your position to continue the allowance or prohibition of the substances identified in this ANPR and the reasons for your position. You should include relevant information and data to support your position (e.g., scientific, environmental, manufacturing, industry impact information, etc.). You should also supply information on alternative substances or alternative management practices, where applicable, that support a change from the current exemption or prohibition of the substance. Only the supporting material relevant to your position will be considered. It is our intention to have all comments concerning this ANPR, including, names and addresses when provided, whether submitted by mail or internet available for viewing on the Regulations.gov ( *www.regulations.gov* ) internet site. Comments submitted in response to this ANPR will also be available for viewing in person at USDA-AMS, Transportation and Marketing Programs, National Organic Program, Room 4008-South Building, 1400 Independence Ave., SW., Washington, DC, from 9 a.m. to 12 noon and from 1 p.m. to 4 p.m., Monday through Friday, (except official Federal holidays). Persons wanting to visit the USDA South Building to view comments received in response to this ANPR are requested to make an appointment in advance by calling
(202)720-3252. FOR FURTHER INFORMATION CONTACT: Robert Pooler, Agricultural Marketing Specialist, National Organic Program, USDA/AMS/TM/NOP, Room 4008-So., Ag Stop 0268, 1400 Independence Ave., SW., Washington, DC 20250. Phone:
(202)720-3252. Telephone:
(202)720-3252. E-mail: *Robert.pooler@usda.gov.* SUPPLEMENTARY INFORMATION: This action has been determined not significant for purposes of Executive Order 12866, and therefore, has not been reviewed by the Office of Management and Budget. Background The OFPA, 7 U.S.C. 6501 *et seq.* , authorizes the establishment of the National List of exempted and prohibited substances. The National List identifies synthetic substances (synthetics) that are exempted (allowed) and nonsynthetic substances (nonsynthetics) that are prohibited in organic crop and livestock production. The National List also identifies nonsynthetics and synthetics that are exempted for use in organic handling. The exemptions and prohibitions granted under the OFPA are required to be reviewed every 5 years by the National Organic Standards Board (NOSB). The Secretary of Agriculture has authority under the OFPA to renew such exemptions and prohibitions. If they are not reviewed by the NOSB and renewed by the Secretary within 5 years of their inclusion on the National List, their authorized use or prohibition expires. This means that synthetic substances Copper sulfate, Ozone gas, Peracetic acid, and EPA List 3 Inerts, currently allowed for use in organic crop production, will no longer be allowed for use after November 3, 2008. Calcium chloride currently prohibited from use in organic crop production, except as a foliar spray to treat a physiological disorder associated with calcium uptake, will be allowed after November 3, 2008. This also means that Agar-agar, Carageenan, and Tartaric acid, currently allowed for use in organic handling, will be prohibited after November 3, 2008. Finally, Animal enzymes, Calcium sulfate, Glucono delta lactone, and Cellulose, currently allowed for use in organic handling, will no longer be allowed for use after November 4, 2008. Expiration of the exempted or prohibited use of substances is provided for under the OFPA's sunset provision. This ANPR announces the sunset of 11 exempted substances and 1 prohibited substance added to the National List on November 3 and 4, 2003. This ANPR establishes November 3, 2008, as the date by which the sunset review and renewal process must be concluded. Substances not renewed will be removed from the National List. This ANPR also begins the public comment process on whether the existing specific exemptions or prohibitions on the National List should be continued. This ANPR discusses how the NOP will manage the sunset review and renewal process. Because these substances may be critical to the production and handling of a wide array of raw and processed organic agricultural products, their expiration could cause disruption of well-established and accepted organic production, handling, and processing systems. Therefore, the NOP is initiating the sunset review and renewal process now, in order to provide ample opportunity for you to make your views known. Initially, Tartaric acid was inadvertently included in the 2007 sunset process (70 FR 35177, June 17, 2005) and recommended for renewal by the NOSB (November 17, 2005). However, because Tartaric acid was not scheduled to sunset until October 31, 2008, it was not included in the 2007 sunset proposed rule (72 FR 9872, March 6, 2007). Consequently, Tartaric acid will receive consideration under this sunset review and the NOSB will consider comments previously submitted in response to the 2007 sunset ANPR. DL-Methionine, DL-Methionine-hydroxyl analog, and DL-Methionine-hydroxyl analog calcium (CAS #—59-51-8; 63-68-3; 348-67-4) were added to the National List on November 3, 2003, for use in organic poultry production. Initially these substances carried an expiration date of October 21, 2005. Effective October 22, 2005, the expiration date was amended to October 1, 2008. Because these substances have an expiration date recommended by the NOSB and established by rulemaking, they are not included in this sunset review. The NOP National List petition process would have to be employed for these substances to be authorized for use after October 1, 2008. The Sunset Process As the first step in this process, we invite public comment on the specific exemptions or prohibitions currently on the National List that are described in this document. All substances currently on the National List have been previously evaluated and determined by the NOSB for consistency with OFPA and its implementing regulations. According to § 6517(e) of the OFPA, these substances must be reviewed by the NOSB and renewed by the Secretary for their use or prohibition to continue after 5 years of their addition to the National List which will be November 3, 2008. Public comments submitted will be considered in the review and renewal process. The NOP will forward comments received under this ANPR to the NOSB for review. The NOSB will review the exemptions and prohibitions of the substances designated to sunset, including the public comments received during this review. The NOSB will review each of the substances listed in this ANPR and may determine that certain substances warrant a more in-depth review and require additional information or research that considers new scientific data and technological and market advances. Following the NOSB's review, the NOSB will make a recommendation to the Secretary about the continuation of specific exemptions and prohibitions for the substances listed in this ANPR. After the Secretary receives the NOSB's recommendations, the NOP will publish a proposed rule based on the NOSB recommendations. This proposed rule will provide an additional opportunity for you to express your views. Comments received on the proposed rule will be used to develop a final rule. Because the sunset review and renewal process involves rulemaking, the NOP believes it is appropriate to initiate the process now with a thirty-day comment period. Guidance on Submitting Your Comments Comments That Support Existing Exemptions or Prohibitions If you provide comments that support the renewal of any or all existing exemptions or prohibitions included within this ANPR, you should clearly indicate this and provide your reasons and any relevant documentation that supports your position. Comments That Do Not Support Continuing an Existing Exemption If you provide comments that do not support continuing an existing exemption, you should provide reasons why the use of the substance should no longer be allowed in organic agricultural production and handling. The current exemptions were originally recommended by the NOSB based on evidence available to the NOSB at the time of review which demonstrated that the substances were found to be:
(1)Not harmful to human health or the environment,
(2)necessary because of the unavailability of wholly nonsynthetic alternatives, and
(3)consistent and compatible with organic practices. Therefore, comments against the continued exemption of a substance should demonstrate how the current substance is:
(1)Harmful to human health or the environment,
(2)not necessary to the production of the agricultural products because of the availability of wholly nonsynthetic substitute products, or
(3)inconsistent with organic farming and handling. An Appendix to this ANPR contains worksheets to assist you in gathering relevant information concerning these issues. These worksheets are not required to submit a comment. These worksheets are used by the NOSB to develop their recommendations to the Secretary to include an exempted or prohibited substance on the National List. You do not have to answer the questions on the worksheets; they are intended only to help you provide substantive comments to the NOSB when you provide comments on the specific substance. In addition, comments that do not support the continued use of a substance(s) listed within this ANPR should also provide evidence concerning viable alternatives for the substance you believe should be discontinued. Viable alternatives include, but are not limited to: alternative management practices that would eliminate the need for the specific substance; other currently exempted substances that are on the National List which could eliminate the need for this specific substance; and other organic or nonorganic agricultural substances. Such evidence also should adequately demonstrate that the alternative has a function and effect that equals or surpasses the specific exempted substance that you do not want to be continued. Assertions about an alternative substance except for those alternatives that already appear on the National List should, if possible include the name and address of the manufacturer of the alternative. Further, your comments should include a copy or the specific source of any supportive literature, which could include product or practice descriptions; performance and test data; reference standards; name and address of producers who have used the alternative under similar conditions and the date of use; and an itemized comparison of the function and effect of the proposed alternative(s) with substance under review. The chart below can help you describe recommended alternatives for different types of organic operations in place of a current exempted substance that you do not want to be continued. If the currently listed substance is used in... And is a (an). . . Then the recommended alternative should be a (an). . . Crop or Livestock Production Synthetic substance —Another currently listed synthetic substance; —Nonsynthetic substance; or —Management practice. Crop or Livestock Production Synthetic inert substance (pesticidal) —Another currently listed synthetic substance or; —Nonsynthetic substance. Handling Synthetic substance —Another currently listed synthetic substance; —Nonsynthetic (non-ag) substance; or —Management practice. Handling Nonsynthetic (non-ag) substance —Agricultural substance; or —Management practice. Handling Nonorganic agricultural product —Organic agricultural product. The NOP understands that supportive technical or scientific information for synthetic alternatives not currently on the National List may not be easily available to organic producers and handlers. Such information may, however, be available from the research community including universities, or other sources, including international organic programs. Comments That Do Not Support Continuing an Existing Prohibition If you provide comments against continuation of the prohibition on the use of Calcium chloride, you should specify how Calcium chloride is now consistent with the criteria in the OFPA and the NOP regulation. When this prohibition was originally recommended by the NOSB, it was accepted because the evidence available to the NOSB at the time of review demonstrated that the substance, except as annotated, was found to be harmful to human health or the environment and was inconsistent and not compatible with organic practices. Therefore, any comments against continuation of the prohibition on the use of Calcium chloride should provide new information, including a copy of the specific source of any supportive literatures showing that Calcium chloride is no longer harmful to human health or the environment and is consistent and compatible with organic practices. An Appendix to this ANPR contains worksheets to assist you in gathering relevant information concerning these issues. These worksheets are not required for you to submit a comment. These worksheets are used by the NOSB to develop their recommendations to the Secretary to include an exempted or prohibited substance on the National List. You do not have to answer the questions on the worksheets; they are intended to help you provide substantive comments to the NOSB when you provide comments on the specific substance. Request for Comments The NOP requests that you comment whether the NOSB should continue to recommend the following exemptions and prohibition on the National List of Allowed and Prohibited Substances for organic agricultural production and handling: Section 205.601 Synthetic Substances Allowed for Use in Organic Crop Production
(a)As algicide, disinfectants, and sanitizer, including irrigation system cleaning systems.
(3)Copper sulfate—for use as an algicide in aquatic rice systems, is limited to one application per field during any 24-month period. Application rates are limited to those which do not increase baseline soil test values for copper over a timeframe agreed upon by the producer and accredited certifying agent.
(5)Ozone gas—for use as an irrigation system cleaner only.
(6)Peracetic acid—for use in disinfecting equipment, seed, and asexually propagated planting material.
(e)As insecticides (including acaricides or mite control).
(3)Copper Sulfate—for use as tadpole shrimp control in aquatic rice production, is limited to one application per field during any 24-month period. Application rates are limited to levels which do not increase baseline soil test values for copper over a timeframe agreed upon by the producer and accredited certifying agent.
(i)As plant disease control.
(7)Peracetic acid—for use to control fire blight bacteria.
(m)As synthetic inert ingredients as classified by the Environmental Protection Agency (EPA), for use with nonsynthetic substances or synthetic substances listed in this section and used as an active pesticide ingredient in accordance with any limitations on the use of such substances.
(2)EPA List 3—Inerts of unknown toxicity allowed:
(ii)Inerts used in passive pheromone dispensers. Section 205.602 Nonsynthetic Substances Prohibited for Use in Organic Crop Production
(c)Calcium chloride, brine process is natural and prohibited for use except as a foliar spray to treat a physiological disorder associated with calcium uptake. Section 205.605 Nonagricultural (Nonorganic) Substances Allowed as Ingredients in or on Processed Products Labeled as “Organic” or “Made With Organic (Specified Ingredients or Food Groups(s))”
(a)*Nonsynthetics allowed:* Agar-agar. Animal enzymes—(Rennet—animals derived; Catalase—bovine liver; Animal lipase; Pancreatin; Pepsin; and Trypsin). Calcium sulfate—mined. Carageenan. Glucono delta-lactone—production by the oxidation of D-glucose with bromine water is prohibited. Tartaric acid
(b)*Synthetics allowed:* Cellulose—for use in regenerative casings, as an anti-caking agent (non-chlorine bleached) and filtering aid. Tartaric acid All comments will be considered in the development of the NOSB's recommendations to the Secretary. Authority: 7 U.S.C. 6501 *et seq.* and 7 CFR part 205. Dated: December 21, 2007. Lloyd C. Day, Administrator, Agricultural Marketing Service. Appendix This Appendix contains worksheets to assist you in gathering relevant information concerning the compatibility of substances with evaluation criteria of the OFPA. These worksheets are not required to submit a comment. These worksheets are used by the NOSB to develop their recommendations to the Secretary to include an exempted or prohibited substance on the National List. You do not have to answer the questions on the worksheets; they are intended only to help you provide substantive comments to the NOSB when you provide comments on the specific substance. Evaluation Criteria for Substances Added to the National List Question Yes No N/A 1 Documentation (TAP; petition; regulatory agency; other) Category 1. Adverse impacts on humans or the environment? 1. Is there environmental contamination during manufacture, use, misuse, or disposal? [§ 6518 m.3] 2. Is the substance harmful to the environment? [§ 6517c(1)(A)(i);6517(c)(2)(A)i] 3. Does the substance contain List 1, 2, or 3 inerts? [§ 6517 c (1)(B)(ii)] 4. Is there potential for detrimental chemical interaction with other materials used? [§ 6518 m.1] 5. Are there adverse biological and chemical interactions in agro-ecosystem? [§ 6518 m.5] 6. Are there detrimental physiological effects on soil organisms, crops, or livestock? [§ 6518 m.5] 7. Is there a toxic or other adverse action of the material or its breakdown products? [§ 6518 m.2] 8. Is there undesirable persistence or concentration of the material or breakdown products in environment?[§ 6518 m.2] 9. Is there any harmful effect on human health? [§ 6517 c (1)(A)(i) ; 6517 c(2)(A)i; § 6518 m.4] Category 2. Is the Substance Essential for Organic Production? 1. Is the substance formulated or manufactured by a chemical process? [6502 (21)] 2. Is the substance formulated or manufactured by a process that chemically changes a substance extracted from naturally occurring plant, animal, or mineral, sources? [6502 (21)] 3. Is the substance created by naturally occurring biological processes? [6502 (21)] 4. Is there a wholly natural substitute product? [§ 6517 c (1)(A)(ii)] 5. Is the substance used in handling, not synthetic, but not organically produced? [§ 6517 c (1)(B)(iii)] 6. Is there any alternative substances? [§ 6518 m.6] 7. Is there another practice that would make the substance unnecessary? [§ 6518 m.6] Category 3. Is the substance compatible with organic production practices? 1. Is the substance consistent with organic farming and handling? [§ 6517 c (1)(A)(iii); 6517 c (2)(A)(ii)] 2. Is the substance compatible with a system of sustainable agriculture? [§ 6518 m.7] 3. Is the substance used in production, and does it contain an active synthetic ingredient in the following categories: a. copper and sulfur compounds; b. toxins derived from bacteria; c. pheromones, soaps, horticultural oils, fish emulsions, treated seed, vitamins and minerals? d. livestock parasiticides and medicines? e. production aids including netting, tree wraps and seals, insect traps, sticky barriers, row covers, and equipment cleaners? 1 If the substance under review is for crops or livestock production, all of the questions from 205.600
(b)are N/A—not applicable. [FR Doc. E7-25270 Filed 12-27-07; 8:45 am] BILLING CODE 3410-02-P DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 7 CFR Part 981 [Docket No. AO-214-A7; AMS-FV-07-0050; FV07-981-1] Almonds Grown in California; Recommended Decision on Proposed Amendment of Marketing Order No. 981 AGENCY: Agricultural Marketing Service, USDA. ACTION: Proposed rule and opportunity to file exceptions. SUMMARY: This is a recommended decision regarding proposed amendments to Marketing Order No. 981 (order), which regulates the handling of almonds grown in California. Two amendments were proposed by the Almond Board of California (Board), which is responsible for local administration of the order. These proposed amendments would: authorize the establishment of specific outgoing quality requirements for different markets; and authorize the establishment of container marking and labeling requirements. The proposals are intended to provide additional flexibility in administering the quality control provisions of the order and provide the industry with additional tools to aid in the marketing of almonds. This recommended decision invites written exceptions on the proposed amendments. DATES: Written exceptions must be filed by January 17, 2008. ADDRESSES: Written exceptions should be filed with the Hearing Clerk, U.S. Department of Agriculture, Room 1081-S, Washington, DC 20250-9200, Fax:
(202)720-9776 or via the Internet at *http:* // *www.regulations.gov* . All comments should reference the docket number and the date and page number of this issue of the **Federal Register** . Comments will be made available for public inspection in the Office of the Hearing Clerk during regular business hours, or can be viewed at: *http:* // *www.regulations.gov* . FOR FURTHER INFORMATION CONTACT: Martin Engeler, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 2202 Monterey Street, Suite 102-B, Fresno, California 93721; Telephone:
(559)487-5110, Fax:
(559)487-5906, or E-mail: *Martin.Engeler@usda.gov* ; or Laurel May, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue, SW., Stop 0237, Washington, DC 20250-0237; Telephone:
(202)720-1509, Fax:
(202)720-8938, or E-mail: *Laurel.May@usda.gov.* Small businesses may request information on this proceeding by contacting Jay Guerber, Marketing Order Administration Branch, Fruit and Vegetable Programs, AMS, USDA, 1400 Independence Avenue, SW., Stop 0237, Washington, DC 20250-0237; Telephone:
(202)720-2491, Fax:
(202)720-8938, E-mail: *Jay.Guerber@usda.gov.* SUPPLEMENTARY INFORMATION: Prior document in this proceeding: Notice of Hearing issued on June 29, 2007, and published in the July 6, 2007, issue of the **Federal Register** (72 FR 36900). This action is governed by the provisions of sections 556 and 557 of title 5 of the United States Code and is therefore excluded from the requirements of Executive Order 12866. Preliminary Statement Notice is hereby given of the filing with the Hearing Clerk of this recommended decision with respect to the proposed amendments to Marketing Order 981 regulating the handling of almonds grown in California, and the opportunity to file written exceptions thereto. Copies of this decision can be obtained from Martin Engeler, whose address is listed above. This recommended decision is issued pursuant to the provisions of the Agricultural Marketing Agreement Act of 1937, as amended (7 U.S.C. 601-674), hereinafter referred to as the “Act,” and the applicable rules of practice and procedure governing the formulation of marketing agreements and orders (7 CFR Part 900). The proposed amendments are based on the record of a public hearing held August 2, 2007, in Modesto, California. Notice of this hearing was published in the **Federal Register** on July 6, 2007 (72 FR 36900). The notice of hearing contained the two proposals submitted by the Board. The proposed amendments were recommended by the Board following deliberations at public meetings on November 28, 2006, and February 27, 2007, and were submitted to the Agricultural Marketing Service
(AMS)on March 12, 2007. After reviewing the recommendation and other information submitted by the Board, AMS determined to proceed with the formal rulemaking process and schedule the matter for hearing. The Board's proposed amendments to the order would:
(1)Authorize the establishment of different outgoing almond quality requirements for different markets; and
(2)authorize the establishment of container marking and labeling requirements. USDA also proposed to make such changes to the order as may be necessary, if any of the proposed changes are adopted, so that all of the order's provisions conform to the effectuated amendments. Eleven industry witnesses testified at the hearing. These witnesses represented almond producers and handlers in the production area, as well as Board staff, and all were supportive of the proposed amendments. The witnesses emphasized the need to equip the industry with updated and more comprehensive tools for the marketing of California almonds, and testified that the two proposed amendments would assist in this matter. Witnesses offered testimony in support of the Board's recommendation to add authority for different outgoing quality requirements for shipments to different markets. Under that authority, the Board could recommend the establishment of outgoing quality requirements to meet the specifications of particular markets. According to testimony, this would assure delivery of a consistent quality product, which would help maintain customer confidence and market share. Witnesses also supported the recommendation to add general authority for container marking and labeling requirements. If implemented, this authority would enable the Board to recommend the establishment of container marking and labeling regulations to aid in the orderly marketing of almonds. Such container marking or labeling could include information about the product's origin, product handling instructions, or other information responsive to market demands. At the conclusion of the hearing, the Administrative Law Judge established a deadline of September 24, 2007, for interested persons to file proposed findings and conclusions or written arguments and briefs based on the evidence received at the hearing. The filing deadline was extended to September 26, 2007. Two briefs were filed during that period: one brief summarized witness testimony from the hearing and supported adoption of the proposed order amendments; and the second brief provided a brief history of the California almond industry, clarified the intent of the Board's proposed amendment regarding container marking and labeling, and offered general support for both proposed amendments. Material Issues The material issues presented on the record of hearing are as follows:
(1)Whether to amend the order to authorize establishment of different outgoing quality requirements for different markets; and
(2)Whether to amend the order to authorize establishment of container marking and labeling requirements. Findings and Conclusions The following findings and conclusions on the material issues are based on evidence presented at the hearing and the record thereof. Material Issue Number 1—Authority To Establish Different Outgoing Quality Requirements for Different Markets Section 981.42(b) of the order should be amended to authorize the establishment of specific outgoing quality requirements for different markets. That section currently authorizes the establishment of minimum outgoing quality requirements applicable to almonds to be handled or to be processed into manufactured products. However, it does not authorize different quality requirements for product shipped to different market destinations. Quality requirements authorized under § 981.42(b) may be established through informal rulemaking after recommendation by the Board and implementation by USDA. If authority to establish different outgoing quality requirements for different markets is added to this subsection in the order as proposed, implementation of such requirements would also require recommendation by the Board and subsequent establishment of regulations by USDA through informal rulemaking. Witnesses testified that California almonds comprise approximately 80 percent of the world's almond production and that over two-thirds of California's almonds are exported to approximately 90 countries worldwide. According to record evidence, the 2007-08 crop is estimated to approximate 1.330 billion pounds, which would be the largest California almond crop ever produced. Witnesses testified that to ensure the industry can sustain adequate market demand for production at that level, it must be equipped with necessary tools that will allow it to respond to rapidly changing global market requirements. Witnesses indicated that the California almond industry faces a wide array of market regulations and standards for such factors as appearance, aflatoxin levels, pesticide residues, organic standards, fumigation, and methods of testing for compliance with those standards. Many of these requirements are not harmonized across the different markets. Witnesses explained that there is a tendency for countries to adopt standards from other countries and then modify them, so that the standards and requirements proliferate and become increasingly complex. One witness suggested that a shipment of product could meet the requirements of one country but be rejected by another country. Meeting the demands of increasingly diverse markets with substantially different standards and requirements is an ongoing challenge for the almond industry. However, witnesses testified that maintaining customer confidence in the quality of their product is essential for the economic well being of the industry; so the ability to meet those standards is crucial. Currently, the order authorizes the establishment of outgoing quality regulations that are applicable to all almonds, regardless of their destination. Witnesses stated that handling all almonds in such a manner as to meet the requirements of one particular market may not always be practical for shipments to other destinations and could generate unnecessary costs for handlers. The industry desires to avoid the complication and expense of applying the quality standards of one market to shipments for other markets where they may not be required or appropriate. However, at the same time, witnesses indicated that not making country and region-specific mandatory marketing requirements compulsory as part of outgoing quality regulations in the order is causing a disruption in the flow of almonds to specific markets, such as the European Union (EU). Witnesses explained that the EU has established a maximum tolerance for aflatoxin in almonds shipped to its member countries. Handlers who choose to ship almonds to the EU must comply with EU specifications. However, under the current order regulations, there are no mandatory requirements pertaining to aflatoxin for California almonds. Witnesses explained that, in the absence of the authority to establish specific outgoing quality requirements for shipments to the EU, the almond industry developed a voluntary aflatoxin testing protocol for handlers to follow when shipping almonds to the EU. The intent of the program was to ensure the product meets EU requirements before being shipped, therefore minimizing the number of rejected shipments and the expenses and delays associated with them. The industry also hoped to prevent the erosion of confidence in the overall quality of California almonds and the implementation of even tighter controls in the EU. However, according to witness testimony, the voluntary nature of the industry's program did not sufficiently assure the EU that its requirements would be met. Beginning on September 1, 2007, EU officials implemented a program requiring mandatory aflatoxin testing of California almond shipments upon arrival in the EU. This program requires mandatory testing of five percent of shipments of almonds from California handlers participating in the voluntary California aflatoxin testing program, and mandatory testing of 100% of shipments of almonds from California handlers not participating in the voluntary program. One witness stated that similar controls mandated for other crops have resulted in increased rejections, costs to producers, market disruption, and loss of market share. Testimony provided at the hearing shows that it is impractical to require aflatoxin testing for almond shipments to all markets, which is the only alternative available under the current order authority. To do so would impose unnecessary expenses for shipments to markets that do not require aflatoxin testing. Neither do witnesses want to risk unfavorable consequences to the entire industry, including the potential for even greater testing frequency by the EU, due to the failure of some shipments to meet import requirements. The authority to establish testing requirements for all shipments to the EU would reduce the risk that one shipment with aflatoxin levels exceeding the EU tolerance could compromise the industry's reputation and market position. Witnesses testified that the authority to establish different requirements for different markets would prove useful in other domestic and international market situations that could arise. If the proposed amendment is adopted, the Board would be authorized to establish, with the approval of the Secretary, specific outgoing quality regulations to address critical market issues as they arise. Currently, handlers routinely meet individual market requirements as part of conducting business in those markets. However, witnesses stressed that the industry's reputation would be reinforced by implementation of mandatory, rather than voluntary, compliance with certain market demands. Establishing different requirements for different markets would help insure that substandard almonds do not find their way to the market and destroy consumer confidence and harm industry returns. Furthermore, the flexibility provided in this amendment would allow the application of such requirements to be limited to shipments destined for specified markets, saving handlers the additional burden or cost of meeting regulations other than those necessary for each market. Thus, it is recommended that § 981.42(b) be amended to include authority for the Board, with the approval of the Secretary, to establish different outgoing quality requirements for different markets. There was no testimony in opposition to this proposal. Furthermore, USDA is recommending changes to the proposed language of the amendment to § 981.42(b) that was published in the notice of hearing. The word “recommend” would be changed to “establish” to harmonize and conform the proposed language with that already present in this subsection regarding the establishment of outgoing quality requirements. In addition, the proposed language in the amendment would be moved within the paragraph. Material Issue Number 2—Authority To Establish Container Marking and Labeling Requirements A new section 981.43 should be added to the order to authorize the establishment of marking and labeling requirements for bulk containers. A definition of “container” is included in the amendatory text for this section to clarify that the regulation would be applicable to receptacles used in the packaging or handling of almonds. Specifying that only bulk containers be included in this authority was not part of the Board's original proposal. However, proponents testified that it was their original intent. Currently, very limited authority for marking and labeling requirements exists in this marketing program. Adding this section would provide for the establishment of general authority for making requirements for the marking or labeling of bulk almond containers as appropriate to meet industry and market needs. Such requirements could be established through informal rulemaking after recommendation by the Board and implementation by USDA and could be included in the order's administrative rules and regulations. Proponents of the proposal testified that this amendment might be necessary as market requirements change. Witnesses cited several instances in which such authority would assist with the orderly marketing of California almonds. For instance, marking or labeling requirements could be implemented that would complement regulations implemented under the authority for different outgoing quality requirements described under Material Issue Number 1. In the case of aflatoxin testing for almond shipments to the EU, container labeling could be required to indicate that such testing requirements had been met. One witness testified that product handling instructions in foreign languages might be appropriately applied to containers in export shipments. Other witnesses stated that labeling containers with proper handling and storage instructions could help maintain the quality of almonds, ensuring greater customer satisfaction. The record shows that the lack of marking and labeling authority impeded the industry's efforts to restore customer confidence following recalls of California almonds in 2001 and 2004. As a precaution against *Salmonella* contamination, some handlers treated and/or reprocessed their almonds. Individual handlers were able to mark containers to indicate whether their almonds had been treated, but there was no standardized industry language to express a consistent message to consumers about such treatment. This left customers down the supply chain uncertain about the state of the almonds they received. Proponents stated that if they'd had the authority to recommend container marking and labeling regulations, the Board could have determined how best to mark containers of treated almonds in a consistent way to assure customers that the almonds had been treated. Proponents of the proposed amendment also testified that adding authority to recommend container marking and labeling would be a useful tool that would allow the industry to respond to evolving market situations. As mentioned above, witnesses testifying in support of the amendment suggested revising the proposal to include a reference to bulk containers. Proponents stated that they wanted to clarify that the authority to recommend container marking and labeling should apply only to bulk containers of almonds, and not to packages sold at the retail level. Although some handlers ship almonds in both bulk and retail or consumer packages, many do not. Witnesses stated that it has never been the industry's intent to regulate the marking or labeling of retail packages. Although the Board did not specify limiting authority for marking and labeling to bulk containers in their original proposal, witnesses testified that it was widely understood among industry members that only authority to recommend the marking and labeling of bulk containers was intended to be part of the proposal. Witnesses were asked whether the industry might prefer to retain greater flexibility to address needs that could arise in the future by preserving the language of their original proposal. However, witnesses confirmed that they wanted to specify more limited authority to regulate the marking and labeling of bulk containers only. All of the witnesses supported modifying the original proposed language in this regard. Further, other minor language changes are intended to conform with record evidence. USDA recommends that § 981.43 authorizing the Board, with approval of the Secretary, to establish container marking and labeling requirements be added to the order. USDA further recommends that the language of the proposed amendment be modified to specify that such authority would apply only to bulk containers. Furthermore, USDA is recommending a change to the proposed language of the new § 981.43 that was published in the notice of hearing. The word “recommend” would be changed to “establish” to harmonize and conform the proposed language with that already present in this subsection regarding the establishment of outgoing quality requirements. Conforming Changes AMS also proposed to make such changes as may be necessary to the order to conform to any amendment that may result from the hearing. Conforming changes are identified in the above discussion of the material issues. Small Business Considerations Pursuant to the requirements set forth in the Regulatory Flexibility Act (RFA), AMS has considered the economic impact of this action on small entities. Accordingly, AMS has prepared this initial regulatory flexibility analysis. The purpose of the RFA is to fit regulatory actions to the scale of business subject to such actions so that small businesses will not be unduly or disproportionately burdened. Marketing orders and amendments thereto are unique in that they are normally brought about through group action of essentially small entities for their own benefit. Small agricultural service firms, which include handlers regulated under the order, have been defined by the Small Business Administration
(SBA)(13 CFR 121.201) as those having annual receipts of less than $6,500,000. Small agricultural producers have been defined as those with annual receipts of less than $750,000. There are approximately 104 handlers of almonds subject to regulation under the order and approximately 6,000 producers of almonds in the regulated area. Information provided at the hearing indicates that approximately 50 percent of the handlers would be considered small agricultural service firms. According to data reported by the National Agricultural Statistics Service (NASS), the two-year average crop value for 2005-06 and 2006-07 was $2.283 billion. Dividing that average by 6,000 producers yields average estimated producer revenues of $380,500, which suggests that the majority of almond producers would also be considered small entities according to the SBA's definition. The order regulates the handling of almonds grown in the state of California. The California almond bearing acreage increased nearly 40 percent between 1996 and 2006, from 418,000 to 585,000 acres. Approximately 1.115 billion pounds (shelled basis) of almonds were produced during the 2006-07 season. Bearing acreage for the 2007-08 season is estimated to be 615,000 acres. NASS has forecasted that the 2007-08 crop will reach 1.330 billion pounds (shelled basis). More than two thirds of California's almond crop is exported to approximately 90 countries worldwide, and comprises nearly 80 percent of the world's almond supply. Under the order, incoming and outgoing quality regulations are established, statistical information is collected, production research projects are conducted, and marketing research and generic promotion programs are sponsored. Program activities administered by the Board are designed to support large and small almond producers and handlers. The 10-member Board is comprised of both producer and handler representatives from the production area. Board meetings where regulatory recommendations and other decisions are made are open to the public. All members are able to participate in Board deliberations, and each Board member has an equal vote. Others in attendance at meetings are also allowed to express their views. The Board's Food Quality and Safety Committee discussed the need for amendments to the order at meetings held on May 12, 2005; July 20, 2005; and November 1, 2006. The Board approved language for two proposed amendments to the order at their meeting on November 28, 2006. During a conference call on February 27, 2007, the Board confirmed that the two amendments should be proposed to USDA. The views of all participants were considered throughout this process. In addition, the hearing to receive evidence on the proposed changes was open to the public and all interested parties were invited and encouraged to participate and provide their views. The proposed amendments are intended to provide the Board and the industry with additional flexibility in the marketing of California almonds. Record evidence indicates that the proposals are intended to benefit all producers and handlers under the order, regardless of size. There would be no cost implications for handlers or growers from adding the proposed order authorities. Costs of implementation would be incurred only if specific additional requirements were established following future informal rulemaking. All grower and handler witnesses supported the proposed amendments and commented on the implications of implementing specific requirements in the future. In that context, witnesses stated that they expected the benefits to be substantial and the costs of any future requirements to be minimal. A description of the proposed amendments and their anticipated economic impact on small and large entities is discussed below. Proposal 1—Adding the Authority To Establish Different Outgoing Quality Requirements for Different Markets The record shows that the proposal to add authority to establish different outgoing quality requirements for different markets would, in itself, have no economic impact on producers or handlers of any size. Regulations implemented under that authority could impose additional costs on handlers required to comply with them. However, witnesses testified that establishing mandatory regulations for different markets could increase the industry's credibility and reduce the risk that shipments of substandard product could jeopardize the entire industry's reputation. Record evidence shows that any additional costs are likely to be offset by the benefits of complying with those requirements. Witnesses cited decreased delays and demurrage charges, as well as fewer rejected loads and increased customer confidence, as expected benefits. Recently, almonds have been rejected in the EU due to aflatoxin levels exceeding its importing tolerances. Information provided at the hearing shows that the rejection of a 44,000 pound container of almonds in the EU costs about $10,000, or 22.7 cents per pound. The cost includes demurrage for unanticipated delays at port, warehousing product while awaiting official import testing results, shipping rejected almonds back to the U.S., and shipping a replacement container back to the EU. To reduce the risk of rejections, the California almond industry developed a voluntary aflatoxin testing protocol. Witnesses estimated that the cost of the pre-export testing, including the value of the sample, analytical fees, courier fees, and sampling labor is less than 2 cents per pound, which is less than 10 percent of the cost associated with a rejection. Proponents testified that if a requirement that all almonds destined for the EU be tested prior to shipment was established under authority provided by the proposed order amendment, handlers would incur the cost of testing, but those costs would be expected to be more than offset by the reduced risk of rejections. It's likely that most handlers are already complying with their customers' specific market requirements on a voluntary basis as a part of doing business, but witnesses explained that mandatory requirements lend credibility to the entire industry. In addition, such requirements could reduce the risk that one shipment of substandard product would jeopardize the entire industry's reputation. Currently, outgoing quality requirements established under the order apply to all handler entities regardless of size. If the proposed amendment and subsequent regulations established thereunder are implemented, distribution of any increased costs between small and large entities would depend on the requirements established for the markets to which individual handlers shipped their almonds as well as the volume of almonds shipped to those markets. But increases in cost would be equitable to all entities because requirements for each market would be imposed uniformly on all handlers shipping to that market. Witnesses explained that almonds are used in many different ways by the various markets. In Europe, almonds are widely used as marzipan and ingredients for baked goods, candy, and other dishes. In India and the Middle East, almonds are presented as gifts at holidays and weddings, and play a part in other cultural traditions. India imports large quantities of inshell almonds that are then processed by hand. The wide range of uses leads to a similarly wide array of customer requirements. According to record testimony, handlers adapt their export methods to satisfy customer requirements. One witness explained that it is often difficult for smaller handlers to stay informed of rapidly changing import regulations. The witness stated that small handlers in particular would benefit from the proposed authority to establish different requirements for different markets by avoiding costly mistakes that could be associated with not understanding various market and import requirements. If regulations were established under the proposed authority, the Board would provide information about updated requirements to the industry. Finally, one witness explained that having the ability under the order to establish different outgoing quality requirements for different markets would not restrict handlers' choices regarding which markets to supply. Rather, the provision would ensure that the important standards that differentiate markets would be consistently met by all handlers shipping to those markets. Proposal 2—Adding the Authority To Establish Container Labeling and Marking Requirements The proposal described in Material Issue No. 2 would add § 981.43 to the order to provide general authority to establish container and marking requirements. If implemented, the proposed amendment would allow the Board, through the informal rulemaking process, to recommend and establish uniform container marking and labeling regulations in response to evolving market requirements. Under current order provisions, there is only very limited authority for container marking and labeling requirements. Witnesses testified that the lack of this authority has hindered them from adapting quickly and appropriately to recent market situations. In one case described at the hearing, the industry was unable to implement container marking or labeling following recalls for possible *Salmonella* contamination. Witnesses stated that customer confidence in almond quality could have been reinforced if the necessary authority to establish marking and labeling requirements had been available. Such authority would have allowed the industry to prescribe labeling to clearly indicate which almonds had been produced and handled or treated to reduce risk of contamination. The proposed amendment would allow the industry to respond to evolving market needs as they develop by establishing uniform and consistent marking and labeling requirements. According to proponents, the ability to communicate important product information to customers in a uniform and consistent manner will be essential as the industry strives to maintain its position in the expanding global marketplace. If the proposed amendment is implemented, costs of complying with any regulations established thereunder would not be disproportionate to small businesses. Witnesses testified that applying labels and marks to almond containers is currently a common practice, and industry handlers already have container marking processes and equipment in place. Therefore, the costs associated with the addition of uniform marking or labeling requirements would be minimal for both small and large entities. The record shows that any costs would likely be offset by the benefits derived from being more responsive to market demands. Interested persons were invited to present evidence at the hearing on the probable regulatory and informational impact of the proposed amendments to the order on small entities. The record evidence is that while there will be no economic impact from the implementation of the two proposed amendments, some costs may be associated with regulation that may be established under the authority of the amendments. However, the record indicates that the costs would be outweighed by the benefits expected to accrue to the California almond industry. USDA has not identified any relevant Federal rules that duplicate, overlap or conflict with this proposed rule. These amendments are intended to improve the operation and administration of the order to the benefit of the industry. Board meetings regarding these proposals as well as the hearing date and location were widely publicized throughout the almond industry, and all interested persons were invited to attend the meetings and the hearing, and to participate in Board deliberations on all issues. All Board meetings and the hearing were public forums and all entities, both large and small, were able to express views on these issues. Finally, interested persons are invited to submit information on the regulatory and informational impacts of this action on small businesses. AMS is committed to complying with the E-Government Act, to promote the use of the Internet and other information technologies to provide increased opportunities for citizen access to Government information and services, and for other purposes. Paperwork Reduction Act Information collection requirements for Part 981 are currently approved by the Office of Management and Budget (OMB), under OMB Number 0581-0178, Vegetable and Specialty Crops. Implementation of these proposed amendments would not trigger any changes to those requirements. Should any such changes become necessary in the future, they would be submitted to OMB for approval. As with all Federal marketing order programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. Civil Justice Reform The amendments to Marketing Order 981 proposed herein have been reviewed under Executive Order 12988, Civil Justice Reform. They are not intended to have retroactive effect. If adopted, the proposed amendments would not preempt any State or local laws, regulations, or policies, unless they present an irreconcilable conflict with this proposal. The Act provides that administrative proceedings must be exhausted before parties may file suit in court. Under section 608c(15)(A) of the Act, any handler subject to an order may file with USDA a petition stating that the order, any provision of the order, or any obligation imposed in connection with the order is not in accordance with law and request a modification of the order or to be exempted therefrom. A handler is afforded the opportunity for a hearing on the petition. After the hearing, USDA would rule on the petition. The Act provides that the district court of the United Sates in any district in which the handler is an inhabitant, or has his or her principal place of business, has jurisdiction to review USDA's ruling on the petition, provided an action is filed no later than 20 days after the date of the entry of the ruling. Rulings on Briefs of Interested Persons Briefs, proposed findings and conclusions, and the evidence in the record were considered in making the findings and conclusions set forth in this recommended decision. To the extent that the suggested findings and conclusions filed by interested persons are inconsistent with the findings and conclusions of this recommended decision, the requests to make such findings or to reach such conclusions are denied. One motion and a brief supporting the motion were submitted requesting that the Secretary expedite the formal rulemaking process by omitting this recommended decision and the period allowed for the filing of exceptions to AMS' findings herein. The motion was filed on October 3, 2007, and the brief supporting the motion was filed on October 12, 2007. The Rules of Practice allow omission of a recommended decision only when the Secretary finds, on the basis of the record, due and timely execution of his functions imperatively and unavoidably require such omission. No such finding may be made in this instance. Absent from the hearing record is testimony or other evidence that would form a basis to make such a determination. Further, interested persons would have no opportunity to comment on this request to omit the recommended decision. Therefore, this motion is denied. A second motion, also filed on October 3, 2007, requested that four corrections be made to one of the exhibits presented at the hearing, although the hearing transcript and all exhibits were certified by the Administrative Law Judge on October 1, 2007. Nevertheless, AMS is granting the first three of those corrections as such corrections would make references in exhibits and testimony uniform. However, the fourth correction is denied. The requested change would make the result of the calculation in the exhibit incorrect, and it would be in conflict with testimony in the hearing transcript, which is correct. General Findings The findings hereinafter set forth are supplementary to the findings and determinations which were previously made in connection with the issuance of the marketing order; and all said previous findings and determinations are hereby ratified and affirmed, except insofar as such findings and determinations may be in conflict with the findings and determinations set forth herein.
(1)The marketing order, as amended, and as hereby proposed to be further amended, and all of the terms and conditions thereof, would tend to effectuate the declared policy of the Act;
(2)The marketing order, as amended, and as hereby proposed to be further amended, regulates the handling of almonds grown in the production area (California) in the same manner as, and is applicable only to, persons in the respective classes of commercial and industrial activity specified in the marketing order upon which a hearing has been held;
(3)The marketing order, as amended, and as hereby proposed to be further amended, is limited in its application to the smallest regional production area which is practicable, consistent with carrying out the declared policy of the Act, and the issuance of several orders applicable to subdivisions of the production area would not effectively carry out the declared policy of the Act;
(4)The marketing order, as amended, and as hereby proposed to be further amended, prescribes, insofar as practicable, such different terms applicable to different parts of the production area as are necessary to give due recognition to the differences in the production and marketing of almonds grown in the production area; and
(5)All handling of almonds grown in the production area as defined in the marketing order, is in the current of interstate or foreign commerce or directly burdens, obstructs, or affects such commerce. A 20-day comment period is provided to allow interested persons to respond to this proposal. Twenty days is deemed appropriate because these proposed changes have been widely publicized and implementation of the changes, if adopted, would be desirable to benefit the industry as soon as possible. All written exceptions timely received will be considered and a grower referendum will be conducted before any of these proposals are implemented. List of Subjects in 7 CFR Part 981 Almonds, Marketing agreements, Nuts, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, 7 CFR Part 981 is proposed to be amended as follows: PART 981—ALMONDS GROWN IN CALIFORNIA 1. The authority citation for 7 CFR part 981 continues to read as follows: Authority: 7 U.S.C. 601-674. 2. Amend paragraph
(b)of § 981.42 by adding the following sentence before the last sentence to read as follows: § 981.42 Quality Control.
(b)* * * The Board may, with the approval of the Secretary, establish different outgoing quality requirements for different markets. * * * 3. Add a new § 981.43 to read as follows: § 981.43 Marking or Labeling of Containers. The Board may, with the approval of the Secretary, establish regulations to require handlers to mark or label their containers that are used in packaging or handling of bulk almonds. For purposes of this section, *container* means a box, bin, bag, carton, or any other type of receptacle used in the packaging or handling of bulk almonds. Dated: December 21, 2007. Lloyd C. Day, Administrator, Agricultural Marketing Service. [FR Doc. E7-25162 Filed 12-27-07; 8:45 am] BILLING CODE 3410-02-P NUCLEAR REGULATORY COMMISSION 10 CFR Part 2 [Docket No. PRM-2-13] Lincoln County, Nevada; Denial of Petition for Rulemaking AGENCY: Nuclear Regulatory Commission. ACTION: Denial of Petition for rulemaking. SUMMARY: The NRC is denying a petition for rulemaking submitted March 23, 2007, by Lincoln County, Nevada, related to its potential participation as an affected unit of local government
(AULG)in the NRC proceeding concerning the Department of Energy's proposed repository for high-level radioactive waste at Yucca Mountain, Nevada. Lincoln County desires an amendment to 10 CFR 2.314(b) to allow it and other AULGs to be represented in the proceeding by any duly authorized individual, including a non-attorney consultant. The Commission is denying the petition as unnecessary because the current regulations allow Lincoln County the representation it seeks. ADDRESSES: Publicly available documents related to this petition, including the petition for rulemaking and the NRC's letter of denial to the petitioner, are available for public inspection or copying in the NRC Public Document Room, 11555 Rockville Pike, Rockville, Maryland. These documents are also available on the NRC's Electronic Reading Room at *http://www.nrc.gov/reading-rm/adams.html.* From this site, the public can gain entry into the NRC's Agencywide Document Access and Management System (ADAMS), which provides text and image files of NRC's public documents. The ADAMS accession numbers for the rulemaking petition and the letter of denial sent to the petitioner are ML070930363 and ML073390550, respectively. If you do not have access to ADAMS or if there are problems in accessing the documents located in ADAMS, contact the PDR reference staff at
(800)387-4209,
(301)415-4737 or by e-mail to *pdr@nrc.gov.* FOR FURTHER INFORMATION CONTACT: Michael A. Spencer, Office of the General Counsel, U.S. Nuclear Regulatory Commission, Washington DC 20555-0001, Telephone:
(301)415-4073. SUPPLEMENTARY INFORMATION: The Petitioner Lincoln County states that, according to the 2000 census, approximately 4,165 people, 1,540 families, and 1,010 households reside in the County. The average annual per capita income is approximately $17,000, and the primary occupations of the people of Lincoln County are cattle ranching, agriculture, government services, and small-scale mining. Background I. The Yucca Mountain Repository and Its Relationship to Lincoln County The Nuclear Waste Policy Act of 1982, as amended
(NWPA)1 established a national program for the management and permanent disposal of high-level radioactive waste (HLW). In 1987, the NWPA was amended to direct the Department of Energy
(DOE)to focus its site characterization activities only on Yucca Mountain. The NWPA provides that if the President recommends the site to Congress and this recommendation is disapproved according to sections 116 or 118 of the NWPA (42 U.S.C. 10136 and 10138), the site will be disapproved unless Congress passes a resolution of repository siting approval. 2 After the President's recommendation of Yucca Mountain as the site for the repository and the State of Nevada's disapproval of this recommendation, Congress passed a resolution approving Yucca Mountain as the repository site. 3 Because of Congress's approval, DOE will submit an application to the NRC for a repository at Yucca Mountain, which application will be reviewed according to the NRC's regulations in 10 CFR Part 63. In addition, a public hearing regarding the HLW repository application (HLW proceeding) will be conducted under Subparts C and J of Part 2 of the NRC's regulations. DOE expects to submit this application in 2008. 1 42 U.S.C. 10101 et. seq. 2 42 U.S.C. 10135(c). 3 Pub. L. No. 107-200 (2002). The NWPA also provides, in 42 U.S.C. 10136(c) and 10222(d), that DOE will provide grants to States and affected units of local government (AULGs) from the Nuclear Waste Fund to assist them in undertaking certain specified activities related to the Yucca Mountain repository. DOE has designated several counties as AULGs, 4 and Lincoln County, which is adjacent to the county where the proposed repository would be located, states that it is an AULG that receives DOE grants from the Nuclear Waste Fund. According to Lincoln County, these grants are subject to Congressional appropriations. AULGs also have status under Commission regulations, being recognized as potential parties to the HLW proceeding. 5 Although an application has yet to be submitted, NRC adjudicatory activities such as document disclosures are already underway. Prior to the docketing of DOE's application, adjudicatory activities in the HLW proceeding related to document access, discovery, and the Licensing Support Network
(LSN)are under the jurisdiction of the Pre-License Application Presiding Officer (PAPO). 4 U.S. Dep't of Energy, Office of Civilian Radioactive Waste Management, *Annual Report to Congress for Fiscal Year 2002,* at 23 (Sept. 2003), available at *http://www.ocrwm.doe.gov/info_library/program_docs/annualreports/02ar/fy_2002.pdf* . 5 *See* 10 CFR 2.1001 (definition of “potential party”). An AULG may become a party upon submission of an admissible contention related to the application. *Id.* II. The Basis for the Petition On October 27, 2005, the PAPO issued a notice informing potential parties and interested government participants of an upcoming tour of the Yucca Mountain repository. Space for this tour was limited, however, so only representatives of potential parties or interested government participants who had filed a notice of appearance under 10 CFR 2.314(b) were permitted to join the tour. A non-attorney consultant contacted the Atomic Safety and Licensing Board Panel (ASLBP) requesting permission to join the tour as the representative of both Lincoln County and White Pine County, Nevada, but he was informed that neither county had filed a notice of appearance in the proceeding. 6 White Pine County, then timely filed a notice of appearance, designating the non-attorney consultant as its representative. A majority of the PAPO did not deem this representation proper, however, because the majority believed that government entities are limited by 10 CFR 2.314(b) to attorney representation only. 7 The members of the PAPO did not provide any analysis or otherwise state the bases for their conclusions. Because of the lack of briefing and lack of unanimity on the issue, the PAPO allowed the consultant to participate in that particular trip as a matter of the PAPO's discretion, leaving resolution of the representation issue for “another day.” 8 6 *United States Dep't of Energy* (High Level Waste Repository: Pre-Application Matters), No. PAPO-00, 2005 WL 4799369, at *1 (LBP Dec. 2, 2005) (unpublished order). 7 *Id.* 8 *Id.* This representation issue is at the heart of the petition. Lincoln County desires the option of being represented through non-attorney “consultants or other duly authorized representatives.” Lincoln County states that it is a small county with few resources that is entirely dependent on DOE grants from the Nuclear Waste Fund to participate in NRC proceedings. Lincoln County further states that the grants may only be used for participation in licensing proceedings if expressly appropriated by Congress and that such appropriations have been made only since FY 2006. According to Lincoln County, the amount of funding (if any) is variable and unpredictable because it depends on an annual decision of Congress, which may change from year to year. Further, Lincoln County claims that the DOE grants, which have totaled $5.3 million for Lincoln County over the last eight years, are used for diverse purposes, such as operating its Nuclear Waste Oversight Office, conducting public information activities, and retaining expert consultants. Lincoln County, therefore, believes that it cannot afford to retain experienced counsel for the purpose of representing it on a daily basis in the HLW proceeding, which Lincoln County expects to “entail literally hundreds of days of hearings.” Lincoln County also claims that its District Attorney's office will not be able to regularly participate in the HLW proceeding because the office has only one attorney, the District Attorney, who is responsible for both criminal and civil matters. At the time the petition was filed in March of this year, the representation issue had yet to be resolved by the PAPO, and still has yet to be resolved. At a case management conference only a couple of weeks prior to the filing of the rulemaking petition, the PAPO recognized that the issue remained to be decided, but thought resolution might await a “concrete set of facts.” 9 Lincoln County believes that this issue must be resolved quickly because DOE's license application is expected in 2008, and it can come as early as six months after DOE certifies that its document collection is available on the Licensing Support Network. 10 DOE certified its document collection on October 19, 2007. 11 Also, the application is expected “not later than June 30, 2008.” 12 Lincoln County believes that it is unclear when the PAPO may deem the representation issue ripe enough to rule on it, and that the disposition of any appeal of such a ruling might not come well enough in advance of the hearings to allow Lincoln County and other AULGs to effectively plan for them. In its petition for rulemaking, Lincoln County “is requesting that the Commission directly and authoritatively clarify this issue * * * to allow AULGs sufficient time to plan their participation” in the HLW proceeding. 9 Transcript at 954-55 (March 5, 2007). 10 *See* 10 CFR 2.1003(a). 11 DOE's certification came in a filing in the PAPO proceeding styled “The Department of Energy's Certification of Compliance.” This certification has been challenged in the PAPO proceeding by the State of Nevada in a “Motion to Strike DOE's October 19, 2007 LSN Recertification and to Suspend Certification Obligations of Others until DOE Validly Recertifies,” (Oct. 29, 2007). 12 “The Department of Energy's Thirtieth Monthly Status Report Regarding LSN Certification and License Application Submittal,” (November 1, 2007). III. Lincoln County's Requested Relief Lincoln County states that it has not discovered a judicial or NRC decision squarely on point and that it is unclear whether an AULG may be represented by a non-attorney in the HLW proceeding under the current regulations. Lincoln County does believe that it is unreasonable to allow partnerships, corporations, and unincorporated associations to be represented by non-attorney members or officers, as provided by § 2.314(b), but to disallow such representation for AULGs. Lincoln County, however, wishes to have greater representation options than these private entities because County Commissioners serve voluntarily and have other jobs, while “full-time government officials and officers cannot reasonably be expected to vacate their daily public duties to the taxpayers in order to participate in NRC licensing proceedings.” Lincoln County requests that the following language be added to § 2.314(b): In any adjudicatory proceeding concerning an application for a license to construct a geological repository for high-level radioactive waste pursuant to the Nuclear Waste Policy Act, as amended, an affected unit of local government (as designated by the Secretary of Energy pursuant to 42 U.S.C. § 10136(c)) may be represented by any duly authorized representative and/or an attorney-at-law. Analysis of the Petition Lincoln County wishes to have the option of being represented in the HLW proceeding through non-attorney “consultants or other duly authorized representatives” and has submitted the instant petition to achieve that result through rulemaking. If the current regulations do not proscribe such representation, however, then no relief through rulemaking is necessary. Before considering Lincoln County's proposed modification, therefore, it must first be ascertained whether the current regulations do, in fact, pose such a bar. Resolution of this issue depends on answers to the following questions:
(1)May a county be represented in an adjudication by a non-attorney?
(2)If representation by a non-attorney is allowed, may any duly authorized individual, including a non-attorney consultant, represent a county? Section 2.314(b), which contains the representation provision for NRC proceedings, is the primary source for answering these questions. Also relevant, however, are the provisions in §§ 2.309(d)(2) and 2.315(c) relating to participation by a State or local government body (defined in these sections as a “county, municipality, or other subdivision”) and other expressions of Commission policy and practice. As explained below, a local government body may be represented under the current regulations by any individual, including a non-attorney consultant, if the individual is duly authorized. For this reason, the Commission is denying the petition as unnecessary. I. A State or Local Government Body May Appear on Its Own Behalf, as Well as Be Represented by an Attorney A. States and local government bodies are “persons” under § 2.314(b). Representation in NRC proceedings is governed by 10 CFR 2.314(b), which provides the following: *A person may appear in an adjudication on his or her own behalf or by an attorney-at-law.* A partnership, corporation, or unincorporated association may be represented by a duly authorized member or officer, or by an attorney-at-law. A party may be represented by an attorney-at-law if the attorney is in good standing and has been admitted to practice before any Court of the United States, the District of Columbia, or the highest court of any State, territory, or possession of the United States. (emphasis added). In addition to representation by an attorney, § 2.314(b) expressly provides the option of self-representation for a “person,” and the word “person” is defined in § 2.4 very broadly to cover many entities, including “any State or any political subdivision of, or any political entity within a State.” A State or local government body, therefore, is a “person” under Part 2 and has the option under § 2.314(b) either to be represented by an attorney or to appear on its own behalf and be represented by one other than an attorney. The rule text, however, does not specify who may represent a government body appearing on its own behalf. This issue will be the subject of Section II of this document. B. The regulatory history of the representation provision and Commission practice favor a broad reading of “person.” The language in § 2.314(b) derives from two rulemakings, the first in 1962 and the second in 1980. The 1962 rulemaking was a major revision to Part 2 that substantially revised and simplified the representation provision. After the 1962 revisions, former § 2.713(a) read as follows: A person may appear in an adjudication on his own behalf or by an attorney-at-law in good standing admitted to practice before any court of the United States, the District of Columbia, or the highest court of any State, territory, or possession of the United States. 13 13 “Revision of Rules,” (27 FR 377, 383; Jan. 13, 1962). The representation provision was moved to its current home in § 2.314(b) during the major Part 2 revisions of 2004. See “Changes to Adjudicatory Process,” (69 FR 2182; Jan. 14, 2004). The original “representation” provision was found in § 2.704, as issued in 1956. (21 FR 804, 806; Feb. 4, 1956). Although the word “person” was not explicitly defined in the regulations at that point, § 2.4 in the same rulemaking provided that “[w]ords or phrases which are defined in the Atomic Energy Act of 1954, as amended, and in this chapter have the same meaning when used in this part.” 14 Section 11 of the Atomic Energy Act of 1954
(AEA)had already defined “person” broadly to include “any State or any political subdivision of, or any political entity within a State,” among other entities. 15 14 27 FR 377, 378. 15 42 U.S.C. 2014, Pub. L. No. 83-703, 68 Stat. 919, 922 (1954). The 1980 amendments, which moved the representation provision from § 2.713(a) to § 2.713(b), added the provision for partnerships, corporations, and unincorporated associations that is still found in current § 2.314(b). This addition was characterized in the proposed rule as “clarify[ing] who may appear before NRC in a representative capacity.” 16 Although the proposed rule change spoke to representation of partnerships, corporations, and unincorporated associations only by members, the final rule added representation by officers. This addition was described in the final rule as “mak[ing] clear that a partnership, corporation or unincorporated association may be represented by a duly authorized officer, as well as by a member or attorney, and reflects both actual practice and the intent of the rule.” 17 16 “Changes in Rules of Practice Governing Discipline in Adjudicatory Proceedings,” (45 FR 3594, 3594; Jan. 18, 1980). 17 Final Rule, “Changes in Rules of Practice Governing Discipline in Adjudicatory Proceedings,” 45 FR 69877, 69878. The Commission, therefore, in issuing the 1980 amendment to the representation provision, viewed the amendment as a clarification of the older representation provision for “persons” and not as a substantive change or addition. The Commission also recognized that representation of certain entities by non-attorneys was occurring in Commission proceedings, but gave no indication that this practice was in any way contrary to the regulations. 18 The representation rights specified in the 1980 amendment, therefore, should be seen as inherent in the concept of self-representation in former § 2.713(a), even if the former provision did not express these rights in their precise contours. “Person” in § 2.314(b), therefore, should be read broadly to include States and local government bodies, which would allow government bodies to appear on their own behalf through a non-attorney. 18 For examples of Commission practice prior to the 1980 amendment, see *Duke Power Co.* (Catawba Nuclear Station, Units 1 and 2), LBP-73-28, 6 AEC 666, 678-80 (1973), (specifically noting the broad AEA definition of “person” in concluding that representation of an organization by a non-attorney member was consonant with Commission regulations, the APA, and the AEA), *aff'd,* ALAB-150, 6 AEC 811, *clarification denied,* ALAB-155, 6 AEC 829; and *General Electric Co.* (GE Test Reactor, Vallecitos Nuclear Center), LBP-79-28, 10 NRC 578, 583-84
(1979)(distinguishing representation of organizations by non-attorney members from representation of a U.S. congressman by a non-attorney by pointing out that the non-attorney organization members were “appear[ing] as the ‘person * * * on his own behalf,’ and not as a representative of that person”). II. Any Duly Authorized Individual May Represent a State or Local Government Body As explained above, § 2.314(b) does not specify who may represent a State or local government body appearing on its own behalf. To resolve this petition, the question whether a non-attorney consultant may serve as such a representative must also be answered. In deciding the question, the Commission has considered its policy and practice, the interests of comity, and the distinct interests that government bodies represent. 19 As explained below, Commission policy and practice favor deference to State law and government choice on the question of representation. The Commission, therefore, concludes that States and local government bodies may be represented by anyone duly authorized to represent the government body in question. 20 19 The practice of the federal courts is not dispositive of the outcome of this question because, as opposed to Commission practice, federal courts generally forbid non-attorney representation of entities. *See Rowland* v. *California Men's Colony, Unit II Men's Advisory Council,* 506 U.S. 194, 201-02
(1993)(stating that in federal practice, corporations and other artificial entities “may appear in the federal courts only through licensed counsel”). 20 To be clear, this response to the petition addresses only the representation of State and local government bodies, as defined in § 2.309(d)(2), and does not address the representation of any other type of entity. “[T]he Commission has long recognized the benefits of participation in [its] proceedings by representatives of interested states, counties, municipalities, etc.” 21 The Commission put this policy into practice, in part, through § 2.315(c), which allows interested States and local government bodies a special opportunity to participate in NRC hearings that is unavailable to private individuals or entities. 22 A narrow reading of § 2.314(b) with respect to government bodies, however, could hinder the participation of smaller government bodies, such as Lincoln County, who lack the resources and flexibility to fully participate solely through attorneys, elected officials, or full-time government officials or officers. A narrow reading, moreover, would not produce any countervailing benefit because the Commission has no interest in telling governments which types of non-attorneys may represent them. Because Commission policy clearly favors government participation, a rule interpretation limiting such participation should be disfavored if it produces no benefit and is not required by the text of the rule. 21 *Niagara Mohawk Power Corp.* (Nine Mile Point Nuclear Station, Units 1 and 2), CLI-99-30, 50 NRC 333, 344 (1999). 22 Affected, Federally-recognized Indian Tribes also enjoy § 2.315(c) non-party participant rights. The Commission is also persuaded that it would be misguided to impose on government bodies representation choices analogous to the § 2.314(b) representation choices for partnerships, corporations, and unincorporated associations. First, such an attempt ignores that government bodies and private entities are different creatures with different powers serving different interests, which is why they are treated differently regarding nonparty participation. Second, choosing an analogous government version of a private entity member or officer might prove difficult and result in unfairness. If government lay representation were limited to elected officials, for example, government bodies would have much less flexibility in their representation than unincorporated associations, who may be represented by anyone who joins the association. Instead of imposing representation limits on government bodies, therefore, the Commission broadly reads § 2.314(b) to allow government bodies to choose their representatives, as long as these choices comport with State law and any applicable local government charter. The Commission adopts this broad reading because it recognizes that government bodies serve the public interest and because it respects their choices regarding their own representation. This broad reading, in its deference to State law and government choice, also accords with Commission practice. For instance, in the major 2004 revisions to part 2, the new §§ 2.309(d) and 2.315(c) limited State and local government body participation to a single representative. 23 According to the statement of considerations for the rule, however, “[w]here a State's constitution provides that both the Governor and another State official or State governmental body may represent the interests of the State in a proceeding,” the governor and other official/body could participate as distinct parties, each with a single representative. 24 23 “Changes to Adjudicatory Process,” (69 FR 2182; Jan. 14, 2004). 24 *Id.* at 2222. Similar concern for State law and government choice was also expressed by the former Atomic Safety and Licensing Appeal Board (Appeal Board), which faced the issue whether a Congressman from New Hampshire, in addition to the Attorney General, could serve as a representative of New Hampshire participating as an interested government under former § 2.715(c). 25 In deciding that only the Attorney General could represent the State, the Appeal Board rested its decision on State law because it was “persuaded that considerations of comity dictate that [it] defer to New Hampshire law on the matter of what person or persons should be deemed to speak for the state in [NRC] licensing proceedings.” 26 The Appeal Board went on to point out that since § 2.715(c) was issued in response to § 274l. of the AEA, which section had the stated purpose of furthering cooperation between the Commission and the states, “[i]t is reasonable to assume that the legislative contemplation was that the concerned state, and not this agency, would make the decision respecting who is to serve as its spokesman.” 27 Although the original version of § 2.715(c) was directed only to States, its reach was expanded in 1978 to political subdivisions of a State to “improve coordination with States, counties, and municipalities.” 28 The Appeal Board's reasoning, with which the Commission agrees, also applies to local government bodies because restricting the representation choices of local government bodies does little to “improve coordination” with them. 25 *Public Service Company of New Hampshire* (Seabrook Station, Units 1 and 2), ALAB-862, 25 NRC 144 (1987). 26 *Id.* at 148. 27 25 NRC 144, 148-49. 28 “Miscellaneous Amendments,” (43 FR 17798, 17798; Apr. 26, 1978). This Appeal Board decision is especially persuasive because, under both current § 2.315(c) and the former § 2.715(c), interested government participants have rights similar in many important respects to the rights of those participating as parties. These rights include the opportunity to introduce evidence, interrogate witnesses, file proposed findings, and petition for review. Given this level of participation, it would seem that interested government participants are, in fact, “appearing” in NRC adjudications, which arguably puts decisions respecting their representation under the umbrella of § 2.314(b). 29 In any event, it would make little sense to impose representation choices on government bodies participating as parties that are different from the choices available to interested government participants. 29 Section 2.314(b) governs who “may appear in an adjudication.” In light of the above, the Commission sees no need to put conditions on the representation of a government body that neither State law nor the governing charter of the body see fit to impose. To do so could only serve to limit government participation and would be contrary to the interests of comity. So long as a person is duly authorized to represent the government body in question, in conformity with State law and any applicable local government charter, that person, whether an attorney or not, may represent that government body in NRC proceedings. Conclusion Lincoln County petitioned for a rule amendment that would allow AULGs to participate in NRC proceedings through any duly-authorized representative, which could include a non-attorney consultant. As explained above, however, Lincoln County's desired outcome is already provided for in the current regulations, making Lincoln County's desired rulemaking unnecessary. For this reason, Lincoln County's petition for rulemaking is denied. Dated at Rockville, Maryland this 20th day of December 2007. For the Nuclear Regulatory Commission. Annette L. Vietti-Cook, Secretary of the Commission. [FR Doc. E7-25299 Filed 12-27-07; 8:45 am] BILLING CODE 7590-01-P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG-104946-07] RIN 1545-BG36 Hybrid Retirement Plans AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. SUMMARY: This document contains proposed regulations providing guidance relating to sections 411(a)(13) and 411(b)(5) of the Internal Revenue Code
(Code)concerning certain hybrid defined benefit plans. These regulations provide guidance on changes made by the Pension Protection Act of 2006. These regulations affect sponsors, administrators, participants, and beneficiaries of hybrid defined benefit plans. DATES: Written or electronic comments and requests for a public hearing must be received by March 27, 2008. ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-104946-07), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-104946-07), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at *http://www.regulations.gov* (IRS REG-104946-07). FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Lauson C. Green or Linda S. F. Marshall at
(202)622-6090; concerning submissions of comments or to request a public hearing, Funmi Taylor at
(202)622-7180 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document contains amendments to the Income Tax Regulations (26 CFR part 1) under sections 411(a)(13) and 411(b)(5) of the Code. Generally, a defined benefit pension plan must satisfy the minimum vesting standards of section 411(a) and the accrual requirements of section 411(b) in order to be qualified under section 401(a) of the Code. Sections 411(a)(13) and 411(b)(5), which were added to the Code by section 701(b) of the Pension Protection Act of 2006, Public Law 109-280, 120 Stat. 780 (PPA '06), modify the minimum vesting standards of section 411(a) and the accrual requirements of section 411(b). Section 411(a)(13)(A) provides that an applicable defined benefit plan (which is defined in section 411(a)(13)(C)) is not treated as failing to meet either
(i)The requirements of section 411(a)(2) (subject to a special vesting rule in section 411(a)(13)(B) with respect to benefits derived from employer contributions) or
(ii)The requirements of section 411(c) or 417(e) with respect to contributions other than employee contributions, merely because the present value of the accrued benefit (or any portion thereof) of any participant is, under the terms of the plan, equal to the amount expressed as the balance in a hypothetical account or as an accumulated percentage of the participant's final average compensation. Section 411(a)(13)(B) requires an applicable defined benefit plan to provide that an employee who has completed at least 3 years of service has a nonforfeitable right to 100 percent of the employee's accrued benefit derived from employer contributions. Under section 411(a)(13)(C)(i), a plan is an applicable defined benefit plan if the plan is a defined benefit plan under which the accrued benefit (or any portion thereof) of a participant is calculated as the balance of a hypothetical account maintained for the participant or as an accumulated percentage of the participant's final average compensation. Under section 411(a)(13)(C)(ii), the Secretary of the Treasury is to issue regulations which include in the definition of an applicable defined benefit plan any defined benefit plan (or portion of such a plan) which has an effect similar to a plan described in section 411(a)(13)(C)(i). Section 411(b)(1)(H)(i) provides that a defined benefit plan fails to comply with section 411(b) if, under the plan, an employee's benefit accrual is ceased, or the employee's rate of benefit accrual is reduced, because of the attainment of any age. Section 411(b)(5), which was added to the Code by section 701(b)(1) of PPA '06, provides additional rules related to section 411(b)(1)(H)(i). Section 411(b)(5)(A) generally provides that a plan is not treated as failing to meet the requirements of section 411(b)(1)(H)(i) if a participant's accrued benefit, as determined as of any date under the terms of the plan, would be equal to or greater than that of any similarly situated younger individual who is or could be a participant. Section 411(b)(5)(G) provides that, for purposes of section 411(b)(5), any reference to the accrued benefit of a participant shall be a reference to the participant's benefit accrued to date. For purposes of section 411(b)(5)(A), section 411(b)(5)(A)(iv) provides that the accrued benefit may, under the terms of the plan, be expressed as an annuity payable at normal retirement age, the balance of a hypothetical account, or the current value of the accumulated percentage of the employee's final average compensation. Section 411(b)(5)(B) imposes several requirements on an applicable defined benefit plan as a condition of the plan satisfying section 411(b)(1)(H). Section 411(b)(5)(B)(i) provides that such a plan is treated as failing to meet the requirements of section 411(b)(1)(H) if the terms of the plan provide for an interest credit (or an equivalent amount) for any plan year at a rate that is greater than a market rate of return. Under section 411(b)(5)(B)(i)(I), a plan is not treated as having an above-market rate merely because the plan provides for a reasonable minimum guaranteed rate of return or for a rate of return that is equal to the greater of a fixed or variable rate of return. Section 411(b)(5)(B)(i)(II) provides that an interest credit (or an equivalent amount) of less than zero can in no event result in the hypothetical account balance or similar amount being less than the aggregate amount of contributions credited to the account. Section 411(b)(5)(B)(i)(III) specifies that the Secretary of the Treasury may provide by regulation for rules governing the calculation of a market rate of return for purposes of section 411(b)(5)(B)(i)(I) and for permissible methods of crediting interest to the account (including fixed or variable interest rates) resulting in effective rates of return meeting the requirements of section 411(b)(5)(B)(i)(I). Section 411(b)(5)(B)(ii), (iii), and
(iv)contain minimum benefit rules that apply if, after June 29, 2005, an applicable plan amendment is adopted. Section 411(b)(5)(B)(v)(I) defines an applicable plan amendment as an amendment to a defined benefit plan which has the effect of converting the plan to an applicable defined benefit plan. Under section 411(b)(5)(B)(ii), if, after June 29, 2005, an applicable plan amendment is adopted, the plan is treated as failing to meet the requirements of section 411(b)(1)(H) unless the requirements of section 411(b)(5)(B)(iii) are met with respect to each individual who was a participant in the plan immediately before the adoption of the amendment. Section 411(b)(5)(B)(iii) specifies that, subject to section 411(b)(5)(B)(iv), the requirements of section 411(b)(5)(B)(iii) are met with respect to any participant if the accrued benefit of the participant under the terms of the plan as in effect after the amendment is not less than the sum of:
(I)The participant's accrued benefit for years of service before the effective date of the amendment, determined under the terms of the plan as in effect before the amendment; plus
(II)The participant's accrued benefit for years of service after the effective date of the amendment, determined under the terms of the plan as in effect after the amendment. Section 411(b)(5)(B)(iv) provides that, for purposes of section 411(b)(5)(B)(iii)(I), the plan must credit the participant's account or similar amount with the amount of any early retirement benefit or retirement-type subsidy for the plan year in which the participant retires if, as of such time, the participant has met the age, years of service, and other requirements under the plan for entitlement to such benefit or subsidy. Section 411(b)(5)(B)(v) sets forth certain provisions related to an applicable plan amendment. Section 411(b)(5)(B)(v)(II) provides that if the benefits under two or more defined benefit plans of an employer are coordinated in such a manner as to have the effect of adoption of an applicable plan amendment, the plan sponsor is treated as having adopted an applicable plan amendment as of the date the coordination begins. Section 411(b)(5)(B)(v)(III) directs the Secretary of the Treasury to issue regulations to prevent the avoidance of the purposes of section 411(b)(5)(B) through the use of two or more plan amendments rather than through a single plan amendment. Section 411(b)(5)(B)(vi) provides a special rule for converting a variable interest crediting rate to a fixed rate for purposes of determining plan benefits in the case of a terminating applicable defined benefit plan. Section 411(b)(5)(C) provides that a plan is not treated as failing to meet the requirements of section 411(b)(1)(H)(i) solely because the plan provides offsets against benefits under the plan to the extent the offsets are allowable in applying the requirements of section 401(a). Section 411(b)(5)(D) provides that a plan is not treated as failing to meet the requirements of section 411(b)(1)(H) solely because the plan provides a disparity in contributions or benefits with respect to which the requirements of section 401(l) (relating to permitted disparity for Social Security benefits and related matters) are met. Section 411(b)(5)(E) provides that a plan is not treated as failing to meet the requirements of section 411(b)(1)(H) solely because the plan provides for indexing of accrued benefits under the plan. Under section 411(b)(5)(E)(iii), indexing means the periodic adjustment of the accrued benefit by means of the application of a recognized investment index or methodology. Section 411(b)(5)(E)(ii) requires that, except in the case of a variable annuity, the indexing not result in a smaller benefit than the accrued benefit determined without regard to the indexing. Section 701(a) of PPA '06 added provisions to the Employee Retirement Income Security Act of 1974, Public Law 93-406 (88 Stat. 829) (ERISA), that are parallel to the above-described sections of the Code that were added by section 701(b) of PPA '06. The guidance provided in these proposed regulations with respect to the Code would also apply for purposes of the parallel amendments to ERISA made by section 701(a) of PPA '06. 1 1 Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713), the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed by these proposed regulations for purposes of ERISA, as well as the Code. Section 701(c) of PPA '06 added provisions to the Age Discrimination in Employment Act of 1967, Public Law 90-202 (81 Stat. 602) (ADEA), that are parallel to section 411(b)(5) of the Code. Executive Order 12067 requires all Federal departments and agencies to advise and offer to consult with the Equal Employment Opportunity Commission
(EEOC)during the development of any proposed rules, regulations, policies, procedures or orders concerning equal employment opportunity. The IRS and the Treasury Department have consulted with the EEOC prior to the issuance of these proposed regulations. Section 701(d) of PPA '06 provides that nothing in the amendments made by section 701 should be construed to create an inference concerning the treatment of applicable defined benefit plans or conversions of plans into applicable defined benefit plans under section 411(b)(1)(H), or concerning the determination of whether an applicable defined benefit plan fails to meet the requirements of section 411(a)(2), 411(c), or 417(e) as in effect before such amendments solely because the present value of the accrued benefit (or any portion thereof) of any participant is, under the terms of the plan, equal to the amount expressed as the balance in a hypothetical account or as an accumulated percentage of the participant's final average compensation. Section 701(e) of PPA '06 sets forth the effective date provisions with respect to amendments made by section 701 of PPA '06. Section 701(e)(1) specifies that the amendments made by section 701 generally apply to periods beginning on or after June 29, 2005. Thus, the age discrimination safe harbors under section 411(b)(5)(A) and section 411(b)(5)(E) are effective for periods beginning on or after June 29, 2005. Section 701(e)(2) provides that the special present value rules of section 411(a)(13)(A) are effective for distributions made after August 17, 2006. Under section 701(e)(3) of PPA '06, in the case of a plan in existence on June 29, 2005, the 3-year vesting rule under section 411(a)(13)(B) and the market rate of return limitation under section 411(b)(5)(B)(i) are generally effective for years beginning after December 31, 2007. In the case of a plan not in existence on June 29, 2005, those sections are effective for periods beginning on or after June 29, 2005. Section 701(e)(4) of PPA '06 contains special effective date provisions for collectively bargained plans that modify these effective dates. Under section 701(e)(5) of PPA '06, sections 411(b)(5)(B)(ii), (iii), and
(iv)apply to a conversion amendment that is adopted after, and takes effect after, June 29, 2005. Section 702 of PPA '06 provides for regulations to be prescribed by August 16, 2007, addressing the application of rules set forth in section 701 of PPA '06 where the conversion of a defined benefit pension plan into an applicable defined benefit plan is made with respect to a group of employees who become employees by reason of a merger, acquisition, or similar transaction. Proposed regulations (EE-184-86) under sections 411(b)(1)(H) and 411(b)(2) were published by the Treasury Department and the IRS in the **Federal Register** on April 11, 1988 (53 FR 11876), as part of a package of regulations that also included proposed regulations under sections 410(a), 411(a)(2), 411(a)(8), and 411(c) (relating to the maximum age for participation, vesting, normal retirement age, and actuarial adjustments after normal retirement age, respectively). 2 2 On December 11, 2002, the Treasury Department and the IRS issued proposed regulations regarding the age discrimination requirements of section 411(b)(1)(H) that specifically addressed cash balance plans as part of a package of regulations that also addressed section 401(a)(4) nondiscrimination cross-testing rules applicable to cash balance plans (67 FR 76123). The 2002 proposed regulations were intended to replace the 1988 proposed regulations. In Ann. 2003-22 (2003-1 CB 847), see § 601.601(d)(2)(ii)( *b* ) of this chapter, the Treasury Department and the IRS announced the withdrawal of the 2002 proposed regulations under section 401(a)(4), and in Ann. 2004-57 (2004-2 CB 15), see § 601.601(d)(2)(ii)( *b* ) of this chapter, the Treasury Department and the IRS announced the withdrawal of the 2002 proposed regulations relating to age discrimination. Notice 96-8 (1996-1 CB 359), see § 601.601(d)(2)(ii)(b) of this chapter, described the application of sections 411 and 417(e) to a single sum distribution under a cash balance plan where interest credits under the plan are frontloaded (that is, where future interest credits to an employee's hypothetical account balance are not conditioned upon future service and thus accrue at the same time that the benefits attributable to a hypothetical allocation to the account accrue). Under the analysis set forth in Notice 96-8, in order to comply with sections 411(a) and 417(e) in calculating the amount of a single sum distribution under a cash balance plan, the balance of an employee's hypothetical account must be projected to normal retirement age and converted to an annuity under the terms of the plan, and then the employee must be paid at least the present value of the projected annuity, determined in accordance with section 417(e). Under that analysis, where a cash balance plan provides frontloaded interest credits using an interest rate that is higher than the section 417(e) applicable interest rate, payment of a single sum distribution equal to the current hypothetical account balance as a complete distribution of the employee's accrued benefit may result in a violation of section 417(e) or a forfeiture in violation of section 411(a). In addition, Notice 96-8 proposed a safe harbor which provided that, if frontloaded interest credits are provided under a plan at a rate no greater than the sum of identified standard indices and associated margins, no violation of section 411(a) or 417(e) would result if the employee's entire accrued benefit is distributed in the form of a single sum distribution equal to the employee's hypothetical account balance, provided the plan uses appropriate annuity conversion factors. Since the issuance of Notice 96-8, four federal appellate courts have followed the analysis set out in the Notice: *Esden* v. *Bank of Boston,* 229 F.3d 154 (2d Cir. 2000), *cert. dismissed,* 531 U.S. 1061 (2001); *West* v. *AK Steel Corp. Ret. Accumulation Pension Plan,* 484 F.3d 395 (6th Cir. 2007), *reh'g and reh'g en banc denied,* No. 06-3442, 2007 U.S. App. LEXIS 20447 (6th Cir. Aug. 8, 2007); *Berger* v. *Xerox Corp. Ret. Income Guarantee Plan,* 338 F.3d 755 (7th Cir. 2003), *reh'g and reh'g en banc denied,* No. 02-3674, 2003 U.S. App. LEXIS 19374 (7th Cir. Sept. 15, 2003); *Lyons* v. *Georgia-Pacific Salaried Employees Ret. Plan,* 221 F.3d 1235 (11th Cir. 2000), *cert. denied,* 532 U.S. 967 (2001). Notice 2007-6, 2007-3 IRB 272 (January 16, 2007), see § 601.601(d)(2)(ii)( *b* ) of this chapter, provides transitional guidance with respect to certain requirements of sections 411(a)(13) and 411(b)(5) and section 701(b) of PPA '06. Notice 2007-6 includes certain special definitions, including: *accumulated benefit,* which is defined as a participant's benefit accrued to date under a plan; *lump sum-based plan,* which is defined as a defined benefit plan under the terms of which the accumulated benefit of a participant is expressed as the balance of a hypothetical account maintained for the participant or as the current value of the accumulated percentage of the participant's final average compensation; and *statutory hybrid plan,* which is a lump sum-based plan or a plan which has an effect similar to a lump sum-based plan. Notice 2007-6 provides guidance on a number of issues, including a rule under which a plan that provides for indexed benefits described in section 411(b)(5)(E) is a statutory hybrid plan (because it has an effect similar to a lump sum-based plan), unless the plan either solely provides for post-retirement adjustment of the amounts payable to a participant or is a variable annuity plan under which the assumed interest rate used to determine adjustments is at least 5 percent. The Notice provides a safe harbor for applying the rules set forth in section 701 of PPA '06 where the conversion of a defined benefit pension plan into an applicable defined benefit plan is made with respect to a group of employees who become employees by reason of a merger, acquisition, or similar transaction. This transitional guidance, along with other guidance provided in Part III of Notice 2007-6, applies pending the issuance of further guidance and, thus, will cease to apply when these regulations are finalized and become effective. Explanation of Provisions Overview In general, these proposed regulations would incorporate the transitional guidance provided under Notice 2007-6. However, the proposed regulations would utilize new terminology (such as statutory hybrid benefit formula and lump sum-based benefit formula) to take into account situations where plans provide more than one benefit formula. These proposed regulations would also provide additional guidance with respect to sections 411(a)(13) and 411(b)(5), taking into account comments received in response to Notice 2007-6. Section 411(a)(13): Special Vesting Rules for Applicable Defined Benefit Plans and Applicable Definitions The proposed regulations would reflect new section 411(a)(13)(A) by providing that an applicable defined benefit plan does not violate the requirements of section 411(a)(2), or the requirements of section 411(c) or 417(e), with respect to a participant's accrued benefit derived from employer contributions, merely because the plan determines the present value of benefits determined under a lump sum-based benefit formula as the amount of the hypothetical account maintained for the participant or as the current value of the accumulated percentage of the participant's final average compensation under that formula. However, section 411(a)(13) does not alter the definition of an accrued benefit under section 411(a)(7)(A) (which generally defines a participant's accrued benefit as the annual benefit commencing at normal retirement age), nor does it alter the definition of a normal retirement benefit under section 411(a)(9) (which generally defines a participant's normal retirement benefit as the benefit under the plan commencing at normal retirement age). Section 411(b)(5)(G) provides that, for purposes of section 411(b)(5), any reference to the accrued benefit means the benefit accrued to date. The proposed regulations refer to this as the accumulated benefit, which is distinct from the participant's accrued benefit under section 411(a)(7) (an annuity beginning at normal retirement age that is actuarially equivalent to the participant's accumulated benefit). The regulations define a lump sum-based benefit formula as a benefit formula used to determine all or any part of a participant's accumulated benefit under which the benefit provided under the formula is expressed as the balance of a hypothetical account maintained for the participant or as the current value of the accumulated percentage of the participant's final average compensation. Under the proposed regulations, whether a benefit formula is a lump sum-based benefit formula would be determined based on how the accumulated benefit of a participant is expressed under the terms of the plan, and would not depend on whether the plan provides an optional form of benefit in the form of a single sum payment. Similarly, a formula would not fail to be a lump sum-based benefit formula merely because the plan's terms state that the accrued benefit is an annuity at normal retirement age that is actuarially equivalent to a hypothetical account balance. In addition, the regulations would provide that a participant is not treated as having a lump sum-based benefit formula merely because the participant is entitled to a benefit under a defined benefit plan that is not less than the benefit properly attributable to after-tax employee contributions. Section 411(a)(13)(A) applies only with respect to a benefit provided under a lump sum-based benefit formula. Accordingly, if the present value rules of section 417(e) apply to a form of benefit under a plan and the plan provides benefits under a benefit formula that is not a lump sum-based benefit formula (including, for example, a plan that provides for indexing as described in section 411(b)(5)(E)), then the plan must set forth a methodology to determine the projected benefit under that formula at normal retirement age for purposes of applying the rules of section 417(e), as described in the “Analysis” section of Notice 96-8. The proposed regulations use the term *statutory hybrid benefit formula* to describe the portion of a defined benefit plan that is an applicable defined benefit plan described in section 411(a)(13)(C)(i) or the portion of the plan that has a similar effect. Specifically, the proposed regulations would define a statutory hybrid benefit formula as a benefit formula that is either a lump sum-based benefit formula or a formula that has an effect similar to a lump sum-based benefit formula. For this purpose, under the proposed regulations, a benefit formula under a defined benefit plan has an effect similar to a lump sum-based benefit formula if the formula provides that a participant's accrued benefit payable at normal retirement age (or at benefit commencement, if later) is expressed as a benefit that includes periodic adjustments (including a formula that provides for indexed benefits described in section 411(b)(5)(E)) that are reasonably expected to result in a larger annual benefit at normal retirement age (or at commencement of benefits, if later) for the participant, when compared to a similarly situated, younger individual who is or could be a participant in the plan. Thus, a benefit formula under a plan has an effect similar to a lump sum-based benefit formula if the right to future adjustments accrues at the same time as the benefit that is subject to the adjustments. The proposed regulations would set forth certain additional rules that are used in determining whether a benefit formula has an effect similar to a lump sum-based benefit formula. For example, the proposed regulations provide that a benefit formula that does not include periodic adjustments is treated as a formula with an effect similar to a lump sum-based benefit formula if the formula is otherwise described in the preceding paragraph and the adjustments are provided pursuant to a pattern of repeated plan amendments. See § 1.411(d)-4, A-1(c)(1). The proposed regulations would provide that, for purposes of determining whether a benefit formula has an effect similar to a lump sum-based benefit formula, indexing that applies to adjust benefits after the annuity starting date (for example, cost-of-living increases) is disregarded. In addition, the proposed regulations would provide that a benefit formula under a defined benefit plan that provides for a benefit properly attributable to after-tax employee contributions does not have an effect similar to a lump sum-based benefit formula. The proposed regulations would also provide that adjustments under a variable annuity do not have an effect similar to a lump sum-based benefit formula if the assumed interest rate used to determine the adjustments is at least 5 percent. Such an annuity does not have an effect similar to a lump sum-based benefit formula even if post-annuity starting date adjustments are made using a specified assumed interest rate that is less than 5 percent. Pursuant to new section 411(a)(13)(B), the proposed regulations would provide that, in the case of a participant whose accrued benefit (or any portion thereof) under a defined benefit plan is determined under a statutory hybrid benefit formula, the plan is not treated as meeting the requirements of section 411(a)(2) unless the plan provides that the participant has a nonforfeitable right to 100 percent of the participant's accrued benefit if the participant has 3 or more years of service. This requirement would apply on a participant-by-participant basis and would apply to the participant's entire benefit (not just the portion of the participant's benefit that is determined under a statutory hybrid benefit formula). Furthermore, if the participant is entitled to the greater of two benefits under a plan, one of which is a benefit calculated under a statutory hybrid benefit formula, the proposed regulations would provide that the 3-year vesting requirement applies to that participant even if the participant's benefit under the statutory hybrid benefit formula is ultimately smaller than under the other formula. The proposed regulations do not address how the 3-year vesting requirement applies in the case of floor-offset arrangements. 3 See the discussion in this preamble under the heading “Comments and Requests for Public Hearing.” 3 See Rev. Rul. 76-259 (1976-2 CB 111), see § 601.601(d)(2)(ii)( *b* ) of this chapter, for certain standards applicable to floor-offset arrangements. Section 411(b)(5): Safe Harbor for Age Discrimination, Conversion Protection, and Market Rate of Return Limitation A. Safe Harbor for Age Discrimination The proposed regulations under new section 411(b)(5)(A) would provide that a plan is not treated as failing to meet the requirements of section 411(b)(1)(H)(i) with respect to certain benefit formulas if, as determined as of any date, a participant's accumulated benefit expressed under one of those formulas would not be less than any similarly situated, younger participant's accumulated benefit expressed under the same formula. A plan that does not satisfy this test is required to satisfy the general nondiscrimination test of section 411(b)(1)(H)(i). Under the proposed regulations, the safe harbor standard for satisfying section 411(b)(5)(A) would be available only where a participant's accumulated benefit under the terms of the plan is expressed as an annuity payable at normal retirement age (or current age, if later), the balance of a hypothetical account, or the current value of the accumulated percentage of the employee's final average compensation. For this purpose, if the accumulated benefit of a participant is expressed as an annuity payable at normal retirement age (or current age, if later) under the plan terms, then the comparison of benefits is made using such an annuity. If the accumulated benefit of a participant is expressed under the plan terms as the balance of a hypothetical account or the current value of an accumulated percentage of the participant's final average compensation, then the comparison of benefits is made using the balance of a hypothetical account or the current value of the accumulated percentage of the participant's final average compensation, respectively. The proposed regulations would require a comparison of the accumulated benefit of each possible participant in the plan to the accumulated benefit of each other similarly situated, younger individual who is or could be a participant in the plan. For this purpose, the proposed regulations would provide that an individual is similarly situated to another individual if the individual is identical to that other individual in every respect that is relevant in determining a participant's benefit under the plan (including but not limited to period of service, compensation, position, date of hire, work history, and any other respect) except for age. 4 In determining whether an individual is similarly situated to another individual, any characteristic that is relevant for determining benefits under the plan and that is based directly or indirectly on age is disregarded. For example, if a particular benefit formula applies to a participant on account of the participant's age, an individual to whom the benefit formula does not apply and who is identical to a participant in all respects other than age is similarly situated to the participant. By contrast, an individual is not similarly situated to a participant if a different benefit formula applies to the individual and the application of the different formula is based neither directly nor indirectly on age. 4 For example, if a plan provides for an election extended to all participants that affects a participant's accumulated benefit, then someone who makes such an election is similarly situated to a participant who makes such an election, and someone who does not make an election is similarly situated to a participant who does not make such an election. The comparison of accumulated benefits is made without regard to any subsidized portion of any early retirement benefit that is included in a participant's accumulated benefit. For this purpose, the subsidized portion of an early retirement benefit is the retirement-type subsidy within the meaning of § 1.411(d)-3(g)(6) that is contingent on a participant's severance from employment and commencement of benefits before normal retirement age. In addition, the comparison of accumulated benefits generally must be made using the same form of benefit. Thus, the safe harbor is not available for comparing the accumulated benefit of a participant expressed as an annuity at normal retirement age with the accumulated benefit of a similarly situated, younger participant expressed as a hypothetical account balance. Nevertheless, the proposed regulations would permit a plan that provides the sum of benefits that are expressed in two or more different forms of benefit to satisfy the safe harbor if the plan would separately satisfy the safe harbor for each separate form of benefit. Similarly, the proposed regulations would permit a plan that provides the greater of benefits that are expressed in two or more different forms of benefit to satisfy the safe harbor if the plan would separately satisfy the safe harbor for each separate form of benefit. For this purpose, a similarly situated, younger participant is treated as having an accumulated benefit of zero with respect to a benefit formula that does not apply to the participant. Thus, the safe harbor would be available if an older participant is entitled to benefits under more than one type of benefit formula, even if not all of those types of benefit formulas are available to every similarly situated participant who is younger. The proposed regulations would reflect new section 411(b)(5)(C), which provides that a plan is not treated as failing to meet the requirements of section 411(b)(1)(H) solely because the plan provides offsets of benefits under the plan to the extent such offsets are allowable in applying the requirements under section 401 and the applicable requirements of the Employee Retirement Income Security Act of 1974, Public Law 93-406 (88 Stat. 829) (ERISA) and the Age Discrimination in Employment Act of 1967, Public Law 90-202 (81 Stat. 602) (ADEA). The proposed regulations incorporate the provisions of section 411(b)(5)(D) (relating to permitted disparity under section 401(l)) without providing additional guidance. The proposed regulations would reflect new section 411(b)(5)(E), which provides for the disregard of certain indexing of benefits for purposes of the age discrimination rules of section 411(b)(1)(H). The proposed regulations limit the disregard of indexing to formulas under defined benefit plans other than lump sum-based formulas. In addition, the proposed regulations limit the disregard of indexing to situations in which the extent of the indexing for a participant would not be less than the indexing applicable to a similarly situated, younger participant. Thus, the disregard of indexing is only available if the indexing is neither terminated nor reduced on account of the attainment of any age. Section 411(b)(5)(E) requires that the indexing methodology be a recognized methodology. The proposed regulations would treat only the following indexing methodologies as recognized for this purpose: indexing using an eligible cost-of-living index as described in § 1.401(a)(9)-6, A-14(b); indexing using the rate of return on the aggregate assets of the plan; and indexing using the rate of return on the annuity contract for the employee issued by an insurance company licensed under the laws of a State. Under the proposed regulations, the section 411(b)(5)(E)(ii) protection against loss (“no-loss”) requirement for an indexed plan (which provides that the indexing not result in a smaller accrued benefit) would be implemented by applying the “preservation of capital” rule of section 411(b)(5)(b)(i)(II) to indexed plans. (The preservation of capital rule is discussed in this preamble paragraph heading “C. Market rate of return limitation.”) For this purpose, the exemption from the application of the no-loss rule for variable annuities would be limited to situations in which the variable annuity adjustment is based on the rate of return on the aggregate assets of the plan or the annuity contract. Thus, the exemption from the application of the no-loss rule would not apply if the variable annuity adjustment is based on the rate of return of a portion of the assets of the plan. In addition, this exemption would also apply for purposes of the preservation of capital requirement that applies to statutory hybrid plans. B. Conversion Protection The regulations would provide guidance on the new conversion protections under section 411(b)(5)(B)(ii), (iii), and (iv). Under the proposed regulations, a participant whose benefits are affected by a conversion amendment which occurred after June 29, 2005, must generally be provided with a benefit after the conversion that is at least equal to the sum of the benefits accrued through the date of the conversion and benefits earned after the conversion, with no permitted interaction between these two portions. This would assure participants that there will be no “wear-away” as a result of a conversion, both with respect to the participant's accrued benefits and any early retirement subsidy to which the participant is entitled based on the pre-conversion benefits. The proposed regulations would provide an alternative mechanism under which the plan provides for the establishment of an opening hypothetical account balance as part of the conversion and keeps separate track of
(1)The opening hypothetical account balance and interest credits attributable thereto, and
(2)The post-conversion hypothetical contributions and interest credits attributable thereto. Under this alternative, the plan must provide that, when a participant commences benefits, the plan will determine whether the benefit attributable to the opening hypothetical account payable in the particular optional form of benefit selected is greater than or equal to the benefit accrued under the plan prior to the date of conversion and payable in the same generalized optional form of benefit (within the meaning of § 1.411(d)-3(g)(8)) at the same annuity starting date. For example, if a participant elects a straight life annuity payable at age 60, the plan must determine if the straight life annuity payable at age 60 that is attributable to the opening hypothetical account balance is greater than or equal to the straight life annuity payable at age 60 based on service prior to the conversion and determined under the terms of the pre-conversion plan. If the benefit attributable to the opening hypothetical account balance is greater, then the plan must provide that such benefit is paid in lieu of the pre-conversion benefit together with the benefit attributable to post-conversion contribution credits. If the benefit attributable to the opening hypothetical account balance is less, then the plan must provide that such benefit will be increased sufficiently to provide the pre-conversion benefit. In such a case, the participant must also be entitled to the benefit attributable to post-conversion contribution credits. The proposed regulations would provide that, if an optional form of benefit is available on the annuity starting date with respect to the benefit attributable to the opening hypothetical account balance or opening accumulated percentage, but no optional form within the same generalized optional form of benefit was available at that annuity starting date under the terms of a plan as in effect immediately prior to the effective date of the conversion amendment, then the comparison must still be made by assuming that the pre-conversion plan had such an optional form of benefit. For example, if the pre-conversion plan did not provide for a single sum distribution option, the alternative would require that any single sum distribution option that is attributable to the opening hypothetical account balance be greater than or equal to the present value of the pre-conversion benefit, where present value is determined in accordance with section 417(e). The IRS and the Treasury Department are seeking comments on another alternative means of satisfying the conversion requirements that would involve establishing an opening hypothetical account balance, but in limited situations would not require the subsequent comparison. Any such alternative would be permitted only if it were designed to provide adequate protection to participants in plans that adopt conversion amendments. For example, such an alternative might be limited to situations in which the participant elects a single sum distribution, and where the pre-conversion plan either did not provide a single sum option or had a single sum option that was based on the benefit payable at normal retirement age (rather than the benefit payable at early retirement age). In those situations, the alternative might provide that the comparison is not necessary if
(1)The opening hypothetical account balance is equal to the present value of the pre-conversion benefit determined in accordance with section 417(e),
(2)The interest credits on the opening hypothetical account balance are reasonably expected to be no lower than the interest rate used to determine the opening hypothetical account balance, and
(3)Either the plan provides a death benefit equal to the hypothetical account balance or no pre-retirement mortality decrement is applied in establishing the opening hypothetical account balance. Such an alternative could result in a single sum distribution attributable to the pre-conversion benefit that is lower, or higher, than the present value of the pre-conversion benefit, depending on whether the actual interest credits applicable to the opening hypothetical account balance during the interim are lower, or higher, than the interest rate used in determining the opening hypothetical account balance and whether the applicable interest rate and applicable mortality table under section 417(e)(3) have changed in the interim. The proposed regulations also would provide guidance on what constitutes a conversion amendment under section 411(b)(5)(B)(v). Under the proposed regulations, whether an amendment is a conversion amendment is determined on a participant-by-participant basis. The proposed regulations would provide that an amendment (or amendments) is a conversion amendment with respect to a participant if it meets two criteria:
(1)The amendment reduces or eliminates the benefits that, but for the amendment, the participant would have accrued after the effective date of the amendment under a benefit formula that is not a statutory hybrid benefit formula and under which the participant was accruing benefits prior to the amendment, and
(2)After the effective date of the amendment, all or a portion of the participant's benefit accruals under the plan are determined under a statutory hybrid benefit formula. The proposed regulations would provide that only amendments that reduce or eliminate accrued benefits described in section 411(a)(7), or retirement-type subsidies described in section 411(d)(6)(B)(i), that would otherwise accrue as a result of future service are treated as amendments that reduce or eliminate the participant's benefits that would have accrued after the effective date of the amendment under a benefit formula that is not a statutory hybrid benefit formula. Under the proposed regulations, a plan is treated as having been amended for this purpose if, under the terms of the plan, a change in the conditions of a participant's employment results in a reduction or elimination of the benefits that the participant would have accrued in the future under a benefit formula that is not a statutory hybrid benefit formula (for example, a job transfer from an operating division covered by a non-statutory hybrid defined benefit plan to an operating division that is covered by a cash balance formula). However, in the absence of coordination between the formulas, the special requirements for conversion amendments typically will be satisfied automatically. The proposed regulations would provide rules prohibiting the avoidance of the conversion protections through the use of multiple plans or multiple employers. Under the proposed regulations, an employer is treated as having adopted a conversion amendment if the employer adopts an amendment under which a participant's benefits under a plan that is not a statutory hybrid plan are coordinated with a separate plan that is a statutory hybrid plan, such as through a reduction (offset) of the benefit under the plan that is not a statutory hybrid plan. In addition, if an employee's employer changes as a result of a merger, acquisition, or other transaction described in § 1.410(b)-2(f), then the two employers would be treated as a single employer for this purpose. Thus, for example, in an acquisition, if the buyer adopts an amendment to its statutory hybrid plan under which a participant's benefits under the seller's plan (that is not a statutory hybrid plan) are coordinated with benefits under the buyer's plan, such as through a reduction (offset) of the buyer's plan benefits, the seller and buyer would be treated as a single employer and as having adopted a conversion amendment. However, if there is no coordination between the plans, there is no conversion amendment. The proposed regulations would provide that a conversion amendment also includes multiple amendments that result in a conversion amendment, even if the amendments would not be conversion amendments individually. Under the proposed regulations, if an amendment to provide a benefit under a statutory hybrid benefit formula is adopted within 3 years after adoption of an amendment to reduce non-statutory hybrid benefit formula benefits, then those amendments would be consolidated in determining whether a conversion amendment has been adopted. In the case of an amendment to provide a benefit under a statutory hybrid benefit formula that is adopted more than 3 years after adoption of an amendment to reduce non-statutory hybrid benefit formula benefits, there would be a presumption that the amendments are not consolidated unless the facts and circumstances indicate that adoption of an amendment to provide a statutory hybrid benefit formula was intended at the time of the reduction in the non-statutory hybrid benefit formula. The proposed regulations would provide that the effective date of a conversion amendment is, with respect to a participant, the date as of which the reduction occurs of the benefits that the participant would have accrued after the effective date of the amendment under a benefit formula that is not a statutory hybrid benefit formula. In accordance with section 411(d)(6), the proposed regulations would provide that the date of a reduction of those benefits cannot be earlier than the date of adoption of the conversion amendment. C. Market Rate of Return Limitation The proposed regulations would reflect the rule in section 411(b)(5)(B)(i)(I) under which a statutory hybrid plan is treated as failing to satisfy section 411(b)(1)(H) if it provides an interest crediting rate that is in excess of a market rate of return. The proposed regulations would define an interest crediting rate as the rate by which a participant's benefit is increased under the ongoing terms of a plan to the extent the amount of the increase is not conditioned on current service, regardless of how the amount of that increase is calculated. Thus, whether the amount is an interest credit for this purpose is determined without regard to whether the amount is calculated by reference to a rate of interest, a rate of return, an index, or otherwise. The proposed regulations would require a plan to specify the timing for determining the plan's interest crediting rate that will apply for each plan year (or portion of a plan year) using one of two permitted methods—either pursuant to a daily interest crediting rate based on permissible interest crediting rates specified in the proposed regulations, or pursuant to a specified lookback month and stability period. For this purpose, the plan's lookback month and stability period must satisfy the rules for selecting the lookback month and stability period under § 1.417(e)-1(d)(4). However, the stability period and lookback month need not be the same as those used under the plan for purposes of section 417(e)(3). In addition, the proposed regulations would require a plan to specify the periodic (at least annual) frequency at which interest credits are made under the plan. If, under a plan, interest is credited more frequently than annually (for example, monthly or quarterly), then the interest credit for that period must be a pro rata portion of the annual interest credit. Thus, for example, in the case of a plan the terms of which provide for interest to be credited at an interest crediting rate that would be permitted under the proposed regulations, if the plan provides for monthly interest credits and if the interest rate for a plan year has a value of 6 percent, then the accumulated benefits at the beginning of each month would be increased by 0.5 percent per month during the plan year. The proposed regulations would provide that interest credits are not treated as creating an effective rate of return in excess of a market rate of return merely because an otherwise permissible interest crediting rate is compounded more frequently than annually. The proposed regulations would provide that an interest crediting rate for a plan year is not in excess of a market rate of return if it is based on specified indices. As in Notice 2007-6, these include the safe harbor rates described in Notice 96-8, the interest rates on 30-Year Treasury securities, and the rate of interest on long-term investment grade corporate bonds (as described in section 412(b)(5)(B)(ii)(II) prior to amendment by PPA '06 for plan years beginning before January 1, 2008, and the third-segment bond rate used under section 430 for subsequent plan years). For this purpose, the third-segment bond rate is permitted to be determined with or without regard to the transition rules of section 430(h)(2)(G). These rates would be required to change on at least an annual basis. 5 These rates are market yields to maturity on outstanding bonds and do not reflect the change in the market value of an outstanding bond as a result of future changes in the interest rate environment or in a bond issuer's risk profile. 6 As noted in the preceding paragraph, the proposed rules generally are similar to those described in Notice 2007-6 but do not provide guidance on a number of issues related to market rate of return. It is expected that these issues will be addressed in the first part of 2008. 5 The requirement that an interest crediting rate change not less frequently than annually is intended to distinguish these rates from fixed rates, which are discussed later in this preamble. See also § 31.3121(v)(2)-1(d)(2)(i)(C)( *2* ) of the Employment Tax Regulations, which permits a rate to be fixed for up to 5 years. 6 Because this interest rate does not reflect the change in the market value of an outstanding bond when an issuer becomes higher risk or the bond goes into default, the bonds have been limited to investment grade bonds in the top three quality levels where the risk of default is small. The proposed regulations would reflect the preservation of capital rule in section 411(b)(5)(B)(i)(II) that requires a statutory hybrid plan to provide that interest credits will not result in a hypothetical account balance (or similar amount) being less than the aggregate amount of the hypothetical allocations. Under the proposed regulations, this requirement would be applied at the participant's annuity starting date. In addition, the proposed regulations would provide that the combination of this preservation of capital protection with a rate of return which otherwise satisfies the market rate of return limitation will not result in an effective interest crediting rate that is in excess of a market rate of return. While the second sentence of section 411(b)(5)(B)(i)(I) provides that a statutory hybrid plan is not treated as having an above-market rate merely because the plan provides for a reasonable minimum guaranteed rate of return or for a rate of return that is equal to the greater of a fixed or variable rate of return, these proposed regulations do not provide guidance for these alternatives. Moreover, the presence of a preservation of capital requirement indicates that Congress considered that a rate of return that could be negative in some years (such as a rate of return on an equity portfolio) could be permissible. However, as discussed in the following paragraphs, the Treasury Department and the IRS have concerns that the use of a minimum guaranteed rate of return or the use of the greater of a fixed and a variable rate could result in effective interest crediting rates that are above market rates of return and are soliciting comments on how to avoid that result. Some commentators have suggested that it should be acceptable for a plan to adopt a fixed interest crediting rate that would apply without regard to changes in the interest rate environment. This is particularly important where the plan provides for hypothetical contributions that increase with age or service and the plan needs a minimum interest crediting rate in order to satisfy the accrual rules of section 411(b). While this issue is reserved under these proposed regulations, the approach suggested by commentators could be accomplished in two different ways. Under one possibility, the regulations might set forth a specific interest crediting rate (such as 4 percent or 5 percent) that a plan may be permitted to use. Under an alternative approach, the regulations might set forth a permitted methodology under which a plan would be permitted to establish a fixed interest crediting rate based on the then-applicable level of a permissible rate, such as the 3rd segment rate. For example, if the 3rd segment rate were 5.5 percent at the time the fixed rate is established under the plan, then under the alternative approach the plan might be permitted to fix the interest crediting rate at 5.5 percent. Comments are requested on these alternatives. In particular, comments are requested as to rules that the regulations could set forth that would avoid the potential for the fixed rate to be established at a time when interest rates are unusually high, such as occurred in the early 1980s. With respect to the option for a plan to use an interest crediting rate that is the greater of a fixed or variable interest rate, the Treasury Department and the IRS believe that the interaction between the two interest rates must be taken into account in determining whether the effective interest crediting rate under a plan which provides an interest crediting rate that is equal to the greater of a fixed or variable interest rate is above a market rate of return. Whether a statutory hybrid plan that is providing interest credits based on the greater of a fixed or variable interest rate effectively provides an interest crediting rate that exceeds a market rate of return depends on a number of factors, including how high the fixed interest rate is, how frequently the “greater of” determination is applied, and the volatility of the variable interest rate. As noted earlier, the proposed regulations would provide that including the preservation of capital rule does not cause the plan's effective interest crediting rate to be in excess of a market rate of return. This rule reflects the fact that the minimum rate under the preservation of capital rule is an interest rate of 0 percent which is applied on a one-time basis at the annuity starting date, and is premised on the expectation that the variable rate would rarely be negative for extended periods of time (so that the inclusion of the capital preservation rule should not significantly increase the effective rate of return under the plan). If the variable rate is the rate of interest on bonds that would be permitted under the proposed regulations, then that expectation is easily met. By contrast, if the variable interest rate is the rate of return on an equity investment, the expectation that the capital preservation rule does not significantly increase the effective interest crediting rate is only applicable if the equity investment is a well-diversified portfolio. This is because a well-diversified portfolio should have sufficiently limited volatility so that the inclusion of the preservation of capital rule should not significantly increase the effective rate of return resulting from interest credits that are based on that portfolio. Accordingly, if the regulations were to permit the use of an interest crediting rate based on an asset portfolio as an interest credit, the regulations might limit the choice of portfolio to the actual plan assets (relying on the fiduciary rules to ensure that the portfolio is adequately diversified). Of course, any such regulations would only permit the use of an interest crediting rate based on an asset portfolio if the use of such a rate is prospective and is selected before the period during which the rate is determined. Comments are requested on what other asset portfolios have sufficiently constrained volatility that they should be permitted to form the basis of a market rate of return for interest crediting under a statutory hybrid plan and whether it is appropriate to base an interest crediting rate on the value of an index. For example, are the assets under a regulated investment company
(RIC)described in section 851 sufficiently diversified such that a statutory hybrid plan will not be treated as providing an effective interest crediting rate in excess of a market rate of return where it credits interest based on the rate of return on the RIC and also provides for the preservation of capital (as required for a statutory hybrid plan under section 411(b)(5)(B)(i)(II))? Similarly, if a statutory hybrid plan credits interest based on the rate of return on an equity index that is not a narrow-based equity index (as defined under section 3(a)(55) of the Securities Exchange Act of 1934) and which also provides for the preservation of capital, is the plan providing an interest crediting rate that is not in excess of a market rate of return? If the determination of the greater of a fixed interest crediting rate and a variable interest crediting rate is made more frequently than required to comply with the capital preservation rule, the added frequency is more likely to result in an effective interest crediting rate that is in excess of a market rate of return. For example, if a statutory hybrid plan were to credit interest each day based on the greater of the actual rate of return on the plan assets for that day or 0 percent, the effective interest crediting rate would be far in excess of a market rate of return. The Treasury Department and the IRS are considering providing that a plan will not have an effective interest crediting rate in excess of a market rate of return merely because it provides annual interest credits based on the greater of a reasonable fixed rate (such as 3 percent or 4 percent) and one of the rates of interest set forth in the proposed regulations. However, if a statutory hybrid plan were to provide interest credits based on the greater of a fixed rate (including a fixed rate of 0 percent) and the rate of return on plan assets or the value of an equity-based index, determined on an annual basis, then the effective interest crediting rate would typically be in excess of a market interest rate. Comments are requested on what types of reductions to the variable rate would be appropriate in order to ensure that the effective interest crediting rate under these situations does not exceed a market rate of return. In addition, comments are requested on whether regulations should establish reductions in these situations where the determination of whether the fixed or variable interest crediting rate is greater is made more frequently than annually. Pending issuance of guidance addressing this issue, plan sponsors should be cautious in adopting interest crediting rates other than those explicitly permitted in these proposed regulations. If such a rate were adopted, and it did not satisfy the requirement not to be in excess of a market rate of return under rules provided in future guidance, the rate would have to be reduced in order to satisfy the requirement. The proposed regulations would provide that, to the extent that interest credits (or equivalent amounts) have accrued under the terms of a statutory hybrid plan, section 411(d)(6) is violated by a plan amendment that changes the interest crediting rate if the revised rate under any circumstances could result in a lower rate of return after the applicable amendment date of the plan amendment. An exception is provided that would permit certain changes in a plan's interest crediting rate without violating section 411(d)(6). Under this exception, the proposed regulations would permit an amendment to change the plan's interest crediting rate for future periods from the safe harbor market rates of interest (for example, rates based on eligible cost-of-living indices, or rates based on Treasury bonds with the margins specified in the proposed regulations) to the rate of interest on long-term investment grade corporate bonds. Such a change would not constitute a reduction in accrued benefits in violation of section 411(d)(6) because it is expected that the change would result in a reduction only in rare and unusual circumstances, and the change would be permitted only if the amendment is effective not less than 30 days after adoption and, on the effective date of the amendment, the new interest crediting rate is not less than the interest crediting rate that would have applied in the absence of the amendment. In addition, the IRS and the Treasury Department may provide additional guidance regarding changes to the ongoing interest crediting rate under a plan that would or would not constitute a reduction of accrued benefits in violation of section 411(d)(6). Pension Equity Plans
(PEPs)These proposed regulations do not include any rules specifically relating to plans that are often referred to as pension equity plans, or PEPs (other than defining a participant's accumulated benefit under a PEP as the accumulated percentage of final average compensation). Notice 2007-6 requested comments on the application of qualification requirements other than sections 411(b)(1)(H) and 417(e) to such plans, including the treatment of interest credited with respect to terminated vested participants. See § 601.601(d)(2)(ii)( *b* ) of this chapter. The IRS and the Treasury Department have received a number of comments pursuant to this request. These comments indicate that, apart from determining the accumulated benefit as a percentage of final average compensation, this design often provides explicit or implicit interest credits by determining the normal retirement benefit to be:
(1)The accumulated percentage of final average compensation divided by a deferred annuity factor (thus implicitly providing interest and mortality credits for deferred benefits); or
(2)The lesser of
(a)the current single sum benefit projected to normal retirement age and using an interest rate set forth in the plan or
(b)the projected single sum benefit based on projected service to normal retirement age (taking into account the plan's formula for the accumulated percentage of final average compensation without salary increases), with the lesser of these two amounts converted to an annuity. The right to future interest credits under these designs is earned at the same time as the related percentage of final average compensation; however, the comments indicated that the interest typically commences only after active participation ceases. The IRS and the Treasury Department will continue to evaluate comments received regarding PEPs and are focusing on the following questions in situations where the interest credit is credited only after active participation ceases: • Are these designs properly treated as plans under which the accrued benefit is expressed “as an accumulated percentage of the participant's final average compensation” within the meaning of section 411(a)(13)(A)? After the date on which interest credits commence, should these designs be treated as plans under which the accrued benefit is expressed “as the balance of a hypothetical account” within the meaning of section 411(a)(13)(A)? • Do any of the designs in
(1)or
(2)of the preceding paragraph provide for a lower rate of accrual for additional years of service (because no interest is credited if service is continued)? See section 411(b)(1)(G). Alternatively, can this issue be avoided by treating the annual rate at which the normal retirement benefit accrues as declining with each additional year of service? • How should the backloading rules of section 411(b)(1)(A)-(C) apply to these designs and do they raise issues on which comments were requested in Notice 2007-14 (2007-7 IRB 501)? See § 601.601(d)(2)(ii)( *b* ) of this chapter. Section 1107 of PPA '06 and Code Section 411(d)(6) Under section 1107 of PPA '06, a plan sponsor is permitted to delay adopting a plan amendment pursuant to statutory provisions under PPA '06 (or pursuant to any regulation issued under PPA '06) until the last day of the first plan year beginning on or after January 1, 2009 (January 1, 2011 in the case of governmental plans). As described in Rev. Proc. 2007-44 (2007-28 IRB 54), this amendment deadline applies to both interim and discretionary amendments that are made pursuant to PPA '06 statutory provisions or any regulation issued under PPA '06. See § 601.601(d)(2)(ii)( *b* ) of this chapter. If section 1107 of PPA '06 applies to an amendment of a plan, section 1107 provides that the plan does not fail to meet the requirements of section 411(d)(6) by reason of such amendment, except as provided by the Secretary of the Treasury. 7 7 Except to the extent permitted under section 411(d)(6) and §§ 1.411(d)-3 and 1.411(d)-4, or under a statutory provision such as section 1107 of PPA '06, section 411(d)(6) prohibits a plan amendment that decreases a participant's accrued benefits or that has the effect of eliminating or reducing an early retirement benefit or retirement-type subsidy, or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment. However, an amendment that eliminates or decreases benefits that have not yet accrued does not violate section 411(d)(6), provided that the amendment is adopted and effective before the benefits accrue. The IRS and the Treasury Department are considering whether relief from section 411(d)(6) should be provided for particular amendments that would be made pursuant to section 701 of PPA '06 or these proposed regulations. In the following provisions of this section of the preamble, the IRS and the Treasury Department have set forth a description of amendments that are and are not entitled to section 411(d)(6) relief. Comments are requested on whether section 411(d)(6) relief is or is not appropriate for any additional amendments related to section 701 of PPA '06 or these proposed regulations. Until further guidance is provided by the IRS and the Treasury Department, section 411(d)(6) relief is not available for the following amendments that are described in section 1107 of PPA '06: • A conversion amendment where the effective date of the reduction in benefits that a participant, but for the amendment, would have accrued under a benefit formula that is not a statutory hybrid benefit formula is earlier than the date of adoption of the reduction amendment. • An amendment that reduces a participant's hypothetical account balance or accumulated percentage of final average compensation below the amount on the date the amendment is adopted. • An amendment to change the interest crediting rate from one of the rates specified in Notice 96-8 using a margin that is less than or equal to the maximum margin for that rate to the same or another rate specified in Notice 96-8 with an associated margin where the excess (if any) of the maximum margin under the second rate over the margin used for that second rate exceeds the excess (if any) of the maximum margin under the first rate over the margin used for that first rate. Until further guidance is provided by the IRS and the Treasury Department, section 411(d)(6) is available for the following amendments that are described in section 1107 of PPA '06: • As provided in Notice 2007-6, in the case of a plan that provides for a single sum distribution to a participant that exceeds the participant's hypothetical account balance or accumulated percentage of final average compensation, the plan may be amended to eliminate the excess for distributions made after August 17, 2006. See § 601.601(d)(2)(ii)( *b* ) of this chapter. • An amendment to change the interest crediting rate from one of the rates specified in Notice 96-8 using a margin that is less than or equal to the maximum margin for that rate to one of the other rates specified in Notice 96-8 with an associated margin where the excess (if any) of the maximum margin under the second rate over the margin used for that second rate does not exceed the excess (if any) of the maximum margin under the first rate over the margin used for that first rate. These rules under section 1107 of PPA '06 will be reflected in future guidance on the market rate of return rules under section 411(b)(5)(B)(i). The IRS and the Treasury Department expect that section 411(d)(6) relief under section 1107 of PPA '06 will be available in the case of an amendment pursuant to that future guidance to change a plan's interest crediting rate (including credits on pre-August 18, 2006 accruals) from an interest rate that is above a market rate of return to an interest rate that constitutes a market rate of return, provided that any retroactive change in the crediting rate does not apply for periods before the date that section 411(b)(5)(B)(i) first applies to the plan. In addition, to the extent permitted under future guidance, the IRS and the Treasury Department expect that section 411(d)(6) relief under section 1107 of PPA '06 will be available in the case of an amendment to change the plan's interest crediting rate to a rate that is expected to be higher than the plan's current rate (such as an amendment to change to an equity-based rate of return). Effective/Applicability Dates Pursuant to section 701(e)(1) of PPA '06, the amendments made by section 701 of PPA '06 are generally effective for periods beginning on or after June 29, 2005. However, sections 701(e)(2) through 701(e)(5) of PPA '06 set forth a number of special effective/applicability date rules that are described earlier in the Background section of the preamble of these proposed regulations. These proposed regulations reflect the statutory effective dates set forth in section 701(e) of PPA '06. Thus, the proposed regulations would reflect that section 411(a)(13)(A) applies to distributions made after August 17, 2006. In addition, the proposed regulations would reflect that, in the case of a plan that is in existence on June 29, 2005, section 411(a)(13)(B) applies to plan years beginning on or after January 1, 2008. At the date of issuance of these proposed regulations, bills have been introduced in the House of Representatives and the Senate which provide that
(1)section 411(a)(13)(B) only applies to a participant who performs at least one hour of service on or after the effective date of section 411(a)(13)(B) with respect to the plan, and
(2)in the case of a plan other than a plan described in section 701(e)(3) or 701(e)(4) of PPA '06, section 411(a)(13)(B) applies to years ending on or after June 29, 2005. 8 Proposed § 1.411(a)(13)-1(e)(1)(iii)(A)( *2* ) and § 1.411(a)(13)-1(e)(1)(iii)(B)( *2* ) have been reserved in order to accommodate these changes. 8 H.R. 3361 (Aug. 3, 2007) and S. 1974 (Aug. 2, 2007), at section 8(3)(B)(iv). These regulations are proposed to be effective for plan years beginning on or after January 1, 2009 (or, if later, the date that applies to certain collectively bargained plans pursuant to section 701(e)(4) of PPA '06). For periods after the statutory effective date and before the regulatory effective date set forth in the preceding sentence, a plan must comply with sections 411(a)(13) and 411(b)(5). During these periods, a plan is permitted to rely on the provisions set forth in the proposed regulations for purposes of satisfying the requirements of sections 411(a)(13) and 411(b)(5). These regulations should not be construed to create any inference concerning the applicable law prior to the effective dates of sections 411(a)(13) and 411(b)(5). See also section 701(d) of PPA '06. Special Analyses It has been determined that these proposed regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, these regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. Comments and Requests for Public Hearing Before these proposed regulations are adopted as final regulations, consideration will be given to any written (one signed and eight
(8)copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department specifically request comments on the clarity of the proposed regulations and how they may be made easier to understand. In addition to the comments requested under the “Conversion protection” and “Market rate of return limitation” headings of this preamble (and in Part V of Notice 2007-6), comments are also requested on issues not addressed in these proposed regulations, including: • The application of the 3-year vesting requirement in section 411(a)(13)(B) to a plan that is not a statutory hybrid plan when the plan is part of a floor-offset arrangement with a plan that includes a lump sum-based benefit formula. • Whether guidance should be issued under section 411(b)(5) as to whether a characteristic is indirectly on account of age. • Whether the age discrimination safe harbor in section 411(b)(5)(A) should be available in the case of any plan that does not express a participant's accumulated benefit as either an annuity payable at normal retirement age (or current age, if later), the balance of a hypothetical account, or the current value of the accumulated percentage of a participant's final average compensation. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person who timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place of the public hearing will be published in the **Federal Register** . Drafting Information The principal authors of these regulations are Lauson C. Green and Linda S. F. Marshall, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Treasury Department participated in the development of these regulations. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Proposed Amendments to the Regulations Accordingly, 26 CFR part 1 is proposed to be amended as follows: PART 1—INCOME TAXES **Paragraph 1.** The authority citation for part 1 is amended by adding entries as follows: Authority: 26 U.S.C. 7805 * * * Section 1.411(a)(13)-1 also issued under 26 U.S.C. 411(a)(13). Section 1.411(b)(5)-1 also issued under 26 U.S.C. 411(b)(5). * * * **Par. 2.** Section 1.411(a)(13)-1 is added to read as follows: § 1.411(a)(13)-1 Statutory hybrid plans.
(a)*In general.* This section sets forth certain rules that apply to statutory hybrid plans under section 411(a)(13). Paragraph
(b)of this section describes special rules for certain statutory hybrid plans that determine benefits under a lump sum-based benefit formula. Paragraph
(c)of this section describes the vesting requirement for statutory hybrid plans. Paragraphs
(d)and
(e)of this section contain definitions and effective/applicability dates, respectively.
(b)*Calculation of benefit by reference to hypothetical account balance or accumulated percentage.* Pursuant to section 411(a)(13)(A), a statutory hybrid plan that determines any portion of a participant's benefits under a lump sum-based benefit formula is not treated as failing to meet the requirements of section 411(a)(2), or the requirements of section 411(c) or 417(e) with respect to the participant's accrued benefit derived from employer contributions, solely because, with respect to benefits determined under that formula, the present value of those benefits is, under the terms of the plan, equal to the balance of the hypothetical account maintained for the participant or to the current value of the accumulated percentage of the participant's final average compensation under that formula.
(c)*Three-year vesting requirement* —(1) *In general.* Pursuant to section 411(a)(13)(B), if any portion of the participant's accrued benefit under a defined benefit plan is determined under a statutory hybrid benefit formula, the plan is not treated as meeting the requirements of section 411(a)(2) unless the plan provides that the participant has a nonforfeitable right to 100 percent of the participant's accrued benefit if the participant has 3 or more years of service. Thus, this 3-year vesting requirement applies with respect to the entire accrued benefit of a participant under a defined benefit plan even if only a portion of the participant's accrued benefit under the plan is determined under a statutory hybrid benefit formula. Similarly, if the participant's accrued benefit under a defined benefit plan is, under the plan's terms, the larger of two (or more) benefit amounts, where each amount is determined under a different benefit formula (including a benefit determined pursuant to an offset among formulas within the plan) and at least one of those formulas is a statutory hybrid benefit formula, the participant's entire accrued benefit under the defined benefit plan is subject to the 3-year vesting rule of section 411(a)(13)(B) and this paragraph (c). The rule described in the preceding sentence applies even if the larger benefit is ultimately the benefit determined under a formula that is not a statutory hybrid benefit formula.
(2)*Floor-offset arrangements involving a statutory hybrid plan.* [Reserved]
(3)*Examples.* The provisions of this paragraph
(c)are illustrated by the following examples: Example 1. Employer M sponsors Plan X, pursuant to which each participant's accrued benefit is equal to the sum of the benefit provided under two benefit formulas. The first benefit formula is a statutory hybrid benefit formula, and the second formula is not. Because a portion of each participant's accrued benefit provided under Plan X is determined under a statutory hybrid benefit formula, the 3-year vesting requirement described in paragraph (c)(1) of this section applies to each participant's entire accrued benefit provided under Plan X. Example 2. The facts are the same as in *Example 1,* except that the benefit formulas described in *Example 1* only apply to participants for service performed in Division A of Employer M and a different benefit formula applies to participants for service performed in Division B of Employer M. Pursuant to the terms of Plan X, the accrued benefit of a participant attributable to service performed in Division B is equal to the benefit provided by a benefit formula that is not a statutory hybrid benefit formula. Therefore, the 3-year vesting requirement described in paragraph (c)(1) of this section does not apply to a participant with an accrued benefit under Plan X if the participant's benefit is solely attributable to service performed in Division B.
(d)*Definitions* —(1) *In general.* The definitions in this paragraph
(d)apply for purposes of this section.
(2)*Lump sum-based benefit formula.* The term lump sum-based benefit formula means a lump sum-based benefit formula as defined in § 1.411(b)(5)-1(e)(3).
(3)*Statutory hybrid benefit formula* —(i) *In general.* A statutory hybrid benefit formula means a benefit formula that is either a lump sum-based benefit formula or a formula that is not a lump sum-based benefit formula but that has an effect similar to a lump sum-based benefit formula.
(ii)*Effect similar to a lump sum-based benefit formula.* Except as provided in paragraph (d)(3)(iii) of this section, a benefit formula under a defined benefit plan that is not a lump sum-based benefit formula has an effect similar to a lump sum-based benefit formula if the formula provides that a participant's accumulated benefit (within the meaning of § 1.411(b)(5)-1(e)(2)) payable at normal retirement age (or benefit commencement, if later) is expressed as a benefit that includes the right to periodic adjustments (including a formula that provides for indexed benefits under § 1.411(b)(5)-1(b)(2)) that are reasonably expected to result in a larger annual benefit at normal retirement age (or benefit commencement, if later) for the participant than for a similarly situated, younger individual (within the meaning of § 1.411(b)(5)-1(b)(5)) who is or could be a participant in the plan. A benefit formula that does not include periodic adjustments is treated as a formula with an effect similar to a lump sum-based benefit formula if the formula is otherwise described in the preceding sentence and the adjustments are provided pursuant to a pattern of repeated plan amendments. See § 1.411(d)-4, A-1(c)(1).
(iii)*Exceptions* —(A) *Post-retirement benefit adjustments.* Post-annuity starting date adjustments of the amounts payable to a participant (such as cost-of-living increases) are disregarded in determining whether a benefit formula under a defined benefit plan has an effect similar to a lump sum-based benefit formula.
(B)*Certain variable annuity benefit formulas.* If the assumed interest rate used for purposes of the adjustment of amounts payable to a participant under a variable annuity benefit formula is at least 5 percent, then the adjustments under the variable annuity benefit formula are not treated as being reasonably expected to result in a larger annual benefit at normal retirement age (or benefit commencement, if later) for the participant than for a similarly situated, younger individual (within the meaning of § 1.411(b)(5)-1(b)(5)) who is or could be a participant in the plan, and thus such a variable annuity benefit formula does not have an effect similar to a lump sum-based benefit formula.
(C)*Contributory plans.* A benefit formula under a defined benefit plan that provides for a benefit equal to the benefit properly attributable to after-tax employee contributions does not have an effect similar to a lump sum-based benefit formula. See section 411(c)(2) for rules for determining benefits attributable to after-tax employee contributions.
(4)*Variable annuity benefit formula.* A variable annuity benefit formula means any benefit formula under a defined benefit plan which provides that the amount payable is periodically adjusted by reference to the difference between the rate of return of plan assets (or specified market indices) and a specified assumed interest rate.
(e)*Effective/applicability date* —(1) *Statutory effective/applicability date* —(i) *In general.* Except as provided in paragraphs (e)(1)(ii) and (e)(1)(iii) of this section, section 411(a)(13) applies for periods beginning on or after June 29, 2005.
(ii)*Calculation of benefits.* Section 411(a)(13)(A) applies to distributions made after August 17, 2006.
(iii)*Vesting* —(A) *Plans in existence on June 29, 2005* —( *1* ) *General rule.* In the case of a plan that is in existence on June 29, 2005 (regardless of whether the plan is a statutory hybrid plan on that date), section 411(a)(13)(B) applies to plan years beginning on or after January 1, 2008. ( *2* ) *Hour of service required.* [Reserved] ( *3* ) *Exception for plan sponsor election.* See § 1.411(b)(5)-1(f)(1)(iii)(A)( *2* ) for a special election for early application of section 411(a)(13)(B).
(B)*Plans not in existence on June 29, 2005* —( *1* ) *In general.* In the case of a plan not in existence on June 29, 2005, section 411(a)(13)(B) applies for periods beginning on or after June 29, 2005. ( *2* ) *Hour of service required.* [Reserved]
(C)*Collectively bargained plans.* Notwithstanding paragraphs (e)(1)(iii)(A) and
(B)of this section, in the case of a collectively bargained plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified on or before August 17, 2006, the requirements of section 411(a)(13)(B) do not apply for plan years beginning before the earlier of— ( *1* ) The later of— ( *i* ) The date on which the last of those collective bargaining agreements terminates (determined without regard to any extension thereof on or after August 17, 2006), or ( *ii* ) January 1, 2008; or ( *2* ) January 1, 2010.
(D)*Treatment of plans with both collectively bargained and non-collectively bargained employees.* In the case of a plan where a collective bargaining agreement applies to some, but not all, of the plan participants, the plan is considered a collectively bargained plan for purposes of paragraph (e)(1)(iii)(C) of this section if at least 25 percent of the participants in the plan are members of collective bargaining units for which the benefit levels under the plan are specified under a collective bargaining agreement.
(2)*Effective/applicability date of regulations.* This section applies for plan years beginning on or after January 1, 2009 (or, if later, the date applicable under paragraph (e)(1)(iii)(C) of this section). For the periods after the statutory effective date set forth in paragraph (e)(1) of this section and before the regulatory effective date set forth in the preceding sentence, a plan must comply with section 411(a)(13). During these periods, a plan is permitted to rely on the provisions of this section for purposes of satisfying the requirements of section 411(a)(13). **Par. 3.** Section 1.411(b)(5)-1 is added to read as follows: § 1.411(b)(5)-1 Reduction in rate of benefit accrual under a defined benefit plan.
(a)*In general.* This section sets forth certain rules related to reduction in the rate of benefit accrual under a defined benefit plan. Paragraph
(b)of this section describes certain plan design-based safe harbors (including statutory hybrid plans) that are deemed to satisfy the age discrimination rules under section 411(b)(1)(H). Paragraph
(c)of this section describes rules relating to statutory hybrid plan conversion amendments. Paragraph
(d)of this section describes rules restricting interest credits (or equivalent amounts) under a statutory hybrid plan to a market rate of return. Paragraphs
(e)and
(f)of this section contain definitions and effective/applicability dates, respectively.
(b)*Safe harbors for certain plan designs* —(1) *Accumulated benefit testing* —(i) *In general.* Pursuant to section 411(b)(5)(A), and subject to paragraph (b)(1)(ii) of this section, a plan is not treated as failing to meet the requirements of section 411(b)(1)(H)(i) if, as of any date, the accumulated benefit of a participant would not be less than the accumulated benefit of any similarly situated, younger participant. This test requires a comparison of the accumulated benefit of each individual who is or could be a participant in the plan with the accumulated benefit of each other similarly situated, younger individual who is or could be a participant in the plan. See paragraph (b)(5) of this section for rules regarding whether each younger individual who is or could be a participant is similarly situated to a participant. The comparison described in this paragraph (b)(1)(i) is based on—
(A)The annuity payable at normal retirement age (or current age, if later) if the accumulated benefit of the participant under the terms of the plan is expressed as an annuity payable at normal retirement age (or current age, if later);
(B)The balance of a hypothetical account if the accumulated benefit of the participant under the terms of the plan is expressed as a hypothetical account balance; or
(C)The current value of an accumulated percentage of the participant's final average compensation if the accumulated benefit of the participant under the terms of the plan is expressed as an accumulated percentage of final average compensation.
(ii)*Benefit formulas for comparison* —(A) *In general.* The safe harbor provided by section 411(b)(5)(A) and paragraph (b)(1)(i) of this section does not apply to a plan if the accumulated benefit of a participant under the plan is not described in paragraph (b)(1)(i)(A), (B), or
(C)of this section. In addition, except as provided in paragraph (b)(1)(ii)(B) of this section, that safe harbor also does not apply to a plan if the comparison required under paragraph (b)(1)(i) of this section involves comparing accumulated benefits that are described in different subparagraphs of paragraph (b)(1)(i) of this section. Thus, for example, if a plan provides an accumulated benefit that is expressed under the terms of the plan as an annuity payable at normal retirement age as described in paragraph (b)(1)(i)(A) of this section for participants who are age 55 or over, and the plan provides an accumulated benefit that is expressed as the balance of a hypothetical account as described in paragraph (b)(1)(i)(B) of this section for participants who are younger than age 55, the safe harbor described in section 411(b)(5)(A) and paragraph (b)(1)(i) of this section does not apply to the plan.
(B)*Greater-of and sum-of benefit formulas.* If a plan provides that a participant's accumulated benefit is equal to the sum of accumulated benefits that are described in different subparagraphs of paragraph (b)(1)(i) of this section, then the plan is deemed to satisfy paragraph (b)(1)(i) of this section if the plan satisfies the comparison described in paragraph (b)(1)(i) of this section separately for each of the different accumulated benefits. Similarly, if a plan provides that a participant's accumulated benefit is equal to the greater of accumulated benefits that are described in different subparagraphs of paragraph (b)(1)(i) of this section, then the plan is deemed to satisfy paragraph (b)(1)(i) of this section if the plan satisfies the comparison described in paragraph (b)(1)(i) of this section separately for each of the different accumulated benefits. For purposes of this paragraph (b)(1)(ii)(B), a similarly situated, younger participant is treated as having an accumulated benefit of zero under a benefit formula if the benefit formula does not apply to the participant.
(iii)*Disregard of certain subsidized benefits.* For purposes of paragraph (b)(1)(i) of this section, any subsidized portion of any early retirement benefit that is included in a participant's accumulated benefit is disregarded. For this purpose, the subsidized portion of an early retirement benefit is the retirement-type subsidy within the meaning of § 1.411(d)-3(g)(6) that is contingent on a participant's severance from employment and commencement of benefits before normal retirement age.
(2)*Indexed benefits* —(i) *In general.* Except as provided in paragraph (b)(2)(iv) of this section, pursuant to section 411(b)(5)(E) and this paragraph (b)(2)(i), a defined benefit plan is not treated as failing to meet the requirements of section 411(b)(1)(H) solely because a benefit formula under the plan (other than a lump sum-based benefit formula) provides for the periodic adjustment of accrued benefits under the plan, but only if the adjustment is by means of the application of a recognized investment index or methodology described in paragraph (b)(2)(ii) of this section and the plan satisfies paragraph (b)(2)(iii) of this section. A statutory hybrid plan that is not treated as failing to satisfy section 411(b)(1)(H) pursuant to the preceding sentence must nevertheless satisfy the qualification requirements otherwise applicable to statutory hybrid plans, including the requirements of § 1.411(a)(13)-1(c) (relating to minimum vesting standards), paragraph
(c)of this section (relating to plan conversion amendments), and paragraph
(d)of this section (relating to market rates of return).
(ii)*Recognized investment index or methodology.* An adjustment is made pursuant to a recognized investment index or methodology if it is made pursuant to—
(A)An eligible cost-of-living index as described in § 1.401(a)(9)-6, A-14(b);
(B)The rate of return on the aggregate assets of the plan; or
(C)The rate of return on the annuity contract for the employee issued by an insurance company licensed under the laws of a State.
(iii)*Similarly situated participant test.* A plan satisfies this paragraph (b)(2)(iii) if the aggregate periodic adjustments of each participant's accrued benefit under the plan (determined as a percentage of the unadjusted accrued benefit) would not be less than the aggregate periodic adjustments of any similarly situated younger participant. This test requires a comparison of the aggregate periodic adjustments of each individual who is or could be a participant in the plan for any specified period with the aggregate periodic adjustments of each other similarly situated, younger individual who is or could be a participant in the plan for the same period. See paragraph (b)(5) of this section for rules regarding whether each younger individual who is or could be a participant is similarly situated to a participant.
(iv)*Protection against loss* —(A) *In general.* Paragraph (b)(2)(i) of this section does not apply unless the plan satisfies section 411(b)(5)(E)(ii) and paragraph (d)(2)(ii) of this section (relating to preservation of capital).
(B)*Exception for variable annuity benefit formulas.* The requirement to satisfy section 411(b)(5)(E)(ii) and paragraph (d)(2)(ii) of this section does not apply in the case of a benefit provided under a variable annuity benefit formula, but only if the adjustments under the variable annuity benefit formula are based on the rate of return on the aggregate assets of the plan or the rate of return on the annuity contract for the employee issued by an insurance company licensed under the laws of a State.
(3)*Certain offsets permitted.* A plan is not treated as failing to meet the requirements of section 411(b)(1)(H) solely because the plan provides offsets against benefits under the plan to the extent the offsets are allowable in applying the requirements of section 401(a) and the applicable requirements of the Employee Retirement Income Security Act of 1974, Public Law 93-406 (88 Stat. 829), and the Age Discrimination in Employment Act of 1967, Public Law 90-202 (81 Stat. 602).
(4)*Permitted disparities in plan contributions or benefits.* A plan is not treated as failing to meet the requirements of section 411(b)(1)(H) solely because the plan provides a disparity in contributions or benefits with respect to which the requirements of section 401(l) are met.
(5)*Definition of similarly situated.* For purposes of paragraphs (b)(1) and (b)(2) of this section, an individual is similarly situated to another individual if the individual is identical to that other individual in every respect that is relevant in determining a participant's benefit under the plan (including period of service, compensation, position, date of hire, work history, and any other respect) except for age. In determining whether an individual is similarly situated to another individual, any characteristic that is relevant for determining benefits under the plan and that is based directly or indirectly on age is disregarded. For example, if a particular benefit formula applies to a participant on account of the participant's age, an individual to whom the benefit formula does not apply and who is identical to the participant in all other respects is similarly situated to the participant. By contrast, an individual is not similarly situated to a participant if a different benefit formula applies to the individual and the application of the different formula is not based directly or indirectly on age.
(c)*Special rules for plan conversion amendments* —(1) *In general.* Pursuant to section 411(b)(5)(B)(ii), (iii), and (iv), if there is a conversion amendment within the meaning of paragraph (c)(4) of this section with respect to a defined benefit plan, then the plan is treated as failing to meet the requirements of section 411(b)(1)(H) unless the plan, after the amendment, satisfies the requirements of paragraph (c)(2) of this section.
(2)*Separate calculation of post-conversion benefit* —(i) *In general.* A statutory hybrid plan satisfies the requirements of this paragraph (c)(2) if the plan provides that, in the case of an individual who was a participant in the plan immediately before the date of adoption of the conversion amendment, the participant's benefit at any subsequent annuity starting date is not less than the sum of:
(A)The participant's section 411(d)(6) protected benefit (as defined in § 1.411(d)-3(g)(14)) with respect to service before the effective date of the conversion amendment, determined under the terms of the plan as in effect immediately before the effective date of the amendment; and
(B)The participant's section 411(d)(6) protected benefit with respect to service on and after the effective date of the conversion amendment, determined under the terms of the plan as in effect after the effective date of the amendment.
(ii)*Rules of application.* For purposes of this paragraph (c)(2), except as provided in paragraph (c)(3) of this section, the benefits under paragraph (c)(2)(i)(A) and
(B)of this section must each be determined in the same manner as if they were provided under separate plans that are independent of each other (for example, without any benefit offsets), and, except to the extent permitted under § 1.411(d)-3 or § 1.411(d)-4 (or other applicable law), each optional form of payment provided under the terms of the plan with respect to a participant's section 411(d)(6) protected benefit as in effect before the amendment must be available thereafter to the extent of the plan's benefits for service prior to the effective date of the amendment.
(3)*Establishment of opening hypothetical account balance* —(i) *In general.* Provided that the requirements of paragraph (c)(3)(ii) of this section are satisfied, a statutory hybrid plan under which an opening hypothetical account balance or opening accumulated percentage of the participant's final average compensation is established as of the effective date of the conversion amendment does not fail to satisfy the requirements of paragraph (c)(2) of this section merely because benefits attributable to that opening hypothetical account balance or opening accumulated percentage (that is, benefits that are not described in paragraph (c)(2)(i)(B) of this section) are substituted for benefits described in paragraph (c)(2)(i)(A) of this section.
(ii)*Comparison of benefits* —(A) *Testing requirement.* For any optional form of benefit payable at an annuity starting date where there was an optional form of benefit within the same generalized optional form of benefits (within the meaning of § 1.411(d)-3(g)(8)) that would have been available to the participant at that annuity starting date under the terms of the plan as in effect immediately before the effective date of the conversion amendment, the requirements of this paragraph (c)(3)(ii) are satisfied only if the plan provides that the amount of the benefit under that optional form of benefit available to the participant under the lump sum-based formula that is attributable to the opening hypothetical account balance or opening accumulated percentage as described in paragraph (c)(3)(i) of this section, determined under the terms of the plan as of the annuity starting date (including actuarial conversion factors), is not less than the benefit under that optional form of benefit described in paragraph (c)(2)(i)(A) of this section. To satisfy this requirement, if the benefit under an optional form attributable to the opening hypothetical account balance or opening accumulated percentage is less than the benefit described in paragraph (c)(2)(i)(A) of this section, then the benefit attributable to the opening hypothetical account balance or opening accumulated percentage must be increased to the extent necessary to provide the minimum benefit described in this paragraph (c)(3)(ii)(A). Thus, if a plan is using the option under this paragraph (c)(3) to satisfy paragraph (c)(2) of this section with respect to a participant, the participant must receive a benefit equal to not less than the sum of: ( *1* ) The greater of the benefit attributable to the opening hypothetical account balance as described in this paragraph (c)(3)(ii) and the benefit described in paragraph (c)(2)(i)(A) of this section, and ( *2* ) The benefit described in paragraph (c)(2)(i)(B) of this section.
(B)*Special rule for post-conversion optional forms of benefit.* If an optional form of benefit is available on the annuity starting date with respect to the benefit attributable to the opening hypothetical account balance or opening accumulated percentage, but no optional form within the same generalized optional form of benefit (within the meaning of § 1.411(d)-3(g)(8)) was available at that annuity starting date under the terms of a plan as in effect immediately prior to the effective date of the conversion amendment, then, for purposes of this paragraph (c)(3)(ii), the plan is treated as if such an optional form of benefit were available immediately prior to the effective date of the conversion amendment. In that event, paragraph (c)(3)(ii)(A) of this section must be applied by taking into account the optional form of benefit that is treated as if it were available on the annuity starting date under the terms of the plan as in effect immediately prior to the effective date of the conversion amendment. Thus, for example, if a single sum optional form of payment is not available under the plan terms applicable to the accrued benefit described in paragraph (c)(2)(i)(A) of this section, but a single sum form of payment is available with respect to the benefit attributable to the opening hypothetical account balance or opening accumulated percentage as of the annuity starting date, then, for purposes of paragraph (c)(3)(ii)(A) of this section, the plan is treated as if a single sum (to which section 417(e)(3) applies) were available under the terms of the plan as in effect immediately prior to the effective date of the conversion amendment.
(4)*Conversion amendment* —(i) *In general.* An amendment is a conversion amendment that is subject to the requirements of this paragraph
(c)with respect to a participant if—
(A)The amendment reduces or eliminates the benefits that, but for the amendment, the participant would have accrued after the effective date of the amendment under a benefit formula that is not a statutory hybrid benefit formula (and under which the participant was accruing benefits prior to the amendment); and
(B)After the effective date of the amendment, all or a portion of the participant's benefit accruals under the plan are determined under a statutory hybrid benefit formula.
(ii)*Rules of application* —(A) *In general.* Paragraphs (c)(4)(iii), (iv), and
(v)of this section describe special rules that treat certain arrangements as conversion amendments. The rules described in those paragraphs apply both separately and in combination. Thus, for example, in an acquisition described in § 1.410(b)-2(f), if the buyer adopts an amendment under which a participant's benefits under the seller's plan that is not a statutory hybrid plan are coordinated with a separate plan of the buyer that is a statutory hybrid plan, such as through an offset of the participant's benefit under the buyer's plan by the participant's benefit under the seller's plan, the seller and buyer are treated as a single employer under paragraph (c)(4)(iv) of this section and they are treated as having adopted a conversion amendment under paragraph (c)(4)(iii) of this section. However, pursuant to paragraph (c)(4)(iii) of this section, if there is no coordination between the two plans, there is no conversion amendment.
(B)*Covered amendments.* Only amendments that eliminate or reduce accrued benefits described in section 411(a)(7), or a retirement-type subsidy described in section 411(d)(6)(B)(i), that would otherwise accrue as a result of future service are treated as amendments described in paragraph (c)(4)(i)(A) of this section.
(C)*Operation of plan terms treated as covered amendment.* If, under the terms of a plan, a change in the conditions of a participant's employment results in a reduction of the participant's benefits that would have accrued in the future under a benefit formula that is not a statutory hybrid benefit formula, the plan is treated for purposes of this paragraph (c)(4) as if such plan terms constitute an amendment that reduces the participant's benefits that would have accrued after the effective date of the change under a benefit formula that is not a statutory hybrid benefit formula. Thus, for example, if a participant transfers from an operating division that is covered by a non-statutory hybrid benefit formula to an operating division that is covered by a statutory hybrid benefit formula, there has been a conversion amendment as of the date of the transfer.
(iii)*Multiple plans.* An employer is treated as having adopted a conversion amendment if the employer adopts an amendment under which a participant's benefits under a plan that is not a statutory hybrid plan are coordinated with a separate plan that is a statutory hybrid plan, such as through a reduction (offset) of the benefit under the plan that is not a statutory hybrid plan.
(iv)*Multiple employers.* If the employer of an employee changes as a result of a transaction described in § 1.410(b)-2(f), then the two employers are treated as a single employer for purposes of this paragraph (c)(4).
(v)*Multiple amendments* —(A) *In general* —(1) *General rule.* For purposes of this paragraph (c)(4), a conversion amendment includes multiple amendments that result in a conversion amendment even if the amendments are not conversion amendments individually. For example, an employer is treated as having adopted a conversion amendment if the employer first adopts an amendment described in paragraph (c)(4)(i)(A) of this section and, at a later date, adopts an amendment that adds a benefit under a statutory hybrid benefit formula as described in paragraph (c)(4)(i)(B) of this section, if they are consolidated under paragraph (c)(4)(v)(A)( *2* ) of this section. ( *2* ) *Delay between plan amendments.* In the case of an amendment to provide a benefit under a statutory hybrid benefit formula that is adopted within three years after adoption of an amendment to reduce non-statutory hybrid benefit formula benefits, those amendments are consolidated in determining whether a conversion amendment has been adopted. Thus, the later adoption of the statutory hybrid benefit formula will cause the earlier amendment to be treated as a conversion amendment. In the case of an amendment to provide a benefit under a statutory hybrid benefit formula that is adopted more than three years after adoption of an amendment to reduce benefits under a non-statutory hybrid benefit formula, there is a presumption that the amendments are not consolidated unless the facts and circumstances indicate that adoption of the amendment to provide a benefit under a statutory hybrid benefit formula was intended at the time of reduction in the non-statutory hybrid benefit formula.
(B)*Multiple conversion amendments.* If an employer adopts multiple amendments reducing benefits described in paragraph (c)(4)(i)(A) of this section, each amendment is treated as a separate conversion amendment, provided that paragraph (c)(4)(i)(B) of this section is applicable at the time of the amendment (taking into account the rules of this paragraph (c)(4)).
(vi)*Effective date of a conversion amendment.* The effective date of a conversion amendment is, with respect to a participant, the date as of which the reduction of the participant's benefits described in paragraph (c)(4)(i)(A) of this section occurs. In accordance with section 411(d)(6), the date of a reduction of those benefits cannot be earlier than the date of adoption of the conversion amendment.
(5)*Examples.* The following examples illustrate the application of paragraph
(c)of this section: Example 1.
(i)*Facts where plan does not establish opening hypothetical account balance for participants and participant elects life annuity at normal retirement age.* Employer N sponsors Plan E, a defined benefit plan that provides an accumulated benefit, payable as a straight life annuity commencing at age 65 (which is Plan E's normal retirement age), based on a percentage of highest average compensation times the participant's years of service. Plan E permits any participant who has had a severance from employment to elect payment in the following optional forms of benefit (with spousal consent if applicable), with any payment not made in a straight life annuity converted to an equivalent form based on reasonable actuarial assumptions: a straight life annuity; and a 50 percent, 75 percent, or 100 percent joint and survivor annuity. The payment of benefits may commence at any time after attainment of age 55, with an actuarial reduction if the commencement is before normal retirement age. In addition, the plan offers a single sum payment after attainment of age 55 equal to the present value of the normal retirement benefit using the applicable interest rate and mortality table under section 417(e)(3) in effect under the terms of the plan on the annuity starting date.
(ii)*Facts relating to the conversion amendment.* On January 1, 2010, Plan E is amended to eliminate future accruals under the highest average compensation benefit formula and to base future benefit accruals on a hypothetical account balance. For service on or after January 1, 2010, each participant's hypothetical account balance is credited monthly with a pay credit equal to a specified percentage of the participant's compensation during the month and also with interest based on the third segment rate described in section 430(h)(2)(C)(iii). With respect to benefits under the hypothetical account balance attributable to service on and after January 1, 2010, a participant is permitted to elect (with spousal consent) payment in the same generalized optional forms of benefit (even though different actuarial factors apply) as under the terms of the plan in effect before January 1, 2010, and also as a single sum distribution. The plan provides for the benefits attributable to service before January 1, 2010, to be determined under the terms of the plan as in effect immediately before the effective date of the amendment, and the benefits attributable to service on and after January 1, 2010 to be determined separately, under the terms of the plan as in effect after the effective date of the amendment, with neither benefit offsetting the other in any manner. Thus, each participant's benefits are equal to the sum of the benefits attributable to service before January 1, 2010 (to be determined under the terms of the plan as in effect immediately before the effective date of the amendment), plus the benefits attributable to the participant's hypothetical account balance.
(iii)*Facts relating to an affected participant.* Participant A is age 62 on January 1, 2010 and, on December 31, 2009, A's benefit for years of service before January 1, 2010, payable as a straight life annuity commencing at A's normal retirement age (age 65) which is January 1, 2013, is $1,000 per month. Participant A has a severance from employment on January 1, 2013, and, on January 1, 2013, the hypothetical account balance, with pay credits and interest from January 1, 2010, to January 1, 2013, has become $11,000. Using the conversion factors under the plan as amended on January 1, 2013, that balance is equivalent to a straight life annuity of $100 per month commencing on January 1, 2013. This benefit is in addition to the benefit attributable to service before January 1, 2010. Participant A elects (with spousal consent) a straight life annuity of $1,100 per month commencing January 1, 2013.
(iv)*Conclusion.* Participant A's benefit satisfies the requirements of paragraph (c)(3)(ii)(A) of this section because Participant A's benefit is not less than the sum of Participant A's section 411(d)(6) protected benefit (as defined in § 1.411(d)-3(g)(14)) with respect to service before the effective date of the conversion amendment, determined under the terms of the plan as in effect immediately before the effective date of the amendment, and Participant A's section 411(d)(6) protected benefit with respect to service on and after the effective date of the conversion amendment, determined under the terms of the plan as in effect after the effective date of the amendment. Example 2.
(i)*Facts involving plan's establishment of opening hypothetical account balance and payment of pre-conversion accumulated benefit in life annuity at normal retirement age.* The facts in this *Example 2* are the same as the facts under paragraph
(i)of *Example 1* .
(ii)*Facts relating to the conversion amendment.* On January 1, 2010, Plan E is amended to eliminate future accruals under the highest average compensation benefit formula and to base future benefit accruals on a hypothetical account balance. An opening hypothetical account balance is established for each participant, and, under the plan's terms, that balance is equal to the present value of the participant's accumulated benefit on December 31, 2009 (payable as a straight life annuity at normal retirement age or immediately, if later), using the applicable interest rate and applicable mortality table under section 417(e)(3) on January 1, 2010. Under Plan E, the account based on this opening hypothetical account balance is maintained as a separate account from the account for accruals on or after January 1, 2010. The hypothetical account balance maintained for each participant for accruals on or after January 1, 2010, is credited monthly with a pay credit equal to a specified percentage of the participant's compensation during the month. A participant's hypothetical account balance (including both of the separate accounts) is credited monthly with interest based on the third segment rate described in section 430(h)(2)(C)(iii).
(iii)*Facts relating to optional forms of benefit.* Following severance from employment and attainment of age 55, a participant is permitted to elect (with spousal consent) payment in the same generalized optional forms of benefit as under the plan in effect prior to January 1, 2010, with the amount payable calculated based on the hypothetical account balance on the annuity starting date and the applicable interest rate and applicable mortality table on the annuity starting date. The single sum distribution is equal to the hypothetical account balance.
(iv)*Facts relating to conversion protection.* The plan provides that, as of a participant's annuity starting date, the plan will determine whether the benefit attributable to the opening hypothetical account payable in the particular optional form of benefit selected is greater than or equal to the benefit accrued under the plan through the date of conversion and payable in the same generalized optional form of benefit with the same annuity starting date. If the benefit attributable to the opening hypothetical account balance is greater, the plan provides that such benefit is paid in lieu of the pre-conversion benefit, together with the benefit attributable to post-conversion contribution credits. If the benefit attributable to the opening hypothetical account balance is less, the plan provides that such benefit is increased sufficiently to provide the pre-conversion benefit, together with the benefit attributable to post-conversion contribution credits.
(v)*Facts relating to an affected participant.* On January 1, 2010, the opening hypothetical account balance established for Participant A is $80,000, which is the present value of Participant A's straight life annuity of $1,000 per month commencing at January 1, 2013, using the applicable interest rate and applicable mortality table under section 417(e)(3) in effect on January 1, 2010. On January 1, 2010, the applicable interest rate for Participant A is equivalent to a level rate of 5.5 percent. Thereafter, Participant's A's hypothetical account balance for subsequent accruals is credited monthly with a pay credit equal to a specified percentage of the participant's compensation during the month. In addition, Participant A's hypothetical account balance (including both of the separate accounts) is credited monthly with interest based on the third segment rate described in section 430(h)(2)(C)(iii).
(vi)*Facts relating to calculation of the participant's benefit.* Participant A has a severance from employment on January 1, 2013 at age 65, and elects (with spousal consent) a straight life annuity commencing January 1, 2013. On January 1, 2013, the opening hypothetical account balance, with interest credits from January 1, 2010, to January 1, 2013, has become $95,000, which, using the conversion factors under the plan on January 1, 2013, is equivalent to a straight life annuity of $1,005 per month commencing on January 1, 2013 (which is greater than the $1,000 a month payable at age 65 under the terms of the plan in effect before January 1, 2010). This benefit is in addition to the benefit determined using the hypothetical account balance for service after January 1, 2010.
(vii)*Conclusion.* The benefit satisfies the requirements of paragraph (c)(3)(ii)(A) of this section with respect to Participant A because A's benefit is not less than the sum of
(A)the greater of Participant A's benefits attributable to the opening hypothetical account balance and A's section 411(d)(6) protected benefit (as defined in § 1.411(d)-3(g)(14)) with respect to service before the effective date of the conversion amendment, determined under the terms of the plan as in effect immediately before the effective date of the amendment, and
(B)Participant A's section 411(d)(6) protected benefit with respect to service on and after the effective date of the conversion amendment, determined under the terms of the plan as in effect after the effective date of the amendment. Example 3.
(i)*Facts involving a subsequent decrease in interest rates.* The facts are the same as in *Example 2,* except that, because of a decrease in bond rates after January 1, 2010, and before January 1, 2013, the rate of interest credited in that period averages less than 5.5 percent, and, on January 1, 2013, the effective applicable interest rate under section 417(e)(3) under the plan's terms is 4.7 percent. As a result, Participant A's opening hypothetical account balance plus attributable interest credits has increased to only $87,000 on January 1, 2013, and, using the conversion factors under the plan on January 1, 2013, is equivalent to a straight life annuity commencing on January 1, 2013, of $775 per month. Under the terms of Plan E, the benefit attributable to A's opening account balance is increased so that A's straight life annuity commencing on January 1, 2013, is $1,000 per month. This benefit is in addition to the benefit attributable to the hypothetical account balance for service after January 1, 2010.
(ii)*Conclusion.* The benefit satisfies the requirements of paragraph (c)(3)(ii)(A) of this section with respect to Participant A because A's benefit is not less than the sum of
(A)the greater of A's benefits attributable to the opening hypothetical account balance and A's section 411(d)(6) protected benefit (as defined in § 1.411(d)-3(g)(14)) with respect to service before the effective date of the conversion amendment, determined under the terms of the plan as in effect immediately before the effective date of the amendment, and
(B)A's section 411(d)(6) protected benefit with respect to service on and after the effective date of the conversion amendment, determined under the terms of the plan as in effect after the effective date of the amendment. Example 4.
(i)*Facts involving payment of a subsidized early retirement benefit.* The facts are the same as in *Example 2,* except that under the terms of Plan E on December 31, 2009, a participant who retires before age 65 and after age 55 with 30 years of service has only a 3 percent per year actuarial reduction. Participant A has a severance from employment on January 1, 2011, when A is age 63 and has 30 years of service. On January 1, 2011, A's opening hypothetical account balance, with interest from January 1, 2010, to January 1, 2011, has become $86,000, which, using the conversion factors under the plan (as amended) on January 1, 2011, is equivalent to a straight life annuity commencing on January 1, 2011, of $850 per month.
(ii)*Facts relating to calculation of the participant's benefit.* Under the terms of Plan E on December 31, 2009, Participant A is entitled to a straight life annuity commencing on January 1, 2011, equal to at least $940 per month ($1,000 reduced by 3 percent for each of the 2 years that A's benefits commence before normal retirement age). Under the terms of Plan E, the benefit attributable to A's opening account balance is increased so that A is entitled to a straight life annuity of $940 per month commencing on January 1, 2013. This benefit is in addition to the benefit determined using the hypothetical account balance for service after January 1, 2010.
(iii)*Conclusion.* The benefit satisfies the requirements of paragraph (c)(3)(ii)(A) of this section with respect to Participant A because A's benefit is not less than the sum of
(A)the greater of Participant A's benefits attributable to the opening hypothetical account balance (increased by attributable interest credits) and A's section 411(d)(6) protected benefit (as defined in § 1.411(d)-3(g)(14)) with respect to service before the effective date of the conversion amendment, determined under the terms of the plan as in effect immediately before the effective date of the amendment, and
(B)Participant A's section 411(d)(6) protected benefit with respect to service on and after the effective date of the conversion amendment, determined under the terms of the plan as in effect after the effective date of the amendment. Example 5.
(i)*Facts involving addition of a single sum payment option.* The facts are the same as in *Example 2,* except that, before January 1, 2010, Plan E did not offer payment in a single sum distribution for amounts in excess of $5,000. Plan E, as amended on January 1, 2010, offers payment in any of the available annuity distribution forms commencing at any time following severance from employment as were provided under Plan E before January 1, 2010. In addition, Plan E, as amended on January 1, 2010, offers payment in the form of a single sum attributable to service before January 1, 2010, which is the greater of the opening hypothetical account balance (increased by attributable interest credits) or a single sum distribution of the straight life annuity payable at age 65 using the same actuarial factors as are used for mandatory cashouts for amounts equal to $5,000 or less under the terms of the plan on December 31, 2009. Participant B is age 40 on January 1, 2010, and B's opening hypothetical account balance (increased by attributable interest credits) is $33,000 (which is the present value, using the conversion factors under the plan (as amended) on January 1, 2010, of Participant B's straight life annuity of $1,000 per month commencing at January 1, 2035, which is when B will be age 65). Participant B has a severance from employment on January 1, 2013, and elects (with spousal consent) an immediate single sum distribution. Participant B's opening hypothetical account balance (increased by attributable interest) on January 1, 2013, is $45,000. The present value, on January 1, 2013, of Participant B's benefit of $1,000 per month, commencing immediately using the actuarial factors for mandatory cashouts under the terms of the plan on December 31, 2009, would result in a single sum payment of $44,750. Participant B is paid a single sum distribution equal to the sum of $45,000 plus an amount equal to B's January 1, 2013, hypothetical account balance for benefit accruals for service after January 1, 2010.
(ii)*Conclusion.* Because, under Plan E, Participant B is entitled to the sum of
(A)The greater of the $45,000 opening hypothetical account balance (increased by attributable interest credits) and $44,750 (present value of the benefit with respect to service prior to January 1, 2010, using the actuarial factors for mandatory cashout distributions under the terms of the plan on December 31, 2009), plus
(B)An amount equal to B's hypothetical account balance for benefit accruals for service after January 1, 2010, the benefit satisfies the requirements of paragraph (c)(3)(ii)(A) of this section with respect to Participant B. If Participant B's hypothetical account balance under Plan E was instead less than $44,750 on January 1, 2013, Participant B would be entitled to a single sum payment equal to the sum of $44,750 and an amount equal to B's hypothetical account balance for benefit accruals for service after January 1, 2010. Example 6.
(i)*Facts involving addition of new annuity optional form of benefit.* The facts are the same as in *Example 2,* except that, after December 31, 2009, and before January 1, 2013, Plan E is amended to offer payment in a 5-, 10-, or 15-year term certain and life annuity, using the same actuarial assumptions that apply for other optional forms of distribution. When Participant A has a severance from employment on January 1, 2013, A elects (with spousal consent) a 5-year term certain and life annuity commencing immediately equal to $935 per month. Application of the same actuarial assumptions to Participant A's benefit of $1,000 per month (under Plan E as in effect on December 31, 2009), commencing immediately on January 1, 2013, would result in a 5-year term certain and life annuity commencing immediately equal to $955 per month. Under the terms of Plan E, the benefit attributable to A's opening account balance is increased so that, using the conversion factors under the plan (as amended) on January 1, 2013, A's opening hypothetical account balance (increased by attributable interest credits) produces a 5-year term certain and life annuity commencing immediately equal to $955 per month commencing on January 1, 2013. This benefit is in addition to the benefit determined using the January 1, 2013, hypothetical account balance for service after January 1, 2010.
(ii)*Conclusion.* This benefit satisfies the requirements of paragraph (c)(3)(ii)(A) of this section with respect to Participant A. Example 7.
(i)*Facts involving addition of distribution option before age 55.* The facts are the same as in *Example 5,* except that Participant B (age 43) elects (with spousal consent) a straight life annuity. Under Plan E, the straight life annuity attributable to Participant B's opening hypothetical account balance at age 43 is $221 per month. Application of the same actuarial assumptions to Participant B's benefit of $1,000 per month (under Plan E as in effect on December 31, 2009), commencing immediately on January 1, 2013, would result in a straight life annuity at age 43 equal to $219 per month.
(ii)*Conclusion.* Because, under its terms, Plan E provides that Participant B is entitled to an amount not less than the present value (using the same actuarial assumptions as apply on January 1, 2013, in converting the $45,000 hypothetical account balance attributable to the opening hypothetical account balance to the $221 straight life annuity) of Participant B's straight life annuity of $1,000 per month commencing at January 1, 2035, and the $221 straight life annuity is in addition to the benefit accruals for service after January 1, 2010, payment of the $221 monthly annuity would satisfy the requirements of paragraph (c)(3)(ii)(A) of this section with respect to Participant B.
(d)*Market rate of return* —(1) *In general* —(i) *Basic test.* Subject to paragraph (d)(3) of this section, a statutory hybrid plan satisfies the requirements of section 411(b)(1)(H) and this paragraph
(d)only if, for any plan year, the interest crediting rate under the terms of the plan is no greater than a market rate of return.
(ii)*Definition of interest crediting rate and interest credit.* For purposes of this paragraph (d), a plan's interest crediting rate means the rate by which a participant's benefit is increased under the ongoing terms of the plan to the extent the amount of the increase is not conditioned on current service, regardless of how the amount of that increase is calculated. The amount of such an increase is an interest credit. Thus, whether the amount is an interest credit for this purpose is determined without regard to whether the amount is calculated by reference to a rate of interest, a rate of return, an index, or otherwise.
(iii)*Single rates.* Except as is otherwise provided in this paragraph (d)(1), an interest crediting rate is not in excess of a market rate of return only if the plan provides an interest credit for the year at a rate that is equal to one of the following rates that is specified in the terms of the plan:
(A)The interest rate on long-term investment grade corporate bonds (as described in paragraph (d)(4) of this section);
(B)An interest rate that is deemed to be not in excess of a market rate of return under paragraph (d)(5) of this section; or
(C)An interest rate that is described in paragraph (d)(6) of this section.
(iv)*Timing rules* —(A) *In general.* A plan must specify the timing for determining the plan's interest crediting rate that will apply for each plan year (or portion of a plan year) using either of the methods described in paragraph (d)(1)(iv)(B) of this section and must specify the frequency of interest crediting under the plan pursuant to paragraph (d)(1)(iv)(C) of this section.
(B)*Methods to determine interest crediting rate.* A plan is permitted to provide daily interest credits using a daily interest crediting rate based on the permitted rates specified in paragraph (d)(1)(iii) of this section. Alternatively, a plan is permitted to provide an interest credit for a stability period that is based on the interest crediting rate for a specified lookback month with respect to that stability period. The stability period and lookback month must satisfy the rules for selecting the stability period and lookback month under § 1.417(e)-1(d)(4). (However, the interest rates can be any of the rates in paragraph (d)(1)(iii) of this section and the stability period and lookback month need not be the same as those used under the plan for purposes of section 417(e)(3).)
(C)*Frequency of interest crediting.* Interest credits under a plan must be made on an annual or more frequent periodic basis. If a plan provides for the crediting of interest more frequently than annually (for example, monthly or quarterly), then the interest credit for that period must be a pro rata portion of the annual interest credit. Thus, for example, if a plan's terms provide for interest to be credited monthly and for the interest crediting rate to be equal to the interest rate on long-term investment grade corporate bonds (as described in paragraph (d)(4) of this section), and that interest rate for a plan year is 6 percent, the accumulated benefits at the beginning of each month would be increased by 0.5 percent per month during the plan year. Interest credits under the terms of a plan are not treated as creating an effective rate of return that is in excess of a market rate of return merely because an otherwise permissible interest crediting rate is compounded more frequently than annually.
(v)*Lesser rates.* An interest crediting rate is not in excess of a market rate of return if the plan provides an interest crediting rate that, under all circumstances, is always less than one of the rates described in paragraph (d)(1)(iii) of this section.
(vi)*Greater-of rates.* If a statutory hybrid plan provides for an interest credit that is equal to the interest credits determined under the greater of 2 or more different interest crediting rates, the effective interest crediting rate is not in excess of a market rate of return only if each of the different rates satisfies the requirements of paragraph (d)(1)(ii) of this section and the additional requirements of paragraph (d)(7) of this section are satisfied.
(2)*Preservation of capital requirement* —(i) *In general.* A statutory hybrid plan is treated as failing to meet the requirements of section 411(b)(1)(H) if the requirements of paragraph (d)(2)(ii) of this section are not satisfied.
(ii)*Preservation of capital defined* —(A) *In general.* The requirements of this paragraph (d)(2)(ii) are satisfied if the plan provides that, as of the participant's annuity starting date, the participant's benefit under the plan is no less than the benefit determined as of that date based on the sum of the hypothetical contributions credited under the plan (or the accumulated percentage of the participant's final average compensation, or the participant's accrued benefits determined without regard to any indexing under section 411(b)(5)(E), as applicable).
(B)*Hypothetical contributions defined.* For purposes of this paragraph (d)(2)(ii), a hypothetical contribution is any amount credited under a statutory hybrid plan other than an interest credit (as defined in paragraph (d)(1)(ii) of this section). Thus, if an opening hypothetical account balance or opening accumulated percentage of the participant's final average compensation is established pursuant to paragraph (c)(3) of this section, that opening hypothetical account balance or opening accumulated percentage as of the date established is treated as a hypothetical contribution and, thus, is taken into account for purposes of the preservation of capital requirement of this paragraph (d)(2)(ii).
(3)*Plan termination* —(i) *In general.* Except as provided in paragraph (d)(3)(ii) of this section, a statutory hybrid plan is treated as meeting the requirements of paragraph (d)(1) of this section only if the terms of the plan provide that, upon termination of the plan, a participant's benefit as of the termination is determined using the interest rate and mortality table otherwise applicable for determining that benefit under the plan (without regard to termination of the plan).
(ii)*Variable interest rates.* A statutory hybrid plan is treated as meeting the requirements of paragraph (d)(1) of this section only if the terms of the plan provide that, upon termination of the plan, any interest rate used to determine a participant's benefits under the plan (including any interest crediting rate and any interest rate used to determine annuity benefits) that is a variable rate is determined as the average of the rates of interest used under the plan for that purpose during the 5-year period ending on the termination date.
(4)*Long-term investment grade corporate bonds.* For purposes of this paragraph (d), the rate of interest on long-term investment grade corporate bonds means the third segment rate described in section 430(h)(2)(C)(iii) (determined with or without regard to the transition rules of section 430(h)(2)(G)), provided that such rate floats on a periodic basis not less frequently than annually. However, for plan years beginning prior to January 1, 2008, the rate of interest on long-term investment grade corporate bonds means the rate described in section 412(b)(5)(B)(ii)(II) prior to amendment by the Pension Protection Act of 2006, Public Law 109-280 (120 Stat. 780) (PPA '06).
(5)*Safe harbor rates of interest* —(i) *Rates based on Treasury bonds with margins.* An interest crediting rate is deemed to be not in excess of a market rate of return if the rate is adjusted at least annually and is equal to the sum of any of the following rates of interest for Treasury bonds and the associated margin for that interest rate: Treasury bond interest rates Associated margin The discount rate on 3-month Treasury Bills 175 basis points. The discount rate on 12-month or shorter Treasury Bills 150 basis points. The yield on 1-year Treasury Constant Maturities 100 basis points. The yield on 3-year or shorter Treasury bonds 50 basis points. The yield on 7-year or shorter Treasury bonds 25 basis points. The yield on 30-year or shorter Treasury bonds 0 basis points.
(ii)*Eligible cost-of-living indices.* An interest crediting rate is deemed to be not in excess of a market rate of return if the rate is adjusted no less frequently than annually and is equal to the rate of increase with respect to an eligible cost-of-living index described in § 1.401(a)(9)-6, A-14(b), except that for purposes of this paragraph (d)(5)(ii), the eligible cost-of-living index described in § 1.401(a)(9)-6, A-14(b)(2), is increased by 300 basis points.
(iii)*Additional safe harbors.* The Commissioner may, in guidance of general applicability, specify additional interest crediting rates that are deemed to be not in excess of a market rate of return. See § 601.601(d)(2)(ii)( *b* ) of this chapter.
(6)*Other interest rates* —(i) *Reasonable minimum guaranteed rate of return.* [Reserved]
(ii)*Equity-based rates.* [Reserved]
(7)*Combinations of rates of return* —(i) *In general.* If a plan provides an interest crediting rate that is equal to the interest credits determined under the greater of 2 or more different interest crediting rates where each of the different rates satisfies the requirements of paragraph (d)(1)(iii) of this section, then the interest credits provided by the plan satisfy this paragraph (d)(7) only if one or more of the different interest crediting rates under the plan are adjusted as provided in paragraphs (d)(7)(iii) or (d)(7)(iv) of this section in order to provide that the effective interest crediting rate resulting from the use of the greater of 2 or more rates does not exceed a market rate of return. This paragraph (d)(7) provides the exclusive rules that may be used for this purpose and, therefore, a plan does not satisfy the requirements of this paragraph
(d)if the plan provides for interest credits determined using the greater of 2 or more interest crediting rates and that combination of interest crediting rates is not specifically permitted by this paragraph (d)(7).
(ii)*Coordination with preservation of capital rule.* No adjustment under this paragraph (d)(7) is required merely because the plan satisfies the requirements of paragraph (d)(2) of this section.
(iii)*Combination of fixed and variable interest rates.* [Reserved]
(iv)*Other combinations.* [Reserved]
(8)*Section 411(d)(6)* —(i) *General rule.* Except as provided in this paragraph (d)(8), to the extent that benefits have accrued under the terms of a statutory hybrid plan that entitle the participant to future interest credits, an amendment to the plan to change the interest crediting rate for such interest credits violates section 411(d)(6) if the revised rate under any circumstances could result in a lower interest crediting rate as of any date after the applicable amendment date of the amendment (within the meaning of § 1.411(d)-3(g)(4)) changing the interest crediting rate. For additional rules, see § 1.411(d)-3(a)(1).
(ii)*Adoption of long-term investment grade corporate bond rate or safe harbor rate.* An amendment to a statutory hybrid plan to change the interest crediting rate for future periods from an interest crediting rate described in paragraph (d)(5) of this section to the interest crediting rate described in paragraph (d)(4) of this section does not constitute a decrease of an accrued benefit and, therefore, does not violate section 411(d)(6). However, an amendment described in this paragraph (d)(8)(ii) cannot be effective less than 30 days after adoption and, on the effective date of the amendment, the new interest crediting rate cannot be less than the interest crediting rate that would have applied in the absence of the amendment.
(iii)*Other changes not treated as prohibited reduction of accrued benefit.* [Reserved].
(e)*Definitions* —(1) *In general.* The definitions in this paragraph
(e)apply for purposes of this section.
(2)*Accumulated benefit.* A participant's accumulated benefit at any date means the participant's benefit, as expressed under the terms of the plan, accrued to that date. For this purpose, the accumulated benefit of a participant may be expressed under the terms of the plan as either the balance of a hypothetical account or the current value of an accumulated percentage of the participant's final average compensation, even if the plan defines the participant's accrued benefit as an annuity beginning at normal retirement age that is actuarially equivalent to that balance or value.
(3)*Lump sum-based benefit formula* —(i) *In general.* A lump sum-based benefit formula means a benefit formula used to determine all or any part of a participant's accumulated benefit under a defined benefit plan under which the benefit provided under the formula is expressed as the balance of a hypothetical account maintained for the participant or as the current value of the accumulated percentage of the participant's final average compensation. Whether a benefit formula is a lump sum-based benefit formula is determined based on how the accumulated benefit of a participant is expressed under the terms of the plan, and does not depend on whether the plan provides an optional form of benefit in the form of a single sum payment.
(ii)*Exception for contributory plans.* A participant is not treated as having a lump sum-based benefit formula merely because the participant is entitled to a benefit under a defined benefit plan that is equal to the greater of the otherwise applicable benefit formula and the benefit properly attributable to after-tax employee contributions.
(4)*Statutory hybrid benefit formula.* A statutory hybrid benefit formula means a statutory hybrid benefit formula as defined in § 1.411(a)(13)-1(d)(3).
(5)*Statutory hybrid plan.* A statutory hybrid plan means a defined benefit plan that contains a statutory hybrid benefit formula.
(6)*Variable annuity benefit formula.* A variable annuity benefit formula means a variable annuity benefit formula as defined in § 1.411(a)(13)-1(d)(4).
(f)*Effective/applicability date* —(1) *Statutory effective/applicability dates* —(i) *In general.* Except as provided in paragraph (f)(1)(iii) of this section, section 411(b)(5) applies for periods beginning on or after June 29, 2005.
(ii)*Conversion amendments.* The requirements of section 411(b)(5)(B)(ii), (iii), and
(iv)apply to a conversion amendment (as defined in paragraph (c)(4) of this section) that is adopted after, and takes effect after, June 29, 2005.
(iii)*Market rate of return* —(A) *Plans in existence on June 29, 2005* —(1) *In general.* In the case of a plan that is in existence on June 29, 2005 (regardless of whether the plan is a statutory hybrid plan on that date), section 411(b)(5)(B)(i) only applies to plan years beginning on or after January 1, 2008. ( *2* ) *Exception for plan sponsor election.* Notwithstanding paragraph (f)(1)(iii)(A)( *1* ) of this section, a plan sponsor of a plan that is in existence on June 29, 2005 (regardless of whether the plan is a statutory hybrid plan on that date) may elect to have the requirements of section 411(a)(13)(B) and section 411(b)(5)(B)(i) apply for any period after June 29, 2005, and before the first plan year beginning after December 31, 2007. In accordance with section 1107 of the PPA '06, an employer is permitted to adopt an amendment to make this election as late as the last day of the first plan year that begins on or after January 1, 2009 (January 1, 2011, in the case of a governmental plan as defined in section 414(d)) if the plan operates in accordance with the election.
(B)*Plans not in existence on June 29, 2005.* In the case of a plan not in existence on June 29, 2005, section 411(b)(5)(B)(i) applies to the plan on and after the later of June 29, 2005, and the date the plan becomes a statutory hybrid plan.
(2)*Effective/applicability date of regulations.* This section applies for plan years beginning on or after January 1, 2009 (or, if later, the date applicable under paragraph (f)(3) of this section). For the periods after the statutory effective date set forth in paragraph (f)(1) or (f)(3) of this section and before the regulatory effective date set forth in the preceding sentence, a plan must comply with section 411(b)(5). During these periods, a plan is permitted to rely on the provisions of this section for purposes of satisfying the requirements of section 411(b)(5).
(3)*Collectively bargained plans* —(i) *In general.* Notwithstanding paragraph (f)(1)(iii) of this section, in the case of a collectively bargained plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified on or before August 17, 2006, the requirements of section 411(b)(5)(B)(i) do not apply to plan years beginning before the earlier of—
(A)The later of— ( *1* ) The date on which the last of those collective bargaining agreements terminates (determined without regard to any extension thereof on or after August 17, 2006), or ( *2* ) January 1, 2008; or
(B)January 1, 2010.
(ii)*Treatment of plans with both collectively bargained and non-collectively bargained employees.* In the case of a plan where a collective bargaining agreement applies to some, but not all, of the plan participants, the plan is considered a collectively bargained plan for purposes of paragraph (f)(3)(i) of this section if at least 25 percent of the participants in the plan are members of collective bargaining units for which the benefit levels under the plan are specified under the collective bargaining agreement. Linda E. Stiff, Deputy Commissioner for Services and Enforcement. [FR Doc. E7-25025 Filed 12-27-07; 8:45 am] BILLING CODE 4830-01-P DEPARTMENT OF AGRICULTURE Forest Service 36 CFR Part 294 Public Meeting to Receive Comments on the Proposed Rule for the Management of Roadless Areas in the State of Idaho AGENCY: Forest Service, USDA. ACTION: Notice of meeting. SUMMARY: There will be a public meeting in Washington, DC to discuss the proposed rule for the management of roadless areas on National Forest System lands in the State of Idaho. DATES: The meeting will be held January 14, 2008, from 5 p.m. to 10 p.m. ADDRESSES: The meeting will be held at the United States Department of Agriculture, South Building, Jefferson Auditorium, 1400 Independence Avenue, SW., Washington, DC. Comments on the proposed rule may be sent via e-mail to *IDcomments@fsroadless.org* . Comments also may be submitted via the world wide web/Internet at *http://www.regulations.gov* . Written comments concerning this notice should be addressed to Roadless Area Conservation-Idaho, P.O. Box 162909, Sacramento, CA 95816-2909, or via facsimile to 916-456-6724. All comments, including names and addresses, when provided, are placed in the record and are available for public inspection and copying. The public may inspect comments received at *http://roadless.fs.fed.us* . FOR FURTHER INFORMATION CONTACT: Brad Gilbert, Idaho Roadless Rule Team Leader, at
(208)765-7438. Individuals using telecommunication devices for the deaf
(TDD)may call the Federal Information Relay Service
(FIRS)at 1-800-877-8339 between 8 a.m. and 8 p.m. Eastern Standard Time, Monday through Friday. SUPPLEMENTARY INFORMATION: Attendees wishing to comment orally will be allotted three minutes to speak on a first come, first served basis. Meeting attendees will need to pass through USDA security in order to enter the building. To ensure arriving to the meeting on time, attendees are encouraged to arrive at the USDA South Building before 5 p.m. You will need photo identification to enter the building. Attendees are encouraged to provide their names to security prior to the meeting in order to gain quicker access to the building. Attendees can submit their names to a comment line by calling 202-205-1776. In the message you should identify yourself as wanting to attend the public meeting on the Idaho rule, and then both say and spell your name. Names should be submitted by close of business on January 10, 2008. Any bags that attendees bring will have to go through screening; you are therefore encouraged not to bring bags in order to speed up the screening process. A copy of the proposed rule, draft environmental impact statement (DEIS), the DEIS summary, dates for public meetings in Idaho, and other information related to this rulemaking will be available at the national roadless Web site *http://www.roadless.fs.fed.us* as well as by calling Brad Gilbert, Idaho Roadless Rule Team Leader, at
(208)765-7438. Reviewers may request printed copies or compact disks of the DEIS and the summary by writing to the Rocky Mountain Research Station, Publication and Distribution, 240 West Prospect Road, Fort Collins, CO 80526-2098. Fax orders will be accepted at 970-498-1122. Order by e-mail from *rschneider@fs.fed.us* . When ordering, requesters must specify if they wish to receive the summary or full set of documents and if the material should be provided in print or on disk. Dated: December 20, 2007. Anne J. Zimmerman, Acting Associate Deputy Chief, NFS. [FR Doc. E7-25135 Filed 12-27-07; 8:45 am] BILLING CODE 3410-11-P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 302 and 355 [EPA-HQ-SFUND-2007-0469; FRL-8511-4] RIN 2050-AG37 CERCLA/EPCRA Administrative Reporting Exemption for Air Releases of Hazardous Substances From Animal Waste AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. SUMMARY: This notice of proposed rulemaking provides notice of, and requests comments, including any relevant data, on a proposed administrative reporting exemption from particular notification requirements under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and the Emergency Planning and Community Right-to-Know Act, also known as Title III of the Superfund Amendments and Reauthorization Act. Specifically, the proposed administrative reporting exemption applies to releases of hazardous substances to the air where the source of those hazardous substances is animal waste at farms. Nothing in this proposed rule, however, would change the notification requirements if hazardous substances are released to the air from any other source other than animal waste at farms ( *i.e.* , ammonia tanks), as well as releases of any hazardous substances from animal waste to any other environmental media, ( *i.e.* , soil, ground water, surface water) when the release of those hazardous substances is at or above its reportable quantity per 24 hours. This administrative reporting exemption is protective of human health and the environment and consistent with the Agency's goal to reduce reporting burden where there would likely be no Federal, state or local emergency response to such release reports. Eliminating such reporting will allow emergency response officials to better focus on releases where the Agency is more likely to take a response action. Finally, in proposing this administrative reporting exemption from the notification requirements under the Comprehensive Environmental Response, Compensation, and Liability Act, section 103(a) and the Emergency Planning and Community Right to Know Act, section 304, EPA is not proposing to limit any of its authorities under CERCLA sections 104 (response authorities), 106 (abatement actions), 107 (liability), or any other provisions of the Comprehensive Emergency Response, Compensation, and Liability Act or the Emergency Planning and Community Right to Know Act in this rulemaking. DATES: Comments must be received on or before March 27, 2008. ADDRESSES: Submit your comments, identified by Docket ID No. EPA-HQ-SFUND-2007-0469, by one of the following methods: • *www.regulations.gov* : Follow the on-line instructions for submitting comments. • *E-mail: superfund.docket@epa.gov.* • *Fax* :
(202)566-9744. • *Mail* : Superfund Docket, Environmental Protection Agency, Mail code: [2822T], 1200 Pennsylvania Ave., NW., Washington, DC 20460. • *Hand Delivery* : EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information. *Instructions:* Direct your comments to Docket ID No. EPA-HQ-SFUND-2007-0469. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at *www.regulations.gov* , including any personal information provided, unless the comment includes information claimed to be Confidential Business Information
(CBI)or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through *www.regulations.gov* or e-mail. The *www.regulations.gov* Web site is an “anonymous access” system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through *www.regulations.gov* , your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption, and be free of any defects or viruses. For additional information about EPA's public docket, visit the EPA Docket Center homepage at *http://www.epa.gov/epahome/dockets.htm.* For additional instructions on submitting comments, go to Unit I.B of the SUPPLEMENTARY INFORMATION section of this document. *Docket:* All documents in the docket are listed in the *www.regulations.gov* index. Although listed in the index, some information is not publicly available, *e.g.* , CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hard copy. Publicly available docket materials are available either electronically in *www.regulations.gov* or in hard copy at the Superfund Docket, EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is
(202)566-1744, and the telephone number for the Superfund Docket is
(202)566-0276. FOR FURTHER INFORMATION CONTACT: Lynn M. Beasley, Regulation and Policy Development Division, Office of Emergency Management (5104A), Environmental Protection Agency, 1200 Pennsylvania Ave., NW., Washington, DC 20460; telephone number:
(202)564-1965; fax number:
(202)564-2625; e-mail address: *Beasley.lynn@epa.gov.* SUPPLEMENTARY INFORMATION: The contents of this preamble are listed in the following outline: I. General Information A. Does This Action Apply to Me? B. What Should I Consider As I Prepare My Comments for EPA? C. What Is the Statutory Authority for This Rulemaking? D. Which Hazardous Substances Are We Proposing to Exempt From the Notification Requirements of CERCLA and EPCRA? II. Background III. Summary of This Action A. What Is the Scope of This Proposed Rule? B. Proposed Definitions C. What Is Not Included Within the Scope of This Proposed Rule? D. What Is EPA's Rationale for This Administrative Reporting Exemption? E. What Are the Economic Impacts of This Administrative Reporting Exemption? IV. Statutory and Regulatory Reviews A. Executive Order 12866 (Regulatory Planning and Review) B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132 (Federalism) F. Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) G. Executive Order 13045 (Protection of Children From Environmental Health Risks and Safety Risks H. Executive Order 13211 (Energy Effects) I. National Technology Transfer and Advancement Act of 1995 (“NTTAA”) J. Executive Order 12898 (Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations) I. General Information A. Does This Action Apply to Me? Type of entity Examples of affected entities Industry NAICS Code 111—Crop Production. NAICS Code 112—Animal Production. State and/or Local Governments State Emergency Response Commissions, and Local Emergency Planning Committees. Federal Government National Response Center. This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be affected by this action. This table lists the types of entities that EPA is now aware could potentially be affected by this action. Other types of entities not listed in the table could also be affected. To determine whether your facility is affected by this action, you should carefully examine the criteria in section III.A of this proposed rule and the applicability criteria in §§ 302.6 and 355.40 of title 40 of the Code of Federal Regulations. If you have questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding FOR FURTHER INFORMATION CONTACT section. B. What Should I Consider as I Prepare My Comments for EPA? In an effort to implement the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and the Emergency Planning and Community Right to Know Act (EPCRA) more efficiently, EPA is proposing to establish an administrative reporting exemption from the notification requirements of CERCLA and EPCRA for releases of hazardous substances, such as ammonia and hydrogen sulfide, to the air where the source of the release is animal waste at farms. The Agency believes that a federal response to such notifications is impractical and unlikely. In addition, nothing in this proposal would limit EPA's authority to take action under its various authorities under CERCLA sections 104 (response authorities), 106 (abatement actions), 107 (liability), or any of provisions of CERCLA or EPCRA (other than ECPCRA section 304) through this rulemaking. Therefore, when submitting comments, remember to: • Identify the rulemaking by docket number and other identifying information (subject heading, **Federal Register** date and page number). • Follow directions—The agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations
(CFR)part or section number. • Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes. • Describe any assumptions and provide any technical information and/or data that you used. • If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced. • Provide specific examples to illustrate your concerns, and suggest alternatives. • Explain your views as clearly as possible. • Make sure to submit your comments by the comment period deadline identified. C. What Is the Statutory Authority for This Rulemaking? Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. 9601, *et seq.* , as amended by the Superfund Amendments and Reauthorization Act
(SARA)of 1986, gives the Federal government broad authority to respond to releases or threats of releases of hazardous substances from vessels and facilities. The term “hazardous substance” is defined in section 101(14) of CERCLA primarily by reference to other Federal environmental statutes. Section 102 of CERCLA gives the Environmental Protection Agency
(EPA)authority to designate additional hazardous substances. Currently there are approximately 760 CERCLA hazardous substances, exclusive of Radionuclides, F-, K-, and Unlisted Characteristic Hazardous Wastes. CERCLA Section 103(a) calls for immediate notification to the National Response Center
(NRC)when the person in charge of a facility has knowledge of a release of a hazardous substance equal to or greater than the reportable quantity
(RQ)established by EPA for that substance. In addition to the notification requirements established pursuant to CERCLA section 103, section 304 of the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA), 42 U.S.C. 11001 *et seq.* , requires the owner or operator of certain facilities to immediately report to State and local authorities releases of CERCLA hazardous substances or any extremely hazardous substances
(EHSs)if they exceed their RQ (see 40 CFR 355.40). This proposed rule only applies to CERCLA section 103 notification requirements, including the provisions that allow for continuous release reporting found in paragraph (f)(2) of CERCLA section 103, and EPCRA section 304 notification requirements. The Agency has previously granted such administrative reporting exemptions
(AREs)where the Agency has determined that a federal response to such a release is impracticable or unlikely. For example, on March 19, 1998, the Agency issued a final rule (see 63 FR 13459) that granted exemptions for releases of naturally occurring radionuclides. The rule entitled, Administrative Reporting Exemptions for Certain Radionuclide Releases (“Radionuclide ARE”), granted exemptions for releases of hazardous substances that pose little or no risk or to which a Federal response is infeasible or inappropriate (see 63 FR 13461). The Agency relies on CERCLA sections 102(a), 103, and 115 (the general rulemaking authority under CERCLA) as authority to issue regulations governing section 103 notification requirements. The Agency relies on EPCRA section 304 as authority to issue regulations governing EPCRA section 304 notification requirements, and EPCRA section 328 for general rulemaking authority. D. Which Hazardous Substances Are We Proposing to Exempt From the Notification Requirements of CERCLA and EPCRA? EPA proposes to exempt certain releases of hazardous substances to the air from the notification requirements of CERCLA and EPCRA, as implemented in 40 CFR 302.6 and 40 CFR 355.40, respectively. Specifically, we are proposing to exempt those hazardous substance releases which are emitted to the air (typically during digestion, break-down or decomposition) from animal waste at farms. Although ammonia and hydrogen sulfide are the most recognized hazardous substances that are emitted from animal waste, there may also be some amounts of additional hazardous substances released. Ammonia is a by-product of the break-down of urea and proteins that are contained in animal waste. Hydrogen sulfide is another by-product of the break-down of animal waste. These hazardous substances can be emitted when animal waste is contained in a lagoon or stored in under-floor manure pits in some animal housing, manure stockpiles, or in the open where animals congregate. Open air or dry manure stockpiles are not generally associated with significant hydrogen sulfide emissions. Additional hazardous substances may be emitted to the air from animal waste. 1 These hazardous substances would typically be subject to the notification requirements of CERCLA section 103 and EPCRA section 304 once their RQ is met or exceeded. However, this proposed rule will extend the administrative reporting exemption to all hazardous substances emitted to the air from animal waste at farms. 1 *Air Emissions from Animal Feeding Operations: Current Knowledge, Future Needs.* National Research Council of the National Academies, The National Academies Press, Washington, DC (2003), p. 54. Additional hazardous substances may include nitrous oxide
(NO)and volatile organic compounds (VOCs). The major constituents of VOC emissions could include organic sulfides, disulfides, C <sup>4</sup> to C <sup>7</sup> aldehydes, trimethylamines, C <sup>4</sup> amines, quinoline (RQ = 5000 pounds), dimethylpyrazine, and C <sup>3</sup> to C <sup>6</sup> organic acids, along with lesser amounts of aromatic compounds and C <sup>4</sup> to C <sup>7</sup> alcohols, ketones, and aliphatic hydrocarbons. II. Background Under CERCLA section 103(a), the person in charge of a vessel or facility from which a CERCLA hazardous substance has been released into the environment in a quantity that equals or exceeds its RQ must immediately notify the NRC of the release. A release is reportable if an RQ or more is released into the environment within a 24-hour period (see 40 CFR 302.6). This reporting requirement serves as a trigger for informing the Federal government of a release so that Federal personnel can evaluate the need for a response in accordance with the National Contingency Plan
(NCP)and undertake any necessary response action in a timely fashion. The NRC is located at the United States Coast Guard
(USCG)headquarters and is the national communications center for the receipt of all pollution incidents reporting. The NRC is continuously manned for processing activities related to receipt of the notifications. NCP regulations, 40 CFR 300.125, require that notifications of discharges and releases be made telephonically and state that the NRC will immediately relay telephone notices of discharges ( *i.e.* , oil) or releases ( *i.e.* , hazardous substances) to the appropriate predesignated federal on-scene coordinator (OSC). The NRC receives an average of approximately 34,000 2 notifications per year. Of those notifications, averages of approximately 33,700 3 discharge or release notifications are relayed to EPA. 2 Average number of notifications from years 2000-2006, National Response Center statistics available at, *http://www.nrc.uscg.mil/incident97-02.html* . See Superfund Docket EPA-HQ-SFUND-2007-0469 for a summary table. 3 Average number of notifications made to EPA from years 2000-2006, National Response Center statistics available at, *http://www.nrc.uscg.mil/epa97-02.html* . The average was calculated from those notifications that went to the EPA Regions 1 through 10, including notifications to the EPA Regions for Continuous Releases. See Superfund Docket EPA-HQ-SFUND-2007-0469 for a summary table. Under EPCRA section 304(a), three release scenarios require notification. • First, if a release of an extremely hazardous substance occurs from a facility at which a hazardous chemical is produced, used, or stored, and such release requires a notification under section 103(a) of CERCLA, the owner or operator of a facility shall immediately provide notice to the community emergency coordinator for the local emergency planning committees
(LEPC)for any area likely to be affected by the release and to the State emergency planning commission
(SERC)of any State likely to be affected by the release. ( *EPCRA section 304(a)(1)* ) • EPCRA section 304(a) also requires the owner or operator of the facility to immediately provide notice under EPCRA section 304(b) for either of the following two scenarios: ○ If the release is an extremely hazardous substance, but not subject to the notifications under section 103(a) of CERCLA. ( *EPCRA section 304(a)(2)* ) ○ If the release is not an extremely hazardous substance and only subject to the notifications under section 103(a) of CERCLA. ( *EPCRA section 304(a)(3)* ) EPCRA notification is to be given to the community emergency coordinator for each LEPC for any area likely to be affected by the release, and the SERC of any state likely to be affected by the release. Through this notification, state and local officials can assess whether a response action to the release is appropriate. EPCRA section 304 notification requirements apply only to releases that have the potential for off-site exposure and that are from facilities that produce, use, or store a “hazardous chemical,” as defined by regulations promulgated under the Occupational Safety and Health Act of 1970
(OSHA)(29 CFR 1910.1200(c)) and by section 311 of EPCRA. In establishing the RQs for the various hazardous substances, EPA adjusted the statutory RQs of CERCLA hazardous substances based on specific scientific and technical criteria that relate to the possibility of harm from the release of a hazardous substance in a reportable quantity. (See 50 FR 13456, April 4, 1985.) The adjusted RQs did not reflect the determination that a release of a substance will be hazardous at the RQ level and not hazardous below that level. EPA did not, at the time, make such a determination because the actual hazard will vary with the unique circumstances of the release. Instead, the RQs reflect the Agency's judgment of which releases should trigger notification to the federal government so that the government may assess to what extent, if any, a federal removal or remedial action may be necessary. ( *See* 50 FR 13465.) For the purposes of making RQ adjustments under CERCLA, EPA adopted the five RQ levels of 1, 10, 100, 1000, and 5000 pounds originally established pursuant to CWA section 311 (see 40 CFR part 117). The Agency adopted the five-level system primarily because:
(1)It has been successfully used pursuant to the CWA,
(2)the regulated community was familiar with these five levels, and
(3)it provided a relatively high degree of discrimination among the potential hazards posed by different CERCLA hazardous substances. The methodology used for adjusting RQs begins with an evaluation of the intrinsic physical, chemical, and toxicological properties of each designated hazardous substance. The intrinsic properties examined—called “primary criteria”—are aquatic toxicity, mammalian toxicity (oral, dermal, and inhalation), ignitability, reactivity, and chronic toxicity. 4 In addition, substances that were identified as potential carcinogens were evaluated for their relative activity as potential carcinogens. 4 Chronic toxicity was defined as toxicity resulting from repeated or continuous exposure to either a single release or multiple releases of a hazardous substance. The Agency ranks each intrinsic physical, chemical, and toxicological property on a five-tier scale, associating a specific range of values on each scale with a particular RQ value. Thus, each substance receives several tentative RQ values based on its particular properties. For example, ammonia received a tentative RQ of 100 pounds based on its aquatic toxicity levels; however, for the intrinsic property, mammalian toxicity (inhalation), ammonia received a tentative RQ value of 1000 pounds. The lowest of all of the tentative RQs for each hazardous substance becomes the “primary criteria RQ” for that substance. After the primary criteria RQs are assigned, substances are further evaluated for their susceptibility to certain extrinsic degradation processes. These “secondary criteria” are biodegradation, hydrolysis, and photolysis, or “BHP.” If the hazardous substance degrades relatively rapidly to a less harmful compound through one or more of these processes when it is released into the environment, the primary criteria RQ is raised one level. The single RQ assigned to each hazardous substance on the basis of the primary criteria and BHP becomes the adjusted RQ for that substance. The single RQ approach was adopted to provide a relatively simple reporting system that does not unduly burden either EPA or the regulated community. Since releases into more than one medium often occur, the single RQ approach prevents confusion. Section 102(a) of CERCLA expressly authorizes the Administrator to set a single quantity for each hazardous substance, and the legislative history emphasizes the virtues of simplicity and administrative convenience. (For a more detailed discussion of the methodology that was used to establish the RQs for hazardous substances, *see* 50 FR 13465, Apr. 4, 1985.) Owners and operators of farms, like all other facilities, are required to report the release of hazardous substances into the environment 5 in accordance with CERCLA section 103 and EPCRA section 304 when it meets or exceeds the RQ of the hazardous substance. For example, releases into the environment of ammonia or any other hazardous substance, from tanks located on a farm, at or above an RQ are reportable under CERCLA section 103 and EPCRA section 304. 5 Environment means, “(A) the navigable waters, the waters of the contiguous zone, and the ocean waters for which the natural resources are under the exclusive management authority of the United States * * *, and
(B)any other surface water, ground water, drinking water supply, land surface or subsurface strata, or ambient air within the United States or under the jurisdiction of the United States.” *See* CERCLA section 101(8). In 2005, EPA received a petition from the National Chicken Council, National Turkey Federation, and U.S. Poultry & Egg Association, seeking an exemption from CERCLA and EPCRA reporting requirements for ammonia emissions from poultry operations. The Agency published a notice in the **Federal Register** on December 27, 2005 (70 FR 76452) that acknowledged receipt of the petition and requested public comment. The comment period closed on March 27, 2006. Also, in 2005, EPA offered the owners and operators of animal agricultural operations an opportunity to sign up for an air monitoring study. The purpose of the air monitoring study is to develop emissions estimating methodologies for all animal agricultural operations. 6 Over 2600 animal feeding operations, representing over 14,000 farms, signed up for the study. The monitoring study which began in the spring of 2007 includes 25 representative sites (lagoons or barns) on 21 different farms in 10 states (NC, NY, IA, WI, CA, KY, TX, WA, IN, and OK). The sites will be monitored for two years, allowing the Agency to account for emissions variability by season, and for the effect of any seasonal operational changes (such as pumping out lagoons), that could have an effect on emission levels. At the end of the monitoring study, EPA will use the data along with any other relevant, available data to develop emissions estimating methodologies. The monitoring study results will be publicly available upon completion of the study. In addition, EPA will publish the emissions estimating methodologies based on these results, within 18 months of the study's conclusion. Thus, such information will be widely available to the public. 6 The National Academy of Sciences, Board on Agriculture and Natural Resources appointed a 16-person ad hoc committee, the Committee on Air Emissions from Animal Feeding Operations, to evaluate the scientific information needed to address issues raised by EPA regarding CAA regulation of air emissions from animal feeding operations
(AFOs)and the U.S. Department of Agriculture aid to farmers in mitigating the effects of air emissions with modified agricultural practices. One of the findings of that Committee was, in part, direct measurements of air emissions at all AFOs are not feasible. Nevertheless, measurements on a statistically representative subset of AFOs are needed. III. Summary of This Action A. What Is the Scope of This Proposed Rule? The scope of this proposed rule is limited to releases of hazardous substances to the air from animal waste at farms. Specifically, the Agency is proposing an administrative reporting exemption from the CERCLA section 103 and EPCRA section 304 notification requirements as implemented in 40 CFR 302.6 and 302.8 and 40 CFR 355.40, respectively. The scope of this proposed rule is intended to include all hazardous substances that may be emitted to the air from animal waste at farms. (See Section I.D. for further discussion of which hazardous substances we are proposing to include within the administrative reporting exemption.) B. Proposed Definitions In proposing this rule, the Agency believes it is important to provide clarity with respect to the scope of the proposed reporting exemption. Therefore, the Agency is proposing definitions for *animal waste* and *farm* (to be added to the Code of Federal Regulations) that only pertains to regulations promulgated pursuant to CERCLA section 103 and EPCRA section 304, specifically 40 CFR 302.3 (definitions) and 40 CFR 355.20 (definitions). *Animal Waste* —means manure (feces, urine, other excrement, and bedding, produced by livestock that has not been composted), digestive emissions, and urea. The definition includes animal waste when mixed or commingled with bedding, compost, feed, soil and other materials typically found with animal waste. The Agency is not aware of any existing definition for animal waste and thus, seeks comment from the public on the appropriateness, clarity and completeness of this definition. The Agency also is limiting the proposed reporting exemption to animal waste that is generated on farms, and is proposing a specific definition for *farm* under this proposal. For this proposed exemption only, EPA defines *farm* , by using the definition found in the National Agricultural Statistics Service
(NASS)Census of Agriculture, and adopting it. Also, the Agency recognizes that Federal and state research farms utilizing farm animals are subject to the conditions experienced on other farms; therefore, EPA proposes to include Federal and state poultry, swine, dairy and livestock research farms. *Farm* —means (a.) any place whose operation is agricultural and from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the census year. Operations receiving $1,000 or more in Federal government payments are counted as farms, even if they have no sales and otherwise lack the potential to have $1,000 or more in sales; or, (b.) a Federal or state poultry, swine, dairy or livestock research farm. EPA seeks comment on the proposed definition for a *farm* , and whether an alternative definition may be more appropriate. In addition, the Agency is aware that animal waste also is generated at other facilities, such as zoos and circuses. Because the focus of this proposal is on animal waste generated or found at farms, we are not proposing to expand the reporting exemption beyond such facilities. However, the Agency requests comment on whether the reporting exemption should be expanded to other types of facilities that also generate animal waste, and if so, what other types of facilities should be included in the reporting exemption. Any alternative approaches presented must include an appropriate rationale and supporting data in order for the Agency to be able to consider them for final action. C. What Is Not Included Within the Scope of This Proposed Rule? As noted previously, this administrative reporting exemption is limited in scope to those releases of hazardous substances to the air from animal waste at farms. EPA is not proposing to exempt from CERCLA section 103 or EPCRA section 304 notification requirements for releases of hazardous substances from animal waste to any other environmental media or at any other facilities other than farms (i.e., meat processing plants, slaughter houses, tanneries). In addition, EPA is not proposing to exempt from CERCLA section 103 or EPCRA section 304 notification requirements of any release of hazardous substances to the air from any source other than animal waste at farms. The Agency believes that there could be releases to the air from other sources of hazardous substances at farms where an emergency response to that release may be possible. For example, EPA is not proposing to exempt ammonia releases from ammonia storage tanks at farms. In addition, notification of a release of a hazardous substance, which meets or exceeds its RQ, from animal waste to any environmental media (other than air) is still required under this proposal. Thus, notification that there was a release of a hazardous substance that meets or exceeds the RQ where stored animal waste is released into water (i.e., a lagoon burst) would still be required under this proposal. Such notifications would alert the government to an emergency situation that could pose serious environmental consequences if not immediately addressed. Hence, those releases to the environment would still be reportable at or above their RQ as they are more likely to result in a response action from Federal, state or local governments. No EPCRA statutory requirements, other than the emergency hazardous substance notification requirements under EPCRA section 304, are included within this proposal. The proposal does not limit the Agency's authority under CERCLA sections 104 (response authorities), 106 (abatement actions), 107 (liability), or any other provisions of CERCLA and EPCRA to address releases of hazardous substances from animal waste at farms. D. What Is EPA's Rationale for This Administrative Reporting Exemption? EPA's rationale for this administrative reporting exemption is based on the purpose of notifying the NRC, and SERCs and LEPCs when a hazardous substance is released, and then the likelihood that a response to that release would be taken by any government agency. Upon receipt of a notification from the NRC, EPA determines whether a response is appropriate. *See* 40 CFR 300.130(c). If it is determined that a response is appropriate, the NCP regulations describe the roles and responsibilities for responding to the release. Thus, the question that EPA considered is whether the Agency would ever take a response action, as a result of such notification, for releases of hazardous substances to the air from animal waste at farms. We believe not and, thus, are proposing to no longer require such reporting. This conclusion is based in part on EPA's experience. 7 Specifically, to date, EPA has not initiated a response to any NRC notifications of ammonia, hydrogen sulfide, or any other hazardous substances released to the air where animal waste at farms is the source of that release. Moreover, we cannot foresee a situation where the Agency would take any future response action as a result of such notification of releases of hazardous substances from animal waste at farms because in all instances the source (animal waste) and nature (to the air over a broad area) are such that on-going releases makes an emergency response unnecessary, impractical and unlikely. Typically, if a response is taken as a result of a release notification, the government may require monitoring or make recommendations to local officials regarding evacuations and shelter-in-place. While this may be an appropriate response to hazardous substances releases from tanks, pipes, vents or in train derailment situations where the emergency may result in acute exposures, the Agency does not believe that this is a necessary or appropriate response to the release of hazardous substances to the air from animal waste at farms. 7 Notifications must still be made when and if hazardous substances are released to the air at farms from any other source (other than animal waste), as well as releases of any hazardous substances from animal waste to any other environmental media (i.e., soil, groundwater and surface water). Several states have indicated that such response actions are unlikely to be taken as a result of a notification of releases of hazardous substances from animal waste at farms. EPA received 26 comment letters from state and/or local emergency response agencies in its request for public comment on the 2005 petition from the National Chicken Council, National Turkey Federation, and U.S. Poultry & Egg Association (“poultry petition”). All of those commenters supported granting the poultry petition—that is, exempting from CERCLA and EPCRA reporting requirements for ammonia emissions from poultry operations. Generally, those agencies supported the petition because they are aware of the operations in their jurisdictions, were concerned about the resource implications of receiving the notifications (i.e., having to process the notifications), and would not conduct an emergency response as a result of the notifications. Thus, the comments received from state and/or local emergency response agencies is consistent with EPA's view. Furthermore, the Agency does not need to receive such notifications in order to enforce applicable CWA, CAA, RCRA, and/or other applicable CERCLA and EPCRA regulations at farms. EPA still retains those enforcement authorities to address threats to human health and the environment. We estimate that the private sector, state and local, and the Federal governments spend approximately three hours per release to prepare and process episodic notifications and 24.5 hours to process continuous release notifications. 8 8 For episodic releases, this estimate was calculated using the burden hours described in the Information Collection Requests 1049.10 and 1395.06 for episodic releases of hazardous substances to the NRC and emergency notifications to SERCs and LEPCs. For continuous releases, this estimate was calculated using the burden hours described in the Information Collection Request 1445.06 for continuous release reporting requirements. Supporting statements for both information collection requests are available in the Superfund Docket, EPA-HQ-SFUND-2007-0469. Based on these reasons, the Agency believes it is appropriate to propose to eliminate the reporting requirement under CERCLA section 103 and EPCRA section 304 for hazardous substances released to the air at farms where the source of those hazardous substances is animal waste. Nevertheless, the Agency solicits comments on whether there might be a situation where a response would be triggered by such a notification of the release of hazardous substances to the air from animal waste at farms, and if so, what an appropriate response would be. Any comments that would support such an action should include an appropriate rationale in order for the Agency to be able to consider it for final action. E. What Are the Economic Impacts of This Administrative Reporting Exemption? This proposed administrative reporting exemption will reduce the costs of complying with CERCLA section 103 and EPCRA section 304 for those farms that release hazardous substances to air from animal waste. Entities that are expected to experience a reduction in burden and cost include both the farms that are no longer required to report those releases, as well as the Federal, state and local governments responsible for receiving the reports. The economic analysis completed for this proposed rule is available in the docket for this rulemaking and is based on the underlying economic analyses that were completed for the regulations that established the notification requirements. 9 We estimate that this proposed rule will reduce burden on farms associated with making notifications under CERCLA section 103 and EPCRA section 304 by approximately 3,432,000 hours over the ten year period beginning in 2009 and associated costs by approximately $160,173,000 over the same period. We estimate that this proposed rule will also reduce burden on Federal, State and local governments responsible for receiving and processing the notifications under CERCLA section 103 and EPCRA section 304 by approximately 161,000 hours over the ten year period beginning in 2009 and associated costs by approximately $8,109,000 over the same period. In evaluating the potential burden and cost savings to those farms that would no longer be required to make notifications under CERCLA section 103 and EPCRA section 304 and the government entities that are no longer required to receive and process such notifications, we used the same universe as used in the 2003 CAFO Rule (see 68 FR 7176, Feb 12, 2003). We also assumed that over the ten year period (2009-2018) that there would be a declining number of CAFOs; however, some of those operations would increase in size. 9 The following documents are available in the Superfund Docket, EPA-HQ-SFUND-2007-00469: *Regulatory Impact Analysis of Reportable Quantity Adjustments Under Sections 102 and 103 of the Comprehensive Environmental Response, Compensation, and Liability Act* , Volume 1 (March 1985); *Regulatory Impact Analysis in Support of Rulemaking Under Sections 302, 303, and 304 of Title III of the Superfund Amendments and Reauthorization Act of 1986* (April 1987); and *Economic Analysis in Support of the Continuous Release Reporting Regulation Under Section 103(f)(2) of the Comprehensive Environmental Response, Compensation, and Liability Act* (April 1990). IV. Statutory and Regulatory Reviews A. Executive Order 12866 (Regulatory Planning and Review) Under Executive Order 12866 (58 FR 51735, October 4, 1993), this action is a “significant regulatory action.” The Order defines “significant regulatory action” as one that is likely to result in a rule that may:
(1)Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities;
(2)create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
(3)materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
(4)raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Pursuant to the terms of Executive Order 12866, it has been determined that this proposed rule is a “significant regulatory action” because it raises novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Accordingly, EPA submitted this proposed rule to the Office of Management and Budget
(OMB)for review and any changes made in response to OMB recommendations have been documented in the docket for this action. B. Paperwork Reduction Act This action does not impose any new information collection burden. Rather, this proposed rule represents a reduction in burden for both industry and the government by administratively exempting the reporting requirement for releases of hazardous substances to the air from animal waste at farms. OMB has previously approved the information collection requirements contained in the existing regulations 40 CFR part 302 and 40 CFR part 355 under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501, *et seq.* and has assigned OMB control number 2050-0046, EPA ICR number 1049.10 for 40 CFR 302.6 (Episodic releases of oil and hazardous substances), OMB control number 2050-0086, EPA ICR number 1445.06 for 40 CFR 302.8 (Continuous release reporting requirements) and OMB control number 2050-0092, EPA ICR number 1395.06 for 40 CFR 355 (Emergency planning and notification). A copy of the OMB approved Information Collection Request
(ICR)may be obtained by writing to: Director, Collection Strategies Division; U.S. Environmental Protection Agency (2822T); 1200 Pennsylvania Ave., NW., Washington, DC 20460 or by calling
(202)566-1700. EPA ICR number 1049.10 covers collection requirements for notification of episodic releases of oil and hazardous substances; EPA ICR number 1445.06 covers collection requirements for the continuous release reporting requirements; and EPA ICR number 1395.06 covers collection requirements for the notification requirements for releases of hazardous substances and extremely hazardous substances to both SERCs and LEPCs. Each of these information collections are affected by this proposed rule. However, this proposed rule represents a reduction in the burden for both industry and the government through an administrative reporting exemption from those reporting requirements. Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency. This includes the time needed to review instructions; develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information; adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information. An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. C. Regulatory Flexibility Act The Regulatory Flexibility Act
(RFA)generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impacts of this proposed rule on small entities, small entity is defined as:
(1)A small business as defined by the Small Business Administration's
(SBA)regulations at 13 CFR 121.201;
(2)a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; and
(3)a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. After considering the economic impacts of this proposed rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, since the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of the rule on small entities.” 5 U.S.C. 603 and 604. Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule. This rulemaking will relieve regulatory burden because we propose to eliminate the reporting requirement for releases of hazardous substances to the air from animal waste at farms. We expect the net reporting and recordkeeping burden associated with reporting air releases of hazardous substances from animal waste at farms under CERCLA section 103 and EPCRA section 304 to decrease. This reduction in burden will be realized by small and large businesses. We have therefore concluded that this proposed rule will relieve regulatory burden for all affected small entities. We continue to be interested in the potential impacts of the proposed rule on small entities and welcome comments on issues related to such impacts. D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law 104-4, establishes requirements for Federal agencies to assess the effects of their regulatory actions on state, local, and tribal governments and the private sector. Under section 202 of the UMRA, EPA generally must prepare a written statement, including a cost-benefit analysis, for proposed and final rules with “Federal mandates” that may result in expenditures to state, local, and tribal governments, in the aggregate, or to the private sector, of $100 million or more in any one year. Before promulgating an EPA rule for which a written statement is needed, section 205 of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost-effective or least burdensome alternative that achieves the objectives of the rule. The provisions of section 205 do not apply when they are inconsistent with applicable law. Moreover, section 205 allows EPA to adopt an alternative other than the least costly, most cost-effective or least burdensome alternative if the Administrator publishes with the final rule an explanation why that alternative was not adopted. Before EPA establishes any regulatory requirements that may significantly or uniquely affect small governments, including tribal governments, it must have developed under section 203 of the UMRA a small government agency plan. The plan must provide for notifying potentially affected small governments, enabling officials of affected small governments to have meaningful and timely input in the development of EPA regulatory proposals with significant Federal intergovernmental mandates, and informing, educating, and advising small governments on compliance with the regulatory requirements. This proposed rule contains no Federal mandates (under the regulatory provisions of Title II of the UMRA) for state, local, or tribal governments or the private sector. That is, the proposal imposes no enforceable duty on any state, local or tribal governments or the private sector; rather, this proposed rule will result in burden reduction in the receipt of notifications of the release to the air of hazardous substances, primarily ammonia and hydrogen sulfide, from animal waste at farms. Additionally, EPA has determined that this proposed rule contains no regulatory requirements that might significantly or uniquely affect small governments. This proposed rule reduces regulatory burden and the private sector is not expected to incur costs exceeding $100 million. Thus, the proposal is not subject to the requirements of Sections 202 and 205 of UMRA. E. Executive Order 13132 (Federalism) Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999), requires EPA 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.” “Policies that have federalism implications” is defined in the Executive Order 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.” This proposed rule does not have federalism implications. It will not 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, as specified in Executive Order 13132. There are no state and local government bodies that incur direct compliance costs by this proposed rulemaking. Thus, Executive Order 13132 does not apply to this rule. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and state and local governments, EPA specifically solicits comment on this proposed rule from state and local officials. F. Executive Order 13175 (Consultation and Coordination With Indian Tribal Governments) Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000), requires EPA to develop an accountable process to ensure “meaningful and timely input by tribal officials in the development of regulatory policies that have tribal implications.” This proposed rule does not have tribal implications, as specified in Executive Order 13175. This proposed rule does not significantly or uniquely affect the communities of Indian tribal governments, nor would it impose substantial direct compliance costs on them. Thus, Executive Order 13175 does not apply to this rule. G. Executive Order 13045 (Protection of Children From Environmental Health Risks and Safety Risks) The Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997) applies to any rule that:
(1)Is determined to be “economically significant” as defined under Executive Order 12866, and
(2)concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, the Agency must evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency. This proposed rule is not subject to the Executive Order because it is not economically significant as defined in Executive Order 12866. H. Executive Order 13211 (Energy Effects) This proposed rule is not a “significant energy action” as defined in Executive Order 13211, “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355 (May 22, 2001)) because it is not likely to have a significant adverse effect on the supply, distribution, or use of energy. This proposed rule will reduce the burden associated with the notification of releases to air of hazardous substances from animal waste at farms. I. National Technology Transfer and Advancement Act of 1995 (“NTTAA”) Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (e.g., materials specifications, test methods, sampling procedures, and business practices) that are developed or adopted by voluntary consensus standards bodies. The NTTAA directs EPA to provide Congress, through OMB, explanations when the Agency decides not to use available and applicable voluntary consensus standards. This proposed rulemaking does not involve technical standards. Therefore, EPA is not considering the use of any voluntary consensus standards. J. Executive Order 12898 (Federal Actions To Address Environmental Justice in Minority Populations and Low-Income Populations) Executive Order 12898 (59 FR 7629 (Feb. 16, 1994)) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high and adverse human health or environmental effects of their programs, policies, and activities on minority populations and low-income populations in the United States. EPA has determined that this proposed rule will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. As discussed in the Background section of the preamble for this proposed rule, the adjusted RQs do not reflect the determination that a release of a substance will be hazardous at the RQ level and not hazardous below that level. Instead, the RQs reflect the Agency's judgment of which releases should trigger notification to the federal government so that the government may assess to what extent, if any, a federal removal or remedial action may be necessary. In addition, the requirement to notify the government under CERCLA section 103 and EPCRA section 304 does not require the notifying entity to take any specific action to address the release. Therefore because the notification is not specifically designed to protect human health or the environment and EPA has determined that a response action would be unlikely, EPA does not believe that exempting these releases from CERCLA section 103 and EPCRA section 304 notification requirements will have a disproportionately high and adverse human health or environmental effect on minority or low-income populations. This proposed rule addresses information collection requirements for CERCLA section 103 and EPCRA section 304. No EPCRA programs, other than the emergency notification program under EPCRA section 304, are included in this proposal and the Agency is not proposing to limit CERCLA sections 104 (response authorities), 106 (abatement actions), 107 (liability), or any other provisions of CERCLA through this proposed rulemaking. The Agency also retains its authority to apply existing statutory provisions in its efforts to prevent minority and or low-income communities from being subject to disproportionately high and adverse impacts and environmental effects. We therefore have determined that this proposal does not have a disproportionately high and adverse human health or environmental effects on minority or low-income populations. List of Subjects 40 CFR Part 302 Air pollution control, Chemicals, Hazardous substances, Hazardous waste, Intergovernmental relations, Natural resources, Reporting and recordkeeping requirements, Superfund, Water pollution control, Water supply. 40 CFR Part 355 Air pollution control, Chemicals, Disaster assistance, Hazardous substances, Hazardous waste, Intergovernmental relations, Natural resources, Penalties, Reporting and recordkeeping requirements, Superfund, Water pollution control, Water supply. Dated: December 20, 2007. Stephen L. Johnson, Administrator. For the reasons set out in the preamble, title 40, chapter I of the Code of Federal Regulations is proposed to be amended as follows: PART 302—DESIGNATION, REPORTABLE QUANTITIES, AND NOTIFICATION 1. The authority citation for part 302 continues to read as follows: Authority: 42 U.S.C. 9602, 9603, 9604; 33 U.S.C. 1321 and 1361. 2. Section 302.3 is amended by adding in alphabetical order the definitions of “Animal waste” and “Farm” to read as follows: § 302.3 Definitions. *Animal Waste* means manure (feces, urine, other excrement, and bedding, produced by livestock that has not been composted), digestive emissions, and urea. The definition includes animal waste when mixed or commingled with bedding, compost, feed, soil and other typical materials found with animal waste. *Farm* means:
(1)Any place whose operation is agricultural and from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the census year. Operations receiving $1,000 or more in Federal government payments are counted as farms, even if they have no sales and otherwise lack the potential to have $1,000 or more in sales; or
(2)A Federal or state poultry, swine, dairy or livestock research farm. 3. Section 302.6 is amended by adding paragraph (e)(3) to read as follows: § 302.6 Notification requirements.
(e)* * *
(3)Releases to the air of any hazardous substance from animal waste at farms. PART 355—EMERGENCY PLANNING AND NOTIFICATION 4. The authority citation for part 355 continues to read as follows: Authority: 42 U.S.C. 11002, 11004, and 11048. 5. Section 355.20 is amended by adding in alphabetical order the definitions of “Animal waste” and “Farm” to read as follows: § 355.20 Definitions. *Animal Waste* as used in § 355.40 only, animal waste means manure (feces, urine, other excrement, and bedding, produced by livestock that has not been composted), digestive emissions, and urea. The definition includes animal waste when mixed or commingled with bedding, compost, feed, soil and other typical materials found with animal waste. *Farm* as used in § 355.40 only, farm means:
(1)Any place whose operation is agricultural and from which $1,000 or more of agricultural products were produced and sold, or normally would have been sold, during the census year. Operations receiving $1,000 or more in Federal government payments are counted as farms, even if they have no sales and otherwise lack the potential to have $1,000 or more in sales; or
(2)A Federal or state poultry, swine, dairy or livestock research farm. 6. Section 355.40 is amended by adding paragraph (a)(2)(viii) to read as follows: § 355.40 Emergency release notification.
(a)* * *
(2)* * *
(viii)Any release to the air of a hazardous substance from animal waste at farms. [FR Doc. E7-25231 Filed 12-27-07; 8:45 am] BILLING CODE 6560-50-P DEPARTMENT OF HEALTH AND HUMAN SERVICES Centers for Medicare and Medicaid Services 42 CFR Parts 422, 423, and 498 Office of the Inspector General 42 CFR Part 1005 Office of the Secretary 45 CFR Parts 16, 81, 160 and 1303 RIN 0991-AB42 Revisions to Procedures for the Departmental Appeals Board and Other Departmental Hearings AGENCY: Office of the Secretary, Centers for Medicare and Medicaid Services, HHS. ACTION: Notice of Proposed Rulemaking. SUMMARY: The Department of Health and Human Services (Department) proposes to amend Departmental regulations governing administrative review by the Departmental Appeals Board
(DAB)and certain other administrative review regulations to ensure that the final administrative decision of the Department reflects the considered opinion of the Secretary of Health and Human Services (Secretary). Current regulations at 45 CFR Part 16 governing the review of grant disputes do not specifically require the DAB to follow published guidance issued by the Secretary or a Departmental component. The DAB decision is currently the final administrative decision of the Department on such disputes and currently there is no Secretarial review of this final decision. Similarly, the DAB currently provides the final agency review of the imposition of civil monetary penalties
(CMPs)for which administrative appeal is available under 45 CFR Part 160, Subpart E, enforcement sanctions under 42 CFR Part 422 and 423, determinations subject to reconsideration and appeal under 42 CFR Part 498 and the imposition by the Inspector General of the Department (I.G.) or the Centers for Medicare and Medicaid Services
(CMS)of exclusions, CMPs and assessments subject to appeal under 42 CFR Part 1005. As in 45 CFR Part 16, the decisions of the DAB under these processes are considered the final agency action on matters, though they are not subject to Secretarial review. This proposed rule would amend DAB regulations to require that the DAB follow published guidance that is not inconsistent with applicable statutes and regulations and would permit the Secretary an opportunity to review DAB decisions to correct errors in the application of law, or deviations from published guidance, in such disputes. This proposed rule would make technical changes to the regulations at 45 CFR Part 16. This proposed rule would also amend hearing and appeal procedures at 45 CFR Part 160, Subpart E and at 42 CFR Parts 422, 423 and 498 to include a parallel statement regarding the treatment of published guidance. Similarly, this proposed rule would amend the procedures at 45 CFR Part 81 to provide a similar statement regarding the treatment of published guidance by hearing examiners and reviewing authorities. In addition, this proposed rule would amend the hearing and appeal procedures at 45 CFR Part 160, Subpart E and 42 CFR Parts 422, 423, 498 and 1005 to provide a parallel opportunity for Secretarial review of DAB decisions. Finally, this proposed rule would revise the procedures for Head Start grantee appeals by applying the current 60-day time limit for “final decisions” to the Board's decision. DATES: To be assured consideration, comments must be received at one of the addresses provided below, no later than 5 p.m. on January 28, 2008. ADDRESSES: You may submit comments either by E-mail to *randolph.pate@hhs.gov* or by mail to: Randy Pate, 200 Independence Ave., SW., Room 415F, Washington, DC 20201. Comments mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period. FOR FURTHER INFORMATION CONTACT: Randy Pate, 202-690-7858. SUPPLEMENTARY INFORMATION: I. Background HHS was the first federal grantor agency to offer a structured process of administrative dispute resolution for its grantees on a large scale, when, in 1973, it established what was then called the Departmental Grant Appeals Board. The name was changed to the Departmental Appeals Board
(DAB)when, as noted below, the jurisdiction was significantly expanded. The name “Departmental Appeals Board” is now used to refer to two entities:
(1)the decision-making body consisting of Board Members, appointed by the Secretary, who issue decisions made by panels of three Board Members; and
(2)in general, the larger organization, which is located in the Office of the Secretary and which includes not only the Board, but also Administrative Law Judges (ALJs), Administrative Appeals Judges who serve on the Medicare Appeals Council, and organizational divisions that support the Board Members and Judges, and perform other organizational functions. Below, we use the term “Board” to refer to the decision-making body and the acronym “DAB” to refer to the larger organization. The current rules for the Board, at 45 CFR Part 16, were issued on August 31, 1981, at 46 FR 43818. Those rules set out a fair, quick and flexible process for appeal from final written decisions. The rules provide a framework which has been used by the Department for resolution of an increasing range of disputes. The basic jurisdiction of the Board over grant disputes is described in Appendix A to the current regulations at 45 CFR Part 16. This jurisdiction is exercised by the Board Members, with support from the Appellate Division of the DAB. The Board also has appellate jurisdiction over disputes that are heard by Administrative Law Judges
(ALJs)who, in most cases, are assigned to the DAB and supported by the Civil Remedies Division of the DAB. These ALJ hearings are conducted pursuant to separate regulatory provisions, but ALJ decisions are subject to review by the Board. In 1988, the Secretary delegated to the DAB responsibility for adjudicating civil money penalties and exclusions imposed under a wide range of fraud and abuse authorities. In 1993, the Secretary delegated to the DAB responsibility for hearing appeals in provider and supplier participation, enrollment and enforcement cases brought by CMS. Also, when the Social Security Administration
(SSA)became an independent agency in 1995, the Secretary delegated to the Board Chair the Medicare Appeals Council function of hearing appeals in Medicare coverage, payment and entitlement cases. The DAB has final review authority over the reconsideration and appeal process for determinations under 42 CFR Part 498. These are procedures for reviewing certain specified initial determinations, which include those that affect participation in the Medicare and Medicaid programs, impose sanctions on certain providers, and impose enforcement remedies on laboratories under both Medicare and the Clinical Laboratories Improvement Amendments of 1988. Under these procedures, providers or suppliers generally have a right to a hearing before an ALJ, and a review of the ALJ decision by the Board. When this process was first established, by final rule published at 33 FR 7317 (May 17, 1968), the final review was vested in the Appeals Council of the Social Security Administration, which was then a component agency of this Department. Final review authority was transferred to the DAB after the SSA became an independent agency. 61 FR 32347 (June 24, 1996). The DAB has final review authority under 42 CFR Part 1005 over disputes concerning the imposition of exclusions, CMPs, and assessments relating to health care fraud and abuse under sections 1128 and 1128A of the Social Security Act as well as other disputes. CMS and the I.G. have been delegated the authority by the Secretary to administer these health care fraud and abuse authorities, as described in 42 CFR Parts 402, 1001, 1003, and 1005. As provided in 42 CFR Part 1005, disputes concerning the exercise of these authorities are heard by an ALJ, and the decision of the ALJ may be appealed to the DAB. Under these regulations, the scope of ALJ and DAB review is limited. The DAB has review authority concerning Medicare Local Coverage Determinations
(LCDs)and National Coverage Determinations
(NCDs)pursuant to section 1869(f)(1) of the Social Security Act and to regulations at 42 CFR Part 426. Challenges to LCDs are heard initially by ALJs, with a statutory right of appeal to the Board, and challenges to NCDs are heard by the DAB directly. This proposed rule would not affect the LCD or NCD review authority. Under 45 CFR Part 150, ALJs of the DAB provide hearings concerning the imposition of civil money penalties by CMS against health insurance issuers and non-federal governmental plans for failure to comply with requirements of title XXVII of the Public Health Service Act and with regulations at 45 CFR Parts 146 and 148 (“HIPAA portability requirements”). This proposed rule would not affect these hearings, which are subject to review by the CMS Administrator. On February 16, 2006, at 71 FR 8389, the Department issued final rules located in 45 CFR Part 160, Subpart E, providing for Board final review authority over disputes involving the imposition of civil money penalties for violation of the Administrative Simplification provisions of Title II of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and its implementing regulations. These provisions contain standards for certain financial and administrative transactions, code sets, unique health identifiers and the security and privacy of certain health information. The authority for civil money penalties is contained in section 1176 of the Social Security Act, 42 U.S.C. 1320d-5, which at subparagraph (a)(2) provides an opportunity for administrative appeals, by incorporating by reference section 1128A of the Social Security Act, which includes the administrative hearing and appeals requirements set forth in section 1128A(c), 42 U.S.C. 1320a-7a. On December 5, 2007, at 72 FR 68700, CMS issued final regulations at 42 CFR Parts 422 and 423 providing for appeals of civil money penalties imposed on Medicare Advantage organizations and Medicare prescription drug sponsors (based on a proposed rule issued May 25, 2007 at 72 FR 29368). These regulations provided for an opportunity for a hearing before an ALJ and review of the ALJ determination by the Board. The DAB also exercises additional hearing and appeal responsibilities based on procedural delegations of authority. Such delegations can be made on a case-by-case basis, through a general delegation of authority over a class of disputes, or through other arrangements between the DAB and the Secretary or the head of the appropriate HHS operating division or other agency responsible for administering the program. As the DAB's jurisdiction has increased, the issues for DAB review have grown in complexity and significance. In addition, the volume of cases has grown considerably. The DAB has responded to the challenges posed with considerable diligence and sophistication. In particular, Board members have developed great expertise in dispute resolution, hearing procedures, and many aspects of the subject Departmental programs. The procedures used by the Board for grant disputes are broadly modeled after adversary judicial proceedings and have been successful in resolving factual disputes based on a record. Current rules, however, lack sufficient safeguards to avoid putting the DAB in a situation where it is prompted to substitute its judgment on interpretive issues for that of the Secretary or the delegated component with interpretive authority. While the Board has considerable expertise in Departmental programs, however, under the current rules, the Board does not have access to the full range of policy considerations that the Secretary and the relevant component may have in interpreting applicable statutes and regulations. Similar considerations apply in the Board's appellate review of ALJ decisions concerning civil money penalties under 45 CFR Part 160, Subpart E, enforcement sanctions under 42 CFR Parts 422 and 423, review of initial determinations under 42 CFR Part 498, or review of ALJ decisions concerning civil remedies. Current regulations at 42 CFR Parts 422, 423, and 498 do not specifically articulate the applicability of statutes, regulations, or published guidance. And the current procedures at 45 CFR Part 160, Subpart E, 42 CFR Part 498 and 42 CFR Part 1005 contain no provision for Secretarial review. As a result, these hearing procedures do not provide sufficient safeguards to ensure that the decisions accurately reflect the considered views of the Secretary. In addition to the Departmental hearing procedures discussed above, under 45 CFR Part 81, there are procedures governing administrative hearings pursuant to Title VI of the Civil Rights Act of 1964 and 45 CFR Part 80. These hearings are conducted by hearing examiners who are authorized, under § 81.62, either to make initial decisions or to recommend findings and propose decisions. These decisions are reviewable by a reviewing authority, under § 81.104, and by the Secretary, under § 81.106. The hearing regulations in 45 CFR Part 81 do not clearly articulate the applicability of statutes, regulations or published guidance. Although the regulations can be read to imply that presiding officers and reviewing authorities will be bound by applicable statutes, regulations and guidance, there is no clear articulation of this standard. As a result, there is a possibility that decisions of presiding officers and reviewing authorities will not accurately reflect applicable law or policy. II. Provisions of This Proposed Rule This rule proposes substantive changes in the general DAB procedures at 45 CFR Part 16, and in the hearing and appeal procedures at 45 CFR Parts 81 and 160, Subpart E, 42 CFR Part 1005 and 42 CFR Part 498. The rule proposes to clarify that, in cases heard by the Board under the authority of 45 CFR Part 16, the Board must follow published guidance issued by the Secretary or relevant component to the extent the guidance is not inconsistent with applicable statutes and regulations. The rule proposes to provide an opportunity for Secretarial review (including, where the Secretary deems appropriate, remand) of Board decisions under 45 CFR Part 16. The rule would also amend 45 CFR Part 16 in several places to update the DAB's title, update the current mailing address, and remove certain outdated regulatory references. And the rule would amend Appendix A to 45 CFR Part 16 to clarify that the Board's authority to hear disputes may arise from a procedural delegation of authority directly from the Secretary or other responsible official. The rule additionally proposes to make conforming amendments to articulate the applicability of statutes, regulations and published guidance in hearing and appeals procedures under 45 CFR Part 81 and Part 160, Subpart E, and under 42 CFR Part 498. We would also provide an opportunity for Secretarial review of decisions under 45 CFR Part 160, Subpart E, and 42 CFR Parts 498 and 1005. We anticipate that, unless there are statutory reasons to the contrary, future areas of DAB jurisdiction will incorporate similar review procedures. We also intend that each of the provisions of this DAB proposed rule will remain in force if any of the provisions are invalidated for any reason. Any final rule based on this proposed rule would be effective prospectively only, and would not affect final decisions that have been issued by the Board prior to the effective date. The final rule would affect cases that are still under Board review as of the effective date of the final rule. We address each of the modifications in this proposed rule individually below: A. Applicability of statutes, regulations and published guidance (45 CFR § 16.14) Current regulations at 45 CFR § 16.14 provide that the Board “shall be bound by all applicable laws and regulations.” This provision, however, does not address the weight to be afforded interpretations of statutes and regulations that have been adopted by the Secretary either directly or through the Departmental component with delegated authority to administer the program whose decision is the subject of Board review. In this proposed rule, we clarify that the Board should follow published guidance of the Secretary or relevant component, to the extent not inconsistent with applicable statutes and regulations. This requirement would parallel the standard included at 45 CFR § 160.508(c)(1) of the final regulations recently issued governing appeals involving the imposition of civil money penalties for violations of the Administrative Simplification provisions under HIPAA and its implementing regulations. As we indicated in that rulemaking, by “published guidance” we mean to include guidance that has been publicly disseminated. 71 FR 8416. In this case, this includes, for example, guidance issued through manual provisions, State Medicaid Directors letters, or posting on the CMS Web site. While this would not include written statements that are issued to particular grantees, or in briefs filed by the respondent agency in litigation, we expect that the Board would give weight to such statements in the absence of contrary published guidance or conflicts with other agency statements, as an initial exercise of the interpretative authority delegated to the agency and an expression of the agency's policy expertise. This is particularly true with respect to issues of first impression. When there is no published guidance on an issue, or when there is ambiguity in the published guidance, we would expect the Board to review relevant unpublished issuances for direction in interpreting such an issue. By “relevant component” we mean the Departmental component delegated responsibility for interpreting and administering the provision at issue. This would not necessarily be the component that is a party in the proceeding before the Board. For example, the issuances of a component operating a grant program would not be controlling with respect to interpretations of cost allocation requirements, since responsibility for interpreting such requirements is delegated to the Departmental Division of Cost Allocation. To make this clear, we are also providing that the Board will be bound by Secretarial delegations of authority. This clarification would help to ensure that the decisions of the Board reflect the considered judgment of the Department on such issues. The proposed provision would explain that it is not the role of the Board to weigh the relative strengths of an interpretation adopted after due consideration of relevant factors by the Department or its components. The strength of regulatory and policy interpretations are necessarily considered in their adoption. It is the role of the Department and its components to craft regulations and adopt policy interpretations. In that process, the Department necessarily contemplates various policy alternatives and litigation risks. Those considerations are legitimately left to the discretion of the Department and its components rather than an adjudicative body like the Board. Because the Board was created as an adjudicator, separate and apart from the policy-making components of the Department, its role is important but limited. As the Supreme Court has recognized, where a separate administrative adjudicatory body is created, its role is limited to finding facts and resolving individual disputes, but it is not authorized to develop new interpretive policies. Having the DAB substitute its policy views would limit the ability of the Department to determine the level of acceptable risk in light of program priorities and goals, and ultimately would limit Departmental flexibility in performing its functions. We anticipate that this change would have greater effect in statutory entitlement programs than it would in discretionary grant programs. In certain discretionary grant programs, the requirements are neither statutory nor regulatory but are largely set by the grant award terms and conditions. These requirements are akin to contractual obligations. In these discretionary grant programs, the issue of notice to the grantee of a purported requirement may be the key issue in resolving disputes. The adequacy of the notice may depend on the specific grant documents applicable to the grant award. By contrast, in statutory entitlement programs, requirements are set in statute and regulation, and disputes focus on statutory and regulatory interpretation. In those instances, the DAB would be required to follow published guidance of the Secretary or the relevant component on the interpretive issue. Notice to the grantee generally would not be determinative in a statutory program since the applicable statute or regulation gives grantees notice of the scope of interpretive flexibility. B. Secretarial Review of DAB Decisions Concerning Disputes (45 CFR 16.21) The original rules of the Board provided for the relevant constituent component of the Department to review, modify, or reverse Board decisions before they became final decisions of the Secretary. 45 CFR 16.10 (1973); 38 FR 9907 (Apr. 20, 1973). In 1978, HHS's rules were modified so that the Board decisions would be “final administrative decisions with respect to reconsideration of disallowances arising under various Federal-State public assistance programs.” 43 FR 9264, 9264 (March 6, 1978). When the current Board grant review regulations were originally proposed on January 6, 1981, 46 FR 1644, there was a provision for Secretarial review of Board decisions. In the final rules, adopted on August 31, 1981, 46 FR 43816, that provision was omitted. The preamble to the final rule stated that numerous comments had been submitted on this issue, and that “[t]he Department continues to study whether Board decisions should be ‘final’ or should be subject to Secretarial review.” The preamble indicated that the omission of the provision for Secretarial review did not reflect a final decision on this issue, but was an interim measure “to avoid further delay in implementing these procedures.” Now, with over 20 years of experience, we are again proposing to authorize Secretarial review of Board decisions. This change is intended to ensure consistency in decision making and to ensure that the Secretary's policies are correctly implemented. Further, this proposed change is consistent with the rules originally establishing the Board for adjudication of grant disputes. While we intend that the instances of Secretarial review will be limited, the availability of such review is essential to ensure the accuracy of DAB decisions in reflecting the proper application of relevant statutes, regulations and interpretive policy. Such accuracy is important because Board decisions are binding on the Department in the case at hand, are considered final federal agency action for purposes of judicial review, and may have some precedential value for future adjudications. In cases of first impression, these decisions may be the first articulation of Departmental interpretation and implementation of policies with respect to applicable statutes and regulations. Only through review of DAB decisions can the Department exercise its full authority to interpret and implement statutory and regulatory provisions and ensure that the Secretary's policies are appropriately implemented. The Secretary's views will continue to be ultimately subject to federal court review. We are proposing a clear time frame for the Secretary to determine whether to undertake review, so as not to unduly delay the administrative review process and the availability of judicial review. We believe 30 days should be sufficient time for the Secretary to determine whether review is warranted. We have not proposed any process for either party to request Secretarial review, and we do not anticipate that the Secretary or the delegated official performing the review would consider external requests for review. We anticipate that Secretarial review will ordinarily be completed within a 45-day time frame after acceptance of review. In light of the varying complexity and significance of Board cases, however, we are not proposing to limit the time for Secretarial consideration. For example, additional time may be required in cases involving a voluminous record, or when additional development of the record is necessary. After undertaking review, the Secretary would be authorized to affirm or reverse a Board decision, or to remand a case back to the Board for further consideration of identified errors in the application of statutes, regulations or interpretive policy. In cases where Secretarial review is undertaken, the original DAB decision would be regarded as a proposed decision, and would be set aside to the extent inconsistent with the Secretary's review decision. In cases involving certain parts of title IV of the Social Security Act, the Secretary would only be authorized to affirm the Board or remand the case back to the Board with instructions for further consideration. This is because sections 410(c) and 1123A(c) of the Social Security Act, pertaining to the program for Temporary Assistance for Needy Families, provide that the final decision of the Board is appealable to federal court. In these cases, while we would provide for Secretarial review, the Board would issue the final agency decision. We have not proposed in the regulatory text any briefing or other procedures for Secretarial review in order to maintain flexibility to tailor the process to the needs of the particular case. We anticipate that the Secretary would notify the parties as to the procedures to be followed. But we invite comments on whether the regulations should specify procedures for Secretarial review. We propose to require that the Secretary would issue a written decision upon review. In the case of affirmance or reversal of the Board decision, this would be the final decision of the Secretary on the matter. The written decision would contain the basis for the Secretary's conclusions. In the case of a summary affirmance, or a partial affirmance, the written decision could incorporate by reference some or all of the Board decision. In the case of a remand of the case to the Board for further proceedings, the written remand order would include the basis for remand and would instruct the DAB in the proper application of statutes, regulations or interpretive policy. Upon remand, the Board would be bound by the Secretary's remand instructions. The Board would be responsible, however, to apply the law to the facts of the particular case. The Board would thus issue a new decision in accordance with the Secretary's instructions. While we anticipate that Secretarial review will be a review of the record created before the Board, the Secretary may identify specific issues for which additional briefing by the parties is necessary. This additional briefing would ensure that the record fully reflects the factual, legal and policy issues that the Secretary considers in reviewing the case. Such additional briefing would ensure that both sides have a full and fair opportunity to respond to issues that the Secretary determines are relevant to the outcome. We do not presently contemplate providing the parties a right to request an additional briefing opportunity, but we solicit comments on whether there are circumstances in which such a right would be appropriate. C. Technical Changes (45 CFR Part 16) 1. Title of 45 CFR Part 16, 45 CFR §§ 16.2 and 16.20(a)—Updating DAB Name and Address We propose to delete the word “Grant” from the title of 45 CFR Part 16 and the definition of the “Board” in § 16.2, and to update the name and address of the DAB in § 16.20(a). In § 16.20(a), we would reference filing instructions set forth in the final written decision being appealed and the Appellate Division Practice Manual found on DAB's Web site. We indicate that the DAB's mailing address can be found on that Web site because the Web site can reflect updated addresses. We also list the 2007 address. In light of these references, we would delete § 16.20(d) and (e), since these provisions refer to issues addressed in the filing instructions noted in revised § 16.20(a) and, furthermore, do not reflect current Board procedures relating to electronic submissions. 2. 45 CFR §§ 16.3(b), 16.7(a), 16.12 and 16.22(b)(1)-Deleting Outdated References 45 CFR §§ 16.3(b), 16.7(a) and 16.22(b)(1) contain outdated references to sections of 45 CFR Part 74, which has since been revised so that the cited sections no longer correspond to the referenced substance. For example, the references to 45 CFR 74.304 in § 16.3(b) and 16.7(a) would more properly be to 45 CFR 74.90. We propose to delete these references both because they are outdated and because the regulations at 45 CFR Part 74 are general cross-cutting Departmental rules and many of the programs subject to review now have individualized regulatory provisions that address the same subjects, in some cases in more detail. 45 CFR 16.12(d) contains an outdated reference to the Public Health Service, which we would delete. Instead, we would insert a parenthetical reference to the process set forth at 42 CFR Part 50 as an example of a formal preliminary review process. 3. 45 CFR Part 16, Appendix A—Updating References and Reflecting Board Authority to Hear Disputes Based on Procedural Delegations of Authority In Appendix A, we propose to update or delete outdated statutory and regulatory references. In addition, as noted above, the Board exercises hearing and appeal responsibilities based on procedural delegations of authority to the Board from the Secretary, the head of the appropriate HHS component responsible for administering the program. Such a delegation may be made on a case-by-case basis, through general delegations of authority over a class of disputes, or through other arrangements between the DAB and the Secretary or the head of the appropriate HHS component responsible for administering the program. The proposed rule would clarify Appendix A to make clear that the Board may hear cases based on such a delegation. D. Addition of 45 CFR § 81.64—Conforming Changes in Standard of Review Regulations in 45 CFR Part 81 set forth procedures for administrative hearings pursuant to Title VI of the Civil Rights Act of 1964 and 45 CFR Part 80. These hearings are conducted by hearing examiners who are authorized, under § 81.62, to either make initial decisions or recommended findings and proposed decisions. These decisions are reviewable by a reviewing authority, under § 81.104, and by the Secretary, under § 81.106. The regulations governing these hearings and reviews, however, do not clearly articulate the standard of review to be applied by hearing examiners and reviewing authorities in reviewing issues of law, regulation or policy interpretation. We are thus proposing to add a new section, § 81.64, to explain that hearing examiners and reviewing authorities are bound by all applicable statutes, regulations, Secretarial delegations of authority and published guidance and interpretations of the Secretary or relevant component to the extent not inconsistent with applicable statutes and regulations. This is the same standard, discussed above, that would be applied in DAB review under 45 CFR Part 16. This change would thus conform the standard of review in these hearings with the standard of review in other Departmental hearing procedures. E. 45 CFR §§ 160.508(c), 160.548, and 160.554—Conforming Changes in Standard of Review, Removal of Board Decision Reconsideration Process and Provision for Secretarial Review Authority Regulations at 45 CFR Part 160, Subpart E, set out procedures for administrative hearings for disputes involving the imposition of civil money penalties for violation of the Administrative Simplification provisions of HIPAA and its implementing regulations. Current regulations in 45 CFR § 160.508(c)(1) articulate limitations on ALJ review with respect to finding invalid or refusing to follow Federal statutes, regulations, or Secretarial delegations of authority, or refusing to defer to published Departmental guidance. While we believe these limitations embody the same principles as the limitations that we are proposing elsewhere in this rulemaking, we are proposing to revise slightly 45 CFR § 160.508(c)(1) to conform the description of these limitations to the other proposed regulatory provisions discussed in this rulemaking. These limitations are also intended to apply to Board appellate review of the ALJ decisions. Accordingly, to make clear that these same limitations also apply to Board appellate review of ALJ decisions, we propose to add a provision to that effect at § 160.548(h)(2). We also propose to provide for Secretarial review authority for Board and certain ALJ decisions by inserting a new proposed § 160.554 and making conforming changes to 45 CFR 160.548(j) and (k)(1). The same considerations discussed above with respect to DAB review under 45 CFR Part 16 apply to decisions concerning civil money penalties for violations of Administrative Simplification requirements that are subject to the appeal processes set forth under 45 CFR Part 160. Thus, we believe that Secretarial review authority is appropriate under these provisions. Because Board review is not a mandatory part of the appeals process under Part 160 (the Board can decline review of an ALJ decision), we are proposing Secretarial review of both ALJ decisions that the Board has declined to review and Board decisions. To ensure that the Board has the primary review authority, however, we propose that the Secretary will only be able to review an ALJ decision after the Board denies a request for review of the case. In addition, because of the proposed addition of Secretarial review to the HIPAA Administrative Simplification hearing appeals process, we are proposing to remove the level of review that currently exists at § 160.548(j) for reconsideration by the Board, on request of either party, of its own decisions. The proposed removal of the reconsideration process would ensure the appeals process remains efficient and is not unduly prolonged. Also, the removal of the reconsideration process would better align the appeals process at Part 160 with the appeals process provided in the regulations at 42 CFR Part 1005, upon which the hearing appeals provisions at 45 CFR Part 160 were originally based. F. Revision of 45 CFR 1303.17(a) To Conform Timing for Head Start Appeals To Provide for Opportunity for Secretarial Review The current provisions at 45 CFR 1303.17(a) require that the “final” decision be rendered not later than 60 days after the closing of the record before the Board. We propose to revise this regulation by providing that this time limit is applicable only to the timing of the Board's decision, by replacing the phrase “final decision” with “Board's decision.” G. Revision of 42 CFR Parts 422 and 423 By the addition of 42 CFR §§ 422.1007, 422.1085, 423.1007 and 423.1085 and Revisions to 42 CFR §§ 422.1068, 422.1078(c), 422.1086, 422.1088, 423.1068, 423.1078(c), 423.1086, and 423.1088—Conforming Articulation of Limitations on Review and Provision for Secretarial Review Authority Recently issued regulations in 42 CFR Parts 422 and 423 do not articulate the principle that administrative law judges and the Board are bound by all applicable statutes and regulations. Articulation of this principle may prevent inappropriate arguments or requests for equitable relief unfounded in law or practice. The articulation of this principle will also make the appeals process more transparent. In addition, we propose to include in the new regulatory provision language parallel to the language proposed for 45 CFR § 16.14 regarding the treatment of published guidance by the Secretary or relevant component. We see no basis to distinguish the scope of review in appeals under 42 CFR Parts 422 and 423 from that proposed in appeals under 45 CFR Part 16. In all cases, the fundamental interpretive authority rests in the Secretary or the component delegated the authority by the Secretary to administer the provisions at issue. We also propose to provide authority for Secretarial review of Board and ALJ decisions by adding 42 CFR §§ 422.1085 and 423.1085. The same considerations discussed above with respect to Board review under 45 CFR Part 16 apply to decisions concerning initial determinations under Medicare and Medicaid that are subject to the appeal processes set forth under 42 CFR Parts 422 and 423. Thus, we believe that Secretarial review authority is appropriate under these appeal provisions. Secretarial review ensures that the Department exercises its full authority to interpret and implement statutory and regulatory provisions and ensures that the Secretary's policies are appropriately implemented. The Secretary's views will continue to be ultimately subject to federal court review. Because DAB review is not a mandatory part of the appeals process under Parts 422 and 423 (the Board can deny review of an ALJ decision), we are proposing Secretarial review of both ALJ decisions and Board decisions. By this, we intend that where the Board denies or dismisses review of an ALJ decision (42 CFR §§ 422.1078 and 423.1078), the Secretary may review the ALJ decision and affirm, reverse or remand, parallel to the authority in the proposed 45 CFR § 16.21. To ensure that the Board has the primary review authority, however, we propose that the time frame for determination of whether the Secretary will review an ALJ decision will run only from the time that the Board denies a request for review of the case. In sum, we are proposing a similar opportunity for Secretarial review under this provision as we propose under 45 CFR Part 16. H. Addition of 42 CFR § 498.8 and Revisions to 42 CFR §§ 498.74, 498.89 and 498.90—Conforming Articulation of Limitations on Review and Provision for Secretarial Review Authority Current regulations in 42 CFR Part 498 do not articulate the principle that administrative law judges and the Board are bound by all applicable statutes and regulations. While in practice, this principle has generally been applied in decisions, and thus articulation of this principle will not result in any change in practice, its articulation may prevent inappropriate arguments or requests for equitable relief unfounded in law or practice. The articulation of this principle will also make the appeals process more transparent. In addition, we propose to include in the new regulatory provision language parallel to the language proposed for 45 CFR § 16.14 regarding the treatment of published guidance by the Secretary or relevant component. We see no basis to distinguish the scope of review in appeals under 42 CFR Part 498 from that proposed in appeals under 45 CFR Part 16. In both cases, the fundamental interpretive authority rests in the Secretary or the component delegated the authority by the Secretary to administer the provisions at issue. We also propose to provide authority for Secretarial review of Board and ALJ decisions. The same considerations discussed above with respect to Board review under 45 CFR Part 16 apply to decisions concerning initial determinations under Medicare and Medicaid that are subject to the appeal processes set forth under 42 CFR Part 498. Thus, we believe that Secretarial review authority is appropriate under this provision. In particular, there are a significant number of decisions under Part 498 that may be the first articulation of Departmental interpretation and implementation of policies with respect to applicable statutes and regulations. Only through review of these decisions can the Department exercise its full authority to interpret and implement statutory and regulatory provisions and ensure that the Secretary's policies are appropriately implemented. The Secretary's views will continue to be ultimately subject to federal court review. Because DAB review is not a mandatory part of the appeals process under Part 498 (the Board can deny review of an ALJ decision), we are proposing Secretarial review of both ALJ decisions and Board decisions. By this, we intend that where the Board denies review of an ALJ decision (42 CFR §§ 498.74(b)(2), 498.83(a)), the Secretary may review the ALJ decision and affirm, reverse or remand, parallel to the authority in the proposed 45 CFR § 16.21. To ensure that the Board has the primary review authority, however, we propose that the time frame for determination of whether the Secretary will review an ALJ decision will run only from the time that the Board denies a request for review of the case. In sum, we are proposing a similar opportunity for Secretarial review under this provision as we propose under 45 CFR Part 16. I. Revisions to 42 CFR Part 1005—Conforming Provision for Secretarial Review Authority We propose to provide regulatory authority for Secretarial review of Board decisions concerning the exclusion, CMP, and assessment authorities delegated to the I.G. by the Secretary. The same considerations discussed above with respect to Board review under 45 CFR Part 16 and 42 CFR Part 498 apply to such decisions. Thus, we believe that Secretarial review authority is appropriate under this provision. As with 45 CFR Part 16 and 42 CFR Part 498, there are a significant number of decisions under 42 CFR Part 1005 that may be the first articulation of Departmental interpretation and implementation of policies with respect to applicable statutes and regulations. Only through review of these decisions can the Department exercise its full authority to interpret and implement statutory and regulatory provisions and ensure that the Secretary's policies are appropriately implemented. The Secretary's views will continue to be ultimately subject to federal court review. The proposed revisions would provide that, when the Board declines review of an ALJ decision under § 1005.21(g), the Secretary may review the ALJ decision, as contemplated in proposed 42 CFR § 1005.24. To ensure that the Board continues to have the primary review authority, we are proposing that the time frame for determination of whether the Secretary will review an ALJ decision will run only from the time that the Board denies a request for review of the case. In addition, the procedure for Secretarial review has been tailored in proposed § 1005.24 to conform to the administrative appeals process in Part 1005. Because of the limitations on Board review that currently exist in the regulations relating to the exclusion, CMP, and assessment authorities, we do not believe additional clarification is needed with respect to the Board's treatment of published guidance. The regulations limit an ALJ's ability to find invalid or refuse to follow a federal statute or regulation. 42 CFR § 1005.4(c)(1). Also, an ALJ is unable to review the exercise of discretion in imposing a permissive exclusion, CMP, or assessment, or to reduce a period of exclusion to zero. 42 CFR §§ 1005.4(c)(5)-(7). The only issues that may be appealed in an exclusion action are whether the petitioner received proper notice of the exclusion, whether a basis for exclusion exists, and whether the length of the exclusion is unreasonable. 42 CFR § 1001.2007(a). Further, an ALJ is required to follow the determination of the scope and effect of an exclusion. 42 CFR § 1005.4(c)(5). Finally, the Board's standard of review of factual disputes is whether the ALJ's decision is supported by substantial evidence on the whole record. 42 CFR § 1005.21(h). The Board's standard of review of legal disputes is whether the ALJ's decision is erroneous. Id. Because these regulations limit the issues that are appealable, they safeguard the discretion to pursue exclusions, CMPs, or assessments in appropriate cases. The proposed ability of the Secretary to review Board decisions will help preserve the Secretary's authority to interpret the exclusion, CMP, and assessment statutes and regulations. Therefore, we are not amending the DAB standard of review for matters that fall within 42 CFR Part 1005. We are, however, proposing a Secretarial review process under 42 CFR Part 1005 as is similarly proposed under 45 CFR Part 16. III. Response to Comments Because of the large number of public comments we normally receive on **Federal Register** documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the Dates section of this preamble, and, when we proceed with a subsequent document, we will respond to the comments in the preamble to that document. IV. Regulatory Impact Statement We have examined the impact of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), as amended by Executive Order 13422 (January 2007), the Regulatory Flexibility Act
(RFA)(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132. Executive Order 12866, as amended, directs 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). A regulatory impact analysis
(RIA)must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). This rule concerns agency administrative appeal procedures, and any direct burden that is imposed on appellants (such as the cost of additional briefing or the cost of delays in the final agency decision) does not reach the economic threshold and, thus, is not considered a major rule. These changes in agency procedures may impact the handling of administrative appeals that involve more than $100 million in a year. But any impact would result from improved application of existing statutes, regulations and Departmental interpretations and must be attributed to those underlying legal requirements. While we conclude that this proposed rule is not economically significant, we nevertheless are characterizing this proposed rule as significant under E.O. 12866 because it will materially affect the procedural rights of grant recipients with respect to appeals. As noted above, the proposed rule would not affect substantive rights to administrative determinations consistent with existing statutes, regulations and Departmental interpretations. The RFA requires agencies to analyze options for regulatory relief of small businesses. For purposes of the RFA, small entities include small businesses, nonprofit organizations, and small governmental jurisdictions. Most hospitals and most other providers and suppliers are small entities, by virtue of either nonprofit status or having revenues of $6 million to $29 million in any 1 year. Individuals and States are not included in the definition of a small entity. While there are a number of small entities that receive Departmental grants and have access to the DAB for appeal of disallowances, we have determined that the direct effects of the proposed changes in administrative appeal procedures, such as the cost of additional briefing or the cost of delays in the final agency decision, are not economically significant. Thus, we are not preparing an analysis for the RFA because we have determined that this rule will not have a significant economic impact on a substantial number of small entities. In addition, section 1102(b) of the Social Security Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 603 of the RFA. For purposes of section 1102(b) of the Social Security Act, we define a small rural hospital as a hospital that is located outside of a Core-Based Statistical Area and has fewer than 100 beds. We are not preparing an analysis for section 1102(b) of the Act because we have determined that this rule will not have a significant impact on the operations of a substantial number of small rural hospitals. Section 202 of the Unfunded Mandates Reform Act of 1995 also requires that agencies assess anticipated costs and benefits before issuing any rule whose mandates require spending in any one year of $100 million in 1995 dollars, updated annually for inflation. That threshold level is currently approximately $120 million. The direct burden of these changes in administrative appeal procedures, such as the cost of additional briefing or the cost of delays in the final agency decision, does not reach the economic threshold. An indirect impact may result from improved application of existing statutes, regulations and Departmental interpretations, but must be attributed to those underlying legal requirements. As a result, we conclude that this rule will have no consequential effect on State, local, or tribal governments or on the private sector. Executive Order 13132 establishes certain requirements that an agency must meet when it promulgates a proposed rule (and subsequent final rule) that imposes substantial direct requirement costs on State and local governments, preempts State law, or otherwise has Federalism implications. Since this regulation does not impose any significant direct costs on State or local governments, the requirements of E.O. 13132 are not applicable. In accordance with the provisions of Executive Order 12866, this regulation was reviewed by the Office of Management and Budget. List of Subjects 42 CFR Part 422 Administrative practice and procedure, Health facilities, Health maintenance organizations (HMO), Medicare, Penalties, Privacy, and Reporting and recordkeeping requirements. 42 CFR Part 423 Administrative practice and procedure, Emergency medical services, Health facilities, Health maintenance organizations (HMO), Health professionals, Medicare, Penalties, Privacy, and Reporting and recordkeeping requirements. 42 CFR Part 498 Administrative practice and procedure, Health facilities, Health professions, Medicare, and Reporting and recordkeeping requirements. 42 CFR Part 1005 Administrative practice and procedure, Fraud, Grant programs-health, Health facilities, Health professions, Maternal and child health, Medicaid, Medicare, Penalties, and Social security. 45 CFR Part 16 Administrative practice and procedure, Grant programs health, and Grant programs-social programs. 45 CFR Part 81 Administrative practice and procedure, and Civil rights. 45 CFR Part 160 Administrative practice and procedure, Computer technology, Health care, Health facilities, Health insurance, Health records, Hospitals, Medicaid, Medicare, Penalties, and Reporting and recordkeeping requirements. 45 CFR Part 1303 Administrative practice and procedure, Education of disadvantaged, Grant programs-social programs, and Reporting and recordkeeping requirements. For the reasons set forth in this preamble, the Department of Health and Human Services proposes to amend 42 CFR chapters IV (parts 422 and 423 as published on December 5, 2007 (72 FR 68700)) and V and 45 CFR chapters I and XIII as follows: Title 42—Public Health PART 422—MEDICARE ADVANTAGE PROGRAM 1. The authority citation for part 422 continues to read as follows: Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh). Subpart T—Appeal procedures for Civil Money Penalties 2. Section 422.1007 is added to read as follows: § 422.1007 Limitations of review. The ALJ and the Departmental Appeals Board may not find invalid or refuse to follow Federal statutes, regulations, or Secretarial delegations of authority and must follow published guidance to the extent not inconsistent with statute or regulation. 3. Section 422.1068 is amended by— A. Removing the word “or” at the end of paragraph (b)(3). B. Redesignating paragraph (b)(4) as paragraph (b)(5). C. Adding new paragraph (b)(4). The addition reads as follows: § 422.1068 Administrative Law Judge's decision.
(b)* * *
(4)The Secretary undertakes review of the case pursuant to § 422.1085 of this chapter. 4. Section 422.1078 is amended by revising paragraph
(c)to read as follows: § 422.1078 Departmental Appeals Board action on request for review.
(c)*Effect of dismissal.* The dismissal of a request for Board review shall be the final agency decision unless the Secretary elects review under § 422.1085. 5. Section 422.1085 is added to read as follows: § 422.1085 Secretarial Review of ALJ or Departmental Appeals Board decisions. The Secretary may review a decision of an ALJ or the Board for error in applying statutes, regulations or interpretive policy.
(a)A copy of each preliminary Board decision will be delivered to the Secretary and the parties within 5 working days from the date the Board issues it. When the Board denies a request for review of an ALJ decision, a copy of the ALJ decision will be delivered to the Secretary and the parties within 5 working days from the date the Board declines to review it.
(b)After delivery of the Board or ALJ decision, the Secretary may, within 30 days of receipt of the decision, undertake review of the case by mailing (or otherwise communicating) to the Board, or the ALJ, and the parties notice of a pending Secretarial review. The underlying decision will be a preliminary decision during the 60-day period after issuance, or a longer period while Secretarial review is pending. If the Secretary decides not to review the case within 30 days, or if the Secretary affirms the decision, summarily, the Board or ALJ decision becomes the final decision of the Secretary on the matter.
(c)After undertaking review of a case, the Secretary may affirm or reverse the underlying decision, or remand the case with instructions for further proceedings. If the Secretary affirms with modifications or reverses the underlying decision, a written decision that sets forth the basis for the action will be the final decision of the Secretary on the matter. If the Secretary remands the case for further proceedings, the original Board or ALJ decision shall be set aside and a written remand order will issue from the Secretary which shall include the reasons for remand and instructions on the proper application of statutes, regulations or interpretive policy. Such an order will be binding on the Board or ALJ which shall issue a new decision consistent with the Secretary's remand order.
(d)If the Secretary declines review, or disposes of the case by final decision affirming or reversing the Board, the Board shall promptly issue a notice of case closure to the parties. 6. Section 422.1086 is amended by revising the section heading, the introductory text of paragraph (a), and paragraph
(c)to read as follows: § 422.1086 Effect of the Departmental Appeals Board or Secretarial decision.
(a)*General rule.* A decision of the Board is the final agency decision, unless: the time period permitted for Secretarial review has not elapsed; it is the subject of a Secretarial remand; or it is set aside by a decision by the Secretary to affirm or reverse. If a decision of the Board is set aside by the Secretary, the Secretary shall issue the final agency decision. The final agency decision shall be indicated in the notice of case closure issued by the Board pursuant to 422.1085(d), and shall be binding unless —
(c)*Special rules. Civil money penalty* — *Finality of decision.* When CMS imposes a civil money penalty, the final administrative action that initiates the 60-day period for seeking judicial review will be receipt of the notice of case closure issued by the Board pursuant to § 422.1085(d). 7. Section 422.1088 is amended by revising paragraph
(a)to read as follows: § 422.1088 Extension of time for seeking judicial review.
(a)Any affected party that is dissatisfied with a final administrative decision that imposes a CMP, either a binding decision of the Departmental Appeals Board under 422.1086 or a decision by the Secretary under 422.1085, and is entitled to judicial review must commence a civil action within 60 calendar days from receipt of the notice of case closure issued pursuant to 422.1085(d), unless the Board extends the time in accordance with paragraph
(c)of this section. PART 423—VOLUNTEER MEDICAL PRESCRIPTION DRUG BENEFIT 8. The authority for part 423 continues to read as follows: Authority: Secs 1102, 1860D-1 through 1860D-42, and 1871 of the Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152, and 1395hh). Subpart T—Appeal Procedures for Civil Money Penalties 9. Section 423.1007 is added to read as follows: § 423.1007 Limitations of review. The ALJ and the Departmental Appeals Board may not find invalid or refuse to follow Federal statutes, regulations, or Secretarial delegations of authority and must follow published guidance to the extent not inconsistent with statute or regulation. 10. Section 423.1068 is amended by— A. Removing the word “or” at the end of paragraph (b)(3). B. Redesignating paragraph (b)(4) as paragraph (b)(5). C. Adding new paragraph (b)(4). The addition reads as follows: § 423.1068 Administrative Law Judge's decision.
(b)* * *
(4)The Secretary undertakes review of the case pursuant to § 423.1085. 11. Section 423.1078 is amended by revising paragraph
(c)to read as follows: § 423.1078 Departmental Appeals Board action on request for review.
(c)*Effect of dismissal.* The dismissal of a request for Board review shall be the final agency decision unless the Secretary elects review under § 423.1085. 12. Section 423.1085 is added to read as follows: § 423.1085 Secretarial Review of ALJ or Departmental Appeals Board decisions. The Secretary may review a decision of an ALJ or the Board for error in applying statutes, regulations or interpretive policy.
(a)A copy of each preliminary Board decision will be delivered to the Secretary and the parties within 5 working days from the date the Board issues it. When the Board denies a request for review of an ALJ decision, a copy of the ALJ decision will be delivered to the Secretary and the parties within 5 working days from the date the Board declines to review it.
(b)After delivery of the Board or ALJ decision, the Secretary may, within 30 days of receipt of the decision, undertake review of the case by mailing (or otherwise communicating) to the Board, or the ALJ, and the parties notice of a pending Secretarial review. The underlying decision will be a preliminary decision during the 60-day period after issuance or a longer period while Secretarial review is pending. If the Secretary decides not to review the case within 30 days, or if the Secretary affirms the decision, summarily, the Board or ALJ decision becomes the final decision of the Secretary on the matter.
(c)After undertaking review of a case, the Secretary may affirm or reverse the underlying decision, or remand the case with instructions for further proceedings. If the Secretary affirms with modifications or reverses the underlying decision, a written decision that sets forth the basis for the action will be the final decision of the Secretary on the matter. If the Secretary remands the case for further proceedings, the original Board or ALJ decision shall be set aside and a written remand order will issue from the Secretary which shall include the reasons for remand and instructions on the proper application of statutes, regulations or interpretive policy. Such an order will be binding on the Board or ALJ which shall issue a new decision consistent with the Secretary's remand order.
(d)If the Secretary declines review, or disposes of the case by final decision affirming or reversing the Board, the Board shall promptly issue a notice of case closure to the parties. 13. Section 423.1086 is amended by revising the section heading, the introductory text of paragraph (a), and paragraph
(c)to read as follows: § 423.1086 Effect of the Departmental Appeals Board or Secretarial decision.
(a)*General rule.* A decision of the Board is the final agency decision, unless: the time period permitted for Secretarial review has not elapsed; it is the subject of a Secretarial remand; or it is set aside by a decision by the Secretary to affirm or reverse. If a decision of the Board is set aside by the Secretary, the Secretary shall issue the final agency decision. The final agency decision shall be indicated in the notice of case closure issued by the Board pursuant to 423.1085(d), and shall be binding unless—
(c)*Special rules.* *Civil money penalty* — *Finality of decision.* When CMS imposes a civil money penalty, the final administrative action that initiates the 60-day period for seeking judicial review will be receipt of the notice of case closure issued by the Board pursuant to 423.1085(d). 14. Section 423.1088 is amended by revising paragraph
(a)to read as follows: § 423.1088 Extension of time for seeking judicial review.
(a)Any affected party that is dissatisfied with a final administrative decision that imposes a CMP, either a binding decision of the Departmental Appeals Board under § 423.1086 or a decision by the Secretary under § 423.1085, and is entitled to judicial review must commence a civil action within 60 calendar days from receipt of the notice of case closure issued pursuant to § 423.1085(d), unless the Board extends the time in accordance with paragraph
(c)of this section. PART 498— APPEALS PROCEDURES FOR DETERMINATIONS THAT AFFECT PARTICIPATION IN THE MEDICARE PROGRAM AND FOR DETERMINATIONS THAT AFFECT THE PARTICIPATION OF ICFS/MR AND CERTAIN NFS IN THE MEDICAID PROGRAM 15. The authority citation for part 498 continues to read as follows: Authority: Secs. 1102 and 1871 of the Social Security Act (42 U.S.C. 1302 and 1395hh). Subpart A—General Provisions 16. Section 498.8 is added to read as follows: § 498.8 Limitations of review. The ALJ and the Departmental Appeals Board may not find invalid or refuse to follow Federal statutes, regulations, or Secretarial delegations of authority and must follow published guidance to the extent not inconsistent with statute or regulation. Subpart D—Hearings 17. Section 498.74 is amended by— A. Redesignating paragraphs (b)(2), (b)(3) and (b)(4) as (b)(3), (b)(4) and (b)(5), respectively. B. Adding new paragraph (b)(2). The addition reads as follows: § 498.74 Administrative Law Judge's decision.
(b)* * *
(2)The Secretary undertakes review of the case pursuant to § 498.89. Subpart E—Departmental Appeals Board Review 18. Section 498.83 is amended by revising paragraph
(c)to read as follows: § 498.83 Departmental Appeals Board action on request for review.
(c)*Effect of dismissal.* The dismissal of a request for Board review shall be the final agency decision unless the Secretary elects review under § 498.89. 19. Section 498.89 is added to read as follows: § 498.89 Secretarial Review of ALJ or Departmental Appeals Board decisions. The Secretary may review a decision of an ALJ or the Board for error in applying statutes, regulations or interpretive policy.
(a)A copy of each preliminary Board decision will be delivered to the Secretary and the parties within 5 working days from the date the Board issues it. When the Board denies or dismisses a request for review of an ALJ decision, a copy of the ALJ decision will be delivered to the Secretary and the parties within 5 working days from the date the Board declines to review it.
(b)After delivery of the Board or ALJ decision, the Secretary may, within 30 days of receipt of the decision, undertake review of the case by mailing (or otherwise communicate) to the Board, or the ALJ, and the parties notice of a pending Secretarial review. The underlying decision will be a preliminary decision during the 60-day period after issuance or a longer period while Secretarial review is pending. If the Secretary decides not to review the case within 30 days, or if the Secretary affirms the decision, summarily, the Board or ALJ decision becomes the final decision of the Secretary on the matter.
(c)After undertaking review of a case, the Secretary may affirm or reverse the underlying decision, or remand the case with instructions for further proceedings. If the Secretary affirms with modifications or reverses the underlying decision, a written decision that sets forth the basis for the action will be the final decision of the Secretary on the matter. If the Secretary remands the case for further proceedings, the original Board or ALJ decision shall be set aside and a written remand order will issue from the Secretary which shall include the reasons for remand and instructions on the proper application of statutes, regulations or interpretive policy. Such an order will be binding on the Board or ALJ which shall issue a new decision consistent with the Secretary's remand order.
(d)If the Secretary declines review, or disposes of the case by final decision affirming or reversing the Board, the Board shall promptly issue a notice of case closure to the parties. 20. Section 498.90 is amended by revising the section heading, the introductory text of paragraph (a), and paragraph (c)(1) to read as follows: § 498.90 Effect of the Departmental Appeals Board or Secretarial decision.
(a)*General rule.* A decision of the Board is the final agency decision, unless: The time period permitted for Secretarial review has not elapsed; it is the subject of a Secretarial remand; or it is set aside by a decision by the Secretary to affirm or reverse. If a decision of the Board is set aside by the Secretary, the Secretary shall issue the final agency decision. The final agency decision shall be indicated in the notice of case closure issued by the Board pursuant to § 498.89(d), and shall be binding unless—
(c)*Special rules.* *Civil money penalty* —
(1)*Finality of decision.* When CMS imposes a civil money penalty, the final administrative action that initiates the 60-day period for seeking judicial review will be receipt of the notice of case closure issued by the Board pursuant to § 498.89(d). 21. Section 498.95 is amended by revising paragraph
(a)to read as follows: § 498.95 Extension of time for seeking judicial review.
(a)Any affected party that is dissatisfied with a final agency decision and is entitled to judicial review must commence a civil action within 60 days from receipt of the notice of case closure issued by the Board pursuant to § 498.89(d), unless the Board extends the time in accordance with paragraph
(c)of this section. The date of receipt is deemed to be 5 days after the date on the notice, unless there is a showing that it was, in fact, received earlier or later. PART 1005—APPEALS OF EXCLUSIONS, CIVIL MONEY PENALTIES AND ASSESSMENTS 22. The authority citation for part 1005 continues to read as follows: Authority: 42 U.S.C. 405(a), 405(b), 1302, 1320a-7, 1320a-7a and 1320c-5. 23. Section 1005.20 is amended by revising paragraph
(d)to read as follows: § 1005.20 Initial decision.
(d)Except for exclusion actions taken in accordance with § 1001.2003 of this chapter and paragraph
(e)of this section, unless the initial decision is appealed to the DAB, it will be final and binding on the parties 30 days after the ALJ serves the parties with a copy of the decision. If service is by mail, the date of service will be deemed to be 5 days from the date of mailing. 24. Section 1005.21 is amended by revising paragraphs
(j)and
(k)to read as follows: § 1005.21 Appeal to DAB.
(j)Except with respect to any penalty, assessment or exclusion remanded to the ALJ or to be reviewed by the Secretary pursuant to § 1005.24 of this chapter, the DAB's decision, including a decision to decline review of the initial decision, becomes final and binding 60 days after the date on which the DAB serves the parties with a copy of the decision. If service is by mail, the date of service will be deemed to be 5 days from the date of mailing. (k)(1) Any petition for judicial review must be filed within 60 days after the decision becomes final and binding as provided in paragraph
(j)of this section or § 1005.24(c)(1).
(2)In compliance with 28 U.S.C. 2112(a), a copy of any petition for judicial review filed in any U.S. Court of Appeals challenging a final decision will be sent by certified mail, return receipt requested, to the Chief Counsel to the IG. The petition copy will be time-stamped by the clerk of the court when the original is filed with the court.
(3)If the Chief Counsel to the IG receives two or more petitions within 10 days after the decision becomes final and binding, the Chief Counsel to the IG will notify the U.S. Judicial Panel on Multidistrict Litigation of any petitions that were received within the 10-day period. 25. Section 1005.24 is added to read as follows: § 1005.24 Secretarial Review of ALJ or DAB decisions. The Secretary may review all ALJ decisions that the DAB has declined to review and all DAB decisions for error in applying statutes, regulations or interpretive policy.
(a)A copy of each DAB decision will be delivered to the Secretary within 5 working days from the date the DAB issues it. When the DAB denies a request for review of an ALJ decision, a copy of the ALJ decision will be delivered to the Secretary by the DAB within 5 working days from the date the DAB declines review.
(b)After delivery of a DAB or ALJ decision, the Secretary may undertake a review of the decision.
(1)The Secretary may, within 30 days of receipt of the Board or ALJ decision, undertake review of the decision by mailing (or otherwise transmitting) to the Board, or the ALJ, and the parties notice of a pending Secretarial review. The Secretary's undertaking review of the decision automatically stays the effective date of the decision.
(2)If the Secretary does not undertake a review within 30 days of receipt of the decision, the decision shall be final and binding 60 days after the date the DAB served the parties with the decision, as provided in § 1005.21(j).
(c)Upon review of the decision, the Secretary may affirm or reverse the decision, or remand the matter to the DAB or ALJ for further proceedings.
(1)The Secretary's affirmance or reversal of the decision shall be final and binding on the date the Secretary serves the parties with a written decision setting forth the basis for the decision. Such a decision may incorporate by reference some or all of the reasoning of the reviewed decision, and shall be the final agency action. If service is by mail, the date of service shall be deemed to be 5 days from the date of mailing. Any petition for judicial review must be filed within 60 days after the Secretary serves the parties with the decision.
(2)If the Secretary remands the decision to the DAB or ALJ, the Secretary shall issue a written remand order including the reasons for remand and instructions on the proper application of statutes, regulations or interpretive policy. The Secretary's remand order will be binding on the DAB or ALJ. Upon issuance of the Secretary's remand order, the original DAB or ALJ decision shall be set aside.
(3)Within 60 days of receipt of the Secretary's remand order by the DAB or ALJ, the DAB or ALJ shall serve the parties and the Secretary with a copy of the new decision consistent with the Secretary's remand order. If service is by mail, the date of service will be deemed to be 5 days from the date of mailing. Title 45—Public Welfare PART 16—PROCEDURES OF THE DEPARTMENTAL APPEALS BOARD 1. The authority citation for part 16 continues to read as follows: Authority: 5 U.S.C. 301 and secs. 1, 5, 6, and 7 of Reorganization Plan No. 1 of 1953, 18 FR 2053, 67 Stat. 631 and authorities cited in the Appendix. 2. The heading of part 16 is revised to read as forth above. § 16.2 [Amended] 3. Section 16.2 is amended in paragraph
(a)by removing the word “Grant” from the phrase “Departmental Grant Appeals Board.” 4. Section 16.3 is amended by revising paragraph
(b)to read as follows: § 16.3 When these procedures become available.
(b)The appellant must have received a final written decision, and must appeal that decision within 30 days after receiving it. 5. Section 16.7 is amended by revising paragraph
(a)to read as follows: § 16.7 The first steps in the appeal process: The notice of appeal and the Board's response.
(a)A prospective appellant must submit a notice of appeal to the Board within 30 days after receiving the final decision. The notice of appeal must include a copy of the final decision, a statement of the amount in dispute in the appeal, and a brief statement of why the decision is wrong. 6. Section 16.12 is amended by revising the introductory text of paragraph
(d)to read as follows: § 16.12 The expedited process.
(d)*Special expedited procedures where there has already been review* . Some HHS components use a board or other relatively independent reviewing authority to conduct a formal preliminary review process (such as the process described at 42 CFR Part 50, Subpart D) which results in a written decision based on a record including documents or statements presented after reasonable notice and opportunity to present such material. In such cases, the following rules apply to appeals of $25,000 or less instead of those under paragraph
(c)of this section. 7. Section 16.14 is revised to read as follows: § 16.14 How Board review is limited. The Departmental Appeals Board may not find invalid or refuse to follow Federal statutes, regulations, or Secretarial delegations of authority and must follow published guidance to the extent not inconsistent with statute or regulation. 8. Section 16.20 is amended by— A. Revising paragraph (a). B. Removing paragraphs
(d)and (e). The revision reads as follows: § 16.20 How to submit material to the Board.
(a)All submissions should be filed in the manner indicated in the final written decision being appealed or the filing instructions contained in the Appellate Division Practice Manual available on the Board's website at *www.hhs.gov/dab* . The Board's mailing address is set forth on that Web site, and, as of October 1, 2007, is: Department of Health and Human Services, Departmental Appeals Board, Appellate Division, Cohen Building, Rm. G-644, MS 6127, 330 Independence Ave., SW., Washington, DC 20201. 9. Section 16.21 is amended by adding paragraphs (c), (d), and
(e)to read as follows: § 16.21 Record and decisions.
(c)The Board will promptly notify the Secretary of any disposition of a case on the merits by delivering a copy of each Board decision to the Secretary within 5 working days after the Board issues it.
(d)After delivery of the Board decision, the Secretary may, within 30 days of receipt of the Board decision, undertake review of the case by mailing (or otherwise transmitting) to the Board and the parties notice of a pending Secretarial review. The Board's decision will be a proposed decision during the 30 day period after issuance and while Secretarial review is pending. If the Secretary does not within 30 days determine to review the case, or if the Secretary affirms the Board decision summarily, the Board decision becomes the final decision of the Secretary on the matter, and the Board will promptly so notify the parties.
(e)After undertaking review of a case, the Secretary may affirm or reverse the Board's decision, or remand the case with instructions for further proceedings. In cases involving title IV of the Social Security Act, the Secretary may only affirm or remand the case with instructions for further proceedings. If the Secretary affirms with modifications or reverses the Board's decision, a written decision that sets forth the basis for the action will be the final decision of the Secretary on the matter. If the Secretary remands the case to the Board for further proceedings, the Board's original decision shall be set aside and a written remand order will issue from the Secretary which shall include the reasons for remand and instructions on the proper application of statutes, regulations or interpretive policy. Such an order will be binding on the Board which shall issue a new decision consistent with the Secretary's remand order. 10. Section 16.22 is amended by revising paragraphs
(a)and (b)(1) to read as follows: § 16.22 The effect of an appeal.
(a)*General* . Until the Board disposes of an appeal and the opportunity for Secretarial review has lapsed, the respondent shall take no action to implement the final decision appealed.
(b)* * *
(1)Suspend funding; 11. Appendix A to Part 16 is amended by— A. Revising paragraph A. B. Amending paragraph B by— i. In paragraph (a)(1), removing the phrase “Titles I, IV, VI X, XVI(AABD) XIX and XX” and adding in its place the phrase “Titles IV, X, XIV, XVI (AABD), XIX, XX and XXI.” ii. In paragraph (a)(1), removing the phrase “such as those under sections 403(g) and 1903(g)”. iii. In paragraph (a)(2), inserting the word “former” before the phrase “Public Health Service.” iv. In paragraph (a)(3) removing the phrase “sections 113 and 132” and adding in its place the phrase “sections 124 and 143”; v. Adding paragraph (a)(7). C. Revising subparagraph
(b)of paragraph C. D. Revosomg paragraph E. The revisions and addition read as follows: Appendix A to Part 16—What Disputes the Board Reviews. A. What this Appendix covers. This Appendix describes some of the programs which use the procedures in 45 CFR Part 16 for dispute resolution, the types of disputes covered, and any conditions for Board review of final written decisions resulting from those disputes. Disputes under programs not specified in this Appendix may be covered in a program regulation, delegation, memorandum of understanding, or other arrangement between the Board and the head of the appropriate HHS operating component or other agency responsible for administering the program. If in doubt, call the Board. Even though a dispute may be covered here, the Board may still not be able to review it if the limits in paragraph F apply. B. Mandatory grant programs.
(a)* * *
(7)Disallowance determinations under the Child Care and Development Fund Program as provided in 45 CFR 98.66. C. Direct, discretionary project programs.
(b)Where an HHS component uses a preliminary appeal process (such as the one described at 42 CFR Part 50, Subpart D), the “final written decision” for purposes of Board review is the decision issued as a result of that process. PART 81—PRACTICE AND PROCEDURE FOR HEARINGS UNDER PART 80 OF THIS TITLE 12. The authority citation for part 81 continues to read as follows: Authority: 5 U.S.C. 301 and 45 CFR 80.9(d). Subpart G—Responsibilities and Duties of Presiding Officer 13. Section 81.64 is added to read as follows: § 81.64 Scope of review of the presiding officer and the reviewing authority. The hearing examiner and the reviewing authority may not find invalid or refuse to follow Federal statutes, regulations, or Secretarial delegations of authority and must follow published guidance to the extent not inconsistent with statute or regulation. PART 160—GENERAL ADMINISTRATIVE REQUIREMENTS 14. The authority citation for part 160 continues to read as follows: Authority: 42 U.S.C. 1302(a), 42 U.S.C. 1320d-1320d8, sec. 264 of Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-2 (note)), and 5 U.S.C. 552. Subpart E—Procedures for Hearings 15. Section 160.508 is amended by revising paragraph (c)(1) to read as follows: § 160.508 Authority of the ALJ.
(c)* * *
(1)May not find invalid or refuse to follow Federal statutes, regulations, or Secretarial delegations of authority and must follow published guidance to the extent not inconsistent with statute or regulation; 16. Section 160.548 is amended by— A. Redesignating paragraph
(h)as paragraph (h)(1). B. Adding paragraph (h)(2). C. Revising paragraph (j). D. Revising paragraph (k)(1). The revisions and addition read as follows: § 160.548 Appeal of the ALJ's decision.
(h)* * *
(2)The Board may not find invalid or refuse to follow Federal statutes, regulations, or Secretarial delegations of authority and must follow published guidance to the extent not inconsistent with statute or regulation.
(j)Except with respect to a decision remanded to the ALJ, or a decision the Secretary has undertaken to review pursuant to § 160.554 of this part, the Board's decision, including a decision to decline review of the initial decision, becomes final and binding as the decision of the Secretary 60 days after the date on which the Board serves the parties with a copy of the decision. If service is by mail, the date of service will be deemed to be 5 days from the date of mailing. (k)(1) A respondent's petition for judicial review must be filed within 60 days of when the decision of the Secretary becomes final and binding as provided in paragraph
(j)of this section or § 160.554(c)(1). 17. Section 160.554 is added to read as follows: § 160.554 Secretarial Review of ALJ or Board Decisions. The Secretary may review all ALJ decisions that the Board has declined to review and all Board decisions for error in applying statutes, regulations or interpretative policy.
(a)A copy of each Board decision will be delivered to the Secretary within 5 working days after the Board issues it. When the Board denies a request for review of an ALJ decision, a copy of the ALJ decision will be delivered to the Secretary by the Board within 5 working days after the Board declines review.
(b)After delivery of a Board or ALJ decision, the Secretary may undertake a review of the decision.
(1)The Secretary may, within 30 days of receipt of the Board or ALJ decision, undertake review of the decision by mailing (or otherwise transmitting) to the Board, or the ALJ, and the parties notice of a pending Secretarial review. The Secretary's undertaking review of the decision automatically stays the effective date of the decision.
(2)If the Secretary does not undertake review within 30 days of receipt of the decision, the decision shall be final and binding as the decision of the Secretary 60 days after the date the Board served the parties with the decision, as provided in § 160.548(j).
(c)Upon review of the decision, the Secretary may affirm or reverse the decision, or remand the matter to the Board or ALJ for further proceedings.
(1)The Secretary's affirmance or reversal of the decision shall be final and binding on the date the Secretary serves the parties with a written decision setting forth the basis for the decision. Such a decision may incorporate by reference some or all of the reasoning of the reviewed decision, and shall be the final agency action. Any petition for judicial review must be filed within 60 days of when the respondent receives notice of the Secretary's decision.
(2)If the Secretary remands the decision to the Board or ALJ, the Secretary shall issue a written remand order including the reasons for remand and instructions on the proper application of statutes, regulations or interpretative policy. The Secretary's remand order will be binding on the Board or ALJ. Upon issuance of the Secretary's remand order, the original Board or ALJ decision shall be set aside.
(3)If service of a ruling or decision issued under this section is by mail, the date of service shall be deemed to be 5 days from the date of the mailing. PART 1303— APPEAL PROCEDURES FOR HEAD START GRANTEES AND CURRENT OR PROSPECTIVE DELEGATE AGENCIES 18. The authority citation for part 1303 continues to read as follows: Authority: 42 U.S.C. 9801, *et seq.* Subpart B—Appeals by Grantees § 1303.17 [Amended] 19. Section 1303.17 is amended by removing the phrase “final decision” in paragraph (a), in the second sentence, and adding in its place the phrase “Board's decision”. Dated: September 17, 2007. Michael O. Leavitt, Secretary. [FR Doc. 07-6221 Filed 12-21-07; 1:00 pm]
Connectionstraces to 41
Traces to 41 documents
register
U.S. Code
- Purposes§ 6501
- Participation of States§ 10136
- Definitions§ 10101
- Review of repository site selection§ 10135
- Definitions§ 2014
- Rules and regulations§ 7805
- Minimum vesting standards§ 411
- Definitions§ 9601
- Establishment of State commissions, planning districts, and local committees§ 11001
- Purposes§ 3501
- Initial regulatory flexibility analysis§ 603
- Establishment, functions, and activities§ 272
- Designation of additional hazardous substances and establishment of reportable released quantities; regulations§ 9602
- Oil and hazardous substance liability§ 1321
- Substances and facilities covered and notification§ 11002
- General penalty for failure to comply with requirements and standards§ 1320d–5
- Civil monetary penalties§ 1320a–7a
- Rules and regulations; impact analyses of Medicare and Medicaid rules and regulations on small rural hospitals§ 1302
- Evidence, procedure, and certification for payments§ 405
- Record on review and enforcement of agency orders§ 2112
- Departmental regulations§ 301
- Standards for information transactions and data elements§ 1320d–2
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Statement of purpose§ 9801
CFR
statutes-at-large
- /statutes-at-large/vol-68/public-law-703Public Law 703
- /statutes-at-large/vol-88/public-law-93-406Public Law 93–406
- /statutes-at-large/vol-81/public-law-90-202Public Law 90–202
- To amend title IX of the Public Health Service Act to provide for the improvement of patient safety and to reduce the incidence of events that adversely effect patient safetyPublic Law 109–41
81 references not yet in our index
- 50 CFR 679
- 7 CFR 205
- 7 CFR 981
- 7 USC 601-674
- 7 CFR 900
- 10 CFR 2
- 10 CFR 63
- Pub. L. 107-200
- Pub. L. 83-703
- 506 U.S. 194
- 26 CFR 1
- Pub. L. 109-280
- 120 Stat. 780
- Pub. L. 93-406
- Pub. L. 90-202
- 229 F.3d 154
- 531 U.S. 1061
- 484 F.3d 395
- 338 F.3d 755
- 221 F.3d 1235
- 532 U.S. 967
- Rev. Rul. 76-259
- Rev. Proc. 2007-44
- 36 CFR 294
- 40 CFR 355.40
- 40 CFR 302.6
- 40 CFR 300.125
- 40 CFR 117
- 40 CFR 302.3
- 40 CFR 355.20
- 40 CFR 300.130(c)
- 40 CFR 302
- 40 CFR 355
- 40 CFR 302.8
- 40 CFR 9
- Pub. L. 104-4
- Pub. L. 104-113
- 42 CFR 1005
- 45 CFR 16
- 45 CFR 160
+ 41 more
Citation graph
cites case law
Notices
Final rule; effectiveness of collection-of-information requirements
SCOTUS506 U.S. 194
F. App'x229 F.3d 154
SCOTUS531 U.S. 1061
Cites 122 · showing 12Cited by 0 across 0 sources