The collection of information contained in these regulations has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-1433. The collection of information in these final regulations is required in order for the parent of a consolidated group to make the election found in §1.1502-13(f)(5)(ii)(B).

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

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

This document contains amendments to 26 CFR part 1. On September 4, 2009, the IRS and Treasury Department published temporary (T.D. 9458, 2009-43 I.R.B. 547) and proposed (REG-139068-08, 2009-43 I.R.B. 558) regulations in the Federal Register (74 FR 45757 and 74 FR 45789, respectively). The regulations modify the election under which a consolidated group can avoid immediately taking into account an intercompany item after the liquidation of a target corporation. On March 4, 2011, the IRS and Treasury Department published final regulations in the Federal Register (T.D. 9515, 2011-14 I.R.B. 599 [76 FR 11956]), which republished the 2009 temporary regulations without substantive change, to make a minor correction to the ordering of the regulations as they appeared in the Federal Register. The IRS and the Treasury Department received no comments responding to the proposed and temporary regulations. No public hearing was requested or held. Therefore, this document adopts the provisions of the proposed regulations with no substantive change and the corresponding temporary regulations are removed. See §601.601(d)(2).

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866 as supplemented by Executive Order 13563. 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. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that this rule will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that this regulation primarily affects members of consolidated groups which tend to be large corporations. Accordingly, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business. No comments were received.

Paragraph 1. The authority citation for part 1 is amended by removing the entry for §1.1502-13T to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.1502-13 also issued under 26 U.S.C. 1502. * * *

Par. 2. Section 1.1502-13 is amended by revising paragraphs (f)(5)(ii)(B)(1) and (2) and adding new paragraph (f)(5)(ii)(F) to read as follows:

Par. 4. The authority citation for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 5. In §602.101, paragraph (b) is amended by adding the following entry in numerical order to the table to read as follows:

The collection of information contained in this notice of proposed rulemaking has been approved by the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under 1545-2187 and 1545-0212. Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington D.C. 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:CAR:MP:T:M:S; Washington DC 20224. Comments on the collection of information should be received by August 20, 2012. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information;

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.

The collection of information in these proposed regulations is in §§301.6057-1 and 1.6081-11. This information is required in order to comply with the reporting and notice requirements of section 6057 and to provide automatic extensions of time for filing certain employee plan returns under section 6081. Information relating to these proposed regulations will be collected through Form 8955-SSA and Form 5558. This information relates to plan participants who separate from service covered under the plan and who are entitled to deferred vested retirement benefits under the plan. Any burden relating to these proposed regulations will be included and reported in the next revisions of Form 8955-SSA and Form 5558, after these proposed regulations are accepted as final.

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

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

Section 6057(a) of the Internal Revenue Code (Code) requires the administrator of a plan that is subject to the vesting standards of section 203 of the Employee Retirement Income Security Act of 1974 (ERISA) to file, within the time prescribed by regulations, a registration statement with the Secretary of the Treasury. The registration statement sets forth certain information relating to the plan, plan participants who separate from service covered by the plan and are entitled to deferred vested retirement benefits, and the nature, amount, and form of deferred vested retirement benefits to which the plan participants are entitled.

Section 6057(b) provides that any plan administrator required to register under section 6057(a) shall, within the time prescribed by regulations, also notify the Secretary of any change in the name of the plan or the name and address of the plan administrator, the termination of the plan, or the merger or consolidation of the plan with any other plan or its division into two or more plans.

Section 6057(c) provides that, to the extent provided in regulations prescribed by the Secretary, the administrator of a plan not subject to the reporting requirements of section 6057(a) (including a governmental plan within the meaning of section 414(d) or a church plan within the meaning of section 414(e)) may at its option file such information as the plan administrator may wish to file with respect to the deferred retirement vested benefit rights of any plan participant separated from service covered by the plan.

Section 6057(d) requires the Secretary to transmit copies of any statements, notifications, reports, or other information obtained by the Secretary under section 6057 to the Commissioner of Social Security.

Section 6057(e) of the Code and section 105(c) of ERISA require each plan administrator that is subject to the reporting requirements of section 6057 to furnish to each deferred vested participant an individual statement setting forth the information required by section 6057(a)(2). The individual statement required by section 6057(e) must also notify each participant of any benefits that are forfeitable if the participant dies before a certain date. The individual statement must be furnished no later than the date for filing the registration statement required under section 6057(a).

Section 6057(f)(1) provides that the Secretary, after consultation with the Commissioner of Social Security, may issue such regulations as may be necessary to carry out the provisions of this section.

Since the enactment of ERISA, the Schedule SSA, a schedule to the Form 5500, “Annual Return/Report of Employee Benefit Plan,” has been the form used by plan administrators to comply with the reporting requirements of section 6057. On July 21, 2006, the Department of Labor (DOL) published a final rule in the Federal Register (71 FR 41359) requiring electronic filing of the Form 5500 series for plan years beginning after January 1, 2008. On November 16, 2007, the DOL published a final rule in the Federal Register (72 FR 64710) postponing the effective date of the electronic filing mandate to apply to plan years beginning on or after January 1, 2009. See 29 CFR §2520.104a-2.

In order to implement the DOL’s mandate for electronic filing of the Form 5500, the IRS-only schedules to the Form 5500, including the Schedule SSA, were eliminated from the Form 5500. One result of the elimination of the Schedule SSA is that Form 5500 filings that include Schedule SSA information regarding participants are now subject to rejection (even for late or amended filings for plan years before 2009). The Schedule SSA was replaced by Form 8955-SSA, “Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits,” an IRS-only stand-alone form. Announcement 2011-21, 2011-12 I.R.B. 567, see §601.601(d)(2), designates Form 8955-SSA as the form to be used to satisfy the reporting requirements of section 6057 for plan years beginning on or after January 1, 2009. Announcement 2011-21 also established an annual due date for the filing of the Form 8955-SSA. In general, if a Form 8955-SSA must be filed for a plan year, it must be filed by the last day of the 7th month following the last day of that plan year (plus extensions).

Section 6081(a) provides that the Secretary may grant a reasonable extension of time for filing any required return, declaration, statement, or other document. Except for certain taxpayers, the extension of time shall not exceed 6 months.

Section 1.6081-1(a) of the Income Tax Regulations provides that the Commissioner is authorized to grant a reasonable extension of time for filing any return, declaration, statement, or other document that relates to any tax imposed under subtitle A of the Code. Under §1.6081-1(b), the application must be in writing, be signed by the taxpayer or his representative, and set forth the reason for requesting an extension.

Section 1.6081-11 of the regulations provides that a plan administrator or sponsor of an employee benefit plan required to file a Form 5500 will be allowed an automatic extension of the time to file the Form 5500. To receive an automatic extension of time to file, the plan administrator or sponsor must complete a Form 5558, “Application for Extension of Time to File Certain Employee Plan Returns,” and file the application with the Internal Revenue Service on or before the date that the Form 5500 series return must be filed.

Form 5558 is used to request an automatic extension of time to file a Form 5500 return or Form 8955-SSA. In accordance with §1.6081-11 and Form 5558 (including instructions), an application for an extension of time to file a Form 5500 series return need not be signed. However, in accordance with §1.6081-1, Form 5558 provides that an application for an extension of time to file Form 8955-SSA must be signed.

After the current version of the Form 5558 was issued, several comments were received that questioned the need for a signature to extend the time for filing Form 8955-SSA, particularly since a signature is not required to extend the time to file a Form 5500 series return. The commentators noted that, like its predecessor, the Schedule SSA, the Form 8955-SSA is generally prepared in conjunction with the preparation of a plan’s Form 5500. They also stated that a signature requirement for the Form 8955-SSA is likely to cause confusion and missed deadlines because of the different rule for the Form 5500. Finally, the commentators contended that the signature requirement is burdensome for both filers and the IRS because the requirement complicates the extension request process.

The proposed regulations would amend §1.6081-11, relating to automatic extensions of time for filing certain employee plan returns, by adding the Form 8955-SSA to the list of forms that are covered by the automatic 2¹/₂ month extension that applies by filing Form 5558. This will permit a plan administrator to receive an automatic extension of 2¹/₂ months by submitting, on or before the general due date of the Form 8955-SSA, a Form 5558 indicating that an extension is being requested for filing the Form 8955-SSA. Thus, under the proposed regulations, the same rules that apply to request an extension of time to file the Form 5500 series would also apply to request an extension of time to file Form 8955-SSA. In addition, the proposed regulations would amend §1.6081-11 to provide that a signature would not be required to request an extension of time to file Form 5500 and Form 8955-SSA. It is anticipated that the Form 5558 and instructions will be revised to reflect this change for the Form 8955-SSA.

In addition, pursuant to section 6011(a), these proposed regulations would formally designate the Form 8955-SSA as the form used to satisfy the reporting requirements of section 6057. These proposed regulations would retain the general reporting requirements that applied to the Schedule SSA with certain minor modifications.

As discussed in the background section of this preamble, section 6057(a) requires the plan administrator (within the meaning of section 414(g)) of a plan that is subject to the vesting standards of section 203 of ERISA to file, within the time prescribed by regulations, a registration statement that sets forth certain information on deferred vested participants. Under existing §301.6057-1(c)(1) of the Procedure and Administration regulations, the plan administrator of an employee benefit plan described in §301.6057-1(a)(3), or any other employee retirement benefit plan (including a governmental or church plan), may at its option file on the Schedule SSA information relating to the deferred vested retirement benefit of any plan participant who separates at any time from service covered under the plan. These proposed regulations would retain the ability of such plans to report deferred vested information on a voluntary basis but require that the information be submitted to the IRS on Form 8955-SSA. The proposed regulations would also delegate authority to the Commissioner of the Internal Revenue Service to provide special rules under section 6057 (including designating the form used to comply with section 6057) in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see §601.601(d)(2)(ii)(b) of this chapter). Finally, the proposed regulations would delete certain obsolete transition rules and update cross-references in §§1.6057-1 and 1.6057-2.

These regulations are generally proposed to be effective on or after June 21, 2012. Taxpayers may rely on these proposed regulations for guidance pending the issuance of final regulations. If, and to the extent, the final regulations are more restrictive than the guidance in these proposed regulations, those provisions of the final regulations will be applied without retroactive effect.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has been determined that 5 U.S.C. 533(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these proposed regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that most small entities that maintain employee retirement income benefit plans use third party administrators to perform their recordkeeping function. Therefore, an analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, these regulations have been submitted to the Office of Chief Counsel for Advocacy of the Small Business Administration for comments on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any comments that are submitted timely to the IRS as prescribed in this preamble under the “Addresses” heading. The IRS and Treasury Department request comments on all aspects of the proposed rules. All comments are available at www.regulations.gov or upon request. 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.

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.6081-11 is amended by:

1. Revising paragraph (a).

2. Adding paragraph (b)(3).

3. Revising the paragraph heading of paragraph (d) and adding paragraph (d)(2).

4. Revising the paragraph heading of paragraph (e) and adding paragraph (e)(2).

The revisions and additions read as follows:

Par. 3. The authority for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7508* * *

Par. 4. Section 301.6057-1 is amended by:

1. Revising paragraphs (a)(4) and (a)(5)(ii).

2. Removing paragraph (b)(2)(iii) and redesignating paragraph (b)(2)(iv) as (b)(2)(iii).

3. Revising newly designated paragraph (b)(2)(iii).

4. Revising paragraphs (b)(3)(ii), (b)(3)(iii), (c), (d), (f), and (g).

The revisions read as follows:

Par. 5. Section 301.6057-1 is amended by removing the language “schedule SSA” and adding “Form 8955-SSA” in its place.

Par. 6. Section 301.6057-2 is amended by revising paragraph (c) as follows: §301.6057-2 Employee retirement benefit plans; notification of change in plan status.

* * * * *

(c) Penalty. For amounts imposed in the case of failure to file a notification of a change in plan status required by section 6057(b) and this section, see section 6652(d)(2).

* * * * *

The regulations, as proposed, will apply to any taxable year ending on or after the date of publication of a Treasury decision adopting these rules as final regulations in the Federal Register.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do 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 have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic or written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. The Treasury Department and the IRS request comments on all aspects of the proposed rules. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.904-4 is amended by adding paragraph (c)(2)(iii) and by adding a sentence at the end of paragraph (n) to read as follows:

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 411(d)(6) of the Internal Revenue Code (Code). These proposed regulations would amend §1.411(d)-4 of the Treasury regulations.

Section 401(a)(7) provides that a trust does not constitute a qualified trust unless its related plan satisfies the requirements of section 411 (relating to minimum vesting standards). Section 411(d)(6)(A) provides that a plan is treated as not satisfying the requirements of section 411 if the accrued benefit of a participant is decreased by an amendment of the plan, other than an amendment described in section 412(d)(2) of the Code or section 4281 of the Employee Retirement Income Security Act of 1974, Public Law 93-406 (88 Stat. 829 (1974)), as amended (ERISA).

Section 411(d)(6)(B) provides that a plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy, or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment is treated as impermissibly reducing accrued benefits. For a retirement-type subsidy, this protection applies only with respect to a participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy. The last sentence of section 411(d)(6)(B) provides that the Secretary may by regulations provide that section 411(d)(6)(B) does not apply to a plan amendment that eliminates an optional form of benefit (other than a plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy).

Section 436(d)(2) provides that a defined benefit plan which is a single-employer plan must provide that, during any period in which the plan sponsor is a debtor in a case under title 11, United States Code, or similar Federal or State law (a “bankruptcy case”), the plan may not pay any “prohibited payment.” However, that limitation does not apply in a plan year on or after the date on which the enrolled actuary of the plan certifies that the adjusted funding target attainment percentage (as defined in section 436(j)(2)) of the plan for the plan year is not less than 100 percent.

Section 436(d)(5) sets forth a definition of the term “prohibited payment.” Under this definition, a “prohibited payment” is : (1) any payment, in excess of the monthly amount paid under a single life annuity (plus any social security supplements described in the last sentence of section 411(a)(9)), to a participant or beneficiary whose annuity starting date (as defined in section 417(f)(2)) occurs during any period a limitation under section 436(d)(1) or section 436(d)(2) is in effect; (2) any payment for the purchase of an irrevocable commitment from an insurer to pay benefits; and (3) any other payment specified by the Secretary by regulations. The term “prohibited payment” does not include the payment of a benefit which under section 411(a)(11) may be immediately distributed without the consent of the participant.

Section 1.411(d)-4, Q&A-1(a) provides that the term “section 411(d)(6) protected benefit” includes: (1) benefits described in section 411(d)(6)(A); (2) early retirement benefits (as defined in §1.411(d)-3(g)(6)(i)) and retirement type subsidies (as defined in §1.411(d)-3(g)(6)(iv)); and (3) optional forms of benefit described in section 411(d)(6)(B)(ii).

Section 1.411(d)-4, Q&A-1(b)(1) provides that the term “optional form of benefit” for purposes of §1.411(d)-4 has the same meaning as in §1.411(d)-3(g)(6)(ii). Section 1.411(d)-3(g)(6)(ii)(A) defines the term “optional form of benefit” as “a distribution alternative (including the normal form of benefit) that is available under the plan with respect to an accrued benefit or a distribution alternative with respect to a retirement-type benefit. Different optional forms of benefit exist if a distribution alternative is not payable on substantially the same terms as another distribution alternative. The relevant terms include all terms affecting the value of the optional form, such as the method of benefit calculation and the actuarial factors or assumptions used to determine the amount distributed. Thus, for example, different optional forms of benefit may result from differences in terms relating to the payment schedule, timing, commencement, medium of distribution (for example, in cash or in kind), election rights, differences in eligibility requirements, or the portion of the benefit to which the distribution alternative applies.”

Section 1.411(d)-4, Q&A-2(a)(1) provides that a plan is not permitted to be amended to eliminate or reduce a section 411(d)(6) protected benefit that has already accrued, except as provided in §1.411(d)-3 or §1.411(d)-4. Under §1.411(d)-4, Q&A-2(b)(1), the Commissioner is authorized to provide for the elimination or reduction of an optional form of benefit to the extent that plan participants do not lose either a valuable right or an employer-subsidized optional form of benefit when a similar optional form of benefit with a comparable subsidy is not provided.^[1] In addition, §1.411(d)-4, Q&A-2(b)(2)(i) through (xi) sets forth specific situations under which the elimination or reduction of certain section 411(d)(6) protected benefits that have already accrued does not violate section 411(d)(6). These exceptions have been included in regulations pursuant to the Service’s authority under the last sentence of section 411(d)(6)(B) to permit a plan amendment that eliminates or reduces optional forms of benefit (other than a plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy).

Section 1.436-1(d)(2) provides that a plan satisfies the requirements of section 436(d)(2) and §1.436-1(d)(2) only if the plan provides that a participant or beneficiary is not permitted to elect an optional form of benefit that includes a prohibited payment, and the plan will not pay any prohibited payment, with an annuity starting date that occurs during any period in which the plan sponsor is a debtor in a case under title 11, United States Code, or similar Federal or State law, except for payments made with an annuity starting date that occurs on or after the date within the plan year on which the enrolled actuary of the plan certifies that the plan’s adjusted funding target attainment percentage for the plan year is not less than 100 percent.

Title IV of ERISA provides for a pension plan termination insurance program that is administered by the Pension Benefit Guaranty Corporation (PBGC). PBGC guarantees nonforfeitable benefits, up to specified limits, for defined benefit pension plans that are covered under the program.^[2] If a single-employer plan terminates in a distress termination under section 4041(c) of ERISA or an involuntary termination under section 4042 of ERISA, and the plan assets are not sufficient to provide all guaranteed benefits, PBGC pays benefits to participants and beneficiaries under the provisions of Title IV and PBGC’s regulations.^[3] PBGC allows a participant who is not in pay status at the time of the termination to elect among the various annuity forms described in 29 C.F.R. 4022.8. In addition, under 29 C.F.R. 4022.7, PBGC does not pay benefits in a single sum in excess of $5,000 (except under certain limited circumstances).

Section 204(g) of ERISA contains rules that are parallel to Code section 411(d)(6). Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713) and section 204(g) of ERISA, the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed in these regulations for purposes of ERISA, as well as the Code. Thus, these regulations issued under section 411(d)(6) of the Code would apply as well for purposes of section 204(g) of ERISA.

These proposed regulations would provide a limited exception under section 411(d)(6)(B) to permit a plan sponsor that is a debtor in a bankruptcy proceeding to amend its single-employer defined benefit plan to eliminate a single-sum distribution option (or other optional form of benefit providing for accelerated payments) if certain conditions are satisfied.

In particular, the proposed regulations would permit a single-employer plan that is covered under section 4021 of ERISA to be amended, effective for a plan amendment that is both adopted and effective after August 31, 2012, to eliminate an optional form of benefit that includes a prohibited payment described in section 436(d)(5), provided that four conditions are satisfied on the later of the date the amendment is adopted or effective (the applicable amendment date, as defined in §1.411(d)-3(g)(4)). First, the enrolled actuary of the plan has certified that the plan’s adjusted funding target attainment percentage (as defined in section 436(j)(2)) for the plan year that contains the applicable amendment date is less than 100 percent. Second, the plan is not permitted to pay any prohibited payment, due to application of the requirements of section 436(d)(2) of the Code and section 206(g)(3)(B) of ERISA, because the plan sponsor is a debtor in a bankruptcy case (that is, a case under title 11, United States Code, or under similar Federal or State law). Third, the court overseeing the bankruptcy case has issued an order, after notice to each affected party (within the meaning of section 4001(a)(21) of ERISA) and a hearing,^[4] finding that the adoption of the amendment eliminating that optional form of benefit is necessary to avoid a distress termination of the plan pursuant to section 4041(c) of ERISA or an involuntary termination of the plan pursuant to section 4042 of ERISA before the plan sponsor emerges from bankruptcy (or before the bankruptcy case is otherwise completed). Fourth, PBGC has issued a determination that the adoption of the amendment eliminating that optional form of benefit is necessary to avoid a distress or involuntary termination of the plan before the plan sponsor emerges from bankruptcy (or before the bankruptcy case is otherwise completed) and that the plan is not sufficient for guaranteed benefits within the meaning of section 4041(d)(2) of ERISA.

These proposed regulations would exercise the Secretary’s authority under the last sentence of section 411(d)(6)(B) in order to permit this type of amendment that eliminates an optional form of benefit in these limited circumstances. The legislative history of section 411(d)(6)(B), which was added by section 301(a) of the Retirement Equity Act of 1984, Public Law 98-397, states the intent that Treasury regulations could permit the elimination of an optional form of benefit if “(1) the elimination of the option does not eliminate a valuable right of a participant or beneficiary, and (2) the option is not subsidized or a similar benefit with a comparable subsidy is provided.”^[5] The legislative history further states that the committee “expects that the regulations will not permit the elimination of a ‘lump-sum distribution option’ because, for a participant or beneficiary with substandard mortality, the elimination of that option could eliminate a valuable right even if a benefit of equal actuarial value (based on standard mortality) is available under the plan.”^[6]

If the four conditions set forth in the regulations are satisfied, a single-sum distribution option or other optional form of benefit that includes a prohibited payment (generally a payment that is in excess of the monthly amounts payable under a single life annuity) would not currently be available and would not be available in the future. The plan would not currently be permitted to pay that optional form of benefit because section 436(d)(2) (which imposes restrictions on the payment of prohibited payments while the plan sponsor is in bankruptcy) bars the payment of such an optional form of benefit under these conditions. Furthermore, the bankruptcy court and the PBGC would each have issued a determination that the plan would be terminated in a distress or involuntary termination unless that optional form of benefit were eliminated. In addition, the PBGC would have determined that the plan is not sufficient for guaranteed benefits. In such a case, pursuant to §4022.7 and §4022.8 of the PBGC regulations, the optional form of benefit would not have been available after the plan termination. Accordingly, the elimination of the optional form of benefit would not result in the loss of a valuable right of a participant or beneficiary.

In addition, the plan amendment would not eliminate or reduce early retirement benefits or retirement-type subsidies, which would continue to be available under the plan. Because the plan would not be terminated in a distress or involuntary termination, participants would continue to be credited with additional service under the plan and could become eligible for early retirement benefits and retirement-type subsidies, regardless of whether participants received benefit accruals with respect to the additional service. Moreover, because the plan would not be terminated, the plan might have the opportunity to recover from its underfunded status.

Under these proposed regulations, a judicial determination must be made, after notice to each affected party (including each plan participant, each employee organization representing plan participants, and the PBGC) and a hearing, that the amendment is necessary to avoid termination of the plan in a distress or involuntary termination before the plan sponsor emerges from bankruptcy. The primary purpose of this notice and hearing requirement is to afford plan participants who may be affected the opportunity to be heard on whether the amendment is necessary to avoid plan termination.

These regulations are proposed to apply to plan amendments that are adopted and effective after August 31, 2012.

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, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The Treasury Department and the IRS request comments on all aspects of the proposed rules, including specifically whether the regulations should impose additional conditions on the prospective elimination of the single-sum distribution option (or other optional form of benefit that includes a prohibited payment), such as a condition that, after the amendment, the plan must offer annuity distribution options that provide substantial survivor benefits, such as both (1) a life annuity with a term certain of 15 or more years and (2) a 100% joint and survivor annuity, in order to give participants who have substandard mortality the opportunity to protect their survivors.

All comments will be available at www.regulations.gov or upon request. A public hearing has been scheduled for Friday, August 24, 2012, beginning at 10 a.m. in the Auditorium, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written or electronic comments by August 20, 2012, and submit an outline of topics to be discussed and the amount of time to be devoted to each topic (a signed original and eight (8) copies) by August 16, 2012.

A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.411(d)-4 is amended by adding a new paragraph A-2(b)(2)(xii) to read as follows: