Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 67105 

through the Federal Register and the 

http://www.regulations.gov Web site. 

You may also access this document via 

the Department’s Web site at http:// 

www.dol.gov/federalregister. To 

comment electronically on federal 

rulemakings, go to the Federal 

eRulemaking Portal at http:// 

www.regulations.gov, which will allow 

you to find, review, and submit 

comments on federal documents that are 

open for comment and published in the 

Federal Register. Please identify all 

comments submitted in electronic form 

by the RIN docket number (1235– 

AA06). Because of delays in receiving 

mail in the Washington, DC area, 

commenters should transmit their 

comments electronically via the Federal 

eRulemaking Portal at http:// 

www.regulations.gov, or submit them by 

mail early to ensure timely receipt prior 

to the close of the comment period. 

Submit one copy of your comments by 

only one method. 

II. Request for Comment 

The Department is proposing to revise 

the child labor regulations issued 

pursuant to the Fair Labor Standards 

Act, which set forth the criteria for the 

permissible employment of minors 

under 18 years of age in agricultural and 

nonagricultural occupations. The 

proposal would implement specific 

recommendations made by the National 

Institute for Occupational Safety and 

Health, increase parity between the 

agricultural and nonagricultural child 

labor provisions, and also address other 

areas that can be improved, which were 

identified by the Department’s own 

enforcement actions. The proposed 

agricultural revisions would impact 

only hired farm workers and in no way 

compromise the statutory child labor 

parental exemption involving children 

working on farms owned or operated by 

their parents. 

In addition, the Department proposes 

to revise the exemptions which permit 

the employment of 14- and 15-year-olds 

to perform certain agricultural tasks that 

would otherwise be prohibited to that 

age group after they have successfully 

completed certain specified training. 

The Department is also proposing to 

revise subpart G of the child labor 

regulations to incorporate all the 

regulatory changes to the agricultural 

child labor provisions made since that 

subpart was last revised. Finally, the 

Department is proposing to revise its 

civil money penalty regulations to 

incorporate into the regulations the 

processes the Department follows when 

determining both whether to assess a 

child labor civil money penalty and the 

amount of that penalty. 

In the Federal Register of September 

2, 2011 (76 FR 54836), the Department 

of Labor published a proposed notice of 

rulemaking requesting public comments 

on proposed revisions to the child labor 

regulations issued pursuant to the Fair 

Labor Standards Act, which set forth the 

criteria for the permissible employment 

of minors under 18 years of age in 

agricultural and nonagricultural 

occupations. Interested parties were 

requested to submit comments on or 

before November 1, 2011. 

The Department has received requests 

to extend the period for filing public 

comments from members of Congress 

and various agricultural business 

organizations, including, but not limited 

to: American Sheep Industry 

Association; National Cattlemen’s Beef 

Association; National Pork Producers 

Council; National Turkey Federation; 

California Farm Bureau Federation; 

National Association of State 

Departments of Agriculture; National 

Association of Agricultural Employers; 

National FFA Organization; and the 

American Farm Bureau Federation. 

Because of the interest that has been 

expressed in this matter, the Department 

has decided to extend the period for 

submitting public comment for 30 

additional days. 

Dated: October 26, 2011. 

Nancy J. Leppink, 

Deputy Administrator, Wage and Hour 

Division. 

[FR Doc. 2011–28075 Filed 10–28–11; 8:45 am] 

BILLING CODE 4510–27–P 

PENSION BENEFIT GUARANTY 

CORPORATION 

29 CFR Parts 4001, 4022, 4041, and 

4044 

RIN 1212–AB17 

Cash Balance Plans; Benefit 

Determinations and Plan Valuations for 

Statutory Hybrid Plans; Pension 

Protection Act of 2006 

AGENCY: Pension Benefit Guaranty 

Corporation. 

ACTION: Proposed rule. 

SUMMARY: This proposed rule would 

implement provisions of the Pension 

Protection Act of 2006 (PPA 2006) that 

change the rules for determining 

benefits upon the termination of a 

statutory hybrid plan, such as a cash 

balance plan. PPA 2006 provides that, 

when such a plan terminates, a variable 

rate used under the plan to determine 

accrued benefits will be equal to the 

average of the rates of interest used 

under the plan during the five-year 

period ending on the termination date. 

Further, the amount of the benefit 

payable in the form of an annuity 

payable at normal retirement age will be 

determined using the interest rate and 

mortality table specified under the plan 

for that purpose as of the termination 

date (or an average interest rate if the 

plan rate is a variable rate). For a plan 

terminated and trusteed by PBGC, the 

proposed rule would amend PBGC’s 

regulations to conform the rules for 

determining the allocation of assets and 

the amount of benefits payable under 

Title IV of ERISA to the PPA 2006 

changes in the benefit determination 

rules for statutory hybrid plans. The 

proposed rule would also implement a 

PPA 2006 change for determining the 

present value of the accrued benefit 

under a statutory hybrid plan. Finally, 

the proposed rule would provide 

guidance on benefits payable under a 

statutory hybrid plan that terminates in 

a standard termination. 

DATES: Comments must be submitted on 

or before December 30, 2011. 

ADDRESSES: Comments, identified by 

Regulatory Information Number (RIN 

1212–AB17) may be submitted by any of 

the following methods: 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the Web 

site instructions for submitting 

comments. 

• E-mail: reg.comments@pbgc.gov. 

• Fax: (202) 326–4224. 

• Mail or Hand Delivery: Legislative 

and Regulatory Department, Pension 

Benefit Guaranty Corporation, 1200 K 

Street, NW., Washington, DC 20005– 

4026. 

Comments received, including 

personal information provided, will be 

posted to http://www.pbgc.gov. Copies 

of comments may also be obtained by 

writing to Disclosure Division, Office of 

the General Counsel, Pension Benefit 

Guaranty Corporation, 1200 K Street, 

NW., Washington, DC 20005–4026, or 

calling (202) 326–4040 during normal 

business hours. (TTY and TDD users 

may call the Federal relay service toll 

free at 1–(800) 877–8339 and ask to be 

connected to (202) 326–4040.) 

FOR FURTHER INFORMATION CONTACT: John 

H. Hanley, Director, or Constance 

Markakis, Attorney; Legislative and 

Regulatory Department, Pension Benefit 

Guaranty Corporation, 1200 K Street, 

NW., Washington, DC 20005–4026; 

(202) 326–4024. (TTY and TDD users 

may call the Federal relay service toll 

free at 1–(800) 877–8339 and ask to be 

connected to (202) 326–4024.) 

SUPPLEMENTARY INFORMATION:


srobinson on DSK4SPTVN1PROD with PROPOSALS
67106 Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 

1As described below, section 404 of PPA 2006 

added sections 4022(g) and 4044(a)(3) of ERISA, 

which treat the date the sponsor’s bankruptcy 

petition was filed as the termination date of the 

plan for specified purposes. These changes apply 

for plan terminations that occur during the 

bankruptcy of the plan sponsor, if the bankruptcy 

filing date is on or after September 16, 2006. For 

convenience, this preamble generally refers to the 

plan’s termination date, although in some cases this 

reference will instead apply to the bankruptcy filing 

date. 

2Statutory hybrid plans other than cash balance 

plans, such as pension equity plans, also raise 

unique issues. For convenience, and because cash 

balance plans are the most common type of 

underfunded statutory hybrid plan trusteed by 

PBGC, this preamble generally refers to cash 

balance plans, although the regulatory changes 

would apply to all statutory hybrid plans. 

3This policy applied only for plans that used a 

variable interest rate based on an index specified in 

IRS Notice 96–8, and that used either no plan 

margin or a plan margin that is constant. 

4Under IRS Notice 96–8, plans that use the 

standard indices to determine their interest 

crediting rates were permitted to pay the 

hypothetical account balance, even if this amount 

was less than the present value of the participant’s 

life annuity payable at normal retirement age 

determined using the applicable interest rate and 

the applicable mortality table under section 417(e) 

of the Code. 

Background 

When Pension Benefit Guaranty 

Corporation (PBGC) becomes trustee of 

a plan that terminates in a distress 

termination under section 4041 of the 

Employee Retirement Income Security 

Act of 1974, as amended (ERISA), or an 

involuntary termination (one initiated 

by PBGC) under section 4042 of ERISA, 

PBGC determines the amount of the 

annuity benefit that will be paid to a 

participant or beneficiary and whether 

the participant or beneficiary is eligible 

for a de minimis lump-sum payment. 

Guaranteed benefit determinations are 

made under section 4022 of ERISA. 

PBGC also values the benefits payable 

under the plan for purposes of 

allocating the plan’s assets to priority 

categories in accordance with section 

4044 of ERISA, determines employer 

liability under sections 4062 through 

4064 of ERISA, and determines the 

amount of any unfunded nonguaranteed 

benefits payable under section 4022(c) 

of ERISA. These benefit determinations 

and plan valuations are generally made 

as of the plan’s termination date.1

The termination of a cash balance 

plan presents unique issues for PBGC.2

In contrast to a traditional defined 

benefit plan, which defines a 

participant’s benefit under the plan as 

an annuity commencing at normal 

retirement age, a cash balance plan 

defines a participant’s benefit as the 

balance of a hypothetical account 

maintained for the participant. The 

balance of a participant’s hypothetical 

account consists generally of annual pay 

credits (e.g., a percentage of the 

participant’s pay for the year) and 

annual interest credits (i.e., the 

hypothetical earnings on the account 

balance) at rates specified under the 

plan. The plan also provides an interest 

rate and mortality table (or factor) used 

for converting the participant’s 

hypothetical account balance into a 

benefit payable as an annuity. Upon the 

termination of a cash balance plan (or 

an earlier freeze), the pay credits to a 

participant’s hypothetical account 

cease, but interest credits generally 

continue to be added to the participant’s 

hypothetical account until the 

participant begins to receive benefits. 

If a cash balance plan uses a fixed 

interest rate as of the plan’s termination 

date to determine accrued benefits or 

the amount of a benefit payable in the 

form of an annuity payable at normal 

retirement age, PBGC uses the plan’s 

fixed rate when calculating benefits for 

valuation and payment purposes. PBGC 

has encountered difficult payment and 

valuation issues, however, when a cash 

balance plan uses a variable interest 

rate—e.g., a rate that changes annually 

under the plan based on changes in an 

underlying index plus a margin. Many 

plans using variable rates adopted the 

standard indices and associated margins 

set forth in IRS Notice 96–8 (1996–1 

C.B. 359)—which are based on the 

yields on Department of the Treasury 

(Treasury) constant maturities of various 

durations—to determine the plan’s 

interest crediting rate or annuity 

conversion rate. 

Under PBGC’s operating policy on 

cash balance plans (established pre-PPA 

2006), when PBGC performs its plan 

valuation under ERISA section 4044 of 

ERISA (for plans that terminated before 

the effective date of the relevant PPA 

2006 changes), it fixes the plan’s 

variable index at the plan’s termination 

date. To calculate the value, as of the 

plan’s termination date, of a 

participant’s annuity commencing at the 

expected retirement age, PBGC derives a 

fixed rate equal to the average of the 

annual yields for 30-year Treasury 

constant maturities for the month 

specified in the plan, decreased by the 

associated margin in IRS Notice 96–8 for 

the variable index used by the plan, and 

adjusted by any plan margin.3

Under this operating policy, however, 

PBGC does not derive a fixed interest 

rate from a variable rate to determine 

benefits for payment purposes. Instead, 

PBGC pays a participant’s pension 

benefit using the actual interest 

crediting rates in effect under the plan’s 

variable index for periods after the 

plan’s termination date. Until a 

participant commences benefits, PBGC 

estimates annuity payments using the 

most recent interest rate under the 

variable index used by the plan to 

determine the participant’s projected 

benefit. The fact that a participant’s 

exact benefit can be determined only 

when the participant begins receiving 

benefits has frequently resulted in 

benefit calculations for payment 

purposes that vary both from previously 

provided estimates and from benefit 

calculations for valuation purposes. 

PBGC pays benefits in a single 

installment if the lump sum value of a 

benefit payable by PBGC is de minimis 

(currently $5,000 or less). See 

§ 4022.7(b). In the case of cash balance 

plans, the payment of de minimis lump 

sums has posed difficult issues for 

PBGC due to PBGC’s policy of 

determining lump sums using a present 

value calculation of the participant’s 

benefit. Cash balance plans typically 

pay benefits in the form of a lump sum 

and often pay an amount equal to the 

hypothetical account balance.4 In 

contrast, in accordance with its 

operating policy on cash balance plans, 

PBGC uses the present value 

methodology in § 4022.7(d) to determine 

the lump sum value of a benefit, and, if 

either the present value or the 

participant’s hypothetical account 

balance (or accumulated percentage of 

final average compensation) as of the 

termination date is de minimis, PBGC 

generally pays the greater of the two 

amounts. 

Pension Protection Act of 2006 

In the Pension Protection Act of 2006, 

Pub. L. 109–280 (PPA 2006), which 

became law on August 17, 2006, 

Congress sought to address, among other 

things, the problems encountered by 

terminating plans that use a variable 

interest rate. Under sections 701(a)(1) 

and 701(b)(1) of PPA 2006, which added 

section 411(b)(5)(B)(vi) of the Internal 

Revenue Code (Code) and section 

204(b)(5)(B)(vi) of ERISA, an applicable 

defined benefit plan must include the 

following provisions that would apply 

upon termination of the plan: 

• If the interest crediting rate (or 

equivalent amount) is a variable rate, 

the rate of interest used to determine 

accrued benefits under the plan will 

equal the average of the rates of interest 

used under the plan during the five-year 

period ending on the termination date. 

• The interest rate and mortality table 

used to determine the amount of any 

benefit under the plan payable in the 

form of an annuity payable at normal 

retirement age is the rate and table 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 67107 

5 In the case of a new plan not in existence on 

June 29, 2005, these requirements are effective for 

periods beginning on or after June 29, 2005. 

6Section 701(e)(4) of PPA 2006 provides that, for 

a plan maintained under one or more collective 

bargaining agreements between employee 

representatives and one or more employers that is 

ratified on or before August 17, 2006, the interest 

and three-year vesting requirements will not apply 

to plan years before— 

• The earlier of the date on which the last of the 

collective bargaining agreements terminates 

(determined without regard to any extension made 

on or after August 17, 2006), or January 1, 2008, or 

• January 1, 2010. 

specified under the plan for such 

purpose as of the termination date. If the 

interest rate is a variable rate, the rate 

used must be the average of the rates 

used under the plan during the five-year 

period ending on the termination date. 

This change was intended to facilitate 

the calculation of benefits and provide 

participants with greater certainty about 

their benefit amounts when a plan 

terminates. This change is part of a more 

general interest rate requirement 

imposed by sections 701(a)(1) and 

701(b)(1) of PPA 2006, which treats an 

applicable defined benefit plan as 

failing to meet accrual requirements 

related to age if the terms of the plan 

provide for an interest credit (or an 

equivalent amount) for any plan year 

that is greater than a market rate of 

return. 

Sections 701(a)(2) and 701(b)(2) of 

PPA 2006 also create special rules for 

computing benefits under an applicable 

defined benefit plan by reference to the 

hypothetical account balance. Under 

new sections 411(a)(13)(A) of the Code 

and 203(f)(1) of ERISA, a plan is not 

treated as failing to meet the present 

value requirements of sections 417(e) of 

the Code or 205(g) of ERISA (and certain 

other vesting and accrued benefit rules) 

if the present value of the accrued 

benefit of any participant is equal to the 

amount expressed as the balance in the 

hypothetical account or as an 

accumulated percentage of the 

participant’s final average 

compensation. 

New sections 411(a)(13)(C) of the 

Code and 203(f)(3) of ERISA define an 

‘‘applicable defined benefit plan’’ as a 

defined benefit plan under which the 

accrued benefit (or any portion thereof) 

for 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. The term also describes 

any plan that has an effect similar to an 

applicable defined benefit plan under 

regulations issued by Treasury. 

The changes to the plan termination 

requirements made by sections 701(a)(1) 

and 701(b)(1) of PPA 2006 are effective 

for years beginning after December 31, 

2007, unless the plan sponsor elects the 

earlier application of such requirements 

for any period after June 29, 2005.5 A 

special rule for collectively bargained 

plans provides a delayed effective date.6

The changes to the present value rules 

made by sections 701(a)(2) and 701(b)(2) 

of PPA 2006 are effective for 

distributions made after August 17, 

2006. 

Treasury issued final regulations on 

Hybrid Retirement Plans (2010 final 

Treasury regulations), 75 FR 64123 (Oct. 

19, 2010), and simultaneously issued 

proposed Additional Rules Regarding 

Hybrid Retirement Plans (2010 

proposed Treasury regulations), 75 FR 

64197 (Oct. 19, 2010). These regulations 

provide guidance on changes made by 

PPA 2006 under sections 411(a)(13) and 

411(b)(5) of the Code. 

The other PPA 2006 provisions 

relevant to this proposed rule are in 

section 404, which added sections 

4022(g) and 4044(e) of ERISA. These 

provisions provide that, when an 

underfunded pension plan terminates 

during the bankruptcy of the plan 

sponsor, the date that the sponsor’s 

bankruptcy petition was filed is treated 

as the plan’s termination date for 

purposes of determining (1) The amount 

of benefits PBGC guarantees, and (2) the 

amount of benefits in priority category 

3 in the section 4044 asset allocation. 

These changes apply for plan 

terminations that occur during the 

bankruptcy of the plan sponsor, if the 

bankruptcy filing date was on or after 

September 16, 2006. On June 14, 2011 

(at 76 FR 34590), PBGC published a 

final rule on Bankruptcy Filing Date 

Treated as Plan Termination Date for 

Certain Purposes that implements 

section 404 of PPA 2006. 

Overview of Proposed Rule 

This proposed rule would amend 

PBGC’s regulation on Benefits Payable 

in Terminated Single-Employer Plans 

(29 CFR part 4022) to implement the 

above-described changes made by PPA 

2006 upon the termination of a statutory 

hybrid plan. This proposed rule is 

intended to be consistent with the 

proposed Treasury rules under section 

411(b)(5) of the Code that apply upon 

termination of a statutory hybrid plan 

(included in the 2010 proposed 

Treasury regulations at Treas. Reg. 

1.411(b)(5)–1(e)(2)). No inference should 

be drawn from the language in this 

proposed rule as to any changes that 

may be made to the Treasury rules when 

the 2010 proposed Treasury regulations 

are issued as final regulations. After the 

2010 proposed Treasury regulations are 

finalized, PBGC intends to take those 

final Treasury regulations into account, 

so that the rules that finalize these 

proposed regulations are consistent with 

the final rules in the Treasury 

regulations. 

Under the proposed rule, PBGC 

would generally determine plan benefits 

based on plan terms as of the plan’s 

termination date; if, however, the plan 

used a variable rate during the five-year 

period ending on the termination date, 

PBGC would take into account the 

plan’s provisions for determining and 

applying an average rate of interest in 

accordance with section 411(b)(5)(B)(vi) 

of the Code and proposed Treas. Reg. 

1.411(b)(5)–1(e)(2). In addition, the 

proposed rule sets forth certain default 

rules that PBGC would apply to the 

extent that the terms of the plan do not 

satisfy the plan termination 

requirements under PPA 2006 or 

Treasury regulations thereunder, or fail 

to specify provisions necessary to 

implement those requirements. Except 

in the case of certain involuntary plan 

terminations, PBGC would generally 

apply its rules to determine the benefits 

of any participant with an annuity 

starting date after the plan’s termination 

date or, in the case of a distress 

termination under ERISA section 

4041(c), the plan’s proposed termination 

date. The proposed rule also addresses 

the interest crediting rules that apply to 

a plan that terminates during the 

bankruptcy of the plan sponsor. 

In addition, the proposed rule would 

amend PBGC’s regulation on Allocation 

of Assets in Single-Employer Plans (29 

CFR part 4044) to conform the rules for 

valuing benefits and allocating plan 

assets to the changes in the benefit 

determination rules. Under the 

proposed rule, certain benefits would be 

calculated differently for valuation 

purposes than for payment purposes. 

For example, de minimis benefits would 

continue to be calculated as annuities 

for valuation purposes, as under the 

current regulation, but the method of 

calculating such benefits for payment 

purposes would change under the 

proposed rule. The proposed rule would 

also amend part 4044 to provide that the 

priority category 3 benefits of a 

participant who is eligible but does not 

retire three years before a plan’s 

termination date (or bankruptcy filing 

date, if applicable) would be determined 

based on the participant’s account 

balance and the interest rates under the 

plan as if the participant had retired 

three years before the termination date 

(or bankruptcy filing date, if applicable). 

The proposed rule would amend 

PBGC’s regulation on Termination of 


srobinson on DSK4SPTVN1PROD with PROPOSALS
67108 Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 

7References to Code provisions used hereinafter 

should be read to include parallel provisions of 

ERISA. 

8Under § 1.411(a)(13)–1(d), a statutory hybrid 

plan means a defined benefit plan that contains a 

statutory hybrid benefit formula, which is defined 

as a benefit formula used to determine all or any 

part of a participant’s accumulated benefit that is 

either a lump sum-based benefit formula (under 

which the benefit is expressed as the current 

balance of a hypothetical account maintained for 

the participant or as the current value of an 

accumulated percentage of the participant’s final 

average compensation) or a benefit formula that has 

an effect similar to a lump sum-based benefit 

formula. 

Single-Employer Plans (29 CFR part 

4041) to provide that, for purposes of 

part 4041, a plan that terminates in a 

standard termination (or a distress 

termination where the plan is sufficient 

for guaranteed benefits) will be deemed 

to satisfy the plan termination 

requirements under section 

204(b)(5)(B)(vi) of ERISA and section 

411(b)(5)(B)(vi) of the Code and 

Treasury regulations if the plan 

calculates and pays benefits consistent 

with the provisions for statutory hybrid 

plans under part 4022. 

A detailed discussion of the proposed 

rule follows. 

Proposed Regulatory Changes 

Definition of Statutory Hybrid Plan 

Under section 411(a)(13)(C) of the 

Code,7 an ‘‘applicable defined benefit 

plan’’ is a defined benefit plan under 

which the accrued benefit (or any 

portion thereof) 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; the definition includes 

any plan that has an effect similar to an 

applicable defined benefit plan. 

Treasury’s final regulations on Hybrid 

Retirement Plans use the term ‘‘statutory 

hybrid plan’’ to describe plans that are 

subject to the provisions of sections 

411(a)(13) and 411(b)(5)(B) of the Code. 

To maintain a uniform and consistent 

application of PPA 2006 changes to the 

rules in this area, PBGC is proposing to 

amend § 4001.2 to add a definition of a 

‘‘statutory hybrid plan’’ that crossreferences the definition of a statutory 

hybrid plan under Treasury 

regulations.8

PBGC Benefit Determinations—In 

General 

PBGC proposes to amend part 4022 to 

add a new subpart H that would 

specifically address the determination 

of benefits payable under a terminating 

statutory hybrid plan. Subpart H would 

supplement the general rules in part 

4022 for purposes of determining a 

participant’s benefit under the 

provisions of a statutory hybrid plan 

and the amount and form of benefits 

guaranteed or otherwise payable under 

Title IV of ERISA. 

When PBGC trustees a terminated 

plan (including a statutory hybrid plan), 

as a first step in determining the 

benefits payable under Title IV, it 

determines a participant’s benefit in 

accordance with the terms of the plan 

on the termination date. As described in 

proposed new § 4022.121, for statutory 

hybrid plans, this includes provisions 

relating to the interest rate(s) and 

mortality table used by the plan, such as 

the rate used to determine interest 

credits and the timing for determining 

such rate, the frequency at which 

interest credits are applied, and the 

interest rate and mortality table (or 

annuity conversion factor) used to 

determine the participant’s benefit 

payable in the form of an annuity 

payable at normal retirement age— 

provided the plan’s provisions satisfy 

the requirements of section 204(b)(5)(B) 

of ERISA and section 411(b)(5)(B) of the 

Code and implementing regulations. 

Because statutory hybrid plans use 

various methods for determining a 

participant’s annuity benefit, PBGC 

would follow the plan’s terms for this 

purpose. For example, a cash balance 

plan that defines the accrued benefit as 

an annuity commencing at normal 

retirement age, and that—for purposes 

of sections 411(a)(13) and 411(b)(5)— 

expresses the accrued benefit as the 

balance of the participant’s hypothetical 

account, may under its terms determine 

the participant’s annuity by projecting 

interest credits to the participant’s 

normal retirement date. In that case, 

PBGC would add interest credits to the 

participant’s hypothetical account 

balance each interest crediting period 

beginning after the plan’s termination 

date through the participant’s normal 

retirement date (or the current date, if 

later) and then use the conversion 

factors (or the interest rate and the 

mortality table) specified under the plan 

as of the termination date to determine 

the benefit payable as an annuity. 

Alternatively, if such plan provides for 

the use of immediate annuity 

conversion factors, PBGC would add 

interest credits to the participant’s 

hypothetical account balance through 

the participant’s annuity starting date, 

then use the conversion factors (or the 

interest rate and mortality table) 

specified under the plan as of the 

termination date to determine the 

benefit payable as an annuity at the 

participant’s age on the annuity starting 

date. In the case of a pension equity 

plan that provides for the use of 

deferred annuity conversion factors (or 

an interest rate and mortality table), 

PBGC would determine the current 

value of the accumulated percentage of 

an active participant’s final average 

compensation as of the plan’s 

termination date and apply the 

conversion factors specified under the 

plan as of the termination date to 

determine the benefit payable as an 

annuity at different future ages to the 

participant. 

If the mortality table specified under 

the plan as of the termination date used 

to determine the amount of any benefit 

payable in the form of an annuity (i.e., 

the table used to convert a hypothetical 

account balance to an annuity) is a table 

that is updated automatically in future 

years to reflect expected improvements 

in mortality experience (e.g., the 

applicable mortality table provided 

under Code section 417(e)(3)), PBGC 

would determine benefits payable under 

the plan based on the mortality table as 

of the termination date taking into 

account future adjustments for expected 

mortality improvements through the 

annuity starting date. 

The provisions of proposed new 

subpart H would be used to determine 

the benefits of any participant or 

beneficiary in a plan covered by the 

subpart with an annuity starting date 

after the plan’s termination date or, in 

the case of a distress termination under 

ERISA section 4041(c), after the 

proposed termination date. A plan 

administrator’s failure to apply an 

average interest rate as of the proposed 

termination date would require benefits 

to be re-determined using an average 

rate of interest. The proposed 

termination date would also be the 

relevant date if a plan provides a notice 

of intent to terminate in a distress 

termination and subsequently 

terminates under section 4042, and the 

termination date is the same as the 

proposed termination date under 

section 4041(c). If the proposed 

termination date is moved to a later date 

in a distress termination case (or in a 

distress termination that becomes an 

involuntary termination), benefits 

determined using an average interest 

rate between the proposed termination 

date and the final termination date 

would be recalculated using the interest 

rate that would have applied under the 

plan prior to the plan’s final termination 

date. 

Proposed new § 4022.121(a)(3)(ii) 

provides a special rule for a plan that 

terminates in an involuntary 

termination where the termination date 

is earlier than the date on which PBGC 

institutes termination proceedings 

pursuant to section 4042. In that 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 67109 

9An interest crediting rate that applied under the 

terms of the plan only with respect to a date that 

is distinct from the plan’s regular interest crediting 

date, such as the date of separation from 

employment or plan termination, would not be 

included in determining an average of the interest 

crediting rates that applied under the terms of the 

plan during the five-year period. 

10Under Treas. Reg. 1.411(a)(13)–1(d)(2), 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. Thus, for 

example, for a cash balance plan the accumulated 

benefit is expressed as the current balance of a 

hypothetical account, and for a pension equity plan 

the accumulated benefit is expressed as the current 

value of an accumulated percentage of the 

participant’s final average compensation. 

situation, in determining benefits under 

part 4022, PBGC generally would not 

change the interest rate(s) (or the 

mortality table or conversion factor) 

used by the plan under its provisions to 

calculate a benefit payable for a 

participant or beneficiary whose 

annuity starting date is after the 

termination date but on or before the 

date on which PBGC institutes 

termination proceedings or who submits 

a completed election for an annuity 

benefit during that time period. This 

would protect benefit determinations 

and participant elections when a plan 

operates in good faith in accordance 

with its terms prior to any notice of 

termination proceedings. PBGC would 

have discretion not to follow this 

special rule if warranted under the facts 

and circumstances, e.g., to avoid abuse. 

Variable Rates 

Paragraph (c) of proposed new 

§ 4022.121 describes the averaging 

methodology PBGC would apply upon 

termination of a plan in the case of a 

variable rate. In accordance with 

proposed Treas. Reg. 1.411(b)(5)–1(e)(2), 

if the interest crediting rate used to 

determine a participant’s accumulated 

benefit (or a portion thereof) has been a 

variable rate during the interest 

crediting periods in the five-year period 

ending on the plan’s termination date 

(including a rate that was not the same 

fixed rate during all such periods), 

PBGC would determine an average of 

the interest crediting rates used under 

the plan during the five-year period. For 

this purpose, the interest crediting rates 

used under the plan would include each 

rate that applied under the terms of the 

plan during an interest crediting period 

for which the interest crediting date is 

within the five-year period ending on 

the plan’s termination date.9 The 

average rate would be determined as the 

arithmetic average of the rates used, 

expressed as an annual rate. 

PBGC would apply the plan’s average 

interest crediting rate to determine the 

participant’s accumulated benefit 10

under the plan beginning after the 

plan’s termination date through the 

participant’s normal retirement date (or 

annuity starting date, as applicable 

under the plan). If the plan’s 

termination date occurs in the middle of 

an interest crediting period, PBGC 

would credit interest based on the 

plan’s interest crediting rate (on a pro 

rata basis) for the portion of the interest 

crediting period ending on the plan’s 

termination date; such rate would not be 

included in the determination of the 

average rate. For any subsequent partial 

interest crediting period (e.g., the 

portion of the interest crediting period 

following the plan’s termination date), 

PBGC would credit a pro rata amount of 

the plan’s average interest crediting rate. 

This approach is consistent with the 

statute and would simplify 

administration for PBGC. 

In the event that the plan used a 

variable rate during the five-year period 

ending on the plan’s termination date to 

determine the amount of a participant’s 

benefit payable in the form of an 

annuity payable at normal retirement 

age, PBGC would determine the 

arithmetic average of the interest rates 

(or tabular adjustment factors) that 

applied during periods for which the 

date of each rate (or factor) change was 

within the five-year period ending on 

the plan’s termination date. 

Under Code section 

411(b)(5)(B)(vi)(II), the average rate is 

used to determine the amount of any 

benefit under the plan payable in the 

form of an annuity payable at normal 

retirement age. PBGC would apply an 

average rate to determine a benefit 

under the plan that is payable in the 

form of a life annuity (i.e., an annuity 

that continues at least as long as the life 

of the annuitant, such as a straight-life 

annuity, joint-and-50%-survivor 

annuity, or 10-year certain and 

continuous annuity) payable at normal 

retirement age. In the case of an 

immediate annuity conversion plan that 

uses a variable interest rate to determine 

the amount of a benefit, PBGC would 

apply an average rate to determine a 

benefit under the plan payable in the 

form of a life annuity payable at the 

annuity starting date. In either case, the 

averaging requirement would apply 

only to determine the amount of the 

benefit in the automatic PBGC form 

under § 4022.8(b) of PBGC’s regulation 

on Benefits Payable in Terminated 

Single-Employer Plans, e.g., the form a 

married participant or an unmarried 

participant (as applicable) would be 

entitled to receive from the plan in the 

absence of an election. If the participant 

or beneficiary elects an optional PBGC 

form under § 4022.8(c), PBGC would 

convert the benefit amount from the 

automatic PBGC form in accordance 

with that section. 

Paragraph (c) of proposed new 

§ 4022.121 also provides that, consistent 

with Treasury regulations, if the interest 

crediting rate in any interest crediting 

period during the five-year period 

ending on the termination date is based 

on a variable rate that is not described 

in proposed Treas. Reg. 1.411(b)(5)– 

1(e)(2)(ii)(B) (e.g., the rate of return on 

plan assets), PBGC would replace such 

rate with the third segment rate under 

Code section 430(h)(2)(C)(iii) for the last 

calendar month ending before the 

beginning of the interest crediting 

period for purposes of determining the 

average interest crediting rate. In 

accordance with proposed Treas. Reg. 

1.411(b)(5)–1(e)(2)(ii)(C), PBGC 

generally would adjust the third 

segment rate by any maximums or 

minimums applicable to the interest 

crediting rate in the period under the 

plan’s terms, but would not adjust the 

third segment rate to account for any 

other adjustments under the plan to the 

interest crediting rate. 

Default Rules and Other Rules 

Paragraph (d) of proposed new 

§ 4022.121 describes the default rules 

that PBGC would apply to the extent 

that plan provisions do not satisfy 

section 204(b)(5)(B) of ERISA and 

section 411(b)(5)(B) of the Code and 

implementing regulations, or that the 

plan fails to specify provisions 

necessary to implement applicable 

statutory and regulatory requirements. 

In the case of a plan that uses a variable 

rate but does not provide for the 

determination of an average rate or an 

arithmetic averaging methodology to be 

used upon termination of the plan, 

PBGC would determine an arithmetic 

average in the manner described above. 

If a plan does not specify a mortality 

table (or otherwise indicate the table or 

annuity conversion factor to be used), 

PBGC would use the mortality table 

provided under section 417(e) of the 

Code that would apply if the annuity 

starting date were the plan’s termination 

date (i.e., future adjustments for 

expected mortality improvements under 

the mortality table would not be taken 

into account). If a plan fails to specify 

an interest crediting rate or annuity 

conversion interest rate (or otherwise 

indicate the rate or factor to be used), 

PBGC would compute an average rate as 

the arithmetic mean of the 30-year 

Treasury Constant Maturity rates in 

effect for the calendar month in which 

the plan terminates and for the same 

calendar month in each of the preceding 

four years. 


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67110 Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 

Under the proposed regulation, PBGC 

would apply a single average interest 

crediting rate to determine the benefits 

of all similarly situated participants 

under the plan (i.e., the same average 

interest crediting rate would apply to 

the extent the same rates applied under 

the plan to determine all participants’ 

benefits). In the case of a plan that 

terminates within five years after the 

effective date of the PPA 2006 

termination requirements with respect 

to the plan, PBGC would determine the 

average rate by including interest 

crediting rates used by the plan before 

the effective date but within the fiveyear period ending on the termination 

date. In the case of a plan (or the 

statutory hybrid benefit formula under a 

plan) that is in effect for less than five 

years, PBGC would determine the 

average rate based on the interest 

crediting periods during the time the 

plan (or the statutory hybrid benefit 

formula) was in effect. 

PPA 2006 Bankruptcy Terminations 

Paragraph (e) of proposed new 

§ 4022.121 provides a special rule for 

determining interest credits in the case 

of a plan that terminates while the 

sponsor is in bankruptcy (a PPA 2006 

bankruptcy termination, as defined in 

§ 4001.2). PBGC would project the 

amount of the participant’s hypothetical 

account balance as of the bankruptcy 

filing date using the following interest 

rates: 

• To credit interest beginning after 

the bankruptcy filing date and ending 

on the plan’s termination date, the 

actual interest crediting rate(s) used 

under the plan during each interest 

crediting period. 

• To credit interest beginning after 

the plan’s termination date and ending 

on the participant’s normal retirement 

date or, in some cases, annuity starting 

date, the rate in effect under the plan as 

of the plan’s termination date, including 

the average interest crediting rate as 

determined under subpart H if the plan 

used a variable rate during the five-year 

period ending on the plan’s termination 

date. 

De Minimis Lump Sums 

The proposed rule would add a new 

§ 4022.122 to describe how PBGC would 

make determinations regarding de 

minimis lump sum payments (currently 

$5,000 or less under § 4022.7) under a 

statutory hybrid plan. Consistent with 

section 411(a)(13)(A) of the Code, if a 

plan provides for a single sum form of 

payment equal to the amount expressed 

as the balance in a hypothetical account, 

PBGC generally would determine 

whether the lump sum value of a benefit 

payable by PBGC is de minimis based 

on the participant’s hypothetical 

account balance as of the plan’s 

termination date, and, if so, would pay 

that amount to the participant. 

However, regardless of plan 

provisions, if after August 17, 2006, a 

plan made lump sum payments based 

on participants’ hypothetical account 

balances without regard to the present 

value rules under section 417(e) of the 

Code, or stated in writing its intent to 

make lump sum payments on that basis 

(e.g., through communications to 

affected participants), PBGC would 

make de minimis lump sum 

determinations on that same basis. I.e., 

PBGC would treat the plan as if it had 

been amended to reflect plan operation 

in accordance with section 411(a)(13)(A) 

of the Code, pursuant to the amendatory 

period provided under section 1107 of 

PPA 2006. PBGC would also make de 

minimis lump sum determinations 

based on the participants’ hypothetical 

account balances without regard to the 

section 417(e) rules if there is no single 

sum form of payment under the plan or 

no description of the calculation for 

such a payment. 

In the case of a plan that provides for 

use of section 417(e) of the Code in 

determining lump sums and that, after 

August 17, 2006, has not made lump 

sum payments based solely on 

participants’ hypothetical account 

balances or stated in writing its intent 

to make lump sum payments on that 

basis (e.g., through communications to 

affected participants), PBGC would 

make de minimis lump sum 

determinations in accordance with 

§ 4022.7(d) and its operating policy on 

cash balance plans. 

Phase-In of Guarantee of Benefit 

Increases 

The proposed rule would add a new 

§ 4022.123 to PBGC’s regulations to 

describe changes in the terms of a 

statutory hybrid plan resulting in a 

benefit increase that would be subject to 

the phase-in limitations on the PBGC 

guarantee (i.e., a benefit increase that 

has been in effect for less than five years 

on the plan’s termination date). Such 

changes include, but are not limited to, 

a change in the plan’s mortality table, 

timing or method for crediting interest, 

or basis for crediting interest or 

determining the annuity conversion 

factor (e.g., a change from a fixed rate 

to a variable rate, or from one variable 

index to another variable index). 

The proposed regulation would 

clarify that certain adjustments in the 

interest rate would not be subject to the 

phase-in limitations. These include: (i) 

A change in the interest rate under a 

single variable rate index (e.g., a change 

in the yield on 5-year Treasury Constant 

Maturities from one date to another); (ii) 

a change that is required to comply with 

the termination requirements of ERISA 

section 204(b)(5)(B)(vi) and Code 

section 411(b)(5)(B)(vi) (e.g., a change in 

the plan’s interest rate to an average rate 

of interest at termination); (iii) a change 

in the plan’s interest crediting rate that 

is permitted, notwithstanding section 

411(d)(6) of the Code, pursuant to Treas. 

Reg. 1.411(b)(5)–1(e)(3) (e.g., an 

amendment to change under certain 

circumstances to the long-term 

investment grade corporate bond rate); 

(iv) a change permitted during the 

amendatory period under section 1107 

of PPA 2006 or any extension of the 

amendatory period issued by the 

Treasury Department; and (v) an 

automatic future update in a mortality 

table specified under the plan as of the 

termination date that reflects expected 

improvements in mortality experience. 

PBGC believes that excluding such 

changes from the phase-in rule is 

warranted. Changes in rate due to the 

fluctuations of a variable index or to the 

averaging under the termination 

requirements would just as likely result 

in a benefit decrease as a benefit 

increase. Furthermore, any increase in 

benefits that might result from the above 

changes would be moderated by the 

requirement to average the plan’s rates 

for the five-year period ending on the 

termination date, and by the 

substitution of the third segment rate for 

any variable rate that is not described in 

proposed Treasury Regulation 

1.411(b)(5)–1(e)(2)(ii)(B) (e.g., the rate of 

return on plan assets) for purposes of 

determining the average interest 

crediting rate. Lastly, updates under a 

mortality table that automatically 

reflects age improvements are an 

inherent aspect of the annuity 

conversion factor used; by contrast, a 

change to the conversion factor (e.g., 

from a fixed mortality table to one that 

updates automatically) by a plan would 

be subject to phase-in. 

Allocation of Assets—Distress and 

Involuntary Terminations 

PBGC proposes to amend part 4044 by 

adding a new § 4044.52(e) to address the 

valuation of benefits under a 

terminating statutory hybrid plan. The 

proposed regulation provides that 

benefits should be valued consistent 

with the general valuation rules of part 

4044 and the provisions for the 

calculation and payment of benefits in 

subpart H of part 4022. 

In two situations, notwithstanding 

PBGC’s calculation of benefits for 

payment purposes, PBGC would value 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 67111 

11Benefits in priority category 3 are limited to the 

lowest annuity benefit payable under the plan 

provisions at any time during the five-year period 

ending on the termination date (or bankruptcy filing 

date, if applicable). This limitation also affects the 

benefits of participants who retired between three 

and five years before the termination date (or 

bankruptcy filing date, if applicable). 

12The 2010 final Treasury regulations provide 

that, for periods after the statutory effective date 

and before the regulatory effective date, a plan is 

permitted to rely on the provisions of the 2010 final 

Treasury regulations, the 2010 proposed Treasury 

regulations, the 2007 proposed regulations on 

Hybrid Retirement Plans, 72 FR 73680, 48 (Dec. 28, 

2007), and IRS Notice 2007–6 for purposes of 

satisfying the requirements of sections 411(a)(13) 

and 411(b)(5) of the Code. 

the benefits under a cash balance plan 

in the same manner as all other benefits 

are valued. First, although proposed 

new § 4022.122 provides for the 

determination of de minimis lump sums 

in some cases on the basis of the 

participant’s hypothetical account 

balance, a benefit payable as a de 

minimis lump sum would nevertheless 

be required to be valued, for purposes 

of part 4044, in the form of a benefit 

payable as an annuity in the absence of 

a valid election under the terms of the 

plan (as is the case under current 

regulations). Second, despite the special 

rule in proposed new 

§ 4022.121(a)(3)(ii) that would generally 

require PBGC to use the plan’s interest 

crediting rate and annuity conversion 

interest rate to determine benefits 

commencing or elected during the time 

period between the plan’s termination 

date and the date on which PBGC 

institutes termination proceedings, 

these benefits would be valued, for 

purposes of part 4044, using the interest 

rates in effect under the plan (including 

the five-year average rate, if applicable) 

as of the plan’s termination date. 

Proposed new § 4044.52(e)(4) 

describes the calculation of a priority 

category 3 benefit under a statutory 

hybrid plan. Priority category 3 benefits 

generally are benefits in pay status, or 

that could have been in pay status, three 

years before the termination date; 

priority category 3 benefits come ahead 

of guaranteed benefits in priority 

category 4 in the section 4044 asset 

allocation. In a plan termination that is 

not a PPA 2006 bankruptcy termination, 

the priority category 3 benefit for a 

participant eligible to receive an annuity 

(taking into account PBGC’s rules on the 

Earliest PBGC Retirement Date under 

§ 4022.10) before the beginning of the 

three-year period ending on the 

termination date but not in pay status as 

of that date would be determined based 

on the balance of the participant’s 

hypothetical account and the interest 

crediting rate and annuity conversion 

factor under the plan had the 

participant retired three years before the 

termination date.11 In the case of PPA 

2006 bankruptcy termination, the 

bankruptcy filing date would substitute 

for the termination date in determining 

whether a participant or beneficiary is 

eligible for a priority category 3 benefit, 

and the amount of benefits in priority 

category 3. A priority category 3 benefit 

would in no event exceed the benefit 

amount payable under the terms of the 

plan as of the plan’s termination date 

(determined by applying the averaging 

rules under § 4022.121 if the plan uses 

a variable rate). 

Standard and Distress Terminations 

The termination requirements under 

section 411(b)(5)(B)(vi) of the Code, 

added by PPA 2006, apply to any 

applicable defined benefit plan upon 

the termination of the plan. Sections 

4041.28(c) and 4041.50 provide that, in 

general, the plan administrator of a plan 

that terminates in a standard 

termination or a distress termination 

where the plan is sufficient for 

guaranteed benefits must close out the 

plan ‘‘in accordance with all applicable 

requirements under the Code and 

ERISA.’’ These requirements include the 

new rules for cash balance plans under 

section 411(b)(5)(B)(vi) of the Code and 

implementing Treasury regulations. 

The proposed rule would amend 

§ 4041.28(c) to provide that for purposes 

of part 4041 the plan administrator of a 

statutory hybrid plan would be deemed 

to satisfy the applicable Code and 

ERISA requirements if it calculates and 

pays benefits consistent with the 

interest and mortality provisions 

described in proposed new § 4022.121. 

Issues Not Addressed 

This proposed rule does not address 

issues relating to plans in which the 

interest crediting rate is determined by 

participant direction, e.g., where the 

interest crediting rate depends upon 

choices made by the participant. PBGC 

will provide further guidance as 

appropriate. 

Applicability 

The proposed regulatory changes to 

implement the plan termination 

requirements under section 

411(b)(5)(B)(vi) of the Code would 

generally apply to any plan with a 

termination date in a plan year 

beginning on or after January 1, 2008. In 

addition, the proposed changes would 

apply to any plan that was not in 

existence on June 29, 2005. Pursuant to 

sections 701(e)(3) through (e)(5) of PPA 

2006, if a plan elected to have these 

statutory provisions apply for any 

period after June 29, 2005, and before 

the plan year beginning on or after 

January 1, 2008, or if the statutory 

provisions are first effective for a plan 

after the first plan year beginning on or 

after January 1, 2008 (e.g., a collectively 

bargained plan), these regulatory 

changes would apply to any plan with 

a termination date on or after such 

earlier effective date elected by the plan, 

or such later effective date provided 

under PPA 2006. For plans that 

terminate under part 4041 on or after 

the effective date of these statutory 

provisions and pending the issuance of 

final Treasury regulations, compliance 

with PPA 2006 would constitute 

compliance with the new rules for Title 

IV purposes.12

The proposed regulatory changes to 

implement the lump sum provisions 

under section 411(a)(13) of the Code 

would apply to distributions made from 

a terminated plan with a termination 

date in a plan year beginning on or after 

January 1, 2008. 

Regulatory Impact Analysis 

Regulatory Procedures 

Executive Order 12866 ‘‘Regulatory 

Planning and Review’’ and Executive 

Order 13563 ‘‘Improving Regulation and 

Regulatory Review’’ 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. Executive 

Orders 12866 and 13563 require a 

comprehensive regulatory impact 

analysis be performed for any 

economically significant regulatory 

action, defined as an action that would 

result in an annual effect of $100 

million or more on the national 

economy or which would have other 

substantial impacts. In accordance with 

OMB Circular A–4, the Department has 

examined the economic and policy 

implications of this proposed rule and 

has concluded that the action’s benefits 

justify its costs. 

Under Section 3(f)(1) of Executive 

Order 12866, a proposed rule is 

economically significant if ‘‘it is likely 

to result in a rule that may * * * [h]ave 

an annual effect on the economy of $100 

million or more or adversely affect in a 

material way the economy, a sector of 


srobinson on DSK4SPTVN1PROD with PROPOSALS
67112 Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 

the economy, productivity, competition, 

jobs, the environment, public health or 

safety, or State, local, or tribal 

governments or communities.’’ PBGC 

has determined that this proposed rule 

does not cross the $100 million 

threshold for economic significance and 

is not otherwise economically 

significant. 

The economic effect of the proposed 

rule is attributable almost entirely to the 

economic effect of the PPA 2006 

changes to terminating cash balance 

plans. Accordingly, PBGC is basing its 

determination on its experience with 

plans subject to these provisions. 

PBGC estimates that, to date, the total 

economic effects of the PPA 2006 

changes—in terms of lower benefits 

paid to participants and associated 

savings—is less than $4 million. These 

effects are primarily due to lower lump 

sum payments to some participants as a 

result of the PPA 2006 provisions that 

allow payment of the hypothetical 

account balance to participants. Because 

PBGC generally pays lump sums only 

when the benefit is de minimis 

(currently $5,000 or less), and because 

only a small percentage of participants 

in cash balance plans trusteed by PBGC 

receive benefits in lump sum form, the 

economic effects are relatively small. 

PBGC estimates that there will be 

little if any economic effect from PPA 

2006’s averaging provisions. As 

explained in the Background section, 

before the PPA 2006 changes went into 

effect, if a cash balance plan used a 

variable interest rate at plan termination 

to determine accrued benefits, for 

payment purposes PBGC credited 

interest to a participant’s account using 

the plan’s variable index from the 

termination date until a participant’s 

normal retirement date or annuity 

starting date. PPA 2006 requires that a 

cash balance plan that uses a variable 

rate for calculating benefits use the 

average of the rates used under the plan 

during the five-year period ending on 

the plan termination date. This change 

could result in larger benefits payable to 

some participants and smaller benefits 

payable to other participants as 

compared to the pre-PPA 2006 

methodology, depending on fluctuations 

in rates. PBGC believes that these losses 

and gains in benefits for participants 

will be largely offsetting. 

Although, PBGC cannot predict with 

certainty which cash balance plans will 

terminate, the funding level of such 

plans, or the number of participants that 

will be paid de minimis lump sum 

payments, given the relatively low 

estimate of the effect of the statutory 

provisions to date, PBGC has 

determined that the annual effect of the 

proposed rule will be less than $100 

million. 

Regulatory Flexibility Act 

PBGC certifies under section 605(b) of 

the Regulatory Flexibility Act (5 U.S.C. 

601 et seq.) that the amendments in this 

proposed rule would not have a 

significant economic impact on a 

substantial number of small entities. 

The amendments implement and in 

some cases clarify statutory changes 

made in PPA 2006; they do not impose 

new burdens on entities of any size. 

Accordingly, as provided in section 605 

of the Regulatory Flexibility Act (5 

U.S.C 601 et seq.), sections 603 and 604 

do not apply. 

Paperwork Reduction Act 

The amendments in the proposed rule 

would change the information 

requirements approved by the Office of 

Management and Budget under the 

Paperwork Reduction Act under OMB 

control number 1212–0036 (expires 

December 31, 2013). PBGC is submitting 

the information requirements relating to 

these amendments to part 4041 to the 

Office of Management and Budget for 

review and approval under the 

Paperwork Reduction Act. Copies of 

PBGC’s request may be obtained free of 

charge by contacting the Disclosure 

Division of the Office of the General 

Counsel of PBGC, 1200 K Street, NW., 

Washington, DC 20005, (202) 326–4040; 

the request is also available on http:// 

www.reginfo.gov. 

PBGC estimates that 1,379 plan 

administrators will be subject to the 

collection of information requirements 

under 1212–0036 each year, and that the 

total annual burden of complying with 

these requirements is 2,161 hours and 

$3,098,441. Much of the work 

associated with terminating a plan is 

performed for purposes other than 

meeting these requirements. (Detailed 

information on these burden estimates 

is included in PBGC’s request.) 

Comments on the paperwork 

provisions under this proposed rule 

should be sent to the Office of 

Information and Regulatory Affairs, 

Office of Management and Budget, 

Attention: Desk Officer for Pension 

Benefit Guaranty Corporation, via 

electronic mail at 

OIRA_DOCKET@omb.eop.gov or by fax 

to (202) 395–6974. Although comments 

may be submitted through December 30, 

2011, the Office of Management and 

Budget requests that comments be 

received on or before November 30, 

2011 to ensure their consideration. 

Comments may address (among other 

things)— 

• Whether the proposed collection of 

information is needed for the proper 

performance of PBGC’s functions and 

will have practical utility; 

• The accuracy of PBGC’s estimate of 

the burden of the proposed collection of 

information, including the validity of 

the methodology and assumptions used; 

• Enhancement of the quality, utility, 

and clarity of the information to be 

collected; and 

• Minimizing the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., permitting electronic submission of 

responses. 

List of Subjects 

29 CFR Part 4001 

Pensions. 

29 CFR Part 4022 

Pension insurance, Pensions. 

29 CFR 4041 

Pension insurance, Pensions, 

Reporting and recordkeeping 

requirements. 

29 CFR 4044 

Pension insurance, Pensions. 

For the reasons given above, PBGC 

proposes to amend 29 CFR parts 4001, 

4022, 4041, and 4044 as follows. 

PART 4001—TERMINOLOGY 

1. The authority citation for part 4001 

continues to read as follows: 

Authority: 29 U.S.C. 1301, 1302(b)(3). 

2. In § 4001.2, add a new definition in 

alphabetical order to read as follows: 

§ 4001.2 Definitions 

Statutory hybrid plan means a cash 

balance plan or other statutory hybrid 

plan under regulations issued by the 

Department of the Treasury. 

PART 4022—BENEFITS PAYABLE IN 

TERMINATED SINGLE-EMPLOYER 

PLANS 

3. The authority citation for part 4022 

continues to read as follows: 

Authority: 29 U.S.C. 1302, 1322, 1322b, 

1341(c)(3)(D), and 1344. 

4. In § 4022.2, amend the first 

paragraph by removing the words 

‘‘proposed termination date, substantial 

owner’’ and adding in their place 

‘‘proposed termination date, statutory 

hybrid plan, substantial owner.’’ 

5. Add a new subpart H to read as 

follows: 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 67113 

Subpart H—Calculation of Benefits 

Payable Under Statutory Hybrid Plans 

§ 4022.120 Purpose and scope. 

(a) General. This subpart H 

supplements the general rules in part 

4022. These rules apply for determining 

the benefit payable under the provisions 

of a statutory hybrid plan and the 

amount of the benefit that PBGC will 

guarantee or that is payable under title 

IV of ERISA. To the extent the rules and 

procedures of this subpart H conflict 

with the rules and procedures in 

subparts A through G of part 4022, the 

provisions of subpart H govern. 

(b) Statutory hybrid plan. In general, 

a statutory hybrid plan (defined in 

§ 4001.2 of this chapter) includes a 

hybrid defined benefit pension plan 

under the terms of which the 

accumulated benefit of a participant (or 

any portion thereof) is expressed as the 

current balance of a hypothetical 

account maintained for the participant 

(a cash balance formula), as the current 

value of an accumulated percentage of 

the participant’s final average 

compensation (a pension equity 

formula), or as a formula with an effect 

similar to a cash balance or pension 

equity formula. This subpart H applies 

with respect to all or any portion of a 

participant’s benefit under a defined 

benefit plan to the extent such benefit 

is determined under a statutory hybrid 

benefit formula. 

§ 4022.121 Interest and mortality 

assumptions and other plan terms. 

(a) In general. PBGC will determine a 

participant’s benefit based on the terms 

of the plan, including the interest rate 

and mortality table otherwise applicable 

for determining that benefit under the 

plan, as of the plan’s termination date. 

Special rules apply under paragraph (e) 

of this section for a PPA 2006 

bankruptcy termination. 

(1) Plan terms. PBGC will determine 

plan benefits using relevant plan 

provisions in effect as of the plan’s 

termination date (or, for determining the 

average rate in the case of a variable 

rate, within the 5-year period ending on 

the plan’s termination date). All 

relevant plan provisions (including 

provisions that become applicable upon 

plan termination) must be consistent 

with the requirements under section 

204(b)(5)(B) of ERISA and section 

411(b)(5)(B) of the Code and regulations 

thereunder. Relevant plan provisions 

include, but are not limited to, the 

following: 

(i) The basis and the timing for 

determining the interest crediting rate 

used by the plan for each plan year (or 

portion thereof). 

(ii) The periodic frequency at which 

interest credits are applied (monthly, 

quarterly, etc.). 

(iii) The interest rate and mortality 

table (or conversion factor) used to 

determine the amount of any benefit 

payable in the form of an annuity 

payable at normal retirement age. If a 

plan uses a mortality table as of the 

termination date that is updated 

automatically to reflect expected 

improvements in mortality experience 

(e.g., the applicable mortality table 

provided under Code section 417(e)(3)), 

PBGC will take into account future 

adjustments under that table for 

expected improvements in mortality 

experience through each participant’s 

annuity starting date. 

(iv) The averaging methodology to be 

used, if the interest crediting rate or the 

annuity conversion interest rate under 

the plan is a variable rate, upon the 

termination of the plan. 

(v) The method for determining a 

participant’s annuity benefit. 

Examples— 

Example 1. Immediate annuity conversion 

plan. A cash balance plan determines 

immediate annuity benefits by applying 

immediate annuity conversion factors to the 

participant’s hypothetical account balance as 

of the annuity starting date. PBGC will add 

interest credits to the participant’s 

hypothetical account balance each interest 

crediting period beginning after the plan’s 

termination date through the participant’s 

annuity starting date and convert the balance 

to an annuity using the immediate annuity 

conversion factors (specified under the plan 

as of the termination date) at the participant’s 

age on the annuity starting date. 

Example 2. Deferred annuity conversion 

plan. A pension equity plan determines 

annuity benefits by applying deferred 

annuity conversion factors to the 

accumulated percentage of the participant’s 

final average compensation at cessation of 

accruals. PBGC will determine the current 

value of the accumulated percentage of an 

active participant’s final average 

compensation as of the plan’s termination 

date and convert this value to an annuity 

using the deferred annuity conversion factors 

specified under the plan as of the termination 

date (followed by an adjustment, if necessary, 

in the annuity using the plan’s early 

retirement provisions to reflect the 

participant’s age on the annuity starting date) 

to determine the benefit payable as an 

annuity at different future ages to the 

participant. 

Example 3. Projected annuity conversion 

plan. A cash balance plan determines 

annuity benefits by reference to the accrued 

benefit, which is determined by projecting 

the participant’s hypothetical account 

balance with interest credits to the plan’s 

normal retirement age. PBGC will add 

interest credits to the participant’s 

hypothetical account balance each interest 

crediting period beginning after the plan’s 

termination date through the participant’s 

normal retirement date (or the current date, 

if later) and convert the balance to an annuity 

payable at that age using the immediate 

conversion factors for that age (or the interest 

rate and mortality table) specified under the 

plan as of the termination date (followed by 

an adjustment, if necessary, in the annuity 

using the plan’s early retirement provisions 

to reflect the participant’s age on the annuity 

starting date). 

(2) Fixed or variable interest rate and 

related terms. If, during the 5-year 

period ending on the plan’s termination 

date, the plan uses the same fixed 

interest rate to determine a participant’s 

accumulated benefit or the amount of 

any benefit under the plan payable in 

the form of an annuity payable at 

normal retirement age, PBGC will apply 

the rules in paragraph (b) of this section. 

If, during the 5-year period ending on 

the plan’s termination date, the plan 

uses a variable rate (as defined in 

paragraph (c)(4)) to determine a 

participant’s accumulated benefit or the 

amount of any benefit under the plan 

payable in the form of an annuity 

payable at normal retirement age, PBGC 

will apply the rules in paragraph (c) of 

this section. To the extent that the terms 

of the plan do not satisfy section 

204(b)(5)(B) of ERISA and section 

411(b)(5)(B) of the Code and 

implementing regulations, or that the 

plan fails to specify provisions 

necessary to implement applicable 

statutory and regulatory requirements, 

PBGC will determine plan benefits 

using the rules under paragraph (d) of 

this section. In the case of a PPA 2006 

bankruptcy termination, PBGC will 

apply the interest crediting rules in 

paragraph (e) of this section. 

(3) Benefits affected. (i) General rule. 

The provisions of this § 4022.121 apply 

to determine the benefits of any 

participant or beneficiary with an 

annuity starting date after the plan’s 

termination date. If the plan 

administrator issues a notice of intent to 

terminate in a distress termination 

under ERISA section 4041(c), in 

compliance with § 4041.42 of this 

chapter, the plan administrator must 

apply the provisions of this § 4022.121 

as of the proposed termination date 

specified in the notice of intent to 

terminate under § 4041.43. (If the plan 

fails to qualify for distress termination, 

in accordance with § 4041.42(d), 

benefits determined using an average 

interest rate must be recalculated using 

the interest rate otherwise applicable 

under the plan, disregarding the 

proposed termination date.) 

(ii) Special rule for involuntary 

terminations. Notwithstanding 

paragraph (a)(3)(i) of this section, if 

PBGC initiates termination proceedings 

under ERISA section 4042 and the 


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67114 Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 

termination date is earlier than the date 

on which PBGC institutes such 

proceedings, PBGC generally will not 

change the interest rate(s), the mortality 

table, or other conversion factor used by 

the plan (in accordance with ongoing 

plan provisions) to calculate a benefit 

payable to a participant or beneficiary 

whose annuity starting date is after the 

termination date but on or before the 

date on which PBGC institutes 

termination proceedings. PBGC also 

generally will not change the interest 

rate(s), the mortality table, or other 

conversion factor used by the plan to 

calculate the benefit of a participant or 

beneficiary who submits a completed 

election for an annuity benefit during 

the period between the termination date 

and the date on which PBGC initiates 

termination proceedings. (This special 

rule does not apply in the case of a plan 

that issues a notice of intent to 

terminate in a distress termination 

under section 4041(c) and subsequently 

terminates under section 4042, where 

the termination date is the same as the 

proposed termination date under 

section 4041(c).) PBGC may in its 

discretion apply the general rule in 

paragraph (a)(3)(i) instead of the special 

rule in this paragraph (a)(3)(ii) if 

warranted under the facts and 

circumstances (e.g., to avoid abuse). 

(b) Fixed interest rate. If the interest 

crediting rate used to determine the 

participant’s accumulated benefit (or a 

portion thereof) under the plan is the 

same fixed rate during each interest 

crediting period for which the interest 

crediting date is within the 5-year 

period ending on the plan’s termination 

date, PBGC will use the fixed rate to 

apply interest credits to a participant’s 

hypothetical account beginning after the 

termination date and ending on the 

participant’s normal retirement date or 

annuity starting date, as applicable. If 

the interest rate (or tabular adjustment 

factor) used to determine the amount of 

any benefit under the plan payable in 

the form of an annuity payable at 

normal retirement age is the same fixed 

rate (or factor) for the entire 5-year 

period ending on the termination date, 

PBGC will use such fixed rate (or factor) 

to convert the participant’s hypothetical 

account to an annuity. 

(c) Variable rate. 

(1) Use of average rate for determining 

interest credits after termination date. 

(i) If the interest rate used by the plan 

to determine a participant’s 

accumulated benefit (or a portion 

thereof) under the plan was a variable 

rate during the interest crediting periods 

in the 5-year period ending on the 

plan’s termination date, PBGC will use 

the average of the interest crediting rates 

used under the plan during the 5-year 

period ending on the termination date to 

apply interest credits to a participant’s 

hypothetical account balance beginning 

after the termination date and ending on 

the participant’s normal retirement date 

or annuity starting date, as applicable. 

(ii) For purposes of paragraph (c)(1)(i), 

the average is the arithmetic average, 

expressed as an annual rate, of the 

interest crediting rates that applied 

under the terms of the plan during any 

interest crediting period for which the 

interest crediting date is within the 5- 

year period ending on the termination 

date (excluding any interest crediting 

date under the terms of the plan that is 

distinct from the plan’s regular interest 

crediting date, such as the date of 

separation from employment or plan 

termination). 

(2) Use of average rate for determining 

annuity amount. If the interest rate (or 

tabular adjustment factor) used by the 

plan to determine the amount of any 

benefit under the plan payable in the 

form of an annuity payable at normal 

retirement age is a variable rate during 

the 5-year period ending on the plan’s 

termination date, PBGC will determine 

the arithmetic average of the interest 

rates (or factors) that applied under the 

terms of the plan during periods for 

which the date of any rate (or factor) 

change was within the 5-year period 

ending on the termination date. The 

average rate will apply to determine the 

amount of any benefit under the plan 

payable in the form of a life annuity 

(i.e., an annuity that continues at least 

as long as the life of the annuitant) 

payable at normal retirement age, or, in 

the case of an immediate annuity 

conversion plan that uses a variable rate 

to determine the amount of a benefit, to 

determine the amount of any benefit 

under the plan payable in the form of a 

life annuity payable at the annuity 

starting date. In either case, the 

averaging requirement will apply only 

to determine the amount of the benefit 

in the automatic PBGC form under 

§ 4022.8(b) of PBGC’s regulation on 

Benefits Payable in Terminated SingleEmployer Plans, e.g., the form a married 

participant or an unmarried participant 

(as applicable) would be entitled to 

receive from the plan in the absence of 

an election. If the participant or 

beneficiary elects an optional PBGC 

form under § 4022.8(c), PBGC will 

convert the benefit amount from the 

automatic PBGC form in accordance 

with that section. 

(3) Replacement with 3rd Segment 

Rate. If the interest crediting rate in any 

interest crediting period during the 5- 

year period ending on the termination 

date is a variable rate described in 

§ 1.411(b)(5)–1(d)(5) of the Treasury 

regulations or a variable rate that is 

impermissible under Treasury 

regulations, PBGC will replace such rate 

with the third segment rate under Code 

section 430(h)(2)(C)(iii) for the last 

calendar month ending before the 

beginning of the interest crediting 

period. Consistent with Treasury 

regulations, PBGC generally will adjust 

the third segment rate to account for any 

maximums or minimums to the interest 

crediting rate that applied in the period 

under the plan’s terms, but will not 

adjust the third segment rate with regard 

to other reductions that applied in the 

period under the plan. 

(4) Application of average interest 

rate. The average interest crediting rate 

determined under paragraphs (c)(1), 

(c)(2), and (c)(3) of this section will 

apply to determine the participant’s 

accumulated benefit beginning after the 

plan’s termination date, and ending on 

the participant’s normal retirement date 

(or later annuity starting date), or— 

depending on the terms of the plan—the 

participant’s annuity starting date. If the 

plan’s termination date occurs in the 

middle of an interest crediting period, 

the participant’s hypothetical account 

balance will be credited with a pro rata 

amount of the interest credit the 

participant would have otherwise 

received under the terms of the plan for 

the portion of the interest crediting 

period ending on the plan’s termination 

date (but this rate will not be included 

in the average interest crediting rate 

determined under paragraphs (c)(1), 

(c)(2), and (c)(3) of this section). For any 

subsequent partial interest crediting 

period (e.g., a portion of the interest 

crediting period following the plan’s 

termination date), the participant’s 

hypothetical account balance will be 

credited with a pro rata amount of the 

average interest crediting rate 

determined under paragraphs (c)(1), 

(c)(2), and (c)(3). 

(5) Definition of variable rate. A 

variable interest rate is a rate of interest 

that is adjusted at least annually under 

the plan based on a floating interest rate, 

yield, or rate of return, and that 

otherwise satisfies the requirements of 

section 204(b)(5) of ERISA and section 

411(b)(5) of the Code and regulations 

thereunder. It includes interest credits 

determined under a plan based on the 

greater of 2 or more different interest 

crediting rates (e.g., a fixed rate and a 

variable rate); a floor applied to certain 

rates; and a rate that can never be in 

excess of certain bond-based rates (see 

Treasury regulations § 1.411(b)(5)–1(d)). 

Also, for purposes of the averaging rules 

described in § 4022.121(c), a variable 

rate includes any rate that was not the 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 67115 

same fixed rate on any interest crediting 

date during the interest crediting 

periods in the 5-year period ending on 

the plan’s termination date or, in the 

case of a variable annuity conversion 

rate (or factor), on the date of any rate 

(or factor) change within the 5-year 

period ending on the termination date. 

(d) Default rules for determining 

benefits. To the extent that plan 

provisions do not satisfy section 

204(b)(5)(B) of ERISA and section 

411(b)(5)(B) of the Code and 

implementing regulations, or that the 

plan fails to specify provisions 

necessary to implement applicable 

statutory or regulatory requirements 

(including requirements in paragraph 

(d)(5) and (d)(6) of this section), PBGC 

will apply the rules in paragraphs (d)(1) 

through (d)(6) of this section. 

(1) Averaging requirement or 

averaging methodology. If the plan uses 

a variable rate to determine the 

participant’s accumulated benefit or the 

amount of any benefit payable as an 

annuity at normal retirement age, PBGC 

will determine a participant’s benefits 

using the arithmetic average of the rates 

of interest used under the plan, as 

described in paragraph (c). 

(2) Mortality table. With respect to the 

mortality table to be used, PBGC will 

use the mortality table provided under 

Code section 417(e) that would apply if 

the annuity starting date were the plan’s 

termination date (i.e., no future 

projections to the mortality table). 

(3) Interest crediting rate. Solely with 

respect to a plan’s failure to specify the 

interest crediting rate to be used, PBGC 

will compute an average interest 

crediting rate as the arithmetic mean of 

the 30-year Treasury Constant Maturity 

rates in effect for five calendar months: 

the calendar month in which the plan 

terminates, and, for each of the 

preceding four years, the calendar 

month that is the same as the calendar 

month in which the plan terminates. For 

example, if a plan terminates in July 

2009, the relevant months would be July 

2009, July 2008, July 2007, July 2006, 

and July 2005. 

(4) Annuity conversion interest rate. 

With respect to an annuity conversion 

interest rate or conversion factor to be 

used, PBGC will compute an average 

annuity conversion interest rate as the 

arithmetic mean of the 30-year Treasury 

Constant Maturity rates in effect for five 

calendar months: the calendar month in 

which the plan terminates, and, for each 

of the preceding four years, the calendar 

month that is the same as the calendar 

month in which the plan terminates. For 

example, if a plan terminates in July 

2009, the relevant months would be July 

2009, July 2008, July 2007, July 2006, 

and July 2005. 

(5) Five-year period includes plan 

years before 2008. PBGC will take into 

account the interest rates used under the 

plan prior to the first plan year 

beginning on or after January 1, 2008 (or 

the earlier or later effective date 

described in sections 701(e)(3)–(5) of 

PPA 2006), if these plan years are part 

of the 5-year averaging period, for 

purposes of calculating an average rate 

of interest. For plans in existence on 

June 29, 2005, the rates used before the 

2008 plan year (or other PPA 2006 

effective date for a plan) during the 5- 

year averaging period are not subject to 

the requirements of section 204(b)(5)(B) 

of ERISA and section 411(b)(5)(B) of the 

Code (except as otherwise provided 

under Treasury regulations) although 

PBGC will apply the rules in paragraph 

(c)(2) of this section to such rates. 

(6) Statutory hybrid benefit formula in 

effect less than five years. If the 

statutory hybrid benefit formula under 

the plan was in effect for less than five 

years, PBGC will use the interest rates 

used under the plan, modified in 

accordance with this section, during the 

period the statutory hybrid benefit 

formula was in effect to calculate the 

average rate of interest. 

(7) Examples of application of 

averaging rules. 

Example 1. Projected annuity conversion 

plan with replacement of 3rd segment rate. 

Upon the termination of a cash balance plan, 

the plan provides a variable index for 

purposes of determining the interest 

crediting rate. The plan credits interest 

annually at the end of each calendar year 

through the participant’s normal retirement 

date (or the current date, if later). The plan’s 

termination date is June 30, 2015. For the two 

immediately preceding interest crediting 

dates within the 5-year period ending on the 

termination date, December 31, 2014, and 

December 31, 2013, the plan used the annual 

rate of return on plan assets as of the end of 

the preceding plan year as its interest 

crediting rate. For the three preceding 

interest crediting dates within the 5-year 

period, the plan used the rates under a 

Treasury bond index described in Treas. Reg. 

§ 1.411(b)(5)–1(d)(4) as of the end of the 

preceding plan year as its interest crediting 

rate. Based on these rates, the plan used 

interest crediting rates of 8.00%, ¥3.00%, 

4.50%, 5.50%, and 6.00%, respectively, for 

the interest crediting periods ending 

December 31, 2014, December 31, 2013, 

December 31, 2012, December 31, 2011, and 

December 31, 2010. When calculating the 

average rate of interest, PBGC would replace 

the rate of return on plan assets with the 

third segment rate for the last calendar month 

ended before the beginning of each interest 

crediting period. Assume these third segment 

rates are 6.40% and 6.70%, respectively. 

PBGC would replace the 8.00% interest rate 

with 6.40% and the ¥3.00% interest rate 

with 6.70%. PBGC would then calculate the 

average rate of interest as the arithmetic 

average of 6.40%, 6.70%, 4.50%, 5.50%, and 

6.00%, which equals 5.82% ((6.40 + 6.70 + 

4.50 + 5.50 + 6.00)/5). PBGC thus would use 

a pro rata amount of the annual rate of return 

on plan assets for the period ending 

December 31, 2014, to credit a participant’s 

hypothetical account balance for the period 

from January 1, 2015 through June 30, 2015, 

and a rate of 5.82% to apply interest credits 

to a participant’s hypothetical account 

balance each year for the period from July 1, 

2015, through the participant’s normal 

retirement date (pro rated for any partial 

interest crediting period). 

Example 2. Immediate annuity conversion 

plan with fixed tabular conversion factor. 

The interest crediting rate is the same as in 

Example 1, except that the plan credits 

interest through the participant’s retirement 

date and provides for immediate annuity 

conversion factors at any age. Assume a 

participant has a hypothetical account 

balance equal to $100,000 as of the plan’s 

termination date on June 30, 2015; this 

balance includes annual pay credits through 

December 31, 2014, and a pro rata interest 

credit through June 30, 2015, based on the 

plan’s interest crediting rate. The participant 

retires on November 1, 2020, at age 55. PBGC 

would determine the participant’s 

hypothetical account balance on November 1, 

2020, by applying interest credits to the 

participant’s $100,000 hypothetical account 

balance at an annual rate of 5.82%, credited 

on December 31 of each year and pro rated 

for any partial crediting period. The resulting 

hypothetical account balance at the 

participant’s retirement is $135,216 

($100,000 × 1.0582 5.33333) (this includes pro 

rata credit for the periods July 1, 2015 

through December 31, 2015, and January 1, 

2020 through October 31, 2020). PBGC would 

then determine the amount of the 

participant’s benefit payable as an annuity by 

converting the hypothetical account balance 

to an immediate annuity using the plan’s 

immediate annuity conversion factor at age 

55. The plan provides for an immediate 

annuity conversion factor of 14.2 at age 55. 

Therefore, the resulting monthly annuity 

benefit for the participant at age 55 is $794 

($135,216/(14.2 × 12)). 

Example 3. Immediate annuity conversion 

plan with variable conversion interest rate. 

The facts are the same as in Examples 1 and 

2, except that the plan used a variable 

annuity conversion rate based on the rates 

under a Treasury bond index described in 

Treas. Reg. § 1.411(b)(5)–1(d)(4) at the 

beginning of each plan year. The plan’s 

average annuity conversion rate would 

include rates on the date of each rate change 

that occurred within the 5-year period from 

July 1, 2010 through June 30, 2015. Assume 

these rates are 5.25%, 4.75%, 5.50%, 4.50%, 

and 5.50%, respectively, for the date of each 

rate change on January 1, 2015, January 1, 

2014, January 1, 2013, January 1, 2012, and 

January 1, 2011. PBGC would calculate the 

arithmetic average of 5.25%, 4.75%, 5.50%, 

4.50%, and 5.50%, which equals 5.10% 

((5.25 + 4.75 + 5.50 + 4.50 + 5.50)/5). The 

plan defines the mortality table used to 

convert account balances to monthly annuity 


srobinson on DSK4SPTVN1PROD with PROPOSALS
67116 Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 

benefits to be GAR94. PBGC would then use 

5.10% and mortality table GAR94 to 

calculate an annuity conversion factor of 

14.4198 at age 55. Therefore, the resulting 

monthly annuity benefit for the participant at 

age 55 is $781 ($135,216/(14.4198 × 12)). 

(e) PPA 2006 bankruptcy termination. 

In the case of a PPA 2006 bankruptcy 

termination, PBGC will apply interest 

credits to a participant’s hypothetical 

account balance determined as of the 

bankruptcy filing date by using the 

following interest rates: 

(i) The interest rate(s) in effect under 

the plan for the period beginning after 

the bankruptcy filing date and ending 

on the plan’s termination date. 

(ii) The interest rate as of the plan’s 

termination date—or if the interest rate 

under the plan is a variable rate as of the 

termination date, the average rate of 

interest as determined under paragraphs 

(c) or (d) of this section—for the period 

beginning after the termination date and 

ending on the participant’s normal 

retirement date (or later annuity starting 

date), or—depending on the terms of the 

plan—on the participant’s annuity 

starting date. 

§ 4022.122 Lump sum payment. 

(a) Lump sum as hypothetical account 

balance under the plan. 

Notwithstanding § 4022.7 of this part, if 

the plan provides for a single sum 

payment equal to the balance of the 

hypothetical account of the participant 

(or the value of the accumulated 

percentage of the participant’s final 

average compensation), PBGC will 

determine whether the benefit is 

payable as a de minimis lump sum 

payment and the amount of the lump 

sum payment based on the participant’s 

hypothetical account balance (or the 

accumulated percentage of final average 

compensation) as of the plan’s 

termination date, to the extent payable 

under title IV of ERISA. 

(b) Lump sum based on section 417(e) 

under the plan. 

(1) In general. If paragraph (a) of this 

section does not apply (e.g., the plan 

provides that the present value rules of 

section 417(e) of the Code apply in 

calculating the amount of a single sum 

payment), PBGC will use the 

methodology in § 4022.7 of this part to 

determine the lump sum value of the 

benefit. If either this amount or the 

participant’s hypothetical account 

balance (or accumulated percentage of 

final average compensation), as of the 

termination date, is $5,000 or less, 

PBGC will pay the greater of the two 

amounts as a de minimis lump sum 

payment, except as provided in 

paragraph (b)(2) of this section. 

(2) Exception. If, on or after August 

18, 2006, the plan has made any lump 

sum payments based on the 

hypothetical account balance (or the 

current value of the accumulated 

percentage of the participant’s final 

average compensation) without regard 

to the present value rules of section 

417(e) of the Code, or stated in writing 

its intent to make lump sum payments 

on that basis, PBGC will calculate the 

lump sum value of a benefit, to 

determine whether the benefit is 

payable as a lump sum and, if so, the 

amount of the payment, in accordance 

with paragraph (a) of this section. 

(c) Plan does not describe 

determination of lump sum amount. If 

the plan does not provide for a single 

sum payment or de minimis lump sum 

payment, or does not describe the 

calculation of such a payment, PBGC 

will calculate the lump sum value of a 

benefit, to determine whether the 

benefit is payable as a lump sum and, 

if so, the amount of the payment, in 

accordance with paragraph (a) of this 

section. 

§ 4022.123 Phase-in of guarantee of 

benefit increases. 

(a) Changes subject to phase-in 

limitation. For purposes of applying 

§ 4022.24 and the phase-in limitations 

on the guarantee under § 4022.25, 

except as otherwise provided in 

subsection (b) of this section, a benefit 

increase as defined under § 4022.2 

includes, but is not limited to, a benefit 

increase that results from a change in 

the plan’s— 

(i) Timing or method for crediting 

interest; 

(ii) Fixed mortality table to another 

fixed mortality table; 

(iii) Fixed mortality table to a 

mortality table that updates 

automatically in future years to reflect 

expected improvements in mortality 

experience (or such updated mortality 

table to a fixed mortality table), or other 

change in the basis on which a 

participant’s hypothetical account 

balance is converted into a benefit 

payable as an annuity; 

(iv) Fixed interest rate to another 

fixed interest rate; or 

(v) Basis for crediting interest to a 

participant’s hypothetical account or for 

determining the interest factor used to 

convert a hypothetical account to an 

annuity. Such a change includes, but is 

not limited to, a change from a fixed rate 

basis to a variable rate basis (or vice 

versa) or a change from one variable 

index to another variable index. 

(b) Changes not subject to phase-in 

limitation. Changes resulting in a 

benefit increase under a plan that will 

not be treated as a benefit increase 

under § 4022.2 include— 

(i) A change that is required to 

comply with the termination 

requirements of ERISA section 

204(b)(5)(B)(vi) and Code section 

411(b)(5)(B)(vi) (e.g., a change in the 

plan’s interest rate to an average rate of 

interest); 

(ii) A change in the interest crediting 

rate that is permitted, notwithstanding 

section 411(d)(6) of the Code, pursuant 

to Treasury regulations (e.g., a change 

that is permitted under Treas. Reg. 

1.411(b)(5)–1(e)(3), including a change 

under certain circumstances to the longterm investment grade corporate bond 

rate); 

(iii) A change in the interest crediting 

rate that is permitted during the 

amendatory period under section 1107 

of PPA 2006, or any extension of the 

amendatory period issued by the 

Department of the Treasury; 

(iv) An adjustment in the interest rate 

under a specified variable rate index 

used by the plan; and 

(v) An automatic future update in a 

mortality table specified under the plan 

as of the termination date that reflects 

expected improvements in mortality 

experience (e.g., the applicable 

mortality table provided under Code 

section 417(e)(3)). 

PART 4041—TERMINATION OF 

SINGLE-EMPLOYER PLANS 

6. The authority citation for part 4041 

continues to read as follows: 

Authority: 29 U.S.C. 1302(b)(3), 1341, 

1344, 1350. 

7. In § 4041.2, amend the first 

paragraph by removing the words 

‘‘standard termination, termination 

date’’ and adding in their place 

‘‘standard termination, statutory hybrid 

plan, termination date’’. 

8. In § 4041.28, amend paragraph (c) 

by redesignating paragraph (4) as 

paragraph (5), redesignating paragraph 

(3) as paragraph (4), and adding a new 

paragraph (3) to read as follows: 

§ 4041.28. Closeout of plan. 

* * * * * 

(c) * * * 

* * * * * 

(3) Statutory hybrid plans. This 

paragraph (c)(3) applies only for 

purposes of this part. The plan 

administrator is deemed to comply with 

section 204(b)(5)(B)(vi) of ERISA and 

section 411(b)(5)(B)(vi) of the Code and 

implementing regulations issued by the 

Department of the Treasury if the plan 

administrator distributes plan assets in 

satisfaction of plan benefits consistent 


srobinson on DSK4SPTVN1PROD with PROPOSALS
Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 67117 

with the provisions in § 4022.121 of this 

chapter. 

9. In § 4041.42, amend paragraph (c) 

by adding a sentence at the end to read 

as follows: ‘‘The plan administrator of a 

statutory hybrid plan must do so 

consistent with the provisions under 

part 4022, subpart H, of this chapter.’’ 

PART 4044—ALLOCATION OF 

ASSETS IN SINGLE-EMPLOYER 

PLANS 

10. The authority citation for part 

4044 continues to read as follows: 

Authority: 29 U.S.C. 1301(a), 1302(b)(3), 

1341, 1344, 1362. 

11. In § 4044.2, amend paragraph (a) 

by removing the words ‘‘singleemployer plan, substantial owner’’ and 

adding in their place ‘‘single-employer 

plan, statutory hybrid plan, substantial 

owner’’. 

12. In § 4044.52, add a new paragraph 

(e) to read as follows: 

§ 4044.52 Valuation of Benefits. 

* * * * * 

(e) Statutory hybrid plans. 

(1) In general. Except as provided in 

paragraphs (e)(2) through (e)(4) of this 

section, benefits must be valued under 

a terminating statutory hybrid plan 

consistent with the general valuation 

rules of this subpart B of part 4044, and 

the provisions for the calculation and 

payment of benefits described in 

subpart H of part 4022 of this chapter. 

(2) De minimis lump sum exception. 

If a benefit is payable as a de minimis 

lump sum under § 4022.122, the form to 

be valued is the benefit payable as an 

annuity in the absence of a valid 

election under the terms of the plan, at 

the expected retirement age, in 

accordance with §§ 4044.51 through 

4044.57 of this part. 

(3) Involuntary termination exception. 

If a benefit payment is calculated 

pursuant to § 4022.121(a)(3)(ii), the 

benefit will be valued based on the 

interest crediting rate and the annuity 

conversion rate in effect under the plan 

as of the plan’s termination date (subject 

to the rules of §§ 4022.121 through 

4022.123, disregarding 

§ 4022.121(a)(3)(ii)), at the expected 

retirement age, in accordance with 

§§ 4044.51 through 4044.57 of this part. 

(4) Priority category 3 benefits. The 

amount of the priority category 3 benefit 

under § 4044.13 of this part with respect 

to a participant who was eligible to 

receive a priority category 3 benefit will 

be determined in accordance with 

paragraphs (e)(4)(i) through (iii) of this 

section. 

(i) In the case of a termination that is 

not a PPA 2006 bankruptcy termination, 

the priority category 3 benefit of a 

participant who is eligible to receive an 

annuity before the beginning of the 3- 

year period ending on the termination 

date, but whose benefit was not in pay 

status as of that date, will be determined 

based on the balance of the participant’s 

hypothetical account, the interest 

crediting rate, and the annuity 

conversion factor that the plan would 

have used had the participant retired 

three years before the termination date 

(on the same day and month as the 

termination date). The interest rates as 

so determined will be used to apply 

interest credits from such date through 

the plan’s normal retirement age, and to 

convert the participant’s hypothetical 

account balance to an annuity. (If the 

plan provides for immediate annuity 

conversion factors, the amount of the 

account balance is determined and 

converted to an annuity as of the date 

three years before the termination date, 

based on the rates in effect as of that 

date.) The benefits in priority category 

3 are generally based on the lowest 

annuity benefit payable under the plan 

provisions during the 5-year period 

ending on the termination date. 

(ii) In the case of a PPA 2006 

bankruptcy termination, the priority 

category 3 benefit of a participant who 

is eligible to receive an annuity before 

the beginning of the 3-year period 

ending on the bankruptcy filing date, 

but whose benefit was not in pay status 

as of that date, will be determined based 

on the balance of the participant’s 

hypothetical account, the interest 

crediting rate, and the annuity 

conversion rate that the plan would 

have used had the participant retired 

three years before the bankruptcy filing 

date (on the same day and month as the 

bankruptcy filing date). The interest 

rates as so determined will be used to 

apply interest credits from such date 

through the plan’s normal retirement 

age, and to convert the participant’s 

hypothetical account balance to an 

annuity. (If the plan provides for 

immediate annuity conversion factors, 

the amount of the account balance is 

determined and converted to an annuity 

as of the date three years before the 

bankruptcy filing date, based on the 

rates in effect as of that date.) The 

benefits in priority category 3 are 

generally based on the lowest annuity 

benefit payable under the plan 

provisions during the 5-year period 

ending on the bankruptcy filing date. 

(iii) In accordance with § 4044.10, the 

benefit assigned to priority category 3, 

as determined under paragraphs (e)(4)(i) 

or (e)(4)(ii), may not exceed the amount 

of the benefit determined as of the 

plan’s termination date under the plan 

provisions as of the termination date 

(including the use of an average rate of 

interest in the case of a variable rate 

under § 4022.121). 

(5) Example: The plan termination is 

a PPA 2006 bankruptcy termination 

with a bankruptcy filing date on August 

31, 2008. Because Participant A had 

reached his Earliest PBGC Retirement 

Date, as defined in § 4022.10, based on 

plan provisions in effect on August 31, 

2005, on the same day and month as the 

bankruptcy filing date but three years 

earlier, Participant A has benefits in 

priority category 3. The plan used the 1- 

year Treasury Constant Maturity rate of 

3.64% for the calendar month prior to 

the bankruptcy filing date (July 2005) to 

determine both the interest crediting 

rate and the annuity conversion rate on 

August 31, 2005. PBGC would 

determine Participant A’s priority 

category 3 benefit based on the balance 

of Participant A’s hypothetical account 

as of August 31, 2005, by using the 

interest rate used under the plan on 

August 31, 2005, to apply interest 

credits from August 31, 2005, through 

the normal retirement age (as provided 

under the plan’s terms) and convert the 

participant’s hypothetical account 

balance to an annuity. The participant’s 

priority category 3 benefit would be 

limited to the amount of the 

participant’s plan benefit as of the 

termination date, in accordance with 

§ 4044.10, determined by applying 

interest credits based on the interest 

rate(s) in effect under the plan for the 

period from the bankruptcy filing date 

through the plan’s termination date, and 

the interest rate as of the plan’s 

termination date (including the average 

of the rates of interest under a variable 

index used by the plan during the 5-year 

period ending on the termination date) 

for the period from the termination date 

to the normal retirement age. 

13. Add new § 4044.76 to subpart B to 

read as follows: 

§ 4044.76 Statutory hybrid plans. 

(a) Valuation. This section 

supplements the general rules in part 

4044 for the valuation of benefits 

payable in a terminated statutory hybrid 

plan. 

(b) Interest and mortality 

assumptions. In determining benefits 

under the plan, the plan administrator 

must value benefits consistent with the 

provisions in § 4022.121 of this chapter. 


srobinson on DSK4SPTVN1PROD with PROPOSALS
67118 Federal Register / Vol. 76, No. 210 / Monday, October 31, 2011 / Proposed Rules 

Issued in Washington, DC, this 24th day of 

October 2011. 

Joshua Gotbaum, 

Director, Pension Benefit Guaranty 

Corporation. 

[FR Doc. 2011–28124 Filed 10–28–11; 8:45 am] 

BILLING CODE 7709–01–P 

FEDERAL COMMUNICATIONS 

COMMISSION 

47 CFR Part 64 

[CG Docket No. 10–51; FCC 11–155] 

Structure and Practices of the Video 

Relay Service Program 

AGENCY: Federal Communications 

Commission. 

ACTION: Proposed rule. 

SUMMARY: In this document, the 

Commission proposes to modify its 

rules to provide that a certified provider 

may subcontract with another certified 

provider for, or otherwise authorize the 

provision by another certified provider 

of, communications assistants (CA) 

services or call center functions only in 

the event of an unexpected and 

temporary surge in call traffic due to 

exigent circumstances, and seeks 

comment on this proposal. The purpose 

of this rule change is to provide clarity 

as to the circumstances under which the 

Commission will deem subcontracting 

of call handling functions acceptable. 

DATES: Comments are due on or before 

November 30, 2011. Reply comments 

are due on or before December 30, 2011. 

ADDRESSES: Interested parties may 

submit comments identified by [CG 

Docket No. 10–51], by any of the 

following methods: 

• Federal Communications 

Commission’s Web site: Follow the 

instructions for submitting comments. 

• People with Disabilities: Contact the 

FCC to request reasonable 

accommodations (accessible format 

documents, sign language interpreters, 

CART, etc.) by e-mail: FCC504@fcc.gov 

or phone: (202) 418–0530 or TTY: (202) 

418–0432. 

For detailed instructions for 

submitting comments and additional 

information on the rulemaking process, 

see the SUPPLEMENTARY INFORMATION

section of this document. 

FOR FURTHER INFORMATION CONTACT: 

Gregory Hlibok, Consumer and 

Governmental Affairs Bureau, Disability 

Rights Office at (202) 559–5158 (VP) or 

email at Gregory.Hlibok@fcc.gov. 

SUPPLEMENTARY INFORMATION: This is a 

summary of the Commission’s Structure 

and Practices of the Video Relay Service 

Program, Further Notice of Proposed 

Rulemaking (FNPRM), document FCC 

11–155, adopted October 17, 2011, and 

released October 17, 2011 in CG Docket 

number 10–51. 

The full text of document FCC 11–155 

and copies of any subsequently filed 

documents in this matter will be 

available for public inspection and 

copying during regular business hours 

at the FCC Reference Information 

Center, Portals II, 445 12th Street, SW., 

Room CY–A257, Washington, DC 20554. 

Document FCC 11–155 and copies of 

subsequently filed documents in this 

matter may also be purchased from the 

Commission’s duplicating contractor, 

BCPI, Inc., Portals II, 445 12th Street, 

SW., Room CY–B402, Washington, DC 

20554. Customers may contact BCPI, 

Inc. via its Web site http:// 

www.bcpiweb.com or by calling (202) 

488–5300. To request materials in 

accessible formats for people with 

disabilities (Braille, large print, 

electronic files, audio format), send an 

email to fcc504@fcc.gov or call the 

Consumer and Governmental Affairs 

Bureau at (202) 418–0530 (voice) or 

(202) 418–0432 (TTY). Document FCC 

11–155 can also be downloaded in 

Word or Portable Document Format 

(PDF) at: http://www.fcc.gov/cgb/dro/ 

trs.html#orders. 

Pursuant to §§ 1.415 and 1.419 of the 

Commission’s rules, 47 CFR 1.415 and 

1.419, interested parties may file 

comments and reply comments on or 

before the dates indicated in the DATES

section of this document. Comments 

may be filed using: (1) The 

Commission’s Electronic Comment 

Filing System (ECFS); or (2) by filing 

paper copies. All filings should 

reference the docket number of this 

proceeding, CG Docket No. 10–51. 

• Electronic Filers: Comments may be 

filed electronically using the Internet by 

accessing the ECFS: http:// 

fjallfoss.fcc.gov/ecfs2/. Filers should 

follow the instructions provided on the 

Web site for submitting comments. In 

completing the transmittal screen, ECFS 

filers should include their full name, 

U.S. Postal Service mailing address, and 

CG Docket No. 10–51. 

• Paper Filers: Parties who choose to 

file by paper must file an original and 

one copy of each filing. Filings can be 

sent by hand or messenger delivery, by 

commercial overnight courier, or by first 

class or overnight U.S. Postal Service 

mail. All filings must be addressed to 

the Commission’s Secretary, Office of 

the Secretary, Federal Communications 

Commission. 

• All hand-delivered or messengerdelivered paper filings for the 

Commission’s Secretary must be 

delivered to FCC Headquarters at 445 

12th Street, SW., Room TW–A325, 

Washington, DC 20554. The filing hours 

are 8 a.m. to 7 p.m. All hand deliveries 

must be held together with rubber bands 

or fasteners. Any envelopes or boxes 

must be disposed of before entering the 

building. 

• Commercial overnight mail (other 

than U.S. Postal Service Express Mail 

and Priority Mail) must be sent to 9300 

East Hampton Drive, Capitol Heights, 

MD 20743. 

Pursuant to 47 CFR 1.1200 et seq., this 

matter shall be treated as a ‘‘permit-butdisclose’’ proceeding in accordance 

with the Commission’s ex parte rules. 

Persons making ex parte presentations 

must file a copy of any written 

presentation or a memorandum 

summarizing any oral presentation 

within two business days after the 

presentation (unless a different deadline 

applicable to the Sunshine period 

applies). Persons making oral ex parte 

presentations are reminded that 

memoranda summarizing the 

presentation must: (1) List all persons 

attending or otherwise participating in 

the meeting at which the ex parte 

presentation was made; and (2) 

summarize all data presented and 

arguments made during the 

presentation. If the presentation 

consisted in whole or in part of the 

presentation of data or arguments 

already reflected in the presenter’s 

written comments, memoranda or other 

filings in the proceeding, the presenter 

may provide citations to such data or 

arguments in his or her prior comments, 

memoranda, or other filings (specifying 

the relevant page and/or paragraph 

numbers where such data or arguments 

can be found) in lieu of summarizing 

them in the memorandum. Documents 

shown or given to Commission staff 

during ex parte meetings are deemed to 

be written ex parte presentations and 

must be filed consistent with § 1.1206(b) 

of the Commission’s rules. In 

proceedings governed by § 1.49(f) of the 

Commission’s rules or for which the 

Commission has made available a 

method of electronic filing, written ex 

parte presentations and memoranda 

summarizing oral ex parte 

presentations, and all attachments 

thereto, must be filed through the 

electronic comment filing system 

available for that proceeding, and must 

be filed in their native format (e.g., .doc, 

.xml, .ppt, searchable .pdf). Participants 

in this proceeding should familiarize 

themselves with the Commission’s ex 

parte rules. 


srobinson on DSK4SPTVN1PROD with PROPOSALS