Federal Register / Vol. 71, No. 239 / Wednesday, December 13, 2006 / Rules and Regulations 75055 

elected under § 146.180 of this part to exempt 

the plan from the requirements of this section 

for the plan year beginning October 1, 2005, 

and renewed the exemption election for the 

plan year beginning October 1, 2006. Under 

the terms of the plan while the exemption 

was in effect, employees and their 

dependents were allowed to enroll when the 

employee was first hired without regard to 

any health factor. If an individual declines to 

enroll when first eligible, the individual 

could enroll effective October 1 of any plan 

year if the individual could pass a physical 

examination. The evidence-of-good-health 

requirement for late enrollees, absent an 

exemption election under § 146.180 of this 

part, would have been in violation of this 

section. D chose not to enroll for coverage 

when first hired. In February of 2006, D was 

treated for skin cancer but did not apply for 

coverage under the plan for the plan year 

beginning October 1, 2006, because D 

assumed D could not meet the evidence-ofgood-health requirement. With the plan year 

beginning October 1, 2007 the plan sponsor 

chose not to renew its exemption election 

and brought the plan into compliance with 

this section. The plan notifies individual D 

(and all other employees) that it will be 

coming into compliance with the 

requirements of this section. The notice 

specifies that the effective date of compliance 

will be October 1, 2007, explains the 

applicable enrollment restrictions that will 

apply under the plan, states that individuals 

will have at least 30 days to enroll, and 

explains that coverage for those who choose 

to enroll will be effective as of October 1, 

2007. Individual D timely requests 

enrollment in the plan, and coverage 

commences under the plan on October 1, 

2007. 

(ii) Conclusion. In this Example 1, the plan 

complies with this paragraph (i)(2). 

Example 2. (i) Facts. Individual E was 

hired by a nonfederal governmental employer 

in February 1999. The employer maintains a 

self-funded group health plan with a plan 

year beginning on September 1. The plan 

sponsor elected under § 146.180 of this part 

to exempt the plan from the requirements of 

this section and ‘‘§ 146.111 (limitations on 

preexisting condition exclusion periods) for 

the plan year beginning September 1, 2002, 

and renews the exemption election for the 

plan years beginning September 1, 2003, 

September 1, 2004, September 1, 2005, and 

September 1, 2006. Under the terms of the 

plan while the exemption was in effect, 

employees and their dependents were 

allowed to enroll when the employee was 

first hired without regard to any health 

factor. If an individual declined to enroll 

when first eligible, the individual could 

enroll effective September 1 of any plan year 

if the individual could pass a physical 

examination. Also under the terms of the 

plan, all enrollees were subject to a 12-month 

preexisting condition exclusion period, 

regardless of whether they had creditable 

coverage. E chose not to enroll for coverage 

when first hired. In June of 2006, E is 

diagnosed as having multiple sclerosis (MS). 

With the plan year beginning September 1, 

2007, the plan sponsor chooses to bring the 

plan into compliance with this section, but 

renews its exemption election with regard to 

limitations on preexisting condition 

exclusion periods. The plan notifies E of her 

opportunity to enroll, without a physical 

examination, effective September 1, 2007. 

The plan gives E 30 days to enroll. E is 

subject to a 12-month preexisting condition 

exclusion period with respect to any 

treatment E receives that is related to E’s MS, 

without regard to any prior creditable 

coverage E may have. Beginning September 

1, 2008, the plan will cover treatment of E’s 

MS. 

(ii) Conclusion. In this Example 2, the plan 

complies with the requirements of this 

section. (The plan is not required to comply 

with the requirements of § 146.111 because 

the plan continues to be exempted from those 

requirements in accordance with the plan 

sponsor’s election under § 146.180.) 

Editorial Note: This document was 

received at the Office of the Federal Register 

on December 1, 2006. 

Dated: July 16, 2004. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Dated: November 28, 2005. 

Michael O. Leavitt, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 06–9557 Filed 12–12–06; 8:45 am] 

BILLING CODE 4830–01–P; 4510–29–P; 4120–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 54 

[TD 9299] 

RIN 1545–AY33 

Exception to the HIPAA 

Nondiscrimination Requirements for 

Certain Grandfathered Church Plans 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations that provide guidance under 

section 9802(c) of the Internal Revenue 

Code relating to the exception for 

certain grandfathered church plans from 

the nondiscrimination requirements 

applicable to group health plans under 

section 9802(a) and (b). Final 

regulations relating to the 

nondiscrimination requirements under 

section 9802(a) and (b) are being 

published elsewhere in this issue of the 

Federal Register. The regulations will 

generally affect sponsors of and 

participants in certain self-funded 

church plans that are group health 

plans, and the regulations provide plan 

sponsors and plan administrators with 

guidance necessary to comply with the 

law. 

DATES: Effective Date: These regulations 

are effective February 12, 2007. 

Applicability Date: These regulations 

apply for plan years beginning on or 

after July 1, 2007. 

FOR FURTHER INFORMATION CONTACT: Russ 

Weinheimer at 202–622–6080 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains amendments 

to the Miscellaneous Excise Tax 

Regulations (26 CFR part 54) relating to 

the exception for certain grandfathered 

church plans from the 

nondiscrimination requirements 

applicable to group health plans. The 

nondiscrimination requirements 

applicable to group health plans were 

added to the Internal Revenue Code 

(Code), in section 9802, by the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA), 

Public Law 104–191 (110 Stat. 1936). 

HIPAA also added similar 

nondiscrimination provisions 

applicable to group health plans and 

health insurance issuers (such as health 

insurance companies and health 

maintenance organizations) under the 

Employee Retirement Income Security 

Act of 1974 (ERISA), administered by 

the U.S. Department of Labor, and the 

Public Health Service Act (PHS Act), 

administered by the U.S. Department of 

Health and Human Services. 

Final regulations relating to the 

HIPAA nondiscrimination requirements 

in paragraphs (a) and (b) of section 9802 

of the Code are being published 

elsewhere in this issue of the Federal 

Register. Those regulations are similar 

to, and have been developed in 

coordination with, final regulations also 

being published today by the 

Departments of Labor and of Health and 

Human Services. Guidance under the 

HIPAA nondiscrimination requirements 

is summarized in a joint preamble to the 

final regulations. 

The exception for certain 

grandfathered church plans was added 

to section 9802, in subsection (c), by 

section 1532 of the Taxpayer Relief Act 

of 1997, Public Law 105–34 (111 Stat. 

788). A notice of proposed rulemaking 

on the exception for certain 

grandfathered church plans and a 

request for comments (REG–114083–00) 

was published in the Federal Register of 

January 8, 2001. Two written comments 

were received. After consideration of 

the comments, the proposed regulations 

are adopted as amended by this 

Treasury decision. 


rwilkins on PROD1PC63 with RULES_2
75056 Federal Register / Vol. 71, No. 239 / Wednesday, December 13, 2006 / Rules and Regulations 

Explanation and Summary of 

Comments 

One comment was pleased with the 

guidance in the proposed rules and 

asked that they be published as final 

rules as soon as possible. The other 

comment explained why the statute 

needed this exception and suggested 

that the proposed regulations did 

nothing more than paraphrase the 

statute. Neither comment asked for any 

change in the proposed regulations. 

These final regulations make no 

significant substantive change to the 

proposed regulations. An effective date 

has been supplied and references to the 

supplanted temporary regulations have 

been deleted, but otherwise no change 

has been made in the final regulations. 

Special Analyses 

It has been determined that this 

Treasury decision is not a significant 

regulatory action as defined in 

Executive Order 12866. Therefore, a 

regulatory assessment is not required. It 

also has been determined that section 

553(b) of the Administrative Procedure 

Act (5 U.S.C. chapter 5) does not apply 

to these regulations, and because the 

regulations do not impose a collection 

of information requirement on small 

entities, the Regulatory Flexibility Act 

(5 U.S.C. chapter 6) does not apply. 

Therefore, a Regulatory Flexibility 

Analysis is not required. Pursuant to 

section 7805(f) of the Code, the notice 

of proposed rulemaking preceding these 

regulations was submitted to the Small 

Business Administration for comment 

on its impact on small business. 

Drafting Information 

The principal author of these 

regulations is Russ Weinheimer, Office 

of the Operating Division Counsel/ 

Associate Chief Counsel (Tax Exempt 

and Government Entities). However, 

other personnel from the IRS and 

Treasury Department participated in 

their development. 

List of Subjects in 26 CFR Part 54 

Excise taxes, Health care, Health 

insurance, Pensions, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

■ Accordingly, 26 CFR part 54 is 

amended as follows: 

PART 54—PENSION EXCISE TAXES 

■ Paragraph 1. The authority citation 

for part 54 is amended by adding an 

entry in numerical order to read, in part, 

as follows: 

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

Section 54.9802–2 also issued under 26 

U.S.C. 9833. * * * 

■ Par. 2. In § 54.9801–1, paragraph (a) is 

revised to read as follows: 

§ 54.9801–1 Basis and scope. 

(a) Statutory basis. Sections 54.9801–

1 through 54.9801–6, 54.9802–1, 

54.9802–2, 54.9811–1T, 54.9812–1T, 

54.9831–1, and 54.9833–1 (portability 

sections) implement Chapter 100 of 

Subtitle K of the Internal Revenue Code 

of 1986. 

* * * * * 

■ Par. 3. In § 54.9801–2, the 

introductory text is revised to read as 

follows: 

§ 54.9801–2 Definitions. 

Unless otherwise provided, the 

definitions in this section govern in 

applying the provisions of §§ 54.9801–1 

through 54.9801–6, 54.9802–1, 54.9802–

2, 54.9811–1T, 54.9812–1T, 54.9831–1, 

and 54.9833–1. 

* * * * * 

■ Par. 4. Section 54.9802–2 is added to 

read as follows: 

§ 54.9802–2 Special rules for certain 

church plans. 

(a) Exception for certain church 

plans—(1) Church plans in general. A 

church plan described in paragraph (b) 

of this section is not treated as failing to 

meet the requirements of section 9802 

or § 54.9802–1 solely because the plan 

requires evidence of good health for 

coverage of individuals under plan 

provisions described in paragraph (b)(2) 

or (3) of this section. 

(2) Health insurance issuers. See 

sections 2702 and 2721(b)(1)(B) of the 

Public Health Service Act (42 U.S.C. 

300gg–2 and 300gg–21(b)(1)(B)) and 45 

CFR 146.121, which require health 

insurance issuers providing health 

insurance coverage under a church plan 

that is a group health plan to comply 

with nondiscrimination requirements 

similar to those that church plans are 

required to comply with under section 

9802 and § 54.9802–1 except that those 

nondiscrimination requirements do not 

include an exception for health 

insurance issuers comparable to the 

exception for church plans under 

section 9802(c) and this section. 

(b) Church plans to which this section 

applies—(1) Church plans with certain 

coverage provisions in effect on July 15, 

1997. This section applies to any church 

plan (as defined in section 414(e)) for a 

plan year if, on July 15, 1997 and at all 

times thereafter before the beginning of 

the plan year, the plan contains either 

the provisions described in paragraph 

(b)(2) of this section or the provisions 

described in paragraph (b)(3) of this 

section. 

(2) Plan provisions applicable to 

individuals employed by employers of 

10 or fewer employees and selfemployed individuals. (i) A plan 

contains the provisions described in this 

paragraph (b)(2) if it requires evidence 

of good health of both—

(A) Any employee of an employer of 

10 or fewer employees (determined 

without regard to section 414(e)(3)(C), 

under which a church or convention or 

association of churches is treated as the 

employer); and 

(B) Any self-employed individual. 

(ii) A plan does not contain the 

provisions described in this paragraph 

(b)(2) if the plan contains only one of 

the provisions described in this 

paragraph (b)(2). Thus, for example, a 

plan that requires evidence of good 

health of any self-employed individual, 

but not of any employee of an employer 

with 10 or fewer employees, does not 

contain the provisions described in this 

paragraph (b)(2). Moreover, a plan does 

not contain the provision described in 

paragraph (b)(2)(i)(A) of this section if 

the plan requires evidence of good 

health of any employee of an employer 

of fewer than 10 (or greater than 10) 

employees. Thus, for example, a plan 

does not contain the provision 

described in paragraph (b)(2)(i)(A) of 

this section if the plan requires evidence 

of good health of any employee of an 

employer with five or fewer employees. 

(3) Plan provisions applicable to 

individuals who enroll after the first 90 

days of initial eligibility. (i) A plan 

contains the provisions described in this 

paragraph (b)(3) if it requires evidence 

of good health of any individual who 

enrolls after the first 90 days of initial 

eligibility under the plan. 

(ii) A plan does not contain the 

provisions described in this paragraph 

(b)(3) if it provides for a longer (or 

shorter) period than 90 days. Thus, for 

example, a plan requiring evidence of 

good health of any individual who 

enrolls after the first 120 days of initial 

eligibility under the plan does not 

contain the provisions described in this 

paragraph (b)(3). 

(c) Examples. The rules of this section 

are illustrated by the following 

examples: 

Example 1. (i) Facts. A church organization 

maintains two church plans for entities 

affiliated with the church. One plan is a 

group health plan that provides health 

coverage to all employees (including 

ministers and lay workers) of any affiliated 

church entity that has more than 10 

employees. The other plan is Plan O, which 

is a group health plan that is not funded 

through insurance coverage and that provides 


rwilkins on PROD1PC63 with RULES_2
Federal Register / Vol. 71, No. 239 / Wednesday, December 13, 2006 / Rules and Regulations 75057 

health coverage to any employee (including 

ministers and lay workers) of any affiliated 

church entity that has 10 or fewer employees 

and any self-employed individual affiliated 

with the church (including a self-employed 

minister of the church). Plan O requires 

evidence of good health in order for any 

individual of a church entity that has 10 or 

fewer employees to be covered and in order 

for any self-employed individual to be 

covered. On July 15, 1997 and at all times 

thereafter before the beginning of the plan 

year, Plan O has contained all the preceding 

provisions. 

(ii) Conclusion. In this Example 1, because 

Plan O contains the plan provisions 

described in paragraph (b)(2) of this section 

and because those provisions were in the 

plan on July 15, 1997 and at all times 

thereafter before the beginning of the plan 

year, Plan O will not be treated as failing to 

meet the requirements of section 9802 or 

§ 54.9802–1 for the plan year solely because 

the plan requires evidence of good health for 

coverage of the individuals described in 

those plan provisions. 

Example 2. (i) Facts. A church 

organization maintains Plan P, which is a 

church plan that is not funded through 

insurance coverage and that is a group health 

plan providing health coverage to individuals 

employed by entities affiliated with the 

church and self-employed individuals 

affiliated with the church (such as ministers). 

On July 15, 1997 and at all times thereafter 

before the beginning of the plan year, Plan P 

has required evidence of good health for 

coverage of any individual who enrolls after 

the first 90 days of initial eligibility under the 

plan. 

(ii) Conclusion. In this Example 2, because 

Plan P contains the plan provisions described 

in paragraph (b)(3) of this section and 

because those provisions were in the plan on 

July 15, 1997 and at all times thereafter 

before the beginning of the plan year, Plan P 

will not be treated as failing to meet the 

requirements of section 9802 or § 54.9802–1 

for the plan year solely because the plan 

requires evidence of good health for coverage 

of individuals enrolling after the first 90 days 

of initial eligibility under the plan. 

(d) Applicability date. This section is 

applicable to plan years beginning on or 

after July 1, 2007. 

■ Par. 5. Section 54.9831–1 is amended 

by revising paragraphs (b) and (c)(1) to 

read as follows: 

§ 54.9831–1 Special rules relating to group 

health plans. 

* * * * * 

(b) General exception for certain small 

group health plans. The requirements of 

§§ 54.9801–1 through 54.9801–6, 

54.9802–1, 54.9802–2, 54.9811–1T, 

54.9812–1T, and 54.9833–1 do not 

apply to any group health plan for any 

plan year if, on the first day of the plan 

year, the plan has fewer than two 

participants who are current employees. 

(c) Excepted benefits—(1) In general. 

The requirements of §§ 54.9801–1 

through 54.9801–6, 54.9802–1, 54.9802–

2, 54.9811–1T, 54.9812–1T, and 

54.9833–1 do not apply to any group 

health plan in relation to its provision 

of the benefits described in paragraph 

(c)(2), (3), (4), or (5) of this section (or 

any combination of these benefits). 

* * * * * 

Mark E. Matthews, 

Deputy Commissioner for Services and 

Enforcement, Internal Revenue Service. 

Approved: June 22, 2006. 

Eric Solomon, 

Acting Deputy Assistant Secretary of the 

Treasury (Tax Policy). 

Editorial Note: This document was 

received at the Office of the Federal Register 

on December 1, 2006. 

[FR Doc. 06–9558 Filed 12–12–06; 8:45 am] 

BILLING CODE 4830–01–P 


rwilkins on PROD1PC63 with RULES_2