[Federal Register Volume 87, Number 59 (Monday, March 28, 2022)]
[Proposed Rules]
[Pages 17225-17241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-06005]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-121508-18]
RIN 1545-BO97


Multiple Employer Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing; 
withdrawal of notice of proposed rulemaking.

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SUMMARY: This document sets forth proposed regulations relating to 
certain multiple employer plans (MEPs) described in the Internal 
Revenue Code (the ``Code''). The proposed regulations provide an 
exception, if certain requirements are met, to the application of the 
``unified plan rule'' for MEPs in the event of a failure by one or more 
employers participating in the plan to take actions required of them to 
satisfy the applicable requirements of the Code. These proposed 
regulations would affect certain MEPs, participants in those MEPs (and 
their beneficiaries), employers participating in those MEPs, and plan 
administrators of those MEPs. This document also withdraws proposed 
regulations published in the Federal Register on July 3, 2019, amending 
the application of the unified plan rule to MEPs and provides a notice 
of a public hearing.

DATES: Written or electronic comments must be received by May 27, 2022. 
A public hearing on these proposed regulations has been scheduled for 
Wednesday, June 22, 2022, at 10 a.m. EST. Requests to speak and 
outlines of topics to be discussed at the public hearing must be 
received by May 27, 2022. If no outlines are received by May 27, 2022, 
the public hearing will be cancelled. Requests to attend the public 
hearing must be received by 5 p.m. EST on Friday, June 17, 2022. The 
telephonic hearing will be made accessible to people with disabilities. 
Requests for special assistance during the telephonic hearing must be 
received by Thursday, June 16, 2022.

ADDRESSES: Commenters are strongly encouraged to submit public comments 
electronically. Submit electronic submissions via the Federal 
eRulemaking Portal at www.regulations.gov (indicate IRS and REG-121508-
18) by following the online instructions for submitting comments. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The IRS expects to have limited personnel available to 
process public comments that are submitted on paper through mail. Until 
further notice, any comments submitted on paper will be considered to 
the extent practicable. The Department of the Treasury (Treasury 
Department) and the IRS will publish for public availability any 
comment submitted electronically, and to the extent practicable on 
paper, to its public docket. Send paper submissions to: CC:PA:LPD:PR 
(REG-121508-18), Room 5203, Internal Revenue Service, P.O. Box 7604, 
Ben Franklin Station, Washington, DC 20044.
    For those requesting to speak during the hearing, send an outline 
of topic submissions electronically via the Federal eRulemaking Portal 
at www.regulations.gov (indicate IRS and REG-121508-18).
    Individuals who want to testify (by telephone) at the public 
hearing must send an email to <a href="/cdn-cgi/l/email-protection#44343126282d272c2125362d2a2337042d36376a232b32"><span class="__cf_email__" data-cfemail="f9898c9b95909a919c988b90979e8ab9908b8ad79e968f">[email protected]</span></a> to receive the 
telephone number and access code for the hearing. The subject line of 
the email must contain the regulation number REG-121508-18 and the word 
TESTIFY. For example, the subject line may say: Request to TESTIFY at 
Hearing for REG-121508-18. The email should include a copy of the 
speaker's public comments and outline of topics. Individuals who want 
to attend the public hearing by telephone must also send an email to 
<a href="/cdn-cgi/l/email-protection#cbbbbea9a7a2a8a3aeaab9a2a5acb88ba2b9b8e5aca4bd"><span class="__cf_email__" data-cfemail="ec9c998e80858f84898d9e85828b9fac859e9fc28b839a">[email protected]</span></a> to receive the telephone number and access code 
for the hearing. The subject line of the email must contain the 
regulation number REG-121508-18 and the word ATTEND. For example, the 
subject line may say: Request to ATTEND Hearing for REG-121508-18. To 
request special assistance during the telephonic hearing contact the 
Publications and Regulations Branch of the Office of Associate Chief 
Counsel (Procedure and Administration) by sending an email to 
<a href="/cdn-cgi/l/email-protection#5b2b2e39373238333e3a2932353c281b322928753c342d"><span class="__cf_email__" data-cfemail="81f1f4e3ede8e2e9e4e0f3e8efe6f2c1e8f3f2afe6eef7">[email protected]</span></a> (preferred) or by telephone at (202) 317-5177 
(not a toll-free number).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Pamela 
Kinard at (202) 317-6000 or Tom Morgan at (202) 317-6700; concerning 
submission of comments or requests for a public hearing, Regina Johnson 
(202) 317-5177 (not toll-free numbers) or by sending an email to 
<a href="/cdn-cgi/l/email-protection#027277606e6b616a6763706b6c6571426b70712c656d74"><span class="__cf_email__" data-cfemail="c5b5b0a7a9aca6ada0a4b7acaba2b685acb7b6eba2aab3">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

Background

    This document sets forth proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 413(c) of the Code and 
proposed regulations under section 413(e) of the Code. This document 
also withdraws proposed regulations under section 413(c) that were 
published in the Federal Register on July 3, 2019 (84 FR 31777) 
(section 413(c) proposed regulations).

I. General Rules Relating to MEPs Including the Unified Plan Rule

    Section 413(c) provides rules for a plan maintained by more than 
one employer.\1\ A plan described in section

[[Page 17226]]

413(c) often is referred to as a multiple employer plan (MEP) or a 
section 413(c) plan.
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    \1\ Section 210 of the Employee Retirement Income Security Act 
of 1974, Public Law 93-406 (88 Stat. 829), as amended (ERISA), also 
provides rules relating to plans maintained by more than one 
employer. Similar to section 413(c) of the Code, section 210(a) of 
ERISA states that the minimum participation standards, minimum 
vesting standards, and benefit accrual requirements under sections 
202, 203, and 204 of ERISA, respectively, shall be applied as if all 
employees of each of the employers were employed by a single 
employer. Under section 101 of Reorganization Plan No. 4 of 1978 (5 
U.S.C. App.), the Secretary of the Treasury has interpretive 
jurisdiction over section 413 of the Code, as well as ERISA section 
210.
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    Final regulations under section 413 were published in the Federal 
Register on November 9, 1979, 44 FR 65061 (the final section 413 
regulations). The final section 413 regulations apply to MEPs described 
in section 413(c) and to collectively bargained plans described in 
section 413(b) (plans that are maintained pursuant to certain 
collective-bargaining agreements between employee representatives and 
one or more employers).
    Pursuant to section 413(c) and the final section 413 regulations, 
all of the employers maintaining a MEP (participating employers) are 
treated as a single employer for purposes of certain Code requirements, 
which include the following requirements:
    <bullet> Under section 413(c)(1) and 26 CFR1.413-2(b), the rules 
addressing plan participation under section 410(a) and the regulations 
thereunder are applied as if all employees of each of the employers 
that maintain the plan are employed by a single employer;
    <bullet> under section 413(c)(2) and Sec.  1.413-2(c), in 
determining whether a MEP is, with respect to each participating 
employer, a plan for the exclusive benefit of its employees (and their 
beneficiaries), all of the employees participating in the plan are 
treated as employees of each such employer; and
    <bullet> under section 413(c)(3) and Sec.  1.413-2(d), the minimum 
vesting standards under section 411 are applied as if all employers 
that maintain the plan constitute a single employer.
    Other rules are applied separately to each participating employer. 
For example, under Sec.  1.413-2(a)(3)(ii), the minimum coverage 
requirements of section 410(b) generally are applied to a MEP on an 
employer-by-employer basis.
    A plan is not described in section 413(c) unless it is maintained 
by more than one employer and is a single plan under section 414(l). 
See Sec. Sec.  1.413-2(a)(2)(i) and 1.413-1(a)(2). Under Sec.  
1.414(l)-1(b), a plan is a single plan if and only if, on an ongoing 
basis, all of the plan assets are available to pay benefits to 
employees who are covered by the plan and their beneficiaries.
    Under Sec.  1.413-2(a)(3)(iv), the qualification of a MEP ``is 
determined with respect to all employers maintaining the section 413(c) 
plan'' (sometimes referred to as the unified plan rule). Therefore, the 
failure by one employer maintaining the plan (or by the plan itself) to 
satisfy an applicable qualification requirement will result in the 
disqualification of the section 413(c) plan for all employers 
maintaining the plan.
    The section 413(c) proposed regulations, which are being withdrawn, 
would have created an exception to the unified plan rule for certain 
defined contribution MEPs. The exception generally would have been 
available, provided that certain conditions were satisfied, if a 
participating employer in a MEP was solely responsible for a 
qualification failure that the employer was unable or unwilling to 
correct, or if a participating employer failed to comply with a plan 
administrator's request for information about a qualification failure 
that the plan administrator reasonably believed might exist.
    Written comments responding to the section 413(c) proposed 
regulations were received, and a public hearing was held on December 
11, 2019. The provisions of these proposed regulations were informed by 
the comments received with respect to the section 413(c) proposed 
regulations.

II. SECURE Act Provisions Related to MEPs

    Section 101(a) of the Setting Every Community Up for Retirement 
Enhancement Act of 2019 (SECURE Act), which was enacted on December 20, 
2019, as Division O of the Further Consolidated Appropriations Act of 
2020, Public Law 116-94 (133 Stat. 2534), added section 413(e) to the 
Code. Section 413(e) creates a statutory exception to the unified plan 
rule for certain types of MEPs and directs the Secretary to issue 
guidance that is appropriate to carry out that provision. A MEP is 
eligible for the exception to the unified plan rule if it is a section 
413(c) defined contribution plan \2\ described in section 401(a) or 
consists of individual retirement accounts described in section 408 
(including by reason of section 408(c)),\3\ provided that the MEP 
either is maintained by employers that have a ``common interest'' or 
has a ``pooled plan provider.'' \4\ Section 413(e)(1) provides that, 
with certain exceptions, this type of MEP will not be treated as 
failing to meet the applicable requirements under the Code merely 
because one or more employers of employees covered by the plan fail to 
take actions that are required for the plan to meet those requirements.
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    \2\ Although section 403(b) plans are defined contribution 
plans, they are not plans described in section 401(a) or 408. 
Therefore, section 413(e)(1) does not apply to section 403(b) plans.
    \3\ Prior to the SECURE Act, section 413(c)(2) of the Code 
provided, ``For purposes of section 401(a), in determining whether 
the plan of an employer is for the exclusive benefit of his 
employees and their beneficiaries all plan participants shall be 
considered his employees.'' Section 101(a)(2) of the SECURE Act 
amended section 413(c)(2) of the Code so that it applies for 
purposes of section 408(c) of the Code in addition to section 401(a) 
of the Code.
    \4\ Section 101(c) of the SECURE Act also amended title I of 
ERISA to introduce the term ``pooled plan provider,'' as well as the 
term ``pooled employer plan'' for a plan with a pooled plan 
provider. See ERISA sections 3(44) and 3(43), respectively. These 
ERISA provisions do not address compliance under the Code for plans 
described in section 401(a) or 408, but the requirements for pooled 
plan providers and pooled employer plans are otherwise similar to 
the requirements in section 413(e).
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    Section 413(e)(2)(A) provides that section 413(e)(1) will not apply 
unless the terms of the plan provide that, in the case of any employer 
in the plan failing to take the actions described in section 413(e)(1), 
the assets of the plan attributable to employees of that employer (or 
beneficiaries of those employees) will be transferred to a plan 
maintained only by that employer (or its successor), to an eligible 
retirement plan as defined in section 402(c)(8)(B) for each individual 
whose account is transferred, or to any other arrangement that the 
Secretary determines is appropriate, unless the Secretary determines it 
is in the best interests of those employees (and their beneficiaries) 
to retain the assets in the plan. Section 413(e)(2)(A) also states that 
section 413(e)(1) will not apply unless the terms of the plan provide 
that, in the case of any employer failing to take the actions described 
in section 413(e)(1), the employer (and not the plan or any other 
employer in the plan) will be liable for any liabilities with respect 
to the plan attributable to employees of that employer (or their 
beneficiaries), except to the extent provided by the Secretary.
    Section 413(e)(2)(B) provides that, if the pooled plan provider of 
a plan described in section 413(e)(1)(B) does not perform substantially 
all of the administrative duties required by section 413(e)(3)(A)(i) 
for any plan year, the Secretary may provide that the determination as 
to whether the plan meets the applicable Code requirements for a plan 
described in section 401(a) or a plan that consists of individual 
retirement accounts described in section 408 (including by reason of 
section 408(c)), whichever is applicable, will be

[[Page 17227]]

made in the same manner as would be made without regard to section 
413(e)(1).
    Section 413(e)(3)(A) provides that, for purposes of section 413(e), 
the term pooled plan provider means, with respect to any plan, a person 
who:
    <bullet> Is designated by the terms of the plan as a named 
fiduciary (within the meaning of section 402(a)(2) of ERISA), as the 
plan administrator, and as the person responsible to perform specified 
administrative duties;
    <bullet> registers as a pooled plan provider with the Secretary, 
and provides such other information to the Secretary as the Secretary 
may require, before beginning operations as a pooled plan provider;
    <bullet> acknowledges in writing that such person is a named 
fiduciary (within the meaning of section 402(a)(2) of ERISA), and the 
plan administrator, with respect to the plan; and
    <bullet> is responsible for ensuring that all persons who handle 
assets of, or who are fiduciaries of, the plan are bonded in accordance 
with section 412 of ERISA.\5\
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    \5\ The Department of Labor has issued guidance on the 
application of the bonding provision in its final rule on 
registration requirements for pooled plan providers. See 85 FR 
72934, 72936 n.5 (November 16, 2020).
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    The administrative duties for which the pooled plan provider is 
responsible are the duties (including conducting proper testing with 
respect to the plan and the employees of each employer in the plan) 
that are reasonably necessary to ensure that (1) the plan meets any 
requirements under ERISA or the Code applicable to a plan described in 
section 401(a) or to a plan that consists of individual retirement 
accounts described in section 408, whichever is applicable, and (2) 
each employer in the plan takes actions that the Secretary or the 
pooled plan provider determines are necessary for the plan to meet 
those requirements, including providing to the pooled plan provider any 
disclosures or other information that the Secretary may require or that 
the pooled plan provider otherwise determines are necessary to 
administer the plan or to allow the plan to meet the requirements of 
section 401(a) or 408. In determining whether a person meets the 
requirements to be a pooled plan provider with respect to any plan, all 
persons who perform services for the plan and who are treated as a 
single employer under section 414(b), (c), (m), or (o) are treated as 
one person.
    Section 413(e)(3)(B) provides that the Secretary may perform 
audits, examinations, and investigations of pooled plan providers as 
may be necessary to enforce and carry out the purposes of section 
413(e). Section 413(e)(3)(D) provides that each employer in a plan with 
a pooled plan provider is treated as the plan sponsor with respect to 
the portion of the plan attributable to employees of the employer (or 
their beneficiaries), except with respect to the administrative duties 
of the pooled plan provider described in section 413(e)(3)(A)(i).
    Section 413(e)(4)(A) directs the Secretary to issue guidance that 
the Secretary determines appropriate to carry out section 413(e), 
including guidance: (i) Identifying the administrative duties and other 
actions required to be performed by a pooled plan provider under 
section 413(e); (ii) describing the procedures to be taken to terminate 
a plan which fails to meet the requirements to be a plan described in 
section 413(e)(1), including the proper treatment of, and actions 
needed to be taken by, any employer in the plan and the assets and 
liabilities of the plan attributable to employees of the employer (or 
their beneficiaries); and (iii) identifying appropriate cases to which 
the rules of section 413(e)(2)(A) will apply to employers in the plan 
failing to take the actions described in section 413(e)(1), taking into 
account whether the failure of an employer or pooled plan provider to 
provide any disclosures or other information, or to take any other 
action, necessary to administer a plan or to allow a plan to meet 
requirements applicable to the plan under section 401(a) or 408, 
whichever is applicable, has continued over a period of time that 
demonstrates a lack of commitment to compliance.
    Section 413(e)(4)(B) states that an employer or pooled plan 
provider will not be treated as failing to meet a requirement of 
guidance issued pursuant to section 413(e)(4) if, before the guidance 
is issued, the employer or pooled plan provider complies in good faith 
with a reasonable interpretation of the provisions of section 413(e) to 
which the guidance relates.
    Section 413(e)(5) requires the Secretary to publish model plan 
language which meets the requirements of section 413(e) and section 
3(43) and (44) of ERISA and which may be adopted in order for a plan to 
be treated as a plan that has a pooled plan provider.
    Section 101(e)(2) of the SECURE Act states that nothing in the 
amendments made by section 101(a) of the SECURE Act shall be construed 
as limiting the authority of the Secretary of the Treasury or the 
Secretary's delegate (determined without regard to such amendments) to 
provide for the proper treatment of a failure to meet any requirement 
applicable under the Code with respect to one employer (and its 
employees) in a multiple employer plan.

Explanation of Provisions

I. Overview

    The proposed regulations provide guidance to implement the 
exception to the unified plan rule for section 413(e) plans (unified 
plan exception). The proposed regulations define a section 413(e) plan 
as a defined contribution plan described in section 401(a), or a plan 
that consists of individual retirement accounts described in section 
408 (including accounts described in sections 408(c), 408(k), or 
408(p)), that is a section 413(c) plan (as defined in Sec.  1.413-
2(a)(2)) and that (1) is maintained by employers that have a common 
interest other than having adopted the plan or (2) has a pooled plan 
provider. Because a section 413(e) plan is a type of section 413(c) 
plan, a section 413(e) plan is subject to all of the rules of section 
413(c), including the rules for participation in section 413(c)(1) and 
the rules for vesting in section 413(c)(3).\6\
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    \6\ For rules relating to section 413(c) plans, see Sec.  1.413-
2.
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    These proposed regulations do not provide guidance on whether a 
section 413(e) plan is maintained by employers that have a common 
interest other than having adopted the plan. The Treasury Department 
and the IRS request comments on what (if any) guidance would be helpful 
regarding whether employers have such a common interest, including how 
any guidance should be coordinated with guidance issued by the 
Department of Labor. An employer that desires to participate in a 
section 413(e) plan may choose to participate in a defined contribution 
plan described in section 401(a) or 408 with a pooled plan provider in 
order to ensure that the plan is a plan described in section 413(e).\7\
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    \7\ The Department of Labor has advised the Treasury Department 
and the IRS that an arrangement with a pooled plan provider can 
qualify as a pooled employer plan under section 3(43)(A) of ERISA 
without regard to whether the arrangement could be structured as a 
plan maintained by employers that have a common interest other than 
having adopted the plan. See also 86 FR 51488, 51490, n.12.
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    Under the unified plan exception, a section 413(e) plan is not 
treated as failing to meet the requirements under the Code applicable 
to a plan described in section 401(a) or to a plan that consists of 
individual retirement accounts described in section 408 (including 
accounts described in section 408(c), 408(k), or 408(p)), whichever is 
applicable, merely because of a

[[Page 17228]]

participating employer failure.\8\ For the unified plan exception to 
apply, the proposed regulations provide that certain conditions must be 
satisfied, including that the section 413(e) plan administrator must 
notify the participating employer of the participating employer failure 
and, in certain circumstances, transfer amounts attributable to the 
employees of the unresponsive participating employer to a separate plan 
maintained by the employer or provide an election to certain 
participants to remain in the plan or to have their accounts 
transferred to another eligible retirement plan.
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    \8\ Section 1.416-1, Q&A G-2, includes a rule similar to the 
unified plan rule, providing that a failure by a MEP to satisfy 
section 416 with respect to employees of one participating employer 
means that all participating employers in the MEP are maintaining a 
plan that is not a qualified plan. This rule is based on the unified 
plan rule in Sec.  1.413-2(a)(3)(iv). Therefore, if a section 413(e) 
plan has an unresponsive employer that fails to satisfy section 416 
and the section 413(e) plan meets the conditions for the exception 
to the unified plan rule, the section 413(e) plan will not be 
disqualified for the section 416 failure. The rules in Sec.  1.416-1 
are outside the scope of these proposed regulations, but the 
Treasury Department and the IRS intend to address the topic in a 
broader guidance project updating the regulations under section 416.
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    In addition to defining a section 413(e) plan, the proposed 
regulations provide a number of other definitions, including the 
following: (1) A section 413(e) plan administrator is the plan 
administrator, within the meaning of section 414(g), of a section 
413(e) plan; (2) a participating employer is one of the employers 
maintaining a section 413(e) plan; (3) an unresponsive participating 
employer is a participating employer that has a participating employer 
failure; (4) an employee is a current or former employee of a 
participating employer; (5) a beneficiary is a beneficiary of a 
deceased employee or an alternate payee (as defined in section 414(p)) 
with respect to an employee; and (6) a participating employer is one of 
the employers maintaining a section 413(e) plan. As discussed in the 
following paragraphs, the proposed regulations also include definitions 
for the following terms: (1) Participating employer failure, (2) 
amounts attributable to the employees of the unresponsive participating 
employer, and (3) pooled plan provider.
    The proposed regulations define a participating employer failure in 
a section 413(e) plan as a failure to provide information or a failure 
to take action. A failure to provide information is defined as a 
failure of a participating employer (or any person that is treated as a 
single employer with that employer under section 414(b), (c), (m), or 
(o)) to respond in a timely manner to a reasonable request by the 
section 413(e) plan administrator for data, documents, or any other 
information that the plan administrator reasonably believes is 
necessary to determine whether a section 413(e) plan is in compliance 
with a requirement of section 401(a) or 408 as it relates to the 
participating employer. A failure to take action is defined as a 
failure of a participating employer (or any person that is treated as a 
single employer with that employer under section 414(b), (c), (m), or 
(o)) to comply in a timely manner with a reasonable request by a 
section 413(e) plan administrator to take action needed for the section 
413(e) plan to satisfy a requirement of section 401(a) or 408 as it 
relates to the participating employer. For purposes of these 
definitions, a section 413(e) plan administrator's request would not be 
considered reasonable if it fails to give the employer sufficient time 
to provide information or take action (and, consequently, a 
participating employer's failure to respond to an unreasonable request 
would not be considered a participating employer failure).
    The proposed regulations define amounts attributable to the 
employees of the unresponsive participating employer as plan assets and 
account balances held by a section 413(e) plan on behalf of employees 
of an unresponsive participating employer that are attributable to 
their employment with the unresponsive participating employer. The 
proposed regulations provide rules that apply if there is no separate 
accounting for amounts that are attributable to employment with the 
unresponsive participating employer and with other participating 
employers.\9\ If a participant's account balance includes amounts that 
are attributable to current employment with the unresponsive 
participating employer and to previous employment with one or more 
other participating employers, the entire account balance is treated as 
attributable to employment with the unresponsive participating 
employer. On the other hand, if a participant's account balance 
includes amounts that are attributable to current employment with a 
participating employer that is not the unresponsive participating 
employer and to previous employment with the unresponsive participating 
employer, none of the account balance is treated as attributable to 
employment with the unresponsive participating employer. For purposes 
of this definition, a participant's most recent employment with a 
participating employer in the MEP will be treated as the participant's 
current employment.
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    \9\ In defining the amounts attributable to the employees of the 
unresponsive participating employer, the references in these 
proposed regulations to circumstances in which there is no 
``separate accounting'' are not intended to address the 
recordkeeping obligations under Title I of ERISA, including sections 
107 and 209 of ERISA, of an employer, plan administrator, or other 
plan fiduciary.
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    Under the proposed regulations, the term pooled plan provider 
means, with respect to any plan, a person who: (1) Registers as a 
pooled plan provider with the Commissioner; (2) is designated by the 
terms of the plan as a named fiduciary (within the meaning of section 
402(a)(2) of ERISA), as the plan administrator, and as the person 
required to perform certain administrative duties; (3) acknowledges in 
writing that, with respect to the plan, it is a named fiduciary and the 
plan administrator; and (4) is responsible for ensuring that all 
persons who handle assets of, or who are fiduciaries of, the plan are 
bonded in accordance with section 412 of ERISA.
    The requirement to register as a pooled plan provider with the 
Commissioner is fulfilled by satisfying the parallel requirement under 
ERISA to register as a pooled plan provider with the Department of 
Labor. On November 16, 2020, the Department of Labor issued final 
regulations under section 3(44) of ERISA (29 CFR 2510.3-44) with 
respect to the registration requirement. See 85 FR 72934.
    Consistent with section 413(e)(3)(A)(i), the proposed regulations 
require a pooled plan provider to perform all administrative duties 
that are reasonably necessary to ensure that: (1) The plan meets any 
applicable requirement under ERISA or the Code for a plan described in 
section 401(a) or for a plan that consists of individual retirement 
accounts described in section 408 (including accounts described in 
section 408(c), 408(k), or 408(p)), whichever is applicable, and (2) 
each participating employer takes actions, including providing any 
disclosures or other information, that are necessary for the plan to 
meet those requirements.\10\
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    \10\ In determining whether a person meets the requirements to 
be a pooled plan provider with respect to any section 413(e) plan, 
all persons who perform services for the plan and who are treated as 
a single employer under section 414(b), (c), (m), or (o) are treated 
as one person.
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    The administrative duties of a pooled plan provider include, but 
are not limited to, the following:
    (1) Monitoring compliance with the terms of the plan, and Code and 
ERISA requirements;

[[Page 17229]]

    (2) Maintaining accurate plan data, including providing up-to-date 
participant and beneficiary information;
    (3) Performing and conducting coverage, top-heavy, and 
discrimination testing under sections 401(a)(4), (k), and (m), 408(k), 
410, and 416, if applicable;
    (4) Processing all employee transactions (such as investment 
changes, loans, and distributions);
    (5) Satisfying Code and ERISA reporting and notice requirements 
(such as reporting requirements under sections 6047 (Form 1099-R, 
``Distributions From Pensions, Annuities, Retirement or Profit-Sharing 
Plans, IRAs, Insurance Contracts, etc.'') and 6058 (Form 5500, ``Annual 
Return/Report of Employee Benefit Plan''), and notice requirements 
under sections 401(k)(12)(D) and (13)(E) and 402(f)); and
    (6) Updating the plan to reflect statutory changes to the Code and 
ERISA, to the extent the responsibility for updating the plan document 
has been delegated to the section 413(e) plan administrator.

II. Conditions for Application of Exception to Unified Plan Rule

A. In General

    The proposed regulations provide that, under the unified plan 
exception, a section 413(e) plan is not disqualified on account of a 
participating employer failure, provided that the plan satisfies 
certain conditions, which are described in Parts II.B through II.G of 
this Explanation of Provisions.

B. Plan Language

    The proposed regulations provide that the terms of the section 
413(e) plan document must include language describing the procedures 
that will be followed to address a participating employer failure, 
including a description of the notices that the section 413(e) plan 
administrator will send in the case of a participating employer failure 
(described in Part II.C of this Explanation of Provisions, titled 
``Notice Requirements''). The plan must also state that the section 
413(e) plan administrator will send the first notice (or, if 
applicable, the combined first and second notice) by specified 
deadlines that depend on the type of failure. With respect to a failure 
to provide information, the specified deadline for sending the first 
notice is 12 months following the end of the plan year for which the 
information is necessary to determine whether the section 413(e) plan 
is in compliance with a requirement of section 401(a) or 408. With 
respect to a failure to take action, the specified deadline is 24 
months following the end of the plan year in which the failure to 
satisfy a requirement of section 401(a) or 408 occurs.
    In addition, the plan terms must describe the actions that the 
section 413(e) plan administrator will take if, by the end of the 60-
day period following the date the final notice is provided, the 
unresponsive participating employer does not take appropriate remedial 
action with respect to the failure or initiate a spinoff of amounts 
attributable to the employees of the unresponsive participating 
employer to a separate single-employer plan that is maintained by the 
employer. The terms of the section 413(e) plan must also provide that 
if an unresponsive participating employer does not either take 
appropriate remedial action or initiate a spinoff by that deadline, 
participants who are employees of the unresponsive participating 
employer have a nonforfeitable right to the amounts credited to their 
accounts that are attributable to employment with the unresponsive 
participating employer, determined in the same manner as if the plan 
had terminated pursuant to section 411(d)(3). In connection with the 
finalization of these proposed regulations, the Treasury Department and 
the IRS intend to publish guidance in the Internal Revenue Bulletin 
setting forth model language that may be used for this purpose.
    The section 413(c) proposed regulations provided that a plan was 
ineligible for the unified plan exception if the plan was under 
examination before the first notice with respect to a participating 
employer failure was provided to an unresponsive participating 
employer. These proposed regulations do not include that condition. 
However, see the discussion in Part VI of this Explanation of 
Provisions, titled ``Coordination with EPCRS,'' on correcting a failure 
to send the first notice by the specified deadline, including when a 
plan is under examination.

C. Notice Requirements

    The proposed regulations require the section 413(e) plan 
administrator to provide up to three notices regarding a participating 
employer failure to the unresponsive participating employer; with the 
final notice, if applicable, also being provided to participants who 
are employees of the employer (and their beneficiaries) and the 
Department of Labor.\11\
---------------------------------------------------------------------------

    \11\ As described in Part II.E.2 of this Explanation of 
Provisions, titled ``Failure to Provide Information that Becomes a 
Failure to Take Action,'' if the notices relate to a failure to 
provide information that becomes a failure to take action, then a 
new series of notices may be required.
---------------------------------------------------------------------------

    The first notice must describe the participating employer failure 
(or failures), as well as the actions the unresponsive participating 
employer must take to remedy the failure, and the employer's option to 
initiate a spinoff of amounts attributable to the employees of the 
unresponsive participating employer to a separate single-employer plan 
that is maintained by the employer. The first notice must also explain 
the consequences under the terms of the plan if the unresponsive 
participating employer neither takes appropriate remedial action with 
respect to the participating employer failure nor initiates a spinoff, 
including that participants who are employees of the employer will not 
have any further contributions made to the plan on their behalf and 
that individuals who are responsible for the failure may have adverse 
tax consequences.
    If, by the end of the 60-day period following the date the first 
notice is provided, the unresponsive participating employer neither 
takes appropriate remedial action with respect to the participating 
employer failure nor initiates a spinoff (as described in Part II.D of 
this Explanation of Provisions, titled ``Actions by Unresponsive 
Participating Employer''), then the section 413(e) plan administrator 
must provide a second notice to the employer. The second notice must be 
provided no later than 30 days after the expiration of the 60-day 
period following the date the first notice is provided. The second 
notice must include the information required to be included in the 
first notice. The second notice must also state that, if, within 60 
days following the date the second notice is provided, the unresponsive 
participating employer neither takes appropriate remedial action with 
respect to the participating employer failure nor initiates a spinoff, 
then a final notice describing the participating employer failure and 
the consequences of not correcting the failure will be provided to 
participants who are employees of the employer (and their 
beneficiaries) and to the Department of Labor.
    The proposed regulations provide that if, by the end of the 60-day 
period following the date the second notice is provided, the 
unresponsive participating employer neither takes appropriate remedial 
action with respect to the participating employer failure nor initiates 
a spinoff, then the

[[Page 17230]]

section 413(e) plan administrator must provide a final notice to the 
employer. The final notice must be provided no later than 30 days after 
the expiration of the 60-day period following the date the second 
notice is provided. Within this time period, the final notice must also 
be provided to participants who are employees of the unresponsive 
participating employer (and their beneficiaries) and to the Office of 
Enforcement of the Employee Benefits Security Administration in the 
Department of Labor (or its successor office).\12\ The final notice 
must include the information required to be included in the first 
notice and specify the final deadline for an unresponsive participating 
employer to take action (which is 60 days after the final notice is 
provided). The final notice must also state that the notice is being 
provided to participants who are employees of the unresponsive 
participating employer (and their beneficiaries) and to the Department 
of Labor.
---------------------------------------------------------------------------

    \12\ The notice to the Department of Labor should be mailed to 
the Employee Benefits Security Administration's Office of 
Enforcement (or its successor office). The Office of Enforcement is 
currently located at 200 Constitution Ave. NW, Suite 600, 
Washington, DC 20210.
---------------------------------------------------------------------------

    The section 413(c) proposed regulations also required plan 
administrators to send up to three notices with respect to a 
participating employer failure, but provided a 90-day period between 
notices. The shorter 60-day period between notices in these proposed 
regulations is provided in response to comments recommending that the 
overall notice period be shortened.

D. Actions by Unresponsive Participating Employer

    The proposed regulations provide that after the unresponsive 
participating employer has received notice of the participating 
employer failure, the employer has the opportunity to either take 
appropriate remedial action or initiate a spinoff. The final deadline 
for the unresponsive participating employer to take one of these 
actions is 60 days after the final notice is provided. The consequences 
of the employer's failure to meet this deadline are described in Part 
II.F of this Explanation of Provisions, titled ``Required Actions 
Following Employer's Failure to Meet Deadline.''
    The proposed regulations provide that if a participating employer 
failure is a failure to provide information, the unresponsive 
participating employer takes appropriate remedial action with respect 
to that failure if the employer (or any person that is treated as a 
single employer with the employer under section 414(b), (c), (m), or 
(o)) provides the data, documents, or other information requested by a 
section 413(e) plan administrator (or arranges for that information to 
be provided to the section 413(e) plan administrator). If a 
participating employer failure is a failure to take action, the 
unresponsive participating employer takes appropriate remedial action 
with respect to the failure if the employer (or any person that is 
treated as a single employer with the employer under section 414(b), 
(c), (m), or (o)) takes all actions requested by the section 413(e) 
plan administrator, such as making corrective contributions, needed for 
the section 413(e) plan to satisfy the applicable requirements of 
section 401(a) or 408.
    As an alternative to taking appropriate remedial action with 
respect to a failure to provide information or a failure to take 
action, the proposed regulations provide that an unresponsive 
participating employer may, after receiving notice of the participating 
employer failure, initiate a spinoff. An unresponsive participating 
employer initiates a spinoff by directing the section 413(e) plan 
administrator to spin off amounts attributable to the employees of the 
unresponsive participating employer to a separate single-employer plan 
that is maintained by the employer in a manner consistent with the 
terms of the section 413(e) plan. If the section 413(e) plan is 
described in section 401(a), then the spun-off plan must also be a 
section 401(a) plan. If the section 413(e) plan consists of individual 
retirement accounts described in section 408 (including accounts 
described in section 408(c), (k), or (p)), then the spun-off plan must 
also consist of individual retirement accounts described in section 
408. The section 413(e) plan administrator must implement the spinoff, 
as described in Part II.E.2 of this Explanation of Provisions, titled 
``Implementing a Spinoff.''

E. Actions by Section 413(e) Plan Administrator Relating to Remedial 
Action or Employer-Initiated Spinoff

1. Failure To Provide Information That Becomes a Failure To Take Action
    The proposed regulations describe when a failure to provide 
information becomes a failure to take action. This situation could 
occur if an unresponsive participating employer takes appropriate 
remedial action with respect to a failure to provide information, and 
the section 413(e) plan administrator determines that, based on the 
information provided by the employer, there is a failure to satisfy a 
requirement of section 401(a) or 408 as it relates to that employer's 
participation in the section 413(e) plan. If the section 413(e) plan 
administrator makes a reasonable request for the employer to take the 
actions needed to satisfy the requirement, and the employer does not 
comply in a timely manner with that request, then the failure to 
provide information becomes a failure to take action.
    If a failure to provide information becomes a failure to take 
action, a section 413(e) plan will be eligible for the unified plan 
exception with respect to the failure to take action by satisfying the 
conditions set forth in the proposed regulations with respect to that 
failure. In satisfying those conditions, notices provided during the 
period that the failure was a failure to provide information are not 
taken into account. For example, a final notice that the section 413(e) 
plan administrator provided in connection with the failure to provide 
information would not satisfy the final notice requirement with respect 
to the failure to take action.
    However, in response to comments on the section 413(c) proposed 
regulations that there were too many notices required in cases in which 
the failure to provide information became a failure to take action, the 
proposed regulations permit the section 413(e) plan administrator to 
reduce the number of notices that it sends to the employer in this 
situation. Specifically, if the section 413(e) plan administrator had 
provided the second notice with respect to a failure to provide 
information before it became a failure to take action, then the section 
413(e) plan administrator may satisfy the requirement to send a first 
and second notice with respect to the failure to take action by sending 
a combined first and second notice to the unresponsive participating 
employer, provided that (1) the section 413(e) plan administrator's 
request to take action (described in the first paragraph under this 
Part II.E of this Explanation of Provisions) is made as soon as 
reasonably practicable after the determination of the failure to 
satisfy a requirement of section 401(a) or 408 as it relates to that 
employer's participation in the section 413(e) plan, and (2) the 
section 413(e) plan administrator provides the combined first and 
second notice with respect to the failure to take action not later than 
24 months following the end of the plan year in which the failure to 
satisfy a requirement of section 401(a) or 408 occurs. The combined 
first and second notice must include information similar

[[Page 17231]]

to the information required for the first and second notices described 
in Part II.C of this Explanation of Provisions, titled ``Notice 
Requirements.'' For example, the combined first and second notice must 
describe the participating employer failure, the actions the 
unresponsive participating employer would need to take to remedy the 
failure, and the consequences under the terms of the plan if the 
employer neither takes appropriate remedial action with respect to the 
failure nor initiates a spinoff of amounts attributable to the 
employees of the unresponsive participating employer. In addition, the 
combined first and second notice must specify that, if, within 60 days 
following the date the combined first and second notice is provided, 
the unresponsive participating employer neither takes appropriate 
remedial action with respect to the participating employer failure nor 
initiates a spinoff, then the final notice described in Part II.C of 
this Explanation of Provisions, titled ``Notice Requirements,'' will be 
provided to participants who are employees of the employer (and their 
beneficiaries) and to the Department of Labor.
2. Implementing a Spinoff
    The proposed regulations provide that if, instead of taking 
appropriate remedial action (as described in Part II.D of this 
Explanation of Provisions, titled ``Actions by Unresponsive 
Participating Employer''), an unresponsive participating employer 
initiates a spinoff of amounts attributable to the employees of the 
unresponsive participating employer to a separate single-employer plan 
established and maintained by the employer, or to a separate plan 
sponsored by the employer that consists of individual retirement 
accounts, then the section 413(e) plan administrator must implement and 
complete the spinoff as soon as reasonably practicable after the 
employer initiates the spinoff. Under a safe harbor in the proposed 
regulations in Sec.  1.413-3(d)(2), the section 413(e) plan 
administrator is treated as satisfying this requirement if the spinoff 
is completed within 180 days of the date on which the unresponsive 
participating employer initiates the spinoff. Comments are requested on 
whether there are any circumstances in which it would be appropriate 
for any of the amounts attributable to the employees of the 
unresponsive participating employer to remain in the MEP after the 
employer has specifically directed that there be a spinoff, and, if so, 
what those circumstances are, and for which employees this treatment 
may be appropriate.

F. Required Actions Following Employer's Failure To Meet Deadline

    The proposed regulations provide that if, by the final deadline (60 
days after the final notice is provided), an unresponsive participating 
employer neither takes appropriate remedial action nor initiates a 
spinoff, then as soon as reasonably practicable after that deadline, 
the section 413(e) plan administrator must: (1) Stop accepting 
contributions from the unresponsive participating employer and its 
employees; (2) provide notice to participants who are employees of the 
unresponsive participating employer (and their beneficiaries); and (3) 
to the extent provided in the proposed regulations, provide 
participants who are employees of the unresponsive participating 
employer (and their beneficiaries) with an election regarding treatment 
of their plan accounts. In addition, the section 413(e) plan 
administrator must distribute benefits as soon as administratively 
feasible following an individual's election or following the section 
413(e) plan administrator's determination that it is not required to 
provide an individual with an election.\13\
---------------------------------------------------------------------------

    \13\ Whether an action is taken as soon as administratively 
feasible is determined under all the facts and circumstances. See 
Rev. Rul. 89-87, 1989-2 CB 81 (Whether a distribution is made as 
soon as administratively feasible after the date of plan termination 
specified by an employer is to be determined under all the facts and 
circumstances of a given case but, generally, a distribution that is 
not completed within one year following the date of termination will 
be presumed not to have been made as soon as administratively 
feasible.)
---------------------------------------------------------------------------

    The notice to participants required by Sec.  1.413-3(e)(1)(ii)(B) 
and (e)(2) of the proposed regulations must state that: (1) No further 
contributions will be made to the section 413(e) plan on behalf of 
participants who are employees of the unresponsive participating 
employer; (2) participants who are employees of the unresponsive 
participating employer have a nonforfeitable right to amounts credited 
to their accounts that are attributable to employment with the 
unresponsive participating employer; and (3) a participant who is an 
employee of the unresponsive participating employer (or, if applicable, 
any beneficiary of the participant) will receive additional information 
regarding the disposition of the participant's or beneficiary's 
account.
    To satisfy the election requirement in Sec.  1.413-3(e)(1)(ii)(C) 
of the proposed regulations, except as otherwise provided by the 
proposed regulations, a section 413(e) plan administrator must provide 
participants who are employees of the unresponsive participating 
employer (and their beneficiaries) with an election to have amounts 
attributable to the employees of the unresponsive participating 
employer (1) directly rolled over to an eligible retirement plan within 
the meaning of section 402(c)(8), or (2) remain in the section 413(e) 
plan. With respect to this election, under a default rule in Sec.  
1.413-3(e)(3)(ii) of the proposed regulations, an individual who fails 
to make an affirmative election is treated as having elected to have 
those amounts remain in the section 413(e) plan.
    The option to remain in the plan is consistent with section 
413(e)(2)(A), which requires the terms of the plan to provide, in part, 
that the plan assets attributable to the employees of the unresponsive 
participating employer will be transferred to an eligible retirement 
plan or to another arrangement that the Secretary determines is 
appropriate, unless the Secretary determines that it is in their best 
interests to retain the assets in the plan. The Treasury Department and 
the IRS have determined that it is in the best interest of an 
individual who elects to remain in the section 413(e) plan to have that 
election followed. In addition, the default rule with respect to that 
election, under which the account of an individual who does not make an 
affirmative election will remain in the section 413(e) plan, is 
consistent with the consent requirements of section 411(a)(11).
    The proposed regulations provide that if an individual elects to 
have amounts attributable to the employees of the unresponsive 
participating employer remain in the section 413(e) plan, those amounts 
must remain in the section 413(e) plan until a distribution is made 
under the terms of the plan without regard to section 413(e). Although 
the terms of the section 413(e) plan continue to apply to a participant 
remaining in the plan, the section 413(e) plan administrator may not 
have contact with the participating employer after contributions have 
ceased (and, therefore, may not be notified about the individual's 
severance from employment with the employer). Accordingly, the proposed 
regulations provide that, in determining whether a participant is 
entitled to a distribution upon severance from employment, a section 
413(e) plan administrator may rely on the participant's representation 
that the participant has experienced a severance from employment, 
unless the section 413(e) plan administrator has actual knowledge to 
the contrary.

[[Page 17232]]

    The option to remain in the plan is not available to an individual 
if plan terms would have provided for a mandatory distribution of those 
amounts had the participant experienced a severance from employment. 
Instead, those amounts must be distributed from the section 413(e) 
plan. In this situation, the proposed regulations provide rules for the 
disposition of the mandatory distribution, based on the applicability 
of section 401(a)(31) under the terms of the plan that would apply in 
the case of a severance from employment. Comments are requested on 
whether there should be special rules for mandatory distributions that 
apply in this situation, including in cases involving missing 
participants.
    The proposed regulations provide that the portion of the mandatory 
distribution that is an eligible rollover distribution subject to 
section 401(a)(31)(B) must be directly rolled over to an eligible 
retirement plan. In accordance with section 401(a)(31)(B), the section 
413(e) plan administrator must provide the individual with an election 
for the rollover to be made either to an eligible retirement plan 
chosen by the individual or to an individual retirement plan of a 
designated trustee or issuer. For example, a section 413(e) plan 
administrator is not required to provide the option to remain in the 
plan to an individual with an account balance of $3,000 if, consistent 
with sections 401(a)(31)(B) and 411(a)(11), plan terms require 
mandatory distributions with respect to a participant who experiences a 
severance from employment with an account balance of up to $5,000 and 
automatic rollover of distributions with respect to an participant who 
experiences a severance from employment with an account balance that 
exceeds $1,000.
    For any portion of the mandatory distribution that is an eligible 
rollover distribution subject to section 401(a)(31)(A) (but not section 
401(a)(31)(B)), the section 413(e) plan administrator must provide the 
individual with an election in accordance with section 401(a)(31)(A) 
for that portion to be rolled over directly to an eligible retirement 
plan chosen by the individual or, if no eligible retirement plan is 
chosen, paid directly to the individual.
    For the portion of a mandatory distribution that is not subject to 
the requirement to offer a direct rollover option under section 
401(a)(31), the section 413(e) plan administrator must pay the 
individual. For example, a section 413(e) plan administrator is not 
required to provide an election to an individual with an account 
balance of less than $200 if, consistent with section 411(a)(11) and 
Sec.  1.401(a)(31), Q&A-11, plan terms require that mandatory 
distributions of less than $200 be paid directly to distributees.
    Giving an individual an election to have amounts transferred to an 
individual retirement plan generally does not mean that a distribution 
may be paid directly to the individual. However, if, pursuant to the 
proposed regulations, an individual makes an election to have an amount 
directly rolled over to an eligible retirement plan, and a portion of 
the amount is not an eligible rollover distribution described in 
section 402(c)(4), then that portion must be paid directly to the 
individual. For example, the portion of a distribution that would be a 
required minimum distribution under section 401(a)(9) must be paid 
directly to the individual rather than directly rolled over. In 
addition, if an individual is otherwise entitled to a distribution from 
the section 413(e) plan without regard to section 413(e), the 
individual may elect to have amounts paid directly to the individual.
    Any election that is provided to an individual pursuant to the 
proposed regulations must include an effective opportunity for the 
individual to make the election. Whether an individual has an effective 
opportunity is determined based on all the relevant facts and 
circumstances, including the adequacy of notice of the availability of 
the election, the period of time during which the election may be made, 
and any other conditions on the election.

G. Duties of a Pooled Plan Provider

    The proposed regulations provide that, if a section 413(e) plan has 
a pooled plan provider during the plan year of a participating employer 
failure, the unified plan exception will not apply unless the pooled 
plan provider performs substantially all of the administrative duties 
that are required of the pooled plan provider for that year.

III. Other Rules

A. Form of Notices and Elections

    Any notice required to be provided or election required to be made 
under the proposed regulations must be in written or electronic form. 
For notices and elections provided to or made by participants and 
beneficiaries, see generally Sec.  1.401(a)-21 for rules permitting the 
use of electronic media to provide applicable notices and make 
participant elections with respect to retirement plans.

B. Status of Spun-Off Plan

    In the case of any plan that is spun off in accordance with the 
proposed regulations, any participating employer failure that would 
have caused the section 413(e) plan to fail to meet the requirements of 
section 401(a) or 408, as applicable, but for the application of the 
unified plan exception, will result in the spun-off plan failing to 
meet those requirements.

C. Responsible Parties

    The proposed regulations provide that a participating employer 
demonstrates a lack of commitment to compliance if the participating 
employer fails to take appropriate remedial action or initiate a 
spinoff by the final deadline (60 days after the final notice). The IRS 
reserves the right to pursue appropriate remedies under the Code 
against any party (such as the owner of the participating employer) who 
is responsible for the failure to satisfy the requirements of section 
401(a) or 408, as applicable, even in the party's capacity as a 
participant or beneficiary (such as by not treating a section 413(e) 
plan distribution made with respect to the owner of a participating 
employer as an eligible rollover distribution).

IV. Updates to Section 413(c) Regulations

    The proposed regulations update existing Sec.  1.413-2 to reflect 
legislation enacted after the regulations were issued. The proposed 
regulations update the rules for determining the number of employers 
maintaining a plan for purposes of the requirement in Sec.  1.413-
2(a)(2)(i)(B) of the proposed regulations that a section 413(c) plan 
must be maintained by more than one employer. For purposes of that 
requirement, the proposed regulations include a rule that the number of 
employers maintaining a plan is determined by treating any employers 
described in section 414(m) (relating to affiliated service groups) as 
if such employers are a single employer. The existing regulations in 
Sec.  1.413-2(a)(2) were issued in 1979 and, therefore, did not address 
section 414(m), which was added by section 201(a) of the Miscellaneous 
Revenue Act of 1980, Public Law 96-605 (94 Stat. 3521). Section 414(m) 
provides that all employers in an affiliated service group shall be 
treated as a single employer for certain purposes.
    The proposed regulations also modify the definition of a section 
413(c) plan and the unified plan rule in the final section 413(c) 
regulations to apply to a

[[Page 17233]]

plan that consists of individual retirement accounts under section 408, 
remove a reference to section 405(a) from the final section 413(c) 
regulations (because that section was repealed), and modify the final 
section 413(c) regulations to add that the exclusive benefit provision 
in section 413(c)(2) applies for purposes of section 408(c).\14\
---------------------------------------------------------------------------

    \14\ Section 414(l) does not apply to a plan that consists of 
individual retirement accounts described in section 408. Therefore, 
in Sec.  1.413-2(a)(2)(i)(A), the proposed regulations limit the 
cross references to section 413(a) and Sec.  1.413-1(a)(2) to apply 
only to qualified plans.
---------------------------------------------------------------------------

V. Withdrawal of Section 413(c) Proposed Regulations

    Because section 101 of the SECURE Act amended the Code with respect 
to the unified plan rule after the issuance of the section 413(c) 
proposed regulations, the Treasury Department and the IRS withdraw the 
section 413(c) proposed regulations.

VI. Coordination With EPCRS

A. In General

    Under EPCRS,\15\ a failure to follow plan terms is an operational 
failure that adversely affects plan qualification. An operational 
failure would include, for example, a section 413(e) plan 
administrator's failure to provide the first notice by the applicable 
deadline included in plan terms, discussed in Part II.B of this 
Explanation of Provisions, titled ``Plan Language.'' EPCRS sets forth 
three programs for correcting operational failures.
---------------------------------------------------------------------------

    \15\ The Employee Plans Compliance Resolution System (EPCRS) is 
a comprehensive system of correction programs for sponsors of 
certain retirement plans, including plans that are intended to 
satisfy the requirements of sections 401(a), 408(k), and 408(p). 
EPCRS provides procedures for an employer to correct a plan's 
failure to satisfy an applicable qualification requirement so that 
the failure does not result in disqualification of the plan. EPCRS 
has been updated and expanded several times, most recently in Rev. 
Proc. 2021-30, 2021-I.R.B. 324. The discussion in this Part VI of 
this Explanation of Provisions is limited to the application of 
EPCRS to qualified plans under section 401(a). See Rev. Proc. 2021-
30 for rules under sections 408(k) and 408(p).
---------------------------------------------------------------------------

    Under the Self-Correction Program (SCP), a plan sponsor that 
follows established compliance practices and procedures may correct 
operational failures without paying a fee or sanction. A plan sponsor 
of a qualified plan (for example, a plan that is intended to satisfy 
section 401(a)) may correct significant operational failures under SCP 
if the plan has a favorable determination letter or a favorable opinion 
or advisory letter.\16\ In general, correction of a significant 
operational failure through SCP must be completed by the last day of 
the correction period, which generally ends on the last day of the 
third plan year following the plan year for which the failure 
occurred.\17\ However, the correction period for a significant 
operational failure that occurs for any plan year ends on the first 
date the plan or plan sponsor is under examination \18\ for that plan 
year.\19\
---------------------------------------------------------------------------

    \16\ See section 4.03 of Rev. Proc. 2021-30.
    \17\ Section 9 of Rev. Proc. 2021-30 addresses the period for 
correcting significant operational failures under SCP, including 
some exceptions to this general rule.
    \18\ Under examination is defined in section 5.08 of Rev. Proc. 
2021-30.
    \19\ If correction has been substantially completed (as 
described in section 9.03 of Rev. Proc. 2021-30) before the end of 
the correction period, correction is permitted to be completed after 
the end of the correction period.
---------------------------------------------------------------------------

    Under the Voluntary Correction Program (VCP), a plan sponsor, at 
any time before audit, may file a VCP submission, pay an applicable 
user fee, implement corrective actions, and satisfy any other 
conditions in an IRS compliance statement for correction of an 
operational failure in a qualified plan, SEP, or SIMPLE IRA Plan. In 
general, if the plan or plan sponsor is under examination, VCP is not 
available.
    Under the Audit Closing Agreement Program (Audit CAP), if an 
operational failure (other than a failure corrected through SCP or VCP) 
is identified on audit, the plan sponsor may correct the failure and 
pay a sanction. The sanction imposed will bear a reasonable 
relationship to the nature, extent, and severity of the failure, and 
will be based on a number of factors,\20\ including the maximum payment 
amount (which is approximately equal to the tax the IRS could collect 
upon plan disqualification).
---------------------------------------------------------------------------

    \20\ See section 14 of Rev. Proc. 2021-30.
---------------------------------------------------------------------------

B. Using EPCRS To Correct an Operational Failure to Timely Provide the 
First Notice

    A section 413(e) plan administrator's failure to provide the first 
notice with respect to a participating employer failure by the 
applicable deadline included in plan terms would not affect the section 
413(e) plan's eligibility for the unified plan exception. However, the 
failure to follow plan terms would result in an operational failure 
treated as a significant operational failure under EPCRS that is 
independent of any underlying participating employer failure.
    Whether SCP, VCP, or Audit CAP is available to correct an 
operational failure to provide the first notice by the applicable 
deadline will be determined under the rules of EPCRS. Because the 
failure is a significant operational failure, the failure may be 
corrected under SCP only if correction is completed (or substantially 
completed) by the end of the correction period, and the correction 
period generally ends on the last day of the third plan year following 
the plan year containing the deadline for sending the first notice. For 
example, if the deadline for sending the first notice is December 31, 
2024, a failure to provide notice by that deadline generally may be 
corrected through SCP until December 31, 2027 (assuming the plan year 
is the calendar year). If, however, the plan or plan sponsor comes 
under examination for 2024 beginning on July 1, 2026, the correction 
period for SCP ends on July 1, 2026, and SCP is no longer available 
(unless the correction had been substantially completed by that date).
    A failure to provide the first notice by the deadline included in 
the terms of the plan may also be corrected under VCP. If, for example, 
the deadline for sending the first notice is December 31, 2024, and the 
correction period under SCP ends on December 31, 2027, then a VCP 
application may be submitted with respect to the failure in 2028 or in 
a later year, provided that neither the plan nor the plan sponsor is 
under examination for the plan year ending December 31, 2024. If SCP 
and VCP are not available with respect to a failure, the failure may be 
corrected under Audit CAP.

C. Resolution of Participating Employer Failure

    If the unresponsive participating employer provides the information 
requested by the section 413(e) plan administrator in connection with a 
failure to provide information, there is no longer a failure to provide 
information. If the unresponsive participating employer takes the 
action requested by the plan administrator in connection with a failure 
to take action (and the plan satisfies the requirements of SCP, VCP, or 
Audit CAP, as applicable, with respect to the underlying failure), 
there is no longer a failure to take action. In either case, if a 
participating employer failure no longer exists, an operational failure 
to provide the first notice by the deadline included in plan terms with 
respect to that participating employer failure is treated as corrected.

Proposed Applicability Date

    These regulations are proposed to apply beginning on the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register. Pursuant to section 413(e)(4)(B), 
until the final

[[Page 17234]]

regulations are published, an employer or pooled plan provider may rely 
on a good faith, reasonable interpretation of the provisions of section 
413(e) to which the final regulations relate. Compliance with these 
proposed regulations is considered reliance on a good faith, reasonable 
interpretation of the provisions of section 413(e) to which the final 
regulations relate.

Availability of IRS Documents

    For copies of recently issued revenue procedures, revenue rulings, 
notices and other guidance published in the Internal Revenue Bulletin, 
please visit the IRS website at www.irs.gov or contact the 
Superintendent of Documents, U.S. Government Printing Office, 
Washington, DC 20402.

Special Analyses

I. Regulatory Impact Analysis

    These regulations are not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Treasury Department and the Office of Management 
and Budget regarding review of tax regulations.

II. Paperwork Reduction Act

    The following provisions of the proposed regulations contain a 
collection of information: (1) Sec.  1.413-3(a)(2)(i) (requirement to 
adopt plan language); (2) Sec.  1.413-3(a)(2)(ii)(A), (b), and 
(d)(1)(ii) (requirement to provide notice with respect to a 
participating employer failure); (3) Sec.  1.413-3(a)(3) (requirements 
to be a pooled plan provider); (4) Sec.  1.413-3(e)(1)(ii)(B) and 
(e)(2) (requirement to provide notice to certain participants and 
beneficiaries; and (5) Sec.  1.413-3(e)(1)(ii)(C), (e)(3), and (e)(4) 
(requirement to provide an election to certain participants and 
beneficiaries). The collection of information contained in proposed 
Sec.  1.413-3 will generally be carried out by section 413(e) plan 
administrators seeking to satisfy the conditions for the exception to 
the unified plan rule. The collection of information in this notice of 
proposed rulemaking has been submitted to the Office of Management and 
Budget for review in accordance with the Paperwork Reduction Act of 
1995 (44 U.S.C. 3507(d)).

1. Plan Language Requirement, Sec.  1.413-3(a)(2)(i)

    Section 1.413-3(a)(2)(i) states that, as one of the conditions of 
the exception to the unified plan rule, a section 413(e) plan must 
include plan language that sets forth the procedures that will be 
followed to address participating employer failures. Thus, a section 
413(e) plan will not be eligible for the exception to the unified plan 
rule if it does not satisfy this plan-language requirement. In general, 
the plan language requirement is a one-time paperwork burden for each 
section 413(e) plan. In addition, after final regulations are issued, 
the IRS intends to publish model plan language, which will help to 
minimize the burden.
    We estimate that the burden for this requirement under the 
Paperwork Reduction Act of 1995 will be 3 hours per section 413(e) 
plan. Given the potential benefits of satisfying the conditions for the 
unified plan exception, we assume that approximately 95 percent of 
section 413(e) plans (4,275 section 413(e) plans \21\) will be amended 
to satisfy this condition. Therefore, the total burden of this 
requirement is estimated to be 12,825 hours (4,275 section 413(e) plans 
times 3 hours). However, because a section 413(e) plan that adopts an 
amendment will generally do so on a one-time basis, to determine an 
annual estimate, the total time is divided by three, or 4,275 hours 
annually (section 413(e) plans times 1 hour).
---------------------------------------------------------------------------

    \21\ This calculation uses data from the 2018 Form 5500, 
``Annual Return/Report of Employee Benefit Plan.'' These filings 
indicate that there are approximately 4,523 defined contribution 
MEPs. See 2018 Form 5500 Annual Reports Abstract (dol.gov). We 
estimate that 4,500 defined contribution MEPs will satisfy the 
requirements to be a section 413(e) plan.
---------------------------------------------------------------------------

2. Notice Requirements, Sec.  1.413-3(a)(2)(ii)(A), (b), and (d)(1)(ii)

    Section 1.413-3(a)(ii)(A) of the proposed regulations provide that 
notice is another condition of the exception to the unified plan rule. 
In most cases, Sec.  1.413-3(b) of the proposed regulations would 
require a section 413(e) plan administrator to send up to three notices 
informing an unresponsive participating employer of a participating 
employer failure and the consequences if the employer fails to take 
remedial action or initiate a spinoff from the section 413(e) plan. 
After each notice is provided, the employer has 60 days to take 
appropriate remedial action or initiate a spinoff from the section 
413(e) plan. If the employer takes those actions after the first or 
second notice is provided, subsequent notices are not required. Thus, 
it is possible that a section 413(e) plan administrator will send fewer 
than three notices to an employer. However, because the notice 
requirements only apply if an employer has already been unresponsive to 
the section 413(e) plan administrator's requests, we assume that in 
most cases, all three notices will be provided.
    Section 1.413-3(d)(1)(ii) of the proposed regulations provide that 
if a failure to provide information becomes a failure to take action, 
the section 413(e) plan administrator may be required to send up to two 
(rather than three) notices with respect to the failure to take action 
by combining the first and second notices. This rule applies if the 
section 413(e) plan administrator had provided the second notice with 
respect to the failure to provide information and certain other 
conditions are satisfied.
    We estimate that the burden of preparing the notices will be an 
average of 3 hours per unresponsive participating employer. We estimate 
that approximately 450 section 413(e) plans (10 percent of the 4,500 
total estimated section 413(e) plans described in footnote 20) will 
provide notice with respect to one unresponsive participating employer 
per year. We estimate that approximately 10 percent of section 413(e) 
plans (10 percent of 4,500 section 413(e) plans is 450 section 413(e) 
plans) will provide notice with respect to one unresponsive 
participating employer per year. Therefore, we estimate a burden of 
1,350 hours (450 section 413(e) plans times 3 hours). As with all 
estimates in this collection of information, we expect to be able to 
adjust these estimates based on experience after the regulations are 
finalized.
    The notices must be sent to the unresponsive participating employer 
and the final notice will also be sent to plan participants who are 
employees of the unresponsive participating employer (and their 
beneficiaries) and to the Department of Labor. We estimate that, on 
average, a section 413(e) plan administrator will send the final notice 
to approximately 50 plan participants who are employees of the 
unresponsive participating employer (and their beneficiaries). Based on 
the estimate in the previous paragraph that 450 section 413(e) plans 
will provide notice with respect to one unresponsive participating 
employer per year, we estimate the burden of distributing these notices 
to be an average of 2 hours per section 413(e) plan, for a total burden 
of 900 hours (450 section 413(e) plans times 2 hours).

3. Requirements for Pooled Plan Providers, Sec.  1.413-3(a)(3)

    Under the proposed regulations, the term pooled plan provider 
means, with respect to any plan, a person who satisfies the following 
requirements: (1) Registers as a pooled plan provider with the 
Commissioner (Sec.  1.413-

[[Page 17235]]

3(a)(3)(i)(A)); (2) is designated by the terms of the plan as a named 
fiduciary (within the meaning of section 402(a)(2) of ERISA), as the 
plan administrator, and as the person required to perform certain 
administrative duties (Sec.  1.413-3(a)(3)(i)(B)); (3) acknowledges in 
writing that, with respect to the plan, it is a named fiduciary and the 
plan administrator (Sec.  1.413-3(a)(3)(i)(C)); and (4) is responsible 
for ensuring that all persons who handle assets of, or who are 
fiduciaries of, the plan are bonded in accordance with section 412 of 
ERISA (Sec.  1.413-3(a)(3)(i)(D)).
    Pursuant to proposed Sec.  1.413-3(a)(3)(i)(A), the requirement to 
register as a pooled plan provider under section 413(e) is fulfilled by 
satisfying the parallel requirement under ERISA to register as a pooled 
plan provider with the Department of Labor. On November 16, 2020, the 
Department of Labor issued final regulations under section 3(44) of 
ERISA (29 CFR 2510.3-44) with respect to the registration requirement. 
See 85 FR 72934. The OMB Control Number associated with the requirement 
in those regulations is 1210-0164.
    With respect to Sec.  1.413-3(a)(3)(i)(B) and (C), the Department 
of Labor estimates that roughly 3,200 pooled plan providers will file 
an original registration, and that there will be 3,460 supplemental 
filings in the first year. See 85 FR 72952. A supplemental filing may 
amend the original registration to include information for pooled 
employer plans that either begin or cease operations, or it can be used 
to make certain other changes to the initial filing. Based on this 
data, we estimate that in the first year a large number of the 
estimated supplemental filings, or 3,000, will be used to report the 
beginning of pooled employer plan operations. In subsequent years, we 
estimate that approximately 450 plans with pooled plan providers will 
commence operations.\22\ We estimate the combined burden of Sec.  
1.413-3(a)(3)(i)(B) and (C) to be an average of 15 minutes per section 
413(e) plan, for a total initial burden of 750 hours (3,000 section 
413(e) plans times 15 minutes) and a total annual burden of 112.5 hours 
(450 section 413(e) plans times 15 minutes).
---------------------------------------------------------------------------

    \22\ This estimate was informed by the Department of Labor's 
estimate of the number of pooled employer plans expected to commence 
operations. See 85 FR 72952-3
---------------------------------------------------------------------------

4. Notice to Participants, Sec.  1.413-3(e)(1)(ii)(B) and (e)(2)

    If an unresponsive participating employer neither takes appropriate 
remedial action nor initiates a spinoff by the deadline in the proposed 
regulations, then the section 413(e) plan administrator must provide 
notice to participants who are employees of the unresponsive 
participating employer (and their beneficiaries) stating the following: 
(1) No further contributions will be made to the section 413(e) plan on 
their behalf; (2) they have a nonforfeitable right to amounts credited 
to their accounts that are attributable to employment with the 
unresponsive participating employer; and (3) they will receive 
additional information regarding the disposition of their accounts. We 
estimate that in a given year, 5 percent of all section 413(e) plans 
(225 section 413(e) plans) will provide this notice, and that each 
notice will be sent to approximately 50 individuals. We also estimate 
that the burden for this requirement is 1 hour. Based on this number, 
we estimate that the burden of preparing and distributing the notices 
will be 225 hours (225 section 413(e) plans times 1 hour).

5. Election, Sec.  1.413-3(e)(1)(ii)(C), (e)(3) and (4)

    If an unresponsive participating employer neither takes appropriate 
remedial action nor initiates a spinoff by the deadline in the proposed 
regulations, then the section 413(e) plan administrator generally must 
provide participants who are employees of the unresponsive 
participating employer (and their beneficiaries) with an election to 
have amounts attributable to the employees of the unresponsive 
participating employer directly rolled over to an eligible retirement 
plan within the meaning of section 402(c)(8) or remain in the section 
413(e) plan. A participant whose account is subject to the mandatory 
distribution rules will have an alternative election. We estimate that 
in a given year, 5 percent of all section 413(e) plans (225 section 
413(e) plans) will provide an election, and that each election will be 
sent to approximately 50 individuals. We also estimate that the burden 
for this requirement is 3 hours. Based on this number, we estimate that 
the burden for this requirement will be 675 hours (225 section 413(e) 
plans times 3 hours).
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Attn: Desk Officer for the Department 
of the Treasury, Office of Information and Regulatory Affairs, 
Washington, DC 20503, with copies to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP; Washington, DC 
20224. Comments on the collection of information should be received by 
May 27, 2022. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    Estimated total average annual recordkeeping burden: 7,750 hours.
    Estimated average annual burden per response: 1 hour, 43 minutes.
    Estimated number of recordkeepers: 4,500.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

III. Regulatory Flexibility Act

    It is hereby certified that these proposed regulations will not 
have a significant economic impact on a substantial number of small 
entities pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 
6). This certification is based on the fact that the proposed 
regulations reflect the statutory changes to section 413 made by 
section 101 of the SECURE Act. More specifically, these regulations 
merely conform existing regulations under section 413(c) and implement 
new regulations under section 413(e) in a manner that is consistent 
with the new statutory language.
    Although these proposed regulations might affect a substantial 
number of small entities, the economic impact of these proposed 
regulations is not expected to be significant. These regulations are 
not expected to result in economically meaningful changes in

[[Page 17236]]

behavior for MEPs and participating employers. While MEPs may be an 
efficient way to reduce costs and complexity associated with 
establishing and maintaining defined contribution plans, some employers 
may be reluctant to join a MEP because of the potential adverse impact 
of the unified plan rule. These proposed regulations will implement a 
statutory exception to the unified plan rule, thus eliminating a 
potential barrier to an employer joining a MEP.
    It is unlikely that the exception to the unified plan rule will be 
used often in a section 413(e) MEP. In general, it is expected that 
participating employers in defined contribution MEPs will comply with 
applicable requirements for a defined contribution plan. Accordingly, 
the use of the exception to the unified plan rule by a section 413(e) 
plan is expected to be rare.
    For the reasons stated, a regulatory flexibility analysis under the 
Regulatory Flexibility Act is not required. The Treasury Department and 
the IRS invite comments on the impact of these regulations on small 
entities. Pursuant to section 7805(f) of the Code, this notice of 
proposed rulemaking has been submitted to the Chief Counsel of Advocacy 
of the Small Business Administration for comment on its impact on small 
business.

Comments and Public Hearing

    Before these proposed amendments to the regulations are adopted as 
final regulations, consideration will be given to comments that are 
submitted timely to the IRS as prescribed in the preamble under the 
ADDRESSES section. The Treasury Department and the IRS request comments 
on all aspects of the proposed regulations. Comments are specifically 
requested on what (if any) guidance would be helpful regarding whether 
employers have a common interest other than having adopted a plan, as 
described in Part I.A of the Explanation of Provisions, titled 
``Overview.'' Comments are also specifically requested on the rules for 
mandatory distributions for employees of an unresponsive participating 
employer, as described in Part II.F of the Explanation of Provisions, 
titled ``Required Actions Following Employer's Failure to Meet 
Deadline.''
    Any electronic comments submitted, and to the extent practicable 
any paper comments submitted, will be made available at 
www.regulations.gov or upon request.
    A telephonic public hearing has been scheduled for June 22, 2022, 
beginning at 10 a.m. EST. The rules of 26 CFR 601.601(a)(3) apply to 
the hearing. Persons who wish to present oral comments by telephone at 
the hearing must submit electronic or written comments and an outline 
of the topics to be addressed and the time to be devoted to each topic 
by May 27, 2022 as prescribed in the preamble under the ADDRESSES 
section.
    A period of 10 minutes will be allocated to each person for making 
comments. After the deadline for receiving outlines has passed, the IRS 
will prepare an agenda containing the schedule of speakers. Copies of 
the agenda will be made available at www.regulations.gov, search IRS 
and REG-121508-18. Copies of the agenda will also be available by 
emailing a request to <a href="/cdn-cgi/l/email-protection#39494c5b55505a515c584b50575e4a79504b4a175e564f"><span class="__cf_email__" data-cfemail="1e6e6b7c72777d767b7f6c7770796d5e776c6d30797168">[email protected]</span></a>. Please put ``REG-121508-
18 Agenda Request'' in the subject line of the email.

Drafting Information

    The principal authors of these regulations are Jamie Dvoretzky and 
Pamela Kinard, Office of Associate Chief Counsel (Employee Benefits, 
Exempt Organizations, and Employment Taxes (EEE)). However, other 
personnel from the IRS and the Treasury Department participated in the 
development of these regulations.

Withdrawal of Proposed Amendments to the Regulations

    Under the authority of 26 U.S.C. 7805, the notice of proposed 
rulemaking that was published in the Federal Register on Wednesday, 
July 3, 2019 (84 FR 31777) is withdrawn.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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

0
Par. 2. Amend Sec.  1.413-2 by revising paragraph (a)(2), (a)(3)(iv), 
(a)(4), and (c) to read as follows:


Sec.  1.413-2  Special rules for plans maintained by more than one 
employer.

    (a) * * *
    (2) Section 413(c) plan--(i) Definition of section 413(c) plan. A 
plan (and each trust which is part of such plan) is a section 413(c) 
plan if--
    (A) The plan is a single plan (which for a qualified plan is a 
single plan within the meaning of section 413(a) and Sec.  1.413-
1(a)(2)); and
    (B) The plan is maintained by more than one employer.
    (ii) Determining the number of employers maintaining the plan. For 
purposes of paragraph (a)(2)(i)(B) of this section, the number of 
employers maintaining a plan is determined by treating any employers 
described in section 414(b) (relating to a controlled group of 
corporations), any employers described in section 414(c) (relating to 
trades or businesses under common control), or any employers described 
in section 414(m) (relating to affiliated service groups), whichever is 
applicable, as if such employers are a single employer.
    (iii) Master or prototype plans and common trust funds. A master or 
prototype plan is not a section 413(c) plan unless such a plan is 
described in this paragraph (a)(2). Similarly, the mere fact that a 
plan, or plans, utilize a common trust fund or otherwise pool plan 
assets for investment purposes does not, by itself, result in a 
particular plan being treated as a section 413(c) plan.
    (3) * * *
    (iv) Whether a section 413(c) plan complies with the requirements 
of section 401(a), 403(a), or 408 is determined with respect to all 
participating employers. Consequently, the failure by one participating 
employer (or by the plan itself) to satisfy an applicable requirement 
of those sections will result in the section 413(c) plan failing to 
satisfy that requirement with respect to all employers maintaining the 
section 413(c) plan. However, the rules in this paragraph (a)(3)(iv) do 
not apply to the extent provided in section 413(e) and Sec.  1.413-3.
    (4) Applicability dates--(i) General applicability date. Except as 
otherwise provided in paragraph (a)(4)(ii) of this section, section 
413(c) and this section apply to a plan for plan years beginning after 
December 31, 1953.
    (ii) Special applicability date. Paragraphs (a)(2), (a)(3)(iv), and 
(c) of this section apply beginning on the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register. For earlier periods, the rules of paragraphs (a)(2), 
(a)(3)(iv), and (c) of 26 CFR 1.413-2 (revised as of April 1, 2021) 
apply.
* * * * *
    (c) Exclusive benefit. In the case of a plan subject to this 
section, in determining whether the plan of an employer is for the 
exclusive benefit of its employees (and their beneficiaries)

[[Page 17237]]

for purposes of sections 401(a) and 408(c), all of the employees 
participating in the plan shall be treated as employees of the 
employer.
* * * * *
0
Par. 3. Section 1.413-3 is added to read as follows:


Sec.  1.413-3  Special Rules for Section 413(e) Plans

    (a) Exception to unified plan rule for section 413(e) plans--(1) In 
general. Notwithstanding Sec.  1.413-2(a)(3)(iv), a section 413(e) plan 
will not be treated as failing to meet the requirements under the Code 
applicable to a plan described in section 401(a) or to a plan that 
consists of individual retirement accounts described in section 408 
(including accounts described in section 408(c), 408(k), or 408(p)), 
whichever is applicable, merely because of a participating employer 
failure, provided that the conditions in paragraph (a)(2) of this 
section are satisfied.
    (2) Conditions for exception to general rule. The conditions for 
the exception to the unified plan rule in paragraph (a)(1) of this 
section are set forth in paragraphs (a)(2)(i) through (iii) of this 
section.
    (i) Plan language. The terms of the section 413(e) plan must set 
forth the procedures that will be followed to address a participating 
employer failure, including:
    (A) A description of the notices that the section 413(e) plan 
administrator will send in the case of a participating employer 
failure, pursuant to paragraph (b) of this section;
    (B) A statement that the section 413(e) plan administrator will 
send the first notice described in paragraph (b)(1) of this section 
(or, if applicable, the combined first and second notice described in 
paragraph (d)(1)(ii) of this section) by a specified deadline (which, 
for a failure to provide information, is 12 months following the end of 
the plan year for which the information is necessary to determine 
whether the section 413(e) plan is in compliance with a requirement of 
section 401(a) or 408 and which, for a failure to take action, is 24 
months following the end of the plan year in which the failure to 
satisfy a requirement of section 401(a) or 408) occurs;
    (C) A description of the actions that the section 413(e) plan 
administrator will take if, by the final deadline described in 
paragraph (c)(1) of this section, an unresponsive participating 
employer does not either take appropriate remedial action pursuant to 
paragraph (c)(2) of this section or initiate a spinoff pursuant to 
paragraph (c)(3) of this section; and
    (D) A statement that if an unresponsive participating employer does 
not either take appropriate remedial action or initiate a spinoff by 
the final deadline described in paragraph (c)(1) of this section, 
participants who are employees of the unresponsive participating 
employer have a nonforfeitable right to the amounts credited to their 
accounts that are attributable to employment with the unresponsive 
participating employer, determined in the same manner as if the plan 
had terminated pursuant to section 411(d)(3).
    (ii) Section 413(e) plan administrator obligations. A section 
413(e) plan administrator must--
    (A) Satisfy the notice requirements described in paragraph (b) of 
this section with respect to the participating employer failure (taking 
into account the rules for a combined first and second notice described 
in paragraph (d)(1)(ii) of this section);
    (B) Implement a spinoff in accordance with paragraph (d)(2) of this 
section if an unresponsive participating employer initiates a spinoff 
pursuant to paragraph (c)(3) of this section; and
    (C) Take the actions required in paragraph (e) of this section if 
an unresponsive participating employer fails either to take appropriate 
remedial action with respect to the participating employer failure (as 
described in paragraph (c)(2) of this section) or initiate a spinoff 
(as described in paragraph (c)(3) of this section) by the final 
deadline described in paragraph (c)(1) of this section.
    (iii) Pooled plan providers. If the section 413(e) plan has a 
pooled plan provider during the plan year of the participating employer 
failure, the pooled plan provider must perform substantially all of the 
administrative duties that are required of the pooled plan provider 
pursuant to paragraph (a)(3)(ii) of this section for the plan year.
    (3) Section 413(e) plans administered by pooled plan providers--(i) 
Requirements to be a pooled plan provider. With respect to a section 
413(e) plan, for purposes of this section, a pooled plan provider is a 
person who--
    (A) Registers as a pooled plan provider with the Commissioner by 
satisfying the registration requirements in section 3(44)(A)(ii) of the 
Employee Retirement Income Security Act of 1974, Public Law 93-406 (88 
Stat. 829), as amended (ERISA), in accordance with guidance issued by 
the Department of Labor,
    (B) Is designated by the terms of the plan as a named fiduciary 
(within the meaning of section 402(a)(2) of ERISA), as the plan 
administrator, and as the person required to perform the administrative 
duties described in paragraph (a)(3)(ii) of this section,
    (C) Acknowledges in writing that, with respect to the plan, it is a 
named fiduciary and the plan administrator, and
    (D) Is responsible for ensuring that all persons who handle assets 
of, or who are fiduciaries of, the plan are bonded in accordance with 
section 412 of ERISA.
    (ii) Administrative duties required of pooled plan provider--(A) In 
general. A pooled plan provider is required to perform all 
administrative duties that are reasonably necessary to ensure that the 
plan meets any applicable requirement under ERISA or the Code for a 
plan described in section 401(a) or for a plan that consists of 
individual retirement accounts described in section 408 (including 
accounts described in section 408(c), 408(k), or 408(p)), whichever is 
applicable, and each participating employer takes actions, including 
providing any disclosures or other information, that are necessary for 
the plan to meet the requirements described in this paragraph 
(a)(3)(ii)(A).
    (B) Administrative duties. The administrative duties of a pooled 
plan provider include, but are not limited to, the following:
    (1) Monitoring compliance with the terms of the plan, and Code and 
ERISA requirements;
    (2) Maintaining accurate plan data, including up-to-date 
participant and beneficiary information;
    (3) Performing and conducting coverage, top-heavy, and 
discrimination testing under sections 401(a)(4), (k), and (m), 408(k), 
410, and 416, if applicable;
    (4) Processing all employee transactions (such as investment 
changes, loans, and distributions);
    (5) Satisfying Code and ERISA reporting and notice requirements 
(such as reporting requirements under sections 6047 and 6058 and notice 
requirements under sections 401(k)(12)(D) and (13)(E) and 402(f)); and
    (6) Updating the plan to reflect statutory changes to the Code and 
ERISA, to the extent the responsibility for updating the plan document 
has been delegated to the section 413(e) plan administrator.
    (iii) Aggregation rules. In determining whether a person meets the 
requirements to be a pooled plan provider with respect to any section 
413(e) plan, all persons who perform services for the plan and who are 
treated as a single employer under section

[[Page 17238]]

414(b), (c), (m), or (o) are treated as one person.
    (4) Definitions. The following definitions apply for purposes of 
this section:
    (i) Amounts attributable to the employees of the unresponsive 
participating employer. Amounts attributable to the employees of the 
unresponsive participating employer are plan assets and account 
balances held by a section 413(e) plan on behalf of employees of an 
unresponsive participating employer that are attributable to their 
employment with the unresponsive participating employer. If there is no 
separate accounting for amounts that are attributable to employment 
with the unresponsive participating employer and with other 
participating employers, and a participant's account balance includes 
amounts that are attributable to current employment with the 
unresponsive participating employer and to previous employment with one 
or more other participating employers, the entire account balance is 
treated as attributable to employment with the unresponsive 
participating employer. On the other hand, if a participant's account 
balance includes amounts that are attributable to current employment 
with a participating employer that is not the unresponsive 
participating employer and to previous employment with the unresponsive 
participating employer, none of the account balance is treated as 
attributable to employment with the unresponsive participating 
employer. For purposes of this paragraph (a)(4)(i), a participant's 
most recent employment with a participating employer in the section 
413(e) plan will be treated as the participant's current employment.
    (ii) Beneficiary. A beneficiary is a beneficiary of a deceased 
employee or an alternate payee (as defined in section 414(p)) with 
respect to an employee.
    (iii) Employee. An employee is a current or former employee of a 
participating employer.
    (iv) Failure to provide information. A failure to provide 
information is a failure of a participating employer (or any person 
that is treated as a single employer with that employer under section 
414(b), (c), (m), or (o)) to respond in a timely manner to a reasonable 
request by the section 413(e) plan administrator for data, documents, 
or any other information that the plan administrator reasonably 
believes is necessary to determine whether a section 413(e) plan is in 
compliance with a requirement of section 401(a) or 408 as it relates to 
the participating employer.
    (v) Failure to take action. A failure to take action is a failure 
of a participating employer (or any person that is treated as a single 
employer with that employer under section 414(b), (c), (m), or (o)) to 
comply in a timely manner with a reasonable request by a section 413(e) 
plan administrator to take action needed for the section 413(e) plan to 
satisfy a requirement of section 401(a) or 408 as it relates to the 
participating employer.
    (vi) Participating employer. A participating employer is one of the 
employers maintaining a section 413(e) plan.
    (vii) Participating employer failure. A participating employer 
failure in a section 413(e) plan is a failure to provide information 
(as defined in paragraph (a)(4)(iv) of this section) or a failure to 
take action (as defined in paragraph (a)(4)(v) of this section).
    (viii) Section 413(e) plan. A section 413(e) plan is a defined 
contribution plan described in section 401(a) or a plan that consists 
of individual retirement accounts described in section 408 (including 
accounts described in section 408(c), (k), or (p)) that--
    (A) Is a section 413(c) plan (as defined in Sec.  1.413-2(a)(2)), 
and
    (B) Is maintained by employers that all have a common interest 
other than having adopted the plan or has a pooled plan provider as 
described in paragraph (a)(3) of this section.
    (ix) Section 413(e) plan administrator. A section 413(e) plan 
administrator is the plan administrator, within the meaning of section 
414(g), of a section 413(e) plan.
    (x) Unresponsive participating employer. An unresponsive 
participating employer is a participating employer that has a 
participating employer failure.
    (b) Notice. The section 413(e) plan administrator satisfies the 
notice requirements with respect to a participating employer failure if 
it satisfies the requirements of this paragraph (b).
    (1) First notice. The section 413(e) plan administrator must 
provide notice to the unresponsive participating employer describing 
the participating employer failure, the actions the employer must take 
to remedy the failure, and the employer's option to initiate a spinoff 
of amounts attributable to the employees of the unresponsive 
participating employer to a separate single-employer plan that is 
maintained by the employer. In addition, the notice must explain the 
consequences under the terms of the plan if the unresponsive 
participating employer neither takes appropriate remedial action with 
respect to the participating employer failure nor initiates a spinoff, 
including that participants who are employees of the employer will not 
have any further contributions made to the plan on their behalf and 
that individuals who are responsible for the failure may have adverse 
tax consequences.
    (2) Second notice. If, by the end of the 60-day period following 
the date the first notice described in paragraph (b)(1) of this section 
is provided, the unresponsive participating employer neither takes 
appropriate remedial action with respect to the participating employer 
failure nor initiates a spinoff, then the section 413(e) plan 
administrator must provide a second notice to the employer. The second 
notice must be provided no later than 30 days after the expiration of 
the 60-day period described in the preceding sentence. The second 
notice must include the information required to be included in the 
first notice. The second notice must also state that if, within 60 days 
following the date the second notice is provided, the unresponsive 
participating employer neither takes appropriate remedial action with 
respect to the participating employer failure nor initiates a spinoff, 
then a final notice describing the participating employer failure and 
the consequences of not correcting the failure will be provided to 
participants who are employees of the employer (and their 
beneficiaries) and to the Department of Labor.
    (3) Final notice. If, by the end of the 60-day period following the 
date the second notice described in paragraph (b)(2) of this section is 
provided, the unresponsive participating employer neither takes 
appropriate remedial action with respect to the participating employer 
failure nor initiates a spinoff, then the section 413(e) plan 
administrator must provide a final notice to the employer. The final 
notice must be provided no later than 30 days after the expiration of 
the 60-day period described in the preceding sentence. Within this time 
period, the final notice must also be provided to participants who are 
employees of the unresponsive participating employer (and their 
beneficiaries) and to the Office of Enforcement of the Employee 
Benefits Security Administration in the Department of Labor (or its 
successor office). The final notice must include the information 
required to be included in the first notice and specify the final 
deadline for an unresponsive participating employer to take action set 
forth in paragraph (c)(1) of this section. The final notice must also 
state that the notice is being provided to participants who are 
employees of the unresponsive

[[Page 17239]]

participating employer (and their beneficiaries) and to the Department 
of Labor.
    (c) Actions by unresponsive participating employer--(1) In general. 
An unresponsive participating employer takes appropriate remedial 
action with respect to a participating employer failure if it satisfies 
the requirements of paragraph (c)(2) of this section. Alternatively, an 
unresponsive participating employer initiates a spinoff for purposes of 
paragraph (a)(2) of this section if the employer satisfies the 
requirements of paragraph (c)(3) of this section. The final deadline 
for an unresponsive participating employer to take one of these actions 
is 60 days after the final notice described in paragraph (b)(3) of this 
section is provided to the employer.
    (2) Appropriate remedial action--(i) Appropriate remedial action 
with respect to a failure to provide information. If a participating 
employer failure is a failure to provide information, the unresponsive 
participating employer takes appropriate remedial action with respect 
to that failure if the employer provides the data, documents, or other 
information requested by a section 413(e) plan administrator (or 
arranges for that information to be provided to the section 413(e) plan 
administrator).
    (ii) Appropriate remedial action with respect to a failure to take 
action. If a participating employer failure is a failure to take 
action, the unresponsive participating employer takes appropriate 
remedial action with respect to the failure if the employer (or any 
person that is treated as a single employer with the employer under 
section 414(b), (c), (m), or (o)), takes all actions requested by the 
section 413(e) plan administrator, such as making corrective 
contributions, needed for the section 413(e) plan to satisfy the 
applicable requirements of section 401(a) or 408.
    (3) Employer-initiated spinoff. After receiving a notice described 
in paragraph (b) of this section, an unresponsive participating 
employer initiates a spinoff pursuant to this paragraph (c)(3) by 
directing the section 413(e) plan administrator to spin off amounts 
attributable to the employees of the unresponsive participating 
employer to a separate single-employer plan that is maintained by the 
employer in a manner consistent with the terms of the section 413(e) 
plan. If the section 413(e) plan is described in section 401(a), then 
the spun-off plan must also be a section 401(a) plan. If the section 
413(e) plan consists of individual retirement accounts described in 
section 408 (including accounts described in section 408(c), 408(k), or 
408(p)), then the spun-off plan must also consist of individual 
retirement accounts described in section 408.
    (d) Section 413(e) plan administrator's response to employer's 
remedial action--(1) Rules for a failure to provide information that 
becomes a failure to take action--(i) In general. This paragraph (d)(1) 
provides rules that apply if a failure to provide information becomes a 
failure to take action. This situation could occur if the unresponsive 
participating employer takes appropriate remedial action by providing 
the information described in paragraph (c)(2)(i) of this section and, 
based on this information, the section 413(e) plan administrator 
determines that there is a failure to satisfy a requirement of section 
401(a) or 408 as it relates to that employer's participation in the 
section 413(e) plan. If the section 413(e) plan administrator makes a 
reasonable request for the employer to take the actions needed to 
satisfy the requirement, and the employer does not comply in a timely 
manner with that request, then, in accordance with paragraph (a)(4)(v) 
of this section, the failure to provide information becomes a failure 
to take action. In that case, the section 413(e) plan will be eligible 
for the exception in paragraph (a)(1) of this section with respect to 
the failure to take action by satisfying the conditions set forth in 
paragraph (a)(2) of this section with respect to that failure, taking 
into account the rules of this paragraph (d)(1).
    (ii) Ability to combine first and second notices in certain 
circumstances. For purposes of applying paragraph (a)(2)(ii)(A) of this 
section in the case of a failure to provide information that becomes a 
failure to take action, notices provided during the period that the 
failure was a failure to provide information are not taken into 
account. For example, a final notice that the section 413(e) plan 
administrator provided in connection with the failure to provide 
information would not satisfy the final notice requirement with respect 
to the failure to take action. However, if the section 413(e) plan 
administrator had provided the second notice described in paragraph 
(b)(2) of this section with respect to a failure to provide information 
before it became a failure to take action, then the section 413(e) plan 
administrator may satisfy the requirement to send a first and second 
notice with respect to the failure to take action by sending a combined 
first and second notice that includes the information described in 
paragraph (d)(1)(iii) of this section to the unresponsive participating 
employer, provided that--
    (A) The section 413(e) plan administrator's request to take action 
described in paragraph (d)(1)(i) of this section is made as soon as 
reasonably practicable after the determination of the failure to 
satisfy a requirement of section 401(a) or 408 as it relates to that 
employer's participation in the section 413(e) plan; and
    (B) The section 413(e) plan administrator provides the combined 
first and second notice with respect to the failure to take action not 
later than 24 months following the end of the plan year in which the 
failure to satisfy a requirement of section 401(a) or 408 occurs.
    (iii) Contents of combined first and second notice. To satisfy the 
requirements of a combined first and second notice described in 
paragraph (d)(1)(ii) of this section, the notice must--
    (A) Describe the participating employer failure, the actions the 
unresponsive participating employer would need to take to remedy the 
failure, and the employer's option to initiate a spinoff of amounts 
attributable to the employees of the unresponsive participating 
employer to a separate single-employer plan that is maintained by the 
employer,
    (B) Explain the consequences under the terms of the plan if the 
unresponsive participating employer neither takes appropriate remedial 
action with respect to the participating employer failure nor initiates 
a spinoff, including that participants who are employees of the 
employer will not have any further contributions made to the plan on 
their behalf and that individuals who are responsible for the failure 
may have adverse tax consequences, and
    (C) Specify that if, within 60 days following the date the combined 
first and second notice is provided, the unresponsive participating 
employer neither takes appropriate remedial action with respect to the 
participating employer failure nor initiates a spinoff, then a notice 
describing the participating employer failure and the consequences of 
not correcting the failure will be provided to participants who are 
employees of the employer (and their beneficiaries) and to the 
Department of Labor.
    (2) Implementing employer-initiated spinoff. If an unresponsive 
participating employer initiates a spinoff pursuant to paragraph (c)(3) 
of this section by directing the section 413(e) plan administrator to 
spin off amounts attributable to the employees of the

[[Page 17240]]

unresponsive participating employer to a separate single-employer plan 
established and maintained by the employer, or to a separate plan 
sponsored by the employer that consists of individual retirement 
accounts, then the section 413(e) plan administrator must implement and 
complete the spinoff as soon as reasonably practicable after the 
employer initiates the spinoff. The section 413(e) plan administrator 
is treated as satisfying the requirement of the prior sentence if the 
spinoff is completed within 180 days of the date on which the 
unresponsive participating employer initiates the spinoff.
    (e) Required actions following employer's failure to meet 
deadline--(1) In general--(i) Deadline for action. If, by the final 
deadline described in paragraph (c)(1) of this section, the 
unresponsive participating employer neither takes appropriate remedial 
action pursuant to paragraph (c)(2) of this section nor initiates a 
spinoff pursuant to paragraph (c)(3) of this section, then the 
requirements of paragraph (e)(1)(ii) and (iii) of this section must be 
satisfied.
    (ii) Requirements for section 413(e) plan administrator. As soon as 
reasonably practicable after the final deadline described in paragraph 
(e)(1)(i) of this section, the section 413(e) plan administrator must--
    (A) Stop accepting contributions from the unresponsive 
participating employer and its employees;
    (B) Provide notice to participants who are employees of the 
unresponsive participating employer (and their beneficiaries) as 
described in paragraph (e)(2) of this section; and
    (C) Provide participants who are employees of the unresponsive 
participating employer (and their beneficiaries) with an election 
regarding treatment of their plan accounts to the extent provided in 
paragraph (e)(3) or (4) of this section.
    (iii) Timing of distributions. The section 413(e) plan 
administrator must distribute benefits as soon as administratively 
feasible following an individual's election that is made pursuant to 
paragraph (e)(3) or (4) of this section or following the section 413(e) 
plan administrator's determination that it is not required to provide 
an individual with an election pursuant to paragraph (e)(4)(iv) of this 
section.
    (2) Contents of notification. The notice required under paragraph 
(e)(1)(ii)(B) of this section must include the information described in 
this paragraph (e)(2).
    (i) No contributions. The notice must state that no further 
contributions will be made to the section 413(e) plan on behalf of 
participants who are employees of the unresponsive participating 
employer.
    (ii) Full vesting. The notice must state that participants who are 
employees of the unresponsive participating employer have a 
nonforfeitable right to amounts credited to their accounts that are 
attributable to employment with the unresponsive participating 
employer.
    (iii) Information about disposition of accounts. The notice must 
state that a participant who is an employee of the unresponsive 
participating employer (or, if applicable, any beneficiary of the 
participant) will receive additional information regarding the 
disposition of the participant's or beneficiary's account.
    (3) Election for direct rollover or to remain in section 413(e) 
plan--(i) General rule. Except as provided in paragraph (e)(4) of this 
section, a section 413(e) plan administrator must provide participants 
who are employees of the unresponsive participating employer (and their 
beneficiaries) with an election to have amounts attributable to the 
employees of the unresponsive participating employer--
    (A) Subject to the rules of paragraph (e)(5) of this section, 
directly rolled over to an eligible retirement plan within the meaning 
of section 402(c)(8); or
    (B) Remain in the section 413(e) plan.
    (ii) Default. An individual who fails to make an affirmative 
election described in paragraph (e)(3)(i)(A) of this section is treated 
as having elected to have the amounts described in paragraph (e)(3)(i) 
of this section remain in the section 413(e) plan.
    (iii) Individuals remaining in section 413(e) plan. If, pursuant to 
paragraph (e)(3)(i)(B) of this section, an individual elects to have 
the amounts described in paragraph (e)(3)(i) of this section remain in 
the section 413(e) plan, those amounts must remain in the section 
413(e) plan until a distribution is made under the terms of the plan 
without regard to section 413(e). To determine whether a participant is 
entitled to a distribution upon severance from employment under the 
terms of the plan without regard to section 413(e), a section 413(e) 
plan administrator may rely on the participant's representation that 
the participant has experienced a severance from employment unless the 
plan administrator has actual knowledge to the contrary.
    (4) Rules for individuals subject to mandatory distributions--(i) 
No election to remain in plan. The option to remain in the plan 
described in paragraph (e)(3)(i)(B) of this section with respect to 
amounts described in paragraph (e)(3)(i) of this section is not 
available to an individual if the terms of the plan would have provided 
for a mandatory distribution of those amounts had the participant 
experienced a severance from employment. Instead, those amounts must be 
distributed from the section 413(e) plan.
    (ii) Mandatory distributions subject to automatic rollover. The 
portion of the mandatory distribution that is an eligible rollover 
distribution subject to section 401(a)(31)(B) must be directly rolled 
over to an eligible retirement plan. In accordance with section 
401(a)(31)(B), the section 413(e) plan administrator must provide the 
individual with an election for the eligible retirement plan to be--
    (A) An eligible retirement plan chosen by the individual, or
    (B) An individual retirement plan of a designated trustee or 
issuer.
    (iii) Mandatory distributions not subject to automatic rollover. 
For the portion of the mandatory distribution that is an eligible 
rollover distribution subject to section 401(a)(31)(A) (but not section 
401(a)(31)(B)), the section 413(e) plan administrator must provide the 
individual with an election in accordance with section 401(a)(31)(A) 
for that portion to be--
    (A) Rolled over directly to an eligible retirement plan chosen by 
the individual; or
    (B) If no eligible retirement plan is chosen pursuant to paragraph 
(e)(4)(iii)(A) of this section, paid directly to the individual.
    (iv) Individuals who are ineligible for direct rollover. For any 
portion of a mandatory distribution that is not subject to the 
requirement to offer a direct rollover option under section 401(a)(31), 
the section 413(e) plan administrator must pay the individual. For 
example, a section 413(e) plan administrator is not required to provide 
an election to an individual with an account balance of less than $200 
if, consistent with section 411(a)(11) and Sec.  1.401(a)(31)-1, Q&A-
11, plan terms require that mandatory distributions of less than $200 
be paid directly to distributees.
    (5) Amounts not eligible for rollover. If an individual makes an 
election to have an amount described in paragraph (e)(3)(i) of this 
section directly rolled over to an eligible retirement plan pursuant to 
paragraph (e)(3) or (4) of this section, and a portion of the amount is 
not an eligible rollover distribution described in section 402(c)(4), 
then that portion must be paid directly to the individual. For example, 
the portion of a distribution that would be a required minimum 
distribution under section

[[Page 17241]]

401(a)(9) must be paid directly to the individual.
    (6) Effective opportunity to make election. Any election that is 
provided to an individual pursuant to paragraph (e)(3) or (4) of this 
section must include an effective opportunity for the individual to 
make the election. Whether an individual has an effective opportunity 
to make an election is determined based on all the relevant facts and 
circumstances, including the adequacy of notice of the availability of 
the election, the period of time during which the election may be made, 
and any other conditions on the election.
    (f) Other rules--(1) Form of notices and elections. Any notice 
provided or election made pursuant to paragraph (b) or (e) of this 
section must be in written or electronic form. For notices and 
elections provided to or made by participants and beneficiaries, see 
generally Sec.  1.401(a)-21 for rules permitting the use of electronic 
media to provide applicable notices and make participant elections with 
respect to retirement plans.
    (2) Status of spun-off plan. In the case of any plan that is spun 
off in accordance with paragraph (d)(2) of this section, any 
participating employer failure that would have caused the section 
413(e) plan to fail to meet the requirements of section 401(a) or 408, 
as applicable, but for the application of the exception set forth in 
paragraph (a)(1) of this section, will result in the spun-off plan 
failing to meet those requirements.
    (3) Responsible parties. A participating employer demonstrates a 
lack of commitment to compliance if the participating employer fails to 
take appropriate remedial action pursuant to paragraph (c)(2) of this 
section or initiate a spinoff pursuant to paragraph (c)(3) of this 
section by the final deadline described in paragraph (c)(1) of this 
section. The IRS reserves the right to pursue appropriate remedies 
under the Code against any party (such as the owner of the 
participating employer) who is responsible for the failure to satisfy 
the requirements of section 401(a) or 408, as applicable, even in the 
party's capacity as a participant or beneficiary (such as by not 
treating a section 413(e) plan distribution made with respect to the 
owner of a participating employer as an eligible rollover 
distribution).
    (g) Applicability date. This section applies beginning on 
[PUBLICATION DATE OF FINAL RULE].

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2022-06005 Filed 3-25-22; 8:45 am]
BILLING CODE 4830-01-P


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