70090 Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Rules and Regulations 

1 Generally, contributions by employees to 

defined benefit plans (whether mandatory or 

voluntary) are not deductible for federal income tax 

purposes. 

2See also ERISA section 204(c)(2)(B). References 

to the Code in this preamble should be read to 

include the parallel provision under ERISA. 

3Plan assets must be allocated to each priority 

category in succession, beginning with priority 

category one (PC1). The benefits assigned to each 

priority category under section 4044 of ERISA in 

general are as follows: 

• PC1: The portion of a participant’s accrued 

benefit derived from the participant’s voluntary 

contributions. 

• PC2: The portion of a participant’s accrued 

benefit derived from the participant’s mandatory 

contributions. 

in accordance with 10 CFR 

20.2001(a)(2); and 

(3) After the drug product DaTscanTM

is no longer considered low-level 

radioactive waste, the DEA-registered 

distributor shall dispose of all unused 

DaTscanTM in accordance with 21 CFR 

part 1317. 

(j) The exemptions specified in this 

section are not applicable to the drug 

product DaTscanTM if there are any 

changes in the quantitative or 

qualitative composition of the 

preparation or mixture after the date of 

this regulation, or change in the trade 

name or other designation of the drug 

product DaTscanTM. 

Dated: November 18, 2014. 

Joseph T. Rannazzisi, 

Deputy Assistant Administrator. 

[FR Doc. 2014–27917 Filed 11–24–14; 8:45 am] 

BILLING CODE 4410–09–P 

PENSION BENEFIT GUARANTY 

CORPORATION 

29 CFR Parts 4001, 4022, and 4044 

RIN 1212–AB23 

Title IV Treatment of Rollovers From 

Defined Contribution Plans to Defined 

Benefit Plans 

AGENCY: Pension Benefit Guaranty 

Corporation. 

ACTION: Final rule. 

SUMMARY: In April 2014, PBGC proposed 

to amend its regulations to clarify the 

treatment of benefits resulting from a 

rollover distribution from a defined 

contribution plan to a defined benefit 

plan, if the defined benefit plan was 

terminated and trusteed by PBGC. 

Under the proposal, a benefit resulting 

from rollover amounts generally would 

not be subject to PBGC’s maximum 

guaranteeable benefit or phase-in 

limitations and would be in the second 

highest priority category of benefits in 

the allocation of assets. PBGC is now 

finalizing that proposal. Except for 

making minor clarifications suggested 

by commenters, the final regulation is 

the same as the proposed regulation. 

This rulemaking is part of PBGC’s 

efforts to enhance retirement security by 

promoting lifetime income options. 

DATES: Effective December 26, 2014. See 

Applicability in SUPPLEMENTARY

INFORMATION. 

FOR FURTHER INFORMATION CONTACT: 

Catherine B. Klion (klion.catherine@

pbgc.gov), Assistant General Counsel, 

Office of the General Counsel, Pension 

Benefit Guaranty Corporation, 1200 K 

Street NW., Washington, DC 20005– 

4026; 202–326–4024. (TTY and TDD 

users may call the Federal relay service 

toll free at 1–800–877–8339 and ask to 

be connected to 202–326–4024.) 

SUPPLEMENTARY INFORMATION: 

Executive Summary 

Purpose of the Regulatory Action 

This regulatory action is needed to 

provide guidance on treatment of 

benefits resulting from a rollover 

distribution from a defined contribution 

plan to a defined benefit plan, where the 

defined benefit plan is terminated and 

trusteed by the Pension Benefit 

Guaranty Corporation (PBGC). 

Legal authority for this action comes 

from section 4002(b)(3) of the Employee 

Retirement Income Security Act of 1974 

(ERISA), which authorizes PBGC to 

issue regulations to carry out the 

purposes of Title IV of ERISA, section 

4022 of ERISA (Single-Employer Plan 

Benefits Guaranteed), and section 4044 

of ERISA (Allocation of Assets). 

Major Provisions of the Regulatory 

Action 

Under the final regulation, a benefit 

resulting from rollover amounts 

generally will be in the second highest 

priority category among various classes 

of benefits in the allocation of assets and 

generally will not be subject to PBGC’s 

maximum guaranteeable benefit or 

phase-in limitations. 

Background 

PBGC administers the singleemployer pension plan termination 

insurance program under Title IV of 

ERISA. The program covers privatesector, single-employer defined benefit 

plans, for which premiums are paid to 

PBGC each year. Covered plans that are 

underfunded may terminate either in a 

distress termination under section 

4041(c) of ERISA or in an involuntary 

termination (one initiated by PBGC) 

under section 4042 of ERISA. When 

such a plan terminates, PBGC typically 

is appointed statutory trustee of the 

plan, and becomes responsible for 

paying benefits in accordance with the 

provisions of Title IV. At times, plans 

trusteed by PBGC include contributions 

made by employees that fund part of the 

benefit under the plan. 

Mandatory Contributions 

A plan may be funded in whole or in 

part by mandatory contributions. Under 

section 4044(b)(6) of ERISA, the term 

‘‘mandatory contributions’’ means 

amounts contributed to the plan by a 

participant that are required as a 

condition of employment, as a condition 

of participation in such plan, or as a 

condition of obtaining benefits under 

the plan attributable to employer 

contributions. 

Typically, mandatory employee 

contributions are required under the 

plan as a percentage of the employee’s 

compensation. They are withheld from 

the salary of the employee by the 

employer and deposited to the 

employee’s credit in the defined benefit 

plan on an after-tax basis.1 Such 

mandatory employee contributions have 

generally been used to fund a portion of 

the participant’s accrued benefit as 

determined under the plan’s benefit 

formula and are required in order to 

receive the portion of the accrued 

benefit derived from employer 

contributions. 

Section 411(c)(2)(B) of the Code 2

provides that, in the case of a defined 

benefit plan, the accrued benefit derived 

from mandatory employee contributions 

is equal to the employee’s contributions 

accumulated to normal retirement age 

using specified rates under section 

411(c)(2)(C), and converted to an 

actuarially equivalent annuity 

commencing at normal retirement age, 

using an interest rate under section 

417(e)(3) of the Code as of the 

determination date. Section 411(c)(1) of 

the Code provides that an employee’s 

accrued benefit derived from employer 

contributions as of any date is the 

excess, if any, of the accrued benefit for 

the employee as of that date over the 

accrued benefit derived from 

contributions made by the employee as 

of that date. 

PBGC Treatment of Mandatory 

Employee Contributions in Terminated 

Plans 

When a plan terminates in a distress 

termination or an involuntary 

termination, each participant’s plan 

benefit is assigned to one or more of six 

‘‘priority categories’’ that are described 

in paragraphs (1) through (6) of section 

4044(a) of ERISA.3 Participants’ accrued 


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• PC3: The portion of a participant’s benefit that 

was in pay status as of the beginning of the threeyear period ending on the termination date (or 

bankruptcy filing date, if applicable), or that would 

have been in pay status at the beginning of such 

three-year period if the participant had retired 

before the beginning of such three-year period, 

provided that the benefit was the lowest benefit 

payable under the plan provisions at any time 

during the period beginning five years before the 

termination date (or bankruptcy filing date, if 

applicable) and ending on the termination date. 

• PC4: All other guaranteed benefits. 

• PC5: All other nonforfeitable benefits. 

• PC6: All other benefits. 

4 2012–8 I.R.B. 386, http://www.irs.gov/irb/2012- 

08_IRB/ar08.html. 

5The facts of the example in Rev. Rul. 2012–4 

involve an employee who separates from service 

after age 55 with at least ten years of service and 

elects to commence an immediate annuity and rolls 

over a benefit from a defined contribution plan to 

a defined benefit plan maintained by the same 

employer. However, rollovers are permitted in 

broader circumstances. This final rule is not limited 

to the facts in the example. 

6The comments can be found at http://

www.pbgc.gov/documents/Comments-to-PBGC-onTitle-IV-Rollover-Treatment.pdf. 

benefits derived from mandatory 

employee contributions are assigned to 

PC2. Because benefits in PC2 have a 

higher claim on plan assets than nearly 

all other benefits under the plan, when 

an underfunded plan terminates, plan 

assets are usually (but not always) 

sufficient to pay accrued benefits 

derived from mandatory employee 

contributions. 

Although PBGC generally pays 

benefits only in annuity form, PBGC’s 

regulations allow a return of mandatory 

employee contributions in a single 

installment (or a series of installments), 

provided certain conditions are met (see 

§ 4022.7(b)(2)). 

Rollover Benefits Under the Code and 

Treasury/IRS Guidance 

Section 401(a)(31) of the Code 

requires a qualified plan to permit a 

distributee of any eligible rollover 

distribution to elect a direct rollover of 

any part of the distribution to an eligible 

retirement plan. Section 402(c) of the 

Code permits an individual receiving an 

eligible rollover distribution from a 

qualified plan to elect to roll over any 

portion of that distribution within a 

specified time to an eligible retirement 

plan that accepts the rollover (including 

a defined benefit plan). 

On February 21, 2012, the Department 

of the Treasury (Treasury) and the 

Internal Revenue Service (IRS) issued 

Rev. Rul. 2012–4,4 which clarified 

certain qualification requirements under 

section 401(a) of the Code for use of 

rollover amounts to provide an 

additional benefit under a defined 

benefit plan. Under the facts of the 

example provided in Rev. Rul. 2012–4, 

a qualified defined benefit plan 

provides that it will accept a direct 

rollover of a distribution from a 

qualified defined contribution plan 

maintained by the same employer for an 

employee or former employee of the 

employer who separates from service 

after age 55 with at least 10 years of 

service and elects to commence an 

immediate annuity of the employee’s 

benefit under the plan (including the 

additional benefit resulting from the 

direct rollover). 

Rev. Rul. 2012–4 treats the amounts 

rolled over as mandatory employee 

contributions for purposes of section 

411(c) of the Code. The revenue ruling 

further provides that, if the plan 

provided an annuity with respect to the 

rollover in excess of the amount 

determined under the rules of section 

411(c) of the Code, such as by using a 

more favorable actuarial conversion 

basis than required by those rules, the 

portion of the benefit resulting from the 

rollover amounts that exceeded the 

benefit derived from mandatory 

employee contributions as determined 

under section 411(c)(2) of the Code 

would be subject to the requirements 

applicable to a benefit attributable to 

employer contributions. The revenue 

ruling states that in this case, the 

liability for the total benefit resulting 

from the rollover (including the portion 

of the accrued benefit considered to be 

derived from employer contributions 

because it exceeds the amount 

determined under section 411(c)(2)(B)) 

would likely exceed the amounts rolled 

over, which means that the employer 

will become responsible for additional 

funding costs. 

Rev. Rul. 2012–4 states (in footnote 1) 

that PBGC is developing guidance on 

the Title IV treatment of benefits under 

a defined benefit plan resulting from a 

rollover. This final rule is that 

guidance.5

PBGC is amending its regulations to 

provide guidance on Title IV treatment 

of rollovers, both in anticipation of 

increased use of rollovers, and as part of 

its efforts to promote retirement 

security. The availability of a rollover of 

a participant’s retirement savings in a 

401(k) or other defined contribution 

plan to a defined benefit plan expands 

the opportunities for participants to 

elect lifetime annuity options. 

Proposed Rule 

On April 2, 2014 (at 79 FR 18483), 

PBGC published a proposed rule on 

Title IV treatment of rollovers. PBGC 

received comments from the American 

Federation of Labor and Congress of 

Industrial Organizations (AFL–CIO), the 

American Council of Life Insurers 

(ACLI), and AARP.6 The commenters all 

supported the proposed rule and 

PBGC’s efforts to promote lifetime 

income options. 

In response to the comments, the final 

regulation makes the following 

clarifications: 

• The amendments in this final rule 

apply only to rollovers from defined 

contribution plans. See § 4001.2 

(definition of rollover amounts). 

• Rollover amounts include both 

salary deferral contributions made by 

the participant, any additional employer 

contributions provided for under the 

defined contribution plan, and earnings 

on both. See § 4001.2 (definition of 

rollover amounts). 

• The annuity benefit resulting from 

a rollover amount is a pension benefit 

(and thus guaranteeable). See § 4022.2 

(definition of pension benefit). 

Except for these clarifications, the 

final regulation is the same as the 

proposed regulation. 

Overview of Final Regulation 

PBGC is amending its regulations on 

Benefits Payable in Terminated SingleEmployer Plans (29 CFR part 4022) and 

Allocation of Assets in Single-Employer 

Plans (29 CFR part 4044). The 

amendments establish or clarify the 

rules for treatment of rollovers from a 

defined contribution plan to a defined 

benefit plan, when the defined benefit 

plan later terminates in an underfunded 

status. Following are the most important 

changes: 

• A benefit resulting from rollover 

amounts will be treated as an accrued 

benefit derived from mandatory 

employee contributions in PC2 (which 

has a higher claim on plan assets than 

nearly all other benefits under the plan), 

to the extent that the benefit is 

determined using the rules of Code 

section 411(c)(2)(B). 

• Unlike other PC2 benefits, a PC2 

benefit resulting from rollover amounts 

will generally not be payable in lump 

sum form. 

• The portion of a benefit resulting 

from rollover amounts that exceeds the 

accrued benefit derived from mandatory 

employee contributions (i.e., the portion 

derived from employer contributions) 

will be a guaranteeable benefit in PC3, 

PC4, or PC5, as applicable. 

• A participant’s accrued benefit 

resulting from rollover amounts 

generally will not be subject to PBGC’s 

maximum guaranteeable benefit 

limitation under section 4022(b) of 

ERISA and thus will not be taken into 


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70092 Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Rules and Regulations 

account in applying that limitation. 

However, the maximum guaranteeable 

benefit limitation will apply to any 

benefit resulting from a rollover amount 

that exceeds the accrued benefit treated 

as derived from mandatory employee 

contributions (i.e., the accrued benefit 

attributable to employer contributions). 

• A participant’s accrued benefit 

resulting from rollover amounts 

generally will not be subject to the fiveyear phase-in limitation on the 

guarantee of benefit increases. However, 

the phase-in limitation will apply to any 

benefit resulting from a rollover amount 

that exceeds the accrued benefit treated 

as derived from mandatory employee 

contributions, with the phase-in period 

beginning as of the date the rollover 

contribution was received by the plan. 

A detailed discussion of the final 

regulation follows. 

Regulatory Changes 

Guaranteed Benefits 

Under section 4022 of ERISA, PBGC 

guarantees the payment of all 

nonforfeitable benefits provided by a 

plan, subject to two principal statutory 

limitations—the maximum 

guaranteeable benefit limitation and the 

five-year phase-in limitation. 

The amount of the maximum monthly 

guarantee is set by law and is updated 

each calendar year. The maximum 

guaranteeable benefit applicable to a 

plan is fixed as of that plan’s 

termination date. Under the Pension 

Protection Act of 2006, if a plan 

terminates during a plan sponsor’s 

bankruptcy and the sponsor entered 

bankruptcy on or after September 16, 

2006, the maximum guaranteeable 

benefit is fixed as of the date the 

sponsor entered bankruptcy. 

The five-year phase-in limitation 

generally applies to a benefit increase 

that has been in effect for less than five 

years. Generally, 20 percent of a benefit 

increase is guaranteed after one year, 40 

percent after two years, etc., with full 

phase-in of the guarantee after five 

years. If the amount of the monthly 

benefit increase is below $100, the 

annual rate of phase-in is $20 rather 

than 20 percent. For this purpose, a 

benefit increase resulting from a plan 

amendment is deemed to be in effect on 

the later of the amendment’s adoption 

date or its effective date. 

Historically, PBGC has interpreted the 

statutory limitations to apply to the 

participant’s total nonforfeitable 

accrued benefit under a plan, including 

that portion of the benefit funded by 

traditional after-tax mandatory 

employee contributions. In the case of 

rollover amounts, however, PBGC will 

exempt from these limitations the 

accrued benefit derived from mandatory 

employee contributions determined 

under the rules of Code section 

411(c)(2)(B). The exemption will not 

apply to any benefit resulting from 

rollover amounts that exceeds the 

accrued benefit derived from mandatory 

employee contributions (i.e., the 

accrued benefit attributable to employer 

contributions). 

Rollovers can help preserve 

participants’ retirement savings until 

retirement. They provide a valuable 

means for participants to withdraw their 

benefits from one retirement plan and 

contribute them to another. PBGC 

believes that rollovers to defined benefit 

plans may provide lifetime-annuity 

protection at a competitive cost. 

Consistent with the Administration’s 

initiative on retirement security, PBGC 

wants to eliminate impediments to this 

form of annuitization of distributions 

from defined contribution plans by 

providing assurances to participants 

that their benefits attributable to 

rollover amounts to a defined benefit 

plan will largely be protected from the 

limitations that might otherwise apply if 

the plan terminates and is trusteed by 

PBGC. 

There are a number of reasons why 

PBGC views benefits resulting from the 

portion of rollover amounts treated as 

mandatory employee contributions 

differently from other benefits under a 

plan. Unlike other mandatory employee 

contributions, rollover benefits require 

an affirmative election by the 

participant to roll over a pension 

distribution to obtain an additional 

annuity from a defined benefit plan. If 

the benefit resulting from rollover 

amounts caused a participant’s total 

benefit under the plan to exceed PBGC’s 

maximum guaranteeable benefit, 

participants might be reluctant to roll 

over benefits from defined contribution 

plans to defined benefit plans. Applying 

the five-year phase-in limitation to 

benefits resulting from rollover amounts 

similarly might make rollovers 

unattractive. 

The limitations on PBGC’s guarantee 

were designed to protect the pension 

insurance system from risk of loss. But 

rollovers do not present the same risk of 

loss to the insurance program as other 

benefits. A benefit derived from rollover 

amounts treated as mandatory employee 

contributions is considered under Rev. 

Rul. 2012–4 to be actuarially equivalent 

to the rollover amounts received by the 

defined benefit plan. Therefore, 

although a plan accepting a rollover 

becomes liable to pay additional 

benefits, it simultaneously receives 

additional funds of equivalent value. 

That is not true for most new benefit 

accruals. Accordingly, it is a reasonable 

statutory interpretation to exempt from 

the maximum guaranteeable benefit and 

phase-in limitations a benefit resulting 

from rollover amounts that does not 

exceed the accrued benefit treated as 

derived from mandatory employee 

contributions. 

In accordance with PBGC’s statutory 

interpretation, the final rule amends 

§ 4022.22 to exempt the rollover benefit 

amount derived from mandatory 

employee contributions from the 

maximum guaranteeable benefit 

limitation. Thus, PBGC will exclude 

that amount from its determination of 

the participant’s maximum 

guaranteeable benefit. However, any 

rollover benefit in excess of the portion 

of such benefit derived from mandatory 

employee contributions (i.e., any 

portion of the rollover benefit derived 

from employer contributions) will be 

combined with the annuity otherwise 

payable under the plan in determining 

the participant’s maximum 

guaranteeable benefit. 

Similarly, the final rule amends 

§ 4022.24 to exempt a participant’s 

rollover benefit derived from mandatory 

employee contributions from the fiveyear phase-in limitation. The five-year 

phase-in limitation will, however, apply 

to the portion of any rollover benefit 

derived from employer contributions, 

with that benefit portion deemed to be 

in effect on the date the rollover 

amounts were received by the plan. 

PBGC’s regulations provide for a third 

guarantee limitation, the ‘‘accrued-atnormal’’ limitation, which restricts 

PBGC’s guarantee of temporary 

supplements. Under § 4022.21, PBGC’s 

guarantee cannot exceed the accrued 

benefit payable as a straight life annuity 

at normal retirement age. PBGC will 

include the annuity attributable to 

rollover amounts in the determination 

of the accrued-at-normal limitation, 

which will increase the limitation 

against which the participant’s entire 

benefit is measured, and will apply the 

accrued-at-normal limitation to the 

entire benefit, including rollover 

amounts. This will generally have the 

effect of increasing the participant’s 

guaranteeable benefit. 

Form of Payment 

Before being amended by this final 

rule, PBGC’s regulation provided for the 

return of mandatory employee 

contributions in a single installment (or 

a series of installments) if a participant, 

or a beneficiary of a pre-retirement 

death benefit, so elected in accordance 

with the plan’s provisions. If a 

participant (or a surviving spouse) 


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Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Rules and Regulations 70093 

7PBGC determines the amount of the lump sum 

benefit based on the participant’s accumulated 

contributions—i.e., the employee’s mandatory 

contributions credited with interest for the period 

through the plan’s termination date (but not less 

than the minimum lump sum required under 

section 411(c) of the Code upon withdrawal of 

mandatory employee contributions). Interest on that 

sum is thereafter based on PBGC’s late-payment 

interest rate until the participant’s distribution date. 

8PBGC will disregard any plan provision that 

allows an additional annuity resulting from rollover 

amounts to have an annuity starting date that differs 

from the annuity starting date for the remainder of 

the participant’s benefit under the plan. 

9 If no QPSA is payable, the mandatory 

contributions would be payable to a named 

beneficiary in a life annuity form that would 

commence at the same time as a QPSA could 

commence under PBGC’s regulations. In the case of 

a cash refund annuity (i.e., a post-retirement lump 

sum death benefit of the value of the participant’s 

mandatory contributions in excess of the pension 

payments received by the participant at the time of 

death), PBGC will disregard this plan provision. 

Instead, PBGC will include the value of the 

mandatory contributions in the qualified joint and 

survivor annuity (QJSA) to the spouse or, if no 

QJSA is payable, would pay such amounts to a 

named beneficiary in a life annuity form that would 

commence at the same time as a QJSA could 

commence under PBGC’s regulations. 

elected a return of mandatory employee 

contributions prior to the annuity 

starting date in the form of a lump sum, 

instead of as an annuity, the lump sum 

benefit would have been determined 

under § 4044.12(c)(2) as the amount of 

the participant’s accumulated 

mandatory contributions.7 A 

withdrawal of the participant’s 

accumulated mandatory employee 

contribution would have resulted in an 

accrued benefit under the plan derived 

solely from employer contributions. 

Under the final regulation, PBGC 

generally will not pay participants a 

lump sum return of mandatory 

employee contributions attributable to 

rollover amounts. PBGC will disregard a 

plan’s provisions for the return of 

employee contributions in a lump sum 

and will make rollover amounts payable 

only in the form of an annuity. Because 

the participant had the chance to take 

the distribution from a defined 

contribution plan as a lump sum and 

instead chose to roll it into a defined 

benefit plan to obtain additional annuity 

benefits, it would seem anomalous to 

later allow the participant to convert the 

additional annuity back into a lump 

sum. Moreover, paying the additional 

benefit as an annuity is consistent with 

PBGC’s policy of promoting retirement 

security through preserving lifetime 

retirement income. 

Under the final regulation, the 

annuity resulting from rollover amounts 

will be payable at the same time, and in 

the same form, as the remainder of the 

participant’s benefit under the plan to 

avoid administrative burden to PBGC.8

In the case of a plan that provides for 

a pre-retirement death benefit that 

returns the employee’s mandatory 

contributions in a single installment, if 

a participant dies after the plan 

terminates, PBGC will not allow the 

participant’s spouse to elect to 

withdraw the mandatory contributions 

attributable to rollover amounts in a 

single installment. Instead, PBGC will 

include such contributions in the value 

of the plan’s qualified preretirement 

survivor annuity (QPSA) to the spouse.9

PBGC will determine whether a 

payment was de minimis (currently 

$5,000 or less under § 4022.7(b)(1)(i)) 

and, if so, will base the amount of the 

payment on the lump sum value of the 

participant’s total benefit payable by 

PBGC (the benefit resulting from 

rollover amounts combined with the 

benefit excluding rollover amounts). 

Allocation of Assets 

The final rule also amends PBGC’s 

asset allocation regulation to set forth 

rules for PBGC treatment of rollover 

benefits when a defined benefit plan 

terminates with insufficient assets to 

pay all benefits. 

New §§ 4044.12(b)(4) and (c)(4) 

describe the calculation of a 

participant’s total annuity benefit 

resulting from rollover amounts. For 

participants and beneficiaries not yet in 

pay status as of the termination date, the 

rollover amounts will be credited with 

interest payable under plan provisions 

to the plan’s termination date, and 

converted to an annuity benefit payable 

at the normal retirement age using the 

plan’s interest rates and conversion 

factors in effect as of the plan’s 

termination date for the conversion of 

such rollover amounts. 

Under the final regulation, the portion 

of a participant’s accrued benefit 

resulting from rollover amounts derived 

from mandatory employee contributions 

will be determined using the rules of 

section 411(c) of the Code. Specifically, 

the participant’s accumulated 

mandatory employee contributions—the 

participant’s rollover amounts credited 

with interest at 120% of the Federal 

mid-term rate from the date of the 

rollover to the plan’s termination date— 

will be converted to an actuarially 

equivalent straight life annuity under 

the plan payable at the normal 

retirement age using the applicable 

interest rate and mortality table under 

section 417(e) of the Code as of the 

plan’s termination date. Consistent with 

Rev. Rul. 2012–4, which defines this 

annuity amount as the actuarial 

equivalent of an employee’s rollover 

amounts to a defined benefit plan, only 

an annuity benefit determined on this 

basis will be assigned to PC2. 

Rev. Rul. 2012–4 permits a qualified 

defined benefit plan to offer a subsidy 

with respect to a rollover by using a 

more generous annuity conversion 

factor than under the minimum rules for 

an actuarially equivalent annuity under 

section 411(c) of the Code, provided the 

additional qualification requirements 

applicable to a benefit derived from 

employer contributions are met. If, 

under the plan’s provisions, the benefit 

resulting from rollover amounts exceeds 

the annuity derived from mandatory 

employee contributions determined 

under the rules of section 411(c)(2) of 

the Code—for example, because the 

plan uses more generous conversion 

factors than those under section 417(e) 

of the Code—the final regulation treats 

the portion of the benefit in excess of 

the annuity derived from mandatory 

employee contributions under the rules 

of section 411(c)(2) as a benefit derived 

from employer contributions for 

purposes of assigning the benefits to the 

priority categories under part 4044. The 

annuity benefit derived from employer 

contributions will be a guaranteeable 

benefit in PC3, PC4, or PC5, as 

applicable, because it is a nonforfeitable 

benefit (i.e., a benefit for which the 

participant has satisfied all plan 

conditions for entitlement as of the 

plan’s termination date). Under section 

4022(a) of ERISA, PBGC is required to 

guarantee all nonforfeitable benefits 

provided by a plan, subject to the 

limitations contained in section 4022(b). 

Applicability 

The amendments made by this final 

rule will apply to terminations initiated 

on or after December 26, 2014. 

Compliance With Rulemaking 

Requirements 

Executive Order 12866 ‘‘Regulatory 

Planning and Review’’ and Executive 

Order 13563 ‘‘Improving Regulation and 

Regulatory Review’’ 

This final rule is not a ‘‘significant 

regulatory action’’ under Executive 

Order 12866. 

Executive Orders 12866 and 13563 

direct agencies to assess all costs and 

benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 


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70094 Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Rules and Regulations 

and of promoting flexibility. Executive 

Orders 12866 and 13563 require a 

comprehensive regulatory impact 

analysis be performed for any 

economically significant regulatory 

action, defined as an action that would 

result in an annual effect of $100 

million or more on the national 

economy or which would have other 

substantial impacts. In accordance with 

OMB Circular A–4, PBGC has examined 

the economic and policy implications of 

this final rule and has concluded that 

the action’s benefits justify its costs. 

Under Section 3(f)(1) of Executive 

Order 12866, a regulatory action is 

economically significant if ‘‘it is likely 

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

an annual effect on the economy of $100 

million or more or adversely affect in a 

material way the economy, a sector of 

the economy, productivity, competition, 

jobs, the environment, public health or 

safety, or State, local, or tribal 

governments or communities.’’ PBGC 

has determined that this final rule does 

not cross the $100 million threshold for 

economic significance and is not 

otherwise economically significant. 

PBGC estimates that the annual 

economic impact of this final rule will 

be about $11,000,000. This is the 

amount PBGC estimates that 

participants who roll over benefits from 

defined contribution plans to defined 

benefit plans that subsequently 

terminate and are trusteed by PBGC in 

aggregate would gain (and PBGC would 

lose), as a result of the regulatory change 

to exclude from the maximum 

guaranteeable benefit and phase-in 

limitations any benefit resulting from 

rollover amounts that does not exceed 

the accrued benefit derived from 

mandatory employee contributions. 

Since IRS has only recently provided 

guidance to defined benefit plans on 

calculating rollover amounts, PBGC has 

no historic data to draw upon in 

developing this estimate. Accordingly, 

PBGC made conservative assumptions 

based on its judgment about such factors 

as how many defined benefit plans 

would allow rollovers from defined 

contribution plans and how many 

participants in such plans would roll 

over benefits from defined contribution 

plans. 

Although it is difficult to predict with 

any certainty the annual economic 

impact of the regulatory action, given 

that the estimate is so far below $100 

million, PBGC has determined that the 

annual economic impact of the final 

rule will be less than $100 million. 

Regulatory Flexibility Act 

The Regulatory Flexibility Act 

imposes certain requirements with 

respect to rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act and that are likely to 

have a significant economic impact on 

a substantial number of small entities. 

Unless an agency determines that a 

proposed or final rule is not likely to 

have a significant economic impact on 

a substantial number of small entities, 

section 603 of the Regulatory Flexibility 

Act requires that the agency present an 

initial regulatory flexibility analysis at 

the time of the publication of the rule 

describing the impact of the rule on 

small entities and seeking public 

comment on such impact. Small entities 

include small businesses, organizations 

and governmental jurisdictions. 

For purposes of the Regulatory 

Flexibility Act requirements with 

respect to this final rule, PBGC 

considers a small entity to be a plan 

with fewer than 100 participants. This 

criterion is consistent with certain 

requirements in Title I of ERISA and the 

Internal Revenue Code, as well as the 

definition of a small entity that the 

Department of Labor has used in similar 

circumstances for purposes of the 

Regulatory Flexibility Act. 

Further, while some large employers 

that terminate plans may have small 

plans that terminate along with larger 

ones, in general most small plans are 

maintained by small employers. Thus, 

PBGC believes that assessing the impact 

of the final rule on small plans is an 

appropriate substitute for evaluating the 

effect on small entities. The definition 

of small entity considered appropriate 

for this purpose differs, however, from 

a definition of small business based on 

size standards promulgated by the Small 

Business Administration (13 CFR 

121.201) pursuant to the Small Business 

Act. Therefore, in the proposed rule, 

PBGC requested comments on the 

appropriateness of the size standard 

used in evaluating the impact on small 

entities of the amendments to the 

benefit payments regulation. No 

comments were received on this point. 

On the basis of this definition of small 

entity, PBGC certifies under section 

605(b) of the Regulatory Flexibility Act 

(5 U.S.C. 601 et seq.) that the 

amendments in this final rule will not 

have a significant economic impact on 

a substantial number of small entities. 

Virtually all, if not all, of the effect of 

this final rule will be on PBGC or 

persons who receive benefits from 

PBGC. Accordingly, as provided in 

section 605 of the Regulatory Flexibility 

Act (5 U.S.C. 601 et seq.), sections 603 

and 604 do not apply. 

List of Subjects 

29 CFR Part 4001 

Pensions. 

29 CFR Part 4022 

Pension insurance, Pensions. 

29 CFR Part 4044 

Pension insurance, Pensions. 

For the reasons given above, PBGC is 

amending 29 CFR parts 4001, 4022, and 

4044 as follows. 

PART 4001—TERMINOLOGY 

■ 1. The authority citation for part 4001 

continues to read as follows: 

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

■ 2. In § 4001.2, add a definition for 

‘‘rollover amounts’’ in alphabetical 

order to read as follows: 

§ 4001.2 Definitions. 

* * * * * 

Rollover amounts means the dollar 

amount of all or any part of a 

distribution that is rolled over from a 

defined contribution plan into a defined 

benefit plan in accordance with section 

401(a)(31) or 402(c) or similar 

provisions under the Internal Revenue 

Code. Rollover amounts include salary 

deferral contributions made by the 

participant, any additional employer 

contributions provided for under the 

defined contribution plan, and earnings 

on both. 

* * * * * 

PART 4022—BENEFITS PAYABLE IN 

TERMINATED SINGLE-EMPLOYER 

PLANS 

■ 3. The authority citation for part 4022 

continues to read as follows: 

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

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

§ 4022.2 [Amended] 

■ 4. In § 4022.2, the definition of 

‘‘pension benefit’’ is amended by adding 

at the end ‘‘An annuity benefit resulting 

from a rollover amount is a pension 

benefit.’’ 

■ 5. Amend § 4022.7 as follows: 

■ a. In paragraph (b)(2)(i), add the 

phrase ‘‘except as provided in paragraph 

(b)(2)(iii) of this section,’’ after the 

words ‘‘Notwithstanding any other 

provision of this part,’’; 

■ b. Add paragraph (b)(2)(iii); and 

■ c. Revise paragraph (c)(2). 

The addition and revision read as 

follows: 

§ 4022.7 Benefits payable in a single 

installment. 

* * * * * 


wreier-aviles on DSK4TPTVN1PROD with RULES
Federal Register / Vol. 79, No. 227 / Tuesday, November 25, 2014 / Rules and Regulations 70095 

(b) * * * 

(2) * * * 

(iii) Rollover amounts. The rule in 

paragraph (b)(2) of this section (dealing 

with return of employee contributions) 

does not apply to a participant’s 

accumulated mandatory employee 

contributions resulting from rollover 

amounts (as determined under 

§ 4044.12(c)(4)(i) of this chapter) or the 

benefit derived from such mandatory 

employee contributions. 

* * * * * 

(c) * * * 

(2) Exception. Except in the case of 

accumulated mandatory employee 

contributions resulting from rollover 

amounts (as determined under 

§ 4044.12(c)(4)(i) of this chapter), upon 

the death of a participant the PBGC may 

pay in a single installment (or a series 

of installments) that portion of the 

participant’s accumulated mandatory 

employee contributions that is payable 

under the plan in a single installment 

(or a series of installments) upon the 

participant’s death. 

* * * * * 

■ 6. In § 4022.8, add paragraph (f) to 

read as follows: 

§ 4022.8 Form of payment. 

* * * * * 

(f) Rollover amounts. The annuity 

benefit resulting from rollover amounts 

(as determined under § 4044.12(c)(4) of 

this chapter) is combined with any other 

benefit under the plan and paid in the 

same form and at the same time as the 

other benefit. 

■ 7. In § 4022.22, add paragraph (d) to 

read as follows: 

§ 4022.22 Maximum guaranteeable benefit. 

* * * * * 

(d) Rollover amounts. Any portion of 

a benefit derived from mandatory 

employee contributions resulting from 

rollover amounts (as determined under 

§ 4044.12(c)(4)(i) of this chapter) is 

disregarded in applying the provisions 

of §§ 4022.22 and 4022.23. However, 

any portion of a benefit derived from 

employer contributions resulting from 

rollover amounts (as determined under 

§ 4044.12(c)(4)(ii) of this chapter) is 

combined with any other benefit under 

the plan for purposes of determining the 

maximum guaranteeable benefit under 

§§ 4022.22 and 4022.23. For example, 

assume that a participant has an $80,000 

total annual plan benefit at age 65, of 

which $15,000 is derived from 

mandatory employee contributions 

resulting from rollover amounts and 

$5,000 is derived from employer 

contributions resulting from rollover 

amounts. The $15,000 benefit derived 

from employee contributions resulting 

from rollover amounts would be 

excluded in the determination of the 

participant’s maximum guaranteeable 

amount. The participant’s remaining 

$65,000 benefit (including the $5,000 

benefit derived from employer 

contributions resulting from rollover 

amounts) would be subject to the 

maximum guaranteeable benefit 

limitation. Assuming the plan 

terminated in 2014, the participant’s 

maximum guaranteeable benefit of 

approximately $59,000 for a straight life 

annuity at age 65 would effectively be 

increased by the $15,000 benefit derived 

from employee contributions resulting 

from rollover amounts, resulting in total 

guaranteeable benefits of approximately 

$74,000. (The maximum guaranteeable 

benefit limitation would apply to the 

participant’s benefit derived from 

employer contributions; as a result, 

$6,000 of the participant’s benefit 

derived from employer contributions 

would not be guaranteeable by PBGC.) 

■ 8. In § 4022.24, add paragraph (g) to 

read as follows: 

§ 4022.24 Benefit increases. 

* * * * * 

(g) Rollover amounts. Any portion of 

a benefit derived from mandatory 

employee contributions resulting from 

rollover amounts (as determined under 

§ 4044.12 (c)(4)(i) of this chapter) is 

disregarded in applying the provisions 

of §§ 4022.24 through 4022.26. 

However, any portion of a benefit 

derived from employer contributions 

resulting from rollover amounts (as 

determined under § 4044.12(c)(4)(ii) of 

this chapter) is combined with any other 

benefit under the plan in applying the 

provisions of §§ 4022.24 through 

4022.26. In such case, the benefit 

increase is deemed to be in effect on the 

date the rollover amounts are received 

by the plan. 

PART 4044—ALLOCATION OF 

ASSETS IN SINGLE-EMPLOYER 

PLANS 

■ 9. The authority citation for part 4044 

continues to read as follows: 

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

1341, 1344, and 1362. 

■ 10. In 4044.12, paragraphs (b)(4) and 

(c)(4) are added to read as follows: 

§ 4044.12 Priority category 2 benefits. 

* * * * * 

(b) * * * 

(4) Rollover amounts. In the case of a 

benefit resulting from rollover amounts, 

notwithstanding the provisions of 

paragraph (b)(2) of this section, the 

interest rates and conversion factors in 

paragraph (c)(4) of this section are used 

to determine the portion of the accrued 

benefit derived from the employee’s 

contributions and, if any, the portion of 

the accrued benefit derived from 

employer contributions. 

(c) * * * 

(4) Special rules for benefit resulting 

from rollover amounts. (i) Mandatory 

employee contributions. 

Notwithstanding paragraphs (c)(1) 

through (3) of this section, in the case 

of a benefit resulting from rollover 

amounts, the accrued benefit derived 

from mandatory employee contributions 

is determined using the interest rates 

and conversion factors under section 

411(c)(2)(B) and (C) of the Code for 

purposes of computing an employee’s 

accrued benefit derived from the 

employee’s contributions. The annuity 

benefit and the pre-retirement death 

benefit, as determined on this basis, is 

the benefit resulting from rollover 

amounts in priority category 2. 

(ii) Employer contributions. Any 

portion of a participant’s accrued 

benefit resulting from rollover amounts 

that is in excess of the accrued benefit 

derived from mandatory employee 

contributions determined in accordance 

with paragraph (c)(4)(i) of this section 

(i.e., the accrued benefit derived from 

employer contributions) is a 

guaranteeable benefit in priority 

category 3, priority category 4, or 

priority category 5, as applicable under 

this part. 

Issued in Washington, DC, this 18 day of 

November, 2014. 

Alice C. Maroni, 

Acting Director, Pension Benefit Guaranty 

Corporation . 

[FR Doc. 2014–27826 Filed 11–24–14; 8:45 am] 

BILLING CODE 7709–02–P 

ENVIRONMENTAL PROTECTION 

AGENCY 

40 CFR Part 52 

[EPA–R03–OAR–2014–0690; FRL–9919–48– 

Region–3] 

Approval and Promulgation of Air 

Quality Implementation Plans; 

Maryland; Prevention of Significant 

Deterioration 

AGENCY: Environmental Protection 

Agency. 

ACTION: Direct final rule. 

SUMMARY: The Environmental Protection 

Agency (EPA) is taking direct final 

action to approve revisions to the 

Maryland State Implementation Plan 

(SIP). The revisions incorporate by 


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