        DEPARTMENT OF COMMERCE
        National Oceanic and Atmospheric Administration
        50 CFR Part 648
        [Docket No. 050304059-5059-01; I.D. 022805D]
        RIN 0648-AS21
        Fisheries of the Northeastern United States; Recreational Measures for the Summer Flounder, Scup, and Black Sea Bass Fisheries; Fishing Year 2005

          AGENCY:
          National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.

          ACTION:
          Proposed rule; request for comments.

          SUMMARY:
          NMFS proposes recreational measures for the 2005 summer flounder, scup, and black sea bass fisheries. The implementing regulations for these fisheries require NMFS to publish recreational measures for the upcoming fishing year and to provide an opportunity for public comment. The intent of these measures is to prevent overfishing of the summer flounder, scup, and black sea bass resources.

          DATES:
          Comments must be received by 5 p.m. local time, on March 30, 2005.

          ADDRESSES:

          Copies of supporting documents used by the Summer Flounder, Scup, and Black Sea Bass Monitoring Committees and of the Environmental Assessment, Regulatory Impact Review, and Initial Regulatory Flexibility Analysis (EA/RIR/IRFA) are available from Daniel Furlong, Executive Director, Mid-Atlantic Fishery Management Council, Room 2115, Federal Building, 300 South Street, Dover, DE 19901-6790. The EA/RIR/IRFA is also accessible via the Internet at http://www.nero.noaa.gov.
          You may submit comments by any of the following methods:
          • E-mail: FSBREC05@noaa.gov. Include in the subject line the following identifier: “Comments on Summer Flounder, Scup, and Black Sea Bass Recreational Measures."
          • Federal e-Rulemaking portal: http://www.regulations.gov.
          • Mail: Patricia A. Kurkul, Regional Administrator, NMFS, Northeast Regional Office, One Blackburn Drive, Gloucester, MA 01930. Mark the outside of the envelope: “Comments on Recreational Measures.”
          • Fax: (978) 281-9135.

          FOR FURTHER INFORMATION CONTACT:

          Sarah McLaughlin, Fishery Policy Analyst, (978) 281-9279, fax (978) 281-9135, e-mail sarah.mclaughlin@noaa.gov.

        SUPPLEMENTARY INFORMATION:
        Background
        The summer flounder, scup, and black sea bass fisheries are managed cooperatively by the Atlantic States Marine Fisheries Commission (Commission) and the Mid-Atlantic Fishery Management Council (Council), in consultation with the New England and South Atlantic Fishery Management Councils.

        The management units specified in the Fishery Management Plan (FMP) for the Summer Flounder, Scup, and Black Sea Bass Fisheries include summer flounder (Paralichthys dentatus) in U.S. waters of the Atlantic Ocean from the southern border of North Carolina northward to the U.S./Canada border, and scup (Stenotomus chrysops) and black sea bass (Centropristis striata) in U.S. waters of the Atlantic Ocean from 35°15.3′ N. lat. (the latitude of Cape Hatteras Lighthouse, Buxton, NC) northward to the U.S./Canada border.
        The FMP and its implementing regulations, which are found at 50 CFR part 648, subparts A (general provisions), G (summer flounder), H (scup), and I (black sea bass), describe the process for specifying annual recreational measures that apply in the Exclusive Economic Zone (EEZ). The states manage these fisheries within 3 miles of their coasts, under the Commission's plan for summer flounder, scup, and black sea bass. The Federal regulations govern vessels fishing in the EEZ, as well as vessels possessing a Federal fisheries permit, regardless of where they fish.
        The FMP established Monitoring Committees (Committees) for the three fisheries, consisting of representatives from the Commission, the Mid-Atlantic, New England, and South Atlantic Councils, and NMFS. The FMP and its implementing regulations require the Committees to review scientific and other relevant information annually and to recommend management measures necessary to achieve the recreational harvest limits established for the summer flounder, scup, and black sea bass fisheries for the upcoming fishing year. The FMP limits these measures to minimum fish size, possession limit, and fishing season.
        The Council's Demersal Species Committee and the Commission's Summer Flounder, Scup, and Black Sea Bass Management Board (Board) then consider the Committees' recommendations and any public comment in making their recommendations to the Council and the Commission, respectively. The Council then reviews the recommendations of the Demersal Species Committee, makes its own recommendations, and forwards them to NMFS for review. The Commission similarly adopts recommendations for the states. NMFS is required to review the Council's recommendations to ensure that they are consistent with the targets specified for each species in the FMP.
        Final quota specifications for the 2005 summer flounder, scup, and black sea bass fisheries were published on January 4, 2005 (70 FR 303). These specifications were determined to be consistent with the 2005 target fishing mortality rate (F) (for summer flounder) and target exploitation rates (for scup and black sea bass). The 2005 coastwide recreational harvest limits are 11.98 million lb (5,434 mt) for summer flounder, 3.96 million lb (1,796 mt) for scup, and 4.13 million lb (1,873 mt) for black sea bass. The specifications did not establish recreational measures, since final recreational catch data for 2004 were not available when the Council made its recreational harvest limit recommendation to NMFS.
        All minimum fish sizes discussed below are total length measurements of the fish, i.e., the straight-line distance from the tip of the snout to the end of the tail while the fish is lying on its side. All possession limits discussed below are per person.
        Summer Flounder
        Overall, recreational landings for 2004 were estimated to be 10.7 million lb (4,853 mt), nearly 5 percent below the 2004 recreational harvest limit (by weight). However, the following states are projected to exceed their 2004 harvest limits when their allocations are converted to number of fish using the average weight of summer flounder harvested during 2003 and 2004: MA (16 percent over), RI (8 percent over), CT (34 percent over), NY (15 percent over), and NJ (2 percent over). The 2005 coastwide harvest limit is 11.98 million lb (5,434 mt), a 7-percent increase over the 2004 harvest limit, and 12 percent above the estimated 2004 landings. Assuming the same level of fishing effort in 2005, no reduction in landings coastwide would be required for summer flounder. However, as described below, under conservation equivalency, as recommended by the Council, MA, CT, and NY would be required to reduce summer flounder landings (in number of fish) in 2005 by 7 percent, 19 percent, and 6 percent, respectively.

        NMFS implemented Framework Adjustment 2 to the FMP on July 29, 2001 (66 FR 36208), which established a process that makes conservation equivalency an option for the summer flounder recreational fishery. Conservation equivalency allows each state to establish its own recreational management measures (possession limits, minimum fish size, and fishing seasons), as long as the combined effect of all of the states' management measures achieves the same level of conservation as would Federal coastwide measures developed to achieve the recreational harvest limit, if implemented by all of the states. Conservation equivalency was approved for the 2004 summer flounder recreational fishery.
        The Council and Board recommend annually that either state-specific recreational measures be developed (conservation equivalency) or coastwide management measures be implemented by all states to ensure that the recreational harvest limit will not be exceeded. Even when the Council and Board recommend conservation equivalency, the Council must specify a set of coastwide measures that would apply if conservation equivalency is not approved. If conservation equivalency is recommended, and following confirmation that the proposed state measures would achieve conservation equivalency, NMFS may waive the permit condition found at § 648.4(b), which requires federally permitted vessels to comply with the more restrictive management measures when state and Federal measures differ. Federally permitted charter/party permit holders and recreational vessels fishing for summer flounder in the EEZ then would be subject to the recreational fishing measures implemented by the state in which they land summer flounder, rather than the coastwide measures. In addition, the Council and the Board must recommend precautionary default measures. The Commission would require adoption of the precautionary default measures by any state that either does not submit a summer flounder management proposal to the Commission's Summer Flounder Technical Committee, or that submits measures that are determined by the Board not to achieve the required reduction. The precautionary default measures are defined as the set of measures that would achieve the greatest reduction in landings required for any state.
        In December 2004, the Council and Board voted to recommend conservation equivalency to achieve the 2005 recreational harvest limit. The Commission's conservation equivalency guidelines require each state, using state-specific equivalency tables, to determine and implement an appropriate possession limit, minimum fish size, and closed season to achieve the landings reduction necessary for each state. The state-specific tables are adjusted to account for the past effectiveness of the regulations in each state. Landings projections for 2004 indicate that MA, CT, and NY will be the only states required to reduce recreational summer flounder landings in 2005, by 7 percent, 19 percent, and 6 percent, respectively. The other states (from ME to NC) would not require any reductions in recreational summer flounder landings if their current regulations are maintained.
        The Board required that each state submit its conservation equivalency proposal to the Commission by January 15, 2005. The Commission's Summer Flounder Technical Committee then evaluated the proposals and advised the Board of each proposal's consistency with respect to achieving the coastwide recreational harvest limit. The Commission has invited public participation in its review process by holding public meetings and offering the public the opportunity to comment on the state proposals. The Board met on February 7, 2005, and approved all of the state management proposals. For some states, the Board approved multiple management options. Once these states select and submit their final summer flounder management measures to the Commission, the Commission officially will notify NMFS as to which state proposals have been approved or disapproved. NMFS retains the final authority to either approve or disapprove using conservation equivalency in place of the coastwide measures and will publish its determination in the final rule establishing the 2005 recreational measures for these fisheries.

        States that do not submit conservation equivalency proposals, or for which proposals were disapproved by the Commission, would be required by the Commission to adopt the precautionary default measures. In the case of states that are initially assigned precautionary default measures, but subsequently receive Commission approval of revised state measures, NMFS will publish a notice in the Federal Register announcing a waiver of the permit condition at § 648.4(b).
        As described above, for each fishing year, NMFS implements either coastwide measures or conservation equivalent measures at the final rule stage. The coastwide measures recommended by the Council and Board for 2005 are the same as those recommended for 2004 and consist of a 17-inch (43.2-cm) minimum fish size, a possession limit of four fish, and no closed season. In this action, NMFS proposes to maintain these coastwide measures in the EEZ. If implemented, the coastwide measures would reduce recreational landings by 18 percent, based on 2001 data, assuming the coastwide regulations are implemented by all states. State-specific reductions in landings would range from 0 percent in MD to 63 percent in NC. These measures would be waived if conservation equivalency is approved.
        The precautionary default measures specified by the Council and Board are the same as specified for 2004 and consist of an 18-inch (45.7-cm) minimum fish size, a possession limit of one fish, and no closed season. These measures would reduce recreational landings by 62 percent, based on 2001 data, assuming the coastwide regulations are implemented by all states. State-specific reductions in landings would range from 41 percent in DE to 88 percent in NC.
        Scup
        For 2005, the Total Allowable Landings of scup was maintained at the 2004 level. As a result of a slightly larger research set-aside amount for 2005 than for 2004, the 2005 scup recreational harvest limit is 3.96 million lb (1,796 mt), a less than 1-percent decrease from the 2004 harvest limit of 3.99 million lb (1,810 mt). Recreational landings in 2004 were estimated to be 4.34 million lb (1,969 mt), approximately 9 percent above the 2004 harvest limit. To achieve the 2005 target, a 9-percent reduction in landings relative to landings in 2004 is necessary.

        The 2005 scup recreational fishery will be managed under separate regulations for state and Federal waters; the Federal measures would apply to party/charter boats with Federal permits and other vessels subject to the possession limit that fish in the EEZ. In Federal waters, to achieve the 2005 target, the Council recommended the status quo coastwide management measures of a 10-inch (25.4-cm) minimum fish size, a 50-fish possession limit, and open seasons of January 1 through February 28, and September 7 through November 30. The Council has indicated that the status quo measures could achieve the 9-percent required reduction based on the average percent standard error (PSE) for scup landings (over the 1994-2003 period) estimated from the Marine Recreational Fisheries Statistics Survey (MRFSS). The Council suggests that the 2005 harvest limit is within the average observed PSE's, or margin of error for estimates of landings in pounds, and that no additional restrictions are required.
        As in the past 3 years, the scup fishery in state waters will be managed under a regional conservation equivalency system developed through the Commission. Addendum XI to the Interstate FMP (Addendum XI), approved by the Board at the January 2004 Council/Commission meeting, requires that the states of MA through NY each develop state-specific management measures to constrain their landings to an annual harvest level in number of fish (a total of 4.2 million fish for 2005), through a combination of minimum fish size, possession limits, and seasonal closures. Because the Federal FMP does not contain provisions for conservation equivalency, and states may adopt their own unique measures under Addendum XI, the Federal and state recreational scup management measures will differ for the 2005 season.
        At the February 7, 2005, meeting, the Board approved a regional management proposal for MA through NY that would allow a season of at least 120 days, a minimum fish size of 10.5 inches (26.7 cm), and a common possession limit (25 fish for private vessels and shore-based anglers; and 60 fish for party/charter vessels, dropping to 25 fish after a 2-month period). The Board indicated that it would allow MA through NY to set a more conservative, i.e., higher, minimum fish size to allow for longer open seasons. These northern states are expected to submit their final management measures to the Commission by April 1, 2005. For NJ, the Board approved measures of a 9-inch (22.9-cm) minimum size, a 50-fish possession limit, and open seasons of January 1 through February 28, and July 1 through December 31, with the provision that, if NJ's catch exceeds 3 percent of the total coastwide catch for 2005, the minimum size will revert to 10 inches (25.4 cm) (the minimum size implemented for the 2004 fishing season). Due to low scup landings in the southern states, DE through NC, the Board approved the retention of status quo management measures, i.e., an 8-inch (20.3-cm) minimum fish size, a 50-fish possession limit, and no closed season.
        Disapproval of Council's Preferred Scup Alternative and Request for Public Comment
        After careful review, NMFS has decided to disapprove the Council's scup recommendation (Scup Alternative 1, the Council's Preferred Scup Alternative) because analysis of the materials considered by the Scup Monitoring Committee indicates that accepting this recommendation would not result in the achievement of the 2005 scup recreational target. The Council's recommendation to maintain the status quo measures for scup would result in a deviation from how NMFS has managed the Federal recreational scup fishery, i.e., through the setting of minimum fish size, possession limits, and fishing seasons that are determined to achieve the landings reductions needed to achieve the FMP's target exploitation rate. Further, the approach suggested by the Council has not undergone technical review by the Scup Monitoring Committee.
        The Council submission also analyzed the following two alternatives that are expected to reduce recreational landings by the required 9 percent: (1) A 10-inch (25.4-cm) minimum fish size, a 50-fish possession limit, and open seasons of January 1 through February 28, and September 18 through November 30; and (2) a 10-inch (25.4-cm) minimum fish size, a 50-fish possession limit, and open seasons of January 1 through February 28, and September 12 through September 30. NMFS is hereby requesting public comment on these alternatives (defined later in this document and referred to as Scup Alternatives 2 and 3, respectively) for possible implementation in the final rule. The impacts associated with Scup Alternatives 2 and 3 are described in the Council's submission and are summarized in the Classification section of this proposed rule.
        NMFS is proposing Scup Alternative 2 for publication in the proposed regulatory text. However, depending upon public comment, NMFS may instead implement Scup Alternative 3. Should Scup Alternative 3 ultimately be chosen, NMFS will publish the corresponding regulations in the final rule.
        Black Sea Bass
        Recreational landings in 2004 were estimated to be 1.72 million lb (780 mt), 57 percent below the 2004 target of 4.01 million lb (1,819 mt). Because the 2005 black sea bass recreational harvest limit is 4.13 million lb (1,873 mt), a 3-percent increase from the 2004 harvest limit, no coastwide reduction in landings is required.
        Currently, the Federal coastwide black sea bass recreational measures are: A 25-fish possession limit; a minimum size of 12 inches (30.5 cm); and open seasons of January 1 through September 7, and September 22 through November 30. The Council and Board have approved measures that would maintain the 25-fish possession limit and the 12-inch (30.5-cm) minimum size, but would implement an open season of January 1 through December 31. These measures are expected to constrain recreational black sea bass landings to the 2005 target.
        Corrections to the Summer Flounder and Scup Regulations
        In addition to the specification of the 2005 recreational management measures for the summer flounder, scup, and black sea bass fisheries, this proposed rule contains two proposed corrections to the regulations at § 648.104. In the final rule to implement measures contained in Framework Adjustment 5 to the FMP (69 FR 62818, October 28, 2004), the paragraph referring to the requirements of the summer flounder small-mesh exemption area letter of authorization was inadvertently published as § 648.104(b)(1)(I) rather than § 648.104(b)(1)(i). This proposed rule would correct that reference. In the final rule to implement the 2005 annual summer flounder, scup, and black sea bass specifications, and other commercial scup measures (70 FR 303, January 4, 2005), the threshhold level to trigger the scup minimum mesh size requirement for otter trawl vessels during the scup Summer period (May 1 through October 31) was increased from 100 lb (45.4 kg) to 200 lb (90.7 kg). This change should also have been reflected in § 648.104(e), the paragraph regarding stowage of nets by trawl vessels fishing for scup. This proposed rule would make that change to be consistent with the threshhold level listed in the minimum mesh size regulations.
        Classification
        This proposed rule has been determined to be not significant for purposes of Executive Order 12866.
        The Council prepared an IRFA that describes the economic impact this proposed rule, if adopted, would have on small entities.

        A description of the action, why it is being considered, and the legal basis for this action are contained in the preamble to this proposed rule. This proposed rule does not duplicate, overlap, or conflict with other Federal rules. A copy of the complete IRFA is available from the Council (see ADDRESSES). A summary of the analysis follows.

        The proposed action could affect any recreational angler who fishes for summer flounder, scup, or black sea bass in the EEZ or on a party/charter vessel issued a Federal permit for summer flounder, scup, and/or black sea bass. However, the IRFA focuses upon the impacts on party/charter vessels issued a Federal permit for summer flounder, scup, and/or black sea bass because these vessels are considered small business entities for the purposes of the Regulatory Flexibility Act (RFA), i.e., businesses with receipts (gross revenues) of up to $3.5 million. These small entities can be specifically identified in the Federal vessel permit database and would be impacted by the recreational measures, regardless of whether they fish in Federal or state waters. Although individual recreational anglers are likely to be impacted, they are not considered small entities under the RFA. Also, there is no permit requirement to participate in these fisheries; thus, it would be difficult to quantify any impacts on recreational anglers in general.
        The Council estimated that the proposed measures could affect any of the 777 vessels possessing a Federal charter/party permit for summer flounder, scup, and/or black sea bass in 2003, the most recent year for which complete permit data are available. However, only 337 of these vessels reported active participation in the recreational summer flounder, scup, and/or black sea bass fisheries in 2003.
        In the EA/IRFA, the no-action alternative (i.e., maintenance of the regulations as codified) is defined as implementation of the following: (1) For summer flounder, coastwide measures of a 17-inch (43.2-cm) minimum fish size, a 4-fish possession limit, and no closed season, i.e., the measure that would be implemented if conservation equivalency is not implemented in the final rule; (2) for scup, a 10-inch (25.4-cm) minimum fish size, a 50-fish possession limit, and open seasons of January 1 through February 28, and September 7 through November 30; and (3) for black sea bass, a 12-inch (30.5-cm) minimum size, a 25-fish possession limit, and an open season of January 1 through September 7, and September 22 through November 30.
        The implications of the no-action alternative are substantial. For summer flounder, reductions in landings would range from 0 percent in MD to 63 percent in NC. The no-action alternative (i.e., maintenance of the regulations as codified) would not be restrictive enough to effect the recommended 9-percent reduction in scup landings relative to 2004, but would constrain black sea bass landings to the harvest limit for 2005. In consideration of the recreational harvest limits established for the 2005 fishing year, taking no action in the summer flounder and scup fisheries would be inconsistent with the goals and objectives of the FMP and its implementing regulations because the coastwide summer flounder measures are more restrictive than necessary for most states and likely would not restrict recreational scup landings to the 2005 harvest limit. Because it could result in overfishing of the scup fishery, taking no action also would be inconsistent with National Standard 1 of the Magnuson-Stevens Fishery Conservation and Management Act.
        Effects of the various management measures were analyzed by employing quantitative approaches, to the extent possible. Where quantitative data were not available, the Council conducted qualitative analyses. Although NMFS's RFA guidance recommends assessing changes in profitability as a result of proposed measures, the quantitative impacts were instead evaluated using changes in party/charter vessel revenues as a proxy for profitability. This is because reliable cost data are not available for these fisheries. Without reliable cost data, profits cannot be discriminated from gross revenues. As reliable cost data become available, impacts to profitability can be more accurately forecast. Similarly, changes to long-term solvency were not assessed due both to the absence of cost data and because the recreational management measures change annually according to the specification-setting process.
        Assessments of potential changes in gross revenues for all 18 combinations of alternatives proposed in this action were conducted for federally permitted party/charter vessels in each state in the Northeast Region (NE). Management measures proposed under the summer flounder conservation equivalency alternative have yet to be adopted; therefore, potential losses under this alternative could not be analyzed in conjunction with alternatives proposed for scup and black sea bass. Since conservation equivalency allows each state to tailor specific recreational fishing measures to the needs of that state, while still achieving conservation goals, it is likely that the measures developed under this alternative, when considered in combination with the measures proposed for scup and black sea bass, would have fewer overall adverse effects than any of the other combinations that were analyzed.
        Impacts were examined by first estimating the number of angler trips aboard party/charter vessels in each state in 2004 that would have been affected by the proposed 2005 management measures. All 2004 party/charter fishing trips that would have been constrained by the proposed 2005 measures in each state were considered to be affected trips.
        There is very little information available to estimate empirically how sensitive the affected party/charter vessel anglers might be to the proposed fishing regulations, with the exception of states for which the contribution of summer flounder, scup, and black sea bass to the total catch by party/charter vessels is negligible (ME and NH) and DE, for which results are suppressed for confidentiality purposes. If the proposed measures discourage trip-taking behavior among some of the affected anglers, economic losses may accrue to the party/charter vessel industry in the form of reduced access fees. On the other hand, if the proposed measures do not have a negative impact on the value or satisfaction the affected anglers derive from their fishing trips, party/charter revenues would remain unaffected by this action. In an attempt to estimate the potential changes in gross revenues to the party/charter vessel industry in each state, two hypothetical scenarios were considered: A 25-percent reduction, and a 50-percent reduction, in the number of fishing trips that are predicted to be affected by implementation of the management measures in the NE (ME through NC) in 2005.
        Total economic losses to party/charter vessels were then estimated by multiplying the number of potentially affected trips in each state in 2005, under the two hypothetical scenarios, by the estimated average access fee paid by party/charter anglers in the NE in 2004. Finally, total economic losses were divided by the number of federally permitted party/charter vessels that participated in the summer flounder, scup, and/or, black sea bass fisheries in 2003 in each state (according to homeport state in the NE database) to obtain an estimate of the average projected gross revenue loss per party/charter vessel in 2005.

        The MRFSS data indicate that anglers fished 33.94 million days in 2004 in the NE. In the NE, party/charter anglers comprised about 5 percent of the angler fishing days. The number of trips in each state ranged from approximately 39,000 in CT to approximately 433,000 in NJ. The number of trips that targeted summer flounder, scup, and/or black sea bass was identified, as appropriate, for each measure, and the number of trips that would be impacted by the proposed measures was estimated. Finally, the revenue impacts were estimated by calculating the average fee paid by anglers on party/charter vessels in the NE in 2004 ($38.93 per angler), and the revenue impacts on individual vessels were estimated. The analysis assumed that angler effort and catch rates in 2005 will be similar to 2004.
        The Council noted that this method is likely to result in overestimation of the potential revenue losses that would result from implementation of the proposed coastwide measures in these three fisheries for several reasons. First, the analysis likely overestimates the potential revenue impacts of these measures because some anglers would continue to take party/charter vessel trips, even if the restrictions limit their landings. Also, some anglers may engage in catch and release fishing and/or target other species. It was not possible to estimate the sensitivity of anglers to specific management measures. Second, the universe of party/charter vessels that participate in the fisheries is likely to be even larger than presented in these analyses, as party/charter vessels that do not possess a Federal summer flounder, scup, or black sea bass permit because they fish only in state waters are not represented in the analyses. Considering the large proportion of landings from state waters (more than 90 percent of summer flounder and scup landings in 2003), it is probable that some party/charter vessels fish only in state waters and, thus, do not hold Federal permits for these fisheries. Third, vessels that hold only state permits likely will be fishing under different, potentially less restrictive, recreational measures for summer flounder in state waters, if such program is implemented in the final rule, and for scup in state waters under the Commission's scup conservation equivalency program.
        Impacts of Summer Flounder Alternatives
        The proposed action for the summer flounder recreational fishery would limit coastwide catch to 11.98 million lb (5,434 mt) by imposing coastwide Federal measures throughout the EEZ. As described earlier, upon confirmation that the proposed state measures would achieve conservation equivalency, NMFS may waive the permit condition found at § 648.4(b), which requires federally permitted vessels to comply with the more restrictive management measures when state and Federal measures differ. Federally permitted charter/party permit holders and recreational vessels fishing for summer flounder in the EEZ then would be subject to the recreational fishing measures implemented by the state in which they land summer flounder, rather than the coastwide measures.
        The impact of the proposed summer flounder conservation equivalency alternative (in Summer Flounder Alternative 1) among states is likely to be similar to the level of landings reductions that are required of each state. As indicated above, only MA, CT, and NY would be required to reduce summer flounder landings in 2005, relative to their 2004 landings (by 7 percent, 19 percent, and 6 percent, respectively). If the preferred conservation equivalency alternative is effective at achieving the recreational harvest limit, then it is likely to be the only alternative that minimizes adverse economic impacts, to the extent practicable, yet achieves the biological objectives of the FMP. Because states have a choice, it is more rational (and is expected) that the states would adopt conservation equivalent measures that result in fewer adverse economic impacts than the much more restrictive precautionary default measures (i.e., only one fish measuring at least 18 inches (45.7 cm)). Therefore, the precautionary default provision that is included in the conservation equivalency proposal was not analyzed as a stand-alone provision. The state-specific landings reductions (relative to landings in these states in 2004) associated with the precautionary default measures, consisting of an 18-inch (45.7-cm) minimum fish size, a one-fish possession limit, and no closed season, would range from 41 percent (DE) to 88 percent (NC).
        The impacts of the proposed, no-action summer flounder coastwide alternative (Summer Flounder Alternative 2), i.e., a 17-inch (43.2-cm) minimum fish size, a four-fish possession limit, and no closed season, were evaluated using the quantitative method described above. Impacted trips were defined as individual angler trips taken aboard party/charter vessels in 2004 that landed at least one summer flounder smaller than 17 inches (43.2 cm), or that landed more than four summer flounder. The analysis concluded that the measures would affect 0.5 percent of the party/charter vessel trips in the NE.
        Impacts of Scup Alternatives
        The proposed action for scup would limit coastwide landings to 3.96 million lb (1,796 mt) and reduce landings by at least 9 percent compared to 2004.
        For Scup Alternative 1 (a 10-inch (25.4-cm) minimum fish size, a 50-fish possession limit, and open seasons of January 1 through February 28, and September 7 through November 30) , the no-action alternative and the Council's preferred scup alternative, impacted trips were defined as individual angler trips taken aboard party/charter vessels in 2004 that landed at least 1 scup smaller than 10 inches (25.4 cm), that landed more than 50 scup, or that landed at least 1 scup during the proposed closed seasons of March 1 through September 6, and December 1 through December 31. The analysis concluded that the measures would affect 2.6 percent of party/charter vessel trips in the NE.
        For Scup Alternative 2 (a 10-inch (25.4-cm) minimum fish size, a 50-fish possession limit, and open seasons of January 1 through February 28, and September 18 through November 30), the proposed action, impacted trips were defined as individual angler trips taken aboard party/charter vessels in 2004 that landed at least 1 scup smaller than 10 inches (25.4 cm), that landed more than 50 scup, or that landed at least 1 scup during the periods of March 1 through September 17, and December 1 through December 31. The analysis concluded that the measures would affect 3.2 percent of party/charter vessel trips in the NE.
        For the non-preferred scup measures (Scup Alternative 3: A 10-inch (25.4-cm) minimum fish size, a 50-fish possession limit, and open seasons of January 1 through February 28, and September 12 through September 30), impacted trips were defined as individual angler trips taken aboard party/charter vessels in 2004 that landed at least 1 scup smaller than 10 inches (25.4 cm), that landed more than 50 scup, or that landed at least 1 scup during the period March 1 through September 11, and October 1 through December 31. The analysis concluded that the measures in this alternative would affect 3.8 percent of party/charter vessel trips in the NE.
        Impacts of Black Sea Bass Alternatives
        The proposed action for black sea bass would limit coastwide landings to 4.13 million lb (1,873 mt). For the preferred black sea bass alternative (Black Sea Bass Alternative 1: A 12-inch (30.5-cm) minimum size, a 25-fish possession limit, and an open season of January 1 through December 31), impacted trips were defined as individual angler trips taken aboard party/charter vessels in 2004 that landed at least 1 black sea bass smaller than 12 inches (30.5 cm), or that landed more than 25 black sea bass. The analysis concluded that the measures would affect 0.1 percent of party/charter vessel trips in the NE.

        For Black Sea Bass Alternative 2 (a 12-inch (30.5-cm) minimum size, a 25-fish possession limit, and an open season of January 1 through September 7, and September 22 through November 30), the no-action and non-preferred alternative, impacted trips were defined as individual angler trips taken aboard party/charter vessels in 2004 that landed at least 1 black sea bass smaller than 12 inches (30.5 cm), that landed more than 25 black sea bass, or that landed at least 1 black sea bass during the period September 8 through September 21, and December 1 through December 31. The analysis concluded that the measures would affect 0.2 percent of party/charter vessel trips in the NE.
        For the non-preferred black sea bass measures considered in Black Sea Bass Alternative 3 (a 12-inch (30.5-cm) minimum size, a 25-fish possession limit, and an open season of January 1 through November 30), impacted trips were defined as individual angler trips taken aboard party/charter vessels in 2004 that landed at least 1 black sea bass smaller than 12 inches (30.5 cm), that landed more than 25 black sea bass, or that landed at least 1 black sea bass during the period of December 1 through December 31. The analysis concluded that the measures would affect 0.1 percent of party/charter trips in the NE.
        Combined Impacts of Summer Flounder, Scup, and Black Sea Bass Alternatives
        Since the management measures under Summer Flounder Alternative 1 (i.e., conservation equivalency) have yet to be adopted, the effort effects of this alternative could not be analyzed in conjunction with the alternatives proposed for scup and black sea bass. The percent of total party/charter vessel trips in the NE that were estimated to be affected by the other alternatives ranged from a low of 3 percent for the combination of measures proposed under Summer Flounder Alternative 2, Scup Alternative 1, and Black Sea Bass Alternative 1 or 3; to a high of 10.8 percent for the precautionary default measures for summer flounder (considered in Summer Flounder Alternative 1) combined with the measures proposed under Scup Alternative 3 and Black Sea Bass Alternative 2.
        Potential revenue losses in 2005 could differ for party/charter vessels that land more than one of the regulated species. The cumulative maximum gross revenue loss per vessel varies by the combination of permits held and by state. All 18 potential combinations of management alternatives proposed for summer flounder, scup, and black sea bass are predicted to affect party/charter vessel revenues to some extent in 9 of the 11 NE coastal states. Angler effort aboard party/charter vessels in 2005 in ME and NH is not predicted to be constrained (i.e., affected) by the proposed measures, thus party/charter revenues for vessels operating in these states are not estimated to be impacted. In addition, although potential losses were estimated for party/charter vessels operating out of DE, these results are suppressed for confidentiality purposes. Average party/charter losses for federally permitted vessels operating in the remaining states are estimated to vary considerably across the 18 combinations of alternatives. For instance, in NY, average losses are predicted to range from $1,917 per vessel under the combined effects of Summer Flounder Alternative 2, Scup Alternative 1, and Black Sea Bass Alternative 1, to $8,817 per vessel under the combined effects of the summer flounder precautionary default (considered in Summer Flounder Alternative 1), Scup Alternative 3, and Black Sea Bass Alternative 3 (assuming a 25-percent reduction in affected effort).
        There are no new reporting or recordkeeping requirements contained in any of the alternatives considered for this action.

          List of Subjects in 50 CFR Part 648
          Fisheries, Fishing, Reporting and recordkeeping requirements.

          Dated: March 10, 2005.
          John Oliver,
          Deputy Assistant Administrator for Operations, National Marine Fisheries Service.

        For the reasons set out in the preamble, 50 CFR part 648 is proposed to be amended as follows:

          PART 648—FISHERIES OF THE NORTHEASTERN UNITED STATES

        1. The authority citation for part 648 continues to read as follows:

          Authority:
          16 U.S.C. 1801 et seq.

        2. In § 648.104, the first sentence of paragraph (b)(1) is revised to read as follows:

          § 648.104
          Gear restrictions.

          (b) * * *
          (1) Vessels issued a summer flounder moratorium permit, a summer flounder small-mesh exemption area letter of authorization (LOA), required under paragraph (b)(1)(i) of this section, and fishing from November 1 through April 30 in the exemption area, which is east of the line that follows 72°30.0′ W. long. until it intersects the outer boundary of the EEZ (copies of a map depicting the area are available upon request from the Regional Administrator). * * *

        3. In § 648.122, paragraph (g) is revised to read as follows:

          § 648.122
          Season and area restrictions.

          (g) Time restrictions. Vessels that are not eligible for a moratorium permit under § 648.4(a)(6), and fishermen subject to the possession limit, may not possess scup, except from January 1 through the last day of February, and from September 18 through November 30. This time period may be adjusted pursuant to the procedures in § 648.120.

        4. In § 648.123, the first sentence of paragraph (a)(5) is revised to read as follows:

          § 648.123
          Gear restrictions.
          (a) * * *
          (5) * * * The owner or operator of an otter trawl vessel retaining 500 lb (226.8 kg) or more of scup from November 1 through April 30, or 200 lb (90.7 kg) or more of scup from May 1 through October 31, and subject to the minimum mesh requirements in paragraph (a)(1) of this section, and the owner or operator of a midwater trawl or other trawl vessel subject to the minimum size requirement in § 648.122, may not have available for immediate use any net, or any piece of net, not meeting the minimum mesh size requirement, or mesh that is rigged in a manner that is inconsistent with the minimum mesh size. * * *

        5. Section 648.142 is revised to read as follows:

          § 648.142
          Time restrictions.
          Vessels that are not eligible for a moratorium permit under § 648.4(a)(7), and fishermen subject to the possession limit, may possess black sea bass from January 1 through December 31, unless this time period is adjusted pursuant to the procedures in § 648.140.

      [FR Doc. 05-5108 Filed 3-14-05; 8:45 am]
      BILLING CODE 3510-22-S


        PENSION BENEFIT GUARANTY CORPORATION
        29 CFR Parts 4001, 4022, 4041, 4043, and 4044
        RIN 1212-AB24
        Owner-Participant Changes to Guaranteed Benefits and Asset Allocation

          AGENCY:
          Pension Benefit Guaranty Corporation.

          ACTION:
          Proposed rule.

          SUMMARY:
          The Pension Benefit Guaranty Corporation (PBGC) proposes to amend its regulations on guaranteed benefits and asset allocation. These amendments would incorporate statutory changes to the rules for participants with certain ownership interests in a plan sponsor. PBGC seeks public comment on its proposal.

          DATES:

            Deadline for comments: Comments must be submitted on or before May 7, 2018.

            Applicability: Like the provisions of the Pension Protection Act of 2006 (PPA 2006) that this rule would incorporate, the amendments in this proposed rule would be applicable to plan terminations—
          (A) under section 4041(c) of the Employee Retirement Income Security Act of 1974 (ERISA) with respect to which notices of intent to terminate are provided under section 4041(a)(2) of ERISA after December 31, 2005, and
          (B) under section 4042 of ERISA with respect to which notices of determination are provided under that section after December 31, 2005.

          ADDRESSES:
          Comments, identified by Regulation Identifier Number (RIN) 1212-AB24, may be submitted by any of the following methods:
          • Federal eRulemaking Portal: http://www.regulations.gov. (Follow the online instructions for submitting comments.)
          • Email: reg.comments@pbgc.gov.

          • Mail or Hand Delivery: Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026.

          All submissions must include the RIN for this rulemaking (RIN 1212-AB24). Comments received will be posted to www.pbgc.gov. Copies of comments may also be obtained by writing to Disclosure Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026, or calling 202-326-4040 during normal business hours. (TTY users may call the Federal relay service toll-free at 800-877-8339 and ask to be connected to 202-326-4040.)

          FOR FURTHER INFORMATION CONTACT:
          Samantha M. Lowen (lowen.samantha@pbgc.gov), Attorney, Regulatory Affairs Division, Office of the General Counsel, Pension Benefit Guaranty Corporation, 1200 K Street NW, Washington, DC 20005-4026; 202-326-4400, extension 3786. (TTY and TDD users may call the Federal relay service toll-free at 800-877-8339 and ask to be connected to 202-326-4400, extension 3786.)

        SUPPLEMENTARY INFORMATION:

        Executive Summary
        Purpose of the Regulatory Action
        This proposed rule is necessary to conform the regulations of PBGC to current law and practice. PBGC proposes to incorporate statutory changes affecting guaranteed benefits and asset allocation when a plan has one or more participants with certain ownership interests in the plan sponsor. PBGC's legal authority for this action comes from sections 4002(b)(3), 4022, and 4044 of ERISA. Section 4002(b)(3) authorizes PBGC to issue regulations to carry out the purposes of title IV of ERISA. Sections 4022 and 4044 authorize PBGC to prescribe regulations regarding the determination of guaranteed benefits and the allocation of assets within priority categories, respectively.
        Major Provisions
        This proposed rule would amend PBGC's benefit payment regulation by replacing the guarantee limitations applicable to substantial owners with a new limitation applicable to majority owners.1
           Additionally, this proposed rule would amend PBGC's asset allocation regulation by prioritizing funding of all other benefits in priority category 4 ahead of those benefits that would be guaranteed but for the new, owner-participant limitation. The proposed rule also clarifies that plan administrators may continue to use the simplified calculation in the existing rule to estimate benefits funded by plan assets. Finally, it provides new examples to aid in implementation.

            1 In this preamble, substantial owners and majority owners are referred to interchangeably as “owner-participants.”

        Background
        PBGC administers the pension insurance program under title IV of ERISA. ERISA sections 4022 and 4044 cover PBGC's guarantee of plan benefits and allocation of plan assets, respectively, under terminated single-employer plans. Special provisions within these sections apply to “owner-participants,” who have certain ownership interests in their plan sponsors. PPA 2006 made changes to these provisions. PBGC has been operating in accordance with the amended provisions since they became effective, but has not yet updated its regulations nor issued guidance on implementation. With this rulemaking, PBGC intends to increase transparency into its operations and to clarify for plan administrators the impact of the statutory changes.

        Before PPA 2006, the owner-participant provisions applied to any participant who was a “substantial owner” at any time within the 60 months preceding the date on which the determination was made. ERISA defines a substantial owner as an individual who owns the entire interest in an unincorporated trade or business, or a partner or shareholder who owns more than 10 percent of the partnership or corporation. PPA 2006 revised the owner-participant provisions, in large part, by making them applicable to “majority owners” instead of substantial owners. ERISA defines a majority owner as an individual who owns the entire interest in an unincorporated trade or business, or a partner or shareholder who owns 50 percent or more of the entity.

        Guaranteed Benefits Before and After PPA 2006
        ERISA section 4022 imposes several limitations on PBGC's guarantee of plan benefits, including the “phase-in limitation.” As the name of this limitation suggests, PBGC's guarantee of a plan's benefits is phased in over a specified time period. Before PPA 2006, this time period was drastically different for owner-participants and for all other participants; the benefits of owner-participants were phased in over 30 years, whereas the benefits of non-owner-participants were phased in over five years. In addition, the extent to which an owner-participant's benefit was phased in was unique to each owner-participant and based on the number of years he or she was an active participant in the plan; whereas the extent to which all other participants' benefits were phased in was based on the number of years a plan provision—specifically, one that increased benefits—was in effect before the plan terminated.
        PPA 2006 greatly simplified the method for determining PBGC's guarantee of owner-participants' benefits by eliminating the 30-year phase-in and making the five-year phase-in of benefit increases applicable to owner-participants and non-owner-participants alike. PPA 2006 then applies a separate, additional limitation—the “owner-participant limitation”—to an owner-participant's otherwise guaranteed benefit. This owner-participant limitation is similar to the five-year phase-in limitation on benefit increases, as it is calculated based on a plan's age; however, it is based on the length of time the original plan was in existence, regardless of whether the plan increased benefits, and the phase-in period is 10 years. The owner-participant limitation bears little resemblance to the 30-year phase-in limitation, and the calculations are much simpler. This proposed rule would incorporate these changes to PBGC's benefit payment regulation.
        Phase-In Limitation
        Sections 4022.25 and 4022.26 of PBGC's benefit payment regulation provide the procedures for calculating the five-year phase-in of benefit increases for non-owner-participants and the 30-year phase-in of all benefits for owner-participants, respectively. Section 4022.25 provides, generally, that benefit increases (as defined in § 4022.2) of non-owner-participants are phased in by the greater of $20 or 20 percent of the increase for each full year the increase was effective. Section 4022.26 provides the much more complicated procedures for calculating the guaranteed benefits of owner-participants—based on a 30-year phase-in—before PPA 2006; different procedures apply depending on whether or not there have been any benefit increases. As explained above, PPA 2006 eliminated the 30-year phase-in limitation and made the five-year phase-in of benefit increases applicable to all participants, including owner-participants. Accordingly, PBGC proposes to amend the benefit payment regulation by removing the distinction between owner-participants and all other participants under § 4022.25, and PBGC proposes to amend § 4022.26 by replacing the 30-year phase-in limitation with a new “owner-participant limitation,” as discussed next.
        Owner-Participant Limitation
        PPA 2006 provided a new formula for determining PBGC's guarantee of an owner-participant's benefit. Under this owner-participant limitation, an owner-participant's guaranteed benefit is limited to the product of the owner-participant's otherwise-guaranteed benefit and a fraction, not to exceed one. The numerator of this fraction equals the number of years that the plan was in existence (from the later of its effective date or adoption date), and the denominator equals 10.
        Compared to the 30-year phase-in under the old statute—implemented at § 4022.26 of the benefit payment regulation—the owner-participant limitation is much simpler to calculate and generally provides a much more generous guarantee. Before PPA 2006, PBGC needed to make individualized determinations about the length of time each substantial owner was an active participant in a plan over a 30-year period. Additionally, a substantial owner needed to have been an active participant for at least 30 years in order for his or her benefit to be fully guaranteed (to the extent that other limitations on PBGC's guarantee did not apply). Under PPA 2006, PBGC needs only to calculate a single fraction, based on the age of the plan, and then to multiply the benefit of each majority owner under the plan by that same fraction. In addition, all majority owners' benefits are now fully guaranteed (to the extent that other limitations on PBGC's guarantee do not apply) once a plan has been in existence for 10 years.
        Consistent with these statutory changes, PBGC proposes to amend the benefit payment regulation by replacing references to “substantial owner” with “majority owner” and by revising § 4022.26 to provide the formula for calculating the owner-participant limitation, in the place of the 30-year phase-in limitation.
        Asset Allocation in Priority Category 4 Before and After PPA 2006
        ERISA section 4044 prescribes the method for allocating a terminated single-employer plan's assets to its benefit liabilities. Under section 4044, plan assets must be allocated to six priority categories (PC1 through PC6, with PC1 being the highest) into which all plan benefits are sorted. Benefits affected by the owner-participant limitation are assigned to priority category 4 (PC4). PPA 2006 changed the method for allocating assets within PC4 when there are benefits affected by the owner-participant limitation.
        PC4 includes three kinds of benefits: (1) Guaranteed benefits, other than employee contributions and benefits that could have been in pay status three or more years before a plan's termination (or before the plan sponsor's bankruptcy filing date, for plans subject to ERISA section 4022(g)); (2) benefits that would be guaranteed but for the aggregate limit of ERISA section 4022B; and (3) benefits that would be guaranteed but for the owner-participant limitation (based on substantial ownership before PPA 2006 and majority ownership after PPA 2006).2

           If a plan's assets are sufficient to cover all PC4 benefits or are insufficient to cover any PC4 benefits, the PPA 2006 changes for owner-participants have no bearing on the allocation; however, if assets are sufficient to cover some, but not all, PC4 benefits (i.e., if assets are “exhausted in PC4”), the allocation rules differ before and after PPA 2006.

            2 Strictly speaking, this description applies to benefits in “net PC4,” given that “PC4” (or, more accurately, “gross PC4”) technically includes the three kinds of benefits listed, as well as all benefits in higher priority categories. Without using the terms “gross” or “net,” PBGC's asset allocation regulation makes this distinction at paragraph (c) of § 4044.10 (“[t]he value of each participant's basic-type benefit or benefits in a priority category shall be reduced by the value of the participant's benefit of the same type that is assigned to a higher priority category”). Nevertheless, PBGC recognizes that colloquial descriptions of benefits in a given priority category usually refer to the net benefits in that category, and this preamble follows that common usage, unless otherwise indicated.

        Before PPA 2006, if assets were exhausted in PC4, then assets were to be allocated pro rata among all three kinds of PC4 benefits. Under PPA 2006, if assets are exhausted in PC4, then assets must first be allocated to the first two PC4 groups; only if assets cover all benefits in these two groups will any assets be allocated to benefits that would be guaranteed but for the majority-owner limitation. In accordance with these statutory changes, PBGC proposes to amend the asset allocation regulation by prioritizing assets in PC4 to other benefits ahead of benefits affected by the majority-owner limitation.
        Calculation of Estimated Benefits
        In a distress termination, § 4022.61 of the benefit payment regulation—implementing section 4041(c)(3)(D) of ERISA—requires plan administrators to limit benefit payments to estimates of the amounts that PBGC is expected to pay, in order to minimize potential overpayments and exhaustion of plan assets before PBGC becomes trustee and is able to assume benefit payments. As trustee, PBGC pays each participant the greater of his or her guaranteed benefit or asset-funded benefit.3
           Accordingly, § 4022.61 requires plan administrators to limit benefits in pay status to the greater of each participant's estimated guaranteed benefit or estimated asset-funded benefit, beginning on the proposed termination date.4

            3 A participant's asset-funded benefit is essentially the portion of the participant's plan benefit that plan assets are sufficient to fund when assets are allocated according to the distribution rules of ERISA section 4044.

            4 PBGC's benefit payment regulation does not currently include the term “estimated asset-funded benefit”; the term “estimated title IV benefit” is used instead. As discussed later in this preamble, PBGC proposes to replace the term “estimated title IV benefit” with “estimated asset-funded benefit.” Consistent with the proposed terminology change, this preamble refers to estimated asset-funded benefits and not to estimated title IV benefits, except where otherwise indicated.

        Estimated Guaranteed Benefits
        A participant's estimated guaranteed benefit is determined as of the proposed termination date and is the portion of the participant's plan benefit (viz., the benefit to which the participant would be entitled under the terms of the plan if the plan did not terminate) that does not exceed the estimated legal limits of PBGC's guarantee. Section 4022.62 of the benefit payment regulation prescribes the method for estimating PBGC's guarantee limitations and for calculating a participant's estimated guaranteed benefit.
        As discussed above, the changes under PPA 2006 greatly affected the calculation of guaranteed benefits of owner-participants. Therefore, in order to ensure that administrators of plans with owner-participants understand how to accurately estimate these benefits in distress terminations, PBGC must update the calculation procedures.
        Section 4022.62 provides two methods for calculating estimated guaranteed benefits. One method—given at paragraph 4022.62(c)—applies to non-owner-participants, while the other—given at paragraph 4022.62(d)—applies to owner-participants. Both methods' calculations use the amount calculated under paragraph 4022.62(b) as a starting point. Paragraph 4022.62(b) estimates a participant's benefit that would be guaranteed before application of any phase-in limitation. Paragraph 4022.62(c) estimates the effect of the five-year phase-in limitation on the 4022.62(b) amount. Paragraph 4022.62(d) estimates the effect of the 30-year phase-in limitation applicable to owner-participants before PPA 2006 on the 4022.62(b) amount.

        In order to reflect the changes to PBGC's guarantee limitations for owner-participants under PPA 2006, PBGC proposes to revise paragraph 4022.62(d) in its entirety. As revised, paragraph 4022.62(d) would no longer estimate the effect of the 30-year phase-in limitation on the 4022.62(b) amount; rather, paragraph 4022.62(d) would estimate the effect of the owner-participant limitation (using the n/10 ratio that PPA 2006 introduced) on the 4022.62(c) amount. The revised paragraph 4022.62(d) would use the 4022.62(c) amount instead of the 4022.62(b) amount because the five-year phase-in limitation is now applicable to all participants (including majority owners).
        Estimated Asset-Funded Benefits
        A participant's estimated asset-funded benefit is the portion of the participant's plan benefit that plan assets are expected to be sufficient to fund through PC4, based on estimated plan assets and benefits in each priority category. Section 4022.63 of the benefit payment regulation prescribes two methods for calculating estimated asset-funded benefits; one applies to non-owner-participants and the other applies to owner-participants. Essentially, § 4022.63 provides that a non-owner-participant's estimated asset-funded benefit equals his or her estimated PC3 benefit and that an owner-participant's estimated asset-funded benefit equals the greater of his or her estimated PC3 benefit or estimated PC4 benefit. The PPA 2006 changes for owner-participants have no bearing on estimated PC3 benefits; however, the PPA 2006 change to asset allocation has the potential to affect the calculation of estimated PC4 benefits, which are payable only to owner-participants.
        An owner-participant's estimated PC4 benefit equals the product of what would be his or her estimated guaranteed benefit if the participant were not an owner-participant and the “PC4 funding ratio.” The PC4 funding ratio is calculated one of two ways, depending on whether a plan has any benefits in PC3 (viz., whether a plan has benefits that were or could have been in pay status three years before the proposed termination date). If a plan has no PC3 benefits, the PC4 funding ratio essentially equals the estimated amount of plan assets divided by the estimated amount of vested benefits under the plan.5
           If a plan has PC3 benefits, the PC4 funding ratio essentially equals the estimated amount of plan assets minus the present value of all benefits in pay status, all divided by the estimated amount of vested benefits not in pay status.6

            5 The PC4 funding ratio excludes assets and benefits that are attributable to employee contributions. See 29 CFR 4022.63(d)(2).

            6 See note 5.

        By calculating and then using a plan's PC4 funding ratio, an administrator is able to estimate the amount of assets available to fund all benefits in PC4. This ratio does not distinguish between owner-participants' benefits and all other benefits in PC4, as this distinction was not necessary before PPA 2006, when assets were to be allocated equally among the three kinds of PC4 benefits. As a result, while the PC4 funding ratio is a useful tool for estimating assets available to fund all benefits in PC4 (including those of substantial owners before PPA 2006), it does not account for the requirement under PPA 2006 to fund the benefits of majority owners only if assets remain after funding all other benefits in PC4.

        Under PPA 2006, continued use of the PC4 funding ratio is more likely to result in an inflated estimate of assets available to fund a majority owner's benefit. While this potential overestimation increases the likelihood that a majority owner's estimated benefit will exceed his or her actual benefit entitlement, it has no bearing on—in particular, it does not reduce—the estimated benefits of other participants. This is because the PC4 ratio is used only when calculating the estimated asset-funded benefit of an owner-participant. As stated above, the estimated asset-funded benefits of non-owner-participants equal the participants' estimated PC3 benefits. Because PC3 benefits receive higher allocation priority than PC4 benefits, the estimated asset-funded benefit of any non-owner-participant would not be affected by the allocation of assets in PC4.

        Even without any potential harm to other participants, the concern remains for potentially overpaying majority owners who receive estimated benefits. Weighed against this concern is consideration of the potential burden on plan administrators that more robust estimation procedures would impose. Modifying the PC4 funding ratio to account for the funding prioritization of other PC4 benefits ahead of those of majority owners would require additional calculations that would seem to undermine the requirement of administrators to “estimate” asset-funded benefits, as opposed to performing more precise calculations outright. Moreover, far fewer participants are likely to be majority owners, compared to the number likely to have been substantial owners before PPA 2006. This is because majority owners must have an ownership interest of at least 50 percent and because the majority-owner limitation does not apply to any plan that existed for at least 10 years before terminating.
        Having weighed the concerns and chiefly recognizing the limited number of cases where a plan will have one or more majority owners as well as assets sufficient to fund some, but not all, benefits in PC4, PBGC proposes to leave its estimated asset-funded benefit provisions at § 4022.63 substantively unchanged, with the sole exception of revising Example 2 under paragraph (e). Example 2 illustrates how to calculate the estimated asset-funded benefit of an owner-participant and describes the related calculation of the owner-participant's estimated guaranteed benefit under § 4022.62. The proposed revisions to Example 2 would reflect the proposed changes to § 4022.62 discussed above.
        Related Regulatory Amendments
        PBGC proposes to make conforming amendments to its regulations on Terminology, Termination of Single-employer Plans, and Reportable Events and Certain Other Notification Requirements.
        PBGC also proposes to correct paragraph (e) of § 4022.62, which currently provides that in a PPA 2006 bankruptcy termination, “bankruptcy filing date” is substituted for “proposed termination date” in paragraph (c) of § 4022.62, by making the substitution applicable to both paragraph (c) (applicable to non-owner-participants) and paragraph (d) (applicable to owner-participants) of § 4022.62. It is clear from the preamble to the final rule that added paragraph (e) that PBGC intended, consistent with PPA 2006, to have the applicable “bankruptcy filing date” substituted when calculating the estimated benefits of all participants, regardless of ownership status.7

            7 See 76 FR 34590, 34596 (June 14, 2011) (“[t]he final regulation provides that for any PPA 2006 bankruptcy termination, those estimated benefits [calculated under 29 CFR 4022.62-4022.63] are based on the rules described above relating to the bankruptcy filing date”).

        Amendments Unrelated to PPA 2006
        PBGC proposes to make minor, non-substantive changes to the examples not involving owner-participants at §§ 4022.62 and 4022.63 of the benefit payment regulation, in order to improve readability. Additionally, PBGC proposes to correct two clerical errors that were made when PBGC previously amended the regulation; the first duplicated paragraph (f) of § 4022.62, and the second duplicated the designation of paragraph (c)(1) of § 4022.63. Lastly, PBGC proposes to replace the term “estimated title IV benefit” with “estimated asset-funded benefit” at § 4022.63.
        The use of the term “estimated title IV benefit” at § 4022.63 of the benefit payment regulation is confusing, in light of the definition of “title IV benefit” at § 4001.2 of the terminology regulation. Section 4001.2 provides, generally, that a participant's title IV benefit equals the greater of his or her guaranteed benefit or asset-funded benefit. Given this definition, one might assume that the estimated title IV benefit equals the greater of the estimate of a participant's guaranteed benefit or the estimate of a participant's asset-funded benefit; however, § 4022.63 provides that the estimated title IV benefit is essentially an estimate of a participant's asset-funded benefit (through PC4) only. Accordingly, PBGC proposes to rename the “estimated title IV benefit” referred to in § 4022.63 as the “estimated asset-funded benefit.” This term only appears in § 4022.63; the proposed change would not require any conforming amendments elsewhere in PBGC's regulations.
        Compliance With Rulemaking Guidelines
        Executive Orders 12866, 13563, and 13771
        PBGC has determined that this rulemaking is not a “significant regulatory action” under Executive Order 12866 and, accordingly, that the provisions of Executive Order 13771 do not apply. Because this rulemaking is not a significant regulatory action, OMB has not reviewed this proposed rule. Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. If a regulatory action is significant under Executive Order 12866, Executive Order 13771 imposes additional requirements on the agency.
        Although this is not a significant regulatory action under Executive Order 12866, PBGC has examined the economic implications of this proposed rule. PBGC has concluded that because the key aspects of this proposed rule would merely incorporate statutory changes that have been effective since 2006, neither the public nor PBGC would assume any additional costs due to this regulatory action. Moreover, because PBGC has been following the statute as amended in 2006, and not the inconsistent provisions in its regulations, this proposal would improve the transparency of PBGC operations to the public and would provide helpful guidance to plan administrators. By leaving unchanged the estimated asset-funded benefit calculation procedures under § 4022.63, PBGC would enable plan administrators to continue to rely confidently on these relatively simple procedures, rather than creating more complex procedures that could be contemplated in light of the statutory changes. Finally, the proposed revisions to the examples at §§ 4022.62 and 4022.63 would assist plan administrators in complying with the law. Accordingly, this proposed rule would result in a net benefit to the public.
        Regulatory Flexibility Act
        Under the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), federal agencies must comply with additional requirements when engaging in certain rulemaking activities that are subject to notice and public comment. An agency must satisfy these requirements if a proposed rule is likely to have a significant economic impact on a substantial number of small entities. Unless an agency determines that a proposed 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 proposed rule. The agency's analysis must describe the impact of the rule on small entities, and the agency must seek public comment on the impact. Small entities include small businesses, organizations, and governmental jurisdictions.
        For purposes of the Regulatory Flexibility Act, with respect to this proposed 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 8
           and the Internal Revenue Code,9
           as well as the definition of a small entity that the Department of Labor (DOL) has used for purposes of the Regulatory Flexibility Act.10
           While some large employers maintain both small and large plans, most small plans are maintained by small employers. In light of this, PBGC believes that assessing the impact of the proposed rule on small plans is an appropriate substitute for evaluating the effect on small entities. Notably, the definition of small entity considered appropriate for this purpose differs from the definition of small business—based on size standards—at 13 CFR 0121.201, which the Small Business Administration promulgated pursuant to the Small Business Act. Therefore, PBGC requests public comment on its proposed definition of small entity, as applied to this proposed rule.

            8 See, e.g., ERISA section 104(a)(2), which permits the Secretary of Labor to prescribe simplified annual reports for pension plans that cover fewer than 100 participants.

            9 See, e.g., Code section 430(g)(2)(B), which permits single-employer plans with 100 or fewer participants to use valuation dates other than the first day of the plan year.

            10 See, e.g., DOL's final rule on Prohibited Transaction Exemption Procedures, 76 FR 66637, 66644 (Oct. 27, 2011).

        PBGC certifies under section 605(b) of the Regulatory Flexibility Act that this proposed rule would not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that this proposed rule is not likely to have a significant economic impact on any entity, regardless of size. This is because nearly all aspects of this proposed rule would merely incorporate statutory changes that have been effective for more than a decade, while, as discussed in the context of Executive Order 12866 above, the remaining few would provide clarity on the accurate estimation of benefits required by law, at no additional cost to the public.

          List of Subjects
          29 CFR Part 4001
          Business and industry, Employee benefit plans, Pension insurance.
          29 CFR Parts 4022, 4041, and 4043
          Employee benefit plans, Pension insurance, Reporting and recordkeeping requirements.
          29 CFR Part 4044
          Employee benefit plans, Pension insurance.

        In consideration of the foregoing, PBGC proposes to amend 29 CFR parts 4001, 4022, 4041, 4043, 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:
        a. Add in alphabetical order a definition for “majority owner”; and
        b. Remove the definition of “substantial owner”.
        The addition reads as follows:

          § 4001.2
          Definitions.

            Majority owner means, with respect to a contributing sponsor of a single-employer plan, an individual who owns, directly or indirectly (taking into account the constructive ownership rules of section 414(b) and (c) of the Code)—
          (1) The entire interest in an unincorporated trade or business;
          (2) 50 percent or more of the capital interest or the profits interest in a partnership; or
          (3) 50 percent or more of either the voting stock of a corporation or the value of all of the stock of a corporation.

          PART 4022—BENEFITS PAYABLE IN TERMINATED SINGLE-EMPLOYER PLANS

        3. The authority citation for part 4022 continues to read as follows:

          Authority:
          29 U.S.C. 1302, 1322, 1322b, 1341(c)(3)(D), and 1344.

          § 4022.2
          [Amended]

        4. In § 4022.2 introductory text:
        a. Remove the words “guaranteed benefit” and add in their place the words “guaranteed benefit, majority owner”; and
        b. Remove the words “substantial owner,”;
        5. Amend § 4022.24 by revising paragraphs (a) and (b) to read as follows:

          § 4022.24
           Benefit increases.
          (a) Scope. This section applies to all benefit increases, as defined in § 4022.2, that have been in effect for less than five years preceding the termination date.
          (b) General rule. Benefit increases described in paragraph (a) of this section are guaranteeable only to the extent provided in § 4022.25.

          § 4022.25
          [Amended]

        6. In § 4022.25:
        a. Amend the section heading by removing the words “for participants other than substantial owners”; and
        b. Amend paragraph (a) by removing the words “with respect to participants other than substantial owners”.
        7. Revise § 4022.26 to read as follows:

          § 4022.26
           Benefit guarantee for participants who are majority owners.
          (a) Scope. This section applies to the guarantee of all benefits described in subpart A of this part (subject to the limitations in § 4022.21) with respect to participants who are majority owners at the termination date or who were majority owners at any time within the five-year period preceding that date.
          (b) Formula. Benefits provided by a plan are guaranteed to the extent provided in the following formula: The amount of the participant's benefit that PBGC would otherwise guarantee under section 4022 of ERISA and this part if the participant were not a majority owner, multiplied by a fraction not to exceed one, the numerator of which is the number of full years from the later of the effective date or the adoption date of the plan to the termination date, and the denominator of which is 10.

        8. In § 4022.62:
        a. Amend paragraphs (a) and (c) introductory text by removing the four instances of the word “substantial” and adding in their place the word “majority”;
        b. Revise paragraph (d);
        c. Amend paragraph (e) by removing the words “paragraph (c)” and adding in their place the words “paragraphs (c) and (d)”;
        d. Remove the first paragraph (f); and
        e. Revise remaining paragraph (f).
        The revisions read as follows:

          § 4022.62
           Estimated guaranteed benefit.

          (d) Estimated guaranteed benefit payable with respect to a majority owner. For benefits payable with respect to each participant who is a majority owner, the estimated guaranteed benefit is the benefit to which he or she would be entitled under paragraph (c) of this section but for his or her status as a majority owner, multiplied by a fraction, not to exceed one, the numerator of which is the number of full years from the later of the effective date or the adoption date of the plan to the proposed termination date and the denominator of which is 10.

          (f) Examples. This section is illustrated by the following examples. (For an example addressing issues specific to a PPA 2006 bankruptcy termination, see § 4022.25(f).)

            (1) Example 1.
            (i) Facts. A participant who is not a majority owner retired on December 31, 2011, at age 60 and began receiving a benefit of $600 per month. On January 1, 2009, the plan had been amended to allow participants to retire with unreduced benefits at age 60. Previously, a participant who retired before age 65 was subject to a reduction of 1/15 for each year by which his or her actual retirement age preceded age 65. On January 1, 2012, the plan's benefit formula was amended to increase benefits for participants who retired before January 1, 2012. As a result, the participant's benefit was increased to $750 per month. There have been no other pertinent amendments. The proposed termination date is December 15, 2012.
            (ii) Estimated guaranteed benefit. No reduction is required under § 4022.61(b) or (c) because the participant's benefit does not exceed either the participant's accrued benefit at normal retirement age or the maximum guaranteeable benefit. (Post-retirement benefit increases are not considered as increasing accrued benefits payable at normal retirement age.)
            The amendment as of January 1, 2009, resulted in a “new benefit” because the reduction in the age at which the participant could receive unreduced benefits increased the participant's benefit entitlement at actual retirement age by 5/15, which is more than the 20-percent increase threshold under paragraph (c)(2)(i) of this section. The amendment of January 1, 2012, which increased the participant's benefit to $750 per month, is a “benefit improvement” because it is an increase in the amount of benefit for persons in pay status. (No percentage test applies in determining whether an increase in a pay status benefit is a benefit improvement.)
            The multiplier for computing the amount of the estimated guaranteed benefit is taken from the third row of Table I (because the last new benefit had been in effect for three full years as of the proposed termination date) and column (c) (because there was a benefit improvement within the one-year period preceding the proposed termination date). This multiplier is 0.55. Therefore, the amount of the participant's estimated guaranteed benefit is $412.50 (0.55 × $750) per month.

            (2) Example 2.
            (i) Facts. A participant who is not a majority owner terminated employment on December 31, 2010. On January 1, 2012, she reached age 65 and began receiving a benefit of $250 per month. She had completed three years of service at her termination of employment and was fully vested in her accrued benefit. The plan's vesting schedule had been amended on July 1, 2008. Under the schedule in effect before the amendment, a participant with five years of service was 100 percent vested. There have been no other pertinent amendments. The proposed termination date is December 31, 2012.
            (ii) Estimated guaranteed benefit. No reduction is required under § 4022.61(b) or (c) because the participant's benefit does not exceed either her accrued benefit at normal retirement age or the maximum guaranteeable benefit. The plan's change of vesting schedule created a new benefit for the participant. Because the amendment was in effect for four full years before the proposed termination date, the second row of Table I is used to determine the applicable multiplier for estimating the amount of the participant's guaranteed benefit. Because the participant did not receive any benefit improvement during the 12-month period ending on the proposed termination date, column (b) of the table is used. Therefore, the multiplier is 0.80, and the amount of the participant's estimated guaranteed benefit is $200 (0.80 × $250) per month.

            (3) Example 3.
            (i) Facts. A participant who is a majority owner retired before the proposed termination date of April 30, 2012. The plan was in effect for seven full years as of the proposed termination date. On the proposed termination date he was entitled to receive a benefit of $2,000 per month. No reduction of this benefit is required under § 4022.61(b) or (c).
            (ii) Estimated guaranteed benefit. Paragraph (d) of this section is used to compute the amount of the estimated guaranteed benefit of majority owners. Consequently, the amount of this participant's estimated guaranteed benefit is $1,400 ($2,000 × 7/10) per month.

            (4) Example 4.
            (i) Facts. A participant who is a majority owner retired before the proposed termination date of April 30, 2012. The plan was in effect for 12 full years as of the proposed termination date. On the proposed termination date he was entitled to receive a benefit of $2,000 per month. No reduction of this benefit is required under § 4022.61(b) or (c).
            (ii) Estimated guaranteed benefit. Paragraph (d) of this section is used to compute the amount of the estimated guaranteed benefit of majority owners. Since the plan was in effect for more than 10 years as of the proposed termination date, the amount of this participant's estimated guaranteed benefit is $2,000 per month.

        9. In § 4022.63:
        a. Revise the section heading;
        b. Amend paragraph (a) by removing the two instances of the word “substantial” and adding in their place the word “majority” and by removing the three instances of the words “estimated title IV benefit” and adding in their place the words “estimated asset-funded benefit”;
        c. Amend paragraph (b) introductory text by removing the two instances of the word “substantial” and adding in their place the word “majority” and by removing the words “estimated title IV benefit” and adding in their place the words “estimated asset-funded benefit”;
        d. Amend paragraph (c)(1) by removing the two instances of the word “substantial” and adding in their the word “majority” and by removing the two instances of the words “estimated title IV benefit” and adding in the place of each the words “estimated asset-funded benefit”;
        e. Amend paragraphs (d) introductory text by removing the two instances of the word “substantial” and adding in the place the word “majority” and by removing the two instances of the words “estimated title IV benefit” and adding in the place of each the words “estimated asset-funded benefit”;
        f. Amend paragraph (d)(1) and by removing the two instances of the word “substantial” and adding in the place the word “majority”; and
        g. Revise paragraph (e).
        The revisions read as follows:

          § 4022.63
          Estimated asset-funded benefit.

          (e) Examples. This section is illustrated by the following examples:

            (1) Example 1.
            (i) Facts. A participant who is not a majority owner was eligible to retire 3.5 years before the proposed termination date. The participant retired two years before the proposed termination date with 20 years of service. Her final five years' average salary was $45,000, and she was entitled to an unreduced early retirement benefit of $1,500 per month payable as a single life annuity. This retirement benefit does not exceed the limitation in § 4022.61(b) or (c).
            On the participant's benefit commencement date, the plan provided for a normal retirement benefit of 2 percent of the final five years' salary times the number of years of service. Five years before the proposed termination date, the percentage was 1.5 percent. The amendments improving benefits were put into effect 3.5 years before the proposed termination date. There were no other amendments during the five-year period.
            The participant's estimated guaranteed benefit computed under § 4022.62(c) is $1,500 per month times 0.90 (the factor from column (b) of Table I in § 4022.62(c)(2)), or $1,350 per month. It is assumed that the plan meets the conditions set forth in paragraph (b) of this section, and the plan administrator is therefore required to estimate the title IV benefit.
            (ii) Estimated asset-funded benefit. For a participant who is not a majority owner, the amount of the estimated asset-funded benefit is the estimated priority category 3 benefit computed under paragraph (c) of this section. This amount is computed by multiplying the participant's benefit under the plan as of the later of the proposed termination date or the benefit commencement date by the ratio of the normal retirement benefit under the provisions of the plan in effect five years before the proposed termination date and the normal retirement benefit under the plan provisions in effect on the proposed termination date.
            Thus, the numerator of the ratio is the benefit that would be payable to the participant under the normal retirement provisions of the plan five years before the proposed termination date, based on her age, service, and compensation on her benefit commencement date. The denominator of the ratio is the benefit that would be payable to the participant under the normal retirement provisions of the plan in effect on the proposed termination date, based on her age, service, and compensation as of the earlier of her benefit commencement date or the proposed termination date. Since the only different factor in the numerator and denominator is the salary percentage, the amount of the estimated asset-funded benefit is $1,125 (0.015/0.020 × $1,500) per month. This amount is less than the estimated guaranteed benefit of $1,350 per month. Therefore, in accordance with § 4022.61(d), the benefit payable to the participant is $1,350 per month.
            (iii) PPA 2006 bankruptcy termination. In a PPA 2006 bankruptcy termination, the methodology would be the same, but “bankruptcy filing date” would be substituted for “proposed termination date” each place that “proposed termination date” appears in the example, and the numbers would change accordingly.

            (2) Example 2.
            (i) Facts. A participant who is a majority owner retired on the proposed termination date of October 31, 2012. The original plan had been in effect for seven full years as of the proposed termination date. Under the provisions of the plan in effect five years before the proposed termination date, the participant is entitled to a single life annuity of $500 per month. The plan was amended to increase benefits three full years before the proposed termination date. Under these plan amendments, the participant is entitled to a single life annuity of $1,000 per month.
            The participant's estimated guaranteed benefit computed under § 4022.62(d) is $455 per month ($1,000 × 0.65 × 7/10).
            It is assumed that all of the conditions in paragraph (b) of this section have been met. Plan assets equal $2 million. The present value of all benefits in pay status is $1.5 million based on applicable PBGC interest rates. There are no employee contributions and the present value of all vested benefits that are not in pay status is $0.75 million based on applicable PBGC interest rates.
            (ii) Estimated asset-funded benefit. Paragraph (d) of this section provides that the amount of the estimated asset-funded benefit payable with respect to a participant who is a majority owner is the higher of the estimated priority category 3 benefit computed under paragraph (c) of this section or the estimated priority category 4 benefit computed under paragraph (d) of this section.
            Under paragraph (c), the participant's estimated priority category 3 benefit is $500 ($1,000 × $500/$1,000) per month.

            Under paragraph (d), the participant's estimated priority category 4 benefit is the estimated guaranteed benefit computed under § 4022.62(c) (i.e., as if the participant were not a majority owner) multiplied by the priority category 4 funding ratio. Since the plan has priority category 3 benefits, the ratio is determined under paragraph (d)(2)(i). The numerator of the ratio is plan assets minus the present value of benefits in pay status. The denominator of the ratio is the present value of all vested benefits that are not in pay status. The participant's estimated guaranteed benefit under § 4022.62(c) is $1,000 per month times 0.65 (the factor from column (b) of Table I in § 4022.62(c)(2)), or $650 per month. Multiplying $650 by the category 4 funding ratio of 2/3 (($2 million − $1.5 million)/$0.75 million) produces an estimated category 4 benefit of $433.33 per month.
            Because the estimated category 4 benefit so computed is less than the estimated category 3 benefit so computed, the estimated category 3 benefit is the estimated asset-funded benefit. Because the estimated category 3 benefit so computed is greater than the estimated guaranteed benefit of $455 per month, in accordance with § 4022.61(d), the benefit payable to the participant is the estimated priority category 3 benefit of $500 per month.

          PART 4041—TERMINATION OF SINGLE-EMPLOYER PLANS

        10. The authority citation for part 4041 continues to read as follows:

          Authority:
          29 U.S.C. 1302(b)(3), 1341, 1344, 1350.

          § 4041.2
          [Amended]

        11. In § 4041.2:
        a. Amend the introductory text by removing the words “mandatory employee contributions” and adding in their place the words “majority owner, mandatory employee contributions”; and
        b. Remove the definition of “majority owner”.

          PART 4043—REPORTABLE EVENTS AND CERTAIN OTHER NOTIFICATIONS

        12. The authority citation for part 4043 continues to read as follows:

          Authority:
           29 U.S.C. 1083(k), 1302(b)(3), 1343.

        13. In § 4043.2:
        a. Amend the introductory text by removing the words “single-employer plan, and substantial owner” and by adding in their place the words “and single-employer plan”.
        b. Add in alphabetical order a definition for “substantial owner”.
        The addition reads as follows:

          § 4043.2
          Definitions.

            Substantial owner means a substantial owner as defined in section 4021(d) of ERISA.

          PART 4044—ALLOCATION OF ASSETS IN SINGLE-EMPLOYER PLANS

        14. The authority citation for part 4044 continues to read as follows:

          Authority:
          29 U.S.C. 1301(a), 1302(b)(3), 1341, 1344, 1362.

          § 4044.2
          [Amended]

        15. In § 4044.2(a):
        a. Remove the words “irrevocable commitment” and add in their place the words “irrevocable commitment, majority owner”; and
        b. Remove the words “substantial owner,”.
        16. Amend § 4044.10 by revising paragraph (e) to read as follows:

          § 4044.10
          Manner of allocation.

          (e) Allocating assets within priority categories. Except for priority categories 4 and 5, if the plan assets available for allocation to any priority category are insufficient to pay for all benefits in that priority category, those assets shall be distributed among the participants according to the ratio that the value of each participant's benefit or benefits in that priority category bears to the total value of all benefits in that priority category. If the plan assets available for allocation to priority category 4 are insufficient to pay for all benefits in that category, the assets shall be allocated, first, to the value of all participants' nonforfeitable benefits that would be assigned to priority category 4 other than those impacted by the majority-owner limitation under § 4022.26. If assets available for allocation to priority category 4 are sufficient to fully satisfy the value of those other benefits, the remaining assets shall then be allocated to the value of the benefits that would be guaranteed but for the majority-owner limitation. These remaining assets shall be distributed among the majority owners according to the ratio that the value of each majority owner's benefit that would be guaranteed but for the majority-owner limitation bears to the total value of all benefits that would be guaranteed but for the majority-owner limitation. If the plan assets available for allocation to priority category 5 are insufficient to pay for all benefits in that category, the assets shall be allocated, first, to the value of each participant's nonforfeitable benefits that would be assigned to priority category 5 under § 4044.15 after reduction for the value of benefits assigned to higher priority categories, based only on the provisions of the plan in effect at the beginning of the five-year period immediately preceding the termination date. If assets available for allocation to priority category 5 are sufficient to fully satisfy the value of those benefits, assets shall then be allocated to the value of the benefit increase under the oldest amendment during the five-year period immediately preceding the termination date, reduced by the value of benefits assigned to higher priority categories (including higher subcategories in priority category 5). This allocation procedure shall be repeated for each succeeding plan amendment within the five-year period until all plan assets available for allocation have been exhausted. If an amendment decreased benefits, amounts previously allocated with respect to each participant in excess of the value of the reduced benefit shall be reduced accordingly. In the subcategory in which assets are exhausted, the assets shall be distributed among the participants according to the ratio that the value of each participant's benefit or benefits in that subcategory bears to the total value of all benefits in that subcategory.

          § 4044.14
          [Amended]

        17. In § 4044.14, remove the word “phase-in” and add the word “guarantee” in its place; and remove the word “substantial” and add the word “majority” in its place.

          Issued in Washington, DC.
          W. Thomas Reeder,
          Director, Pension Benefit Guaranty Corporation.

      [FR Doc. 2018-04609 Filed 3-6-18; 8:45 am]
      BILLING CODE 7709-02-P