Notice 2011-2

plan sponsor requirements that go into effect after 2013.
The Departments anticipate issuing
guidance under § 2716. As a more specific follow-up to the public comments
provided in response to Notice 2010–63,
additional public comments are requested
on the issues that should be addressed
in that guidance and on the suggested
resolution of those issues, including the
following:
1.

2.

3.

The basis on which the determination
of what constitutes nondiscriminatory
benefits under § 105(h)(4) should be
made and what is included in the term
“benefits.” For example, is the rate
of employer contributions toward the
cost of coverage (or the required percentage or amount of employee contributions) or the duration of an eligibility waiting period treated as a
“benefit” that must be provided on a
nondiscriminatory basis?
The suggestion made in previous
comments that the Departments have
the authority to provide for an alternative method of compliance with
§ 2716 that would involve only an
availability of coverage test.
The application of § 2716 to insured
group health plans beginning in 2014
when the health insurance exchanges
become operational and the employer
responsibility provisions (§ 4980H
of the Code), the premium tax credit
(§ 36B of the Code), and the individual responsibility provisions (§ 5000A
of the Code) and related Affordable
Care Act provisions are effective.

4.

The suggestion in previous comments
that the nondiscriminatory classification provision in § 105(h)(3)(A)(iii)
could be used as a basis to permit an
insured health care plan to use a highly
compensated employee definition in
§ 414(q) of the Code for purposes of
determining the plan’s nondiscriminatory classification.

5.

The suggestion in previous comments
that the nondiscrimination standards
should be applied separately to employers sponsoring insured group
health plans in distinct geographic

January 10, 2011

locations and on whether application
of the standards on a geographic basis
should be permissive or mandatory.
6.

The suggestion in previous comments
that the guidance should provide for
“safe harbor” plan designs. Specifically, comments are requested on potential safe and unsafe harbor designs
that are consistent with the substantive
requirements of § 105(h).

7.

Whether employers should be permitted to aggregate different, but substantially similar, coverage options for
purposes of § 2716 and, if so, the basis upon which a “substantially similar” determination could be made.

8.

The application of the nondiscrimination rules to “expatriate” and “inpatriate” coverage.

9.

The application of the nondiscrimination rules to multiple employer plans.

10. The suggestion in previous comments
that coverage provided to a “highly
compensated individual” (as defined
in § 105(h)(5)) on an after-tax basis should be disregarded in applying
§ 2716.
11. The treatment of employees who voluntarily waive employer coverage in
favor of other coverage.
12. Potential transition rules following a
merger, acquisition, or other corporate
transaction.
13. The application of the sanctions for
noncompliance with § 2716.
Comments must be submitted by
March 11, 2011. All materials submitted
will be shared with the Departments of
Labor and Health and Human Services
and will be available for public inspection
and copying.
Comments should be
submitted to Internal Revenue Service,
CC:PA:LPD:RU (Notice 2011–1), Room
5203, PO Box 7604, Ben Franklin Station,
Washington, DC 20224. Submissions
may also be hand-delivered Monday
through Friday between the hours of 8 a.m.
and 4 p.m. to the Courier’s Desk, 1111
Constitution Avenue, NW, Washington,

260

DC 20224, Attn: CC:PA:LPD:RU (Notice
2011–1), Room 5203.
Submissions
may also be sent electronically via the
internet to the following e-mail address:
[email protected].
Include the notice number (Notice 2011–1)
in the subject line.
V. DRAFTING INFORMATION
The principal author of this notice is
Jamie Dvoretzky of the Office of Division
Counsel/Associate Chief Counsel (Tax
Exempt and Government Entities), though
other Treasury Department and IRS officials participated in its development. For
further information on the submission of
comments or the comments submitted,
contact Regina Johnson at (202) 622–7180
(not a toll-free number). For further information on all other provisions of this
notice, contact Ms. Dvoretzky at (202)
622–6060 (not a toll-free number).

Guidance on the Application
of Section 162(m)(6)
Notice 2011–2
I. PURPOSE
This notice provides guidance on the
application of section 162(m)(6) of the
Internal Revenue Code (Code). Section
162(m)(6) limits the allowable deduction
for remuneration for services provided
by individuals to certain health insurance
providers. Section 162(m)(6) was added
to the Code by section 9014 of the Patient Protection and Affordable Care Act
(Public Law 111–148, 124 Stat. 119, 868
(2010)).
Section III of this notice provides guidance on certain issues the Treasury Department and the IRS have determined require immediate guidance. Section V requests comments as to the application of
the provisions of this notice as well as all
other aspects of the application of section
162(m)(6). The Treasury Department and
the IRS anticipate that the guidance provided in this notice will be incorporated
into future regulations issued under section
162(m)(6).

2011–2 I.R.B.

II. BACKGROUND
Section 162(m)(6) limits the allowable
deduction to $500,000 for “applicable individual remuneration” and “deferred deduction remuneration” attributable to services performed by “applicable individuals” that is otherwise deductible by a “covered health insurance provider” in taxable
years beginning after December 31, 2012.
Section 162(m)(6)(C)(i)(I) provides
that for taxable years beginning after December 31, 2009, and before
January 1, 2013, the term “covered
health insurance provider” means any
employer that is a health insurance issuer
as defined in section 9832(b)(2) and
which receives premiums from providing
health insurance coverage (as defined in
section 9832(b)(1)) (“pre–2013 covered
health insurance provider”). For taxable
years beginning after December 31,
2012, section 162(m)(6)(C)(i)(II) provides
that the term “covered health insurance
provider” means any employer that is
a health insurance issuer as defined in
section 9832(b)(2) and with respect to
which not less than 25% of the gross
premiums received from providing health
insurance coverage (as defined in section
9832(b)(1)) are from minimum essential
coverage (as defined in section 5000A(f))
(“post–2012 covered health insurance
provider”).
Section 162(m)(6)(C)(ii)
provides that two or more persons who
are treated as a single employer under
section 414(b), (c), (m), or (o) are treated
as a single employer for purposes of
section 162(m)(6), except that in applying
section 1563(a) for purposes of any such
subsection, paragraphs (2) and (3) thereof
are disregarded.
Section 162(m)(6) applies to applicable individual remuneration attributable to
services performed in a “disqualified taxable year” beginning after December 31,
2012 that is otherwise deductible in such
taxable year. Section 162(m)(6)(B) provides that a disqualified taxable year for
any employer is any taxable year for which
the employer is a covered health insurance provider. Section 162(m)(6)(D) provides that applicable individual remuneration for any disqualified taxable year is
the aggregate amount otherwise allowable
as a deduction for such taxable year for
remuneration for services performed by
such individual (whether or not during the

2011–2 I.R.B.

taxable year), but does not include any
deferred deduction remuneration with respect to services performed during the disqualified taxable year.
In addition, section 162(m)(6) applies to deferred deduction remuneration
attributable to services performed in a
disqualified taxable year beginning after
December 31, 2009 that is otherwise deductible in a taxable year beginning after
December 31, 2012. Section 162(m)(6)(E)
provides that deferred deduction remuneration is compensation for services that
an applicable individual performs during
a disqualified taxable year but that is not
deductible until a later taxable year (for
example, nonqualified deferred compensation). In the case of deferred deduction
remuneration attributable to services performed in a disqualified taxable year, the
unused portion of the $500,000 limit (if
any) for the taxable year in which the
services to which the deferred deduction
remuneration is attributable were performed is carried forward to the taxable
year or years in which such compensation
is otherwise deductible, and applied in
calculating the allowable deduction with
respect to such amount.
Section 162(m)(6)(F) provides that an
applicable individual, with respect to any
covered health insurance provider for any
disqualified taxable year, is any individual
(i) who is an officer, director, or employee
in such taxable year, or (ii) who provides
services for or on behalf of such covered
health insurance provider during such taxable year.
III. GUIDANCE
A. Application of Deduction Limitation
to Deferred Deduction Remuneration
for 2010 through 2012 Taxable Years
The deduction limitation under section
162(m)(6) applies to applicable individual remuneration and deferred deduction
remuneration attributable to services performed in a disqualified taxable year
beginning after December 31, 2012 that is
otherwise deductible by a covered health
insurance provider in a taxable year beginning after December 31, 2012. In addition,
the deduction limitation under section
162(m)(6) applies to deferred deduction
remuneration attributable to services performed in a taxable year beginning after

261

December 31, 2009 and before January 1,
2013 if (1) the employer was a pre–2013
covered health insurance provider for
the taxable year in which the services
were performed to which the deferred
deduction remuneration is attributable, and
(2) the employer is a post–2012 covered
health insurance provider for the taxable
year in which such deferred deduction
remuneration is otherwise deductible.
The following examples illustrate this
rule:
Example 1. Corporation A is a calendar year taxpayer. For 2010, 2011, and 2012, Corporation A is
a pre–2013 covered health insurance provider. Corporation A is a post–2012 covered health insurance
provider for all taxable years after 2012 because 25%
or more of its gross premiums from health insurance
coverage (as defined in section 9832(b)(1)) are from
minimum essential coverage (as defined in section
5000A(f)). Corporation A is a covered health insurance provider for all taxable years. Accordingly, deferred deduction remuneration attributable to services
performed in 2010, 2011, and 2012 is subject to the
section 162(m)(6) deduction limitation in the taxable
years after 2012 in which such amounts are otherwise
deductible.
Example 2. Assume the same facts as in Example
1, except that for all taxable years after 2012, Corporation A remains a health insurance issuer (as defined in section 9832(b)(2)), but does not qualify as a
post–2012 covered health insurance provider because
less than 25% of its gross premiums from health insurance coverage (as defined in section 9832(b)(1))
are from minimum essential coverage (as defined in
section 5000A(f)). For all taxable years beginning
after 2012, Corporation A is not a covered health insurance provider. Accordingly, any deferred deduction remuneration attributable to services performed
in 2010, 2011, and 2012 is not subject to the section
162(m)(6) deduction limitation in the taxable year in
which such amounts are otherwise deductible.
Example 3. Assume the same facts as in Example 1, except that after its 2012 taxable year, Corporation A remains a health insurance issuer (as defined in section 9832(b)(2)), but does not qualify as
a post–2012 covered health insurance provider for
the 2013, 2014 and 2015 taxable years because less
than 25% of its gross premiums from health insurance coverage (as defined in section 9832(b)(1)) are
from minimum essential coverage (as defined in section 5000A(f)). However, for 2016 and subsequent
taxable years, Corporation A qualifies as a post–2012
covered health insurance provider because 25% or
more of its gross premiums from health insurance
coverage (as defined in section 9832(b)(1)) are from
minimum essential coverage (as defined in section
5000A(f)). Corporation A is a covered health insurance provider during its 2010, 2011, 2012, 2016
and subsequent taxable years. Accordingly, deferred
deduction remuneration attributable to services performed in 2010, 2011, and 2012 that is otherwise deductible in 2016 and subsequent years is subject to
the deduction limitation under section 162(m)(6) in
the year in which such amounts are otherwise deductible. Any deferred deduction remuneration attributable to services performed in 2010, 2011, and

January 10, 2011

2012 that is otherwise deductible in 2013, 2014, or
2015 is not subject to the deduction limitation under
section 162(m)(6) in the year in which such amounts
are otherwise deductible. Any deferred compensation attributable to services performed in Corporation
A’s 2013 through 2015 taxable years is not subject to
the deduction limitation under section 162(m)(6) for
the taxable years in which such amounts are otherwise deductible.
Example 4: Assume the same facts as in Example
1, except that for its 2010, 2011, and 2012 taxable
years, Corporation A is not a pre–2013 covered
health insurance provider. However, Corporation A
is a post–2012 covered health insurance provider for
its 2013 taxable year and all subsequent years because 25% or more of its gross premiums from health
insurance coverage (as defined in section 9832(b)(1))
are from minimum essential coverage (as defined
in section 5000A(f)). Accordingly, any deferred
compensation attributable to services performed in
Corporation A’s 2010, 2011, and 2012 taxable years
is not subject to the deduction limitation under section 162(m)(6) for the taxable years in which such
amounts are otherwise deductible.

B. De Minimis Rule
An employer (including an employer as determined in accordance
with the aggregation rules under section
162(m)(6)(C)(ii)) will not be treated as a
covered health insurance provider within
the meaning of section 162(m)(6)(C)(i)(I)
for a taxable year beginning after December 31, 2009 and before January 1, 2013
if the premiums received by the employer
for providing health insurance coverage
as defined in section 9832(b)(1) are less
than 2% of the employer’s gross revenues
for that taxable year. For taxable years
beginning after December 31, 2012, an
employer will not be treated as a covered
health insurance provider within the meaning of section 162(m)(6)(C)(i)(II) for a
taxable year beginning after December 31,
2012 if the premiums received for providing health insurance coverage as defined in
section 9832(b)(1) that are from providing
minimum essential coverage (as defined
in section 5000A(f)) for that taxable year
are less than 2% of the employer’s gross
revenues for that taxable year.
The following example illustrates this
rule:
Example. Corporations D and E are treated as a
single employer under section 162(m)(6)(C)(ii). Corporations D and E are calendar year taxpayers. Corporation E does not receive any health insurance premiums within the meaning of section 9832(b)(1) for
the 2010 taxable year. Corporation D receives health
insurance premiums within the meaning of section
9832(b)(1) for the 2010 taxable year in an amount
that is less than 2% of the combined gross revenues of

January 10, 2011

D and E. Accordingly, Corporations D and E are not
treated as a covered health insurance provider within
the meaning of section 162(m)(6)(C) for the 2010
taxable year. Deferred compensation attributable to
services performed in the 2010 taxable year that is
otherwise deductible for taxable years after 2012 is
not subject to the deduction limitation under section
162(m)(6).

C. Definition of Applicable Individual
Section 162(m)(6)(F) provides that
an applicable individual, with respect to
any covered health insurance provider for
any disqualified taxable year, is any individual (i) who is an officer, director, or
employee in such taxable year, or (ii) who
provides services for or on behalf of such
covered health insurance provider during
such taxable year. For purposes of section
162(m)(6)(F), the term “applicable individual” for a taxable year does not include
an independent contractor with respect to
whom a compensation arrangement would
not be subject to section 409A pursuant
to Treasury Regulation §1.409A–1(f)(2)
(generally excepting arrangements with
independent contractors providing substantial services to multiple unrelated
customers).
D. Certain Reinsurers Are Not Covered
Health Insurance Providers
Solely for purposes of determining
whether a taxpayer is a “covered health
insurance provider” within the meaning of
section 162(m)(6)(C), premiums received
under an indemnity reinsurance contract
are not treated as premiums from providing health insurance coverage.
IV. EFFECTIVE DATE
The guidance provided in section III of
this notice is effective for taxable years beginning on or after January 1, 2010. The
Treasury Department and the IRS anticipate incorporating this guidance into regulations. Any future guidance, including
regulations, addressing the issues covered
by this notice in a manner that would expand the coverage of section 162(m)(6),
such as a modification of, or a restriction
on, the application of the de minimis rule in
section III.C, or broadening of the definition of an applicable individual under section III.D, will apply prospectively.

262

V. REQUEST FOR COMMENTS
The Treasury Department and the IRS
request comments as to the application of
this notice, as well as all aspects of the
application of section 162(m)(6). Specifically, comments are requested on the
application of the deduction limitation
to remuneration for services performed
for insurers who are captive or who provide reinsurance or stop loss insurance,
and specifically with respect to stop loss
insurance arrangements that effectively
constitute a direct health insurance arrangement because the attachment point
is so low. Comments are also requested
on the application of the term “covered
health insurance provider”, including the
de minimis rule set forth in this notice
and possible alternative de minimis rules.
Comments are also requested on the application of the term “covered health
insurance provider” in the case of a corporate event such as a merger, acquisition
or reorganization. Comments are also requested as to whether the allocation rules
set forth in Notice 2008–94, 2008–2 C.B.
1070, Q&A–9, should be applied for purposes of determining the services and the
taxable year to which deferred deduction
remuneration is attributable and as to any
alternatives to those rules, including the
services and the taxable year to which
deferred deduction remuneration is attributable in the case of a corporate event
such as a merger, acquisition or reorganization. Comments may be submitted
through March 23, 2011 to Internal Revenue Service, CC:PA:LPD:RU (Notice
2011–02), Room 5203, PO Box 7604, Ben
Franklin Station, Washington DC 20044.
Submissions may also be hand-delivered
Monday through Friday between the hours
of 8 a.m. and 4 p.m. to the Courier’s Desk
at 1111 Constitution Avenue, NW, Washington DC 20224, Attn: CC:PA:LPD:RU
(Notice 2011–02), Room 5203. Submissions may also be sent electronically via
the internet to the following email address:
[email protected].
Include the notice number (Notice
2011–02) in the subject line.
VI. DRAFTING INFORMATION
The principal author of this notice is
Ilya Enkishev of the Office of Division
Counsel/Associate Chief Counsel (Tax Ex-

2011–2 I.R.B.

empt and Government Entities), although
other Treasury and IRS officials participated in its development. For further information on the provisions of this notice,
contact Ilya Enkishev at (202) 622–6030
(not a toll-free number).

Funding Relief for
Single-Employer Pension
Plans under PRA 2010
Notice 2011–3
I. PURPOSE
This notice provides guidance on the
special rules relating to funding relief for
single-employer defined benefit pension
plans (including multiple employer defined benefit pension plans) under the
Preservation of Access to Care for Medicare Beneficiaries and Pension Relief
Act of 2010 (PRA 2010), Pub. L. No.
111–192.
II. BACKGROUND
Section 430 of the Internal Revenue
Code (Code) specifies the minimum funding requirements that apply to single-employer defined benefit pension plans pursuant to § 412. For purposes of calculating the minimum required contribution,
§ 430 generally requires a plan to establish a shortfall amortization base with respect to a plan year for which the value of
a plan’s assets is less than the amount of the
plan’s funding target. Section 430(c)(2)
generally provides for amortization of a
shortfall amortization base over 7 years.
Section 201(b)(1) of PRA 2010 adds
§ 430(c)(2)(D) which permits a plan sponsor to elect, in lieu of the otherwise applicable amortization schedule, to amortize
the shortfall amortization base established
for certain plan years under one of two
alternative amortization schedules: the
2 plus 7-year amortization schedule, or
the 15-year amortization schedule. The
2 plus 7-year amortization schedule is
described in § 430(c)(2)(D)(ii) and the
15-year amortization schedule is described
in § 430(c)(2)(D)(iii). Section 201(b)(2)
of PRA 2010 amends § 430 by adding
§ 430(c)(7), which provides for an acceleration of the required installments under
an alternative amortization schedule in the

2011–2 I.R.B.

case of certain compensatory payments,
dividends, and stock redemptions.
Under § 430(c)(2)(D)(v), an election to
use an alternative amortization schedule
may generally be made only with respect
to one or two eligible plan years, and, under § 430(c)(2)(D)(iv)(II), if the plan sponsor makes the election for two plan years,
the same amortization schedule must be
used for both plan years. An eligible plan
year is a plan year that begins in 2008,
2009, 2010, or 2011, but only if the due
date for the minimum required contribution to the plan for such plan year under § 430(j)(1) occurs on or after June 25,
2010 (the date of enactment of PRA 2010).
Section 430(c)(2)(D)(iv)(III) provides that
any such election may be revoked only
with the consent of the Secretary, after consultation with the Pension Benefit Guaranty Corporation.
Pursuant to § 430(c)(2)(D)(vi), a plan
sponsor that makes an election under
§ 430(c)(2)(D) for a plan year is required
to provide notice of the election to participants and beneficiaries of the plan. Under
§ 430(c)(2)(D)(vi)(II), the plan sponsor
must also inform the Pension Benefit
Guaranty Corporation of such election in
such form and manner as the Director of
the Pension Benefit Guaranty Corporation
may prescribe.
Sections 104, 105, and 106 of the Pension Protection Act of 2006 (PPA ’06),
Pub. L. No. 109–280, provide that the
effective dates for the minimum funding
rules under § 430 and funding-based benefit restrictions under § 436 are delayed for
certain plans. For plans described in section 104 or 105 of PPA ‘06, these provisions do not generally apply for plan years
beginning before January 1, 2017, and January 1, 2014, respectively. For plans described in section 106 of PPA ‘06, the provisions of §§ 430 and 436 of the Code do
not apply for plan years beginning before
January 1, 2011.
Section 202(a) of PRA 2010 amends Title I of PPA ’06 to allow a plan sponsor
of a plan described in section 104 or 105
of PPA ’06 to elect, for any two eligible
plan years (using the same definition as
applies under § 430), one of two alternative amortization schedules with respect to
a portion of the plan’s unfunded new liability. The schedules, set forth in sections
107(b) and 107(c) of PPA ’06, as amended
by PRA 2010, are generally similar to the 2

263

plus 7-year amortization schedule and the
15-year amortization schedule.
Section 202(a) of PRA 2010 also provides for the election of one of the alternative amortization schedules for plans described in section 106 of PPA ’06. Such
plans are subject to the minimum funding
rules of § 430 of the Code for plan years
beginning on or after January 1, 2011, and
the election to use an alternative amortization schedule under section 202(a) of PRA
2010 is available for these plans only for
one eligible year beginning in 2008, 2009,
or 2010. Sponsors of these plans may also
make an election under section 201(b)(1)
of PRA 2010 to use an alternative amortization schedule to amortize the shortfall
amortization base for a plan year beginning in 2011.
Section 202(b) of PRA 2010 amends
section 104 of PPA ‘06 to provide a delayed effective date for application of the
minimum funding requirements of § 430
and the funding-based benefit restrictions
under § 436 to certain plans maintained
by eligible charities. Under this provision, eligible charity plans (certain plans
maintained by employers described in
§ 501(c)(3)) generally will not be subject to the rules of §§ 430 and 436 for
plan years beginning before January 1,
2017. However, plan sponsors may elect
to have the provisions of §§ 430 and
436 apply for plan years beginning after December 31, 2007, and on or before
December 31, 2008.
Section 303(c)(2) of the Employee
Retirement Income Security Act of
1974, as amended (ERISA), is parallel
to § 430(c)(2) of the Code, and section
201(a)(1) of PRA 2010 amends section
303(c)(2) of ERISA in a manner parallel
to the amendments made to § 430(c)(2)
of the Code by section 201(b)(1) of PRA
2010. Section 201(a)(2) of PRA 2010
adds section 303(c)(7) of ERISA, which is
parallel to new § 430(c)(7). Under section
101 of Reorganization Plan No. 4 of 1978
(43 FR 47713), the Secretary of the Treasury has interpretive jurisdiction over the
subject matter of this notice for purposes
of ERISA as well as the Code. Thus, this
notice applies for both purposes.
Notice 2010–55, 2010–33 I.R.B. 253,
states that the Service expects to issue
future guidance on the special funding
rules under PRA 2010 for single-employer
plans. Notice 2010–55 also states that, in

January 10, 2011