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Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Rules and Regulations
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FOR FURTHER INFORMATION CONTACT: Erik
Mettler, Office of Policy, Food and Drug
Administration, 10903 New Hampshire
$11.55 Ave, Bldg. 1, rm. 4305, Silver Spring,
$5.78
MD 20993, 301–796–4830.
$11.55
DEPARTMENT OF THE TREASURY
$5.78
$5.78
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$23.10
$5.78
$5.78
$23.10
$11.55
$11.55
$23.10
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$69.31
$11.55
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[TD 9447]
(Fee/acre/
yr)
County
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* State-average Land and Building value
used where no county-specific value is available.
** Land areas to be determined.
[FR Doc. E9–3788 Filed 2–23–09; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 17
[Docket No. FDA–2008–N–0561]
Maximum Civil Money Penalty
Amounts and Compliance With the
Federal Civil Penalties Inflation
Adjustment Act; Confirmation of
Effective Date
AGENCY:
Food and Drug Administration,
HHS.
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ACTION: Direct final rule; confirmation of
effective date.
SUMMARY: The Food and Drug
Administration (FDA) is confirming the
effective date of March 27, 2009, for the
direct final rule that appeared in the
Federal Register of November 12, 2008
(73 FR 66750). The direct final rule
amends the agency’s regulations to
update the statutory citations regarding
the new civil monetary penalties
prescribed by the Food and Drug
Administration Amendments Act of
2007 (FDAAA), amends the regulations
to include the new FDAAA penalties,
and adjusts the preceding maximum
civil penalty amounts for inflation as
prescribed by the Federal Civil Penalties
Inflation Adjustment Act of 1990
(FCPIAA). This document confirms the
effective date of the direct final rule.
DATES: Effective date confirmed: March
27,2009.
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16:27 Feb 23, 2009
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In the
Federal Register of November 12, 2008
(73 FR 66750), FDA published the
‘‘Maximum Civil Money Penalty
Amounts and Compliance With the
Federal Civil Penalties Inflation
Adjustment Act’’ direct final rule and
solicited comments concerning the
direct final rule for a 75-day period
ending March 27, 2009. The direct final
rule revises § 17.1 (21 CFR 17.1) to
update the statutory citations regarding
the new civil monetary penalties
prescribed by FDAAA, and revises the
table in § 17.2 (21 CFR 17.2) to include
the new FDAAA penalties, and adjusts
the preceding maximum civil penalty
amounts for inflation as prescribed by
the FCPIAA. This was accomplished by
revising the list of statutory monetary
penalties in § 17.1 to include the new
penalties prescribed by the Federal
Food, Drug, and Cosmetic Act, as
amended by FDAAA in 2007. These
new penalties have been added as new
paragraphs (c) and (d). The table in
§ 17.2 also has been amended to include
the new penalties, and the adjusted
maximum penalty amounts for the preFDAAA penalties have been updated to
account for the inflation between June
2004 (the year of the last adjustment)
and June 2007 as prescribed by FCPIAA.
FDA also solicited comments
concerning the changes for a 75-day
period ending January 26, 2009, in a
proposed rule published in the Federal
Register of November 12, 2008 (73 FR
66811). FDA stated that the effective
date of the direct final rule would be on
March 27, 2009, 60 days after the end
of the comment period, unless any
significant adverse comment was
submitted to FDA during the comment
period. FDA did not receive any
significant adverse comments.
Authority: Therefore, under the
Federal Food, Drug, and Cosmetic Act
and the Public Health Service Act, and
under authority delegated to the
Commissioner of Food and Drugs, 21
CFR part 17 is amended. Accordingly,
the amendments issued thereby are
effective.
SUPPLEMENTARY INFORMATION:
Dated: February 17, 2009.
Jeffrey Shuren,
Associate Commissioner for Policy and
Planning.
[FR Doc. E9–3831 Filed 2–23–09; 8:45 am]
BILLING CODE 4160–01–S
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Internal Revenue Service
26 CFR Parts 1 and 54
RIN 1545–BG80
Automatic Contribution Arrangements
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains final
regulations relating to automatic
contribution arrangements. These
regulations affect administrators of,
employers maintaining, participants in,
and beneficiaries of section 401(k) plans
and other eligible plans that include an
automatic contribution arrangement.
DATES: Effective date: These regulations
are effective on February 24, 2009.
Applicability date: Except as provided
in §§ 1.401(k)–3(j)(1)(i) and 1.401(m)–
2(a)(6)(ii), the final regulations relating
to qualified automatic contribution
arrangements (§§ 1.401(k)–2, 1.401(k)–3,
1.401(m)–2, and 1.401(m)–3) apply to
plan years beginning on or after January
1, 2008. The regulations relating to
eligible automatic contribution
arrangements (§§ 1.402(c)–2, 1.411(a)–4,
1.414(w)–1, and 54.4979–1) apply for
plan years beginning on or after January
1, 2010.
FOR FURTHER INFORMATION CONTACT: R.
Lisa Mojiri-Azad, Dana Barry, or
William D. Gibbs at (202) 622–6060 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information
contained in these final regulations has
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
3507(d)) under control number 1545–
2135 .
The collection of information in these
final regulations is in §§ 1.401(k)–3 and
1.414(w)–1. The information in
§ 1.401(k)–3 is required to comply with
the statutory notice requirements in
sections 401(k)(13) and 401(m)(12), and
is expected to be included in the notices
currently provided to employees that
inform them of their rights and benefits
under the plan. The collection of
information under § 1.414(w)–1 is
required to comply with the statutory
notice requirements of section 414(w)
and is expected to be included in the
notices currently provided to employees
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that inform them of their rights and
benefits under the plan.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
This document contains amendments
to regulations under sections 401(k),
401(m), 402(c), 411(a), and 4979 of the
Internal Revenue Code (Code) and new
regulations under section 414(w) in
order to reflect certain of the provisions
of section 902 of the Pension Protection
Act of 2006, Public Law 109–280 (PPA
‘06), taking into account certain of the
changes made by section 109(b) of the
Worker, Retiree, and Employer Recovery
Act of 2008, Public Law 110–458
(WRERA).
Section 902 of PPA ‘06 added sections
401(k)(13), 401(m)(12), and 414(w) to
the Code to facilitate automatic
contribution arrangements (sometimes
referred to as automatic enrollment) in
qualified cash or deferred arrangements
under section 401(k), as well as in
similar arrangements under sections
403(b) and 457(b). An automatic
contribution arrangement is a cash or
deferred arrangement that provides that,
in the absence of an affirmative election
by an eligible employee, a default
election applies under which the
employee is treated as having made an
election to have a specified contribution
made on his or her behalf under the
plan.
Section 401(k)(1) provides that a
profit-sharing, stock bonus, pre-ERISA
money purchase, or rural cooperative
plan will not fail to qualify under
section 401(a) merely because it
contains a qualified cash or deferred
arrangement. Section 1.401(k)–1(a)(2)
defines a cash or deferred arrangement
(CODA) as an arrangement under which
an eligible employee may make a cash
or deferred election with respect to
contributions to, or accruals or other
benefits under, a plan that is intended
to satisfy the requirements of section
401(a). Section 1.401(k)–1(a)(3)(i)
defines a cash or deferred election as
any direct or indirect election (or
modification of an earlier election) by
an employee to have the employer
either: (1) Provide an amount to the
employee in the form of cash (or some
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other taxable benefit) that is not
currently available; or (2) contribute an
amount to a trust, or provide an accrual
or other benefit, under a plan deferring
the receipt of compensation. For
purposes of determining whether an
election is a cash or deferred election,
§ 1.401(k)–1(a)(3)(ii) provides that it is
irrelevant whether the default that
applies in the absence of an affirmative
election is cash (or some other taxable
benefit) or a contribution, an accrual, or
other benefit under a plan deferring the
receipt of compensation. Contributions
that are made pursuant to a cash or
deferred election under a qualified
CODA are commonly referred to as
elective contributions.
In order for a CODA to be a qualified
CODA, it must satisfy a number of other
requirements. Section 401(k)(2)(A)
provides that the amount that each
eligible employee under the
arrangement may defer as an elective
contribution must be available to the
employee in cash. Section 1.401(k)–
1(e)(2)(ii) provides that, in order for a
CODA to satisfy this requirement, the
arrangement must provide each eligible
employee with an effective opportunity
to make (or change) a cash or deferred
election at least once during each plan
year.
Section 401(k)(2)(B) provides that a
qualified CODA must provide that
elective contributions may only be
distributed after certain events,
including hardship and severance from
employment. Similar distribution
restrictions apply under sections
403(b)(7) and 403(b)(11). Section
457(d)(1)(A) includes distribution
restrictions for eligible governmental
deferred compensation plans.
Section 401(k)(3)(A)(ii) applies a
special nondiscrimination test to the
elective contributions of highly
compensated employees, within the
meaning of section 414(q) (HCEs).
Under this test, called the actual
deferral percentage (ADP) test, the
average percentage of compensation
deferred for HCEs is compared annually
to the average percentage of
compensation deferred for nonhighly
compensated employees (NHCEs)
eligible under the plan, and if certain
limits are exceeded by the HCEs,
corrective action must be taken.
Pursuant to section 401(k)(8), one
method of correction is distribution to
HCEs of excess contributions made on
their behalf.
Section 401(m) provides a parallel test
for matching contributions and
employee after-tax contributions under
a defined contribution plan, called the
actual contribution percentage (ACP)
test. Pursuant to section 401(m)(6), one
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8201
method of correction of the ACP test is
distribution to HCEs of excess aggregate
contributions made on their behalf.
Sections 401(k)(12) and 401(m)(11)
provide a design-based safe harbor
under which elective contributions
under a CODA and any associated
matching contributions are treated as
satisfying the ADP and ACP tests if the
arrangement meets certain contribution
and notice requirements. Sections
1.401(k)–3 and 1.401(m)–3 provide
guidance on the requirements for this
design-based safe harbor.
Sections 401(k)(13) and 401(m)(12),
added by PPA ’06 and effective for plan
years beginning on or after January 1,
2008, provide an alternative designbased safe harbor for a CODA that
provides for automatic contributions at
a specified level and meets certain
employer contribution, notice, and other
requirements. A CODA that satisfies
these requirements, referred to as a
qualified automatic contribution
arrangement (QACA), is treated as
satisfying the ADP test and ACP test
with respect to matching contributions.
Section 414(w), added to the Code by
section 902(d)(1) of PPA ’06 and
effective for plan years beginning on or
after January 1, 2008, further facilitates
automatic enrollment by providing
limited relief from the distribution
restrictions under section 401(k)(2)(B),
403(b)(7), 403(b)(11), or 457(d)(1)(A) in
the case of an eligible automatic
contribution arrangement (EACA).
Sections 414(w)(1) and 414(w)(2)
provide that an applicable employer
plan that contains an EACA is permitted
to allow employees to elect to receive a
distribution equal to the amount of
default elective contributions (and
attributable earnings) made with respect
to the employee beginning with the first
payroll period to which the EACA
applies to the employee and ending
with the effective date of the election.
The election must be made within 90
days after the date of the first default
elective contribution with respect to the
employee under the arrangement.
Sections 414(w)(1)(A) and 414(w)(1)(B)
provide that the amount of the
distribution is includible in gross
income for the taxable year in which the
distribution is made, but is not subject
to the additional income tax under
section 72(t).
Section 414(w)(3) defines an EACA as
an arrangement under which: (1) A
participant may elect to have the
employer make payments as
contributions under the plan on behalf
of the participant, or to the participant
directly in cash; (2) the participant is
treated as having elected to have the
employer make such contributions in an
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amount equal to a uniform percentage of
compensation provided under the plan
until the participant specifically elects
not to have such contributions made (or
specifically elects to have such
contributions made at a different
percentage); and (3) participants are
provided a notice that satisfies the
requirements of section 414(w)(4).
Section 109(b)(4) of WRERA eliminated
the provision previously found under
section 414(w)(3)(C) that, in the absence
of an investment election by the
participant, default elective
contributions must be invested in
accordance with the regulations
prescribed by the Secretary of Labor
under section 404(c)(5) of the Employee
Retirement Income Security Act of 1974
(ERISA).
Section 414(w)(4) requires that,
within a reasonable period before each
plan year, each employee to whom the
arrangement applies for such year
receive written notice of the employee’s
rights and obligations under the
arrangement which is sufficiently
accurate and comprehensive to apprise
the employee of such rights and
obligations. Section 414(w)(4)(A)(ii)
requires that the notice be written in a
manner calculated to be understood by
the average employee to whom the
arrangement applies. Section
414(w)(4)(B) provides that the notice
must explain: (1) The employee’s rights
under the arrangement to elect not to
have elective contributions made on the
employee’s behalf or to elect to have
contributions made at a different
percentage; and (2) how contributions
made under the automatic contribution
arrangement will be invested in the
absence of any investment decision by
the employee. In addition, the employee
must be given a reasonable period of
time after receipt of the notice and
before the first elective contribution is
made to make an election with respect
to contributions. In many respects, the
notice under section 414(w)(4) is the
same as the notice required under
section 401(k)(13) for a QACA.
Section 414(w)(5), as amended by
section 109(b)(5) of WRERA, defines an
applicable employer plan as a trust
described in section 401(a) that is
exempt from tax under section 501(a), a
plan described in section 403(b), a
section 457(b) plan that is maintained
by a governmental employer described
in section 457(e)(1)(A), a simplified
employee pension the terms of which
provide for a salary reduction
arrangement described in section
408(k)(6), or a SIMPLE described in
section 408(p).
Section 414(w)(6) provides that a
withdrawal described in section
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16:27 Feb 23, 2009
Jkt 217001
414(w)(1) is not to be taken into account
for purposes of the ADP test. Section
109(b)(6) of WRERA amended section
414(w)(6) to provide that a withdrawal
described in section 414(w)(1) is not to
be taken into account for purposes of
applying the limitation under section
402(g)(1).
Section 411(a)(3)(G), as amended by
section 902(d)(2) of PPA ’06, provides
that a matching contribution shall not
be treated as forfeitable merely because
the matching contribution is forfeitable
if it relates to a contribution that is
withdrawn under an automatic
contribution arrangement that satisfies
the requirements of section 414(w).
Section 4979 provides for an excise
tax on excess contributions (within the
meaning of section 401(k)(8)(B)) and
excess aggregate contributions (within
the meaning of section 401(m)(6)(B)) not
distributed within 21⁄2 months after the
close of the plan year for which the
contributions are made. Section 902 of
PPA ’06 amended section 4979 to
lengthen this 21⁄2 month correction
period for excess contributions and
excess aggregate contributions under an
EACA to 6 months. Thus, in the case of
an EACA that is part of a section 401(k)
plan, the section 4979 excise tax does
not apply to any excess contributions or
excess aggregate contributions which,
together with income allocable to the
contributions, are distributed or
forfeited (if forfeitable) within 6 months
after the close of the plan year.
Section 902 of PPA ’06 amended
section 4979(f)(2) to provide that any
distributions of excess contributions
and excess aggregate contributions
(whether or not under an EACA) are
includible in the employee’s gross
income for the taxable year in which
distributed. However, pursuant to
sections 401(k)(8)(D) and 401(m)(7)(A),
the distributions are not subject to the
additional income tax under section
72(t). Section 902 of PPA ’06 also
amended sections 401(k)(8), 401(m)(6),
and 4979(f)(1) to eliminate the
requirement that distributions of excess
contributions or excess aggregate
contributions (whether or not under an
EACA) include income allocable to the
period after the end of the plan year
(gap period income).
On November 8, 2007, proposed
regulations under sections 401(k),
401(m), 402(c), 411(a), 414(w), and
4979(f) relating to automatic
contribution arrangements were issued
(72 FR 63144). Written public comments
were received on the proposed
regulations, and a public hearing was
held on May 19, 2008. After
consideration of the comments, these
final regulations adopt the provisions of
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the proposed regulations with certain
modifications, the most significant of
which are highlighted in the Summary
of Comments and Explanation of
Revisions. In addition, these final
regulations reflect the amendments to
sections 401(k)(13) and 414(w) that were
made by WRERA.
Summary of Comments and
Explanation of Revisions
I. Qualified Automatic Contribution
Arrangement Under Section 401(k)(13)
A. Minimum Percentage Requirement
Section 401(k)(13)(C)(iii) sets forth a
series of minimum default contribution
percentages that an automatic
contribution arrangement must satisfy
in order to be a qualified automatic
contribution arrangement (QACA). The
final regulations clarify that the
minimum percentage for the initial
period is based on when the employee
first has contributions made pursuant to
a default election under the QACA.
Thus, if an employee makes an
affirmative election before the default
contribution would have begun, then
the initial period does not begin for the
employee. The minimum percentages
are increased for plan years after the
initial period.
Several commentators requested
guidance on the application of the
minimum percentage requirement in the
case of a rehired employee. The final
regulations provide that the minimum
percentages are determined without
regard to whether an employee has
continued to be eligible to make
contributions under the plan. Thus, the
minimum percentage is generally
determined based on the number of
years since the date the employee first
had default contributions made under
the QACA. However, in response to
recordkeeping concerns raised by
commentators, the final regulations also
provide that a plan is permitted to treat
an employee who for an entire plan year
did not have contributions made
pursuant to a default election under the
QACA as if the employee had not had
such contributions for any prior plan
year as well. For example, if an
employee terminates in one plan year,
remains terminated for a full plan year,
and is rehired in a subsequent plan year,
the plan is permitted to provide that a
new initial period begins after the
employee is rehired, regardless of
whether the employee had in fact had
contributions made pursuant to a
default election under the QACA in
some earlier plan year.
Other commentators asked whether
plans are permitted to limit the duration
of an affirmative election or to require
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employees to make new elections.
Under the final regulations, automatic
enrollment applies for periods during
which the affirmative election is not in
effect. Accordingly, a plan could
specifically provide that an affirmative
election expires and, thus, require an
employee to make a new affirmative
election if he or she wants the prior rate
of elective contribution to continue. In
the absence of a second affirmative
election, the employee will be
automatically enrolled at the plan’s
default percentage (which must meet
the minimum percentage requirement
described in the preceding paragraph).
For example, if an employer has a
QACA beginning in 2009 and the plan
provides that all affirmative elections in
effect on December 31, 2010 expire on
that date, then, if the QACA continues
into 2011, all eligible employees who do
not make a new affirmative election will
be automatically enrolled under the
QACA. Similarly, if an employee who
made an affirmative election takes a
hardship withdrawal under the plan
and the plan suspends elective
contributions for 6 months after receipt
of the hardship distribution in
accordance with § 1.401(k)–3(c)(6)(v)(B),
then, if the plan does not reinstate the
affirmative election at the end of the 6
months, the employer must
automatically enroll the employee.
The final regulations provide that, for
plan years beginning on or after January
1, 2010, compensation for purposes of
determining default contributions
means safe harbor compensation as
defined in § 1.401(k)–3(b)(2).
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B. Uniformity Requirement
Section 401(k)(13)(C)(iii) provides
that the default percentage must be
applied uniformly. The proposed
regulations provided that a plan does
not fail to satisfy this uniformity
requirement merely because: the
percentage varies based on the number
of years an eligible employee has
participated in the automatic
contribution arrangement intended to be
a QACA; the rate of elective
contributions under a cash or deferred
election that is in effect immediately
prior to the effective date of the default
percentage under the QACA is not
reduced; the rate of elective
contributions is limited so as not to
exceed the limits of sections 401(a)(17),
402(g) (determined with or without
catch-up contributions described in
section 402(g)(1)(C) or 402(g)(7)), and
415; or the default election is not
applied during the period an employee
is not permitted to make elective
contributions in order for the plan to
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satisfy the requirements of § 1.401(k)–
3(c)(6)(v)(B).
Some commentators asked whether a
QACA may provide for an increase in
the default percentage in the middle of
the plan year. These commentators
suggested that some employers wanted
to provide for such an increase to
coincide with salary increases or
performance evaluations.
To address this issue, the final
regulations expand the exception to the
uniformity requirement that allows
variance based on the number of years
since the date the employee first had
contributions made pursuant to a
default election under an arrangement
that is intended to be a QACA. Under
the final regulations, the default
percentage may also vary based on the
portions of years since that date. Thus,
the plan may provide for the increase of
the default percentage mid-year, as long
as the percentage is uniform based on
the number of years or portions of years
since an employee first had
contributions made pursuant to a
default election and satisfies the
minimum percentage requirement
throughout the plan year.
C. Notice Timing Requirement
The proposed regulations provided
that a QACA satisfies the notice
requirement of section 401(k)(13)(E)
only if the notice satisfies the notice
requirements under section 401(k)(12)
and satisfies the additional
requirements found in section
401(k)(13)(E)(ii). Section 401(k)(12)(D)
and section 401(k)(13)(E)(i) provide that
the notice must be provided within a
reasonable period before each plan year
to each employee eligible to participate
in the QACA.
The final regulations under section
401(k)(12) provide that the
determination of whether the notice
satisfies the timing requirement is based
on all of the relevant facts and
circumstances. The timing requirement
is deemed satisfied if at least 30 days
(and no more than 90 days) before the
beginning of each plan year, the notice
is provided to each eligible employee. In
the case where an eligible employee is
not provided the notice within this 30–
90 day period because the employee
becomes eligible after the 90th day
before the beginning of the plan year,
the timing requirement is deemed to be
satisfied if the notice is provided no
more than 90 days before the employee
becomes eligible and no later than the
date the employee becomes eligible.
The proposed regulations under
section 401(k)(13) applied these same
rules to the notice required under
section 401(k)(13)(E)(i). In accordance
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8203
with section 401(k)(13)(E)(ii), the
proposed regulations also provided that
the notice satisfies the timing
requirements only if it is provided
sufficiently early so that the employee
has a reasonable period of time after
receipt of the notice and before the first
contribution is made pursuant to a
default election under the arrangement
to make an affirmative election to defer
a different amount or percentage.
Some commentators raised a concern
about meeting the notice requirement
for employees who are eligible to
participate in the plan immediately
upon hire. Commentators suggested that
employers be given a grace period to
provide notice, such as 15 days after
hire, as long as the employee has an
effective opportunity to elect not to
make contributions or make an
affirmative election to defer a different
amount or percentage of compensation
prior to the first contribution made
pursuant to a default election.
The final regulations modify the
deemed satisfaction of timing
requirement set forth in § 1.401(k)–
3(d)(3)(ii). The regulations provide that
if it is not practicable for the notice to
be provided on or before the date
specified in the plan that an employee
becomes eligible, the notice will
nonetheless be treated as provided
timely if it is provided as soon as
practicable after that date and the
employee is permitted to elect to defer
from all types of compensation that may
be deferred under the plan earned
beginning on that date. Thus, an
employer is required to provide the
notice to the employee prior to the pay
date for the payroll period that includes
the date the employee becomes eligible.
This change applies to the safe harbor
described in section 401(k)(12), as well
as section 401(k)(13).
The final regulations provide rules for
when the default election must first
become effective. In accordance with
section 401(k)(13)(E)(ii)(III), the final
regulations provide that the default
election must be effective no earlier
than a reasonable period of time after
the receipt of the notice (in order to
provide the employee with a reasonable
period of time to make an affirmative
election). However, the final regulations
provide that the default election must be
effective no later than the earlier of the
pay date for the second payroll period
that begins after the date the notice is
provided or the first pay date that
occurs at least 30 days after the notice
is provided. Notwithstanding any delay
in when the first default contribution is
made, nonelective contributions that are
based on a full year’s contributions and
the rate of matching contributions that
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varies based on compensation must be
based on the safe harbor compensation
earned since the participant was first
eligible under the plan.
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D. Exclusion of Current Affirmative
Elections From Automatic Enrollment
The proposed regulations provided
that an automatic contribution
arrangement does not fail to be a QACA
merely because the default election is
not applied to an employee who was
eligible under the cash or deferred
arrangement (or a predecessor
arrangement) immediately prior to the
effective date of the QACA and on that
effective date had an affirmative
election in effect (that remains in effect)
to have elective contributions made on
his or her behalf (in a specified amount
or percentage of compensation) or not
have elective contributions made on his
or her behalf.
Some commentators requested that
employers be permitted to treat
employees who did not affirmatively
elect to make elective contributions
under the plan as though they had
affirmatively elected zero. These
commentators stated that it would be
administratively difficult to determine
which employees had affirmative
elections in effect prior to the effective
date of the QACA.
The regulations do not expand the
exception for automatically enrolling
current employees to employees who
have not made an affirmative election.
Under section 401(k)(13)(C)(iv)(II), only
those employees who had an affirmative
election in effect immediately before the
QACA became effective are permitted to
be excluded from having a default
election apply to them.
E. Other Topics
Commentators requested clarification
as to whether the safe harbor
nonelective and matching contributions
made under a QACA are eligible for
hardship withdrawal. The final
regulations clarify that these safe harbor
contributions are subject to the
withdrawal restrictions found in
§ 1.401(k)–1(d) that apply to QNECs and
QMACs. Thus, the maximum
distributable amount under § 1.401(k)–
1(d)(3)(ii) does not include earnings,
QNECs, QMACs, or these safe harbor
contributions.
A commentator asked whether safe
harbor matching or nonelective
contributions were required for all
employees, including those eligible
employees with affirmative elections in
effect. The final regulations retain the
requirement that all eligible employees
must receive safe harbor matching
contributions or nonelective
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contributions, whichever is applicable.
The special treatment under section
401(k)(13)(C)(iv) for employees who
have an affirmative election in effect
does not affect whether safe harbor
matching contributions or nonelective
contributions are required to be made
for those employees.
II. Eligible Automatic Contribution
Arrangement Under Section 414(w)
A. Non-Universal Eligible Automatic
Contribution Arrangements
The proposed regulations provided
that an eligible automatic contribution
arrangement (EACA) is an automatic
contribution arrangement under an
applicable employer plan that applies to
each ‘‘eligible employee.’’ An eligible
employee was defined as an employee
who is eligible to make a cash or
deferred election under the plan.
Therefore, under the proposed
regulations, an employer was required
to apply automatic enrollment to all
current and new employees eligible to
make a deferral election under the
applicable plan who did not have an
affirmative election in effect.
Commentators requested flexibility in
the implementation of an EACA by
permitting an employer to apply
automatic enrollment only to those
employees who are hired on or after the
effective date of the EACA.
The final regulations modify the rule
in the proposed regulations to provide
that the employees who must be subject
to the automatic enrollment provisions
under an EACA are only those
employees who are specified in the plan
as being covered employees under the
EACA. Thus, automatic enrollment
under an EACA need not apply to all
employees eligible to make a deferral
election under the applicable plan, but
only to those employees who are
covered by the EACA.
The final regulations provide that the
plan document must specify the
employees who are covered under the
EACA and must state whether an
employee who makes an affirmative
election remains covered under the
EACA. Under section 414(w)(4), the
notice regarding an employee’s rights
and obligations under the arrangement
need only be provided to those
employees who are covered employees
under the EACA as set forth in the plan.
Thus, if a plan provides that an
employee who makes an affirmative
election is no longer a covered
employee under the EACA, then the
employee is not required to receive the
notice after he or she makes an
affirmative election.
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With respect to the correction of
excess contributions for a plan year
beginning on or after January 1, 2010,
the final regulations provide that a plan
that contains an EACA is entitled to the
extended 6-month period for correcting
excess contributions and excess
aggregate contributions without
incurring an excise tax under section
4979, only if all eligible NHCEs and
eligible HCEs are covered employees
under the EACA for the entire plan year
(or the portion of the plan year that the
employees are eligible employees).
Thus, if an EACA covers fewer than all
the eligible employees under the plan,
the employer will be unable to take
advantage of the extension under
section 4979.
B. Uniformity Requirement
The proposed regulations provided
that an EACA must provide that the
default elective contribution is a
uniform percentage of compensation.
The exceptions to the uniformity
requirement for a QACA set forth in
§ 1.401(k)–3(j)(2)(iii) also applied to an
EACA (without regard to whether the
arrangement was intended to be a
QACA).
Some commentators requested that
the uniformity requirement be eased if
the plan is a multiemployer plan or a
multiple employer plan, or if the
sponsor wants to have different default
contributions for collectively bargained
and non-collectively bargained
employees. The final regulations do not
specifically permit this. However, these
plan sponsors can accomplish a similar
goal by establishing separate EACAs for
each of these separate groups. To
address the possibility that a plan may
contain more than one EACA, the final
regulations provide that the requirement
that the default elective contributions
under an EACA be a uniform percentage
of compensation is applied by
aggregating all automatic contribution
arrangements within the plan that are
intended to be EACAs. For this purpose,
in the case of a plan subject to section
410(b), the definition of plan is
determined after applying the
disaggregation rules of § 1.401(k)–
1(b)(4). Thus, a plan that is subject to
the rules of section 410(b) is permitted
to provide for separate EACAs for
different groups of collectively
bargained employees or different
employers in a multiple employer plan
with a different default percentage for
each EACA, but such a plan could not
have different default percentages apply
to different groups of employees that are
in the same plan after application of the
disaggregation rules of § 1.401(k)–
1(b)(4).
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Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Rules and Regulations
C. Mid-Year Implementation of an
Eligible Automatic Contribution
Arrangement
Section 401(k)(12)(D) contains the
notice requirement applicable to a plan
that is relying on the safe harbor for
nondiscrimination testing in section
401(k)(12). It requires that the notice be
provided ‘‘within a reasonable period
before any year.’’ The final regulations
under section 401(k)(12) provide that
the notice must be provided within a
reasonable period of time before the
plan year (or, in the first year that the
employee becomes eligible, within a
reasonable period of time before the
employee becomes eligible). The final
regulations further provide that whether
this timing requirement is satisfied is
based upon all of the relevant facts and
circumstances and that the timing
requirement is deemed to be satisfied if
the notice is given at least 30 days (and
no more than 90 days) before the
beginning of each plan year. In the case
of an employee who becomes eligible
after the 90th day before the beginning
of the plan year, the timing requirement
is deemed to be satisfied if the notice is
provided no more than 90 days before
the employee becomes eligible for the
cash or deferred arrangement (and no
later than the date the employee
becomes eligible).
Section 401(k)(13)(E), which contains
the notice requirements applicable to a
QACA, and section 414(w)(4), which
contains the notice requirements
applicable to an EACA, each require
that the notice be provided ‘‘within a
reasonable period before each plan
year.’’ The proposed regulations
interpreted these provisions in a manner
consistent with the interpretation in the
final regulations under section
401(k)(12) of the almost identical
language in that section, including the
requirement that the notice be provided
within a reasonable period of time
before each plan year, except that, for
individuals who become eligible
employees during the plan year, the
notice need only be provided within a
reasonable period before the employee
becomes an eligible employee.
Some commentators noted that the
notice timing requirement could be
interpreted to preclude the
establishment of an EACA in the middle
of the plan year, in situations where the
notice was not provided before the
beginning of the plan year. They
suggested that the statutory requirement
to provide notice before the start of each
plan year should not preclude starting
an EACA in the middle of the plan year
of an existing cash or deferred
arrangement that is not an EACA, if
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16:27 Feb 23, 2009
Jkt 217001
notice is provided to each eligible
employee within a reasonable period of
time before the employee becomes
eligible for the arrangement.
The final regulations do not adopt this
suggestion. Instead, the final regulations
generally retain the rule in the proposed
regulations, which is consistent with the
statutory requirements of section
414(w)(4) and with the interpretation of
the identical language in section
401(k)(13) and the almost identical
language in section 401(k)(12). The final
regulations do, however, treat
individuals who first become covered
under an automatic contribution
arrangement as a result of a change in
employment status the same as
individuals who first become eligible to
make a cash or deferred election for
purposes of the notice timing
requirements.
Consistent with the revisions to the
deemed timing rule for purposes of
sections 401(k)(12) and 401(k)(13)
described in this preamble, the final
regulations provide that if it is not
practicable for the notice to be provided
on or before the date specified in the
plan that an employee becomes eligible,
the notice will nonetheless be treated as
provided timely if it is provided as soon
as practicable after that date and the
employee is permitted to elect to defer
from all types of compensation that may
be deferred under the plan earned
beginning on that date. Thus, an
employer is required to provide the
notice to the employee prior to the pay
date for the payroll period that includes
the date the employee becomes eligible.
D. Permissible Withdrawal
Section 414(w)(2) limits the period for
the special election to withdraw default
elective contributions to the first 90
days after the date of the first default
contribution under the EACA. The
proposed regulations provided that the
date of the first default elective
contribution is the date that the
compensation that is subject to the cash
or deferred election would otherwise
have been included in gross income.
Some commentators suggested that
the 90-day period start from the date the
first contribution is received by the plan
for the participant. The final regulations
retain the rule in the proposed
regulations that the 90-day period starts
after the date the compensation would
otherwise have been included in gross
income. This date is used for other
relevant Code provisions, such as the
application of the section 402(g)
limitation.
If an employer is concerned about
inadvertently permitting withdrawal
elections outside the 90-day period due
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8205
to misidentifying the date of the first
default elective contribution as defined
under the regulations, the plan is
permitted to limit the period during
which the election can be made to less
than 90 days. Under the final
regulations, a plan is permitted to set an
earlier deadline for the election to
withdraw default elective contributions.
However, if a plan offers a permissible
withdrawal for covered employees, the
election period for the covered
employees must be at least 30 days.
The final regulations also provide that
the date of the first default elective
contribution must take into account any
default elective contributions made
under any EACA under the plan. For
this purpose, all EACAs under the plan
must be aggregated. However, if the plan
provides for multiple EACAs to cover
different employees in different portions
of the plan and these portions of the
plan are mandatorily disaggregated
under section 410(b), then there is no
requirement to aggregate those different
EACAs. Thus, in the case where a plan
that is subject to the rules of section
410(b) has separate EACAs for different
groups of collectively bargained
employees or different employers in a
multiple employer plan, the date for
determining the first default elective
contribution is determined with respect
to each EACA within the separate
disaggregated plan. In addition, in
response to comments, the final
regulations provide that for purposes of
determining the date of the first default
elective contribution, a plan is
permitted to treat an employee who for
an entire plan year did not have default
elective contributions made under the
EACA as if the employee had not had
such contributions for any prior plan
year as well.
Commentators asked whether
employers can restrict the permissible
withdrawals based on subsequent
affirmative elections made by
employees. For example, one
commentator requested that an
employer be permitted to limit the
permissible withdrawal election to
those employees who are automatically
enrolled and who do not make a
subsequent affirmative election of an
amount (other than zero) within the 90day election period. Under a section
401(a) plan or a section 403(b) plan, an
employer is not permitted to condition
an employee’s right to take a
permissible withdrawal on the level of
the employee’s deferral election under
the plan. Thus, an employee’s
permissible withdrawal rights may not
be restricted based upon the employee’s
subsequent affirmative election.
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Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Rules and Regulations
The proposed regulations provided
that the effective date of the permissible
withdrawal election must be no later
than the last day of the payroll period
that begins after the date the election is
made. This rule was included in the
proposed regulations to limit section
414(w) withdrawals to default elective
contributions made for short periods of
time. In response to comments, the final
regulations modify this rule to provide
that the latest effective date of the
permissible withdrawal election cannot
be after the earlier of: (1) The pay date
for the second payroll period beginning
after the election is made, or (2) the first
pay date that occurs at least 30 days
after the election is made. Of course, a
plan may permit an earlier effective
date.
Commentators also requested that the
IRS clarify when the permissible
withdrawal amount must be distributed.
The final regulations clarify that the
permissible withdrawal distribution
must be made in accordance with the
plan’s ordinary timing procedures for
processing distributions and making
distributions. Thus, the permissible
withdrawal distribution should be
processed and distributed no differently
than any other distribution permitted
under the plan.
The proposed regulations provided
that a permissible withdrawal
distribution may be reduced by any
generally applicable fees, but specified
that the plan may not charge a different
fee for a distribution under section
414(w) than would apply to other
distributions. In response to comments,
the final regulations clarify that the plan
cannot charge a higher fee for a
distribution under section 414(w) than
would apply to any other distributions
of cash.
One commentator requested guidance
with respect to the withholding
treatment of permissible withdrawal
amounts. These amounts are subject to
section 3405(a).
§ 1.414(w)–1(c) if the withdrawal has
been made prior to the date as of which
the matching contributions would
otherwise be allocated.
regulations under § 1.414(w)–1 or these
final regulations will be treated as
operating in accordance with a good
faith interpretation of section 414(w).
III. Other Issues
Special Analyses
A. Other Automatic Contribution
Arrangements
It has been determined that these final
regulations are not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
has been determined that 5 U.S.C.
533(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations. It is hereby
certified that the collection of
information in these final regulations
will not have a significant economic
impact on a substantial number of small
entities. This certification is based on
the fact that most small entities that
maintain plans that will be eligible for
the safe harbor provisions of sections
401(k) and 401(m) or the distribution
relief provisions of section 414(w)
currently provide a similar notice with
which this notice can be combined.
Therefore, an analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding this regulation was submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for
comments on its impact on small
business.
E. Forfeiture of Employer Matching
Contributions
The proposed regulations provided
that matching contributions with
respect to default elective contributions
that had been distributed pursuant to a
permissible withdrawal election must
be forfeited. In response to comments,
the final regulations clarify that the
forfeiture applies to any matching
contributions that have been allocated
to the participant’s account, adjusted for
allocable gain or loss. The final
regulations provide that the plan is
permitted to provide that matching
contributions will not be made with
respect to any withdrawal made under
Except as provided in §§ 1.401(k)–
3(j)(1)(i) and 1.401(m)–2(a)(6)(ii), the
final regulations relating to qualified
automatic contribution arrangements
(§§ 1.401(k)–2, 1.401(k)–3, 1.401(m)–2,
and 1.401(m)–3) apply to plan years
beginning on or after January 1, 2008.
The regulations relating to eligible
automatic contribution arrangements
(§§ 1.402(c)–2, 1.411(a)–4, 1.414(w)–1,
and 54.4979–1) apply for plan years
beginning on or after January 1, 2010.
For plan years that begin in 2008, a plan
must operate in accordance with a good
faith interpretation of section 414(w).
For this purpose, a plan that operates in
accordance with the proposed
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16:27 Feb 23, 2009
Jkt 217001
Many employers have previously
adopted automatic contribution
arrangements as originally described in
prior guidance, such as Rev. Rul. 2000–
8, 2000–1 CB 617. This prior guidance,
which was reflected in regulations
under section 401(k) issued in 2004,
permitted employers to automatically
enroll employees in a section 401(k)
plan. These final regulations do not
affect any automatic contribution
arrangement that is not intended to be
a QACA or an EACA.
B. Other Issues Under Section 902 of
PPA ’06 and WRERA
These regulations also reflect the
modification to the correction rules for
excess contributions and excess
aggregate contributions provided in
section 902(e) of PPA’06. These
provisions include: (1) the change in the
year of inclusion in income for
distributed excess contributions to the
year of distribution; and (2) the
elimination of the requirement to
include gap period income for a
distribution that is made to correct an
ADP or ACP failure. However, these
regulations do not reflect: (1) the change
made by section 109(b)(3) of WRERA
that eliminates the requirement to
include gap period income for a
distribution of an excess deferral under
section 402(g); (2) the additional time to
correct excess contributions under a
SARSEP that includes an EACA; (3) the
tax treatment of excess contributions
and earnings thereon under a SARSEP;
and (4) guidance on SIMPLE IRA plans
that include an EACA.
Effective Date
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Drafting Information
The principal authors of these
regulations are Dana Barry, William D.
Gibbs, and R. Lisa Mojiri-Azad, Office of
Division Counsel/Associate Chief
Counsel (Tax Exempt and Government
Entities). However, other personnel
from the IRS and Treasury Department
participated in the development of these
regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 54
Excise taxes, Pensions, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 54
are amended as follows:
■
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended to read as follows:
■
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Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Rules and Regulations
(A) Initial-period requirement.
(B) Second-year requirement.
(C) Third-year requirement.
(D) Later years requirement.
(iii) Exception to uniform percentage
requirement.
(iv) Treatment of periods without default
contributions.
(k) Modifications to contribution
requirements and notice requirements
for automatic contribution safe harbor.
(1) In general.
(2) Lower matching requirement.
(3) Modified nonforfeiture requirement.
(4) Additional notice requirements.
(i) In general.
(ii) Additional information.
(iii) Timing requirements.
Authority: 26 U.S.C. 401(m)(9) and 26
U.S.C. 7805 * * * Section 1.401(k)–3 is also
issued under 26 U.S.C. 401(m)(9).
Par. 2. Section 1.401(k)–0 is amended
in:
■ 1. The entry for § 1.401(k)–2 is
amended by—
■ a. Adding the entry for § 1.401(k)–
2(a)(5)(vi) and revising the entry for
§ 1.401(k)–2(b)(2)(iv)(D).
■ b. Revising entries for § 1.401(k)–
2(b)(2)(vi)(A) and (b)(2)(vi)(B).
■ c. Adding an entry for § 1.401(k)–
2(b)(5)(iii).
■ 2. The entry for § 1.401(k)–3 is
amended by—
■ a. Adding entries for §§ 1.401(k)–
3(a)(1), 1.401(k)–3(a)(2) and 1.401(k)–
3(a)(3).
■ b. Adding an entry for § 1.401(k)–3(i).
■ c. Adding entries for §§ 1.401(k)–
3(j)(1) and 1.401(k)–3(j)(2).
■ d. Adding entries for §§ 1.401(k)–
3(k)(1), 1.401(k)–3(k)(2), 1.401(k)–3(k)(3)
and 1.401(k)–3(k)(4).
The additions and revisions read as
follows:
■
§ 1.401(k)–0
*
*
*
*
§ 1.401(k)–2 ADP test.
(a) * * *
(5) * * *
(vi) Default elective contributions pursuant
to section 414(w).
*
*
*
*
*
*
*
*
(b) * * *
(2) * * *
(iv) * * *
(A) * * *
*
*
(D) Plan years before 2008.
*
*
*
*
*
(vi) * * *
(A) Corrective distributions for plan years
beginning on or after January 1, 2008.
(B) Corrective distributions for plan years
beginning before January 1, 2008.
*
*
*
*
*
(5) * * *
(iii) Special rule for eligible automatic
contribution arrangements.
*
*
*
*
*
§ 1.401(k)–3 Safe harbor requirements.
(a) * * *
(1) Section 401(k)(12) safe harbor.
(2) Section 401(k)(13) safe harbor.
(3) Requirements applicable to safe harbor
contributions.
mstockstill on PROD1PC66 with RULES
*
*
*
*
*
(i) [Reserved].
(j) Qualified automatic contribution
arrangement.
(1) Automatic contribution requirement.
(i) In general.
(ii) Automatic contribution arrangement.
(iii) Exception to automatic enrollment for
certain current employees.
(2) Qualified percentage.
(i) In general.
(ii) Minimum percentage requirements.
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16:27 Feb 23, 2009
Jkt 217001
§ 1.401(k)–1 Certain cash or deferred
arrangements.
*
Table of Contents.
*
Par. 3. Section 1.401(k)–1 is amended
by:
■ 1. Revising paragraph (b)(1)(ii)(C) and
adding new paragraph (b)(1)(ii)(D).
■ 2. Adding a new sentence after the
fifth sentence in paragraph (e)(7).
The additions and revisions to read as
follows:
■
*
*
*
*
(b) * * *
(1) * * *
(ii) * * *
(C) The ADP safe harbor provisions of
section 401(k)(13) described in
§ 1.401(k)–3; or
(D) The SIMPLE 401(k) provisions of
section 401(k)(11) described in
§ 1.401(k)–4.
*
*
*
*
*
(e) * * *
(7) Plan provision requirement. * * *
In addition, a plan that uses the safe
harbor method of section 401(k)(13), as
described in paragraph (b)(1)(ii)(C) of
this section, must specify the default
percentages that apply for the plan year
and whether the safe harbor
contribution will be the nonelective safe
harbor contribution or the matching safe
harbor contribution, and is not
permitted to provide that ADP testing
will be used if the requirements for the
safe harbor are not satisfied. * * *
*
*
*
*
*
■ Par. 4. Section 1.401(k)–2 is amended
by:
■ 1. Adding paragraph (a)(5)(vi).
■ 2. Revising paragraphs (b)(2)(iv)(A)
and (b)(2)(iv)(D).
■ 3. Removing paragraph (b)(2)(iv)(E).
■ 4. Revising paragraph (b)(2)(vi)(A).
■ 5. Revising the heading and adding a
new first sentence to paragraph
(b)(2)(vi)(B).
■ 6. Removing Examples 3, 4, and 5 of
paragraph (b)(2)(viii).
■ 7. Revising paragraph (b)(4)(iii) and
adding paragraph (b)(5)(iii).
The additions and revisions to read as
follows:
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§ 1.401(k)–2
8207
ADP test.
(a) * * *
(5) * * *
(vi) Default elective contributions
pursuant to section 414(w). Default
elective contributions made under an
eligible automatic contribution
arrangement (within the meaning of
§ 1.414(w)–1(b)) that are distributed
pursuant to § 1.414(w)–1(c) for plan
years beginning on or after January 1,
2008, are not taken into account under
paragraph (a)(4) of this section for the
plan year for which the contributions
are made, or for any other plan year.
*
*
*
*
*
(b) * * *
(2) * * *
(iv) Income allocable to excess
contributions—(A) General rule. For
plan years beginning on or after January
1, 2008, the income allocable to excess
contributions is equal to the allocable
gain or loss through the end of the plan
year. See paragraph (b)(2)(iv)(D) of this
section for rules that apply to plan years
beginning before January 1, 2008.
*
*
*
*
*
(D) Plan years before 2008. For plan
years beginning before January 1, 2008,
the income allocable to excess
contributions is determined under
§ 1.401(k)–2(b)(2)(iv) (as it appeared in
the April 1, 2007, edition of 26 CFR part
1).
*
*
*
*
*
(vi) Tax treatment of corrective
distributions—(A) Corrective
distributions for plan years beginning on
or after January 1, 2008. Except as
provided in this paragraph (b)(2)(vi), for
plan years beginning on or after January
1, 2008, a corrective distribution of
excess contributions (and allocable
income) is includible in the employee’s
gross income for the employee’s taxable
year in which distributed. In addition,
the corrective distribution is not subject
to the early distribution tax of section
72(t). See paragraph (b)(5) of this section
for additional rules relating to the
employer excise tax on amounts
distributed more than 21⁄2 months (6
months in the case of certain plans that
include an eligible automatic
contribution arrangement within the
meaning of section 414(w)) after the end
of the plan year. See also § 1.402(c)–2,
A–4 for restrictions on rolling over
distributions that are excess
contributions.
(B) Corrective distributions for plan
years beginning before January 1, 2008.
The tax treatment of corrective
distributions for plan years beginning
before January 1, 2008, is determined
under § 1.401(k)–2(b)(2)(vi) (as it
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appeared in the April 1, 2007, edition of
26 CFR Part 1). * * *
*
*
*
*
*
(4) * * *
(iii) Permitted forfeiture of QMAC.
Pursuant to section 401(k)(8)(E), a
qualified matching contribution is not
treated as forfeitable under § 1.401(k)–
1(c) merely because under the plan it is
forfeited in accordance with paragraph
(b)(4)(ii) of this section or § 1.414(w)–
1(d)(2).
*
*
*
*
*
(5) * * *
(iii) Special rule for eligible automatic
contribution arrangements. In the case
of excess contributions under a plan
that includes an eligible automatic
contribution arrangement within the
meaning of section 414(w), 6 months is
substituted for 21⁄2 months in paragraph
(b)(5)(i) of this section. The additional
time described in this paragraph
(b)(5)(iii) applies to a distribution of
excess contributions for a plan year
beginning on or after January 1, 2010
only where all the eligible NHCEs and
eligible HCEs are covered employees
under the eligible automatic
contribution arrangement (within the
meaning of § 1.414(w)–1(e)(3)) for the
entire plan year (or for the portion of the
plan year that the eligible NHCEs and
eligible HCEs are eligible employees).
*
*
*
*
*
■ Par. 5. Section 1.401(k)–3 is amended
by:
■ 1. Revising paragraph (a).
■ 2. Adding a new sentence at the end
of paragraph (d)(3)(ii).
■ 3. Revising the first sentence of
paragraph (e)(1).
■ 4. Revising the last sentence of
paragraph (h)(2).
■ 5. Revising the first sentence of
paragraph (h)(3).
■ 6. Adding paragraphs (i), (j), and (k).
The additions and revisions to read as
follows:
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§ 1.401(k)–3
Safe harbor requirements.
(a) ADP test safe harbor—(1) Section
401(k)(12) safe harbor. A cash or
deferred arrangement satisfies the ADP
safe harbor provision of section
401(k)(12) for a plan year if the
arrangement satisfies the safe harbor
contribution requirement of paragraph
(b) or (c) of this section for the plan
year, the notice requirement of
paragraph (d) of this section, the plan
year requirements of paragraph (e) of
this section, and the additional rules of
paragraphs (f), (g), and (h) of this
section, as applicable.
(2) Section 401(k)(13) safe harbor. For
plan years beginning on or after January
1, 2008, a cash or deferred arrangement
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satisfies the ADP safe harbor provision
of section 401(k)(13) for a plan year if
the arrangement is described in
paragraph (j) of this section and satisfies
the safe harbor contribution requirement
of paragraph (k) of this section for the
plan year, the notice requirement of
paragraph (d) of this section (modified
to include the information set forth in
paragraph (k)(4) of this section), the
plan year requirements of paragraph (e)
of this section, and the additional rules
of paragraphs (f), (g), and (h) of this
section, as applicable. A cash or
deferred arrangement that satisfies the
requirements of this paragraph (a)(2) is
referred to as a qualified automatic
contribution arrangement.
(3) Requirements applicable to safe
harbor contributions. Pursuant to
section 401(k)(12)(E)(ii) and section
401(k)(13)(D)(iv), the safe harbor
contribution requirement of paragraph
(b), (c), or (k) of this section must be
satisfied without regard to section
401(l). The contributions made under
paragraph (b) or (c) of this section (and
the corresponding contributions under
paragraph (k) of this section) are
referred to as safe harbor nonelective
contributions and safe harbor matching
contributions.
*
*
*
*
*
(d) * * *
(3) * * *
(ii) Deemed satisfaction of timing
requirement. * * * If it is not
practicable for the notice to be provided
on or before the date specified in the
plan that an employee becomes eligible,
the notice will nonetheless be treated as
provided timely if it is provided as soon
as practicable after that date and the
employee is permitted to elect to defer
from all types of compensation that may
be deferred under the plan earned
beginning on the date the employee
becomes eligible.
(e) Plan year requirement—(1)
General rule. Except as provided in this
paragraph (e) or in paragraph (f) of this
section, a plan will fail to satisfy the
requirements of sections 401(k)(12),
401(k)(13), and this section unless plan
provisions that satisfy the rules of this
section are adopted before the first day
of the plan year and remain in effect for
an entire 12-month plan year. * * *
*
*
*
*
*
(h) * * *
(2) Use of safe harbor nonelective
contributions to satisfy other
discrimination tests. * * * However,
pursuant to section 401(k)(12)(E)(ii) and
section 401(k)(13)(D)(iv), to the extent
they are needed to satisfy the safe
harbor contribution requirement of
paragraph (b) of this section, safe harbor
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nonelective contributions may not be
taken into account under any plan for
purposes of section 401(l) (including the
imputation of permitted disparity under
§ 1.401(a)(4)–7).
(3) Early participation rules. Section
401(k)(3)(F) and § 1.401(k)–
2(a)(1)(iii)(A), which provide an
alternative nondiscrimination rule for
certain plans that provide for early
participation, do not apply for purposes
of section 401(k)(12), section 401(k)(13),
and this section. * * *
*
*
*
*
*
(i) [Reserved].
(j) Qualified automatic contribution
arrangement—(1) Automatic
contribution requirement—(i) In
general. A cash or deferred arrangement
is described in this paragraph (j) if it is
an automatic contribution arrangement
described in paragraph (j)(1)(ii) of this
section where the default election under
that arrangement is a contribution equal
to the qualified percentage described in
paragraph (j)(2) of this section
multiplied by the eligible employee’s
compensation from which elective
contributions are permitted to be made
under the cash or deferred arrangement.
For plan years beginning on or after
January 1, 2010, the compensation used
for this purpose must be safe harbor
compensation as defined under
paragraph (b)(2) of this section.
(ii) Automatic contribution
arrangement. An automatic contribution
arrangement is a cash or deferred
arrangement within the meaning of
§ 1.401(k)–1(a)(2) that provides that, in
the absence of an eligible employee’s
affirmative election, a default election
applies under which the employee is
treated as having made an election to
have a specified contribution made on
his or her behalf under the plan. The
default election begins to apply with
respect to an eligible employee no
earlier than a reasonable period of time
after receipt of the notice describing the
automatic contribution arrangement.
The default election ceases to apply
with respect to an eligible employee for
periods of time with respect to which
the employee has an affirmative election
that is currently in effect to—
(A) Have elective contributions made
in a different amount on his or her
behalf (in a specified amount or
percentage of compensation); or
(B) Not have any elective
contributions made on his or her behalf.
(iii) Exception to automatic
enrollment for certain current
employees. An automatic contribution
arrangement will not fail to be a
qualified automatic contribution
arrangement merely because the default
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election provided under paragraph
(j)(1)(i) of this section is not applied to
an employee who was an eligible
employee under the cash or deferred
arrangement (or a predecessor
arrangement) immediately prior to the
effective date of the qualified automatic
contribution arrangement and on that
effective date had an affirmative
election in effect (that remains in effect)
to—
(A) Have elective contributions made
on his or her behalf (in a specified
amount or percentage of compensation);
or
(B) Not have elective contributions
made on his or her behalf.
(2) Qualified percentage—(i) In
general. A percentage is a qualified
percentage only if it—
(A) Is uniform for all employees
(except to the extent provided in
paragraph (j)(2)(iii) of this section);
(B) Does not exceed 10 percent; and
(C) Satisfies the minimum percentage
requirements of paragraph (j)(2)(ii) of
this section.
(ii) Minimum percentage
requirements—(A) Initial-period
requirement. The minimum percentage
requirement of this paragraph
(j)(2)(ii)(A) is satisfied only if the
percentage that applies for the initial
period is at least 3 percent. For this
purpose, the initial period begins when
the employee first has contributions
made pursuant to a default election
under an arrangement that is intended
to be a qualified automatic contribution
arrangement for a plan year and ends on
the last day of the following plan year.
(B) Second-year requirement. The
minimum percentage requirement of
this paragraph (j)(2)(ii)(B) is satisfied
only if the percentage that applies for
the plan year immediately following the
last day described in paragraph
(j)(2)(ii)(A) of this section is at least 4
percent.
(C) Third-year requirement. The
minimum percentage requirement of
this paragraph (j)(2)(ii)(C) is satisfied
only if the percentage that applies for
the plan year immediately following the
plan year described in paragraph
(j)(2)(ii)(B) of this section is at least 5
percent.
(D) Later years requirement. A
percentage satisfies the minimum
percentage requirement of this
paragraph (j)(2)(ii)(D) only if the
percentage that applies for all plan years
following the plan year described in
paragraph (j)(2)(ii)(C) of this section is at
least 6 percent.
(iii) Exception to uniform percentage
requirement. A plan does not fail to
satisfy the uniform percentage
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Jkt 217001
requirement of paragraph (j)(2)(i)(A) of
this section merely because—
(A) The percentage varies based on
the number of years (or portions of
years) since the beginning of the initial
period for an eligible employee;
(B) The rate of elective contributions
under a cash or deferred election that is
in effect for an employee immediately
prior to the effective date of the default
percentage under the qualified
automatic contribution arrangement is
not reduced;
(C) The rate of elective contributions
is limited so as not to exceed the limits
of sections 401(a)(17), 402(g)
(determined with or without catch-up
contributions described in section
402(g)(1)(C) or 402(g)(7)), and 415; or
(D) The default election provided
under paragraph (j)(1)(i) of this section
is not applied during the period an
employee is not permitted to make
elective contributions in order for the
plan to satisfy the requirements of
§ 1.401(k)–3(c)(6)(v)(B).
(iv) Treatment of periods without
default contributions. The minimum
percentages described in paragraph
(j)(2)(ii) of this section are based on the
date the initial period begins, regardless
of whether the employee is eligible to
make elective contributions under the
plan after that date. Thus, for example,
if an employee is ineligible to make
contributions under the plan for 6
months because the employee had a
hardship withdrawal and the 6-month
period includes a date as of which the
default minimum percentage is
increased, then the default percentage
must reflect that increase when the
employee is permitted to resume
contributions. However, for purposes of
determining the date the initial period
described in paragraph (j)(2)(ii)(A) of
this section begins, a plan is permitted
to treat an employee who for an entire
plan year did not have contributions
made pursuant to a default election
under the qualified automatic
contribution arrangement as if the
employee had not had such
contributions made for any prior plan
year as well.
(k) Modifications to contribution
requirements and notice requirements
for automatic contribution safe harbor—
(1) In general. A cash or deferred
arrangement satisfies the contribution
requirements of this paragraph (k) only
if it satisfies the contribution
requirements of either paragraph (b) or
(c) of this section, as modified by the
rules of paragraphs (k)(2) and (k)(3) of
this section. In addition, a cash or
deferred arrangement satisfies the notice
requirement of section 401(k)(13)(E)
only if the notice satisfies the additional
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Frm 00069
Fmt 4700
Sfmt 4700
8209
requirements of paragraph (k)(4) of this
section.
(2) Lower matching requirement. In
applying the requirement of paragraph
(c) of this section in the case of a cash
or deferred arrangement, the basic
matching formula is modified so that
each eligible NHCE must receive the
sum of—
(i) 100 percent of the employee’s
elective contributions that do not
exceed 1 percent of the employee’s safe
harbor compensation; and
(ii) 50 percent of the employee’s
elective contributions that exceed 1
percent of the employee’s safe harbor
compensation but that do not exceed 6
percent of the employee’s safe harbor
compensation.
(3) Modified nonforfeiture
requirement. A cash or deferred
arrangement described in paragraph (j)
of this section will not fail to satisfy the
requirements of paragraph (b) or (c) of
this section, as applicable, merely
because the safe harbor contributions
are not qualified nonelective
contributions or qualified matching
contributions provided that—
(i) The contributions are subject to the
withdrawal restrictions that apply to
QNECs and QMACs, as set forth in
§ 1.401(k)–1(d); and
(ii) Any employee who has completed
2 years of service (within the meaning
of section 411(a)) has a nonforfeitable
right to the account balance attributable
to the safe harbor contributions.
(4) Additional notice requirements—
(i) In general. A notice satisfies the
requirements of this paragraph (k)(4)
only if it includes the additional
information described in paragraph
(k)(4)(ii) of this section and satisfies the
timing requirements of paragraph
(k)(4)(iii) of this section.
(ii) Additional information. A notice
satisfies the additional information
requirement of this paragraph (k)(4)(ii)
only if it explains—
(A) The level of elective contributions
which will be made on the employee’s
behalf if the employee does not make an
affirmative election;
(B) The employee’s right under the
arrangement to elect not to have elective
contributions made on the employee’s
behalf (or to elect to have such
contributions made in a different
amount or percentage of compensation);
and
(C) How contributions under the
arrangement will be invested (including,
in the case of an arrangement under
which the employee may elect among 2
or more investment options, how
contributions will be invested in the
absence of an investment election by the
employee).
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(iii) Timing requirements. A notice
satisfies the timing requirements of this
paragraph (k)(4)(iii) only if it is
provided sufficiently early so that the
employee has a reasonable period of
time after receipt of the notice to make
the elections described under paragraph
(k)(4)(ii)(B) and (C) of this section.
However, the requirement in the
preceding sentence that an employee
have a reasonable period of time after
receipt of the notice to make an
alternative election does not permit a
plan to make the default election
effective any later than the earlier of—
(A) The pay date for the second
payroll period that begins after the date
the notice is provided; and
(B) The first pay date that occurs at
least 30 days after the notice is
provided.
■ Par. 6. Section 1.401(k)–6 is amended
by revising the last sentence in the
definition of ‘‘qualified matching
contributions (QMACs)’’ to read as
follows:
§ 1.401(k)–6
Definitions.
*
*
*
*
*
Qualified matching contributions
(QMACs). * * * See also § 1.401(k)–
2(b)(4)(iii) for a rule providing that a
matching contribution does not fail to
qualify as a QMAC solely because it is
forfeitable under section 411(a)(3)(G) as
a result of being a matching contribution
with respect to an excess deferral,
excess contribution, or excess aggregate
contribution, or it is forfeitable under
§ 1.414(w)–1(d)(2).
*
*
*
*
*
Par. 7. Section 1.401(m)–0 is amended
in:
■ 1. The entry for § 1.401(m)–2 by—
■ a. Revising § 1.401(m)–2(b)(2)(iv)(D).
■ b. Adding an entry for § 1.401(m)–
2(b)(4)(iii).
■ c. Revising the entries for § 1.401(m)–
2(b)(2)(vi)(A) and (b)(2)(vi)(B).
■ d. Adding an entry for § 1.401(m)–
2(b)(4)(iii).
■ 2. The entry for § 1.401(m)–3 by
revising the entries for §§ 1.401(m)–
3(a)(1), 1.401(m)–3(a)(2) and 1.401(m)–
3(a)(3).
The additions and revisions read as
follows:
■
§ 1.401(m)–0
*
*
*
§ 1.401(m)–2
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*
*
Table of Contents.
*
*
ACP Test.
*
*
*
*
*
*
(b) * * *
(2) * * *
(iv) * * *
(A) * * *
*
*
(D) Plan years before 2008.
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Jkt 217001
(E) Allocable income for recharacterized
elective contributions.
*
*
*
*
*
(vi) * * *
(A) Corrective distributions for plan years
beginning on or after January 1, 2008.
(B) Corrective distributions for plan years
beginning before January 1, 2008.
*
*
*
*
*
(4) * * *
(iii) Special rule for eligible automatic
contribution arrangements.
*
*
*
*
*
§ 1.401(m)–3 Safe Harbor Requirements.
(a) * * *
(1) Section 401(m)(11) safe harbor.
(2) Section 401(m)(12) safe harbor.
(3) Requirements applicable to safe harbor
contributions.
*
*
*
*
*
Par. 8. Section 1.401(m)–1 is amended
by:
■ 1. Revising paragraph (b)(1)(iii) and
adding paragraph (b)(1)(iv).
■ 2. Revising the last sentence of
paragraph (b)(4)(iii)(B).
■ 3. Revising the fifth sentence of
paragraph (c)(2).
The additions and revisions read as
follows:
■
§ 1.401(m)–1 Employee contributions and
matching contributions.
*
*
*
*
*
(b) * * *
(1) * * *
(iii) The ACP safe harbor provisions of
section 401(m)(12) described in
§ 1.401(m)–3; or
(iv) The SIMPLE 401(k) provisions of
sections 401(k)(11) and 401(m)(10)
described in § 1.401(k)–4.
*
*
*
*
*
(4) * * *
(iii) * * *
(B) Arrangements with inconsistent
ACP testing methods. * * * Similarly,
an employer may not aggregate a plan
(within the meaning of § 1.410(b)–7)
that is using the ACP safe harbor
provisions of section 401(m)(11) or
401(m)(12) and another plan that is
using the ACP test of section 401(m)(2).
*
*
*
*
*
(c) * * *
(2) Plan provision requirement. * * *
Similarly, a plan that uses the safe
harbor method of section 401(m)(11) or
401(m)(12), as described in paragraphs
(b)(1)(ii) and (b)(1)(iii) of this section,
must specify the default percentages
that apply for the plan year and whether
the safe harbor contribution will be the
nonelective safe harbor contribution or
the matching safe harbor contribution,
and is not permitted to provide that
ACP testing will be used if the
requirements for the safe harbor are not
satisfied. * * *
*
*
*
*
*
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Par. 9. Section 1.401(m)–2 is amended
by:
■ 1. Revising the first and second
sentences of paragraph (a)(5)(iv).
■ 2. Revising paragraph (a)(5)(v).
■ 3. Adding a new sentence at the end
of paragraph (a)(6)(ii).
■ 4. Revising paragraphs (b)(2)(iv)(A)
and (b)(2)(iv)(D).
■ 5. Removing paragraph (b)(2)(iv)(E).
■ 6. Redesignating paragraph
(b)(2)(iv)(F) as paragraph (b)(2)(iv)(E).
■ 7. Revising paragraph (b)(2)(vi)(A).
■ 8. Adding a new sentence to the
beginning of paragraph (b)(2)(vi)(B).
■ 9. Adding paragraph (b)(4)(iii).
The additions and revisions read as
follows:
■
§ 1.401(m)–2
ACP test.
(a) * * *
(5) * * *
(iv) Matching contributions taken into
account. A plan that satisfies the ACP
safe harbor requirements of section
401(m)(11) or 401(m)(12) for a plan year
but nonetheless must satisfy the
requirements of this section because it
provides for employee contributions for
such plan year is permitted to apply this
section disregarding all matching
contributions with respect to all eligible
employees. In addition, a plan that
satisfies the ADP safe harbor
requirements of § 1.401(k)–3 for a plan
year using qualified matching
contributions but does not satisfy the
ACP safe harbor requirements of section
401(m)(11) or 401(m)(12) for such plan
year is permitted to apply this section
by excluding matching contributions
with respect to all eligible employees
that do not exceed 4 percent (31⁄2
percent in the case of a plan that
satisfies the ADP safe harbor under
section 401(k)(13)) of each employee’s
compensation. * * *
(v) Treatment of forfeited matching
contributions. A matching contribution
that is forfeited because the contribution
to which it relates is treated as an excess
contribution, excess deferral, excess
aggregate contribution, or default
elective contribution that is distributed
under section 414(w), is not taken into
account for purposes of this section.
*
*
*
*
*
(6) * * * * *
(ii) Elective contributions taken into
account under the ACP test. * * * In
addition, for plan years ending on or
after November 8, 2007, elective
contributions which are not permitted
to be taken into account for the ADP test
for the plan year under § 1.401(k)–
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2(a)(5)(ii), (iii), (v), or (vi) are not
permitted to be taken into account for
the ACP test.
*
*
*
*
*
(b) * * * * *
(2) * * * * *
(iv) Income allocable to excess
aggregate contributions—(A) General
rule. For plan years beginning on or
after January 1, 2008, the income
allocable to excess aggregate
contributions is equal to the allocable
gain or loss through the end of the plan
year. See paragraph (b)(2)(iv)(D) of this
section for rules that apply to plan years
beginning before January 1, 2008.
*
*
*
*
*
(D) Plan years before 2008. For plan
years beginning before January 1, 2008,
the income allocable to excess aggregate
contributions is determined under
§ 1.401(m)–2(b)(2)(iv) (as it appeared in
the April 1, 2007 edition of 26 CFR part
1).
*
*
*
*
*
(vi) Tax treatment of corrective
distributions—(A) Corrective
distributions for plan years beginning on
or after January 1, 2008. Except as
otherwise provided in this paragraph
(b)(2)(vi), for plan years beginning on or
after January 1, 2008, a corrective
distribution of excess aggregate
contributions (and allocable income) is
includible in the employee’s gross
income in the taxable year of the
employee in which distributed. The
portion of the distribution that is treated
as an investment in the contract and is
therefore not subject to tax under
section 72 is determined without regard
to any plan contributions other than
those distributed as excess aggregate
contributions. Regardless of when the
corrective distribution is made, it is not
subject to the early distribution tax of
section 72(t). See paragraph (b)(4) of this
section for additional rules relating to
the employer excise tax on amounts
distributed more than 21⁄2 months (6
months in the case of certain plans that
include an eligible automatic
contribution arrangement within the
meaning of section 414(w)) after the end
of the plan year. See also § 1.402(c)–2,
A–4, prohibiting rollover of
distributions that are excess aggregate
contributions.
(B) Corrective distributions for plan
years beginning before January 1, 2008.
The tax treatment of corrective
distributions for plan years beginning
before January 1, 2008, is determined
under § 1.401(m)–2(b)(2)(vi) (as it
appeared in the April 1, 2007, edition of
26 CFR Part 1). * * *
(4) * * *
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(iii) Special rule for eligible automatic
contribution arrangements. In the case
of excess aggregate contributions under
a plan that includes an eligible
automatic contribution arrangement
(within the meaning of section 414(w)),
6 months is substituted for 21⁄2 months
in paragraph (b)(4)(i) of this section. The
additional time described in this
paragraph (b)(4)(iii) applies to a
distribution of excess aggregate
contributions for a plan year beginning
on or after January 1, 2010 only where
all the eligible NHCEs and eligible HCEs
are covered employees under the
eligible automatic contribution
arrangement (within the meaning of
§ 1.414(w)–1(e)(3)) for the entire plan
year (or for the portion of the plan year
that the eligible NHCEs and eligible
HCEs are eligible employees).
*
*
*
*
*
■ Par. 10. Section 1.401(m)–3 is
amended by:
■ 1. Revising paragraph (a).
■ 2. Revising the first sentences of
paragraphs (f)(1) and (j)(3).
The revisions read as follows:
§ 1.401(m)–3
Safe harbor requirements.
(a) ACP test safe harbor—(1) Section
401(m)(11) safe harbor. Matching
contributions under a plan satisfy the
ACP safe harbor provisions of section
401(m)(11) for a plan year if the plan
satisfies the safe harbor contribution
requirement of paragraph (b) or (c) of
this section for the plan year, the
limitations on matching contributions of
paragraph (d) of this section, the notice
requirement of paragraph (e) of this
section, the plan year requirements of
paragraph (f) of this section, and the
additional rules of paragraphs (g), (h)
and (j) of this section, as applicable.
(2) Section 401(m)(12) safe harbor.
For a plan year beginning on or after
January 1, 2008, matching contributions
under a plan satisfy the ACP safe harbor
provisions of section 401(m)(12) for a
plan year if the matching contributions
are made with respect to an automatic
contribution arrangement described in
paragraph § 1.401(k)–3(j) that satisfies
the safe harbor requirements of
§ 1.401(k)–3, the limitations on
matching contributions of paragraph (d)
of this section, the notice requirement of
paragraph (e) of this section, the plan
year requirements of paragraph (f) of
this section, and the additional rules of
paragraphs (g), (h) and (j) of this section,
as applicable.
(3) Requirements applicable to safe
harbor contributions. Pursuant to
sections 401(k)(12)(E)(ii) and
401(k)(13)(D)(iv), the safe harbor
contribution requirement of paragraph
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8211
(b) or (c) of this section and § 1.401(k)–
3(k) must be satisfied without regard to
section 401(l). The contributions made
under paragraphs (b) and (c) of this
section and § 1.401(k)–3(k) are referred
to as safe harbor nonelective
contributions and safe harbor matching
contributions.
*
*
*
*
*
(f) Plan year requirement—(1) General
rule. Except as provided in this
paragraph (f) or in paragraph (g) of this
section, a plan will fail to satisfy the
requirements of section 401(m)(11),
section 401(m)(12), and this section
unless plan provisions that satisfy the
rules of this section are adopted before
the first day of that plan year and
remain in effect for an entire 12-month
plan year. * * *
*
*
*
*
*
(j) * * *
(3) Early participation rules. Section
401(m)(5)(C) and § 1.401(m)–
2(a)(1)(iii)(A), which provide an
alternative nondiscrimination rule for
certain plans that provide for early
participation, do not apply for purposes
of section 401(m)(11), section
401(m)(12), and this section. * * *
*
*
*
*
*
■ Par. 11. Section 1.402(c)–2, A–4, is
amended by redesignating paragraph (h)
as (j), adding a new paragraph (h), and
adding and reserving paragraph (i) to
read as follows:
§ 1.402(c)–2 Eligible rollover distributions,
questions and answers.
*
*
*
*
*
A–4 * * *
(h) A distribution that is a permissible
withdrawal from an eligible automatic
contribution arrangement within the
meaning of section 414(w).
(i) [Reserved]
*
*
*
*
*
■ Par. 12. Section 1.411(a)–4 is
amended by revising paragraph (b)(7) to
read as follows:
§ 1.411(a)–4
*
Forfeitures, suspensions, etc.
*
*
*
*
(b) * * *
(7) Certain matching contributions. A
matching contribution (within the
meaning of section 401(m)(4)(A) and
§ 1.401(m)–1(a)(2)) is not treated as
forfeitable even if under the plan it may
be forfeited under § 1.401(m)–2(b)(1)
because the contribution to which it
relates is treated as an excess
contribution (within the meaning of
§§ 1.401(k)–2(b)(2)(ii) and 1.401(k)–6),
excess deferral (within the meaning of
§ 1.402(g)–1(e)(1)(iii)), excess aggregate
contribution (within the meaning of
§ 1.401(m)–5), or a default elective
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contribution (within the meaning of
§ 1.414(w)–1(e)) that is withdrawn in
accordance with the requirements of
§ 1.414(w)–1(c).
*
*
*
*
*
■ Par. 13. Section 1.414(w)–1 is added
to read as follows:
mstockstill on PROD1PC66 with RULES
§ 1.414(w)–1 Permissible Withdrawals
From Eligible Automatic Contribution
Arrangements.
(a) Overview. Section 414(w) provides
rules under which certain employees
are permitted to elect to make a
withdrawal of default elective
contributions from an eligible automatic
contribution arrangement. This section
sets forth the rules applicable to
permissible withdrawals from an
eligible automatic contribution
arrangement within the meaning of
section 414(w). Paragraph (b) of this
section defines an eligible automatic
contribution arrangement. Paragraph (c)
of this section describes a permissible
withdrawal and addresses which
employees are eligible to elect a
withdrawal, the timing of the
withdrawal election, and the amount of
the withdrawal. Paragraph (d) of this
section describes the tax and other
consequences of the withdrawal.
Paragraph (e) of this section includes
the definitions applicable to this
section.
(b) Eligible automatic contribution
arrangement—(1) In general. An eligible
automatic contribution arrangement is
an automatic contribution arrangement
under an applicable employer plan that
is intended to be an eligible automatic
contribution arrangement for the plan
year and that satisfies the uniformity
requirement under paragraph (b)(2) of
this section, and the notice requirement
under paragraph (b)(3) of this section.
An eligible automatic contribution
arrangement need not cover all
employees who are eligible to elect to
have contributions made on their behalf
under the applicable employer plan.
(2) Uniformity requirement—(i) In
general. An eligible automatic
contribution arrangement must provide
that the default elective contribution is
a uniform percentage of compensation.
(ii) Exception to uniform percentage
requirement. An arrangement does not
violate the uniformity requirement of
paragraph (b)(2)(i) of this section merely
because the percentage varies in a
manner that is permitted under
§ 1.401(k)–3(j)(2)(iii), except that the
rule of § 1.401(k)–3(j)(2)(iii)(B) is
applied without regard to whether the
arrangement is intended to be a
qualified automatic contribution
arrangement.
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Jkt 217001
(iii) Rules of application. For
purposes of this paragraph (b)(2), all
automatic contribution arrangements
that are intended to be eligible
automatic contribution arrangements
within a plan (or within the
disaggregated plan under § 1.410(b)–7,
in the case of a plan subject to section
410(b)) are aggregated. Thus, for
example, if a single plan within the
meaning of section 414(l) covering
employees in two separate divisions has
two different automatic contribution
arrangements that are intended to be
eligible automatic contributions
arrangements, the two automatic
contribution arrangements can
constitute eligible automatic
contribution arrangements only if the
default elective contributions under the
arrangements are the same percentage of
compensation. However, if the different
automatic contribution arrangements
cover employees in portions of the plan
that are mandatorily disaggregated
under the rules of section 410(b), then
there is no requirement to aggregate
those automatic contribution
arrangements under the uniformity
requirements of this paragraph (b)(2).
(3) Notice requirement—(i) General
rule. The notice requirement of this
paragraph (b)(3) is satisfied for a plan
year if each covered employee is given
notice of the employee’s rights and
obligations under the arrangement. The
notice must be sufficiently accurate and
comprehensive to apprise the employee
of such rights and obligations, and be
written in a manner calculated to be
understood by the average employee to
whom the arrangement applies. The
notice must be in writing; however, see
§ 1.401(a)–21 for rules permitting the
use of electronic media to provide
applicable notices.
(ii) Content requirement. The notice
must include the provisions found in
§ 1.401(k)–3(d)(2)(ii) to the extent those
provisions apply to the arrangement. A
notice is not considered sufficiently
accurate and comprehensive unless the
notice accurately describes—
(A) The level of the default elective
contributions which will be made on
the employee’s behalf if the employee
does not make an affirmative election;
(B) The employee’s rights to elect not
to have default elective contributions
made to the plan on his or her behalf or
to have a different percentage of
compensation or different amount of
contribution made to the plan on his or
her behalf;
(C) How contributions made under
the arrangement will be invested in the
absence of any investment election by
the employee; and
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(D) The employee’s rights to make a
permissible withdrawal, if applicable,
and the procedures to elect such a
withdrawal.
(iii) Timing—(A) General rule. The
timing requirement of this paragraph
(b)(3)(iii) is satisfied if the notice is
provided within a reasonable period
before the beginning of each plan year
or, in the plan year the employee is first
eligible to make a cash or deferred
election (or first becomes covered under
the automatic contribution arrangement
as a result of a change in employment
status), within a reasonable period
before the employee becomes a covered
employee. In addition, a notice satisfies
the timing requirements of paragraph
(b)(3) of this section only if it is
provided sufficiently early so that the
employee has a reasonable period of
time after receipt of the notice in order
to make the election described under
paragraph (e)(2)(i) or (e)(2)(ii) of this
section.
(B) Deemed satisfaction of timing
requirement. The timing requirement of
this paragraph (b)(3)(iii) is satisfied if at
least 30 days (and no more than 90
days) before the beginning of each plan
year, the notice is given to each
employee covered under the automatic
contribution arrangement for the plan
year. In the case of an employee who
does not receive the notice within the
period described in the previous
sentence because the employee becomes
eligible to make a cash or deferred
election (or becomes covered under the
automatic contribution arrangement as a
result of a change in employment status)
after the 90th day before the beginning
of the plan year, the timing requirement
is deemed to be satisfied if the notice is
provided no more than 90 days before
the employee becomes eligible to make
a cash or deferred election (or becomes
covered under the automatic
contribution arrangement as a result of
a change in employment status), and no
later than the date that affords the
employee a reasonable period of time
after receipt of the notice to make the
election described under paragraph
(e)(2)(i) or (e)(2)(ii) of this section. If it
is not practicable for the notice to be
provided on or before the date specified
in the plan that an employee becomes
eligible to make a cash or deferred
election, the notice will nonetheless be
treated as provided timely if it is
provided as soon as practicable after
that date and the employee is permitted
to elect to defer from all types of
compensation that may be deferred
under the plan earned beginning on that
date.
(c) Permissible withdrawal—(1) In
general. If the plan so provides, any
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Federal Register / Vol. 74, No. 35 / Tuesday, February 24, 2009 / Rules and Regulations
employee who has default elective
contributions made under the eligible
automatic contribution arrangement
may elect to make a withdrawal of such
contributions (and earnings attributable
thereto) in accordance with the
requirements of this paragraph (c). An
applicable employer plan that includes
an eligible automatic contribution
arrangement will not fail to satisfy the
prohibition on in-service withdrawals
under section 401(k)(2)(B), 403(b)(7),
403(b)(11), or 457(d)(1) merely because
it permits withdrawals that satisfy the
timing requirement of paragraph (c)(2)
of this section and the amount
requirement of paragraph (c)(3) of this
section.
(2) Timing—(i) Last date to make
election. A covered employee’s election
to withdraw default elective
contributions must be made no later
than 90 days after the date of the first
default elective contribution under the
eligible automatic contribution
arrangement and must be effective no
later than the date set forth in paragraph
(c)(2)(iii) of this section. A plan is
permitted to set an earlier deadline for
making this election, but if a plan
provides that a covered employee may
withdraw default elective contributions,
then the election period for the covered
employee must be at least 30 days.
(ii) Determination of date of first
default elective contribution. For
purposes of this paragraph (c)(2), the
date of the first default elective
contribution is the date that the
compensation that is subject to the cash
or deferred election would otherwise
have been included in gross income.
(iii) Latest effective date of the
election. The effective date of an
election described in this paragraph
(c)(2) cannot be after the earlier of—
(A) The pay date for the second
payroll period that begins after the date
the election is made; and
(B) The first pay date that occurs at
least 30 days after the election is made.
(iv) Special rules—(A) Treatment of
periods without default elective
contributions. For purposes of
determining the date of the first default
elective contribution under the eligible
automatic contribution arrangement, a
plan is permitted to treat an employee
who for an entire plan year did not have
default elective contributions made
under the eligible automatic
contribution arrangement as if the
employee had not had such
contributions for any prior plan year as
well.
(B) Treatment relating to aggregation
of arrangements. The determination of
whether an election is made no later
than 90 days after the date of the first
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16:27 Feb 23, 2009
Jkt 217001
default elective contribution under the
eligible automatic contribution
arrangement must take into account any
other eligible automatic contribution
arrangement that is required to be
aggregated with the eligible automatic
contribution arrangement under the
rules of paragraph (b)(2)(iii) of this
section.
(3) Amount and timing of
distributions—(i) In general. A
distribution satisfies the requirement of
this paragraph (c)(3) if the distribution
is equal to the amount of default
elective contributions made under the
eligible automatic contribution
arrangement through the effective date
of the election described in paragraph
(c)(2) of this section (adjusted for
allocable gains and losses to the date of
distribution). If default elective
contributions are separately accounted
for in the participant’s account, the
amount of the distribution will be the
total amount in that account. However,
if default elective contributions are not
separately accounted for under the plan,
the amount of the allocable gains and
losses will be determined under rules
similar to those provided under
§ 1.401(k)–2(b)(2)(iv) for the distribution
of excess contributions.
(ii) Fees. The distribution amount as
determined under this paragraph (c)(3)
may be reduced by any generally
applicable fees. However, the plan may
not charge a higher fee for a distribution
under section 414(w) than would apply
to any other distributions of cash.
(iii) Date of distribution. The
distribution must be made in
accordance with the plan’s ordinary
timing procedures for processing
distributions and making distributions.
(d) Consequences of the withdrawal—
(1) Income tax consequences—(i) Year
of inclusion. The amount of the
withdrawal is includible in the eligible
employee’s gross income for the taxable
year in which the distribution is made.
However, any portion of the distribution
consisting of designated Roth
contributions is not included in an
employee’s gross income a second time.
The portion of the withdrawal that is
treated as an investment in the contract
is determined without regard to any
plan contributions other than those
distributed as a withdrawal of default
elective contributions.
(ii) No additional tax on early
distributions from qualified retirement
plans. The withdrawal is not subject to
the additional tax under section 72(t).
(iii) Reporting. The amount of the
withdrawal is reported on Form 1099–
R, ‘‘Distributions From Pensions,
Annuities, Retirement or Profit-Sharing
Plans, IRAs, Insurance Contracts, etc.,’’
PO 00000
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8213
as described in the applicable
instructions.
(iv) Disregarded for purposes of
section 402(g). The amount of the
withdrawal is not taken into account in
determining the limitation on elective
deferrals under section 402(g).
(2) Forfeiture of matching
contributions. In the case of any
withdrawal made under paragraph (c) of
this section, employer matching
contributions with respect to the
amount withdrawn that have been
allocated to the participant’s account
(adjusted for allocable gains and losses)
must be forfeited. A plan is permitted to
provide that employer matching
contributions will not be made with
respect to any withdrawal made under
paragraph (c) of this section if the
withdrawal has been made prior to the
date as of which the match would
otherwise be allocated.
(3) Consent rules. A withdrawal made
under paragraph (c) of this section may
be made without regard to any notice or
consent otherwise required under
section 401(a)(11) or 417.
(e) Definitions. Unless indicated
otherwise, the following definitions
apply for purposes of section 414(w)
and this section.
(1) Applicable employer plan. An
applicable employer plan means a plan
that—
(i) Is qualified under section 401(a);
(ii) Satisfies the requirements of
section 403(b);
(iii) Is a section 457(b) eligible
governmental plan described in § 1.457–
2(f);
(iv) Is a simplified employee pension
the terms of which provide for a salary
reduction arrangement described in
section 408(k)(6); or
(v) Is a SIMPLE described in section
408(p).
(2) Automatic contribution
arrangement. An automatic contribution
arrangement means an arrangement that
provides for a cash or deferred election
and which specifies that, in the absence
of a covered employee’s affirmative
election, a default election applies
under which the employee is treated as
having elected to have default elective
contributions made on his or her behalf
under the plan. The default election
begins to apply with respect to an
eligible employee no earlier than a
reasonable period of time after receipt of
the notice describing the automatic
contribution arrangement. This default
election ceases to apply with respect to
an eligible employee for periods of time
with respect to which the employee has
an affirmative election that is currently
in effect to—
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(i) Not have any default elective
contributions made on his or her behalf;
or
(ii) Have contributions made in a
different amount or percentage of
compensation.
(3) Covered employee. Covered
employee means an employee who is
covered under the automatic
contribution arrangement, determined
under the terms of the plan. A plan
must provide whether an employee who
makes an affirmative election remains a
covered employee. If a plan provides
that an employee who makes an
affirmative election described in
paragraph (e)(2)(i) or (e)(2)(ii) of this
section remains a covered employee,
then the employee must continue to
receive the notice described in
paragraph (b)(3) of this section and the
plan may be eligible for the excise tax
relief with respect to excess amounts
distributed within 6 months after the
end of the plan year under section
4979(f)(1). Such an employee will also
have the default election reapply if the
plan provides that the employee’s prior
affirmative election no longer remains
in effect and the employee does not
make a new affirmative election.
(4) Default elective contributions.
Default elective contributions means the
contributions that are made at a
specified level or amount under an
automatic contribution arrangement in
the absence of a covered employee’s
affirmative election that are—
(i) Contributions described in section
402(g)(3); or
(ii) Contributions made to an eligible
governmental plan within the meaning
of § 1.457–2(f) that would be elective
contributions if they were made under
a qualified plan.
(f) Effective/applicability date—(1)
Statutory effective date. Section 414(w)
applies to plan years beginning on or
after January 1, 2008.
(2) Regulatory effective date. This
section applies to plan years beginning
on or after January 1, 2010. For plan
years that begin in 2008, a plan must
operate in accordance with a good faith
interpretation of section 414(w). For this
purpose, a plan that operates in
accordance with this section will be
treated as operating in accordance with
a good faith interpretation of section
414(w).
mstockstill on PROD1PC66 with RULES
PART 54—PENSION EXCISE TAXES
Par. 14. The authority citation for part
54 continues to read in part as follows:
■
Authority: 26 U.S.C. 7805 * * *
§ 54.4979–1 Excise tax on certain excess
contributions and excess aggregate
contributions.
NATIONAL LABOR RELATIONS
BOARD
*
29 CFR Part 102
*
*
*
*
(c) No tax when excess distributed
within 21⁄2 months after close of year or
additional employer contributions
made—(1) General rule. No tax is
imposed under this section on any
excess contribution or excess aggregate
contribution, as the case may be, to the
extent the contribution (together with
any income allocable thereto) is
corrected before the close of the first 21⁄2
months of the following plan year (6
months in the case of a plan that
includes an eligible automatic
contribution arrangement within the
meaning of section 414(w)). The
extension to 6 months applies to a
distribution of excess contributions or
excess aggregate contributions for a plan
year beginning on or after January 1,
2010, only where all the eligible NHCEs
and eligible HCEs (both as defined in
§ 1.401(k)–6 of this Chapter) are covered
employees under an eligible automatic
contribution arrangement within the
meaning of section 414(w) for the entire
plan year (or the portion of the plan year
that the eligible NHCEs and eligible
HCEs are eligible employees under the
plan)). Qualified nonelective
contributions and qualified matching
contributions taken into account under
§ 1.401(k)–2(a)(6) of this Chapter or
qualified nonelective contributions or
elective contributions taken into
account under § 1.401(m)–2(a)(6) of this
Chapter for a plan year may permit a
plan to avoid excess contributions or
excess aggregate contributions,
respectively, even if made after the close
of the 21⁄2 month (or 6 month) period for
distributing excess contributions or
excess aggregate contributions without
the excise tax. See § 1.401(k)–2(b)(1)(i)
and (5)(i) of this Chapter for methods to
avoid excess contributions, and
§ 1.401(m)–2(b)(1)(i) of the Chapter for
methods to avoid excess aggregate
contributions.
*
*
*
*
*
Linda E. Stiff,
Deputy Commissioner for Services and
Enforcement,
Approved: January 16, 2009.
Eric Solomon,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. E9–3716 Filed 2–23–09; 8:45 am]
BILLING CODE 4830–01–P
Par. 15. Section 54.4979–1, paragraph
(c)(1) is revised to read as follows:
■
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Revisions of Regulations Concerning
Procedures for Electronic Filing;
Correction
AGENCY:
National Labor Relations
Board.
ACTION:
Final rule; correction.
SUMMARY: This document contains
corrections to the Summary and
Supplementary Information to the Final
Rule that was published in the Federal
Register on Friday, January 30, 2009 (74
FR 5618) regarding the Board’s
amendment of regulations concerning
the procedures for filing documents
with the Agency electronically.
DATES: This correction is effective upon
publication in the Federal Register, and
is applicable on January 30, 2009.
FOR FURTHER INFORMATION CONTACT:
Lester A. Heltzer, Executive Secretary,
202–273–1067.
SUPPLEMENTARY INFORMATION:
Background
The Final Rule that is the subject of
this document applies to Section
102.114 of the Agency’s Rules and
Regulations.
Need for Correction
As published, the SUMMARY and
SUPPLEMENTARY INFORMATION to the
Final
Rule contains errors that may prove to
be misleading and are in need of
clarification.
Correction of Publication
Accordingly, the publication of the
Final Rule, which was the subject of FR
Doc. E9–1832, is corrected as follows:
1. On page 5619, column 1, in the
Summary, the first paragraph of the
column, last sentence in the paragraph
the language ‘‘If electronic service is not
possible, the other party shall be
notified by telephone of the substance of
the transmitted document and a copy of
the document shall be served
personally, or by registered mail,
certified mail, regular mail, or private
delivery service, or, with the consent of
the other party, by facsimile
transmission.’’ is corrected to read ‘‘If
service by e-mail is not possible, the efiling party must call the other party to
notify them of the substance of the efiled document and then serve a copy of
the document, no later than the next
day, by personal service, by overnight
delivery service, or, with permission of
the party receiving the document, by
facsimile transmission.’’
E:\FR\FM\24FER1.SGM
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| File Type | application/pdf |
| File Modified | 2010-07-18 |
| File Created | 2010-07-15 |