This document contains proposed Income Tax Regulations (26 CFR part 1) under sections 430(a), 430(c), 430(e), and 430(j), as added to the Internal Revenue Code (Code) by the Pension Protection Act of 2006 (PPA ’06), Public Law 109-280 (120 Stat. 780). In addition, this document contains proposed Excise Tax Regulations (26 CFR part 54) under section 4971.

Section 412 provides minimum funding requirements that generally apply for pension plans (including both defined benefit pension plans and money purchase pension plans). PPA ’06 makes extensive changes to those minimum funding requirements that generally apply for plan years beginning on or after January 1, 2008. Section 430, which was added by PPA ’06, specifies the minimum funding requirements that apply to single employer defined benefit pension plans (including multiple employer plans) pursuant to section 412.^[15]

Section 430(a) provides that a plan’s minimum required contribution for a plan year is determined under one of two rules, depending on whether the value of plan assets is less than, or is equal to or greater than, the plan’s funding target. If the value of plan assets is less than the funding target, the minimum required contribution is the sum of: (1) target normal cost; (2) any shortfall amortization charge; and (3) any waiver amortization charge. If the value of plan assets equals or exceeds the funding target, the minimum required contribution is the plan’s target normal cost, reduced (but not below zero) by the excess of the value of plan assets over the plan’s funding target. For purposes of section 430(a), the value of plan assets is determined after reduction for certain funding balances as provided under section 430(f)(4)(B).

Section 430(c) provides that a shortfall amortization charge is the total (not less than zero) of the shortfall amortization installments for the plan year with respect to any shortfall amortization base established for that plan year and the 6 preceding plan years. Section 430(c)(2)(A) provides that the shortfall amortization installments with respect to a shortfall amortization base established for a plan year are the amounts necessary to amortize the shortfall amortization base in level annual installments over the 7-plan-year period beginning with that plan year.

Section 430(c)(3) provides that a shortfall amortization base is determined for a plan year based on the plan’s funding shortfall for the plan year. Under section 430(c)(4), the funding shortfall is the amount (if any) by which the plan’s funding target for the year exceeds the value of the plan’s assets (as reduced by the funding standard carryover balance and prefunding balance under section 430(f)(4)(B)). The shortfall amortization base for a plan year is the plan’s funding shortfall, minus the present value (determined using the interest rates under section 430(h)(2)) of the total of the shortfall amortization installments and waiver amortization installments that have been determined for the plan year and any succeeding plan year with respect to any shortfall amortization bases and waiver amortization bases for preceding plan years.

Under section 430(c)(5), a shortfall amortization base is not established for a plan year if the value of a plan’s assets is at least equal to the plan’s funding target for the plan year. For this purpose, the prefunding balance is subtracted from the value of plan assets, but only if an election to use that prefunding balance to offset the minimum required contribution is in effect for the plan year. A transition rule applies for plan years beginning after 2007 and before 2011 under which only a specified percentage of the plan’s funding target is taken into account for purposes of section 430(c)(5). The transition rule does not apply to a plan that is not in effect for 2007 or to a plan that is subject to the pre- PPA ’06 deficit reduction contribution rules for 2007 (that is, a plan covering more than 100 participants and with a funded current liability below the applicable threshold).

Under section 430(e), the waiver amortization charge for a plan year is the total of the waiver amortization installments for the plan year with respect to any waiver amortization bases for the 5 preceding plan years. Under section 430(e)(2), the waiver amortization installments with respect to a waiver amortization base established for a plan year are the amounts necessary to amortize the waiver amortization base in level annual installments over the 5-plan-year period beginning with the succeeding plan year. Under section 430(e)(4), the waiver amortization base for a plan year is the amount of the waived funding deficiency (if any) for that plan year.

If a plan’s funding shortfall for a plan year is zero (that is, the value of the plan’s assets, reduced by the funding standard carryover balance and prefunding balance to the extent provided under section 430(f)(4)(B), is at least equal to the plan’s funding target for the year), any shortfall amortization bases and waiver amortization bases for preceding plan years (and any associated shortfall amortization installments and waiver amortization installments) are eliminated.

Under section 430(j), as under pre- PPA ’06 law, the due date for the payment of a minimum required contribution for a plan year is generally 8¹/₂ months after the end of the plan year. Any payment made on a date other than the valuation date for the plan year must be adjusted for interest accruing at the plan’s effective interest rate under section 430(h)(2)(A) for the plan year for the period between the valuation date and the payment date. Pursuant to section 430(g)(2), the valuation date for a plan year must be the first day of the plan year except in the case of a small plan described in section 430(g)(2)(B).

Under section 430(j)(3)(A), quarterly contributions must be made during a plan year if the plan had a funding shortfall for the preceding plan year. Each quarterly installment is 25% of the required annual payment. The required annual payment is equal to the lesser of 90% of the minimum required contribution under section 430 for the plan year or 100% of the minimum required contribution under section 430 (determined without regard to any waiver under section 412) for the preceding plan year. If a quarterly installment is not made, the interest charge that applies for the period of underpayment is determined using the plan’s effective interest rate plus 5 percentage points. The requirements regarding quarterly contributions are similar to the requirements that formerly applied under section 412(m) as in effect before amendments made by PPA ’06.

Under section 430(j)(4), a plan sponsor of a plan that is subject to the quarterly contribution requirements for a plan year (other than a small plan described in section 430(g)(2)(B)) must make additional quarterly contributions in order to ensure that a minimum level of liquid assets is available to pay benefits as of the end of each quarter. Generally, this required minimum level of liquid assets is the amount of liquid assets needed to pay for three years of benefits, and an additional quarterly contribution (made in liquid assets) is due if the plan has insufficient liquid assets to meet this minimum level. A plan sponsor that fails to satisfy this liquidity requirement is treated as failing to make the required quarterly contribution and, pursuant to section 206(e) of ERISA, is required to cease making certain types of accelerated payments that are described in section 401(a)(32)(B) of the Code. Pursuant to section 430(j)(4)(C), the portion of an installment that is treated as not made because of the liquidity requirement continues to be treated as unpaid until the close of the quarter that contains the due date for the contribution. These liquidity requirements are substantially similar to the requirements that formerly applied under section 412(m)(5), as in effect before amendments made by PPA ’06.

Section 402 of PPA ’06 provides a series of special funding rules for a plan maintained by a commercial passenger airline (or by an employer whose principal business is providing catering services to a commercial passenger airline) if such an employer has made an election provided under that section. If an eligible employer has made the election described in section 402(a)(1) of PPA ’06 (which is only available for a frozen plan), the calculation of the minimum required contribution for the plan is determined using a special 17-plan-year amortization period and an interest rate of 8.85%. If an eligible employer has made the election described in section 402(a)(2) of PPA ’06 (which can be made without regard to whether the plan is frozen), calculation of the minimum required contribution for the plan is determined using a special 10-plan-year amortization period for the initial shortfall amortization base (that is, the shortfall amortization base for the first plan year for which section 430 applies to the plan) and, pursuant to the amendment to section 402 of PPA ’06 made by section 6615 of the U.S. Troop Readiness, Veterans’ Care, Katrina Recovery, and Iraq Accountability Appropriations Act, 2007, Public Law 110-28 (121 Stat. 112), an interest rate of 8.25% is used to determine the funding target for each of those 10 plan years.

Section 4971(a) provides an excise tax on a failure to meet applicable minimum funding requirements. In the case of a single employer plan, the tax is 10% of the aggregate unpaid minimum required contributions for all plan years remaining unpaid as of the end of any plan year ending with or within a taxable year. In the case of a multiemployer plan, the tax is 5% of the accumulated funding deficiency as of the end of any plan year ending with or within the taxable year. Section 4971(b) provides an additional excise tax that applies where the applicable minimum funding requirements remain unsatisfied for a specified period. Section 4971(c) provides definitions that apply for purposes of section 4971, including a definition of unpaid minimum required contribution (which is based on the new section 430 rules for determining the minimum required contribution for a year). Section 4971(f) imposes a tax of 10% of the amount of the liquidity shortfall for a quarter that is not paid by the due date for the installment for that quarter.

Regulations under section 4971 were issued on May 1, 1986 (T.D. 8084, 1986-1 C.B. 327). In addition, proposed regulations regarding section 4971 were issued on the same date. Guidance regarding quarterly contribution requirements under former section 412(m) was issued in Notice 89-52, 1989-1 C.B. 692, and guidance regarding the liquidity requirements under former section 412(m)(5) was issued in Rev. Rul. 95-31, 1995-1 C.B. 76. See §601.601(d)(2).

These proposed regulations are the fourth in a series of proposed regulations under new section 430.^[16] These proposed regulations would provide guidance regarding the minimum contribution rules that apply to sponsors of single employer defined benefit plans under section 430. In addition, this document includes proposed regulations under section 4971, reflecting changes to the excise tax rules under PPA ’06.

Section 1.430(a)-1 would provide rules for determining the minimum required contribution for a single employer defined benefit plan (including a multiple employer plan under section 413(c)) for a plan year under section 430(a). The determination of the amount of the minimum required contribution for a plan year depends on whether the value of plan assets, as reduced to reflect certain funding balances pursuant to section 430(f)(4)(B) (but not below zero), equals or exceeds the plan’s funding target for the plan year. If this value of plan assets is less than the funding target for the plan year, the minimum required contribution for that plan year is equal to the sum of the plan’s target normal cost for the plan year plus any applicable shortfall amortization installments and waiver amortization installments. If this value of plan assets equals or exceeds the funding target for the plan year, the minimum required contribution for that plan year is equal to the target normal cost of the plan for the plan year reduced (but not below zero) by any such excess.

The proposed regulations provide that the shortfall amortization installments with respect to a shortfall amortization base established for a plan year are the annual amounts necessary to amortize that shortfall amortization base in level annual installments over the 7-year period beginning with that plan year. As provided in proposed §1.430(h)(2)-1(f)(2), these installments are determined assuming that the installments are paid on the valuation date for each plan year and using the interest rates applicable under section 430(h)(2)(C) or (D). The shortfall amortization installments are determined using the interest rates that apply for the plan year for which the shortfall amortization base is established and are not redetermined in subsequent plan years to reflect changes in interest rates under section 430(h)(2) for those subsequent plan years.^[17]

Under the proposed regulations, if the value of plan assets (reduced by the prefunding balance if the prefunding balance is used to offset the minimum required contribution for the plan year as provided under §1.430(f)-1(c), but not below zero) is equal to or greater than the funding target for the plan year, then no shortfall amortization base is established for that plan year. If this value of plan assets is less than the funding target for the plan year, a shortfall amortization base is established for the plan year. In such a case, the shortfall amortization base (which can be either positive or negative) is equal to the funding shortfall of the plan for the plan year, minus the sum of the present values of any remaining shortfall amortization installments and waiver amortization installments (determined in accordance with §1.430(h)(2)-1(f)(2) using the interest rates that apply for the current plan year). For this purpose, the funding shortfall of a plan for any plan year is the excess (if any) of the funding target of the plan for the plan year, over the value of plan assets for the plan year (as reduced to reflect the subtraction of the funding standard carryover balance and prefunding balance to the extent provided under §1.430(f)-1(c)).

The proposed regulations reflect the transition rule under section 430(c)(5)(B) under which only a specified portion of the funding target is taken into account in determining whether a shortfall amortization base is established for plan years beginning before January 1, 2011. This transition rule does not apply with respect to any plan year beginning after 2008 if a shortfall amortization base was required to be established for any preceding year, nor does it apply to a plan that was not in effect for a plan year beginning in 2007 or to a plan that was subject to section 412(l) for the last plan year before section 430 applies to the plan (the pre-effective plan year), determined after the application of section 412(l)(6) and (9). The proposed regulations would not provide for any adjustment to the applicable percentages under this transition rule for a plan for which the effective date of section 430 is delayed under sections 104 through 106 of PPA ’06.

Under the proposed regulations, the waiver amortization installments with respect to a waiver amortization base established for a plan year are the annual amounts necessary to amortize that waiver amortization base in level annual installments over the 5-year period beginning with the following plan year. As provided in proposed §1.430(h)(2)-1(f)(2), these installments are determined assuming that the installments are paid on the valuation date for each plan year and using the interest rates applicable under section 430(h)(2). Thus, if the plan is using segment rates, the installments are determined by applying the first segment rate to the first four installments and the second segment rate to the fifth (and final) installment. The waiver amortization installments established with respect to a waiver amortization base are determined using the interest rates that apply for the plan year for which the waiver is granted (even though the first installment with respect to the waiver amortization base is not due until the subsequent plan year) and are not redetermined in subsequent plan years to reflect changes in interest rates under section 430(h)(2) for those subsequent plan years. A waiver amortization base is established for each plan year for which a waiver of the minimum funding standard has been granted, and the amount of that waiver amortization base is equal to the amount of the minimum required contribution waived (or the waived funding deficiency) for the plan year.

In the case of a plan that received a funding waiver under section 412 for a plan year for which section 430 was not yet effective with respect to the plan, the proposed regulations provide that the waiver is treated as giving rise to a waiver amortization base, and the amortization charges with respect to that funding waiver are treated as waiver amortization installments. With respect to such a preexisting funding waiver, the amount of the annual waiver amortization installment is equal to the amortization charge with respect to that waiver determined using the interest rate or rates that applied for the pre-effective plan year. Thus, for a plan that received a waiver in the past, the plan sponsor would have to contribute the amounts needed to amortize that waiver over the original schedule as previously established.

In accordance with section 430(c)(6), the proposed regulations provide that, in any case in which the funding shortfall of a plan for a plan year is zero, the shortfall amortization bases for all preceding plan years (and all shortfall amortization installments determined with respect to those shortfall amortization bases) are reduced to zero, and the waiver amortization bases for all preceding plan years (and all waiver amortization installments determined with respect to such bases) are reduced to zero.

The proposed regulations would provide rules for determining the amount of a minimum required contribution for a short plan year. Under the proposed regulations, the amortization installments are prorated for a short plan year. The proposed regulations would not provide for any proration of the target normal cost. Instead, the determination of target normal cost would reflect actual accruals that accrue or are expected to accrue during the plan year.^[18] The proposed regulations also provide rules for the treatment of installments in subsequent plan years to take into account the proration of these installments for short plan years and any change in valuation date.

The proposed regulations under section 430(j) would provide rules related to the payment of minimum required contributions, including the payment of quarterly contributions and liquidity requirements. The proposed regulations provide that any payment of the minimum required contribution under section 430 for a plan year that is made on a date other than the valuation date for that plan year is adjusted for interest accruing for the period between the valuation date and the payment date, at the effective interest rate for the plan for that plan year determined pursuant to §1.430(h)(2)-1(f)(1). The direction of the adjustment depends on whether the contribution is paid before or after the valuation date for the plan year. If the contribution is paid after the valuation date for the plan year, the contribution is discounted to the valuation date using the plan’s effective interest rate. By contrast, if the contribution is paid before the valuation date for the plan year (which could only occur in the case of a small plan described in section 430(g)(2)(B)), the contribution is increased for interest at that same interest rate.

Under the proposed regulations, a payment of the minimum required contribution under section 430 for a plan year can be made no earlier than the first day of the plan year. The deadline for any payment of any minimum required contribution for a plan year is 8¹/₂ months after the close of the plan year. If a minimum required contribution is not paid by this deadline, an excise tax applies under section 4971.

The proposed regulations would provide rules for accelerated quarterly contributions for underfunded plans. These rules are similar to the rules provided under Notice 89-52; however, these rules have been updated to reflect statutory changes. These statutory changes include changes regarding which plans are subject to the quarterly contribution requirements as well as the interest rates applicable to missed quarterly contributions.

Under the proposed regulations, in any case in which the plan has a funding shortfall for the preceding plan year, the employer maintaining the plan must make the required quarterly installments.^[19] The amount of each required quarterly installment is equal to 25% of the required annual payment. For this purpose, the required annual payment is equal to the lesser of 90% of the minimum required contribution under section 430(a) for the plan year, or 100% of the minimum required contribution under section 430(a) (determined without regard to any funding waiver under section 412) for the preceding plan year. These minimum required contributions are determined under section 430 as of the valuation date for each year and have no adjustment for interest.^[20] The proposed regulations provide that, for purposes of determining the required annual payment, the minimum required contribution for a plan year is determined without regard to use of the prefunding balance or funding standard carryover balance in the current year or any prior year.

Pursuant to section 430(j)(3)(C), the proposed regulations would provide that the due dates for the four required quarterly installments with respect to a full plan year are as follows: the first installment is due on the 15^th day of the 4th plan month, the second installment is due on the 15^th day of the 7th plan month, the third installment is due on the 15^th day of the 10th plan month, and the fourth installment is due on the 15^th day following the close of the plan year. In the case of a short plan year, the proposed regulations would provide rules for determining the amount of the required annual payment, the number and due dates of installments, and the amount of those installments. The proposed regulations also provide rules for determining the plan month in the case of a plan year that does not begin on the first day of a calendar month.

The proposed regulations would provide that, if the employer fails to pay the full amount of a required installment, then the rate of interest used to adjust the amount of the contribution with respect to the underpayment of the required installment for the period of time that begins on the due date for the required installment and that ends on the date of payment is equal to the effective interest rate for the plan for that plan year determined pursuant to §1.430(h)(2)-1(f)(1) plus 5 percentage points. This increased interest rate applies only to installments that are due after the valuation date for the plan year because section 430(j)(3) refers to interest being charged on late quarterly contributions. The amount of the underpayment is equal to the excess of the required installment over the amount (if any) of the installment contributed to or under the plan on or before the due date for the installment. For this purpose, the proposed regulations contain an ordering rule under which contributions are to be credited against unpaid required installments in the order in which those installments were required to be paid.

As was the case in Notice 89-52, the proposed regulations would provide that a plan sponsor generally can use a plan’s funding balances to satisfy quarterly contribution requirements. However, this rule is subject to the new limitation on the use of funding balances by underfunded plans pursuant to section 430(f)(3)(C). An eligible plan sponsor’s election to use the plan’s prefunding balance and funding standard carryover balance under section 430(f) satisfies the obligation to make an installment on the date of the election, to the extent of the amount elected, as adjusted with interest at the plan’s effective interest rate under section 430(h)(2)(A) for the plan year from the valuation date through the due date of the installment. Comments are requested regarding whether rules should be provided under which a plan sponsor is deemed to make an election to use a funding balance to the extent it is available to avoid a failure to make any required quarterly installment or under which a plan sponsor can make a single election that will apply to all future quarterly installments until revoked.

A plan sponsor that uses the plan’s prefunding balance or funding standard carryover balance toward satisfaction of the plan’s quarterly contribution requirement before the plan’s effective interest rate for the plan year has been determined should assume, in order to ensure that the quarterly contribution requirements are satisfied, that the effective interest rate is equal to the lowest of the three segment rates (generally the first segment rate) to adjust the elected amount. Plan sponsors should also note that, pursuant to proposed §1.430(f)-1(b)(1)(ii)(B), the amount of the funding balance that is used to satisfy the quarterly contribution requirements cannot later be added back to the prefunding balance (because only contributions in excess of the minimum funding requirement, determined without regard to the offset under section 430(f)(3), are eligible to be added to the prefunding balance).

The proposed regulations would provide rules for the liquidity requirements that generally apply to plans for which quarterly contributions are required. Under the proposed regulations, a plan subject to the requirement to make quarterly contributions (other than a small plan described in section 430(g)(2)(B)) is treated as failing to pay the full amount of the required installment for a quarter to the extent that the value of the liquid assets paid after the close of that quarter and on or before the due date for the installment is less than the liquidity shortfall for that quarter. Thus, in order to satisfy the quarterly contribution requirement for a quarter, liquid assets in the amount of the liquidity shortfall must be contributed after the close of that quarter and on or before the due date for the installment.^[21] The use of funding balances or the contribution of illiquid assets cannot remedy a liquidity shortfall.

The rules under the proposed regulations relating to the liquidity requirements are similar to the rules provided under Rev. Rul. 95-31; however, these rules have been updated to reflect statutory changes. For example, the definition of liquid assets under the proposed regulations is the same as the definition of liquid assets under Rev. Rul. 95-31. Unlike Rev. Rul. 95-31, the proposed regulations measure satisfaction of a liquidity shortfall by reference to contributions made after the close of the quarter and by the due date for the installment while including contributions made during the plan quarter in plan assets. Although this appears to be a change from the rules of Rev. Rul. 95-31, the two formulations are mathematically identical.

The proposed regulations provide that, for purposes of applying the additional 5 percentage point interest adjustment in the case of a quarterly contribution that is not fully paid, the liquidity increment for the quarter (the portion of the quarterly installment that is due solely by reason of the liquidity requirements) continues to be treated as unpaid until the close of the quarter in which the due date for that installment occurs, regardless of when it is contributed. However, for purposes of adjusting the contribution to the valuation date at the effective interest rate, the adjustment is made from the actual contribution date (rather than from the close of the quarter). In addition, the proposed regulations provide an ordering rule under which, if a contribution for a quarter is less than the total amount needed to satisfy the quarterly contribution requirement taking into account the liquidity requirement, then the contribution is first attributed toward satisfying the quarterly contribution requirement determined without regard to the liquidity requirement.

Under the proposed regulations, if the amount of any required installment is increased because of the liquidity shortfall rules, that increase cannot exceed the amount that, when added to prior required installments determined under section 430(j) for the plan year, would increase the funding target attainment percentage of the plan for the plan year (taking into account the expected increase in funding target due to benefits accruing or earned during the plan year) to 100%.

The proposed regulations would provide that the rules under section 430(j) generally apply to a plan maintained by a commercial passenger airline (or other eligible employer) that has made an election under section 402(a)(1) or 402(a)(2) of PPA ’06 in the same manner as they apply to any other plan subject to section 430. However, in the case of a plan with respect to which the election under section 402(a)(1) of PPA ’06 has been made, the determination of the funding shortfall for a plan year is made by reference to the unfunded liability under section 402(e)(3)(A) of PPA ’06. In addition, the effective interest rate for a plan with respect to which the election under section 402(a)(1) of PPA ’06 has been made is deemed to be 8.85%. Pursuant to proposed §1.430(h)(2)-1(f)(1), the effective interest rate for a plan with respect to which the election under section 402(a)(2) of PPA ’06 has been made will be 8.25% for the 10-year period during which the election applies to the plan.

These proposed regulations set forth the definitions that apply for purposes of applying the rules of section 4971 that were modified by PPA ’06.

The proposed regulations define the term accumulated funding deficiency (which is only relevant for a multiemployer plan) as having the meaning given to that term by section 431. A multiemployer plan’s accumulated funding deficiency for a plan year takes into account all charges and credits to the funding standard account under section 412 for plan years before the first plan year for which section 431 applies to the plan.

The proposed regulations define the term unpaid minimum required contribution, with respect to any plan year, as any minimum required contribution under section 430 for the plan year that is not paid on or before the due date for the plan year under section 430(j)(1). The proposed regulations provide that a plan’s accumulated funding deficiency under section 412 for the pre-effective plan year is treated as an unpaid minimum required contribution for that plan year until correction is made. Unlike the determination of accumulated funding deficiency which applied under section 412 prior to PPA ’06, the total unpaid minimum required contributions is not adjusted with interest. However, as described in the following paragraph, correction of an unpaid minimum required contribution does require a contribution that includes an adjustment for interest.

The proposed regulations define the term correct as it applies to the accumulated funding deficiency and the unpaid minimum required contribution of a plan. With respect to an accumulated funding deficiency under a multiemployer plan, the proposed regulations set forth rules that are the same as the rules set forth in proposed §54.4971-2(a). Under the proposed regulations, the correction of an unpaid minimum required contribution under a single employer plan for a plan year requires the contribution, to or under the plan, of the amount that, when discounted to the valuation date for the plan year for which the unpaid minimum required contribution is due at the appropriate rate of interest, equals or exceeds the unpaid minimum required contribution. For this purpose, the appropriate rate of interest is the plan’s effective interest rate for the plan year for which the unpaid minimum required contribution is due except to the extent that the payments are subject to additional interest as provided under section 430(j)(3) or (4). With respect to an unpaid minimum required contribution, the proposed regulations provide an ordering rule under which a contribution is attributable first to the earliest plan year of any unpaid minimum required contribution for which correction has not yet been made. With respect to an accumulated funding deficiency under section 412 for the pre-effective plan year that is treated as an unpaid minimum required contribution, the proposed regulations provide that correction requires the contribution, to or under the plan, of the amount of that accumulated funding deficiency adjusted with interest from the end of the pre-effective plan year to the date of the contribution at the plan’s valuation interest rate for the pre-effective plan year.

The IRS and the Treasury Department intend to issue further guidance in the future on the application of section 4971, including special rules applicable to multiemployer plans that are in critical or endangered status under section 432.

As of the date of the issuance of these proposed regulations, bills have been passed in the House of Representatives and the Senate that would provide for technical corrections to PPA ’06.^[22] These bills would amend section 430(j)(3)(A) to authorize the Treasury Department to provide rules for determining the funding shortfall for purposes of the pre-effective plan year and would add section 430(j)(3)(E)(iii) to authorize the Treasury Department to provide special rules for the treatment of quarterly contributions in the case of a plan with a valuation date other than the first day of the plan year. These bills would also specify an effective date for the PPA ’06 amendments to section 4971.

These proposed regulations have reserved §1.430(j)-1(c)(6) and §1.430(j)-1(g)(5)(ii) in order to accommodate any enacted changes to section 430(j). If legislation similar to that in the proposed technical corrections is enacted, the IRS and the Treasury Department are considering including the following provisions in final regulations. First, the funding shortfall for the pre-effective plan year would be determined as the excess (if any) of the plan’s current liability determined pursuant to section 412(l)(7) on the valuation date for the plan’s pre-effective plan year, over the net plan assets for the pre-effective plan year as determined under §1.430(i)-1(f)(5)(ii). Second, if a quarterly installment is due before the valuation date for the plan year, the minimum required contribution for the plan year would be increased by an additional amount if that quarterly installment is not paid by the due date. This additional amount would be determined by applying interest at an annual rate of 5% to the underpayment of the required installment for the period of time between the due date for the required installment and the earlier of the date of payment or the valuation date.

Section 430 generally applies to plan years beginning on or after January 1, 2008. The proposed regulations under section 430 are proposed to apply generally to plan years beginning on or after January 1, 2009. When the regulations are finalized, plans will be permitted to apply them for plan years beginning in 2008. In addition, for plan years beginning in 2008, plans are permitted to rely on the proposed regulations for purposes of satisfying the requirements of section 430. In the case of a plan for which the effective date of section 430 is delayed in accordance with sections 104 through 106 of PPA ’06, the regulations are proposed to apply to plan years beginning on or after the date section 430 first applies with respect to the plan.

The amendments made to section 4971 by section 114 of PPA ’06 do not have a specific effective date. The regulations provide that the amendments to section 4971 generally apply at the same time as the amendments to section 430 (or section 431, as applicable) apply to the plan. Thus, the regulations provide that the amendments to section 4971 generally apply to taxable years beginning on or after January 1, 2008, but only with respect to plan years for which section 430 (or section 431) applies to the plan that end with or within any such taxable year. In the case of a plan to which a delayed effective date applies pursuant to sections 104 through 106 of PPA ’06, the regulations provide that the amendments made to section 4971 apply to the same taxable years, but only with respect to plan years for which section 430 applies to the plan. The regulations under section 4971 generally are proposed to apply at the same time the statutory changes to section 4971 under PPA ’06 become effective but would not apply to taxable years ending before April 15, 2008. Thus, for example, the regulations under section 4971 would not apply to a short taxable year beginning January 1, 2008, and ending February 29, 2008.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because the proposed regulations do not impose a collection of information on small entities, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department specifically request comments on the clarity of the proposed regulations and how they may be made easier to understand. All comments will be available for public inspection and copying.

A public hearing has been scheduled for August 4, 2008, beginning at 10 a.m. in the Auditorium, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written or electronic comments by July 15, 2008, and an outline of topics to be discussed and the amount of time to be devoted to each topic (a signed original and eight (8) copies) by July 15, 2008. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

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

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

Par. 2. Section 1.430(a)-1 is added to read as follows: