Internal Revenue Bulletin 2010-48 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 201
0-48
November 29, 201
0
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Notice 2010–75, page 781.
Credit for carbon dioxide sequestration, 2010 section
45Q inflation adjustment factor.Thenoticepublishesthein-
flation adjustment factor for the credit for carbon dioxide (CO
2
)
sequestration under section 45Q of the Code for calendar year
2010. The amount of credit must be adjusted for inflation for
taxable years beginning in a calendar year after 2009.
EMPLOYEE PLANS
T.D. 9505, page 755.
Final regulations under sections 411(a)(13) and 411(b)(5) of the
Code, which were added by section 701(b) of the Pension Pro-
tection Act of 2006 (PPA ‘06), provide guidance concerning
hybrid defined benefit pension plans, including cash balance
plans. The regulations under section 411(a)(13) generally de-
scribe the plans that are treated as statutory hybrid plans and
provide special benefit calculation and vesting rules with re-
spect to those plans. The regulations under section 411(b)(5)
provide rules for statutory hybrid plans to comply with age dis-
crimination requirements, including rules governing design of
andconversiontoastatutoryhybridplan,andrulesgoverning
operation of those plans, including providing interest credits
that do not exceed a market rate of return.
REG–132554–08, page 783.
Proposed regulations under sections 411(a)(13) and 411(b)(5)
of the Code, as well as section 411(b)(1), provide additional
guidance concerning hybrid defined benefit pension plans, in-
cluding cash balance plans. In particular, these proposed reg-
ulations provide guidance as to the scope of relief under sec-
tion 411(a)(13)(A), contain a special rule regarding the applica-
tion of the 133
1
/3percent rule under section 411(b)(1)(B) to
statutory hybrid plans that credit interest using a variable rate,
provide an alternative method of satisfying the conversion pro-
tection requirements under section 411(b)(5)(B)(ii), and provide
additional guidance with respect to the market rate of return
rules under section 411(b)(5)(B)(i). A public hearing is sched-
uled for January 26, 2011.
ADMINISTRATIVE
Rev. Proc. 2010–41, page 781.
This procedure describes the procedures foreign persons and
U.S. citizens without a social security number, due to conscien-
tious religious objection, must follow to obtain a preparer tax
identification number (PTIN) and provides temporary relief dur-
ing the 2011 filing season for these individuals who experience
delay in obtaining PTINs.
Fi
nding Lists begin on page ii.
Index for July through November begins on page iv.

The IRS Mission
Provide Americ
a’s taxpayers top-quality service by helping
them understa
nd and meet their tax responsibilities and en-
force the law wi
th integrity and fairness to all.
Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
November 29, 20102010–48 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 411.—
Minimum
Vesting Stand
ards
26 CFR 1.411(a
)(13)–1: Statutory hybrid plans.
T.D. 9505
DEPARTMENT OF
THE
TREASURY
Internal Rev
enue Service
26 CFR Part 1
Hybrid Reti
rement Plans
AGENCY: Int
ernal Revenue Service
(IRS), Trea
sury.
ACTION: Fin
al Regulations.
SUMMARY: Th
is document contains
final regu
lations providing guidance re-
latingtoc
ertain provisions of the Internal
Revenue Co
de (Code) that apply to hy-
brid defin
ed benefit pension plans. These
regulatio
ns provide guidance on changes
made by th
e Pension Protection Act of
2006, as a
mended by the Worker, Retiree,
and Emplo
yer Recovery Act of 2008.
These reg
ulations affect sponsors, admin-
istrator
s, participants, and beneficiaries of
hybrid d
efined benefit pension plans.
DATES:E
ffective Date:These regulations
are effe
ctive on October 19, 2010.
Applica
bility Date:These regulations
general
lyapplytoplanyearsthatbeginon
or after
January 1, 2011. However, see
the “Eff
ective/Applicability Dates” sec-
tion in t
his preamble for additional infor-
mation
regarding the applicability of these
regula
tions.
FOR FUR
THER INFORMATION
CONTAC
T:NeilS.Sandhu,
Lauson
C. Green, or Linda S. F. Marshall
at (202
) 622–6090 (not a toll-free number).
SUPPLE
MENTARY INFORMATION:
Backgr
ound
This do
cument contains amendments to
the In
come Tax Regulations (26 CFR part
1) und
er sections 411(a)(13) and 411(b)(5)
of the
Code. Generally, a defined benefit
pensi
on plan must satisfy the minimum
vesting stand
ards of section 411(a) and
the accrual re
quirements of section 411(b)
in order to be q
ualified under section
401(a) of the
Code. Sections 411(a)(13)
and 411(b)(5
),whichmodifythemini-
mum vesting s
tandards of section 411(a)
and the accru
al requirements of section
411(b), wer
e added to the Code by section
701(b) of th
e Pension Protection Act of
2006, Publi
c Law 109–280 (120 Stat. 780
(2006)) (PP
A ’06). Sections 411(a)(13)
and 411(b)(
5), as well as certain effec-
tive date p
rovisions related to these sec-
tions, wer
e subsequently amended by the
Worker, Re
tiree, and Employer Recovery
Act of 2008
, Public Law 110–458 (122
Stat. 509
2 (2008)) (WRERA ’08).
Section 41
1(a)(13)(A) provides that an
applicab
le defined benefit plan (which is
defined i
nsection411(a)(13)(C))isnot
treated a
s failing to meet either (i) the
requirem
ents of section 411(a)(2) (sub-
ject to a s
pecial vesting rule in section
411(a)(
13)(B) with respect to benefits de-
rived fr
om employer contributions) or (ii)
the requ
irements of section 411(a)(11),
411(c),
or 417(e), with respect to accrued
benefi
ts derived from employer contribu-
tions,
merely because the present value of
the acc
rued benefit (or any portion thereof)
of any p
articipant is, under the terms of
the pla
n, equal to the amount expressed
as the
balance of a hypothetical account
or as a
n accumulated percentage of the
parti
cipant’s final average compensation.
Secti
on 411(a)(13)(B) requires an appli-
cable
defined benefit plan to provide that
an em
ployee who has completed at least 3
year
s of service has a nonforfeitable right
to 10
0 percent of the employee’s accrued
bene
fit derived from employer contribu-
tion
s.
Unde
r section 411(a)(13)(C)(i), an
appl
icable defined benefit plan is de-
fine
d as a defined benefit plan under
whi
ch the accrued benefit (or any por-
tio
n thereof) of a participant is calculated
as t
he balance of a hypothetical account
mai
ntained for the participant or as an ac-
cum
ulated percentage of the participant’s
fi
nal average compensation. Under sec-
ti
on 411(a)(13)(C)(ii), the Secretary of
th
e Treasury is to issue regulations which
in
clude in the definition of an applicable
defined benef
it plan any defined benefit
plan (or porti
on of such a plan) which has
an effect simi
lar to a plan described in
section 411(
a)(13)(C)(i).
Section 411(b
)(1)(H)(i) provides that
a defined ben
efit plan fails to comply
with section
411(b) if, under the plan, an
employee’s b
enefit accrual is ceased, or
therateofan
employee’s benefit accrual
is reduced,
because of the attainment of
any age. Sec
tion 411(b)(5), which was
addedtothe
Code by section 701(b)(1)
of PPA ’06, p
rovides additional rules re-
latedtose
ction 411(b)(1)(H)(i). Section
411(b)(5)
(A) generally provides that a
plan is not
treated as failing to meet the
requireme
nts of section 411(b)(1)(H)(i) if
a particip
ant’s accrued benefit, as deter-
mined as o
f any date under the terms of
the plan,
would be equal to or greater than
that of an
y similarly situated, younger in-
dividual
who is or could be a participant.
For this p
urpose, section 411(b)(5)(A)(iv)
provide
s that the accrued benefit may, un-
der the t
erms of the plan, be expressed as
an annui
ty payable at normal retirement
age, the
balance of a hypothetical account,
or the c
urrent value of the accumulated
percen
tage of the employee’s final aver-
age com
pensation. Section 411(b)(5)(G)
provid
es that, for purposes of section
411(b)
(5), any reference to the accrued
benef
it of a participant refers to the partic-
ipant
’s benefit accrued to date.
Secti
on 411(b)(5)(B) imposes cer-
tain r
equirements on an applicable de-
fined
benefit plan in order for the plan
to sat
isfy section 411(b)(1)(H). Section
411(b
)(5)(B)(i) provides that such a plan is
trea
ted as failing to meet the requirements
of se
ction 411(b)(1)(H) if the terms of the
plan
provide for an interest credit (or an
equi
valent amount) for any plan year at a
rate
that is greater than a market rate of
retu
rn. Under section 411(b)(5)(B)(i)(I), a
pla
n is not treated as having an above- mar-
ket
rate merely because the plan provides
for
a reasonable minimum guaranteed rate
of r
eturn or for a rate of return that is
equ
al to the greater of a fixed or variable
ra
te of return. Section 411(b)(5)(B)(i)(II)
pr
ovides that an applicable defined benefit
pl
an is treated as failing to meet the re-
qu
irements of section 411(b)(1)(H) unless
2010–48 I.R.B.755November 29, 2010

the plan provides that an interest credit (or
an equivalent amount) of less than zero can
in no event result in the account balance or
similar amount being less than the aggre-
gate amount of contributions credited to
the account. Section 411(b)(5)(B)(i)(III)
authorizes the Secretary of the Treasury to
provide by regulation for rules governing
the calculation of a market rate of return
for purposes of section 411(b)(5)(B)(i)(I)
and for permissible methods of crediting
interest to the account (including fixed
or variable interest rates) resulting in
effective rates of return meeting the re-
quirements of section 411(b)(5)(B)(i)(I).
Section 411(b)(5)(B)(ii), (iii), and (iv)
contains additional requirements that ap-
ply if, after June 29, 2005, an applicable
plan amendment is adopted. Section
411(b)(5)(B)(v)(I) defines an applica-
ble plan amendment as an amendment
to a defined benefit plan which has the
effect of converting the plan to an appli-
cable defined benefit plan. Under section
411(b)(5)(B)(ii), if, after June 29, 2005,
an applicable plan amendment is adopted,
the plan is treated as failing to meet the
requirements of section 411(b)(1)(H)
unless the requirements of section
411(b)(5)(B)(iii) are met with respect to
each individual who was a participant
in the plan immediately before the
adoption of the amendment. Section
411(b)(5)(B)(iii) specifies that, subject to
section 411(b)(5)(B)(iv), the requirements
of section 411(b)(5)(B)(iii) are met with
respect to any participant if the accrued
benefit of the participant under the terms
of the plan as in effect after the amendment
is not less than the sum of: (I) the
participant’s accrued benefit for years of
service before the effective date of the
amendment, determined under the terms of
the plan as in effect before the amendment;
plus (II) the participant’s accrued benefit
for years of service after the effective
date of the amendment, determined under
the terms of the plan as in effect after
the amendment. Section 411(b)(5)(B)(iv)
provides that, for purposes of section
411(b)(5)(B)(iii)(I), the plan must credit
the participant’s account or similar amount
with the amount of any early retirement
benefit or retirement-type subsidy for
the plan year in which the participant
retires if, as of such time, the participant
has met the age, years of service, and
other requirements under the plan for
entitlement to such benefit or subsidy.
Section 411(b)(5)(B)(v) sets forth
certain provisions related to an ap-
plicable plan amendment.Section
411(b)(5)(B)(v)(II) provides that if the
benefits under two or more defined ben-
efit plans of an employer are coordinated
in such a manner as to have the effect of
adoption of an applicable plan amend-
ment, the plan sponsor is treated as having
adopted an applicable plan amendment
as of the date the coordination begins.
Section 411(b)(5)(B)(v)(III) directs the
Secretary of the Treasury to issue regu-
lations to prevent the avoidance of the
purposes of section 411(b)(5)(B) through
the use of two or more plan amendments
rather than a single amendment.
Section 411(b)(5)(B)(vi) provides spe-
cial rules for determining benefits upon
termination of an applicable defined bene-
fit plan. Under section 411(b)(5)(B)(vi)(I),
an applicable defined benefit plan is not
treated as satisfying the requirements of
section 411(b)(5)(B)(i) (regarding per-
missible interest crediting rates) unless
the plan provides that, upon plan termi-
nation, if the interest crediting rate under
the plan is a variable rate, the rate of in-
terest used to determine accrued benefits
under the plan is equal to the average of
the rates of interest used under the plan
during the 5-year period ending on the
termination date. In addition, under sec-
tion 411(b)(5)(B)(vi)(II), the plan must
provide that, upon plan termination, the
interest rate and mortality table used to
determine the amount of any benefit under
the plan payable in the form of an annuity
payable at normal retirement age is the
rate and table specified under the plan for
this purpose as of the termination date,
except that if the interest rate is a variable
rate, the rate used is the average of the
rates used under the plan during the 5-year
period ending on the termination date.
Section 411(b)(5)(C) provides that a
plan is not treated as failing to meet the
requirements of section 411(b)(1)(H)(i)
solely because the plan provides offsets
against benefits under the plan to the ex-
tent the offsets are otherwise allowable
in applying the requirements of section
401(a). Section 411(b)(5)(D) provides
that a plan is not treated as failing to meet
the requirements of section 411(b)(1)(H)
solely because the plan provides a dis-
parity in contributions or benefits with
respect to which the requirements of sec-
tion 401(l) (relating to permitted disparity
for Social Security benefits and related
matters) are met.
Section 411(b)(5)(E) provides that a
plan is not treated as failing to meet the re-
quirements of section 411(b)(1)(H) solely
because the plan provides for indexing of
accrued benefits under the plan. Under
section 411(b)(5)(E)(iii), indexing means
the periodic adjustment of the accrued
benefit by means of the application of a
recognized investment index or methodol-
ogy. Section 411(b)(5)(E)(ii) requires that,
except in the case of a variable annuity,
the indexing not result in a smaller benefit
than the accrued benefit determined with-
out regard to the indexing.
Section 701(a) of PPA ’06 added pro-
visions to the Employee Retirement In-
come Security Act of 1974, Public Law
93–406 (88 Stat. 829 (1974)) (ERISA),
that are parallel to sections 411(a)(13) and
411(b)(5) of the Code. The guidance pro-
vided in these regulations with respect to
the Code also applies for purposes of the
parallel amendments to ERISA made by
section701(a)ofPPA’06.
1
Section 701(c) of PPA ’06 added pro-
visions to the Age Discrimination in
Employment Act of 1967, Public Law
90–202 (81 Stat. 602 (1967)) (ADEA),
that are parallel to section 411(b)(5) of the
Code. Executive Order 12067 requires
all Federal departments and agencies
to advise and offer to consult with the
Equal Employment Opportunity Commis-
sion (EEOC) during the development of
any proposed rules, regulations, policies,
procedures, or orders concerning equal
employment opportunity. The Treasury
Department and the IRS have consulted
with the EEOC prior to the issuance of
these regulations.
Section 701(d) of PPA ’06 provides that
nothing in the amendments made by sec-
tion 701 should be construed to create an
inference concerning the treatment of ap-
plicable defined benefit plans or conver-
1
Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713), the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed by these regulations for
purposes of ERISA, as well as the Code.
November 29, 20107562010–48 I.R.B.

sions of plans into applicable defined ben-
efit plans under section 411(b)(1)(H), or
concerning the determination of whether
an applicable defined benefit plan fails to
meet the requirements of section 411(a)(2),
411(c), or 417(e), as in effect before such
amendments, solely because the present
value of the accrued benefit (or any por-
tion thereof) of any participant is, under
the terms of the plan, equal to the amount
expressed as the balance of a hypothetical
account or as an accumulated percentage
of the participant’s final average compen-
sation.
Section 701(e) of PPA ’06 sets forth
the effective date provisions with respect
to amendments made by section 701 of
PPA ’06. Section 701(e)(1) specifies that
theamendmentsmadebysection701
generally apply to periods beginning on
or after June 29, 2005. Thus, the age
discrimination safe harbors under section
411(b)(5)(A) and section 411(b)(5)(E) are
effective for periods beginning on or after
June 29, 2005. Section 701(e)(2) pro-
vides that the special present value rules
of section 411(a)(13)(A) are effective for
distributions made after August 17, 2006
(the date PPA ’06 was enacted).
Under section 701(e) of PPA ’06,
the 3-year vesting rule under section
411(a)(13)(B) is generally effective for
years beginning after December 31, 2007,
for a plan in existence on June 29, 2005,
while, pursuant to the amendments made
by section 107(c) of WRERA ’08, this
vesting rule is generally effective for plan
years ending on or after June 29, 2005,
for a plan not in existence on June 29,
2005. The market rate of return limitation
under section 411(b)(5)(B)(i) is generally
effective for years beginning after De-
cember 31, 2007, for a plan in existence
on June 29, 2005, while the limitation is
generally effective for periods beginning
on or after June 29, 2005, for a plan not
in existence on June 29, 2005. Section
701(e)(4) of PPA ’06 contains special
effective date provisions for collectively
bargained plans that modify these effective
dates.
Under section 701(e)(5) of PPA ’06,
as amended by WRERA ’08, sections
411(b)(5)(B)(ii), (iii), and (iv) apply to
a conversion amendment that is adopted
on or after, and takes effect on or after,
June 29, 2005.
Under section 701(e)(6) of PPA ’06, as
added by WRERA ’08, the 3-year vesting
rule under section 411(a)(13)(B) does not
apply to a participant who does not have
an hour of service after the date the 3-year
vesting rule would otherwise be effective.
Section 702 of PPA ’06 provides for
regulations to be prescribed by August 16,
2007, addressing the application of rules
set forth in section 701 of PPA ’06 where
the conversion of a defined benefit pension
plan into an applicable defined benefit plan
is made with respect to a group of employ-
ees who become employees by reason of a
merger, acquisition, or similar transaction.
Under section 1107 of PPA ’06, a plan
sponsor is permitted to delay adopting a
plan amendment pursuant to statutory pro-
visions under PPA ’06 (or pursuant to any
regulation issued under PPA ’06) until the
last day of the first plan year beginning
on or after January 1, 2009 (January 1,
2011, in the case of governmental plans).
As described in Rev. Proc. 2007–44,
2007–2 C.B 54), this amendment dead-
line applies to both interim and discre-
tionary amendments that are made pur-
suant to PPA ’06 statutory provisions or
any regulation issued under PPA ’06. See
§601.601(d)(2)(ii)(b).
Section 1107 of PPA ’06 also permits
certain amendments to reduce or eliminate
section 411(d)(6) protected benefits. Ex-
cept to the extent permitted under section
1107 of PPA ’06 (or under another statu-
tory provision, including section 411(d)(6)
and §§1.411(d)–3 and 1.411(d)–4), section
411(d)(6) prohibits a plan amendment that
decreases a participant’s accrued benefits
or that has the effect of eliminating or re-
ducing an early retirement benefit or re-
tirement-type subsidy, or eliminating an
optional form of benefit, with respect to
benefits attributable to service before the
amendment. However, an amendment that
eliminates or decreases benefits that have
not yet accrued does not violate section
411(d)(6), provided that the amendment is
adopted and effective before the benefits
accrue. If section 1107 of PPA ’06 applies
to an amendment of a plan, section 1107
provides that the plan does not fail to meet
the requirements of section 411(d)(6) by
reason of such amendment, except as pro-
vided by the Secretary of the Treasury.
Proposed regulations (EE–184–86) un-
der sections 411(b)(1)(H) and 411(b)(2)
were published by the Treasury Depart-
ment and the IRS in theFederal Reg-
isteron April 11, 1988 (53 FR 11876),
as part of a package of regulations that
also included proposed regulations under
sections 410(a), 411(a)(2), 411(a)(8), and
411(c) (relating to the maximum age for
participation, vesting, normal retirement
age, and actuarial adjustments after normal
retirement age, respectively).
2
Notice 96–8, 1996–1 C.B. 359, see
§601.601(d)(2)(ii)(b), described the ap-
plication of sections 411 and 417(e) to a
single-sum distribution under a cash bal-
ance plan where interest credits under the
plan are frontloaded(that is, where the
right to future interest credits with respect
to an employee’s hypothetical account
balance is not conditioned upon future ser-
vice and thus accrues at the same time that
the benefits attributable to a hypothetical
allocation to the account accrue). Under
the analysis set forth in Notice 96–8, in
order to comply with sections 411(a) and
417(e) in calculating the amount of a sin-
gle-sum distribution under a cash balance
plan, the balance of an employee’s hy-
pothetical account must be projected to
normal retirement ageand converted to an
annuity under the terms of the plan, and
then the employee must be paid at least
the present value of the projected annuity,
determined in accordance with section
417(e). Under that analysis, where a cash
balance plan provides frontloaded interest
credits using an interest rate that is higher
than the section 417(e) applicable interest
rate, payment of a single-sum distribution
equal to the current hypothetical account
balance as a complete distribution of the
employee’s accrued benefit may result in
a violation of section 417(e) or a forfeiture
in violation of section 411(a). In addition,
Notice 96–8 proposed a safe harbor which
provided that, if frontloaded interest cred-
2
On December 11, 2002, the Treasury Department and the IRS issued proposed regulations regarding the age discrimination requirements of section 411(b)(1)(H) that specifically addressed
cash balance plans as part of a package of regulations that also addressed section 401(a)(4) nondiscrimination cross-testing rules applicable to cash balance plans (67 FR 76123). The 2002
proposed regulations were intended to replace the 1988 proposed regulations. In Ann. 2003–22, 2003–1 C.B. 846), see §601.601(d)(2)(ii)(b), the Treasury Department and the IRS announced
the withdrawal of the 2002 proposed regulations under section 401(a)(4), and in Ann. 2004–57, 2004–2 C.B. 15, see §601.601(d)(2)(ii)(b), the Treasury Department and the IRS announced
the withdrawal of the 2002 proposed regulations relating to age discrimination.
2010–48 I.R.B.757November 29, 2010

its are provided under a plan at a rate no
greater than the sum of identified standard
indices and associated margins, no vio-
lationofsection411(a)or417(e)would
result if the employee’s entire accrued
benefit were to be distributed in the form
of a single-sum distribution equal to the
employee’s hypothetical account balance,
provided the plan uses appropriate annuity
conversion factors. Since the issuance of
Notice 96–8, four Federal appellate courts
have followed the analysis set out in the
Notice:Esden v. Bank of Boston,229
F.3d 154 (2d Cir. 2000),cert. dismissed,
531 U.S. 1061 (2001);West v. AK Steel
Corp. Ret. Accumulation Pension Plan,
484 F.3d 395 (6th Cir. 2007),cert. denied,
129 S. Ct. 895 (2009);Berger v. Xerox
Corp. Ret. Income Guarantee Plan,338
F.3d 755 (7th Cir. 2003),reh’g and reh’g
en banc denied, No. 02–3674, 2003 U.S.
App. LEXIS 19374 (7th Cir. Sept. 15,
2003);Lyons v. Georgia-Pacific Salaried
Employees Ret. Plan, 221 F.3d 1235 (11th
Cir. 2000),cert. denied, 532 U.S. 967
(2001).
Notice 2007–6, 2007–1 C.B. 272, see
§601.601(d)(2)(ii)(b), provides transi-
tional guidance with respect to certain
requirements of sections 411(a)(13) and
411(b)(5) and section 701(b) of PPA ’06.
Notice 2007–6 includes certain special
definitions, including: accumulated ben-
efit, which is defined as a participant’s
benefit accrued to date under a plan; lump
sum-based plan, which is defined as a
defined benefit plan under the terms of
which the accumulated benefit of a par-
ticipant is expressed as the balance of a
hypothetical account maintained for the
participant or as the current value of the
accumulated percentage of the partici-
pant’s final average compensation; and
statutory hybrid plan, which is defined as
a lump sum-based plan or a plan which
has an effect similar to a lump sum-based
plan. Notice 2007–6 provides guidance on
a number of issues, including a rule under
which a plan that provides for indexed
benefits described in section 411(b)(5)(E)
is a statutory hybrid plan (because it has an
effect similar to a lump sum-based plan),
unless the plan either solely provides for
post-retirement adjustment of the amounts
payable to a participant or is a variable
annuity plan under which the assumed in-
terest rate used to determine adjustments is
at least 5 percent. Notice 2007–6 provides
a safe harbor for applying the rules set
forth in section 701 of PPA ’06 where the
conversion of a defined benefit pension
plan into an applicable defined benefit
plan is made with respect to a group of
employees who become employees by
reason of a merger, acquisition, or similar
transaction. This transitional guidance,
along with the other guidance provided in
Part III of Notice 2007–6, applies pending
the issuance of further guidance and, thus,
does not apply for periods to which these
final regulations apply.
Proposed regulations (REG–104946–07,
2008–1 C.B. 596) under sections
411(a)(13) and 411(b)(5) (2007 proposed
regulations) were published by the
Treasury Department and the IRS in the
Federal Registeron December 28, 2007
(72 FR 73680). The Treasury Department
and the IRS received written comments
on the 2007 proposed regulations and a
public hearing was held on June 6, 2008.
Announcement 2009–82, 2009–48
I.R.B. 720 and Notice 2009–97, 2009–52
I.R.B. 972, see §601.601(d)(2)(ii)(b),
announced certain expected relief with
respect to the requirements of section
411(b)(5). In particular, Announcement
2009–82 stated that the rules in the reg-
ulations specifying permissible market
rates of return are not expected to go into
effect before the first plan year that begins
on or after January 1, 2011. In addition,
Notice 2009–97 stated that, once final
regulations under sections 411(a)(13) and
411(b)(5) are issued, it is expected that
relief from the requirements of section
411(d)(6) will be granted for a plan amend-
ment that eliminates or reduces a section
411(d)(6) protected benefit, provided that
the amendment is adopted by the last day
of the first plan year that begins on or
after January 1, 2010, and the elimination
or reduction is made only to the extent
necessary to enable the plan to meet
the requirements of section 411(b)(5).
3
Notice 2009–97 also extended the deadline
for amending cash balance and other
applicable defined benefit plans, within the
meaning of section 411(a)(13)(C), to meet
the requirements of section 411(a)(13)
(other than section 411(a)(13)(A)) and
section 411(b)(5), relating to vesting and
other special rules applicable to these
plans. Under Notice 2009–97, the deadline
for these amendments is the last day of
the first plan year that begins on or after
January 1, 2010.
After consideration of the comments
received in response to the 2007 proposed
regulations, these final regulations gen-
erally adopt the provisions of the 2007
proposed regulations with certain modi-
fications as described under the heading
“Explanation of Provisions.” In addition,
the Treasury Department and the IRS
are issuing proposed regulations (2010
proposed regulations) that address cer-
tain issues under sections 411(a)(13) and
411(b)(5) that have not been addressed in
these final regulations (and that are gen-
erally indicated as “RESERVED” in these
final regulations), and that also address
a related issue under section 411(b)(1).
The 2010 proposed regulations are being
issued at the same time as these final reg-
ulations.
Explanation of Provisions
Overview
In general, these final regulations incor-
porate the transitional guidance provided
under Notice 2007–6 as well as the pro-
visions of the 2007 proposed regulations.
The regulations adopt the terminology
used in the proposed regulations (such
as “statutory hybrid benefit formula” and
“lump sum-based benefit formula”) to take
into account situations where plans pro-
vide more than one benefit formula. These
regulations also provide additional guid-
ance with respect to sections 411(a)(13)
and 411(b)(5), taking into account com-
ments received in response to the 2007
proposed regulations and also reflecting
the enactment of WRERA ’08.
I.Section 411(a)(13): Applicable
definitions, relief of section 411(a)(13)(A),
and special vesting rules for applicable
defined benefit plans
A.Definitions
The regulations under section
411(a)(13) contain certain definitions that
apply both for purposes of the regulations
3
However, see footnote 6 in the preamble to the 2010 proposed regulations described in the next paragraph.
November 29, 20107582010–48 I.R.B.

under section 411(a)(13) and the regu-
lations under section 411(b)(5). Section
411(b)(5)(G) provides that, for purposes
of section 411(b)(5), any reference to the
accrued benefit means the benefit accrued
to date. The final regulations refer to
this as the “accumulated benefit”, which
is distinct from the participant’s accrued
benefit under section 411(a)(7) (an an-
nuity beginning at normal retirement age
that is actuarially equivalent to the par-
ticipant’s accumulated benefit). As in the
2007 proposed regulations, the regulations
use the term “statutory hybrid plan” to
refer to an applicable defined benefit plan
described in section 411(a)(13)(C). Under
the regulations, a statutory hybrid plan is a
defined benefit plan that contains a statu-
tory hybrid benefit formula, and a “statu-
tory hybrid benefit formula” is a benefit
formula that is either a lump sum-based
benefit formula or a formula that has an
effect similar to a lump sum-based benefit
formula.
The regulations define a “lump sum-
based benefit formula” as a benefit for-
mula used to determine all or any part
of a participant’s accumulated benefit un-
der which the accumulated benefit pro-
vided under the formula is expressed as
the current balance of a hypothetical ac-
count maintained for the participant or as
the current value of the accumulated per-
centage of the participant’s final average
compensation. The final regulations adopt
the rules of the 2007 proposed regulations
whereby the determination as to whether a
benefit formula is a lump sum-based bene-
fit formula is made based on how the ac-
cumulated benefit ofa participant is ex-
pressed under the terms of the plan, and
does not depend on whether the plan pro-
vides an optional form of benefit in the
form of a single-sum payment. Similarly,
a formula does not fail to be a lump sum-
based benefit formula merely because the
plan’s terms state that the participant’s ac-
crued benefit is an annuity at normal re-
tirement age that is actuarially equivalent
to the balance of a hypothetical account
maintained for the participant.
The preamble to the 2007 proposed reg-
ulations asked for comments on plan for-
mulas that calculate benefits as the cur-
rent value of an accumulated percentage of
the participant’s final average compensa-
tion (often referred to as “pension equity
plans” or “PEPs”). Commenters indicated
that some of these plans never credit inter-
est, directly or indirectly, some explicitly
credit interest after cessation of PEP ac-
cruals, and some do not credit interest ex-
plicitly but provide for specific amounts to
be payable after cessation of accruals (both
immediately and at future dates) based on
actuarial equivalence using specified actu-
arial factors applied after cessation of ac-
cruals.
In response to these comments, the final
regulations clarify that a benefit formula is
expressed as the balance of a hypothetical
account maintained for the participant if it
is expressed as a current single-sum dollar
amount. A lump sum-based benefit for-
mula that credits interest is subject to the
market rate of return rules, so that in any
case in which a PEP formula provides for
interest credits after cessation of PEP ac-
cruals, the interest credits are subject to the
market rate of return rules.
The 2007 proposed regulations con-
tained a rule whereby a benefit formula
would not have been treated as a lump
sum-based benefit formula with respect
to a participant merely because the par-
ticipant is entitled to a benefit that is not
less than the benefit properly attributable
to after-tax employee contributions. In re-
sponse to comments received that this rule
be broadened, the final regulations provide
that the benefit properly attributable to
after-tax employee contributions, rollover
contributions, and other similar employee
contributions is disregarded when deter-
mining whether a benefit formula is a
lump sum-based benefit formula with re-
spect to a participant. Thus, for example,
a plan is not a statutory hybrid plan with
a lump sum-based benefit formula with
respect to a participant merely because the
plan provides that the participant’s benefit
is equal to the sum-of or greater-of the
benefit properly attributable to employee
contributions and the benefit under a tra-
ditional defined benefit formula.
The regulations provide that a benefit is
not properly attributable to employee con-
tributions if such contributions are credited
with interest at a rate that exceeds a rea-
sonable rate of interest or if the conversion
factors used to calculate the benefit based
on such employee contributions are not ac-
tuarially reasonable. The regulations clar-
ify that section 411(c) merely provides an
example of an acceptable methodology for
purposes of determining the benefit that is
properly attributable to employee contri-
butions.
The 2007 proposed regulations pro-
vided that a benefit formula under a de-
fined benefit plan has an effect similar
to a lump sum-based benefit formula if
the formula provides that a participant’s
accumulated benefit payable at normal
retirement age (or at benefit commence-
ment, if later) is expressed as a benefit that
includes periodic adjustments (including a
formula that provides for indexed benefits
described in section 411(b)(5)(E)) that are
reasonably expected to result in a smaller
annual benefit at normal retirement age
(or at benefit commencement, if later) for
the participant, when compared to a sim-
ilarly situated, younger individual who is
or could be a participant in the plan. A
number of commenters suggested that the
rule in the 2007 proposed regulations was
too broad generally and also suggested
that certain types of plans, such as plans
described in section 411(b)(5)(E), be ex-
empted entirely. However, the Treasury
Department and the IRS believe that a
key purpose of sections 411(a)(13) and
411(b)(5) is to address defined benefit
plan formulas where younger participants
receive a larger annual benefit at normal
retirement age when compared to similarly
situated, older participants. Therefore, the
final regulations do not significantly nar-
row the definition of a benefit formula that
hasaneffectsimilartoalumpsum-based
benefit formula.
The regulations clarify that a benefit
formula under a defined benefit plan has
an effect similar to a lump sum-based
benefit formula if the formula provides
that a participant’s accumulated benefit is
expressed as a benefit that includes adjust-
ments (including a formula that provides
for indexed benefits described in section
411(b)(5)(E)) for a future period and the
total dollar amount of the adjustments is
reasonably expected to be smaller for the
participant, when compared to a similarly
situated, younger individual who is or
could be a participant in the plan. Thus, a
formula that provides that a participant’s
accumulated benefit is expressed as a
benefit that includes the right to periodic
adjustments is treated as having an ef-
fect similar to a lump sum-based benefit
formula based on a comparison of the
expected total dollar amount of the adjust-
ments through benefit commencement,
2010–48 I.R.B.759November 29, 2010

rather than the expected total accumulated
benefit after application of these adjust-
ments.
As in the 2007 proposed regulations,
the regulations provide that a benefit for-
mula under a plan has an effect similar to
a lump sum-based benefit formula where
the right to future adjustments accrues at
the same time as the benefit that is sub-
ject to those adjustments. In addition, the
regulations provide that a benefit formula
that does not include adjustments is never-
theless treated as a formula with an effect
similar to a lump sum-based benefit for-
mula where benefits are adjusted pursuant
to a pattern of repeated plan amendments
and the total dollar amount of those adjust-
ments is reasonably expected to be smaller
for the participant than for any similarly
situated, younger individual who is or
could be a participant. See §1.411(d)–4,
A–1(c)(1).
Like the 2007 proposed regulations, the
regulations provide that certain benefits
are disregarded when determining whether
a benefit formula has an effect similar to
a lump sum-based benefit formula. For
example, the regulations provide that, for
purposes of determining whether a bene-
fitformulahasaneffectsimilartoalump
sum-based benefit formula, indexing that
applies to adjust benefits after the annuity
starting date (for example, cost-of-living
increases) is disregarded. In addition, ben-
efits properly attributable to certain em-
ployee contributions that are disregarded
for purposes of determining whether a par-
ticipant is treated as having a lump-sum
based benefit formula are also disregarded
for purposes of determining whether a for-
mula has an effect similar to a lump sum-
based benefit formula.
The regulations include an example that
illustrates that a defined benefit formula is
not treated as a statutory hybrid benefit for-
mula merely because the formula provides
for actuarial increases after normal retire-
ment age. This is because actuarial in-
creases after normal retirement age do not
provide smaller adjustments for older par-
ticipants when compared to similarly situ-
ated, younger participants.
The 2007 proposed regulations pro-
vided that variable annuity benefit formu-
las with assumed interest rates (sometimes
referred to as “hurdle rates”) of at least 5
percent are not treated as having an effect
similar to a lump sum-based benefit for-
mula. A number of commenters requested
that the regulations extend this rule to
variable annuity plans with lower hurdle
rates. However, plans with lower hurdle
rates are more likely to provide positive
adjustments for future periods than plans
with higher hurdle rates and, as a result,
younger participants are more likely to
receive a meaningfully larger total dollar
amount of adjustments than older partic-
ipants under these plans. The Treasury
Department and the IRS are concerned
that exempting these plans would mean
that participants would lose the protections
afforded to participants in statutory hybrid
plans (including 3-year vesting and con-
version protection). Therefore, the final
regulations retain the rule whereby ad-
justments under a variable annuity do not
have an effect similar to a lump sum-based
benefit formula if the assumed interest rate
used to determine the adjustments is 5 per-
cent or higher. Such an annuity does not
have an effect similar to a lump sum-based
benefit formula even if post-annuity start-
ing date adjustments are made using a
specified assumed interest rate that is less
than 5 percent.
B.Relief under section 411(a)(13)(A)
The regulations reflect new section
411(a)(13)(A) by providing that a statu-
tory hybrid plan is not treated as fail-
ing to meet the requirements of section
411(a)(2), or, with respect to the par-
ticipant’s accrued benefit derived from
employer contributions, the requirements
of sections 411(a)(11), 411(c), or 417(e),
merely because the plan provides that the
present value of benefits as determined
under a lump sum-based benefit formula
is equal to the then-current balance of the
hypothetical account maintained for the
participant or the then-current value of
the accumulated percentage of the partic-
ipant’s final average compensation under
that formula. However, section 411(a)(13)
does not alter the definition of the accrued
benefit under section 411(a)(7)(A) (which
generally defines the participant’s accrued
benefit as the annual benefit commencing
at normal retirement age), nor does it alter
the definition of the normal retirement
benefit under section 411(a)(9) (which
generally defines the participant’s normal
retirement benefit as the benefit under the
plan commencing at normal retirement
age).
Section 411(a)(13)(A) applies only
with respect to a benefit provided under a
lump sum-based benefit formula. A statu-
tory hybrid plan that provides benefits
under a benefit formula that is a statutory
hybrid benefit formula other than a lump
sum-based benefit formula (such as a plan
that provides for indexing as described in
section 411(b)(5)(E)) must comply with
the present value rules of section 417(e)
with respect to an optional form of ben-
efit that is subject to the requirements of
section 417(e).
The regulations do not provide guid-
ance as to how section 411(a)(13)(A) ap-
plies with respect to payments that are not
made in the form of a single-sum distri-
bution of the hypothetical account balance
or accumulated percentage of final average
compensation, such as payments made in
the form of an annuity. That issue is be-
ing addressed in the 2010 proposed regu-
lations.
C.Special vesting rules for applicable
defined benefit plans
Pursuant to section 411(a)(13)(B), the
regulations provide that, in the case of a
participant whose accrued benefit (or any
portion thereof) under a defined benefit
plan is determined under a statutory hy-
brid benefit formula, the plan is treated as
failing to satisfy the requirements of sec-
tion 411(a)(2) unless the plan provides that
the participant has a nonforfeitable right
to 100 percent of the participant’s accrued
benefit derived from employer contribu-
tions if the participant has 3 or more years
of service. As in the 2007 proposed reg-
ulations, the final regulations provide that
this requirement applies on a participant-
by-participant basis and applies to the par-
ticipant’s entire benefit derived from em-
ployer contributions under a statutory hy-
brid plan (not just the portion of the par-
ticipant’s benefit that is determined under
a statutory hybrid benefit formula). Fur-
thermore, the regulations retain the rule
under which, if a participant is entitled
to the greater of two (or more) benefit
amounts under a plan, where each amount
is determined under a different benefit for-
mula (including a benefit determined pur-
suant to an offset among formulas within
the plan or a benefit determined as the
November 29, 20107602010–48 I.R.B.

greater of a protected benefit under section
411(d)(6) and another benefit amount), at
least one of which is a benefit calculated
under a statutory hybrid benefit formula,
the 3-year vesting requirement applies to
that participant’s entire accrued benefit un-
der the plan even if the participant’s benefit
under the statutory hybrid benefit formula
is ultimately smaller than under the other
formula.
The 2007 proposed regulations re-
quested comments regarding the appli-
cation of the 3-year vesting requirement
to a floor plan that is not a statutory hy-
brid plan but that is part of a floor-offset
arrangement with an independent plan
that is a statutory hybrid plan. A num-
ber of commenters suggested that the
3-year vesting requirement should apply
on a plan-by-plan basis, without regard
to whether a plan is part of a floor-offset
arrangement. In contrast, one commenter
suggested that the 3-year vesting require-
ment should apply to both plans that are
part of a floor-offset arrangement even if
only one of the plans is a statutory hybrid
plan, because the commenter felt that de-
termining the amount of the offset in an
arrangement involving plans with differ-
ent vesting schedules would be inherently
difficult. However, this concern is miti-
gated because, in the view of the Treasury
Department and the IRS, a floor-offset
arrangement where the benefit payable
under a floor plan is reduced by the benefit
payable under an independent plan is only
permissible if the arrangement limits the
offset to amounts that are vested under the
independent plan.
4
Therefore, the regula-
tions retain the rule whereby the 3-year
vesting requirement is limited to plans that
contain a statutory hybrid benefit formula
and provide an example illustrating this
rule with respect to a floor-offset arrange-
ment where the benefit payable under a
floor plan that does not include a statutory
hybrid benefit formula is reduced by the
vested accrued benefit payable under an
independent plan that includes a statutory
hybrid benefit formula.
II.Section 411(b)(5): Safe harbor for age
discrimination, conversion protection,
and market rate of return limitation
A.Safe harbor for age discrimination
The regulations reflect new section
411(b)(5)(A), which provides that a plan
is not treated as failing to meet the re-
quirements of section 411(b)(1)(H)(i) with
respect to certain benefit formulas if, as
determined as of any date, a participant’s
accumulated benefit expressed under one
of those formulas would not be less than
any similarly situated, younger partic-
ipant’s accumulated benefit expressed
under the same formula. A plan that does
not satisfy this test is required to satisfy the
general age discrimination rule of section
411(b)(1)(H)(i).
As in the 2007 proposed regulations,
the regulations provide that the safe har-
bor standard under section 411(b)(5)(A) is
available only where a participant’s accu-
mulated benefit under the terms of the plan
is expressed as an annuity payable at nor-
mal retirement age (or current age, if later),
the current balance of a hypothetical ac-
count, or the current value of the accumu-
lated percentage of the employee’s final
average compensation. For this purpose,
if the accumulated benefit of a participant
is expressed as an annuity payable at nor-
mal retirement age (or current age, if later)
under the plan terms, then the comparison
of benefits is made using such an annu-
ity. Similarly, if the accumulated benefit
of a participant is expressed under the plan
terms as the current balance of a hypothet-
ical account or the current value of an ac-
cumulated percentage of the participant’s
final average compensation, then the com-
parison of benefits is made using the cur-
rent balance of a hypothetical account or
the current value of the accumulated per-
centage of the participant’s final average
compensation,respectively.
The regulations require a comparison
of the accumulated benefit of each possi-
ble participant in the plan to the accumu-
lated benefit of each other similarly situ-
ated, younger individual who is or could
be a participant in the plan. For this pur-
pose, as in the 2007 proposed regulations,
the regulations provide that an individual
is similarly situated to another individual
if the individual is identical to that other
individual in every respect that is relevant
in determining a participant’s benefit un-
der the plan (including, but not limited
to, period of service, compensation, posi-
tion, date of hire, work history, and any
other respect) except for age. In determin-
ing whether an individual is similarly situ-
ated to another individual, any characteris-
tic that is relevant for determining benefits
under the plan and that is based directly or
indirectly on age is disregarded. For ex-
ample, if a particular benefit formula ap-
plies to a participant on account of the par-
ticipant’s age, an individual to whom the
benefit formula does not apply and who
is identical to a participant in all respects
other than age is similarly situated to the
participant. By contrast, an individual is
not similarly situated to a participant if a
different benefit formula applies to the in-
dividual and the application of the different
formula is based neither directly nor indi-
rectly on age. For example, if the benefit
formula under a plan is changed from one
type to another for employees hired after
the effective date of the change, employ-
ees hired after the relevant date would not
be similarly situated with employees hired
before that date because the benefit for-
mula for new hires is not based directly nor
indirectly on age.
The comparison of accumulated bene-
fits is made without regard to any subsi-
dized portion of any early retirement ben-
efit that is included in a participant’s accu-
mulated benefit. For this purpose, the sub-
sidized portion of an early retirement bene-
fit is the retirement-type subsidy within the
meaning of §1.411(d)–3(g)(6) that is con-
tingent on a participant’s severance from
employment and commencement of bene-
fits before normal retirement age.
In addition, like the 2007 proposed reg-
ulations, the regulations provide that the
safe harbor is generally not available with
respect to a participant if the benefit of
any similarly situated, younger individual
is expressed in a different form than the
participant’s benefit. Thus, for example,
the safe harbor is not available for com-
paring the accumulated benefit of a partic-
ipant expressed as an annuity at normal re-
tirement age with the accumulated benefit
of a similarly situated, younger participant
4
See Rev. Rul. 76–259, 1976–2 C.B. 111, see §601.601(d)(2)(ii)(b).
2010–48 I.R.B.761November 29, 2010

expressed as the current balance of a hypo-
thetical account.
Like the 2007 proposed regulations, the
regulations generally permit a plan that
provides the sum-of or the greater-of ben-
efits that are expressed in two or more dif-
ferent forms of benefit to satisfy the safe
harbor if the plan would separately sat-
isfy the safe harbor for each separate form
of benefit. For purposes of the safe har-
bor comparisons involving greater-of and
sum-of benefit formulas, the 2007 pro-
posed regulations contained a rule where
a similarly situated, younger participant
would be treated as having an accumu-
lated benefit of zero under a benefit for-
mula that does not apply to the participant.
While the sum-of and greater-of provi-
sions are organized differently in these reg-
ulations, the regulations effectively retain
this rule because sum-of and greater-of for-
mulas are eligible for the safe harbor even
where older participants receive benefits
expressed in a different form than the ben-
efits of similarly situated, younger partic-
ipants, as long as younger participants are
notentitledtobenefitsexpressedinadif-
ferent form than the benefits of similarly
situated, older participants.
Several commenters requested that the
regulations clarify that the safe harbor is
also available to plans that allow older par-
ticipants to choose, at the time a new statu-
tory hybrid benefit formula goes into ef-
fect, whether to receive a benefit under the
statutory hybrid benefit formula or under
the pre-existing traditional defined bene-
fit formula. In response to such com-
ments, the regulations adopt similar rules
as the sum-of and greater-of rules for plans
that provide participants with the choice of
benefits that are expressed in two or more
different forms.
As part of the sum-of, greater-of, and
choice-of rules, the regulations reflect the
fact that the sum of benefits expressed in
two or more forms is never less than the
greater of the same benefits and that the
greater of benefits expressed in two or
more forms is never less than the choice
of the same benefits. As a result, the reg-
ulations provide that in order for the safe
harbor to be available with respect to a par-
ticipant who is provided with the greater of
benefits expressed in two or more different
forms, the plan must not provide any simi-
larly situated, younger participant with the
sum of the same benefits. Similarly, the
regulations provide that in order for the
safe harbor to be available with respect to a
participant who is provided with the choice
of benefits expressed in two or more dif-
ferent forms, the plan must not provide
any similarly situated, younger participant
with either the sum of or the greater of the
same benefits. In addition, in order for the
safe harbor to be available, the plan cannot
provide for any other relationship between
benefits expressed in different forms other
than sum-of, greater-of, or choice-of ben-
efits.
The regulations reflect new section
411(b)(5)(C), which provides that a plan
is not treated as failing to meet the re-
quirements of section 411(b)(1)(H) solely
because the plan provides offsets of ben-
efits under the plan to the extent such
offsets are allowable in applying the re-
quirements under section 401 and the
applicable requirements of ERISA and
ADEA. The regulations incorporate the
provisions of section 411(b)(5)(D) (relat-
ing to permitted disparity under section
401(l)) without providing additional guid-
ance. These rules are unchanged from the
2007 proposed regulations.
The regulations contain a number of
new examples that illustrate the applica-
tion of the safe harbor under various fact
patterns. One of these examples illustrates
that the safe harbor is not satisfied in the
case of a plan that contains a suspension
of benefits provision that reduces or elim-
inates interest creditsfor participants who
continue in service after normal retirement
age.
The regulations also reflect new section
411(b)(5)(E), which provides for the dis-
regard of certain indexing of benefits for
purposes of the age discrimination rules
of section 411(b)(1)(H). As in the 2007
proposed regulations, the regulations limit
the disregard of indexing to formulas un-
der defined benefit plans other than lump
sum-based formulas. In addition, the reg-
ulations clarify that the disregard of index-
ing is limited to situations in which the ex-
tent of the indexing for a participant would
not be less than the indexing applicable to
a similarly situated, younger participant.
Thus, the disregard of indexing is only
available if the indexing is neither termi-
nated nor reduced on account of the attain-
ment of any age.
Section 411(b)(5)(E) requires that the
indexing be accomplished by applica-
tion of a recognized investment index
or methodology. The 2007 proposed
regulations limited a recognized invest-
ment index or methodology to an eligi-
ble cost-of-living index as described in
§1.401(a)(9)–6, A–14(b), the rate of re-
turn on the aggregate assets of the plan, or
the rate of return on the annuity contract
for the employee issued by an insurance
company licensed under the laws of a
State. The final regulations expand the list
of what constitutes a recognized index or
methodology by treating any rate of return
that satisfies the market rate of return rules
under these regulations as a recognized
index or methodology.
As under the 2007 proposed regula-
tions, the section 411(b)(5)(E)(ii) protec-
tion against loss (“no-loss”) requirement
for an indexed plan (which requires that
the indexing not result in a smaller accrued
benefit than if no indexing had applied) is
implemented under the final regulations
by applying the “preservation of capital”
rule of section 411(b)(5)(B)(i)(II) to in-
dexed plans. (The preservation of capital
rule is discussed in section II. C. of this
preamble.) The final regulations clarify
that variable annuity benefit formulas (as
defined in the regulations) are exempt
from the no-loss and preservation of capi-
tal rules.
B.Conversion protection
The regulations provide guidance on
the new conversion protections under sec-
tion 411(b)(5)(B)(ii), (iii), and (iv) which
is similar to the 2007 proposed regula-
tions. Under the regulations, a participant
whose benefits are affected by a conver-
sion amendment that was both adopted and
effective on or after June 29, 2005, must
generally be provided with a benefit af-
ter the conversion that is at least equal to
the sum of the benefits accrued through the
date of the conversion and benefits earned
after the conversion, with no permitted in-
teraction between these two portions. This
assures participants that there will be no
“wear-away” as a result of a conversion,
both with respect to the participant’s ac-
crued benefits and any early retirement
subsidy to which the participant is entitled
based on the pre-conversion benefits.
The 2007 proposed regulations in-
cluded an alternative mechanism under
which a plan could provide for the es-
November 29, 20107622010–48 I.R.B.

tablishment of an opening hypothetical
account balance or opening accumulated
percentage of the participant’s final aver-
age compensation as part of the conversion
and keep separate track of (1) the benefit
attributable to the opening hypothetical
account balance (including interest credits
attributable thereto) or attributable to the
opening accumulated percentage of the
participant’s final average compensation
and (2) the benefit attributable to post-con-
version service under the post-conversion
benefit formula. Comments on this rule
were favorable and it is retained under the
final regulations. A variety of examples
illustrating application of the alternative
are included in the regulations. Under this
alternative, when a participant commences
benefits, it must be determined whether
the benefit attributable to the opening hy-
pothetical account or attributable to the
opening accumulated percentage that is
payable in the particular optional form of
benefit selected is greater than or equal to
the benefit accrued under the plan prior
to the date of conversion and that was
payable in the same generalized optional
form of benefit (within the meaning of
§1.411(d)–3(g)(8)) at the same annuity
starting date. If thebenefit attributable
to the opening hypothetical account bal-
ance or opening accumulated percentage
is greater, then the plan must provide that
such benefit is paid in lieu of the pre-con-
version benefit, in addition to the benefit
attributable to post-conversion service un-
der the post-conversion benefit formula.
If the benefit attributable to the opening
hypothetical account balance or opening
accumulated percentage is less, then the
plan must provide that such benefit will
be increased sufficiently to provide the
pre-conversion benefit, in addition to the
benefit attributable to post-conversion
service under the post-conversion benefit
formula.
As in the 2007 proposed regulations,
the final regulations provide under this al-
ternative that, if an optional form of bene-
fit is available on the annuity starting date
with respect to the benefit attributable to
the opening hypothetical account balance
or opening accumulated percentage, but no
optional form (such as a single-sum dis-
tribution) within the same generalized op-
tional form of benefit was available at that
annuity starting date under the terms of a
plan as in effect immediately prior to the
effective date of the conversion amend-
ment, then the comparison must still be
made by assuming that the pre-conversion
plan had such an optional form of benefit.
The preamble to the 2007 proposed reg-
ulations asked for comments on another al-
ternative means of satisfying the conver-
sion requirements that would involve es-
tablishing an opening hypothetical account
balance, but would not require a compari-
son of benefits at the annuity starting date
if certain requirements are met. Com-
ments on this alternative were favorable,
but some commenters requested that the
alternative only be available where there
was sufficient protection to ensure that par-
ticipants’ benefits would not be less than
would apply under the rules in the 2007
proposed regulations. While these final
regulations do not permit this additional al-
ternative, it is included in the 2010 pro-
posed regulations.
The regulations also provide guid-
ance that is unchanged from the 2007
proposed regulations on what constitutes
a conversion amendment under section
411(b)(5)(B)(v). Under the final reg-
ulations, whether an amendment is a
conversion amendment is determined on
a participant-by-participant basis. The
regulations provide that an amendment
(including multiple amendments) is a
conversion amendment with respect to
a participant if it meets two criteria: (1)
the amendment reduces or eliminates the
benefits that, but for the amendment, the
participant would have accrued after the
effective date of the amendment under a
benefit formula that is not a statutory hy-
brid benefit formula and under which the
participant was accruing benefits prior to
the amendment; and (2) after the effective
date of the amendment, all or a portion
of the participant’s benefit accruals under
the plan are determined under a statutory
hybrid benefit formula.
The regulations clarify that only
amendments that reduce or eliminate
accrued benefits described in section
411(a)(7), or retirement-type subsidies
describedinsection411(d)(6)(B)(i),that
would otherwise accrue as a result of fu-
ture service are treated as amendments
that reduce or eliminate the participant’s
benefits that would have accrued after the
effective date of the amendment under
abenefitformulathatisnotastatutory
hybrid benefit formula. As under the 2007
proposed regulations, a plan is treated as
having been amended for this purpose if,
under the terms of the plan, a change in
the conditions of a participant’s employ-
ment results in a reduction or elimination
of the benefits that the participant would
have accrued in the future under a benefit
formula that is not a statutory hybrid ben-
efit formula (for example, a job transfer
from an operating division covered by a
non-statutory hybrid defined benefit plan
to an operating division that is covered
by a formula expressed as the balance
of a hypothetical account). However, in
the absence of coordination between the
formulas, the special requirements for
conversion amendments typically will be
satisfied automatically.
A number of commenters recom-
mended that the effective date of a con-
version amendment generally be the date
accruals begin under a statutory hybrid
benefit formula, rather than the date that
future accruals are reduced under the
non-statutory hybrid benefit formula. Sev-
eral commenters suggested that, if this
recommendation was not implemented
generally, it should nevertheless apply at
the effective date of an amendment which
provides participants with the greater of
benefits under the prior formula and a
statutory hybrid benefit formula for a pe-
riod of time before benefit accruals cease
under the prior formula, especially if the
amendment applies to a subgroup of exist-
ing older, long service employees. How-
ever, some comments expressed concern
that such a change in the proposed defini-
tion of the effective date of a conversion
amendment would allow plans to delay
the statutory anti-wearaway protections by
adding a less valuable cash balance benefit
for the grandfathered group at a date, even
though “the effect of converting” (within
the meaning of section 411(b)(5)(B)(v)(I))
their traditional benefit into a cash balance
benefit would occur for them at the later
date when their benefit accruals cease un-
der the prior formula.
The Treasury Department and the IRS
are concerned that the requested change
in the proposed rule would circumvent a
key purpose behind the conversion protec-
tion requirements by allowing for a de-
layed wear-away that would occur at the
time accruals cease under the prior for-
mula. For example, if a plan were gener-
ally converted to a cash balance plan, but
2010–48 I.R.B.763November 29, 2010

theplanweretoprovideforsomeclass
of participants, such as participants who
are age 55 or older, to receive the greater
of accruals under the prior formula or the
new cash balance formula for a period of
5 years, the change requested in the com-
ments would define the effective date of
the conversion amendment for all partic-
ipants to be the date the cash balance for-
mula went into effect (rather than apply-
ing a participant by participant rule). As a
result, 5 years after the cash balance for-
mula went into effect, the hypothetical ac-
count balance for these older participants
could provide benefits that are less than
the frozen amount under the prior formula,
a circumstance that would produce no ad-
ditional accruals for some period of time
after the end of the 5-year period. There-
fore, the approach suggested by these com-
ments would allow the type of wear-away
the statute was intended to prevent. Ac-
cordingly, like the 2007 proposed regula-
tions, the regulationsadopt a rule whereby
the effective date of a conversion amend-
ment is, with respect to a participant, the
date as of which the reduction occurs in the
benefits that the participant would have ac-
crued after the effective date of the amend-
ment under a benefit formula that is not
a statutory hybrid benefit formula. In ac-
cordance with section 411(d)(6), the reg-
ulations provide that the date future ben-
efit accruals are reduced cannot be earlier
than the date of adoption of the conversion
amendment.
The regulations provide rules, similar
to those in the 2007 proposed regula-
tions, prohibiting the avoidance of the
conversion protections through the use of
multiple plans or multiple employers. Un-
der these rules, an employer is treated as
having adopted a conversion amendment
if the employer adopts an amendment un-
der which a participant’s benefits under
a plan that is not a statutory hybrid plan
are coordinated with a separate plan that
is a statutory hybrid plan, such as through
a reduction (offset) of the benefit under
the plan that is not a statutory hybrid plan.
In addition, if an employee’s employer
changes as a result of a merger, acqui-
sition, or other transaction described in
§1.410(b)–2(f), then the employee’s old
and new employers would be treated as a
single employer for this purpose. Thus,
for example, in an acquisition, if the buyer
adopts an amendment to its statutory
hybrid plan under which a participant’s
benefits under the seller’s plan (that is
not a statutory hybrid plan) are coordi-
nated with benefits under the buyer’s plan,
such as through a reduction (offset) of the
buyer’s plan benefits, the seller and buyer
would be treated as a single employer and
as having adopted a conversion amend-
ment. However, if there is no coordination
between the plans, there is no conversion
amendment.
The regulations retain the rule from the
2007 proposed regulations under which a
conversion amendment also includes mul-
tiple amendments that result in a conver-
sion amendment, even if the amendments
would not be conversion amendments in-
dividually. If an amendment to provide
a benefit under a statutory hybrid bene-
fit formula is adopted within 3 years after
adoption of an amendment to reduce ben-
efits under a non-statutory hybrid bene-
fit formula, then those amendments would
be consolidated in determining whether a
conversion amendment has been adopted.
In the case of an amendment to provide
a benefit under a statutory hybrid benefit
formula that is adopted more than 3 years
after adoption of an amendment to reduce
non-statutory hybrid benefit formula bene-
fits, there is a presumption that the amend-
ments are not consolidated unless the facts
and circumstances indicate that adoption
of an amendment to provide a benefit un-
der a statutory hybrid benefit formula was
intended at the time of the reduction in the
non-statutory hybrid benefit formula ben-
efits.
A number of commenters expressed
concern that the interaction between
employee transfers and the conversion
protection effective date provisions was
unclear under the 2007 proposed regu-
lations. In response to such comments,
the regulations clarify that a conversion
amendment must be both adopted on
or after June 29, 2005, and be effective
on or after June 29, 2005, in order for
the conversion protection provisions to
applytosuchamendment. Therefore,if
a transfer provision was adopted before
June 29, 2005, an employee transfer
is not treated as part of a conversion
amendment to which the conversion
protection provisions apply, even if the
transfer occurs on or after June 29, 2005.
C.Market rate of return limitation
The regulations reflect the rule in sec-
tion 411(b)(5)(B)(i)(I) under which a statu-
tory hybrid plan is treated as failing to sat-
isfy section 411(b)(1)(H) if it provides an
interest crediting rate with respect to ben-
efits determined under a statutory hybrid
benefit formula that is in excess of a mar-
ket rate of return. Several commenters
suggested that the definition of interest
crediting rate in the 2007 proposed regula-
tions be revised to exclude not only adjust-
ments conditioned on current service but
also adjustments made as a result of past
and imputed service as well as ad hoc ad-
justments. In response to the comments,
the regulations expand the exclusions from
the definition of interest credit to also ex-
clude adjustments made as a result of im-
puted service, as well as certain one-time
adjustments.
The final regulations provide that an in-
terest credit generally means any increase
or decrease for a period to a participant’s
accumulated benefit under a statutory hy-
brid benefit formula, under the terms of the
plan at the beginning of the period, that is
calculated by applying a rate of interest or
rate of return (including a rate of increase
or decrease under an index) to the partic-
ipant’s accumulated benefit (or a portion
thereof) as of the beginning of the period,
to the extent the increase or decrease is not
conditioned on current service and is not
made on account of imputed service; as
well as any other increase for a period to
a participant’s accumulated benefit under
a statutory hybrid benefit formula, under
the terms of the plan at the beginning of
the period, to the extent the increase is not
conditioned on current service and is not
made on account of imputed service.
Under the regulations, notwithstanding
the general rule described in the previous
paragraph, an increase to a participant’s ac-
cumulated benefit is not treated as an inter-
est credit to the extent the increase is made
as a result of a plan amendment provid-
ing for a one-time adjustment to the partic-
ipant’s accumulated benefit. However, a
pattern of repeated plan amendments each
of which provides for a one-time adjust-
ment to a participant’s accumulated benefit
will cause such adjustments to be treated
as provided on a permanent basis under the
terms of the plan.
November 29, 20107642010–48 I.R.B.

The interest crediting rate for a period
with respect to a participant generally
equals the total amount of interest credits
for the period divided by the participant’s
accumulated benefit at the beginning of
the period.
Under the regulations, a principal credit
means any increase to a participant’s ac-
cumulated benefit under a statutory hy-
brid benefit formula that is not an interest
credit. As a result, a principal credit in-
cludes an increase to a participant’s accu-
mulated benefit to the extent the increase
is conditioned on current service or made
on account of imputed service. Thus, for
example, even if the plan denominates an
increase to a hypothetical account balance
as an interest credit, the increase is treated
as a principal credit to the extent the in-
crease is conditioned on current service.
Similarly, a principal credit includes an in-
crease to the current value of an accumu-
lated percentage of the participant’s final
average compensation. For indexed bene-
fits, a principal credit includes an increase
to the participant’s accrued benefit other
than an increase provided by indexing. In
addition, pursuant to the rule set forth ear-
lier, a principal credit generally includes
an increase to a participant’s accumulated
benefit to the extent the increase is made as
a result of a plan amendment providing for
a one-time adjustment to the participant’s
accumulated benefit. Thus, for example,
a principal credit includes an opening hy-
pothetical account balance or opening ac-
cumulated percentageof the participant’s
final average compensation.
Consistent with the requirement un-
der §1.401–1(b)(1)(i) that a pension plan
provide definitely determinable benefits,
a plan that credits interest must specify
how the plan determines interest credits
and must specify how and when interest
credits are credited. Under the regulations,
a plan must determine the plan’s interest
crediting rate that will apply for each plan
year (or portion of a plan year) using one
of two permitted methods — either using
the applicable periodic interest crediting
rate that applies over the current period or,
for certain rates, using the rate that applied
in a specified lookback month with respect
to a stability period. For this purpose, the
plan’s lookback month and stability pe-
riod must satisfy the rules for selecting the
lookback month and stability period under
§1.417(e)–1(d)(4). However, the stability
period and lookback month need not be
the same as those used under the plan for
purposes of section 417(e)(3).
In addition, the regulations require in-
terest credits under a plan to be provided
on an annual or more frequent periodic ba-
sis and also require interest credits for each
period to be credited as of the end of the
period. If, under a plan, interest is cred-
ited more frequently than annually (for ex-
ample, daily, monthly or quarterly) based
on one of the permissible annual interest
rates, then the plan does not provide an
above market rate of return if the periodic
interest credits are provided under an in-
terest crediting rate that is no greater than
apro rataportion of the applicable annual
interest crediting rate. However, the reg-
ulations provide a special rule whereby a
plan that credits interest daily based on one
of these annual rates may credit interest at
a rate which is 1/360
th
of the applicable an-
nual rate (instead of 1/365
th
) without vi-
olating the general rule of the preceding
sentence. In addition, the regulations pro-
vide that interest credits based on one of
these annual rates are not treated as cre-
ating an effective rate of return in excess
of a market rate of return merely because
an otherwise permissible interest crediting
rate for a plan year is compounded more
frequently than annually. Thus, for exam-
ple, if a plan’s terms provide for interest
to be credited monthly and for the interest
crediting rate to be equal to the interest rate
on long-term investment grade corporate
bonds and the applicable annual rate on
these bonds for the plan year is 6 percent,
then the accumulated benefit at the begin-
ning of each month could be increased as
a result of interest credits by as much as
0.5 percent per month during the plan year
without resulting in an interest crediting
rate that is in excess of a market rate of re-
turn. These rules are similar to those in the
2007 proposed regulations.
The 2007 proposed regulations pro-
vided that an interest crediting rate is not
in excess of a market rate of return if it
is always less than a particular interest
crediting rate that meets the market rate
of return limitation. A number of com-
menters suggested that this rule be revised
to clarify that rates that may sometimes
equal but are never greater than another
permissible rate are also permissible. In
response to these comments, the final reg-
ulations provide that an interest crediting
rate is not in excess of a market rate of
return if it can never be in excess of a
particular rate that meets the market rate
of return limitation. Thus, a rate that is a
percentage (no greater than 100 percent)
of a particular rate that meets the market
rate of return limitation is not in excess of
a market rate of return and a rate that is a
fixed amount less than a particular rate that
meets the market rate of return limitation
is also not in excess of a market rate of
return. Similarly, an interest crediting rate
is not in excess of a market rate of return if
it always equals the lesser of two or more
rates where at least one of the rates meets
the market rate of return limitation.
In addition, the regulations clarify that
a statutory hybrid plan does not provide an
effective interest crediting rate that is in
excess of a market rate of return merely
because the plan determines an interest
credit by applying different rates to dif-
ferent predetermined portions of the accu-
mulated benefit, provided each rate would
separately satisfy the market rate of return
limitations if the rate applied to the en-
tire accumulated benefit. Thus, under this
rule, statutory hybrid plans may, in effect,
provide participants with rates that are a
blend of two or more rates and may also
apply different rates to portions of the ben-
efit attributable to different principal cred-
its. However, as in the 2007 proposed reg-
ulations, the final regulations provide that
interest credits that are determined by ap-
plying the greater of two or more rates gen-
erally exceed a market rate of return except
under certain limited circumstances.
The regulations provide that an interest
crediting rate for a plan year is not in ex-
cess of a market rate of return if it is based
on the rate of interest provided under one
of several specified indices. Like the 2007
proposed regulations, these rates include
the rate of interest on long-term investment
grade corporate bonds (as described in sec-
tion 412(b)(5)(B)(ii)(II) prior to amend-
ment by PPA ’06 for plan years beginning
before January 1, 2008, and the third seg-
ment rate used under section 430(h) for
subsequent plan years), the interest rate
on 30-year Treasury securities, the inter-
est rates on shorter term Treasuries with
the associated margins that were safe har-
bor rates described in Notice 96–8, as well
as certain cost-of-living indices. Several
commenters on the 2007 proposed regula-
tions suggested that this list be expanded
2010–48 I.R.B.765November 29, 2010

to also include all of the interest rates per-
missible under section 417(e). The Trea-
sury Department and the IRS agree with
this suggestion and, as a result, the regu-
lations expand the list of safe-harbor rates
to include the first and second segment
rates, as defined in either section 417(e)
or 430(h) and whether calculated with or
without regard to the transition rules of
section 417(e)(3) or 430(h)(2)(G).
The regulations provide that an interest
crediting rate based on a specified index
must be adjusted on at least an annual ba-
sis. These rates are market yields to matu-
rity on outstanding bonds and, as a result,
these rates do not reflect defaults nor do
these rates reflect the change in the mar-
ket value of an outstanding bond as a re-
sult of future changes in the interest rate
environment or in a bond issuer’s risk pro-
file. Because the interest rate does not re-
flect the change in the market value of an
outstanding bond when an issuer becomes
higher risk or the bond goes into default,
the bonds have been limited to investment
grade bonds in the top three quality levels
where the risk of default is relatively small.
The regulations also set forth certain
interest crediting rates that satisfy the
statutory market rate of return requirement
but that are not safe harbor rates. The
regulations provide that, in the case of
indexed benefits as described in section
411(b)(5)(E), an interest crediting rate
equal to the actual rate of return on the
aggregate assets of the plan, including
both positive returns and negative returns,
is not in excess of a market rate of return
if the plan’s assets are diversified so as
to minimize the volatility of returns. The
regulations further provide that this re-
quirement that plan assets be diversified
so as to minimize the volatility of returns
does not require greater diversification
than is required under section 404(a)(1)(C)
of Title I of the Employee Retirement In-
come Security Act of 1974, Public Law
93–406 (88 Stat. 829 (1974)) with respect
to defined benefit pension plans. Further-
more, the regulations provide that the rate
of return on the annuity contract for the
employee issued by an insurance company
licensed under the laws of a State is not in
excess of a market rate of return, subject
to an anti-abuse rule. The 2010 proposed
regulations provide that certain additional
interest crediting rates satisfy the market
rate of return limitation.
The regulations reflect the preser-
vation of capital rule in section
411(b)(5)(B)(i)(II) that requires a statu-
tory hybrid plan to provide that interest
credits will not result in a hypothetical
account balance (or similar amount) be-
ing less than the aggregate amount of the
hypothetical allocations. Under the 2007
proposed regulations, this requirement ap-
plied at the participant’s annuity starting
date. In addition, the 2007 proposed reg-
ulations provided that the combination of
this preservation of capital protection with
a rate of return that otherwise satisfies the
market rate of return limitation will not
result in an effective interest crediting rate
that is in excess of a market rate of return.
Responses to these rules were favorable
and they are retained in these regulations.
Hypothetical allocations are referred to
as principal credits in the regulations, as
described earlier in this preamble. The
regulations clarify that the preservation of
capital requirement applies to all principal
credits that were credited under the plan
as of the annuity starting date, including
principal credits that were credited before
the statutory effective date of the preserva-
tion of capital requirement under section
411(b)(5)(b)(i)(II).
These regulations do not address sec-
tion 411(b)(5)(B)(vi), which requires that
a plan’s provisions reflect special rules ap-
plicable upon plan termination. These plan
termination rules are addressed in the 2010
proposed regulations.
Section 123 of WRERA ’08 amended
ADEA to provide that, in the case of a gov-
ernmental plan that is described in the first
sentence of section 414(d) of the Code,
5
a rate of return or a method of crediting
interest established pursuant to any pro-
vision of Federal, State, or local law is
treated as a market rate of return for cer-
tain purposes under ADEA as long as such
rate or method does not violate any other
requirement of ADEA. No changes have
been made to these regulations as a result
of section 123 of WRERA ’08 because that
provision does not amend the Internal Rev-
enue Code.
III.Section 411(d)(6): Changes in a
plan’s interest crediting rate
The 2007 proposed regulations pro-
vided that, to the extent that benefits have
accrued under the terms of a statutory
hybrid plan that entitle the participant to
future interest credits, an amendment to
the plan to change the interest crediting
rate for such interest credits violates sec-
tion 411(d)(6) if the revised rate under
any circumstances could result in a lower
interest crediting rate as of any date af-
ter the applicable amendment date of the
amendment changing the interest crediting
rate. Several commenters on the 2007 pro-
posed regulations requested clarification
of this rule. In particular, one commenter
noted that there are several circumstances
in which an amendment that results in a
lower interest credit for a particular period
after amendment than would have been
provided for the same period under the old
rate may not result in a reduction under
section 411(d)(6), such as where the plan’s
aggregate interest credits after the applica-
ble amendment date but before the period
at issue exceeded the interest credits that
would have been provided under the old
rate or where the plan was also amended to
increase benefits under other provisions,
such as providing for larger principal cred-
its than were provided before the change
in interest crediting rates.
In response to these comments, the reg-
ulations clarify that the right to interest
credits in the future that are not condi-
tioned on future service constitutes a sec-
tion 411(d)(6) protected benefit. Thus, to
the extent that benefits have accrued under
the terms of a statutory hybrid plan that en-
title the participant to future interest cred-
its, an amendment to the plan to change the
interest crediting rate must comply with
section 411(d)(6) if the revised rate under
any circumstances could result in interest
credits that are smaller as of any date af-
ter the applicable amendment date of the
plan amendment than the interest credits
that would have been provided without re-
gard to the amendment.
The regulations retain the rule in the
2007 proposed regulations under which a
plan is not treated as providing smaller
interest credits in the future for purposes
of section 411(d)(6) merely because of an
5
A governmental plan in the first sentence of section 414(d) means a plan thatis established and maintained for its employees by the Government of the United States, by the government of
any State or political subdivision thereof, or by an agency or instrumentality of any of the foregoing.
November 29, 20107662010–48 I.R.B.

amendment that changes the plan’s interest
crediting rate with respect to future interest
credits from one of the safe harbor market
rates of interest (for example, a rate based
on an eligible cost-of-living index or a rate
based on Treasury bonds with the mar-
gins specified in the regulations) to the rate
of interest on long-term investment grade
corporate bonds (the third segment rate un-
der section 417(e) or 430(h)), if certain re-
quirements are satisfied. Under this rule,
the change in the interest crediting rates
would not result in a reduction in accrued
benefits in violation of section 411(d)(6)
because it is expected that an interest cred-
iting rate that equals the third segment rate
would not provide smaller interest credits
as of any date after the applicable amend-
ment date than the prior safe harbor inter-
est crediting rate, except in rare and un-
usual circumstances. This special rule is
only available if the change applies to in-
terest credits to be credited after the effec-
tive date of the amendment, the effective
date of the amendment is at least 30 days
after adoption and, on the effective date of
the amendment, the new interest crediting
rate is not lower than the interest crediting
rate that would have applied in the absence
of the amendment.
The 2010 proposed regulations provide
additional guidance with respect to the
market rate of return requirements where a
plan is amended to change its interest cred-
iting rate in the absence of the application
of a special rule under section 411(d)(6).
In such a case, in order to satisfy section
411(d)(6), a participant’s benefit can never
be less than the pre-amendment benefit
increased for periods after the amendment
using the pre-amendment interest credit-
ing rate, thereby effectively requiring a
minimum interest crediting rate.
Effective/Applicability Dates
The regulations reflect the statutory
effective dates set forth in section 701(e)
of PPA ’06. Pursuant to section 701(e)(1)
of PPA ’06, the amendments made by
section 701 of PPA ’06 are generally
effective for periods beginning on or af-
ter June 29, 2005. However, sections
701(e)(2) through 701(e)(6) of PPA ’06,
as amended by WRERA ’08, set forth a
number of special effective/applicability
date rules that are described earlier in the
Background section of the preamble of
these regulations.
In addition, these regulations reflect
the delayed effective date for collectively
bargained plans as set forth in section
701(e)(4) of PPA ’06. This rule delays the
effective date for section 411(b)(5)(B)(i)
with respect to a collectively bargained
plan maintained pursuant to one or more
collective bargaining agreements between
employee representatives and one or more
employers ratified on or before August 17,
2006.
The 2007 proposed regulations in-
cluded a rule for determining whether a
plan was collectively bargained if a collec-
tive bargaining agreement applies to some,
but not all, of the plan participants. Under
that rule, a plan would be considered a
collectively bargained plan if at least 25
percent of the participants in the plan are
members of collective bargaining units for
which the benefit levels under the plan are
specified under the collective bargaining
agreement. The same proposed rule was
included in proposed regulations under
section 436 (REG–113891–07, 2007–1
C.B. 821 [72 FR 50544]) and, in response
to comments, this rule was modified in
final regulations under section 436 (T.D.
9467, 2009–2 I.R.B. 760 [74 FR 53004]).
Rather than repeat the rule, these regu-
lations incorporate by reference the rule
under the final section 436 regulations.
These regulations generally apply to
plan years that begin on or after January 1,
2011. However, §1.411(b)(5)–1(d)(1)(iii),
(d)(1)(vi), and (d)(6)(i), which provide
that the regulations set forth the exclu-
sive list of interest crediting rates and
combinations of interest crediting rates
that satisfy the market rate of return re-
quirement under section 411(b)(5), ap-
ply to plan years that begin on or after
January 1, 2012. For plan years that
begin before January 1, 2012, statutory
hybrid plans may utilize a rate that is
permissible under these final regulations
or the 2010 proposed regulations for
purposes of satisfying the statutory
market rate of return requirement. In
addition, certain paragraphs which
are reserved in these regulations (at
§1.411(a)(13)–1(b)(2), (b)(3), and
(b)(4) and §1.411(b)(5)–1(c)(3)(iii),
(d)(1)(iv)(D), (d)(2)(ii),(d)(4)(iv),
(d)(5)(iv), (d)(6)(ii), (d)(6)(iii), (e)(2),
(e)(3)(iii), and (e)(4)) are addressed
in proposed regulations that are being
published at the same time as these
regulations and those paragraphs are
proposed to apply to plan years that begin
on or after January 1, 2012.
The regulations provide that a benefit
formula is not treated as having an effect
similar to a lump sum-based benefit for-
mula with respect to a participant who does
not have an hour of service after the regula-
tory effective date. Inaddition, the regula-
tions provide that, with respect to a conver-
sion amendment, where the effective date
of the conversion amendment (as defined
in the regulations) is on or after the statu-
tory effective date, the conversion protec-
tion requirements in the regulations apply
only to a participant who has an hour of
service on or after the regulatory effective
date. As a result, participants who have an
hour of service on or after the regulatory
effective date must be provided with the
minimum benefit required under the reg-
ulations beginning as of the effective date
of a conversion amendment (as defined in
the regulations), even if the effective date
of the conversion amendment is before the
regulatory effective date.
For periods after the statutory effective
date and before the regulatory effective
date, the relief of sections 411(a)(13) and
411(b)(5) applies and the requirements of
sections 411(a)(13) and 411(b)(5) must be
satisfied. During the periods set forth in
the preceding sentence, a plan is permit-
ted to rely on the provisions of these regu-
lations for purposes of applying the relief
and satisfying the requirements of sections
411(a)(13) and 411(b)(5). Further, for pe-
riods after the statutory effective date and
before the regulatory effective date, a plan
is permitted to rely on the provisions of the
2010 proposed regulations, the 2007 pro-
posed regulations, and Notice 2007–6 for
purposes of applying the relief and satisfy-
ing the requirements of sections 411(a)(13)
and 411(b)(5).
These regulations should not be con-
strued to create any inference concerning
the applicable law prior to the effective
dates of sections 411(a)(13) and 411(b)(5).
See also section 701(d) of PPA ’06. In ad-
dition, these regulations should not be con-
strued to create any inference concerning
sections 411(a)(13) and 411(b)(5) prior to
the effective date of the regulations.
2010–48 I.R.B.767November 29, 2010

Special Analyses
It has been determined that these regu-
lations are not a significant regulatory ac-
tion as defined in Executive Order 12866.
Therefore, a regulatory assessment is not
required. It also has been determined that
section 553(b) of the Administrative Pro-
cedure Act (5 U.S.C. chapter 5) does not
apply to these final regulations and, be-
cause the regulation does not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to sec-
tion 7805(f) of the Code, the proposed reg-
ulations preceding these final regulations
were submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Drafting Information
The principal authors of these regula-
tions are Neil S. Sandhu, Lauson C. Green,
and Linda S. F. Marshall, Office of Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
However, other personnel from the IRS
and the Treasury Department participated
in the development of these regulations.
*****
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is amended
as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding the following
entries:
Authority: 26 U.S.C. 7805 * * *
Section 1.411(a)(13)–1 also issued un-
der 26 U.S.C. 411(a)(13).
Section 1.411(b)(5)–1 also issued under
26 U.S.C. 411(b)(5).
*****
Par. 2. Section 1.411(a)(13)–1 is added
to read as follows:
§1.411(a)(13)-1 Statutory hybrid plans.
(a)In general. This section sets forth
certain rules that apply to statutory hybrid
plans under section 411(a)(13). Paragraph
(b) of this section describes special rules
for certain statutory hybrid plans that de-
termine benefits under a lump sum-based
benefit formula. Paragraph (c) of this sec-
tion describes the vesting requirement for
statutory hybrid plans. Paragraphs (d) and
(e) of this section contain definitions and
effective/applicability dates, respectively.
(b)Calculation of benefit by reference
to hypothetical account balance or ac-
cumulated percentage—(1)Payment of a
current balance or current value under
a lump sum-based benefit formula.Pur-
suant to section 411(a)(13)(A), a statutory
hybrid plan that determines any portion
of a participant’s benefits under a lump
sum-based benefit formula is not treated
as failing to meet the following require-
ments solely because, with respect to
benefits determined under that formula,
thepresentvalueofthosebenefitsis,under
the terms of the plan, equal to the then-cur-
rent balance of the hypothetical account
maintained for the participant or to the
then-current value of the accumulated per-
centage of the participant’s final average
compensation under that formula—
(i) Section 411(a)(2); or
(ii) With respect to the participant’s ac-
crued benefit derived from employer con-
tributions, section 411(a)(11), 411(c), or
417(e).
(2)Requirements that lump sum-based
benefit formula must satisfy to obtain re-
lief. [Reserved].
(3)Alternative forms of distribution
under a lump sum-based benefit formula.
[Reserved].
(4)Rules of application. [Reserved].
(c)Three-year vesting require-
ment—(1)In general. Pursuant to section
411(a)(13)(B), if any portion of the par-
ticipant’s accrued benefit under a defined
benefit plan is determined under a statu-
tory hybrid benefit formula, the plan is
treated as failing to satisfy the require-
ments of section 411(a)(2) unless the plan
provides that the participant has a non-
forfeitable right to 100 percent of the
participant’s accrued benefit if the partic-
ipant has three or more years of service.
Thus, this 3-year vesting requirement ap-
plies with respect to the entire accrued
benefit of a participant under a defined
benefit plan even if only a portion of the
participant’s accrued benefit under the
plan is determined under a statutory hybrid
benefit formula. Similarly, if the partic-
ipant’s accrued benefit under a defined
benefit plan is, under the plan’s terms, the
larger of two (or more) benefit amounts,
where each amount is determined under
a different benefit formula (including a
benefit determined pursuant to an off-
set among formulas within the plan or
a benefit determined as the greater of a
protected benefit under section 411(d)(6)
and another benefit amount) and at least
one of those formulas is a statutory hybrid
benefit formula, the participant’s entire
accrued benefit under the defined benefit
plan is subject to the 3-year vesting rule of
section 411(a)(13)(B) and this paragraph
(c). The rule described in the preceding
sentence applies even if the larger benefit
is ultimately the benefit determined under
a formula that is not a statutory hybrid
benefit formula.
(2)Examples. The provisions of this
paragraph (c) are illustrated by the follow-
ing examples:
Example 1. Employer M sponsors Plan X, a
defined benefit plan under which each participant’s
accrued benefit is equal to the sum of the benefit
provided under two benefit formulas. The first ben-
efit formula is a statutory hybrid benefit formula,
and the second formula is not. Because a portion
of each participant’s accrued benefit provided under
Plan X is determined under a statutory hybrid benefit
formula, the 3-year vesting requirement described
in paragraph (c)(1) of this section applies to each
participant’s entire accrued benefit provided under
Plan X.
Example 2.ThefactsarethesameasinExample
1, except that the benefit formulas described inExam-
ple 1only apply to participants for service performed
in Division A of Employer M and a different benefit
formula applies to participants for service performed
in Division B of Employer M. Pursuant to the terms
of Plan X, the accrued benefit of a participant attrib-
utable to service performed in Division B is based on
a benefit formula that is not a statutory hybrid benefit
formula. Therefore, the 3-year vesting requirement
described in paragraph (c)(1) of this section does not
apply to a participant with an accrued benefit under
Plan X if the participant’s benefit is solely attributable
to service performed in Division B.
Example 3. Employer N sponsors defined bene-
fit Plan Y, an independent plan that provides benefits
based solely on a lump sum-based benefit formula,
and defined benefit Plan Z, which provides benefits
based on a formula which is not a statutory hybrid
benefit formula, but which is a floor plan that pro-
vides for the benefits payable to a participant under
Plan Z to be reduced by the amount of the vested
accrued benefit payable under Plan Y. The formula
under Plan Y is a statutory hybrid benefit formula.
Accordingly, Plan Y is subject to the 3-year vesting
requirement described in paragraph (c)(1) of this sec-
tion. The formula provided under Plan Z, even taking
into account the offset for vested accrued benefits un-
der Plan Y, is not a statutory hybrid benefit formula.
Therefore, Plan Z is not subject to the 3-year vesting
requirement in paragraph (c)(1) of this section.
November 29, 20107682010–48 I.R.B.

(d)Definitions—(1)In general.The
definitions in this paragraph (d) apply for
purposes of this section.
(2)Accumulated benefit. A partici-
pant’s accumulated benefit at any date
means the participant’s benefit, as ex-
pressed under the terms of the plan, ac-
crued to that date. For this purpose, if a
participant’s benefit is expressed under the
terms of the plan as the current balance
of a hypothetical account or the current
value of an accumulated percentage of
the participant’s final average compensa-
tion, the participant’s accumulated benefit
is expressed in that manner regardless
of how the plan defines the participant’s
accrued benefit. Thus, for example, the
accumulated benefit of a participant may
be expressed under the terms of the plan as
either the current balance of a hypothetical
account or the current value of an accumu-
lated percentage of the participant’s final
average compensation, even if the plan
defines the participant’s accrued benefit as
an annuity beginning at normal retirement
age that is actuarially equivalent to that
balance or value.
(3)Lump sum-based benefit for-
mula—(i)In general. A lump sum-based
benefit formula means a benefit formula
used to determine all or any part of a
participant’s accumulated benefit under
a defined benefit plan under which the
accumulated benefitprovided under the
formula is expressed as the current bal-
ance of a hypothetical account maintained
for the participant or as the current value
of an accumulated percentage of the par-
ticipant’s final average compensation. A
benefit formula is expressed as the cur-
rent balance of a hypothetical account
maintained for the participant if it is ex-
pressed as a current single-sum dollar
amount. Whether a benefit formula is a
lump sum-based benefit formula is de-
termined based on how the accumulated
benefit of a participant is expressed under
the terms of the plan, and does not depend
on whether the plan provides an optional
form of benefit in the form of a single-sum
payment.
(ii)Exception for employee contri-
butions. For purposes of the definition
of a lump sum-based benefit formula in
paragraph (d)(3)(i) of this section, the
benefit properly attributable to after-tax
employee contributions, rollover contri-
butions from eligible retirement plans
under section 402(c)(8), and other similar
employee contributions (such as repay-
ments of distributions pursuant to section
411(a)(7)(C) and employee contributions
that are pickup contributions pursuant to
section 414(h)(2)) is disregarded. How-
ever, a benefit is not properly attributable
to contributions described in this para-
graph (d)(3)(ii) if the contributions are
credited with interest at a rate that ex-
ceeds a reasonable rate of interest or if
the conversion factors used to calculate
such benefit are not actuarially reasonable.
See section 411(c) for an example of a
calculation of a benefit that is properly
attributable to employee contributions.
(4)Statutory hybrid benefit for-
mula—(i)In general. A statutory hybrid
benefit formula means a benefit formula
that is either a lump sum-based benefit
formula or a formula that is not a lump
sum-based benefit formula but that has an
effect similar to a lump sum-based benefit
formula.
(ii)Effect similar to a lump sum-based
benefit formula—(A)In general. Except
as provided in paragraphs (d)(4)(ii)(B)
through (D) of this section, a benefit for-
mula under a defined benefit plan that
is not a lump sum-based benefit formula
has an effect similar to a lump sum-based
benefit formula if the formula provides
that a participant’s accumulated benefit
is expressed as a benefit that includes the
right to adjustments (including a formula
that provides for indexed benefits under
§1.411(b)(5)–1(b)(2)) for a future period
and the total dollar amount of those ad-
justments is reasonably expected to be
smaller for the participant than for a sim-
ilarly situated, younger individual (within
the meaning of §1.411(b)(5)–1(b)(5)) who
is or could be a participant in the plan. A
benefit formula that does not include ad-
justments for any future period is treated
as a formula with an effect similar to a
lump sum-based benefit formula if the
formula would be described in the pre-
ceding sentence except for the fact that
the adjustments are provided pursuant to a
pattern of repeated plan amendments. See
§1.411(d)–4, A–1(c)(1).
(B)Exception for post-retirement bene-
fit adjustments. Post-annuity starting date
adjustments in the amount payable to a par-
ticipant (such as cost-of-living increases)
are disregarded in determining whether a
benefit formula under a defined benefit
plan has an effect similar to a lump sum-
based benefit formula.
(C)Exception for certain variable an-
nuity benefit formulas. If the assumed in-
terest rate used for purposes of the adjust-
ment of amounts payable to a participant
under a variable annuity benefit formula is
5 percent or higher, then the variable annu-
ity benefit formula is not treated as being
reasonably expected to provide a smaller
total dollar amount of future adjustments
for the participant than for a similarly sit-
uated, younger individual who is or could
be a participant in the plan, and thus such
a variable annuity benefit formula does not
have an effect similar to a lump sum-based
benefit formula.
(D)Exception for employee contribu-
tions. Benefits that are disregarded under
paragraph (d)(3)(ii) of this section (ben-
efits properly attributable to certain em-
ployee contributions) are also disregarded
for purposes of determining whether a ben-
efit formula has an effect similar to a lump
sum-based benefit formula.
(5)Statutory hybrid plan. A statutory
hybrid plan means a defined benefit plan
that contains a statutory hybrid benefit for-
mula.
(6)Variable annuity benefit formula.
A variable annuity benefit formula means
any benefit formula under a defined ben-
efit plan which provides that the amount
payable is periodically adjusted by refer-
ence to the difference between the rate of
return on plan assets (or specified market
indices) and a specified assumed interest
rate.
(e)Effective/applicability date—(1)
Statutory effective/applicability date—(i)
In general. Except as provided in para-
graphs (e)(1)(ii) and (e)(1)(iii) of this
section, section 411(a)(13) applies for pe-
riods beginning on or after June 29, 2005.
(ii)Calculation of benefits. Section
411(a)(13)(A) applies to distributions
made after August 17, 2006.
(iii)Vesting—(A)Plans in existence
on June 29, 2005—(1)General rule.In
the case of a plan that is in existence on
June 29, 2005 (regardless of whether the
plan is a statutory hybrid plan on that date),
section 411(a)(13)(B) applies to plan years
that begin on or after January 1, 2008.
(2)
Exception for plan sponsor elec-
tion. See §1.411(b)(5)–1(f)(1)(iii)(A)(2)
for a special election for early application
of section 411(a)(13)(B).
2010–48 I.R.B.769November 29, 2010

(B)Plans not in existence on June 29,
2005. In the case of a plan not in existence
on June 29, 2005, section 411(a)(13)(B)
applies to plan years that end on or after
June 29, 2005.
(C)Collectively bargained plans.
Notwithstanding paragraphs (e)(1)(iii)(A)
and (B) of this section, in the case of a
collectively bargained plan maintained
pursuant to one or more collective bar-
gaining agreements between employee
representatives and one or more employers
ratified on or before August 17, 2006, the
requirements of section 411(a)(13)(B) do
not apply to plan years that begin before
the earlier of—
(1) The later of—
(i) The date on which the last of those
collective bargaining agreements termi-
nates (determined without regard to any
extension thereof on or after August 17,
2006); or
(ii) January 1, 2008; or
(2) January 1, 2010.
(D)Treatment of plans with both collec-
tively bargained and non-collectively bar-
gained employees. In the case of a plan
with respect to which a collective bargain-
ing agreement applies to some, but not
all, of the plan participants, the plan is
considered a collectively bargained plan
for purposes of paragraph (e)(1)(iii)(C) of
this section if it is considered a collec-
tively bargained plan under the rules of
§1.436–1(a)(5)(ii)(B).
(E)Hour of service required. Section
411(a)(13)(B) does not apply to a partic-
ipant who does not have an hour of ser-
vice after section 411(a)(13)(B) would oth-
erwise apply to the participant under the
rules of paragraph (e)(1)(iii)(A), (B), or
(C)ofthissection.
(2)Effective/applicability date of regu-
lations—(i)In general. Except as provided
in paragraph (e)(2)(ii) of this section, this
section applies to plan years that begin on
or after January 1, 2011. For the periods
after the statutory effective date set forth in
paragraph (e)(1) of this section and before
the regulatory effective date set forth in
the preceding sentence, the relief of section
411(a)(13)(A) applies and the 3-year vest-
ing requirement of section 411(a)(13)(B)
must be satisfied. During these periods,
a plan is permitted to rely on the provi-
sions of this section for purposes of ap-
plying the relief of section 411(a)(13)(A)
and satisfying the requirements of section
411(a)(13)(B).
(ii)Special effective date. [Reserved].
(iii)Hour of service required.Abene-
fit formula is not treated as having an ef-
fect similar to a lump sum-based benefit
formula under paragraph (d)(4)(ii) of this
section with respect to a participant who
does not have an hour of service after the
regulatory effective date set forth in para-
graph (e)(2)(i) of this section.
Par. 3. Section 1.411(b)(5)–1 is added
to read as follows:
§1.411(b)(5)–1 Reduction in rate of
benefit accrual under a defined benefit
plan.
(a)In general—(1)Organization of
regulation. This section sets forth certain
rules for determining whether a reduc-
tion occurs in the rate of benefit accrual
under a defined benefit plan because of
the attainment of any age for purposes
of section 411(b)(1)(H)(i). Paragraph (b)
of this section describes safe harbors for
certain plan designs (including statutory
hybrid plans) that are deemed to satisfy
the age discrimination rules under section
411(b)(1)(H). Paragraph (c) of this section
describes rules relating to statutory hybrid
plan conversion amendments. Paragraph
(d) of this section describes rules restrict-
ing interest credits (or equivalent amounts)
underastatutoryhybridplantoamarket
rate of return. Paragraph (e) of this section
contains additional rules related to market
rates of return. Paragraph (f) of this sec-
tion contains effective/applicability dates.
(2)Definitions. The definitions of accu-
mulated benefit, lump sum-based benefit
formula, statutory hybrid benefit formula,
statutory hybrid plan, and variable annuity
benefit formula in §1.411(a)(13)–1(d) ap-
ply for purposes of this section.
(b)Safe harbors for certain plan
designs—(1)Accumulated benefit test-
ing—(i)In general. Pursuant to section
411(b)(5)(A), and subject to paragraph
(b)(1)(ii) of this section, a plan is not
treated as failing to meet the requirements
of section 411(b)(1)(H)(i) with respect to
an individual who is or could be a partic-
ipant if, as of any date, the accumulated
benefit of the individual would not be less
than the accumulated benefit of any sim-
ilarly situated, younger individual who is
or could be a participant. Thus, this test
involves a comparison of the accumulated
benefit of an individual who is or could
be a participant in the plan with the accu-
mulated benefit of each similarly situated,
younger individual who is or could be
a participant in the plan. See paragraph
(b)(5) of this section for rules regarding
whether a younger individual who is or
could be a participant is similarly situated
to a participant. The comparison described
in this paragraph (b)(1)(i) is based on any
of one the following benefit measures,
each of which is referred to as asafe-har-
bor formula measure:
(A) The annuity payable at normal re-
tirement age (or current age, if later) if
the accumulated benefit of the participant
under the terms of the plan is an annuity
payable at normal retirement age (or cur-
rent age, if later).
(B) The current balance of a hypotheti-
cal account maintained for the participant
if the accumulated benefit of the partici-
pant under the terms of the plan is a bal-
ance of a hypothetical account.
(C) The current value of an accumu-
lated percentage of the participant’s final
average compensation if the accumulated
benefit of the participant under the terms
of the plan is an accumulated percentage
of final average compensation.
(ii)Benefit formulas for compari-
son—(A)In general. Except as provided
in paragraphs (b)(1)(ii)(B), (C), and (D)
of this section, the safe harbor provided
by section 411(b)(5)(A) and paragraph
(b)(1)(i) of this section is available only
with respect to an individual if the individ-
ual’s accumulated benefit under the plan is
expressed in terms of only one safe-harbor
formula measure and no similarly situated,
younger individual who is or could be a
participant has an accumulated benefit that
is expressed in terms of any measure other
than that same safe-harbor formula mea-
sure. Thus, for example, if a plan provides
that the accumulated benefit of partici-
pants who are age 55 or over is expressed
under the terms of the plan as a life annu-
ity payable at normal retirement age (or
current age if later) as described in para-
graph (b)(1)(i)(A) of this section and the
plan provides that the accumulated ben-
efit of participants who are younger than
age 55 is expressed as the current balance
of a hypothetical account as described
in paragraph (b)(1)(i)(B) of this section,
then the safe harbor described in section
November 29, 20107702010–48 I.R.B.

411(b)(5)(A) and paragraph (b)(1)(i) of
this section does not apply to individuals
who are or could be participants who are
age 55 or over.
(B)Sum-of benefit formulas.Ifaplan
provides that a participant’s accumulated
benefit is expressed as the sum of benefits
determined in terms of two or more ben-
efit formulas, each of which is expressed
in terms of a different safe-harbor formula
measure, then the plan is deemed to satisfy
paragraph (b)(1)(i) of this section with re-
spect to an individual who is or could be
a participant, provided that the plan satis-
fies the comparison described in paragraph
(b)(1)(i) of this section separately for ben-
efits determined in terms of each safe-har-
bor formula measure and no accumulated
benefit of a similarly situated, younger in-
dividual who is or could be a participant is
expressed other than as—
(1) The sum of benefits under two or
more benefit formulas, each of which is
expressed in terms of one of those same
safe-harbor formulameasures as is used
for the participant’s “sum-of” benefit;
(2) The greater of benefits under two
or more benefit formulas, each of which
is expressed in terms of any one of those
same safe-harbor formula measures;
(3) The choice of benefits under two
or more benefit formulas, each of which
is expressed in terms of any one of those
same safe-harbor formula measures; or
(4) A benefit that is determined in terms
of only one of those same safe-harbor for-
mula measures.
(C)Greater-of benefit formulas.Ifa
plan provides that a participant’s accumu-
lated benefit is expressed as the greater of
benefits under two or more benefit formu-
las, each of which is determined in terms
of a different safe-harbor formula mea-
sure, then the plan is deemed to satisfy
paragraph (b)(1)(i) of this section with re-
spect to an individual who is or could be
a participant, provided that the plan satis-
fies the comparison described in paragraph
(b)(1)(i) of this section separately for ben-
efits determined in terms of each safe-har-
bor formula measure and no accumulated
benefit of a similarly situated, younger in-
dividual who is or could be a participant is
expressed other than as—
(1) The greater of benefits determined
under two or more benefit formulas, each
of which is expressed in terms of one of
those same safe-harbor formula measures
as is used for the participant’s “greater-of”
benefit;
(2) The choice of benefits determined
under two or more benefit formulas, each
of which is expressed in terms of one of
those same safe-harbor formula measures;
or
(3) A benefit that is determined in terms
of only one of those same safe-harbor for-
mula measures.
(D)Choice-of benefit formulas.Ifa
plan provides that a participant’s accumu-
lated benefit is determined pursuant to a
choice by the participant between benefits
determined in terms of two or more dif-
ferent safe-harbor formula measures, then
the plan is deemed to satisfy paragraph
(b)(1)(i) of this section with respect to an
individual who is or could be a participant,
provided that the plan satisfies the compar-
ison described in paragraph (b)(1)(i) of this
section separately for benefits determined
in terms of each safe-harbor formula mea-
sure and no accumulated benefit of a sim-
ilarly situated, younger individual who is
or could be a participant is expressed other
than as—
(1) The choice of benefits determined
under two or more benefit formulas, each
of which is expressed in terms of one of
those same safe-harbor formula measures
as is used for the participant’s “choice-of”
benefit; or
(2) A benefit that is determined in terms
of only one of those same safe-harbor for-
mula measures.
(iii)Disregard of certain subsidized
benefits. For purposes of paragraph
(b)(1)(i) of this section, any subsidized
portion of any early retirement benefit that
is included in a participant’s accumulated
benefit is disregarded. For this purpose,
the subsidized portion of an early retire-
ment benefit is the retirement-type subsidy
within the meaning of §1.411(d)–3(g)(6)
that is contingent on a participant’s sev-
erance from employment and commence-
ment of benefits before normal retirement
age.
(iv)Examples. The provisions of this
paragraph (b)(1) are illustrated by the fol-
lowing examples:
Example 1.(i)Facts relating to formulas de-
scribed in paragraph (b)(1)(i)(A) of this section.
Employer X maintains a defined benefit plan that
provides a straight life annuity payable commencing
at normal retirement age (which is age 65) equal to
1 percent of the participant’s highest 3 consecutive
years’ compensation timesyears of service and pro-
vides for suspension of benefits as permitted under
section 411(a)(3)(B). In the case of a participant
whose service continues after normal retirement
age, the amount payableis the greater of (i) the
benefit payable at normal retirement age, and for
each year thereafter, actuarially increased to account
for delayed commencement and (ii) the retirement
benefit determined under the formula at the date the
employee’s service ceases (calculated by including
years of service and increases in compensation after
normal retirement age).
(ii)Conclusion. Under these facts, the plan for-
mula is a formula described in paragraph (b)(1)(i)(A)
of this section. The formula is not a statutory hy-
brid benefit formula merely because the plan formula
includes a benefit that is based on the participant’s
benefit at normal retirement age (and each year there-
after) that is actuarially increased for commencement
after attainment of normal retirement age. In addi-
tion, the plan formula would satisfy the comparison
under paragraph (b)(1)(i) of this section for each indi-
vidual who is or could be a participant because, as of
any date (including any date after normal retirement
age), the accumulated benefit of the individual would
not be less than the accumulated benefit of any simi-
larly situated, younger individual who is or could be
a participant.
Example 2.(i)Facts relating to formulas de-
scribed in paragraph (b)(1)(i)(B) of this section.Em-
ployer Y maintains a defined benefit plan that ex-
presses each participant’s accumulated benefit as the
balance of a hypothetical account. Under the for-
mula, the hypothetical account balance of each partic-
ipant is credited monthly with interest at a specified
rate and the hypothetical account balance of each em-
ployee who is a participant is also credited with a pay
credit under the plan equal to 7 percent of the partic-
ipant’s compensation for the month.
(ii)Conclusion. The plan formula is a lump
sum-based benefit formula described in paragraph
(b)(1)(i)(B) of this section and the formula would
satisfy the comparison under paragraph (b)(1)(i) of
this section for each individual who is or could be a
participant because, as of any date, the hypothetical
account balance of the individual would not be less
than the hypothetical account balance of any simi-
larly situated, younger individual who is or could be
a participant.
Example 3.(i)Facts where plan suspends inter-
est credits after normal retirement age.Thefactsare
thesameasinExample 2except that the plan pro-
vides for suspension of benefits as permitted under
section 411(a)(3)(B). Pursuant to the plan’s suspen-
sion of benefits provision, the plan provides for in-
terest credits to cease during service after normal re-
tirement age or for the amount of the interest credits
during this service to be reduced to reflect principal
credits credited.
(ii)Conclusion. The plan does not satisfy the
safe harbor in paragraph (b)(1)(i) of this section. Ap-
plying the rule of paragraph (b)(1)(i) of this section,
the plan formula would fail to satisfy the safe har-
bor comparison under paragraph (b)(1)(i) of this sec-
tion with respect to an individual whose benefits have
been suspended because, as of any date after attain-
ment of normal retirement age, the hypothetical ac-
count balance of this individual would be less than
the hypothetical account balance of one or more sim-
2010–48 I.R.B.771November 29, 2010

ilarly situated individuals who have not attained nor-
mal retirement age.
Example 4.(i)Facts providing greater-of ben-
efits as described in paragraph (b)(1)(ii)(C) of this
section. Employer Z sponsors a defined benefit plan
that provides an accumulated benefit expressed as a
straight life annuity commencing at the plan’s nor-
mal retirement age (age 65), based on a percentage
of average annual compensation times the partici-
pant’s years of service. On November 2, 2011, the
plan is amended effective as of January 1, 2012, to
provide participants who have attained age 55 by
January 1, 2012, with a benefit that is the greater of
the benefit under the average annual compensation
formula and a benefit that is based on the balance of a
hypothetical account, which provides for annual pay
credits of a specified percentage of the participant’s
compensation and annual interest credits based on
the third segment rate.
(ii)Conclusion where plan provides greater-of
benefits to older participants. The plan satisfies the
safe harbor of paragraph (b)(1)(i) of this section with
respect to all individuals who are or could be partici-
pants. Pursuant to the rules of paragraph (b)(1)(ii)(C)
of this section, the plan satisfies the safe harbor with
respect to individuals who have attained age 55 by
January 1, 2012, because (A) with respect to the ben-
efit described in paragraph (b)(1)(i)(A) of this section
(the benefit based on average annual compensation,
disregarding the benefit based on the balance of a hy-
pothetical account), the accumulated benefit for any
individual who is or could be a participant and who is
at least age 55 on January 1, 2012, would in no event
be less than the accumulated benefit for a similarly
situated, younger individual who is or could be par-
ticipant and who has not yet attained age 55 by Jan-
uary 1, 2012, (B) with respect to the benefit described
in paragraph (b)(1)(i)(B) of this section (the benefit
based on the balance of a hypothetical account, dis-
regarding the benefit based on average annual com-
pensation), the accumulated benefit for any individ-
ual who is or could be a participant and who is at least
age 55 on January 1, 2012, would in no event be less
than the accumulated benefit for a similarly situated,
younger individual who is or could be a participant
and who has not yet attained age 55 by January 1,
2012, and (C) the benefit of any individual who is or
could be a participant who has not yet attained age 55
by January 1, 2012, is only expressed as an annuity
payable at normal retirement age as described in para-
graph (b)(1)(i)(A) of this section, and this safe-har-
bor formula measure applies also to participants who
have attained age 55 by January 1, 2012. Further-
more, the plan satisfies the safe harbor with respect to
individuals who have not yet attained age 55 by Jan-
uary 1, 2012, because the benefit of these individuals
satisfies the general rule ofparagraph (b)(1)(ii)(A) of
this section.
(iii)Conclusion where plan provides greater-of
benefits only to younger participants.If,instead
of the facts in paragraph (i) of thisExample 4,the
plan had been amended to provide only participants
who have not yet attained age 55 by January 1,
2012, with a benefit that is the greater of the benefit
under the average annual compensation formula
and a benefit that is based on the balance of a hy-
pothetical account then, the safe harbor would not
be satisfied with respect to individuals who have
attained age 55 by January 1, 2012. Under paragraph
(b)(1)(ii)(A) of this section, except as provided in
paragraphs (b)(1)(ii)(B), (C), and (D) of this section,
the safe harbor of paragraph (b)(1)(i) of this section
is available only with respect to individuals over
age 55, whose benefit is expressed in terms of only
one safe-harbor formula measure, if no similarly
situated, younger individual has an accumulated
benefit that is expressed in terms of any measure
other than that same safe-harbor formula measure.
This is not the case under these facts. The greater-of
rule of paragraph (b)(1)(ii)(C) of this section would
not apply to individuals who have attained age 55
because the accumulated benefits of these individuals
is not equal to the greater of benefits under two or
more benefit formulas.
Example 5.(i)Facts where plan provides
choice-of benefits to older participants. The facts are
the same as in paragraph (i) ofExample 4, except that
for service after December 31, 2011, the amendment
permits participants who have attained age 55 by
January 1, 2012, to choose between benefits under
the average annual compensation benefit formula
or benefits under the hypothetical account balance
formula (but, if a participant chooses the hypothetical
account balance formula, his or her benefit under
the plan is in no event to be less than the benefit
determined under the average annual compensation
benefit formula for service before January 1, 2012),
while other participants receive benefits solely un-
der the hypothetical account balance formula (but
individuals who are participants on December 31,
2011, are in no event to receive less than the benefit
determined under the average annual compensation
benefit formula for service before January 1, 2012).
(ii)Conclusion where plan provides choice to
older participants. The plan satisfies the safe har-
bor with respect to all individuals who are or could
be participants. Pursuant to the rule of paragraph
(b)(1)(ii)(D) of this section, the plan satisfies the
safe harbor of paragraph (b)(1)(i) of this section with
respect to individuals who have attained age 55 by
January 1, 2012, and, pursuant to the rule of para-
graph (b)(1)(ii)(A), the plan satisfies the safe harbor
with respect to individuals who have not yet attained
55 by January 1, 2012.
(iii)Conclusion where plan provides choice-of
benefits to older workers and greater-of benefits to
younger participants. If, in addition to the facts in
paragraph (i) of thisExample 5, the plan were also to
provide participants who had not yet attained age 55
by January 1, 2012, the greater of the benefits under
the average annual compensation benefit formula or
the benefits under the hypothetical account balance
formula, then pursuant to the rules of paragraph
(b)(1)(ii)(A) and (D) of this section, the safe harbor
would not be satisfied with respect to participants
who have attained age 55 by January 1, 2012.
(2)Indexed benefits—(i)In gen-
eral. Except as provided in paragraph
(b)(2)(iii) of this section, pursuant to
section 411(b)(5)(E) and this paragraph
(b)(2)(i), a defined benefit plan is not
treated as failing to meet the requirements
of section 411(b)(1)(H) with respect to a
participant solely because a benefit for-
mula (other than a lump sum-based benefit
formula) under the plan provides for the
periodic adjustment of the participant’s
accrued benefit under the plan by means
of the application of a recognized index or
methodology. For purpose of the preced-
ing sentence, a rate that does not exceed a
market rate of return, as defined in para-
graph (d) of this section, is deemed to be
a recognized index or methodology. How-
ever, such a plan must satisfy the qualifi-
cation requirements otherwise applicable
to statutory hybrid plans, including the
requirements of §1.411(a)(13)–1(c) (re-
lating to minimum vesting standards) and
paragraph (c) of this section (relating to
plan conversion amendments).
(ii)Similarly situated participant test.
Paragraph (b)(2)(i) of this section does not
apply unless the aggregate adjustments
made to a participant’s accrued benefit
under the plan (determined as a percentage
of the unadjusted accrued benefit) in a pe-
riod would not be less than the aggregate
adjustments for any similarly situated,
younger participant. This test requires a
comparison, for each period, of the aggre-
gate adjustments for each individual who
is or could be a participant in the plan for
the period with the aggregate adjustments
of each other similarly situated, younger
individual who is or could be a participant
in the plan for that period. See paragraph
(b)(5) of this section for rules regarding
whether each younger individual who is or
could be a participant is similarly situated
to a participant.
(iii)Protection against loss—(A)In
general. Paragraph (b)(2)(i) of this section
does not apply unless the plan satisfies
section 411(b)(5)(E)(ii) and paragraph
(d)(2) of this section (relating to preserva-
tion of capital).
(B)Exception for variable annuity ben-
efit formulas. The requirement to satisfy
section 411(b)(5)(B)(i)(II), as set forth in
paragraph (d)(2) of this section, as well as
section 411(b)(5)(E)(ii), as set forth in this
paragraph (b)(2)(iii), does not apply in the
case of a benefit provided under a vari-
able annuity benefit formula as defined in
§1.411(a)(13)–1(d)(6).
(3)Certain offsets permitted.Aplanis
not treated as failing to meet the require-
ments of section 411(b)(1)(H) solely be-
cause the plan provides offsets against ben-
efits under the plan to the extent the off-
sets are allowable in applying the require-
ments of section 401(a) and the applica-
ble requirements of the Employee Retire-
November 29, 20107722010–48 I.R.B.

ment Income Security Act of 1974, Public
Law 93–406 (88 Stat. 829 (1974)), and the
Age Discrimination in Employment Act of
1967, Public Law 90–202 (81 Stat. 602
(1967)).
(4)Permitted disparities in plan contri-
butions or benefits. A plan is not treated as
failing to meet the requirements of section
411(b)(1)(H) solelybecause the plan pro-
vides a disparity in contributions or bene-
fits with respect to which the requirements
of section 401(l) are met.
(5)Definition of similarly situated.For
purposes of paragraphs (b)(1) and (b)(2) of
this section, an individual is similarly situ-
ated to another individual if the individual
is identical to that other individual in ev-
ery respect that is relevant in determining
a participant’s benefit under the plan (in-
cluding period of service, compensation,
position, date of hire, work history, and
any other respect) except for age. In deter-
mining whether an individual is similarly
situated to another individual, any char-
acteristic that is relevant for determining
benefits under the plan and that is based
directly or indirectly on age is disregarded.
For example, if a particular benefit formula
applies to a participant on account of the
participant’s age, an individual to whom
the benefit formula does not apply and who
is identical to the participant in all other re-
spects is similarly situated to the partici-
pant. By contrast, an individual is not sim-
ilarly situated to a participant if a differ-
ent benefit formula applies to the individ-
ual and the application of the different for-
mula is not based directly or indirectly on
age.
(c)Special rules for plan conversion
amendments—(1)In general.Pursuantto
section 411(b)(5)(B)(ii), (iii), and (iv), if
there is a conversion amendment within
the meaning of paragraph (c)(4) of this sec-
tion with respect to a defined benefit plan,
then the plan is treated as failing to meet
the requirements of section 411(b)(1)(H)
unless the plan, after the amendment, sat-
isfies the requirements of paragraph (c)(2)
of this section.
(2)Separate calculation of post-conver-
sion benefit—(i)In general.Astatutory
hybrid plan satisfies the requirements of
this paragraph (c)(2) if the plan provides
that, in the case of an individual who was
a participant in the plan immediately be-
fore the date of adoption of the conversion
amendment, the participant’s benefit at any
subsequent annuity starting date is not less
than the sum of—
(A) The participant’s section 411(d)(6)
protected benefit (as defined in
§1.411(d)–3(g)(14)) with respect to ser-
vice before the effective date of the con-
version amendment, determined under the
terms of the plan as in effect immediately
before the effective date of the conversion
amendment; and
(B) The participant’s section 411(d)(6)
protected benefit with respect to service
on and after the effective date of the con-
version amendment, determined under the
terms of the plan as in effect after the ef-
fective date of the conversion amendment.
(ii)Rules of application. For purposes
of this paragraph (c)(2), except as pro-
vided in paragraph (c)(3) of this section,
the benefits under paragraphs (c)(2)(i)(A)
and (c)(2)(i)(B) of this section must each
be determined in the same manner as if
they were provided under separate plans
that are independent of each other (for
example, without any benefit offsets),
and, except to the extent permitted un-
der §1.411(d)–3 or §1.411(d)–4 (or other
applicable law), each optional form of
payment provided under the terms of the
plan with respect to a participant’s section
411(d)(6) protected benefit as in effect
before the conversion amendment must
be available thereafter to the extent of the
plan’s benefits for service prior to the ef-
fective date of the conversion amendment.
(3)Establishment of opening hypo-
thetical account balance or opening ac-
cumulated percentage—(i)In general.
Provided that the requirements of para-
graph(c)(3)(ii)or(c)(3)(iii)ofthissection
are satisfied, a statutory hybrid plan under
which an opening hypothetical account
balance or opening accumulated per-
centage of the participant’s final average
compensation is established as of the ef-
fective date of the conversion amendment
does not fail to satisfy the requirements of
paragraph (c)(2) of this section merely be-
cause benefits attributable to that opening
hypothetical account balance or opening
accumulated percentage (that is, bene-
fits that are not described in paragraph
(c)(2)(i)(B) of this section) are substi-
tuted for benefits described in paragraph
(c)(2)(i)(A) of this section.
(ii)Comparison of benefits at annu-
ity starting date—(A)Testing require-
ment. The requirements of this paragraph
(c)(3)(ii) are satisfied with respect to an
optional form of benefit payable at an an-
nuity starting date only if the plan provides
that the amount of the benefit payable
in that optional form under the lump
sum-based benefit formula that is attribut-
able to the opening hypothetical account
balance or opening accumulated percent-
age as described in paragraph (c)(3)(i) of
this section is not less than the benefit
under the comparable optional form of
benefit under paragraph (c)(2)(i)(A) of
this section. To satisfy this requirement,
if the benefit under the optional form
attributable to the opening hypothetical
account balance or opening accumulated
percentage is less than the benefit under
the comparable optional form of benefit
described in paragraph (c)(2)(i)(A) of this
section, then the benefit attributable to
the opening hypothetical account balance
or opening accumulated percentage must
be increased to the extent necessary to
provide the minimum benefit described in
this paragraph (c)(3)(ii). Thus, if a plan
is using the option under this paragraph
(c)(3)(ii) to satisfy paragraph (c)(2) of this
section with respect to a participant, the
participant must receive a benefit equal to
not less than the sum of—
(1) The benefit described in paragraph
(c)(2)(i)(B) of this section; and
(2) The greater of—
(i) The benefit attributable to the open-
ing hypothetical account balance or attrib-
utable to the openingaccumulated percent-
age of the participant’s final average com-
pensation as described in this paragraph
(c)(3)(ii); or
(ii) The benefit described in paragraph
(c)(2)(i)(A) of this section.
(B)Comparable optional form of ben-
efit. If there was an optional form of ben-
efit within the same generalized optional
form of benefit (within the meaning of
§1.411(d)–3(g)(8)) that would have been
available to the participant at that annuity
starting date under the terms of the plan as
in effect immediately before the effective
date of the conversion amendment, then
that optional form of benefit is the compa-
rable optional form of benefit.
(C)Special rule for new post-con-
version optional forms of benefit.Ifan
optional form of benefit is available on
the annuity starting date with respect to
the benefit attributable to the opening
hypothetical account balance or opening
2010–48 I.R.B.773November 29, 2010

accumulated percentage, but no optional
form within the same generalized optional
form of benefit (within the meaning of
§1.411(d)–3(g)(8)) was available at that
annuity starting date under the terms of the
plan as in effect immediately prior to the
effective date of the conversion amend-
ment, then, for purposes of this paragraph
(c)(3)(ii), the plan is treated as if such an
optional form of benefit were available
immediately prior to the effective date of
the conversion amendment for purposes
of this paragraph (c)(3)(ii). Thus, for ex-
ample, if a single-sum optional form of
payment is not available under the plan
terms applicable to the accrued benefit
described in paragraph (c)(2)(i)(A) of this
section, but a single-sum optional form
of payment is available with respect to
the benefit attributable to the opening
hypothetical account balance or opening
accumulated percentage as of the annuity
starting date, then, for purposes of this
paragraph (c)(3)(ii), the plan is treated as
if a single sum (which satisfies the require-
ments of section 417(e)(3)) were available
under the terms of the plan as in effect
immediately prior to the effective date of
the conversion amendment.
(iii)Comparison of benefits at effec-
tive date of conversion amendment.[Re-
served].
(4)Conversion amendment—(i)In
general. An amendment is a conversion
amendment that is subject to the require-
ments of this paragraph (c) with respect to
a participant if—
(A) The amendment reduces or elimi-
nates the benefits that, but for the amend-
ment, the participant would have accrued
after the effective date of the amendment
under a benefit formula that is not a statu-
tory hybrid benefit formula (and under
which the participant was accruing bene-
fits prior to the amendment); and
(B) After the effective date of the
amendment, all or a portion of the par-
ticipant’s benefitaccruals under the plan
are determined under a statutory hybrid
benefit formula.
(ii)Rules of application—(A)In gen-
eral. Paragraphs (c)(4)(iii), (iv), and (v)
of this section describe special rules that
treat certain arrangements as conversion
amendments. The rules described in those
paragraphs apply both separately and in
combination. Thus, for example, in an
acquisition described in §1.410(b)–2(f),
if the buyer adopts an amendment under
which a participant’s benefits under the
seller’s plan that is not a statutory hybrid
plan are coordinated with a separate plan
of the buyer that is a statutory hybrid plan,
such as through an offset of the partici-
pant’s benefit under the buyer’s plan by
the participant’s benefit under the seller’s
plan, the seller and buyer are treated as a
single employer under paragraph (c)(4)(iv)
of this section and they are treated as
having adopted a conversion amendment
under paragraph (c)(4)(iii) of this section.
However, pursuant to paragraph (c)(4)(iii)
of this section, if there is no coordination
between the two plans, there is no conver-
sion amendment.
(B)Covered amendments.Only
amendments that eliminate or reduce
accrued benefits described in section
411(a)(7), or a retirement-type subsidy
describedinsection411(d)(6)(B)(i),that
would otherwise accrue as a result of fu-
ture service are treated as amendments
described in paragraph (c)(4)(i)(A) of this
section.
(C)Operation of plan terms treated as
covered amendment. If, under the terms
of a plan, a change in the conditions of a
participant’s employment results in a re-
duction of the participant’s benefits that
would have accrued in the future under a
benefit formula that is not a statutory hy-
brid benefit formula, the plan is treated
for purposes of this paragraph (c)(4) as if
such plan terms constitute an amendment
that reduces the participant’s benefits that
would have accrued after the effective date
of the change under a benefit formula that
is not a statutory hybrid benefit formula.
Thus, for example, if a participant transfers
from an operating division that is covered
by a non-statutory hybrid benefit formula
to an operating division that is covered by a
statutory hybrid benefit formula, there has
been a conversion amendment and the ef-
fective date of the conversion amendment
is the date of the transfer. For purposes
of applying the effective date rule of para-
graph (f)(1)(ii) of this section, the date that
the relevant plan terms were adopted is
treated as the adoption date of the amend-
ment.
(iii)Multiple plans.Anemployeris
treated as having adopted a conversion
amendment if the employer adopts an
amendment under which a participant’s
benefits under a plan that is not a statutory
hybrid plan are coordinated with a separate
plan that is a statutory hybrid plan, such as
through a reduction (offset) of the benefit
under the plan that is not a statutory hybrid
plan.
(iv)Multiple employers.Iftheem-
ployer of an employee changes as a
result of a transaction described in
§1.410(b)–2(f), then the two employers
are treated as a single employer for pur-
poses of this paragraph (c)(4).
(v)Multiple amendments—(A)In gen-
eral—(1)General rule. For purposes of
this paragraph (c)(4), a conversion amend-
ment includes multiple amendments that
result in a conversion amendment even
if the amendments are not conversion
amendments individually. For example,
an employer is treated as having adopted
a conversion amendment if the employer
first adopts an amendment described in
paragraph (c)(4)(i)(A) of this section and,
at a later date, adopts an amendment that
adds a benefit under a statutory hybrid
benefit formula as described in paragraph
(c)(4)(i)(B) of this section, if they are con-
solidated under paragraph (c)(4)(v)(A)(2)
of this section.
(2)Delay between plan amendments.In
determining whether a conversion amend-
ment has been adopted, an amendment to
provide a benefit under a statutory hybrid
benefit formula is consolidated with a prior
amendment to reduce non-statutory hybrid
benefit formula benefits if the amendment
providing benefits under a statutory hybrid
benefit formula is adopted within three
years after adoption of the amendment re-
ducing non-statutory hybrid benefit for-
mula benefits. Thus, the later adoption of
the statutory hybrid benefit formula will
cause the earlier amendment to be treated
as part of a conversion amendment. In the
case of an amendment to provide a bene-
fit under a statutory hybrid benefit formula
that is adopted more than three years af-
ter adoption of an amendment to reduce
benefits under a non-statutory hybrid ben-
efit formula, there is a presumption that
the amendments are not consolidated un-
less the facts and circumstances indicate
that adoption of the amendment to provide
a benefit under a statutory hybrid benefit
formula was intended at the time of reduc-
tion in the non-statutory hybrid benefit for-
mula.
(B)Multiple conversion amendments.
If an employer adopts multiple amend-
November 29, 20107742010–48 I.R.B.

ments reducing benefits described in para-
graph (c)(4)(i)(A) of this section, each
amendment is treated as a separate conver-
sion amendment, provided that paragraph
(c)(4)(i)(B) of this section is applicable
at the time of the amendment (taking into
account the rules of thisparagraph (c)(4)).
(vi)Effective date of a conversion
amendment. The effective date of a con-
version amendment is, with respect to
a participant, the date as of which the
reduction of the participant’s benefits de-
scribed in paragraph (c)(4)(i)(A) of this
section occurs. In accordance with section
411(d)(6), the date of a reduction of those
benefits cannot be earlier than the date of
adoption of the conversion amendment.
(5)Examples. The following examples
illustrate the application of this paragraph
(c):
Example 1.(i)Facts where plan does not estab-
lish opening hypothetical account balance for partic-
ipants and participant elects life annuity at normal
retirement age. Employer N sponsors Plan E, a de-
fined benefit plan that provides an accumulated ben-
efit, payable as a straight life annuity commencing
at age 65 (which is Plan E’s normal retirement age),
based on a percentage of highest average compen-
sation times the participant’s years of service. Plan
E permits any participant who has had a severance
from employment to elect payment in the following
optional forms of benefit (with spousal consent if ap-
plicable), with any payment not made in a straight life
annuity converted to an equivalent form based on rea-
sonable actuarial assumptions: a straight life annuity;
and a 50 percent, 75 percent, or 100 percent joint and
survivor annuity. The payment of benefits may com-
mence at any time after attainment of age 55, with
an actuarial reduction if the commencement is before
normal retirement age. In addition, the plan offers a
single-sum payment after attainment of age 55 equal
to the present value of the normal retirement benefit
using the applicable interest rate and mortality table
under section 417(e)(3) in effect under the terms of
the plan on the annuity starting date.
(ii)Facts relating to the conversion amendment.
On January 1, 2012, Plan E is amended to elimi-
nate future accruals under the highest average com-
pensation benefit formula and to base future bene-
fit accruals under a hypothetical account balance for-
mula. For service on or after January 1, 2012, each
participant’s hypothetical account balance is credited
monthly with a pay credit equal to a specified per-
centage of the participant’s compensation during the
month and also with interest based on the third seg-
ment rate described in section 430(h)(2)(C)(iii). With
respect to benefits under the hypothetical account bal-
ance attributable to service on and after January 1,
2012, a participant is permitted to elect (with spousal
consent if applicable) payment in the same general-
ized optional forms of benefit (even though different
actuarial factors apply) as under the terms of the plan
in effect before January 1, 2012, and also as a sin-
gle-sum distribution. The plan provides for the bene-
fit attributable to service before January 1, 2012, to be
determined under the terms of the plan as in effect im-
mediately before the effective date of the amendment,
and the benefit attributable to service on and after Jan-
uary 1, 2012, to be determined separately, under the
terms of the plan as in effect after the effective date
of the amendment, with neither benefit offsetting the
other in any manner. Thus, each participant’s benefit
is equal to the sum of the benefit attributable to ser-
vice before January 1, 2012 (to be determined under
the terms of the plan as in effect immediately before
the effective date of the amendment), plus the benefit
attributable to the participant’s hypothetical account
balance.
(iii)Facts relating to an affected participant.
Participant A is age 62 on January 1, 2012. On
December 31, 2011, A’s benefit for years of service
before January 1, 2012, payable as a straight life
annuity commencing at A’s normal retirement age
(age 65), which is January 1, 2015, is $1,000 per
month. On January 1, 2015, when Participant A
has a severance from employment, the then-current
hypothetical account balance, with pay credits and
interest from January 1, 2012, to January 1, 2015,
is $11,000. Using the conversion factors applicable
under the plan on January 1, 2015, that balance is
equivalent to a straight life annuity of $100 per month
commencing on January 1,2015. This benefit is in
addition to the benefit attributable to service before
January 1, 2012. Participant A elects (with spousal
consent) a straight life annuity of $1,100 per month
commencing January 1, 2015.
(iv)Conclusion. Participant A’s benefit satisfies
the requirements of paragraph (c) of this section be-
cause Participant A’s benefit is not less than the sum
of Participant A’s section 411(d)(6) protected bene-
fit (as defined in §1.411(d)–3(g)(14)) with respect to
service before the effective date of the conversion
amendment, determined under the terms of the plan
as in effect immediately before the effective date of
the amendment, and Participant A’s section 411(d)(6)
protected benefit with respect to service on and after
the effective date of the conversion amendment, de-
termined under the terms of the plan as in effect after
the effective date of the amendment.
Example 2.(i)Facts involving plan’s establish-
ment of opening hypothetical account balance and
payment of pre-conversion accumulated benefit in life
annuity at normal retirement age. Except as indicated
in thisExample 2, the facts are the same as the facts
under paragraph (i) ofExample 1.
(ii)Facts relating to the conversion amend-
ment. On January 1, 2012, Plan E is amended to
eliminate future accruals under the highest aver-
age compensation benefit formula and to provide
future benefit accrualsunder a hypothetical ac-
count balance formula. An opening hypothetical
account balance is established for each participant,
and, under the plan’s terms, that balance is equal
to the present value of the participant’s accumu-
lated benefit on December 31, 2011 (payable as
a straight life annuity at normal retirement age or
immediately, if later), using the applicable interest
rate and applicable mortality table under section
417(e)(3) on January 1, 2012. Under Plan E, the
account based on this opening hypothetical account
balance is maintained as a separate account from the
account for accruals on or after January 1, 2012. The
hypothetical account balance maintained for each
participant for accruals on or after January 1, 2012, is
credited monthly with a pay credit equal to a specified
percentage of the participant’s compensation during
the month. A participant’s hypothetical account
balance (including both of the separate accounts)
is credited monthly with interest based on the third
segment rate described in section 430(h)(2)(C)(iii).
(iii)Facts relating to optional forms of benefit.
Following severance from employment and attain-
ment of age 55, a participant is permitted to elect
(with spousal consent if applicable) payment in the
same generalized optional forms of benefit as under
the plan in effect prior to January 1, 2012, with the
amount payable calculated based on the hypothetical
account balance on the annuity starting date and the
applicable interest rate and applicable mortality table
on the annuity starting date. The single-sum distribu-
tion is equal to the hypothetical account balance.
(iv)Facts relating to conversion protection.The
plan provides that, as of a participant’s annuity start-
ing date, the plan will determine whether the ben-
efit attributable to the opening hypothetical account
payable in the particular optional form of benefit se-
lected is equal to or greater than the benefit accrued
under the plan through the date of conversion and
payable in the same generalized optional form of ben-
efit with the same annuity starting date. If the ben-
efit attributable to the opening hypothetical account
balance is equal to or greater than the pre-conversion
benefit, the plan provides that such benefit is paid
in lieu of the pre-conversion benefit, together with
the benefit attributable to post-conversion pay-based
principal credits. If the benefit attributable to the
opening hypothetical account balance is less than the
pre-conversion benefit, the plan provides that such
benefit is increased sufficiently to provide the pre-
conversion benefit, together with the benefit attribut-
able to post-conversion pay-based principal credits.
(v)Facts relating to an affected participant.On
January 1, 2012, the opening hypothetical account
balance established for Participant A is $80,000,
which is the present value of Participant A’s straight
life annuity of $1,000 per month commencing at
January 1, 2015, using the applicable interest rate and
applicable mortality table under section 417(e)(3) in
effect on January 1, 2012. On January 1, 2012, the
applicable interest rate for Participant A is equivalent
to a level rate of 5.5 percent.Thereafter, Participant
A’s hypothetical account balance for subsequent ac-
cruals is credited monthly with a pay credit equal to
a specified percentage of the participant’s compen-
sation during the month. In addition, Participant A’s
hypothetical account balance (including both of the
separate accounts) is credited monthly with interest
basedonthethirdsegmentratedescribedinsection
430(h)(2)(C)(iii).
(vi)Facts relating to calculation of the partici-
pant’s benefit. Participant A has a severance from
employment on January 1, 2015 at age 65, and elects
(with spousal consent) a straight life annuity com-
mencing January 1, 2015. On January 1, 2015, the
opening hypothetical account balance, with interest
credits from January 1, 2012, to January 1, 2015, has
become $95,000, which, using the conversion factors
under the plan on January 1, 2015, is equivalent to a
straight life annuity of $1,005 per month commencing
on January 1, 2015 (which is greater than the $1,000 a
month payable at age 65 under the terms of the plan in
effect before January 1, 2012). This benefit is in addi-
2010–48 I.R.B.775November 29, 2010

tion to the benefit determined using the hypothetical
account balance for service after January 1, 2012.
(vii)Conclusion. The benefit satisfies the re-
quirements of paragraph (c)(3)(ii)(A) of this section
with respect to Participant A because A’s benefit is
not less than the sum of (A) the greater of Participant
A’s benefits attributable to the opening hypothetical
account balance and A’s section 411(d)(6) protected
benefit (as defined in §1.411(d)–3(g)(14)) with
respect to service before the effective date of the
conversion amendment, determined under the terms
of the plan as in effect immediately before the ef-
fective date of the amendment, and (B) Participant
A’s section 411(d)(6) protected benefit with respect
to service on and after the effective date of the con-
version amendment, determined under the terms of
theplanasineffectaftertheeffectivedateofthe
amendment.
Example 3.(i)Facts involving a subsequent
decrease in interest rates. The facts are the same
as inExample 2, except that, because of a decrease
in bond rates after January 1, 2012, and before
January 1, 2015, the rate of interest credited in
that period averages less than 5.5 percent, and, on
January 1, 2015, the effective applicable interest
rate under section 417(e)(3) under the plan’s terms
is 4.7 percent. As a result, Participant A’s opening
hypothetical account balance plus attributable
interest credits has increased to only $87,000 on
January 1, 2015, and, using the conversion factors
under the plan on January 1, 2015, is equivalent to
a straight life annuity commencing on January 1,
2015, of $775 per month. Under the terms of Plan
E, the benefit attributable to A’s opening account
balance is increased so that A’s straight life annuity
commencing on January 1, 2015, is $1,000 per
month. This benefit is in addition to the benefit
attributable to the hypothetical account balance for
service after January 1, 2012.
(ii)Conclusion. The benefit satisfies the require-
ments of paragraph (c)(3)(ii)(A) of this section with
respect to Participant A because A’s benefit is not less
than the sum of—
(A) The greater of A’s benefits attributable to
the opening hypothetical account balance and A’s
section 411(d)(6) protected benefit (as defined in
§1.411(d)–3(g)(14)) with respect to service before
the effective date of theconversionamendment,
determined under the terms of the plan as in effect
immediately before the effective date of the amend-
ment; and
(B) A’s section 411(d)(6) protected benefit with
respect to service on and after the effective date of the
conversion amendment, determined under the terms
of the plan as in effect after the effective date of the
amendment.
Example 4.(i)Facts involving payment of a
subsidized early retirement benefit. The facts are the
same as inExample 2, except that under the terms
of Plan E on December 31, 2011, a participant who
retires before age 65 and after age 55 with 30 years
of service has only a 3 percent per year actuarial
reduction. Participant Ahas a severance from em-
ployment on January 1, 2013, when A is age 63 and
has 30 years of service. On January 1, 2013, A’s
opening hypothetical account balance, with inter-
est from January 1, 2012, to January 1, 2013, has
become $86,000, which, using the conversion factors
under the plan (as amended) on January 1, 2013, is
equivalent to a straight life annuity commencing on
January 1, 2013, of $850 per month.
(ii)Facts relating to calculation of the partici-
pant’s benefit. Under the terms of Plan E on Decem-
ber 31, 2011, Participant A is entitled to a straight life
annuity commencing on January 1, 2013, equal to at
least $940 per month ($1,000 reduced by 3 percent
for each of the 2 years that A’s benefits commence
before normal retirement age). Under the terms of
Plan E, the benefit attributable to A’s opening ac-
count balance is increased so that A is entitled to a
straight life annuity of $940 per month commencing
on January 1, 2015. This benefit is in addition to
the benefit determined using the hypothetical account
balance for service after January 1, 2012.
(iii)Conclusion. The benefit satisfies the require-
ments of paragraph (c)(3)(ii)(A) of this section with
respect to Participant A because A’s benefit is not less
than the sum of—
(A) The greater of Participant A’s benefits attrib-
utable to the opening hypothetical account balance
(increased by attributable interest credits) and A’s
section 411(d)(6) protected benefit (as defined in
§1.411(d)–3(g)(14)) with respect to service before
theeffectivedateoftheconversion amendment,
determined under the terms of the plan as in effect
immediately before the effective date of the amend-
ment; and
(B) Participant A’s section 411(d)(6) protected
benefit with respect to service on and after the effec-
tive date of the conversion amendment, determined
under the terms of the plan as in effect after the
effective date of the amendment.
Example 5.(i)Facts involving addition of a sin-
gle-sum payment option. The facts are the same as
inExample 2, except that, before January 1, 2012,
Plan E did not offer payment in a single-sum dis-
tribution for amounts in excess of $5,000. Plan E,
as amended on January 1,2012, offers payment in
any of the available annuity distribution forms com-
mencing at any time following severance from em-
ployment as were provided under Plan E before Jan-
uary 1, 2012. In addition, Plan E, as amended on Jan-
uary 1, 2012, offers payment in the form of a single
sum attributable to service before January 1, 2012,
which is the greater of the opening hypothetical ac-
count balance (increased by attributable interest cred-
its) or a single-sum distribution of the straight life an-
nuity payable at age 65 using the same actuarial fac-
tors as are used for mandatory cashouts for amounts
equal to $5,000 or less under the terms of the plan on
December 31, 2011. Participant B is age 40 on Jan-
uary 1, 2012, and B’s opening hypothetical account
balance (increased by attributable interest credits) is
$33,000 (which is the present value, using the con-
version factors under the plan (as amended) on Jan-
uary 1, 2012, of Participant B’s straight life annuity
of $1,000 per month commencing at January 1, 2037,
which is when B will be age 65). Participant B has
a severance from employment on January 1, 2015,
and elects (with spousal consent) an immediate sin-
gle-sum distribution. Participant B’s opening hypo-
thetical account balance (increased by attributable in-
terest) on January 1, 2015, is $45,000. The present
value, on January 1, 2015, of Participant B’s benefit
of $1,000 per month, commencing immediately using
the actuarial factors for mandatory cashouts under the
terms of the plan on December 31, 2011, would result
in a single-sum payment of $44,750. Participant B
is paid a single-sum distribution equal to the sum of
$45,000 plus an amount equal to B’s January 1, 2015,
hypothetical account balance for benefit accruals for
service after January 1, 2012.
(ii)Conclusion. Because, under Plan E, Partici-
pant B is entitled to the sum of—
(A) The greater of the $45,000 opening hypotheti-
cal account balance (increased by attributable interest
credits) and $44,750 (present value of the benefit with
respect to service prior to January 1, 2012, using the
actuarial factors for mandatory cashout distributions
under the terms of the plan on December 31, 2011);
and
(B) An amount equal to B’s hypothetical ac-
count balance for benefit accruals for service after
January 1, 2012, the benefit satisfies the requirements
of paragraph (c)(3)(ii)(A) of this section with respect
to Participant B. If Participant B’s hypothetical
account balance under Plan E was instead less than
$44,750 on January 1, 2015, Participant B would be
entitled to a single-sum payment equal to the sum
of $44,750 and an amount equal to B’s hypothetical
account balance for benefit accruals for service after
January 1, 2012.
Example 6.(i)Facts involving addition of
new annuity optional form of benefit. The facts
are the same as inExample 2, except that, after
December 31, 2011, and before January 1, 2015,
Plan E is amended to offer payment in a 5-, 10-,
or 15-year term certain and life annuity, using the
same actuarial assumptions that apply for other
optional forms of distribution. When Participant
A has a severance from employment on January 1,
2015, A elects (with spousal consent) a 5-year term
certain and life annuity commencing immediately
equal to $935 per month. Application of the same
actuarial assumptions to Participant A’s benefit of
$1,000 per month (under Plan E as in effect on
December 31, 2011), commencing immediately
on January 1, 2015, would result in a 5-year term
certain and life annuity commencing immediately
equal to $955 per month. Under the terms of
Plan E, the benefit attributable to A’s opening
account balance is increased so that, using the
conversion factors under the plan (as amended) on
January 1, 2015, A’s opening hypothetical account
balance (increased by attributable interest credits)
produces a 5-year term certain and life annuity
commencing immediately equal to $955 per month
commencing on January 1, 2015. This benefit
is in addition to the benefit determined using the
January 1, 2015, hypothetical account balance for
service after January 1, 2012.
(ii)Conclusion. This benefit satisfies the require-
ments of paragraph (c)(3)(ii)(A) of this section with
respect to Participant A.
Example 7.(i)Facts involving addition of distri-
bution option before age 55. The facts are the same
as inExample 5, except that Participant B (age 43)
elects (with spousal consent) a straight life annuity
commencing immediately on January 1, 2015. Un-
der Plan E, the straight life annuity attributable to Par-
ticipant B’s opening hypothetical account balance at
age 43 is $221 per month. Application of the same
actuarial assumptions to Participant B’s benefit of
$1,000 per month commencing at age 65 (under Plan
E as in effect on December 31, 2011) would result in
a straight life annuity commencing immediately on
January 1, 2015, equal to $219 per month.
November 29, 20107762010–48 I.R.B.

(ii)Conclusion. Because, under its terms, Plan E
provides that Participant B is entitled to an amount
not less than the present value (using the same ac-
tuarial assumptions as apply on January 1, 2015, in
converting the $45,000 hypothetical account balance
attributable to the opening hypothetical account bal-
ance to the $221 straight life annuity) of Participant
B’s straight life annuity of $1,000 per month com-
mencing at age 65, and the $221 straight life annu-
ity is in addition to the benefit accruals for service
after January 1, 2012, payment of the $221 monthly
annuity would satisfy the requirements of paragraph
(c)(3)(ii)(A) of this section with respect to Participant
B.
(d)Market rate of return—(1)In gen-
eral—(i)Basic test. Subject to the rules
of paragraph (e) of this section, a statu-
tory hybrid plan satisfies the requirements
of section 411(b)(1)(H) and this paragraph
(d) only if, for any plan year, the interest
crediting rate with respect to benefits de-
termined under a statutory hybrid benefit
formula is not greater than a market rate of
return.
(ii)Definitions relating to market rate
of return—(A)Interest credit. Subject to
other rules in this paragraph (d), an inter-
est credit for purposes of this paragraph
(d) and section 411(b)(5)(B) means the fol-
lowing adjustments to a participant’s ac-
cumulated benefit under a statutory hybrid
benefit formula, to the extent not condi-
tioned on current service and not made on
account of imputed service (as defined in
§1.401(a)(4)–11(d)(3)(ii)(B))—
(1) Any increase or decrease for a pe-
riod, under the terms of the plan at the be-
ginning of the period, that is calculated by
applying a rate of interest or rate of return
(including a rate of increase or decrease
under an index) to the participant’s accu-
mulated benefit (or a portion thereof) as of
the beginning of the period; and
(2) Any other increase for a period, un-
der the terms of the plan at the beginning
of the period.
(B)Treatment of plan amendments.An
increase to a participant’s accumulated
benefit is not treated as an interest credit
to the extent the increase is made as a
result of a plan amendment providing for
a one-time adjustment to the participant’s
accumulated benefit. However, a pat-
tern of repeated plan amendments each of
which provides for a one-time adjustment
to a participant’s accumulated benefit
will cause such adjustments to be treated
as provided on a permanent basis under
the terms of the plan. See §1.411(d)–4,
A–1(c)(1).
(C)Interest crediting rate. Except as
otherwise provided in this paragraph (d),
the interest crediting rate, or effective rate
of return, for a period with respect to a par-
ticipant equals the total amount of interest
credits for the period divided by the par-
ticipant’s accumulated benefit at the begin-
ning of the period.
(D)Principal credit. For purposes of
this paragraph (d), a principal credit means
any increase to a participant’s accumulated
benefit under a statutory hybrid benefit for-
mula that is not an interest credit. Thus, for
example, a principal credit includes an in-
crease to a participant’s accumulated bene-
fit to the extent the increase is conditioned
on current serviceor made on account of
imputed service. As a result, a principal
credit includes an increase to the value of
an accumulated percentage of the partic-
ipant’s final average compensation. For
indexed benefits described in paragraph
(b)(2) of this section, a principal credit in-
cludes an increase to the participant’s ac-
crued benefit other than an increase pro-
vided by indexing. In addition, pursuant
to the rule in paragraph (d)(1)(ii)(B) of
this section, a principal credit generally in-
cludes an increase to a participant’s accu-
mulated benefit to the extent the increase is
made as a result of a plan amendment pro-
viding for a one-time adjustment to the par-
ticipant’s accumulated benefit. As a result,
a principal credit includes an opening hy-
pothetical account balance or opening ac-
cumulated percentage of the participant’s
final average compensation, as described
in paragraph (c)(3) of this section.
(iii)Market rate of return for single
rates. Except as is otherwise provided in
this paragraph (d)(1), an interest crediting
rate is not in excess of a market rate of re-
turn only if the plan terms provide that the
interest credit for each plan year is deter-
mined using one of the following specified
interest crediting rates:
(A) The interest rate on long-term in-
vestment grade corporate bonds (as de-
scribed in paragraph (d)(3) of this section).
(B) An interest rate that, under para-
graph (d)(4) of this section, is deemed to be
not in excess of the interest rate described
in paragraph (d)(3) of this section.
(C) A rate of return that, under para-
graph (d)(5) of this section, is not in excess
of a market rate of return.
(iv)Timing and other rules related to
interest crediting rate—(A)In general.
A plan that provides interest credits must
specify how the plan determines interest
credits and must specify how and when
interest credits are credited. The plan
must specify the method for determining
interest credits in accordance with the
requirements of paragraph (d)(1)(iv)(B)
of this section, the frequency of interest
crediting in accordance with the require-
ments of paragraph (d)(1)(iv)(C) of this
section, and the treatment of interest cred-
its on distributed amounts, as well as other
debits and credits during the period, in
accordance with the rules of paragraph
(d)(1)(iv)(D) of this section. See para-
graph (e) of this section for additional
rules that apply to changes in the interest
crediting rate.
(B)Methods to determine interest cred-
its. A plan that is using any specified in-
terest crediting rate can determine interest
credits for each current interest crediting
period based on the effective periodic in-
terest crediting rate that applies over the
period. Alternatively, a plan that is using
one of the interest crediting rates described
inparagraph(d)(3)or(d)(4)ofthissection
can determine interest credits for a stability
period based on the interest crediting rate
for a specified lookback month with re-
spect to that stability period. For purposes
of the preceding sentence, the stability pe-
riod and lookback month must satisfy the
rules for selecting the stability period and
lookback month under §1.417(e)–1(d)(4),
although the interest crediting rate can be
any one of the rates in paragraph (d)(3) or
(d)(4) of this section and the stability pe-
riod and lookback month need not be the
same as those used under the plan for pur-
poses of section 417(e)(3).
(C)Frequency of interest crediting.
Interest credits under a plan must be
provided on an annual or more frequent
periodic basis and interest credits for each
interest crediting period must be credited
asoftheendoftheperiod. Ifaplanpro-
vides for the crediting of interest more
frequently than annually (for example,
daily, monthly or quarterly) based on one
of the annual interest rates described in
paragraph (d)(3) or (d)(4) of this section,
then the plan generally provides an above
market rate of return unless each peri-
odic interest credit is determined using
an interest crediting rate that is no greater
than apro rataportion of the applicable
annual interest crediting rate. However,
2010–48 I.R.B.777November 29, 2010

a plan that credits interest daily based on
one of the annual interest rates described
in paragraph (d)(3) or (d)(4) of this sec-
tion is not treated as providing an above
market rate of return merely because the
plan determines each daily interest credit
using a daily interest crediting rate that
is 1/360 of the applicable annual interest
crediting rate. In addition, interest credits
determined, under the terms of a plan,
based on one of the annual interest rates
described in paragraph (d)(3) or (d)(4) of
this section are not treated as creating an
effective rate of return that is in excess
of a market rate of return merely because
an otherwise permissible interest crediting
rate for a plan year is compounded more
frequently than annually. Thus, for exam-
ple, if a plan’s terms provide for interest
to be credited monthly and for the interest
crediting rate to be equal to the interest rate
on long-term investment grade corporate
bonds (as described in paragraph (d)(3)
of this section) and the applicable annual
rate on these bonds for the plan year is 6
percent, then the accumulated benefit at
the beginning of each month could be in-
creased as a result of interest credits by as
much as 0.5 percent per month during the
plan year without resulting in an interest
crediting rate that is in excess of a market
rate of return.
(D)Debits and credits during the inter-
est crediting period.[Reserved].
(v)Lesser rates. An interest credit-
ing rate is not in excess of a market rate
of return if the rate can never be in ex-
cess of a particular rate that is described in
paragraph (d)(1)(iii) of this section. Thus,
for example, an interest crediting rate that
always equals the rate described in para-
graph (d)(3) of this section minus 200 ba-
sis points is not in excess of a market rate
of return because it can never be in excess
of the rate described in paragraph (d)(3)
of this section. Similarly, an interest cred-
iting rate that always equals the lesser of
the yield on 30-year Treasury bonds and a
fixed 6 percent interest rate is not in excess
of a market rate of return because it can
never be in excess of the yield on 30-year
Treasury bonds.
(vi)Greater-of rates. If a statutory hy-
brid plan determines an interest credit by
applying the greater of 2 or more differ-
ent rates to the accumulated benefit, the ef-
fective interest crediting rate is not in ex-
cess of a market rate of return only if each
of the different rates would separately sat-
isfy the requirements of this paragraph (d)
and the requirements of paragraph (d)(6)
of this section are also satisfied.
(vii)Blended rates. A statutory hybrid
plan does not provide an effective interest
crediting rate that is in excess of a market
rate of return merely because the plan de-
termines an interest credit by applying dif-
ferent rates to different predetermined por-
tions of the accumulated benefit, provided
each rate would separately satisfy the re-
quirements of this paragraph (d) if the rate
applied to the entireaccumulated benefit.
(2)Preservation of capital require-
ment—(i)General rule. A statutory hybrid
plan satisfies the requirements of section
411(b)(1)(H) only if the plan provides that
the participant’s benefit under the statu-
tory hybrid benefit formula determined as
of the participant’s annuity starting date
is no less than the benefit based on the
sum of all principal credits (as described
in paragraph (d)(1)(ii)(D) of this section)
credited under the plan to the participant
as of that date (including principal credits
that were credited before the applicable
statutory effective date of paragraph (f)(1)
of this section).
(ii)Application to multiple annuity
starting dates. [Reserved].
(iii)Exception for variable annuity ben-
efit formulas. See paragraph (b)(2)(iii)(B)
of this section for anexception to this para-
graph (d)(2).
(3)Long-term investment grade corpo-
rate bonds. For purposes of this paragraph
(d), the rate of interest on long-term in-
vestment grade corporate bonds means
the third segment rate described in sec-
tion 417(e)(3)(D) or 430(h)(2)(C)(iii)
(determined with or without regard to the
transition rules of section 417(e)(3)(D)(ii)
or 430(h)(2)(G)). However, for plan years
beginning prior to January 1, 2008, the rate
of interest on long-term investment grade
corporate bonds means the rate described
in section 412(b)(5)(B)(ii)(II) prior to
amendment by the Pension Protection Act
of 2006, Public Law 109–280 (120 Stat.
780) (PPA ’06).
(4)Safe harbor rates of interest—(i)
In general. This paragraph (d)(4) iden-
tifies interest rates that are deemed to
be not in excess of the interest rate de-
scribed in paragraph (d)(3) of this section.
The Commissioner may, in guidance of
general applicability, specify additional
interest crediting rates that are deemed
to be not in excess of the rate described
in paragraph (d)(3) of this section. See
§601.601(d)(2)(ii)(b).
(ii)Rates based on bonds with mar-
gins—(A)In general. An interest crediting
rate is deemed to be not in excess of the in-
terest rate described in paragraph (d)(3) of
this section if the rate is equal to the sum
of any of the following rates of interest for
bonds and the associated margin for that
interest rate:
Interest Rate Bond Index
Associated Margin
The discount rate on 3-month Treasury Bills
175 basis points
The discount rate on 12-month or shorter Treasury Bills
150 basis points
The yield on 1-year Treasury Constant Maturities100 basis points
The yield on 3-year or shorter Treasury bonds
50 basis points
The yield on 7-year or shorter Treasury bonds
25 basis points
The yield on 30-year or shorter Treasury bonds0 basis points
The first segment rate0 basis points
The second segment rate0 basis points
November 29, 20107782010–48 I.R.B.

(B)Rule of application. For pur-
poses of this paragraph (d)(4), the first
and second segment rates mean the first
and second segment rates described in
section 417(e)(3)(D) or 430(h)(2)(C), de-
termined with or without regard to the
transition rules of section 417(e)(3)(D)(ii)
or 430(h)(2)(G).
(iii)Eligible cost-of-living indices.An
interest crediting rate is deemed to be not
in excess of the interest rate described in
paragraph (d)(3) of this section if the rate
is adjusted no less frequently than annu-
ally and is equal to the rate of increase with
respect to an eligible cost-of-living index
described in §1.401(a)(9)–6, A–14(b), ex-
cept that, for purposes of this paragraph
(d)(4)(iii), the eligible cost-of-living index
described in §1.401(a)(9)–6, A–14(b)(2) is
increased by 300 basis points.
(iv)Fixed rate of interest.[Reserved].
(5)Other rates of return—(i)General
rule. This paragraph (d)(5) sets forth addi-
tional methods for determining an interest
crediting rate that is not in excess of a mar-
ket rate of return.
(ii)Actual rate of return on plan assets.
In the case of indexed benefits described
in paragraph (b)(2) of this section, an in-
terest crediting rate equal to the actual
rate of return on the aggregate assets of
the plan, including both positive returns
and negative returns, is not in excess of a
market rate of return if the plan’s assets are
diversified so as to minimize the volatil-
ity of returns. This requirement that plan
assets be diversified so as to minimize
the volatility of returns does not require
greater diversificationthanisrequiredun-
der section 404(a)(1)(C) of Title I of the
Employee Retirement Income Security
Act of 1974, Public Law 93–406 (88 Stat.
829 (1974)) with respect to defined benefit
pension plans.
(iii)Annuity contract rates. The rate of
return on the annuity contract for the em-
ployee issued by an insurance company li-
censed under the laws of a State is not in
excess of a market rate of return. However,
this paragraph (d)(5)(iii) does not apply if
the Commissioner determines that the an-
nuity contract has beenstructured to pro-
vide an interest crediting rate that is in ex-
cess of a market rate of return.
(iv)Rate of return on certain RICs.
[Reserved].
(6)Combinations of rates of return—(i)
In general. A plan that determines inter-
est credits based, in whole or in part, on
the greater of two or more different inter-
est crediting rates provides an effective in-
terest crediting rate in excess of a market
rate of return unless the combination of
rates is described in paragraph (d)(6)(ii),
(d)(6)(iii), (e)(3)(iii), or (e)(4) of this sec-
tion. However, a plan is not treated as pro-
viding the greater of two or more interest
crediting rates merely because the plan sat-
isfies the requirements of paragraph (d)(2)
of this section. In addition, a plan is not
treated as providing the greater of two or
more interest crediting rates merely be-
cause a rate of return described in para-
graph (d)(5)(iii) of this section is itself
based on the greater of two or more rates.
(ii)Annual or more frequent floor ap-
plied to bond-based rates. [Reserved].
(iii)Cumulative floor applied to equity-
based or bond-based rates.[Reserved].
(e)Other rules regarding market rates
of return—(1)In general. This paragraph
(e) sets forth additional rules regarding the
application of the market rate of return re-
quirement with respect to benefits deter-
mined under a statutory hybrid benefit for-
mula.
(2)Plan termination. [Reserved].
(3)Rules relating to section
411(d)(6)—(i)General rule. The right to
interest credits in the future that are not
conditioned on future service constitutes
a section 411(d)(6) protected benefit (as
defined in §1.411(d)–3(g)(14)). Thus, to
the extent that benefits have accrued un-
der the terms of a statutory hybrid plan
that entitle the participant to future in-
terest credits, an amendment to the plan
to change the interest crediting rate must
satisfy section 411(d)(6) if the revised rate
under any circumstances could result in
interest credits that are smaller as of any
date after the applicable amendment date
(within the meaning of §1.411(d)–3(g)(4))
than the interest credits that would be pro-
vided without regard to the amendment.
For additional rules, see §1.411(d)–3(b).
Paragraphs (e)(3)(ii) and (e)(3)(iii) of this
section set forth special rules that apply re-
garding the interaction of section 411(d)(6)
and changes to a plan’s interest crediting
rate. The Commissioner may, in guidance
of general applicability, prescribe addi-
tional rules regarding the interaction of
section 411(d)(6) and section 411(b)(5),
including changes to a plan’s interest cred-
iting rate. See §601.601(d)(2)(ii)(b).
(ii)Adoption of long-term investment
grade corporate bond rate. For purposes
of applying section 411(d)(6) and this
paragraph (e) to an amendment to change
to the interest crediting rate described in
paragraph (d)(3) of this section, a plan is
not treated as providing interest credits
that are smaller as of any date after the ap-
plicable amendment date than the interest
credits that would be provided using an in-
terest crediting rate described in paragraph
(d)(4) of this section merely because the
plan credits interest after the applicable
amendment date using the interest credit-
ing rate described in paragraph (d)(3) of
this section, provided—
(A) The amendment only applies to in-
terest credits to be credited after the effec-
tive date of the amendment;
(B) The effective date of the amend-
ment is at least 30 days after adoption of
the amendment; and
(C) On the effective date of the amend-
ment, the new interest crediting rate is not
lower than the interest crediting rate that
would have applied in the absence of the
amendment.
(iii)Coordination of section 411(d)(6)
and market rate of return limitation.[Re-
served].
(4)Actuarial increases after normal re-
tirement age.[Reserved].
(f)Effective/applicability date—(1)
Statutory effective/applicability dates—(i)
In general. Except as provided in para-
graph (f)(1)(iii) of this section, section
411(b)(5) applies for periods beginning on
or after June 29, 2005.
(ii)Conversion amendments.There-
quirements of section 411(b)(5)(B)(ii),
411(b)(5)(B)(iii), and 411(b)(5)(B)(iv) ap-
ply to a conversion amendment (as defined
in paragraph (c)(4) of this section) that
both is adopted on or after June 29, 2005,
and takes effect on or after June 29, 2005.
(iii)Market rate of return—(A)Plans
in existence on June 29, 2005—(1)In gen-
eral. In the case of a plan that was in
existence on June 29, 2005 (regardless of
whether the plan was a statutory hybrid
plan on that date), section 411(b)(5)(B)(i)
applies to plan years that begin on or after
January 1, 2008.
(2)Exception for plan sponsor
election.Notwithstanding paragraph
(f)(1)(iii)(A)(1)ofthissection,aplan
sponsor of a plan that was in existence
on June 29, 2005 (regardless of whether
2010–48 I.R.B.779November 29, 2010

the plan was a statutory hybrid plan on
that date) may elect to have the require-
ments of section 411(a)(13)(B) and section
411(b)(5)(B)(i) apply for any period on or
after June 29, 2005, and before the first
plan year beginning after December 31,
2007. In accordance with section 1107 of
the PPA ’06, an employer is permitted to
adopt an amendment to make this election
as late as the last day of the first plan year
that begins on or after January 1, 2009
(January 1, 2011, in the case of a govern-
mental plan as defined in section 414(d))
if the plan operates in accordance with the
election.
(B)Plans not in existence on June 29,
2005. In the case of a plan not in existence
on June 29, 2005, section 411(b)(5)(B)(i)
applies to the plan on and after the later
of June 29, 2005, and the date the plan
becomes a statutory hybrid plan.
(iv)Collectively bargained plans—(A)
In general. Notwithstanding paragraph
(f)(1)(iii) of this section, in the case of
a collectively bargained plan maintained
pursuant to one or more collective bargain-
ing agreements between employee repre-
sentatives and one or more employers rat-
ified on or before August 17, 2006, the
requirements of section 411(b)(5)(B)(i) do
not apply to plan years that begin before
the earlier of—
(1) The later of—
(i) The date on which the last of those
collective bargaining agreements termi-
nates (determined without regard to any
extension thereof on or after August 17,
2006); or
(ii) January 1, 2008; or
(2) January 1, 2010.
(B)Treatment of plans with both collec-
tively bargained and non-collectively bar-
gained employees. In the case of a plan
with respect to which a collective bargain-
ing agreement applies to some, but not all,
of the plan participants, the plan is con-
sidered a collectively bargained plan for
purposes of this paragraph (f)(1)(iv) if it
is considered a collectively bargained plan
under the rules of §1.436–1(a)(5)(ii)(B).
(2)Effective/applicability date of reg-
ulations—(i)In general—(A)General ef-
fective date. Except as provided in para-
graph (f)(2)(i)(B) of this section, this sec-
tion applies to plan years that begin on or
after January 1, 2011.
(B)Special effective date. Paragraphs
(d)(1)(iii), (d)(1)(vi), and (d)(6)(i) of this
section apply to plan years that begin on
or after January 1, 2012.
(ii)Conversion amendments.Withre-
spect to a conversion amendment (within
the meaning of paragraph (c)(4) of this sec-
tion), where the effective date of the con-
version amendment (as defined in para-
graph (c)(4)(vi) of this section) is on or af-
ter the statutory effectivedatesetforthin
paragraph (f)(1)(ii) of this section, the re-
quirements of paragraph (c)(2) of this sec-
tion apply only to a participant who has
an hour of service on or after the regula-
tory effective date set forth in paragraph
(f)(2)(i) of this section.
(iii)Reliance before regulatory effective
date. For the periods after the statutory ef-
fective date set forth in paragraph (f)(1) of
this section and before the regulatory ef-
fective date set forth in paragraph (f)(2)(i)
of this section, the safe harbor and other
relief of section 411(b)(5) applies and the
market rate of return and other require-
ments of section 411(b)(5) must be satis-
fied. During these periods, a plan is per-
mitted to rely on the provisions of this
section for purposes of applying the relief
and satisfying the requirements of section
411(b)(5).
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
Approved September 17, 2010.
Michael F. Mundaca,
Assistant Secretary of
the Treasury for Tax Policy.
(Filed by the Office of the Federal Register on October 18,
2010, 8:45 a.m., and published in the issue of the Federal
Register for October 19, 2010, 75 F.R. 64123)
November 29, 20107802010–48 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
Credit for Carbon Dioxide
Sequestration 2010 Section
45Q Inflation Adjustment
Factor
Notice 2010–75
SECTION 1. PURPOSE
This notice publishes the inflation ad-
justment factor for the credit for carbon
dioxide (CO
2
) sequestration under § 45Q
of the Internal Revenue Code (§ 45Q
credit) for calendar year 2010. The infla-
tion adjustment factor is used to determine
the amount of the credit allowable under
§ 45Q. The calendar year 2010 infla-
tion-adjusted credit applies to the amount
of qualified CO
2
captured by a taxpayer
at a qualified facility and disposed of in
secure geological storage.
SECTION 2. BACKGROUND
Section 45Q(a)(1) allows a credit of $20
per metric ton of qualified CO
2
that is cap-
tured by the taxpayer at a qualified facil-
ity, disposed of by the taxpayer in secure
geological storage, and not used by the
taxpayer as a tertiary injectant. Section
45Q(a)(2) allows a credit of $10 per metric
ton of qualified CO
2
that is captured by the
taxpayer at a qualified facility, used by the
taxpayer as a tertiary injectant in a quali-
fied enhanced oil or natural gas recovery
project (EOR project), and disposed of by
the taxpayer in secure geological storage.
Section 45Q(b)(1) defines the term
“qualified carbon dioxide” as CO
2
cap-
tured from an industrial source that would
otherwise be released into the atmosphere
as industrial emission of greenhouse gas
(GHG), and that is measured at the source
of capture and verified at the point of dis-
posal or injection. Qualified CO
2
includes
the initial deposit of captured CO
2
used
as a tertiary injectant but does not include
CO
2
that is re-captured, recycled, or oth-
erwise re-injected as part of the enhanced
oil and natural gas recovery process.
Section 45Q(c) defines the term “qual-
ified facility” as an industrial facility that
is owned by the taxpayer, where carbon
capture equipment is placed in service, and
where at least 500,000 metric tons of CO
2
is captured during the taxable year.
Section 45Q(d)(2) provides that the
Secretary, in consultation with the Admin-
istrator of the Environmental Protection
Agency (EPA), the Secretary of Energy,
and the Secretary of the Interior, shall
establish regulationsfor determining ade-
quate security measures for the geological
storage of CO
2
under paragraph (1)(B)
or (2)(C) of subsection (a) such that the
CO
2
does not escape into the atmosphere.
See section 5 of Notice 2009–83, 2009–44
I.R.B. 588, for procedures regarding se-
cure geological storage.
Section 45Q(d)(5)allows the § 45Q
credit to the person that captures and
physically or contractually ensures the
disposal of or the use as a tertiary injectant
of the qualified CO
2,
except to the extent
provided in regulations prescribed by the
Secretary.
Under § 45Q(d)(7),for taxable years
beginning in a calendar year after 2009,
the dollar amount contained in § 45Q(a)
must be adjusted for inflation by multiply-
ing such dollar amount by the inflation ad-
justment factor for such calendar year de-
termined under § 43(b)(3)(B), determined
by substituting “2008” for “1990.”
Section 43(b)(3)(B) defines “inflation
adjustment factor” as, with respect to any
calendar year, a fraction the numerator of
which is the GNP implicit price deflator
for the preceding calendar year and the de-
nominator of which is the GNP implicit
price deflator for 1990. For purposes of
§ 45Q(d)(7), with respect to 2010 calen-
dar year, the inflation adjustment factor is a
fraction the numerator of which is the GNP
implicit price deflator for 2009 (109.764)
and the denominator of which is the GNP
implicit price deflator for 2008 (108.486).
Section 45Q(e) provides that the § 45Q
credit will apply with respect to qualified
CO
2
before the end of the calendar year in
which the Secretary, in consultation with
the EPA, certifies that 75,000,000 metric
tons of qualified CO
2
have been taken into
account in accordance with § 45Q(a).
SECTION 3. INFLATION
ADJUSTMENT FACTOR
The inflation adjustment factor for cal-
endar year 2010 is 1.0118. The 45Q credit
for calendar year 2010 is $20.24 per met-
ric ton of qualified CO
2
under § 45Q(a)(1)
and$10.12permetrictonofqualifiedCO
2
under § 45Q(a)(2).
SECTION 4. DRAFTING
INFORMATION
The principal author of this notice is
Jennifer C. Bernardini of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries). For further in-
formation regarding this notice, contact
Jennifer C. Bernardini at (202) 622–3110
(not a toll-free call).
26 CFR 601.601: Rules and regulations.
(Also Part I, §§ 6109; 1.6109–2.)
Rev. Proc. 2010–41
SECTION 1. PURPOSE
The purpose of this revenue procedure
is to (1) describe the procedures foreign
persons and U.S. citizens without a social
security number due to conscientious re-
ligious objection must follow to obtain a
preparer tax identification number (PTIN)
and (2) provide temporary relief during
the 2011 filing season for these individuals
who experience delay in obtaining PTINs.
SECTION 2. BACKGROUND
On September 30, 2010, the Treasury
Department and the IRS published final
regulations in theFederal Register,T.D.
9501, 2010–46 I.R.B. 651 [75 FR 60309],
requiring paid tax return preparers who
prepare all or substantially all of a tax re-
turn or claim for refund to register with the
IRStoobtainPTINs. TheIRSalsoan-
nounced that the online PTIN application
system and paper application, Form W-12,
IRS Paid Preparer Tax Identification Num-
ber (PTIN) Application, are available for
tax return preparers to apply for a PTIN.
Both the online system and the Form
W-12 generally require an individual to
submit a valid social security number to
obtain a PTIN. The IRS recognizes, how-
ever, that some tax return preparers re-
quired to obtain a PTIN may not have a
social security number. In particular, a for-
eign person (who, for example, may pre-
pare returns for United States taxpayers
2010–48 I.R.B.781November 29, 2010

living in a foreign country) may not have a
social security number and may not be el-
igible to obtain one. Similarly, a U.S. citi-
zen may not have a social security number
due to a conscientious religious objection
to applying for and receiving a social secu-
rity number.
SECTION 3. SCOPE
This revenue procedure supple-
ments the final regulations under section
1.6109–2, which require a paid tax return
preparer to register with the IRS and ob-
tain a PTIN, by providing a mechanism
bywhichaforeignpersonandaU.S.
citizen without a social security number
due to conscientious religious objection
may obtain a PTIN. For purposes of this
revenue procedure, a foreign person is an
individual who does not have, and is not
eligible to obtain, a social security number
and is neither a citizen of the United States
nor a resident alien of the United States
as defined in section 7701(b)(1)(A). For
purposes of this revenue procedure, a U.S.
citizen without a social security number
due to conscientious religious objection is
a member of a recognized religious group.
A recognized religious group is a reli-
gious group conscientiously opposed to
its members applyingfor, and receiving,
social security numbers that has existed
continuously since December 31, 1950.
Section 4 of this revenue procedure only
applies to tax return preparers who are
foreign persons or U.S. citizens without
a social security number due to consci-
entious religious objection. Section 5 of
this revenue procedure only applies to tax
return preparers who are foreign persons
or U.S. citizens without a social security
number due to conscientious religious ob-
jectionduringthe2011filingseason.
SECTION 4. GENERAL PTIN
PROCEDURES FOR TAX RETURN
PREPARERS WHO ARE FOREIGN
PERSONS OR U.S. CITIZENS
WITHOUT A SOCIAL SECURITY
NUMBER DUE TO CONSCIENTIOUS
RELIGIOUS OBJECTION
Tax return preparers who are foreign
persons or U.S. citizens without a social
security number due to conscientious reli-
gious objection may apply for a PTIN us-
ing a two-part process. Both parts of the
process must be completed before a PTIN
will be issued. To obtain a PTIN, a tax re-
turn preparer who is a foreign person or a
U.S. citizen without a social security num-
ber due to conscientious religious objec-
tion first must complete either the online
PTIN application or the paper Form W-12.
Second, a foreign person must provide a
completed Form 8946,PTIN Supplemen-
tal Application for Foreign Persons With-
out a Social Security Number,which is a
paper form. A U.S. citizen without a so-
cial security number due to conscientious
religious objection must provide a com-
pleted Form 8945,PTIN Supplemental Ap-
plication for U.S. Citizens Without a So-
cial Security Number Due To Conscien-
tious Religious Objection, which is a paper
form. Additional documentation must be
submitted with the Forms 8945 and 8946,
as required by the instructions to the forms.
Forms W-12, 8945 and 8946 and the ac-
companying instructions are available on
http://www.IRS.gov.
SECTION 5. RELIEF FOR 2011 FILING
SEASON
The IRS expects tax return preparers
who are foreign persons or U.S. citizens
without a social security number due to
conscientious religious objection to apply
for PTINs as soon as reasonably possi-
ble. The IRS recognizes, however, that the
two-step application process for these indi-
viduals may take substantially more time
to complete than the application process
available for tax return preparers with so-
cial security numbers. In some cases, cir-
cumstances outside of the control of the
foreign person or U.S. citizen without a so-
cial security number due to conscientious
religious objection may delay the ability
to submit a timely, complete application.
For example, it may be difficult for these
tax return preparers to obtain the additional
documentation required to complete the
Forms 8945 or 8946.
Accordingly, for purposes of the 2011
filing season, tax return preparers who are
foreign persons or U.S. citizens without
a social security number due to conscien-
tious religious objection will be consid-
ered to have complied with the require-
ment to obtain a PTIN set forth in the
final regulations under section 1.6109–2
if they complete the online application or
submit a completed paper Form W-12 by
the later of (1) January 31, 2011, or (2)
10 days after the first day on which they
prepare all or substantially all of a U.S.
tax return for compensation, and they sub-
mit a completed PTIN supplemental ap-
plication, Form 8945 or Form 8946, in-
cluding any required additional documen-
tation, within 60 days after the comple-
tion of the online application or submis-
sion of the paper Form W-12. The ap-
plicable PTIN user fee must be submitted
with the online application or paper Form
W-12. Tax return preparers who are for-
eign persons or U.S. citizens without a so-
cial security number due to conscientious
religious objection who have not obtained
aPTINbutareconsideredtobeincom-
pliance with section 6109 under this rev-
enue procedure may prepare and sign U.S.
tax returns and claims for refund as a paid
tax return preparer without furnishing a
PTIN or other identifying number for re-
turns prepared on or before October 31,
2011.
SECTION 6. EFFECTIVE DATES
This revenue procedure is effective
October 26, 2010. Section 5 of this rev-
enue procedure will be obsolete after
October 31, 2011.
SECTION 7. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Matthew D. Lucey of the
Office of Associate Chief Counsel (Pro-
cedure & Administration). For further
information regarding this revenue proce-
dure, contact Matthew D. Lucey at (202)
622–4940 (not a toll-free call).
November 29, 20107822010–48 I.R.B.

Part IV. Items o
fGeneralInterest
Notice of Prop
osed
Rulemaking an
dNoticeof
Public Hearin
g
Additional Ru
les Regarding
Hybrid Retir
ement Plans
REG–132554–08
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Noti
ce of proposed rulemaking
and notice o
f public hearing.
SUMMARY: This document contains
proposed regulations providing guidance
relating to certain provisions of the In-
ternal Revenue Code (Code) that apply
to hybrid defined benefit pension plans.
These regulations would provide guidance
on changes made by the Pension Pro-
tection Act of 2006, as amended by the
Worker, Retiree, and Employer Recovery
Act of 2008. These regulations would af-
fect sponsors, administrators, participants,
and beneficiaries of hybrid defined benefit
pension plans. This document also pro-
vides a notice of a public hearing on these
proposed regulations.
DATES: Written or electronic com-
ments must be received by Wednesday,
January 12, 2011. Outlines of topics to be
discussed at the public hearing scheduled
for Wednesday, January 26, 2011, at
10 a.m. must be received by Friday,
January 14, 2011.
ADDRES
SES: Send submissions to:
CC:PA:
LPD:PR(REG–132554–08),
Room 52
03, Internal Revenue Service, PO
Box 760
4, Ben Franklin Station, Wash-
ingto
n, DC 20044. Submissions may be
hand-
delivered Monday through Friday
betwe
en the hours of 8 a.m. and 4 p.m.
to: CC
:PA:LPD:PR (REG–132554–08),
Couri
er’s Desk, Internal Revenue Ser-
vice
, 1111 Constitution Avenue, NW,
Wash
ington, DC, or sent electroni-
call
y, via the Federal eRulemaking Por-
tal a
thttp://www.regulations.gov(IRS
REG–
132554–08). The public hearing
wil
l be held in the IRS Auditorium,
Int
ernal Revenue Building, 1111
Constitution
Avenue, NW, Washington,
DC.
FOR FURTHER IN
FORMATION
CONTACT: Conc
erning the regulations,
Neil S. Sandhu
, Lauson C. Green, or
LindaS.F.Mar
shall at (202) 622–6090;
concerning s
ubmissions of comments,
the hearing,
and/or being placed on the
building acc
ess list to attend the hearing,
Regina Johns
on, at (202) 622–7180 (not
toll-free n
umbers).
SUPPLEMENT
ARY INFORMATION:
Background
This docume
nt contains proposed
amendments
to the Income Tax Regu-
lations (26
CFR part 1) under sections
411(a)(13)
, 411(b)(1), and 411(b)(5) of
the Code. G
enerally, a defined benefit
pension pl
an must satisfy the minimum
vesting st
andards of section 411(a) and
the accrua
l requirements of section 411(b)
in order to
be qualified under section
401(a) of
the Code. Sections 411(a)(13)
and 411(b
)(5), which modify the mini-
mum vesti
ng standards of section 411(a)
and the ac
crual requirements of section
411(b),
were added to the Code by section
701(b) o
f the Pension Protection Act of
2006, Pu
blic Law 109–280 (120 Stat. 780
(2006))
(PPA ’06). Sections 411(a)(13)
and 411(
b)(5), as well as certain effec-
tive da
te provisions related to these sec-
tions,
were subsequently amended by the
Worker
, Retiree, and Employer Recovery
Act of 2
008, Public Law 110–458 (122
Stat. 5
092 (2008)) (WRERA ’08).
Sectio
n 411(a)(13)(A) provides that an
applic
able defined benefit plan (which is
defin
ed in section 411(a)(13)(C)) is not
treat
ed as failing to meet either (i) the
requi
rements of section 411(a)(2) (sub-
ject t
o a special vesting rule in section
411(a
)(13)(B) with respect to benefits de-
rive
d from employer contributions) or (ii)
the r
equirements of section 411(a)(11),
411(
c), or 417(e), with respect to accrued
bene
fits derived from employer contribu-
tion
s, merely because the present value of
the a
ccrued benefit (or any portion thereof)
of a
ny participant is, under the terms of
the
plan, equal to the amount expressed
as t
he balance of a hypothetical account
or as an accumu
lated percentage of the
participant’
s final average compensation.
Section 411(a
)(13)(B) requires an appli-
cable defined
benefit plan to provide that
an employee wh
o has completed at least 3
years of serv
ice has a nonforfeitable right
to 100 percen
t of the employee’s accrued
benefit deri
ved from employer contribu-
tions.
Under sectio
n 411(a)(13)(C)(i), an
applicable d
efined benefit plan is de-
fined as a de
fined benefit plan under
which the ac
crued benefit (or any por-
tion thereo
f) of a participant is calculated
as the balan
ce of a hypothetical account
maintaine
d for the participant or as an ac-
cumulated
percentage of the participant’s
final aver
age compensation. Under sec-
tion 411(a
)(13)(C)(ii), the Secretary of
the Treasu
ry is to issue regulations which
include i
n the definition of an applicable
defined b
enefit plan any defined benefit
plan (or p
ortion of such a plan) which has
an effect
similar to a plan described in
section
411(a)(13)(C)(i).
Section 4
11(a) requires that a defined
benefit
plan satisfy the requirements of
section
411(b)(1). Section 411(b)(1) pro-
vides th
at a defined benefit plan must sat-
isfy one
of the three accrual rules of sec-
tion 411
(b)(1)(A), (B), and (C) with re-
spect t
o benefits accruing under the plan.
The thr
ee accrual rules are the 3 percent
method
of section 411(b)(1)(A), the 133
1
/3
percen
t rule of section 411(b)(1)(B), and
the fra
ctional rule of section 411(b)(1)(C).
Sectio
n 411(b)(1)(B) provides that a
define
d benefit plan satisfies the require-
ments
of the 133
1
/3percent rule for a
parti
cular plan year if, under the plan,
the ac
crued benefit payable at the normal
retir
ement age is equal to the normal re-
tirem
ent benefit, and the annual rate at
whic
h any individual who is or could be
apar
ticipant can accrue the retirement
bene
fits payable at normal retirement age
unde
r the plan for any later plan year is
not m
ore than 133
1
/3percent of the annual
rat
e at which the individual can accrue
ben
efitsforanyplanyearbeginningonor
aft
er such particular plan year and before
suc
h later plan year.
For
purposes of applying the 133
1
/3per-
cen
t rule, section 411(b)(1)(B)(i) provides
tha
t any amendment to the plan which is
2010–48 I.R.B.783November 29, 2010

in effect for the current year is treated as
in effect for all other plan years. Section
411(b)(1)(B)(ii) provides that any change
in an accrual rate which does not apply to
any individual who is or could be a partici-
pant in the current plan year is disregarded.
Section 411(b)(1)(B)(iii) provides that the
fact that benefits under the plan may be
payable to certain participants before nor-
mal retirement age is disregarded. Sec-
tion 411(b)(1)(B)(iv) provides that social
security benefits and all other relevant fac-
tors used to compute benefits are treated as
remaining constant as of the current plan
year for all years after the current year.
Section 411(b)(1)(H)(i) provides that
a defined benefit plan fails to comply
with section 411(b) if, under the plan, an
employee’s benefit accrual is ceased, or
the rate of an employee’s benefit accrual
is reduced, because of the attainment of
any age. Section 411(b)(5), which was
added to the Code by section 701(b)(1)
of PPA ’06, provides additional rules re-
latedtosection411(b)(1)(H)(i). Section
411(b)(5)(A) generally provides that a
plan is not treated as failing to meet the
requirements of section 411(b)(1)(H)(i) if
a participant’s accrued benefit, as deter-
mined as of any date under the terms of
the plan, would be equal to or greater than
that of any similarly situated, younger in-
dividual who is or could be a participant.
For this purpose, section 411(b)(5)(A)(iv)
provides that the accrued benefit may, un-
der the terms of the plan, be expressed as
an annuity payable at normal retirement
age, the balance of a hypothetical account,
or the current value of the accumulated
percentage of the employee’s final aver-
age compensation. Section 411(b)(5)(G)
provides that, for purposes of section
411(b)(5), any reference to the accrued
benefit of a participant refers to the partic-
ipant’s benefit accrued to date.
Section 411(b)(5)(B) imposes cer-
tain requirements onan applicable de-
fined benefit plan in order for the plan
to satisfy section 411(b)(1)(H). Section
411(b)(5)(B)(i) provides that such a plan is
treated as failing to meet the requirements
of section 411(b)(1)(H) if the terms of the
plan provide for an interest credit (or an
equivalent amount) for any plan year at a
rate that is greater than a market rate of
return. Under section 411(b)(5)(B)(i)(I), a
plan is not treated as having an above-mar-
ket rate merely because the plan provides
for a reasonable minimum guaranteed rate
of return or for a rate of return that is
equal to the greater of a fixed or variable
rate of return. Section 411(b)(5)(B)(i)(II)
provides that an applicable defined benefit
plan is treated as failing to meet the re-
quirements of section 411(b)(1)(H) unless
the plan provides that an interest credit (or
an equivalent amount) of less than zero can
in no event result in the account balance or
similar amount being less than the aggre-
gate amount of contributions credited to
the account. Section 411(b)(5)(B)(i)(III)
authorizes the Secretary of the Treasury to
provide by regulation for rules governing
the calculation of a market rate of return
for purposes of section 411(b)(5)(B)(i)(I)
and for permissible methods of crediting
interest to the account (including fixed
or variable interest rates) resulting in
effective rates of return meeting the re-
quirements of section 411(b)(5)(B)(i)(I).
Sections411(b)(5)(B)(ii),
411(b)(5)(B)(iii), and 411(b)(5)(B)(iv)
contain additional requirements that apply
if, after June 29, 2005, an applicable
plan amendment is adopted. Section
411(b)(5)(B)(v)(I) defines an applicable
plan amendment as an amendment to a
defined benefit plan which has the effect
of converting the plan to an applicable
defined benefit plan. Under section
411(b)(5)(B)(ii), if, after June 29, 2005,
an applicable plan amendment is adopted,
the plan is treated as failing to meet the
requirements of section 411(b)(1)(H)
unless the requirements of section
411(b)(5)(B)(iii) are met with respect to
each individual who was a participant
in the plan immediately before the
adoption of the amendment. Section
411(b)(5)(B)(iii) specifies that, subject to
section 411(b)(5)(B)(iv), the requirements
of section 411(b)(5)(B)(iii) are met with
respect to any participant if the accrued
benefit of the participant under the
terms of the plan as in effect after the
amendment is not less than the sum of:
(I) the participant’s accrued benefit for
years of service before the effective date
of the amendment, determined under the
terms of the plan as in effect before the
amendment; plus (II) the participant’s
accrued benefit for years of service after
the effective date of the amendment,
determined under the terms of the
plan as in effect after the amendment.
Section 411(b)(5)(B)(iv) provides that, for
purposes of section 411(b)(5)(B)(iii)(I),
the plan must credit the participant’s
account or similar amount with the
amount of any early retirement benefit or
retirement-type subsidy for the plan year
in which the participant retires if, as of
such time, the participant has met the age,
years of service, and other requirements
under the plan for entitlement to such
benefit or subsidy.
Section 411(b)(5)(B)(v) sets forth
certain provisions related to an ap-
plicable plan amendment.Section
411(b)(5)(B)(v)(II) provides that if the
benefits under two or more defined ben-
efit plans of an employer are coordinated
in such a manner as to have the effect of
adoption of an applicable plan amend-
ment, the plan sponsor is treated as having
adopted an applicable plan amendment
as of the date the coordination begins.
Section 411(b)(5)(B)(v)(III) directs the
Secretary of the Treasury to issue regu-
lations to prevent the avoidance of the
purposes of section 411(b)(5)(B) through
the use of two or more plan amendments
rather than a single amendment.
Section 411(b)(5)(B)(vi) provides spe-
cial rules for determining benefits upon
termination of an applicable defined bene-
fit plan. Under section 411(b)(5)(B)(vi)(I),
an applicable defined benefit plan is not
treated as satisfying the requirements of
section 411(b)(5)(B)(i) (regarding per-
missible interest crediting rates) unless
the plan provides that, upon plan termi-
nation, if the interest crediting rate under
the plan is a variable rate, the rate of in-
terest used to determine accrued benefits
under the plan is equal to the average of
the rates of interest used under the plan
during the 5-year period ending on the
termination date. In addition, under sec-
tion 411(b)(5)(B)(vi)(II), the plan must
provide that, upon plan termination, the
interest rate and mortality table used to
determine the amount of any benefit under
the plan payable in the form of an annuity
payable at normal retirement age is the
rate and table specified under the plan for
this purpose as of the termination date,
except that if the interest rate is a variable
rate, the rate used is the average of the
rates used under the plan during the 5-year
period ending on the termination date.
Section 411(b)(5)(C) provides that a
plan is not treated as failing to meet the
requirements of section 411(b)(1)(H)(i)
November 29, 20107842010–48 I.R.B.

solely because the plan provides offsets
against benefits under the plan to the ex-
tent the offsets are otherwise allowable
in applying the requirements of section
401(a). Section 411(b)(5)(D) provides
that a plan is not treated as failing to meet
the requirements of section 411(b)(1)(H)
solely because the plan provides a dis-
parity in contributions or benefits with
respect to which the requirements of sec-
tion 401(l) (relating to permitted disparity
for Social Security benefits and related
matters) are met.
Section 411(b)(5)(E) provides that a
plan is not treated as failing to meet the re-
quirements of section 411(b)(1)(H) solely
because the plan provides for indexing of
accrued benefits under the plan. Under
section 411(b)(5)(E)(iii), indexing means
the periodic adjustment of the accrued
benefit by means of the application of a
recognized investment index or methodol-
ogy. Section 411(b)(5)(E)(ii) requires that,
except in the case of a variable annuity,
the indexing not result in a smaller benefit
than the accrued benefit determined with-
out regard to the indexing.
Section 701(a) of PPA ’06 added pro-
visions to the Employee Retirement In-
come Security Act of 1974, Public Law
93–406 (88 Stat. 829 (1974)) (ERISA),
that are parallel to sections 411(a)(13) and
411(b)(5) of the Code. The guidance pro-
vided in these regulations with respect to
sections 411(a)(13) and 411(b)(5) of the
Code would also apply for purposes of the
parallel amendments to ERISA made by
section 701(a) of PPA ’06, and the guid-
ance provided in these regulations with
respect to section 411(b)(1) of the Code
would also apply for purposes of section
204(b)(1) of ERISA.
1
Section 701(c) of PPA ’06 added pro-
visions to the Age Discrimination in Em-
ployment Act of 1967, Public Law 90–202
(81 Stat. 602 (1967)), that are parallel
to section 411(b)(5) of the Code. Execu-
tive Order 12067 requires all Federal de-
partments and agencies to advise and of-
fer to consult with the Equal Employment
Opportunity Commission (EEOC) during
the development of any proposed rules,
regulations, policies, procedures, or or-
ders concerning equal employment oppor-
tunity. The Treasury Department and the
IRS have consulted with the EEOC prior
to the issuance of these regulations.
Section 701(d) of PPA ’06 provides that
nothing in the amendments made by sec-
tion 701 should be construed to create an
inference concerning the treatment of ap-
plicable defined benefit plans or conver-
sions of plans into applicable defined ben-
efit plans under section 411(b)(1)(H), or
concerning the determination of whether
an applicable defined benefit plan fails to
meet the requirements of section 411(a)(2),
411(c), or 417(e), as in effect before such
amendments, solely because the present
value of the accrued benefit (or any por-
tion thereof) of any participant is, under
the terms of the plan, equal to the amount
expressed as the balance of a hypothetical
account or as an accumulated percentage
of the participant’s final average compen-
sation.
Section 701(e) of PPA ’06 sets forth
the effective date provisions with respect
to amendments made by section 701 of
PPA ’06. Section 701(e)(1) specifies that
the amendments made by section 701
generally apply to periods beginning on
or after June 29, 2005. Thus, the age
discrimination safe harbors under section
411(b)(5)(A) and section 411(b)(5)(E) are
effective for periods beginning on or after
June 29, 2005. Section 701(e)(2) pro-
vides that the special present value rules
of section 411(a)(13)(A) are effective for
distributions made after August 17, 2006
(the date PPA ’06 was enacted).
Under section 701(e) of PPA ’06,
the 3-year vesting rule under section
411(a)(13)(B) is generally effective for
years beginning after December 31, 2007,
for a plan in existence on June 29, 2005,
while, pursuant to the amendments made
by section 107(c) of WRERA ’08, the
rule is generally effective for plan years
ending on or after June 29, 2005, for a
plan not in existence on June 29, 2005.
The market rate of return limitation
under section 411(b)(5)(B)(i) is gener-
ally effective for years beginning after
December 31, 2007, for a plan in existence
on June 29, 2005, while the limitation is
generally effective for periods beginning
on or after June 29, 2005, for a plan not
in existence on June 29, 2005. Section
701(e)(4) of PPA ’06 contains special
effective date provisions for collectively
bargained plans that modify these effective
dates.
Under section 701(e)(5) of PPA ’06,
as amended by WRERA ’08, sections
411(b)(5)(B)(ii), (iii), and (iv) apply to
a conversion amendment that is adopted
on or after, and takes effect on or after,
June 29, 2005.
Under section 701(e)(6) of PPA ’06, as
added by WRERA ’08, the 3-year vesting
rule under section 411(a)(13)(B) does not
apply to a participant who does not have
an hour of service after the date the 3-year
vesting rule would otherwise be effective.
Section 702 of PPA ’06 provides for
regulations to be prescribed by August 16,
2007, addressing the application of rules
set forth in section 701 of PPA ’06 where
the conversion of a defined benefit pension
plan into an applicable defined benefit plan
is made with respect to a group of employ-
ees who become employees by reason of a
merger, acquisition, or similar transaction.
Under section 1107 of PPA ’06, a plan
sponsor is permitted to delay adopting a
plan amendment pursuant to statutory pro-
visions under PPA ’06 (or pursuant to any
regulation issued under PPA ’06) until the
last day of the first plan year beginning
on or after January 1, 2009 (January 1,
2011, in the case of governmental plans).
As described in Rev. Proc. 2007–44,
2007–2 C.B. 54, this amendment dead-
line applies to both interim and discre-
tionary amendments that are made pur-
suant to PPA ’06 statutory provisions or
any regulation issued under PPA ’06. See
§601.601(d)(2)(ii)(b).
Section 1107 of PPA ’06 also permits
certain amendments to reduce or eliminate
section 411(d)(6) protected benefits. Ex-
cept to the extent permitted under section
1107 of PPA ’06 (or under another statu-
tory provision, including section 411(d)(6)
and §§1.411(d)–3 and 1.411(d)–4), section
411(d)(6) prohibits a plan amendment that
decreases a participant’s accrued benefits
or that has the effect of eliminating or re-
ducing an early retirement benefit or re-
tirement-type subsidy, or eliminating an
optional form of benefit, with respect to
benefits attributable to service before the
amendment. However, an amendment that
eliminates or decreases benefits that have
1
Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713), the Secretary of the Treasury has interpretive jurisdiction over the subject matter addressed by these regulations for
purposes of ERISA, as well as the Code.
2010–48 I.R.B.785November 29, 2010

not yet accrued does not violate section
411(d)(6), provided that the amendment is
adopted and effective before the benefits
accrue. If section 1107 of PPA ’06 applies
to an amendment of a plan, section 1107
provides that the plan does not fail to meet
the requirements of section 411(d)(6) by
reason of such amendment, except as pro-
vided by the Secretary of the Treasury.
Section 1.411(b)–1(a)(1) of the Trea-
sury Regulations provides that a defined
benefit plan is not a qualified plan un-
lessthemethodprovidedbytheplan
for determining accrued benefits satis-
fies at least one of the alternative meth-
ods in §1.411(b)–1(b) for determining
accrued benefits with respect to all ac-
tive participants under the plan. Section
1.411(b)–1(b)(2)(i) provides that a defined
benefit plan satisfies the 133
1
/3percent
rule of section 411(b)(1)(B) for a particular
plan year if (A) under the plan the accrued
benefit payable at the normal retirement
age (determined under the plan) is equal to
the normal retirement benefit (determined
under the plan), and (B) the annual rate
at which any individual who is or could
be a participant can accrue the retirement
benefits payable at normal retirement age
under the plan for any later plan year can-
not be more than 133
1
/3percent of the
annual rate at which the participant can
accrue benefits for any plan year begin-
ning on or after such particular plan year
and before such laterplan year. Section
1.411(b)–1(b)(2)(ii)(A) through (D) sets
forth a series of rules that correspond to the
rules of section 411(b)(1)(B)(i) through
(iv). Section 1.411(b)–1(b)(2)(ii)(D) pro-
vides that, for purposes of the 133
1
/3
percent rule, for any plan year, social secu-
rity benefits and all relevant factors used
to compute benefits,e.g.,consumerprice
index, are treated as remaining constant as
of the beginning of the current plan year
for all subsequent plan years.
Proposed regulations (EE–184–86) un-
der sections 411(b)(1)(H) and 411(b)(2)
were published by the Treasury Depart-
ment and the IRS in theFederal Reg-
isteron April 11, 1988 (53 FR 11876),
as part of a package of regulations that
also included proposed regulations under
sections 410(a), 411(a)(2), 411(a)(8), and
411(c) (relating to the maximum age for
participation, vesting, normal retirement
age, and actuarial adjustments after normal
retirement age, respectively).
2
Notice 96–8, 1996–1 C.B. 359, see
§601.601(d)(2)(ii)(b), described the appli-
cation of sections 411 and 417(e)(3) to a
single-sum distribution under a cash bal-
ance plan where interest credits under the
plan are frontloaded (that is, where future
interest credits to an employee’s hypothet-
ical account balance are not conditioned
upon future service and thus accrue at the
same time that the benefits attributable to
a hypothetical allocation to the account
accrue). Under the analysis set forth in
Notice 96–8, in order to comply with sec-
tions 411(a) and 417(e)(3) in calculating
the amount of a single-sum distribution
under a cash balance plan, the balance of
an employee’s hypothetical account must
be projected to normal retirement age and
converted to an annuity under the terms
of the plan, and then the employee must
be paid at least the present value of the
projected annuity, determined in accor-
dance with section 417(e). Under that
analysis, where a cash balance plan pro-
vides frontloaded interest credits using an
interest rate that is higher than the section
417(e) applicable interest rate, payment
of a single-sum distribution equal to the
current hypothetical account balance as a
complete distribution of the employee’s
accrued benefit may result in a violation
of the minimum present value require-
mentsofsection417(e)oraforfeiturein
violation of section 411(a). In addition,
Notice 96–8 proposed a safe harbor which
provided that, if frontloaded interest cred-
its are provided under a plan at a rate no
greater than the sum of identified standard
indices and associated margins, no vio-
lation of section 411(a) or 417(e) would
result if the employee’s entire accrued
benefit were to be distributed in the form
of a single-sum distribution equal to the
employee’s hypothetical account balance,
provided the plan uses appropriate annuity
conversion factors. Since the issuance of
Notice 96–8, four Federal appellate courts
have followed the analysis set out in the
notice:Esden v. Bank of Boston, 229 F.3d
154 (2d Cir. 2000),cert. dismissed,531
U.S. 1061 (2001);West v. AK Steel Corp.
Ret. Accumulation Pension Plan, 484 F.3d
395 (6th Cir. 2007),cert. denied,129S.
Ct. 895 (2009);Berger v. Xerox Corp.
Ret. Income Guarantee Plan, 338 F.3d
755 (7th Cir. 2003),reh’g and reh’g en
banc denied, No. 02–3674, 2003 U.S.
App. LEXIS 19374 (7th Cir. Sept. 15,
2003);Lyons v. Georgia-Pacific Salaried
Employees Ret. Plan, 221 F.3d 1235 (11th
Cir. 2000),cert. denied, 532 U.S. 967
(2001).
Notice 2007–6, 2007–1 C.B. 272, see
§601.601(d)(2)(ii)(b), provides transi-
tional guidance with respect to certain
requirements of sections 411(a)(13) and
411(b)(5) and section 701(b) of PPA ’06.
Notice 2007–6 includes certain special
definitions, including: accumulated ben-
efit, which is defined as a participant’s
benefit accrued to date under a plan; lump
sum-based plan, which is defined as a
defined benefit plan under the terms of
which the accumulated benefit of a par-
ticipant is expressed as the balance of a
hypothetical account maintained for the
participant or as the current value of the
accumulated percentage of the partici-
pant’s final average compensation; and
statutory hybrid plan, which is defined as
a lump sum-based plan or a plan which
hasaneffectsimilartoalumpsum-based
plan. Notice 2007–6 provides guidance on
a number of issues, including a rule under
which a plan that provides for indexed
benefits described in section 411(b)(5)(E)
is a statutory hybrid plan (because it has an
effect similar to a lump sum-based plan),
unless the plan either solely provides for
post-retirement adjustment of the amounts
payable to a participant or is a variable
annuity plan under which the assumed in-
terest rate used to determine adjustments is
at least 5 percent. Notice 2007–6 provides
a safe harbor for applying the rules set
forthinsection701ofPPA’06wherethe
conversion of a defined benefit pension
plan into an applicable defined benefit
plan is made with respect to a group of
employees who become employees by
reason of a merger, acquisition, or similar
2
On December 11, 2002, the Treasury Department and the IRS issued proposed regulations regarding the age discrimination requirements of section 411(b)(1)(H) that specifically addressed
cash balance plans as part of a package of regulations that also addressed section 401(a)(4) nondiscrimination cross-testing rules applicable to cash balance plans (67 FR 76123). The 2002
proposed regulations were intended to replace the 1988 proposed regulations. In Ann. 2003–22, 2003–1 C.B. 847, see §601.601(d)(2)(ii)(b), the Treasury Department and the IRS announced
the withdrawal of the 2002 proposed regulations under section 401(a)(4), and in Ann. 2004–57, 2004–2 C.B. 15, see §601.601(d)(2)(ii)(b), the Treasury Department and the IRS announced
the withdrawal of the 2002 proposed regulations relating to age discrimination.
November 29, 20107862010–48 I.R.B.

transaction. This transitional guidance,
along with the other guidance provided in
Part III of Notice 2007–6, applies pending
the issuance of further guidance and, thus,
does not apply for periods to which the
2010 final regulations (as described later
in this preamble) apply.
Proposedregulations
(REG–104946–07, 2008–1 C.B. 596)
under sections 411(a)(13) and 411(b)(5)
(2007 proposed regulations) were pub-
lished by the Treasury Department and
the IRS in theFederal Registeron
December 28, 2007 (72 FR 73680). The
Treasury Department and the IRS received
written comments on the 2007 proposed
regulations and a public hearing was held
on June 6, 2008.
Proposedregulations
(REG–100464–08, 2008–2 C.B. 313) un-
der section 411(b)(1)(B) (2008 proposed
backloading regulations) were published
by the Treasury Department and the IRS
in theFederal Registeron June 18,
2008 (73 FR 34665). The 2008 proposed
backloading regulations would provide
guidance on the application of the accrual
rule for defined benefit plans under section
411(b)(1)(B) in cases where plan benefits
are determined on the basis of the greatest
of two or more separate formulas. The
Treasury Department and the IRS received
written comments on the 2008 proposed
backloading regulations and a public
hearing was held on October 15, 2008.
Announcement 2009–82, 2009–2 C.B.
720, and Notice 2009–97, 2009–2 C.B.
972, announced certain expected relief
with respect to the requirements of section
411(b)(5). In particular, Announcement
2009–82 stated that the rules in the reg-
ulations specifying permissible market
rates of return are not expected to go into
effect before the first plan year that begins
on or after January 1, 2011. In addition,
Notice 2009–97 stated that, once final
regulations under sections 411(a)(13) and
411(b)(5) are issued, it is expected that
relief from the requirements of section
411(d)(6) will be granted for a plan amend-
ment that eliminates or reduces a section
411(d)(6) protected benefit, provided that
the amendment is adopted by the last day
of the first plan year that begins on or
after January 1, 2010, and the elimination
or reduction is made only to the extent
necessary to enable the plan to meet
the requirements of section 411(b)(5).
3
Notice 2009–97 also extended the deadline
for amending cash balance and other
applicable defined benefit plans, within the
meaning of section 411(a)(13)(C), to meet
the requirements of section 411(a)(13)
(other than section 411(a)(13)(A)) and
section 411(b)(5), relating to vesting and
other special rules applicable to these
plans. Under Notice 2009–97, the deadline
for these amendments is the last day of
the first plan year that begins on or after
January 1, 2010.
Final regulations (2010 final regu-
lations) under sections 411(a)(13) and
411(b)(5) are being issued at the same
time as these proposed regulations. The
2010 final regulations adopt most of the
provisions of the 2007 proposed regu-
lations, with certain modifications, and
also reserve a number of sections relating
to issues that are not addressed in those
final regulations. These reserved issues
relate to the scope of relief provided under
section 411(a)(13)(A), a potential alterna-
tive method of satisfying the conversion
protection requirements, additional rules
with respect to the market rate of return
requirement, and the application of the
special plan termination rules. These pro-
posed regulations generally address these
issues, as well as an issue under section
411(b)(1).
Explanation of Provisions
Overview
In general, these proposed regulations
would provide guidance with respect to
certain issues under sections 411(a)(13)
and 411(b)(5) that are not addressed in the
2010 final regulations, as well as an issue
under section 411(b)(1) for hybrid defined
benefit plans that adjust benefits using a
variable rate.
I.Section 411(a)(13): Scope of relief of
section 411(a)(13)(A)
A.The 2010 final regulations
The 2010 final regulations define a
lump sum-based benefit formula as a ben-
efit formula used to determine all or any
part of a participant’s accumulated benefit
under which the accumulated benefit pro-
vided under the formula is expressed as the
current balance of a hypothetical account
maintained for the participant or as the cur-
rent value of an accumulated percentage
of the participant’s final average compen-
sation. The 2010 final regulations provide
that the relief of section 411(a)(13)(A)
applies to the benefits determined under a
lump sum-based benefit formula.
B.Limitations on the relief of section
411(a)(13)(A)
The proposed regulations would pro-
vide that the relief of section 411(a)(13)(A)
does not apply with respect to the bene-
fits determined under a lump sum-based
benefit formula unless certain require-
ments are satisfied. In particular, the
proposed regulations would provide that
the relief does not apply unless, at all
times on or before normal retirement
age, the then-current hypothetical account
balance or the then-current accumulated
percentage of the participant’s final av-
erage compensation is not less than the
present value, determined using reason-
able actuarial assumptions, of the portion
of the participant’s accrued benefit that
is determined under the lump sum-based
benefit formula. However, the plan would
be deemed to satisfy this requirement for
periods before normal retirement age if,
upon attainment of normal retirement age,
the then-current balance of the hypothet-
ical account or the then-current value of
the accumulated percentage of the par-
ticipant’s final average compensation is
actuarially equivalent (using reasonable
actuarial assumptions) to the portion of the
participant’s accrued benefit that is deter-
mined under the lump sum-based benefit
formula. Thus, for periods before normal
retirement age, a statutory hybrid plan with
a lump sum-based benefit formula that
meets the requirements of the preceding
sentence need not project interest credits
to normal retirement age and discount the
resulting accrued benefit back in order to
apply the relief of section 411(a)(13)(A)
with respect to the benefit determined un-
der the lump sum-based benefit formula.
In addition, the proposed regulations
would provide that the relief of section
411(a)(13)(A) does not apply unless, as of
3
However, see footnote 6 in Section IV.C of this preamble.
2010–48 I.R.B.787November 29, 2010

each annuity starting date after normal re-
tirement age, the then-current balance of
the hypothetical account or the then-cur-
rent value of the accumulated percentage
of the participant’s final average compen-
sation satisfies the requirements of section
411(a)(2) or would satisfy those require-
ments but for the fact that the plan sus-
pends benefits in accordance with section
411(a)(3)(B). Thus, for example, a plan
that expresses the accumulated benefit as
the balance of a hypothetical account and
that does not comply with the suspension
of benefit rules may have difficulty obtain-
ing the relief of section 411(a)(13)(A) if,
after normal retirement age, the plan cred-
its interest at such a low rate that the ad-
justments provided by the interest credits,
together with any principal credits, are in-
sufficient to provide any required actuarial
increases.
The proposed regulations would
also provide that the relief of section
411(a)(13)(A) does not apply unless the
balance of the hypothetical account or
the accumulated percentage of the partic-
ipant’s final average compensation may
not be reduced except as a result of one of
the specified reasons set forth in the reg-
ulations. Under the proposed regulations,
reductions would only be permissible
as a result of: (1) benefit payments, (2)
qualified domestic relations orders under
section 414(p), (3) forfeitures that are
permitted under section 411(a) (such as
charges for providing a qualified preretire-
ment survivor annuity), (4) amendments
that are permitted undersection 411(d)(6),
and (5) adjustments resulting from the
application of interest credits (under the
rules of §1.411(b)(5)–1) that are negative
for a period, for plans that express the
accumulated benefitas the balance of a
hypothetical account.
C.Application of section 411(a)(13)(A) to
distributions other than single sums
The proposed regulations would
provide that the relief under section
411(a)(13)(A) (with respect to the require-
ments of sections 411(a)(2), 411(c), and
417(e)) extends to certain other forms of
benefit under a lump sum-based bene-
fit formula, in addition to a single-sum
payment of the entire benefit. In par-
ticular, the proposed regulations would
clarify that the relief provided under sec-
tion 411(a)(13)(A) extends to an optional
form of benefit that is currently payable
with respect to a lump sum-based benefit
formula if, under the terms of the plan, the
optional form of benefit is determined as
of the annuity starting date as the actuarial
equivalent, determined using reasonable
actuarial assumptions, of the then-current
balance of the hypothetical account or the
then-current value of an accumulated per-
centage of the participant’s final average
compensation.
In addition, the proposed regulations
would create a specialrule that provides
that the relief under section 411(a)(13)(A)
also extends to an optional form of benefit
that is not subject to the minimum present
value requirements of section 417(e) and
that is currently payable with respect to a
lump sum-based benefit formula if, under
the terms of the plan, this optional form
of benefit is determined as of the annu-
ity starting date as the actuarial equivalent
(using reasonable actuarial assumptions)
of the optional form of benefit that: (1)
commences as of the same annuity start-
ing date; (2) is payable in the same gener-
alized optional form (within the meaning
of §1.411(d)–3(g)(8)) as the accrued bene-
fit; and (3) is the actuarial equivalent (us-
ing reasonable actuarial assumptions) of
the then-current balance of the hypothet-
ical account maintainedfor the participant
or the then-current value of an accumu-
lated percentage of the participant’s final
average compensation. This special rule
would facilitate the payment of an imme-
diate annuity, such as a joint and survivor
annuity or life annuity with period certain,
that is calculated as the actuarial equiva-
lent of the form of payment of the accrued
benefit under the plan, such as an immedi-
ately payable straight life annuity.
Finally, the proposed regulations would
provide that the relief under section
411(a)(13)(A) applies on a proportionate
basis to a payment of a portion of the
benefit under a lump sum-based benefit
formula that is not paid in the form of
an annuity, such as a payment of a spec-
ified dollar amount or percentage of the
then-current balance of a hypothetical
account maintained for the participant
or then-current value of an accumulated
percentage of the participant’s final av-
erage compensation. Thus, for example,
if a plan that expresses the participant’s
entire accumulated benefit as the balance
of a hypothetical account distributes 40
percent of the participant’s then-current
hypothetical account balance, the plan is
treated as satisfying the requirements of
section 411(a) and the minimum present
value rules of section 417(e) with respect
to 40 percent of the participant’s then-cur-
rent accrued benefit.
D.Application of section 411(a)(13)(A) to
plans with multiple formulas
The proposed regulations would clar-
ify that the relief provided under section
411(a)(13)(A) does not apply to any por-
tion of the participant’s benefit that is de-
termined under a formula that is not a
lump sum-based benefit formula. Thus,
for example, where the participant’s ac-
crued benefit equals the greater of the ben-
efit under a hypothetical account formula
and the benefit under a traditional defined
benefit formula, a single-sum payment of
the participant’s entire benefit must equal
the greater of the then-current balance of
the hypothetical account and the present
value, determined in accordance with sec-
tion 417(e), of the benefit under the tra-
ditional defined benefit formula. On the
other hand, where the plan provides an
accrued benefit equal to the sum of the
benefit under a hypothetical account for-
mula plus the excess of the benefit un-
der a traditional defined benefit formula
over the benefit underthe hypothetical ac-
count formula, a single-sum payment of
the participant’s entire benefit must equal
the then-current balance of the hypotheti-
cal account plus the excess of the present
value, determined in accordance with sec-
tion 417(e), of the benefit under the tra-
ditional defined benefit formula over the
present value, determined in accordance
with section 417(e), of the benefit under
the hypothetical account formula. See the
request for comments under the heading
“Comments and Public Hearing”onthe
issue of determining the present value of a
benefit determined, in part, based on the
benefit under a lump sum-based benefit
formula.
E.Application of section 411(a)(13)(A) to
pension equity plans
The preamble to the 2007 proposed reg-
ulations asked for comments on plan for-
mulas that calculate benefits as the cur-
rent value of an accumulated percentage of
November 29, 20107882010–48 I.R.B.

the participant’s final average compensa-
tion (often referred to as “pension equity
plans” or “PEPs”). Commenters indicated
that some of these plans never credit in-
terest, directly or indirectly, some explic-
itly credit interest after cessation of PEP
accruals, and some do not credit interest
explicitly but provide for specific amounts
to be payable after cessation of PEP accru-
als (both immediately and at future dates)
based on actuarial equivalence using spec-
ified actuarial factors applied upon cessa-
tion of PEP accruals.
The 2010 final regulations clarify that a
formula is expressed as the balance of a hy-
pothetical account maintained for the par-
ticipant if it is expressed as a current sin-
gle-sum dollar amount. Thus, a PEP for-
mula that credits interest after cessation of
PEP accruals is considered a formula that
is expressed as the balance of a hypothet-
ical account after cessation of PEP accru-
als. As a result, such a formula is a lump
sum-based benefit formula that is subject
to the rules of section 411(a)(13)(A) set
forth earlier in this preamble, as those rules
are applied to PEP formulas during the pe-
riod of PEP accruals and as those rules
are applied to hypothetical account bal-
ance formulas after cessation of PEP ac-
cruals.
Under these proposed regulations, any
other PEP formula (including those that do
not credit interest, directly or indirectly,
and those that offer actuarially equivalent
forms of payment using specified actuarial
factors applied after cessation of PEP ac-
cruals) would also be subject to the rules
of section 411(a)(13)(A), as explained ear-
lier in this preamble. Thus, for example, a
PEP that does not explicitly credit interest
but, instead, calculates the annuity benefit
commencing at future ages as the actuarial
equivalent of the PEP value as of cessation
of PEP accruals would be eligible for the
relief of section 411(a)(13)(A) with respect
to the PEP value as of every period be-
fore cessation of PEP accruals. In addition,
since the accrued benefit is calculated as an
annuity commencing atnormal retirement
age that is actuarially equivalent to the PEP
value as of cessation of PEP accruals, the
relief described above that applies to an-
nuities that are calculated as the actuarial
equivalent of the then-current PEP value
would not apply.
II.Section 411(b)(1): Special rule with
respect to statutory hybrid plans
Under the regulations with respect
to the 133
1
/3percent rule of section
411(b)(1)(B), for any plan year, social se-
curity benefits and all relevant factors used
to compute benefits,e.g.,consumerprice
index, are treated as remaining constant as
of the beginning of the current plan year
for all subsequent plan years. A number
of commenters on both the 2007 proposed
regulations and the 2008 proposed back-
loading regulations expressed concern that
this rule might effectively preclude statu-
tory hybrid plans from using an interest
crediting rate that is a variable rate that
could potentially be negative in a year,
such as an equity-based rate. This is be-
cause, if a plan treated an interest crediting
rate that was negative as remaining con-
stant in all future years for purposes of the
backloading test of section 411(b)(1)(B), a
principal credit (such as a pay credit) that
accrues in a later year would result in a
greater benefit accrual than an otherwise
identical principal credit that accrues in
an earlier year because the principal credit
that accrues later is credited with nega-
tive interest credits for fewer years. Thus,
these commenters were concerned that a
plan that uses a variable rate could fail
the backloading rules of section 411(b)(1)
even where both the pay crediting and in-
terest crediting formulas do not vary over
time.
In response to these comments, the
proposed regulations contain a special
rule regarding the application of the 133
1
/3
percent rule of section 411(b)(1)(B) to a
statutory hybrid planthat adjusts bene-
fits using a variable interest crediting rate
that can potentially be negative in any
given year. Under this proposed rule, a
plan that determines any portion of the
participant’s accrued benefit pursuant to
a statutory hybrid benefit formula (as
defined in §1.411(a)(13)–1(d)(4)) that uti-
lizes an interest crediting rate described
in §1.411(b)(5)–1(d) that is a variable rate
that was less than zero for the prior plan
year would not be treated as failing to
satisfy the requirements of the 133
1
/3per-
cent rule for the current plan year merely
because the section 411(b)(1)(B) back-
loading calculation is performed assuming
that the variable rate is zero for the current
plan year and all future plan years.
III.Section 411(b)(5):Special conversion
protection rule and additional rules
with respect to the market rate of return
limitation
A.Comparison at effective date of
conversion amendment
In accordance with the requirements
of section 411(b)(5)(B)(ii), the 2010 fi-
nal regulations provide that a participant
whose benefits are affected by a conver-
sion amendment generally must be pro-
vided with a benefit after the conversion
that is at least equal to the sum of benefits
accrued through the date of conversion
and benefits earned after the conversion,
with no permitted interaction between
the two portions. The 2010 final regula-
tions provide for an alternative method
of satisfying the conversion protection re-
quirements where an opening hypothetical
account balance or opening accumulated
percentage of the participant’s final aver-
age compensation is established at the time
of the conversion and the plan provides
for separate calculation of (1) the benefit
attributable to the opening hypothetical
account balance (including interest credits
attributable thereto)or attributable to the
opening accumulated percentage of the
participant’s final average compensation
and (2) the benefit attributable to post-con-
version service under the post-conversion
benefit formula. Under this alternative, the
plan must provide that, when a participant
commences benefits, the participant’s ben-
efit will be increased if the benefit attrib-
utable to the opening hypothetical account
or opening accumulated percentage that
is payable in the particular optional form
of benefit selected is less than the benefit
accrued under the plan prior to the date
of conversion and that was payable in the
same generalized optional form of benefit
(within the meaning of §1.411(d)–3(g)(8))
at the same annuity starting date.
The preamble to the 2007 proposed
regulations requested comments on an-
other alternative method of satisfying the
conversion protection requirements that
would not require this comparison at the
annuity starting date. In response to favor-
able comments related to this alternative,
these proposed regulations would provide
that certain plans may satisfy the conver-
sion protection requirements of sections
411(b)(5)(B)(ii), 411(b)(5)(B)(iii), and
2010–48 I.R.B.789November 29, 2010

411(b)(5)(B)(iv) by establishing an open-
ing hypothetical account balance without
a subsequent comparison of benefits at the
annuity starting date.While testing at the
annuity starting date would not be required
under this method, a number of require-
ments like those described in the preamble
to the 2007 proposed regulations would
need to be satisfied in order to ensure that
the hypothetical account balance used to
replicate the pre-conversion benefit (the
opening hypothetical account balance and
interest credits onthat account balance)
is reasonably expected in most, but not
necessarily all, cases to provide a bene-
fit at least as large as the pre-conversion
benefit for all periods after the conversion
amendment.
This alternative method would be
limited to situations where an opening
hypothetical account balance is estab-
lished and would not be available where
an opening accumulated percentage of the
participant’s final average compensation
is established because these plans would
be unable to reliably replicate the pre-con-
version benefit. This is because the value
of the opening accumulated percentage
would only increase as a result of unpre-
dictable increases in compensation for
periods after the conversion amendment
until cessation of PEP accruals, rather
than by application of an annual interest
crediting rate.
This alternative would only be available
where the participant elects to receive pay-
ment in the form of a single-sum distribu-
tion equal to the sum of the then-current
balance of the hypothetical account used
to replicate the pre-conversion benefit and
the benefit attributable to post-conversion
service under the post-conversion benefit
formula. Because of the limited availabil-
ity of this alternative, plans will still need
to separately keep track of the pre-conver-
sion benefit in order to satisfy the conver-
sion protection requirements for all forms
of distribution other than a single-sum dis-
tribution. See the related request for com-
ments in this preamble under the heading
“Comments and Public Hearing.”
Under this alternative, in order to sat-
isfy the requirements of section 411(d)(6),
the participant’s benefit after the effective
date of the conversion amendment must
not be less than the participant’s section
411(d)(6) protected benefit (as defined in
§1.411(d)–3(g)(14)) with respect to ser-
vice before the effective date of the con-
version amendment (determined under the
terms of the plan as in effect immediately
before the effective date of the amend-
ment). Also, the plan, as in effect immedi-
ately before the effective date of the con-
version amendment, either must not have
provided a single-sum payment option (for
benefits that cannot be immediately dis-
tributed under section 411(a)(11)) or must
have provided a single-sum payment op-
tion that was based solely on the present
value of the benefit payable at normal re-
tirement age (or at date of benefit com-
mencement, if later) and which was not
based on the present value of the benefit
payable commencing at any date prior to
normal retirement age. This condition en-
sures that the hypothetical account balance
used to replicate the pre-conversion bene-
fit does not result in a single-sum distribu-
tion that is less than would have been avail-
able under an early retirement subsidy un-
der the pre-conversion formula.
Under this alternative method of satis-
fying the conversion protection require-
ments, the opening hypothetical account
balance must be established in accordance
with the rules under which this opening
balance is not less than the present value,
determined in accordance with section
417(e), of the accrued benefit immediately
prior to the effective date of the conver-
sion amendment. In addition, under this
alternative, the interest crediting rate un-
der the plan as of the effective date of the
conversion amendment must be either the
rate of interest on long-term investment
grade corporate bonds (the third segment
rate) or one of several specified safe har-
bor rates. Also, as of that date, the value
of the index used to determine the inter-
est crediting rate under the plan must be
at least as great for every participant or
beneficiary as the interest rate that was
used to determine the opening hypotheti-
cal account balance. This requirement is
satisfied, for example, if each participant’s
opening hypothetical account balance is
determined using the applicable interest
rate and applicable mortality table under
section 417(e)(3), the interest crediting
rate under the plan is the third segment
rate, and, at the effective date of the con-
version amendment, the third segment
rate is the highest of the three segment
rates. If, subsequent to the effective date
of the conversion amendment, the interest
crediting rate changes (whether by plan
amendment or otherwise) with respect to
a participant who was a participant at the
time of the effective date of the conver-
sion amendment from an interest crediting
rate that is either the rate of interest on
long-term investment grade corporate
bonds or one of the specified safe harbor
rates to a different interest crediting rate
that is not in all cases at least as great as
the prior interest crediting rate under the
plan, then the new interest crediting rate
does not apply to the existing hypothetical
account balance as of the effective date of
the change in interest crediting rates (or, if
the plan created a subaccount consisting of
the opening hypothetical account balance
and interest credits on that subaccount,
then the new interest crediting rate does
not apply to the subaccount).
Finally, either the plan must provide
a death benefit after the effective date of
the conversion amendment which has a
present value that is at all times at least
equal to the then-current balance of the
hypothetical account used to replicate the
pre-conversion benefit or the plan must
not have applied a pre-retirement mortal-
ity decrement in establishing the opening
hypothetical account balance.
B.Market rate of return
The 2010 final regulations provide that
a plan that credits interest must specify
how the plan determines interest credits
and must specify how and when interest
credits are credited. In addition, the 2010
final regulations contain certain specific
rules regarding the method and timing of
interest credits, including a requirement
that interest be credited at least annually.
The proposed regulations include a rule
that would provide that a plan is not treated
as failing to meet the interest crediting re-
quirements merely because the plan does
not provide for interest credits on amounts
distributed prior to the end of the inter-
est crediting period. Thus, if a plan cred-
its interest at periodic intervals, the plan
would not be required to credit interest on
amounts that were distributed between the
dates on which interest under the plan is
credited to the account balance.
Furthermore, the proposed regulations
include a rule that would allow plans
to credit interest taking into account in-
creases or decreases to the participant’s
November 29, 20107902010–48 I.R.B.

accumulated benefit that occur during the
period. In particular, the rule would pro-
vide that a plan is not treated as failing
to meet the market rate of return limita-
tions merely because the plan calculates
increases or decreases to the participant’s
accumulated benefit by applying a rate of
interest or rate of return (including a rate of
increase or decrease under an index) to the
participant’s adjusted accumulated benefit
(or portion thereof) for the period. For
this purpose, the participant’s adjusted ac-
cumulated benefit equals the participant’s
accumulated benefit as of the beginning of
the period, adjustedfor debits and credits
(other than interest credits) made to the
accumulated benefit prior to the end of the
interest crediting period, with appropri-
ate weighting for those debits and credits
based on their timing within the period.
For plans that calculate increases or de-
creases to the participant’s accumulated
benefit by applying a rate of interest or
rate of return to the participant’s adjusted
accumulated benefit (or portion thereof)
for the period, interest credits include
these increases and decreases, to the extent
provided under the terms of the plan at the
beginning of the period and to the extent
not conditioned on current service and not
made on account of imputed service, and
the interest crediting rate with respect to a
participant equals the total amount of in-
terest credits for the period divided by the
participant’s adjusted accumulated benefit
for the period.
The proposed regulations would pro-
vide that the preservation of capital re-
quirement is applied only at an annuity
starting date on which a distribution of the
participant’s entire benefit as of that date
under the plan’s statutory hybrid benefit
formula commences. The proposed reg-
ulations would also provide special rules
to ensure that prior distributions are taken
into account in determining the guarantee
provided by the preservation of capital re-
quirement with respect to a current distri-
bution to which the rule applies.
These proposed regulations would
broaden the list of permitted interest cred-
iting rates from those permitted under
the 2010 final regulations. A number of
commenters on the 2007 proposed reg-
ulations requested that the rate of return
on plan assets be treated as a market rate
of return for all types of statutory hybrid
plans, and not just indexed plans. In re-
sponse to these comments, the proposed
regulations would permit the use of the
rate of return on plan assets as a market
rate of return for statutory hybrid plans
generally if the plan’s assets are diver-
sified so as to minimize the volatility of
returns. Like the 2010 final regulations,
the proposed regulations would provide
that this requirement that plan assets be
diversified so as to minimize the volatility
of returns does not require greater diver-
sification than is required under section
404(a)(1)(C) of Title I of the Employee
Retirement Income Security Act of 1974,
Public Law 93–406 (88 Stat. 829 (1974))
with respect to defined benefit pension
plans.
The preamble to the 2007 proposed
regulations asked for comments about the
possibility of allowing an interest credit
to be determined by reference to a rate
of return on a regulated investment com-
pany (RIC) described in section 851. The
preamble focused on whether such an
investment has sufficiently constrained
volatility that the existence of the capital
preservation rule would not result in an
above market rate of return. In response to
comments received on the 2007 proposed
regulations, these proposed regulations
would provide that an interest crediting
rate is not in excess of a market rate of
return if it is equal to the rate of return on
a RIC, as defined in section 851, that is
reasonably expected to be not significantly
more volatile than the broad United States
equities market or a similarly broad inter-
national equities market. For example, a
RIC that has most of its assets invested
in securities of issuers (including other
RICs) concentrated in an industry sector
or a country other than the United States,
that uses leverage, or that has significant
investment in derivative financial prod-
ucts, for the purpose of achieving returns
that amplify the returns of an unleveraged
investment, generally would not meet
this requirement. Thus, a RIC that has
most of its investments concentrated in
the semiconductor industry or that uses
leverage in order to provide a rate of re-
turn that is twice the rate of return on
the Standard & Poor’s 500 index (S&P
500) would not meet this requirement. On
the other hand, a RIC whose investments
track the rate of return on the S&P 500,
a broad-based “small-cap” index (such as
the Russell 2000 index), or a broad-based
international equities index would meet
this requirement. The requirement that
the RIC’s investments not be concentrated
in an industry sector or a specific inter-
national country is intended to limit the
volatility of the returns, as well as the risk
inherent in non-diversified investments.
Similarly, the requirement that the RIC not
provide leveraged returns is intended both
to ensure that rates provided by the RIC do
not exceed an unleveraged market rate as
well as to limit the volatility of the returns
provided. Subject to these requirements,
the proposed rule is intended to provide
plan sponsors with greater flexibility in
choosing an equity-based rate than would
be provided if the regulations were to list
particular equity-based rates that satisfy
the market rate of return requirement.
The preamble to the 2007 proposed reg-
ulations requested comments as to how to
implement a rule that provides that interest
credits are determined under the greater of
two or more interest crediting rates with-
out violating the market rate of return lim-
itation. In response to such comments,
these proposed regulations would provide
that in certain limited circumstances a plan
can provide interest credits based on the
greater of two or more interest crediting
rates without exceeding a market rate of re-
turn.
The Treasury Department and the IRS
have modeled the historical distribution
of rates of interest on long-term invest-
ment grade corporate bonds and have de-
termined that those rates have only infre-
quently been lower than 4 percent and,
when lower, were generally lower by small
amounts and for limited durations. There-
fore, the increase in the effective rate of re-
turn resulting from adding an annual 4 per-
cent floor to one of these bond rates has
historically been small enough that the ef-
fective rate of return is not in excess of a
market rate of return. As a result, the pro-
posed rules would provide that it is permis-
sible for a plan to utilize an annual floor of
4 percent in conjunction with a permissi-
ble bond rate. Specifically, the proposed
regulations would provide that a plan does
not provide an interest crediting rate that is
in excess of a market rate of return merely
because the plan provides that the interest
crediting rate for an interest crediting pe-
riod equals the greater of the rate of inter-
est on long-term investment grade corpo-
rate bonds (or one of the safe harbor rates
2010–48 I.R.B.791November 29, 2010

that, under the regulations, are deemed not
to be in excess of that rate) and an annual
interest rate of 4 percent.
This rule permitting a plan to utilize
an annual floor of 4 percent in conjunc-
tion with a permissible bond-based rate
would also permit plans that credit inter-
est more frequently than annually using
a permissible bond-based rate to also uti-
lize a periodic floor that is apro ratapor-
tion of an annual 4 percent floor. Thus,
plans that credit interest more frequently
than annually could provide an effective
annual floor that is greater than 4 percent,
both due to the effect of compounding be-
cause the floor would be applied more
frequently than annually and because the
floor would be applied in any period that
the bond-based rate was below the floor,
even if the annual rate exceeded 4 percent
for the plan year. However, given the na-
ture of bond-based rates, including the se-
rial correlation of rates from one period
to the next, as well as the fact that 4 per-
cent is not expected to exceed a permissi-
ble bond-based rate except infrequently, by
small amounts, and for limited durations,
in most instances a periodic floor that is
based on a 4 percent annual floor will not
provide a floor that is significantly differ-
ent than an annual floor of 4 percent.
In contrast, because of the volatility of
equity-based rates, adding an annual floor
to an equity-based rate often provides a cu-
mulative rate of return that far exceeds the
rate of return provided by the equity-based
rate without such floor. It should also be
noted that commenters on the 2007 pro-
posed regulations generally did not request
that such an annual floor be permitted (per-
haps in recognition that a minimum guar-
anteed annual return when applied to eq-
uity-based rates could have a significant
impact on funding). Accordingly, the pro-
posed regulations would not allow the use
of an annual floor in conjunction with the
rate of return on plan assets or on a permis-
sible RIC.
On the other hand, if, instead of ap-
plying a floor on each year’s rate of re-
turn, a cumulative floor is applied to an
equity-based rate, the effective rate of re-
turn is not necessarily substantially greater
than the rate of return provided without the
floor. Specifically, the Treasury Depart-
ment and the IRS have determined that,
based on the modeling of long-term his-
torical returns, a 3 percent floor that ap-
plies cumulatively (in the aggregate from
the date of each principal credit until the
annuity starting date, without a floor on
the rate of return provided in any interim
period) could be combined with any per-
missible rate (including a permissible eq-
uity-based rate), without increasing the ef-
fective rate of return to such an extent that
theeffectiverateofreturnwouldbeinex-
cess of a market rate of return. As a result,
the proposed rule would provide that a plan
that determines interest credits using any
particular interest crediting rate that sat-
isfies the market rate of return limitation
does not provide an effective interest cred-
iting rate in excess of a market rate of re-
turn merely because the plan provides that
the participant’s benefit, as of the partici-
pant’s annuity starting date, is equal to the
greater of the benefit determined using the
interest crediting rate and the benefit de-
termined as if the plan had used a fixed an-
nual interest crediting rate equal to 3 per-
cent (or a rate not in excess of 3 percent)
for principal credits in all years. This rule
in the proposed regulations that allows for
plans to utilize a cumulative floor of up
to 3 percent would also allow plans some
additional flexibility in design. Thus, for
example, a plan that utilizes annual ceil-
ings in conjunction with a permissible rate
could also provide a cumulative floor of up
to 3 percent.
Similar to the rules with respect to
application of the preservation of capi-
tal requirement, the proposed regulations
would provide that the determination of
the guarantee provided by any cumula-
tive floor with respect to the participant’s
benefit is made only at an annuity start-
ingdateonwhichadistributionofthe
participant’s entire benefit as of that date
under the plan’s statutory hybrid benefit
formula commences. The proposed reg-
ulations would also provide special rules
to ensure that prior distributions are taken
into account in determining whether the
guarantee exceeds the benefit otherwise
provided under the plan.
In addition to permitting certain fixed
floors to be applied to variable rates,
the proposed regulations would also per-
mit a standalone fixed rate of interest to
be used for interest crediting purposes.
While the statutory language at section
411(b)(5)(B)(i)(I) does not explicitly ref-
erence a fixed interest crediting rate, the
reference to “a reasonable minimum guar-
anteed rate of return” and the reference
to “the greater of a fixed or variable rate
of return” necessarily mean that some
fixed rate must also be permissible. Fur-
ther, the statutory language at section
411(b)(5)(B)(i)(III)specifically authorizes
the Treasury Department to issue regu-
lations permitting a fixed rate of interest
under the rules relating to a market rate
of return. However, reconciling a fixed
interest crediting rate with the statutory
requirement that an interest crediting rate
“for any plan yearshall be at a rate which
is not greater than a market rate of re-
turn” [emphasis added] presents unique
challenges because, by definition, fixed
rates do not adjust with the market. As a
result, the use of any fixed rate will result
in an interest crediting rate that is above a
then-current market rate of interest during
any period in which the current market
rate falls below the fixed rate.
In light of this fact, the Treasury De-
partment and the IRS believe that, in order
to satisfy the market rate of return require-
ment, any fixed interest crediting rate al-
lowed under the rules must not be expected
to exceed future market rates of interest,
except infrequently, by small amounts, and
for limited durations. Based on the histor-
ical modeling described above, the Trea-
sury Department and the IRS have deter-
mined that a 5 percent fixed rate satisfies
these criteria and that any higher fixed rate
would result in an effective rate of return
that is in excess of a market rate of return.
Specifically, the proposed rules would
provide that an annual interest crediting
rate of a fixed 5 percent is a safe harbor
rate deemed to be not in excess of the rate
of interest on long-term investment grade
corporate bonds. As a result, an interest
crediting rate of a fixed 5 percent would
satisfy the market rate of return limitation.
In addition, the special section 411(d)(6)
rule set forth in the 2010 final regulations
with respect to certain changes in interest
crediting rates would apply to an interest
crediting rate of a fixed 5 percent and, as
a result, a plan amendment that changes
the interest crediting rate under the plan to
the third segment rate from a fixed 5 per-
cent is deemed to satisfy the requirements
of section 411(d)(6), provided certain re-
quirements are met.
The 2010 final regulations pro-
vide that §§1.411(b)(5)–1(d)(1)(iii),
1.411(b)(5)–1(d)(1)(vi),and
November 29, 20107922010–48 I.R.B.

1.411(b)(5)–1(d)(6), which provide that
the regulations set forth the exclusive list
of interest crediting rates and combina-
tions of interest crediting rates that satisfy
the market rate of return requirement
under section 411(b)(5), apply to plan
years that begin on or after January 1,
2012. For plan years that begin before
January 1, 2012, statutory hybrid plans
may utilize a rate that is permissible
under the 2010 final regulations or these
proposed regulations for purposes of
satisfying the statutory market rate of
return requirement.
C.Plan termination
The proposed regulations would
provide guidance with respect to the
application of the rules of section
411(b)(5)(B)(vi), which require special
plan provisions relating to interest cred-
iting rates and annuity conversion rates
that apply when the plan is terminated.
Under the proposed regulations, a statu-
tory hybrid plan is treated as meeting
the market rate of return requirements
only if the terms of the plan satisfy the
rules in the regulations relating to section
411(b)(5)(B)(vi). Title IV of ERISA also
imposes special rules that apply when a
single employer pension plan is termi-
nated (including special rules relating to
plan amendments). See regulations of the
Pension Benefit Guaranty Corporation for
additional rules that apply when a pension
plan is terminated.
These proposed regulations reflect the
statutory requirement that a plan provide
that, if the interest crediting rate used to de-
termine a participant’s accumulated bene-
fit (or a portion thereof) varied (that is, was
not a constant fixed rate) during the 5-year
period ending on the plan termination date,
then the interest crediting rate used to de-
termine the participant’s accumulated ben-
efit under the plan after the date of plan ter-
mination is equal to the average of the rates
used under the plan during the 5-year pe-
riod ending on the plan termination date. If
the interest crediting rate used to determine
a participant’s accumulated benefit (or a
portion thereof) was instead a single fixed
rate for all periods during the 5-year period
ending on the plan termination date, then
the interest crediting rate used to determine
the participant’s accumulated benefit after
the date of plan termination would be equal
to that fixed rate.
Under this rule, the interest crediting
rate used after plan termination would be
based on the average of the rates that ap-
plied under the plan during the 5-year pe-
riod preceding plan termination, without
regard to whether this average rate exceeds
then-current market rates of return (but, in
determining the average rate, a rate would
only be taken into account to the extent that
the rate did not exceed a market rate of re-
turn when the rate actually applied). For
purposes of this calculation, the proposed
regulations would provide that, subject to
certain other rules described in this pream-
ble, the average of the rates used under the
plan during the 5-year period ending on
the termination date is determined with re-
spect to a participant as the arithmetic aver-
age, expressed as an annual rate, of the ap-
plicable interest crediting rates that applied
in the 5-year period. In determining this
average, each interest crediting period for
which the interest crediting date is within
the 5-year period ending on the plan ter-
mination date would be taken into account,
with interest crediting rates for periods that
are less than a year in length adjusted and
weighted proportionately. However, under
this rule, if a period begins on or before the
date that is 5 years before the termination
date and ends within the 5-year period end-
ing on the plan termination date, the period
would be weighted as though the entire pe-
riod were within the 5-year period ending
on the plan termination date.
Section 411(b)(5)(B)(vi) does not ex-
plicitly provide rules with respect to plans
that determine interest credits based on eq-
uity-based rates of return that may involve
potential losses. Since the trailing 5-year
average of an equity-based rate of return
may have little, if any, correlation to the
actual future equity-based rate of return,
the Treasury Department and the IRS do
not believe it is appropriate to provide that
the trailing 5-year average of such rate of
return be used to determine benefits af-
ter plan termination. In such cases, the
Treasury Department and the IRS believe
that it is appropriate to apply a bond-based
rule instead. Thus, the proposed regula-
tions would provide that, with respect to
an interest crediting rate used to determine
a participant’s accumulated benefit for an
interest crediting period during the 5-year
period ending on the termination date that
is not a fixed interest rate or a bond-based
rate of interest (or is based on a variable
rate that is not permissible under the reg-
ulations), the terms of the plan must pro-
vide that, for purposes of determining the
average upon plan termination, the inter-
est crediting rate for the interest crediting
period is deemed to be equal to the third
segment rate for the last calendar month
ending before the beginning of the interest
crediting period, as adjusted for any actual
applicable floors andceilings that applied
to the rate of return in the period, but with-
out regard to any reductions that applied
to the rate of return in the period. Thus,
for example, if the actual interest credit-
ing rate in an interest crediting period was
equal to the rate of return on plan assets,
but not greater than 5 percent, then for pur-
poses of determining the plan’s average in-
terest crediting rate,the interest crediting
rate for that interest crediting period would
be deemed to equal to the lesser of the ap-
plicable third segment rate for the period
and 5 percent. However, if the actual in-
terest crediting rate in an interest crediting
period was equal to the rate of return on
plan assets minus 200 basis points, then for
purposes of determining the plan’s average
interest crediting rate,the interest crediting
rate for that interest crediting period would
be deemed to equal the third segment rate
(not the third segment rate minus 200 ba-
sis points). See the request for comments
in this preamble under the heading “Com-
ments and Public Hearing” regarding the
application of floors, ceilings, and reduc-
tions for purposes of the plan termination
provisions when the third segment rate is
substituted for an equity-based rate.
As provided in section 411(b)(5)(B)(i),
the regulations require that the terms of
the plan also provide that the interest rate
and mortality table (including tabular ad-
justment factors) used on and after plan
termination for purposes of determining
the amount of any benefit under the plan
payable in the form of an annuity (com-
mencing at or after normal retirement age)
be based on the interest rate and mortality
table specified under the plan for that pur-
pose as of the termination date, except that
if the interest rate is a variable rate, the in-
terest rate is instead based on the rules de-
scribed in the preceding paragraphs of this
preamble using a 5-year average.
A number of special rules apply for pur-
poses of determining the interest credit-
2010–48 I.R.B.793November 29, 2010

ing rate that applies after plan termination.
In particular, for purposes of determining
the average rate during the five-year pe-
riod ending on plan termination, the inter-
est crediting rate that applied for each in-
terest crediting period is generally the on-
going interest crediting rate that was spec-
ified under the plan in that period, without
regard to any section 411(d)(6) protected
benefit using an old interest crediting rate.
However, if, at the end of the last inter-
est crediting period prior to plan termina-
tion, the participant’s accumulated benefit
is based on a section 411(d)(6) protected
benefit that results from a prior amend-
ment to change the rate of interest credit-
ing applicable under the plan, then, for pur-
poses of determining the average rate, the
pre-amendment interest crediting rate is
treated as having applied for each interest
crediting period after the date of the inter-
est crediting rate change. In addition, the
proposed regulations would provide that if
the plan determines a participant’s interest
credits in any interest crediting period by
applying different rates to different prede-
termined portions of the accumulated ben-
efit as permissible under the regulations,
then the participant’s interest crediting rate
for the interest crediting period is assumed
forpurposesoftheplanterminationpro-
visions to be the weighted average of the
fixed interest rates, determined under the
plan termination rules, that apply to each
portion of the accumulated benefit.
Furthermore, to reduce the administra-
tive burden and to determine the average
rate for each participant based on 5 years of
interest crediting data, if the plan provided
for interest credits for any interest credit-
ingperiodinwhich,pursuanttotheterms
of the plan, the individual was not eligi-
ble to receive interest credits (because the
individual was not a participant or benefi-
ciary in the relevant interest crediting pe-
riod or otherwise), then, for purposes of
determining the interest crediting rate that
applies after plan termination, the individ-
ual is treated as though the individual re-
ceived interest credits in that period using
the interest crediting rate that applied in
that period under the terms of the plan to
determine the benefit of a similarly situ-
ated participant or beneficiary who was el-
igible to receive interest credits. However,
if, under the terms of the plan, the individ-
ual was not eligible to receive any inter-
est credits during the entire 5-year period
ending on the plan termination date, then
the rules fixing the interest crediting rate
do not apply to determine the individual’s
benefit after plan termination.
The proposed regulations include ex-
amples to illustrate the application of
these plan termination rules, including
how these rules would apply where a
plan bases its interest crediting rate on a
weighted average of more than one rate,
how these rules would apply where the
plan’s ongoing interest crediting rate is an
equity-based rate of return, and how these
rules would apply to a participant whose
benefits are determined where the plan
had switched interest crediting rates in the
past and where the interest credit prior
to termination was determined by apply-
ing the old rate to the benefit attributable
to principal credits before the applicable
amendment date.
D.Special rule with respect to changes
in interest crediting rates where plan
provides section 411(d)(6) protection
An inherent tension exists between the
requirement not to reduce a participant’s
accrued benefit and the requirement that an
interest crediting rate not be in excess of a
market rate of return that makes changes
in interest crediting rates difficult to im-
plement for statutory hybrid plans in many
circumstances. This is because, in order
to satisfy section 411(d)(6), a participant’s
benefit can never be less than the pre-
amendment benefit increased for periods
after the amendment using the pre-amend-
ment interest crediting rate, thereby effec-
tively requiring a minimum interest credit-
ing rate. In light of this tension, the pro-
posed regulations would create a special
market rate of return rule that applies in the
case of an amendment to change the plan’s
interest crediting rate.
In particular, the proposed rule would
provide that, in the case of an amendment
to change a plan’s interest crediting rate
for periods after the applicable amendment
date from one interest crediting rate (the
old rate) that is not in excess of a mar-
ket rate of return to another interest cred-
iting rate (the new rate) that is not in ex-
cess of a market rate of return, the plan’s
effective interest crediting rate is not in ex-
cess of a market rate of return merely be-
cause the plan provides for the benefit of
any participant who is benefiting under the
plan on the applicable amendment date to
never be less than what it would be if the
old rate had continued but without taking
into account any principal credits after the
applicable amendment date. A pattern of
repeated plan amendments each of which
provides for a prospective change in the
plan’s interest crediting rate with respect to
the benefit as of the applicable amendment
date will be treated as resulting in the on-
going plan terms providing that the interest
crediting rate equals the greater of each of
the interest crediting rates, so that the spe-
cial rule in the preceding sentence would
not apply. See §1.411(d)–4, A–1(c)(1).
Thus, in such cases the plan will be treated
as providing a rate of return that is in ex-
cess of a market rate of return, unless the
resulting greater-of rate satisfies the mar-
ket rate of return rules.
E.Special rule with respect to interest
crediting rate after normal retirement age
In coordination with the rules under
section 411(a)(13)(A) (as described in
section I of this preamble) that apply with
respect to the benefit determined as of
each annuity starting date after normal
retirement age, the proposed regulations
would provide that a statutory hybrid plan
is not treated as providing an effective
interest crediting rate that is in excess of
a market rate of return merely because
the plan provides that the participant’s
benefit, as of each annuity starting date
after normal retirement age, is equal to the
greater of the benefit determined using an
interest crediting rate that is not otherwise
in excess of a market rate of return and
the benefit that satisfies the requirements
of section 411(a)(2). Thus, for example,
a cash balance plan would not be treated
as providing an effective interest crediting
rate in excess of a market rate of return
merely because the plan credits interest
after normal retirement age at a rate that is
sufficient to provide any required actuarial
increases.
IV.Changes in interest crediting rates and
Code section 411(d)(6)
A.Background
An amendment to change a plan’s in-
terest crediting rate that only applies with
respect to benefits that have not yet ac-
crued (such as where the plan establishes
November 29, 20107942010–48 I.R.B.

a second hypotheticalaccount balance for
future principal credits to which a differ-
ent interest crediting rate is applied) would
not result in a reduction in accrued ben-
efits attributable to service before the ap-
plicable amendment date and, therefore,
such a change would not violate section
411(d)(6).
4
However, except to the extent
permitted under section 1107 of PPA ’06
or as otherwise described in section IV of
this preamble, an amendment to change a
plan’s future interest crediting rate with re-
spect to benefits that have already accrued
(in other words, with respect to an exist-
ing account balance) must satisfy section
411(d)(6) if the change could result in in-
terest credits that are smaller as of any date
after the applicable amendment date than
the interest credits that would be credited
without regard to the amendment.
5
B.Special section 411(d)(6) rule with
respect to changes in future interest
crediting rates
Under the 2010 final regulations, a
plan is not treated as providing smaller
interest credits after the applicable amend-
ment date merely because the amendment
changes the plan’s future interest credit-
ing rate with respect to benefits that have
already accrued to the rate of interest
on long-term investment grade corporate
bonds (the third segment rate under sec-
tion 430(h)(2)(C)(iii)) from one of the
other bond-based safe harbor rates permit-
ted under the 2010 final regulations (for
example, a rate based on Treasury bonds
with any of the margins specified in the
regulations or an eligible cost-of-living
index). However, the change is permitted
only if: (1) the effective date of the amend-
ment is at least 30 days after adoption, (2)
the new interest crediting rate only applies
to interest to be credited after the effective
date of the amendment, and (3) on the
effective date of the amendment, the new
interest crediting rate is not lower than
the interest crediting rate that would have
applied in the absence of the amendment.
C.Changes that would otherwise violate
section 411(d)(6) but that are made to
the extent necessary to satisfy section
411(b)(5)
After these proposed regulations under
sections 411(a)(13) and 411(b)(5) are is-
sued as final regulations, it is expected
that relief from the requirements of sec-
tion 411(d)(6) will be granted for a plan
amendment that eliminates or reduces a
section 411(d)(6) protected benefit, pro-
vided that the amendment is adopted be-
fore those final regulations apply to the
plan, and the elimination or reduction is
made only to the extent necessary to en-
able the plan to meet the requirements of
section 411(b)(5).
6
It is expected that this
section 411(d)(6) relief will be available in
the case of an amendment that reduces the
future interest crediting rate with respect to
benefits that have already accrued from a
rate that is in excess of a market rate of re-
turn under the final market rate of return
rules to the extent necessary to constitute a
permissible rate under the final market rate
of return rules. However, it is expected
that this relief would not permit a plan with
an interest crediting rate within the list of
permitted rates under the final market rate
of return rules to change to another permit-
ted rate because the change would not be
necessary to enable the plan to satisfy the
requirements of section 411(b)(5). Simi-
larly, it is expected that this relief would
not permit a plan with aninterest crediting
rate that is impermissible under the final
market rate of return rules to change to a
permissible rate using less than the max-
imum permitted margin for that rate be-
cause the reduction would be more than
necessary to enable the plan to satisfy the
requirements of section 411(b)(5). For
purposes of the preceding sentence, a rate
without an associated margin is treated as
having a maximum permitted margin of
zero. See the request for comments, un-
der the heading “Comments and Public
Hearing” in this preamble, regarding lim-
itations on the scope of this anticipated re-
lief under §1.411(d)–4, A–2(b)(2)(i) be-
cause the relief must be limited to amend-
ments that change a plan’s interest credit-
ing rate only to the extent necessary to en-
able the plan to satisfy the requirements of
section 411(b)(5).
Proposed Effective/Applicability Dates
The specific rules that would be im-
plemented under the proposed regulations
generallywouldapplytoplanyearsthat
begin on or after January 1, 2012. How-
ever, as stated in the preamble to the 2010
final regulations, a plan is permitted to rely
on the provisions of these proposed regu-
lations, as well as the 2010 final regula-
tions, the 2007 proposed regulations, and
Notice 2007–6, for purposes of satisfy-
ing the requirements of sections 411(a)(13)
and 411(b)(5) for periods before the regu-
latory effective date.
Special Analyses
It has been determined that these pro-
posed regulations arenot a significant reg-
ulatory action as defined in Executive Or-
der 12866. Therefore, a regulatory assess-
ment is not required. It also has been deter-
mined that section 553(b) of the Adminis-
trative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations, and be-
cause the regulation does not impose a col-
lection of information on small entities, the
Regulatory Flexibility Act (5 U.S.C. chap-
ter 6) does not apply. Pursuant to section
7805(f) of the Code, these regulations have
been submitted to the Chief Counsel for
Advocacy of the Small Business Adminis-
tration for comment on its impact on small
business.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations, considera-
tion will be given to any written (a signed
original and eight (8) copies) or electronic
comments that are submitted timely to the
IRS. The Treasury Department and the
IRS specifically request comments on the
clarity of the proposed regulations and
4
However, see section 204(h) of ERISA and section 4980F of the Code for noticerequirements relating to amendments that provide for a significant reduction in the rate of future benefit
accrual.
5
Except to the extent permitted under section 411(d)(6) and §§1.411(d)–3 and 1.411(d)–4, another Code provision, or another statutory provision suchassection1107ofPPA’06,section
411(d)(6) prohibits a plan amendment that decreases a participant’s accrued benefits or that has the effect of eliminating or reducing an early retirement benefit or retirement-type subsidy, or
eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment.
6
Announcement 2009–82 and Notice 2009–97 stated that the IRS and the TreasuryDepartment expected to provide such relief. While Notice 2009–97 indicated the relief would only apply
if the amendment is adopted by the last day of the first plan year that begins on or after January 1, 2010, this preamble supersedes that applicability date to provide that it is expected that this
relief would apply if the amendment is adopted before final regulations that finalize these proposed regulations apply to the plan.
2010–48 I.R.B.795November 29, 2010

how they may be made easier to under-
stand.
In addition to comments on issues ad-
dressed in these proposed regulations, the
Treasury Department and the IRS specif-
ically request comments on the following
issues:
•Should a defined benefit plan that ex-
presses a participant’s accumulated
benefit as a current single-sum dollar
amount and that does not provide for
interest credits be excluded from the
definition of a statutory hybrid plan?
•In the case of a statutory hybrid plan
that credits interest using an interest
crediting rate equal to the rate of return
on a RIC, how does section 411(d)(6)
apply if the underlying RIC subse-
quently ceases to exist?
•The proposed regulations permit cer-
tain fixed interest crediting rates (a
fixed 5 percent rate for any year,
the greater of 4 percent or certain
bond-based indices for any year, and a
cumulative minimum 3 percent annual
rate). Comments regarding these spe-
cific proposed rules should take into
account how any general legal stan-
dard for a market rate of return would
be applied in different economic cir-
cumstances with variable interest rate
markets, as well as the related abil-
ity that would generally be available
under these proposed regulations at
§1.411(b)(5)–1(e)(3)(iii) for the plan
sponsor to change the crediting rate
on an existing hypothetical account
balance for active participants from
one interest crediting rate to another,
including the risk that whatever fixed
rate is permitted might allow a plan’s
interest credits to exceed market rates
of interest either frequently, by an
amount that might be large, or for an
extended duration. Commenters rec-
ommending any additional types of
rates of return than those in these pro-
posed regulations should justify how
those rates meet a market rate of re-
turn, taking into account the minimum
guarantee rules.
•Should a statutory hybrid plan be
able to offer participants a menu of
hypothetical investment options (in-
cluding a life-cycle investment option,
whereby participants are automatically
transitioned incrementally at certain
ages from a blended rate that is more
heavily equity-weighted to a rate that
is more heavily bond-weighted) and,
if so, what plan qualification issues
(i.e.,forfeiture, section 411(d)(6), mar-
ket rate of return, and other section
411(b)(5) issues) arise under such a
plan design? In particular, do the
following events raise issues: (1) a
participant elects to switch from one
investment option to another; (2) a
bond index or RIC underlying one of
the investment options ceases to exist;
(3) the plan is amended to eliminate
an investment option; (4) a participant
elects to switch from an investment
option with a cumulative minimum to
an investment option without a cumu-
lative minimum (orvice versa); or (5)
the plan is terminated and, pursuant
to the special rules that apply upon
plan termination, the interest crediting
rate that applies to determine a partic-
ipant’s benefit after plan termination
must be fixed?
•How does a statutory hybrid plan that
provides benefits under a statutory hy-
brid benefit formula other than a lump
sum-based benefit formula (such as a
plan that provides for indexing as de-
scribed in section 411(b)(5)(E)) — a
plan to which section 411(a)(13)(A)
does not apply — ensure compliance
with the minimum present value rules
of section 417(e)?
•How does a statutory hybrid plan de-
termine the section 417(e) minimum
present value of the participant’s ben-
efit where a portion of the benefit is
determined based partly on the bene-
fit under a lump sum-based benefit for-
mula, although that portion is not de-
termined under a lump sum-based ben-
efit formula? For example, where a
portion of the accrued benefit is equal
to the excess of the benefit under a tra-
ditional defined benefit formula over
the benefit under a hypothetical ac-
count formula, how is the present value
of that portion of the accrued benefit
determined?
•Should the proposed alternative
method of satisfying the conversion
protection requirements that does not
require a comparison of benefits at
the annuity starting date be broad-
ened to apply to forms of distribution
other than a single-sum distribution?
If this rule should be broadened, what
rules would ensure that the benefit
attributable to the opening hypothet-
ical account balance is not less than
the benefit available under the same
generalized optional form under the
pre-conversion formula (which may
include subsidized early retirement
benefits and other retirement-type
subsidies) consistent with the goal of
having a simplified alternative?
•How does a statutory hybrid plan
that uses a variable interest crediting
rate that may potentially be negative
satisfy the fractional rule of section
411(b)(1)(C) if the 133
1
/3percent rule
of section 411(b)(1)(B) is not satis-
fied?
•For purposes of the plan termination
rules, should a floor, ceiling, or re-
ductionthatappliedtoanequity-based
rate in an interest crediting period be
treated as applying in the same man-
ner to the third segment rate or is it ap-
propriate for such an adjustment to be
disregarded or otherwise modified for
purposes of such rules?
•Under the relief to be provided pur-
suant to §1.411(d)–4, A–2(b)(2)(i),
which authorizes amendments that
reduce a section 411(d)(6) protected
benefit only to the extent necessary
to satisfy the requirements of section
411(b)(5), should a statutory hybrid
plan with an interest crediting rate that
is impermissible under the final market
rate of return rules be permitted to be
amended to change the future interest
crediting rate with respect to bene-
fits that have already accrued to any
permissible rate using the maximum
permitted margin for that rate or should
that be dependent upon the reasons that
the pre-amendment rate exceeded a
market rate of return? Thus, for exam-
ple, should a plan with an impermis-
sible bond-based rate (without a fixed
component) be permitted to switch to
any permissible rate, bond-based or
otherwise, using the maximum permit-
ted margin for that rate? Should a plan
with an impermissibly high standalone
fixed rate be permitted to switch to the
maximum rate of any type, should it be
permitted to switch to the maximum
permitted bond-based rate with the
maximum permitted floor for that rate
(the third segment rate with a fixed 4
November 29, 20107962010–48 I.R.B.

percent floor), or must it switch to the
maximum permitted standalone fixed
rate (a fixed rate of 5 percent)? Should
aplanwithapermissiblebond-based
rate but with an impermissibly high
fixed floor be permitted to switch to
the maximum rate of any type, should
it be permitted to retain the pre-amend-
ment bond-based rate while reducing
the floor to the maximum permitted
floor for that rate (a fixed 4 percent
floor), should it be permitted to switch
to the maximum permitted standalone
fixed rate (a fixed rate of 5 percent), or
must it switch to the maximum permit-
ted bond-based rate with the maximum
permitted floor for that rate (the third
segment rate with a fixed 4 percent
floor)?
All comments will be available for pub-
lic inspection and copying. A public hear-
ing has been scheduled for Wednesday,
January 26, 2011, beginning at 10 a.m. in
the Auditorium, Internal Revenue Service,
1111 Constitution Avenue, NW, Washing-
ton, DC. Due to building security proce-
dures, visitors must enter at the Consti-
tution Avenue entrance. In addition, all
visitors must presentphoto 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) ap-
ply to the hearing. Persons who wish
to present oral comments at the hearing
must submit written or electronic com-
ments by Wednesday, January 12, 2011,
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 Friday, January 14, 2011. A pe-
riod 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 re-
ceiving outlines has passed. Copies of the
agenda will be available free of charge at
the hearing.
Drafting Information
The principal authors of these regula-
tions are Neil S. Sandhu, Lauson C. Green,
and Linda S. F. Marshall, Office of Di-
vision Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities).
However, other personnel from the IRS
and the Treasury Department participated
in the development of these regulations.
*****
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is proposed
to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.411(a)(13)–1 is
amended by revising paragraphs (b)(2),
(b)(3), (b)(4), and (e)(2)(ii) to read as fol-
lows:
§1.411(a)(13)–1 Statutory hybrid plans.
*****
(b) * * *
(2)Requirements that lump sum-based
benefit formula must satisfy to obtain re-
lief—(i)In general. The relief of para-
graph (b)(1) of this section does not apply
with respect to benefits determined under
a lump sum-based benefit formula unless
the requirements of paragraphs (b)(2)(ii)
through (iv) of this section are satisfied.
(ii)Benefit on or before normal retire-
ment age. A plan satisfies this paragraph
(b)(2)(ii) only if, at all times on or before
normal retirement age, the then-current
balance of the hypothetical account or the
then-current value of the accumulated per-
centage of the participant’s final average
compensation is not less than the present
value, determined using reasonable actu-
arial assumptions, of the portion of the
participant’s accrued benefit that is deter-
mined under the lump sum-based benefit
formula. However, a plan is deemed to
satisfy the requirement in the preceding
sentence for periods before normal retire-
ment age if, upon attainment of normal
retirement age, the then-current balance of
the hypothetical account or the then-cur-
rent value of the accumulated percentage
of the participant’s final average com-
pensation is actuarially equivalent (using
reasonable actuarial assumptions) to the
portion of the participant’s accrued ben-
efit that is determined under the lump
sum-based benefit formula.
(iii)Benefit after normal retirement
age. A plan satisfies this paragraph
(b)(2)(iii) only if, as of each annuity start-
ing date after normalretirement age, the
then-current balance of the hypothetical
account or the then-current value of the ac-
cumulated percentage of the participant’s
final average compensation—
(A) Satisfies the requirements of sec-
tion 411(a)(2); or
(B) Would satisfy the requirements of
section 411(a)(2) but for the fact that the
plan suspends benefits in accordance with
section 411(a)(3)(B).
(iv)Reductions limited. A plan satisfies
this paragraph (b)(2)(iv) only if the bal-
ance of the hypothetical account or accu-
mulated percentage of the participant’s fi-
nal average compensation may not be re-
duced except as a result of—
(A) Benefit payments under paragraph
(b)(3) of this section;
(B) Qualified domestic relations orders
under section 414(p);
(C) Forfeitures that are permitted under
section 411(a) (such as charges for provid-
ing a qualified preretirement survivor an-
nuity);
(D) Amendments that are permitted un-
der section 411(d)(6); or
(E) Adjustments resulting from the ap-
plication of interest credits (under the rules
of §1.411(b)(5)–1) that are negative for a
period, for plans that express the accumu-
lated benefit as the balance of a hypothet-
ical account.
(3)Alternative forms of distribution un-
der a lump sum-based benefit formula—(i)
Payment of current account balance or
current value. The relief of paragraph
(b)(1) of this section applies with respect
to a single-sum payment equal to the then-
current balance of a hypothetical account
maintained for the participant or the then-
current value of an accumulated percent-
age of the participant’s final average com-
pensation.
(ii)Payment of benefits that are actu-
arially equivalent to current account bal-
ance or current value. With respect to the
benefits under a lump sum-based benefit
formula, the relief of paragraph (b)(1) of
2010–48 I.R.B.797November 29, 2010

this section applies to an optional form of
benefit that is determined as of the annu-
ity starting date as the actuarial equivalent,
using reasonable actuarial assumptions, of
the then-current balance of a hypothetical
account maintained for the participant or
the then-current value of an accumulated
percentage of the participant’s final aver-
age compensation.
(iii)Payment of benefits based on imme-
diate annuity. With respect to the benefits
under a lump sum-based benefit formula,
the relief of paragraph (b)(1) of this sec-
tion applies to an optional form of benefit
that is not subject to the minimum present
value requirements of section 417(e) and
that is determined under the plan as of the
annuity starting date as the actuarial equiv-
alent (using reasonable actuarial assump-
tions) of the optional form of benefit that—
(A) Commences as of the same annuity
starting date;
(B) Is payable in the same general-
ized optional form (within the meaning of
§1.411(d)–3(g)(8)) asthe accrued benefit;
and
(C) Is the actuarial equivalent (using
reasonable actuarial assumptions) of the
then-current balance of a hypothetical ac-
count maintained for the participant or the
then-current value of an accumulated per-
centage of the participant’s final average
compensation.
(iv)Payment of portion of current ac-
count balance or current value.There-
lief of paragraph (b)(1) of this section ap-
plies on a proportionate basis to a pay-
ment of a portion of the benefit under a
lump sum-based benefit formula that is not
paid in a form otherwise described in this
paragraph (b)(3), such as a payment of a
specified dollar amount or percentage of
the then-current balance of a hypothetical
account maintained for the participant or
then-current value of an accumulated per-
centage of the participant’s final average
compensation. Thus, for example, if a plan
that expresses the participant’s entire ac-
cumulated benefit as the balance of a hy-
pothetical account distributes 40 percent
of the participant’s then-current hypothet-
ical account balance in a single payment,
the plan is treated as satisfying the require-
ments of section 411(a) and the minimum
present value rules of section 417(e) with
respect to 40 percent of the participant’s
then-current accrued benefit. See para-
graph (b)(3)(ii) or (iii) of this section for
relief applicable with respect to a distribu-
tion with respect to the remainder (60 per-
cent) of the participant’s accumulated ben-
efit.
(v)Conditions for applicability.This
paragraph (b)(3) applies to a payment of
benefits under a lump sum-based benefit
formula only if the requirements of para-
graph (b)(2) of this section are also satis-
fied.
(4)Rules of application.Therelief
of paragraph (b)(1) of this section applies
only to the portion of the participant’s ben-
efit that is determined under a lump sum-
based benefit formula and does not apply
to any portion of the participant’s bene-
fit that is determined under a formula that
is not a lump sum-based benefit formula.
Thus, the following rules apply:
(i)Greater-of formulas.Wherethe
participant’s accrued benefit equals the
greater of the benefit under a lump
sum-based benefit formula and the ben-
efit under another formula, a single-sum
payment of the participant’s entire benefit
must equal the greater of the then-cur-
rent accumulated benefit under the lump
sum-based benefit formula and the present
value, determined in accordance with sec-
tion 417(e), of the benefit under the other
formula. Applying this rule where the
non-lump sum-based benefit formula pro-
vides a benefit equal to apro rataportion
of the benefit determined by projecting
a future hypothetical account balance
(including future principal credits), a
single-sum payment of the participant’s
entire benefit must equal the greater of the
then-current balance of the hypothetical
account and the present value, determined
in accordance with section 417(e), of the
pro-ratabenefit determined by projecting
the future hypothetical account balance.
(ii)“Sum-of” formulas. Where the ac-
crued benefit equals the sum of the benefit
under a lump sum-based benefit formula
plus the excess of the benefit under another
formula over the benefit under the lump
sum-based benefit formula, a single-sum
payment of the participant’s entire benefit
must equal the then-current accumulated
benefit under the lump sum-based bene-
fit formula plus the excess of the present
value, determined in accordance with sec-
tion 417(e), of the benefit under the other
formula over the present value, determined
in accordance with section 417(e), of the
benefit under the lump sum-based benefit
formula.
*****
(e) * * *
(2) * * *
(ii)Special effective date. Paragraphs
(b)(2), (b)(3), and (b)(4) of this section
apply to plan years that begin on or after
January 1, 2012.
*****
Par. 3. Section 1.411(b)–1 is amended
by adding paragraphs (b)(2)(ii)(G) and
(b)(2)(ii)(H) to read as follows:
§1.411(b)–1 Accrued benefit
requirements.
*****
(b) * * *
(2) * * *
(ii) * * *
(G)Special rule for multiple formulas.
[Reserved].
(H)Variable interest crediting rate un-
der a statutory hybrid benefit formula.For
plan years that begin on or after January 1,
2012, a plan that determines any portion of
the participant’s accrued benefit pursuant
to a statutory hybrid benefit formula (as
defined in §1.411(a)(13)–1(d)(4)) that uti-
lizes an interest crediting rate described
in §1.411(b)(5)–1(d) that is a variable rate
that was less than zero for the prior plan
year is not treated as failing to satisfy the
requirements of paragraph (b)(2) of this
section for the current plan year merely
because the plan assumes for purposes of
paragraph (b)(2) of this section that the
variable rate is zero for the current plan
year and all future plan years.
*****
Par. 4. Section 1.411(b)(5)–1 is
amended by:
1. Revising paragraph (c)(3)(iii).
2. AddingExample 8to paragraph
(c)(5).
3. Revising paragraphs (d)(1)(iv)(D),
(d)(2)(ii), (d)(4)(iv), (d)(5)(ii), (d)(5)(iv),
(d)(6)(ii), (d)(6)(iii), (e)(2), (e)(3)(iii),
(e)(4), and (f)(2)(i)(B).
The revisions and addition read as fol-
lows:
§1.411(b)(5)–1 Reduction in rate of
benefit accrual under a defined benefit
plan.
*****
November 29, 20107982010–48 I.R.B.

(c) * * *
(3) * * *
(iii)Comparison of benefits at effective
date of conversion amendment—(A)In
general. A plan satisfies the requirements
of this paragraph (c)(3)(iii) with respect to
a participant only if an opening hypotheti-
cal account balance is established to repli-
cate the pre-conversion benefit and the
requirements of paragraphs (c)(3)(iii)(B)
through (c)(3)(iii)(G) of this section are
each satisfied.
(B)Single-sum payment.Atthean-
nuity starting date, the participant elects
to receive payment in the form of a sin-
gle-sum distribution equal to the sum of
the then-current balance of the hypotheti-
cal account used to replicate the pre-con-
version benefit and the benefit attribut-
able to post-conversion service under the
post-conversion benefit formula.
(C)Not less than pre-conversion bene-
fit. In accordance with section 411(d)(6),
the aggregate benefit payable at the an-
nuity starting date after the effective date
of the conversion amendment is not less
than the benefit described in paragraph
(c)(2)(i)(A) of this section.
(D)Form of pre-conversion benefit.
The plan, as in effect immediately prior
to the effective date of the conversion
amendment, either did not provide a sin-
gle-sum payment option (for benefits that
cannot be immediately distributed under
section 411(a)(11)) or provided a sin-
gle-sum payment option that was based
solely on the present value of the benefit
payable at normal retirement age (or at
date of benefit commencement, if later),
and which was not based on the present
value of the benefit payable commencing
at any date prior to normal retirement age.
(E)Minimum opening account balance.
The plan provides for the opening hypo-
thetical account balance under paragraph
(c)(3)(i) of this section to be established
in accordance with rules under which the
amount of this opening balance will not be
less than the present value, determined in
accordance with section 417(e), of the par-
ticipant’s accrued benefit under the plan
immediately prior to the effective date of
the conversion amendment.
(F)Interest credits—(1)Requirement
as of effective date of conversion amend-
ment.As of the effective date of the con-
version amendment, the interest crediting
rate under the plan is an interest credit-
ing rate described in paragraph (d)(3) or
(d)(4) of this section. In addition, as of that
date, the value of the index used to deter-
mine the interest crediting rate under the
plan is at least as great for every participant
or beneficiary as the interest rate that was
used pursuant to paragraph (c)(3)(iii)(E) of
this section to determine the opening hypo-
thetical account balance. This requirement
is satisfied, for example, if each partici-
pant’s opening hypothetical account bal-
ance is determined using the applicable in-
terest rate and applicable mortality table
under section 417(e)(3), the interest credit-
ing rate under the plan is the third segment
rate, and, at the effective date of the con-
version amendment, the third segment rate
is the highest of the three segment rates.
(2)Requirement for later interest cred-
iting rate changes. If, subsequent to the ef-
fective date of the conversion amendment,
the interest crediting rate changes (whether
by plan amendment or otherwise) with re-
spect to a participant who was a participant
at the time of the effective date of the con-
version amendment from a particular in-
terest crediting rate described in paragraph
(d)(3) or (d)(4) of this section to a differ-
ent interest crediting rate that is not in all
cases at least as great as the prior interest
crediting rate under the plan, then the new
interest crediting rate does not apply to the
existing hypotheticalaccount balance as of
the effective date of the change in interest
crediting rates (or, if the plan created a sub-
account consisting of the opening hypo-
thetical account balance and interest cred-
its on that subaccount, then the new inter-
est crediting rate does not apply to the sub-
account).
(G)Death benefits. The plan either—
(1) Provides a death benefit after the ef-
fective date of the conversion amendment
which has a present value that is at all times
at least equal to the then-current balance of
the hypothetical account used to replicate
the pre-conversion benefit; or
(2) Applied no pre-retirement mortal-
ity decrement in establishing the opening
hypothetical account balance under para-
graph (c)(3)(iii)(E) of this section.
*****
(c) * * *
(5) * * *
Example 8.(i)Facts where plan establishes open-
ing hypothetical account balance under paragraph
(c)(3)(iii) of this section. Employer O sponsors Plan
F, a defined benefit plan that provides an accumu-
lated benefit, payable as a straight life annuity com-
mencing at age 65 (which is Plan F’s normal retire-
ment age), based on a percentage of highest average
compensation times the participant’s years of service.
Plan F permits any participant who has had a sever-
ance from employment to elect payment in the fol-
lowing optional forms of benefit (with spousal con-
sent if applicable), with any payment not made in a
straight life annuity converted to an equivalent form
based on reasonable actuarial assumptions: a straight
life annuity; and a 50 percent, 75 percent, or 100 per-
cent joint and survivor annuity. The payment of ben-
efits may commence at any time after attainment of
age 55, with an actuarial reduction if the commence-
ment is before normal retirement age. In addition, the
plan offers a single-sum payment after attainment of
age 55 equal to the present value of the normal re-
tirement benefit using the applicable interest rate and
mortality table under section 417(e)(3) in effect un-
der the terms of the plan on the annuity starting date.
(These facts are the same as those in paragraph (i) of
Example 1.)
(ii)Facts relating to the conversion amend-
ment and establishment of opening balance.
On January 1, 2012, Plan F is amended to
eliminate future accruals under the highest average
compensation benefit formula and to base future
benefit accruals on a hypothetical account balance.
As of January 1, 2012, the plan establishes an opening
hypothetical account balance for each individual
who was a participant in the plan on December 31,
2011, equal to the present value of the participant’s
accumulated benefits, payable as a straight life
annuity commencing at age 65, based on the actuarial
assumptions then applicable under section 417(e)(3).
New participants begin with a hypothetical account
balance of zero on their date of participation. For
service on or after January 1, 2012, each participant’s
hypothetical account balance is credited monthly
with a pay credit equal to a specified percentage
of the participant’s compensation during the month
and also with interest based on the third segment
rate described in section 430(h)(2)(C)(iii). With
respect to benefits under the hypothetical account
balance, a participant is permitted to elect (with
spousal consent) paymentin the same generalized
optional forms of benefit (even though different
actuarial factors apply) as under the terms of the
plan in effect before January 1, 2012, and also as a
single-sum distribution. The plan provides that in
no event will the benefit payable be less than the
benefits attributable to service before January 1,
2012, to be determined under the terms of the plan as
in effect immediately before the effective date of the
amendment. In the event of death prior to the annuity
starting date, the plan provides a death benefit equal
to the hypothetical account balance (and allows a
surviving spouse to elect payment in the form of an
actuarially equivalent life annuity).
(iii)Conclusion. Plan F satisfies the requirements
of paragraph (c)(3)(iii) of this section for participants
who elect to receive payment in the form of a sin-
gle-sum distribution equal to the hypothetical account
balance in accordance with the requirements of para-
graph (c)(3)(iii)(B) of this section for the following
reasons. First, Plan F satisfies the requirements of
paragraph (c)(3)(iii)(C) of this section because the
benefit payable can never be less than the pre-con-
version benefit, in accordance with the requirements
2010–48 I.R.B.799November 29, 2010

of section 411(d)(6). Second, Plan F satisfies the
requirements of paragraph (c)(3)(iii)(D) of this sec-
tion because prior to conversion it provided for a sin-
gle-sum payment option that was based solely on the
present value of the benefitpayable at normal retire-
ment age. Third, Plan F satisfies the requirements
of paragraph (c)(3)(iii)(E) of this section because the
amount of the opening balance is not less than the
present value of the participant’s accrued benefit un-
der the plan immediately prior to the effective date of
the conversion amendment, as determined in accor-
dance with section 417(e). Fourth, Plan F satisfies the
requirements of paragraph (c)(3)(iii)(F) of this sec-
tion because it provides for interest credits that are
described in paragraph (d)(3) of this section on the
opening balance and the interest credits are reason-
ably expected to be no lower than the interest rate
used to determine the opening balance. This is the
case because interest is credited at least annually after
the effective date of the conversion amendment and
the interest rate used to establish the opening balance
(which is based on the first, second, and third segment
rates described in section 430(h)(2)(C) referenced un-
der section 417(e)(3)) is notgreater than the interest
rate applicable under the third segment rate described
in section 430(h)(2)(C)(iii) which the plan uses to de-
termine interest for all future periods after the effec-
tive date of the conversion amendment. Fifth, Plan F
satisfies the requirements of paragraph (c)(3)(iii)(G)
of this section because it provides a death benefit af-
ter the effective date of the conversion amendment
which has a present value that is at all times at least
equal to the hypothetical account balance at the date
of death.
*****
(d) * * *
(1) * * *
(iv) * * *
(D)Debits and credits during the inter-
est crediting period. A plan is not treated
as failing to meet the requirements of this
paragraph (d) merely because the plan
does not provide for interest credits on
amounts distributed prior to the end of the
interest crediting period. Furthermore, a
plan is not treated as failing to meet the
requirements of this paragraph (d) merely
because the plan calculates increases or
decreases to the participant’s accumulated
benefit by applying a rate of interest or
rate of return (including a rate of increase
or decrease under an index) to the partic-
ipant’s adjusted accumulated benefit (or
portion thereof) for the period. For this
purpose, the participant’s adjusted accu-
mulated benefit equals the participant’s
accumulated benefit as of the beginning of
the period, adjustedfor debits and credits
(other than interest credits) made to the
accumulated benefit prior to the end of the
interest crediting period, with appropri-
ate weighting for those debits and credits
based on their timing within the period.
For plans that calculate increases or de-
creases to the participant’s accumulated
benefit by applying a rate of interest or
rate of return to the participant’s adjusted
accumulated benefit (or portion thereof)
for the period, interest credits include
these increases and decreases, to the extent
provided under the terms of the plan at the
beginning of the period and to the extent
not conditioned on current service and not
made on account of imputed service (as
defined in §1.401(a)(4)–11(d)(3)(ii)(B)),
and the interest crediting rate with respect
to a participant equals the total amount
of interest credits for the period divided
by the participant’s adjusted accumulated
benefit for the period.
*****
(2) * * *
(ii)Application to multiple annuity
starting dates—(A)In general. Paragraph
(d)(2)(i) of this section applies only at an
annuity starting date, within the meaning
of §1.401(a)–20, A–10(b), on which a dis-
tribution of the participant’s entire benefit
under the plan’s statutory hybrid benefit
formula as of that date commences. For
a participant who has more than one an-
nuity starting date, paragraph (d)(2)(ii)(B)
of this section provides rules for the ap-
plication of paragraph (d)(2)(i) of this
section, taking into account prior distribu-
tions. If the comparison under paragraph
(d)(2)(ii)(B) of this section results in the
sum of principal credits exceeding the sum
of the amounts described in paragraphs
(d)(2)(ii)(B)(1) through (d)(2)(ii)(B)(3)of
this section, then the participant’s benefit
to be distributed at the current annuity
starting date is increased by an amount
equal to the excess.
(B)Comparison to reflect prior distri-
butions. For a participant who has more
than one annuity starting date, the sum of
all principal credits credited to the partic-
ipant under the plan, as of the current an-
nuity starting date, is compared to the sum
of—
(1) The participant’s benefit as of the
current annuity starting date;
(2) The amount of the offset to the par-
ticipant’s benefit under the statutory hy-
brid benefit formula that is attributable to
any prior distribution of the participant’s
benefit under that formula; and
(3) The amount of any increase to the
participant’s benefit as a result of the ap-
plication of paragraph (d)(2)(i) of this sec-
tion to a prior distribution.
*****
(4) * * *
(iv)Fixed rate of interest. An annual
interest crediting rate equal to a fixed 5
percent is deemed to be not in excess of the
interest rate described in paragraph (d)(3)
of this section.
*****
(5) * * *
(ii)Actual rate of return on plan as-
sets. An interest crediting rate equal to
the actual rate of return on the aggregate
assets of the plan, including both posi-
tive returns and negative returns, is not
in excess of a market rate of return if the
plan’s assets are diversified so as to mini-
mize the volatility of returns. This require-
ment that plan assets be diversified so as
to minimize the volatility of returns does
not require greater diversification than is
required under section 404(a)(1)(C) of Ti-
tle I of the Employee Retirement Income
Security Act of 1974, Public Law 93–406
(88 Stat. 829 (1974)) with respect to de-
fined benefit pension plans.
*****
(iv)Rate of return on certain RICs.An
interest crediting rate is not in excess of
a market rate of return if it is equal to
the rate of return on a regulated invest-
ment company (RIC), as defined in sec-
tion 851, that is reasonably expected to
be not significantly more volatile than the
broad United States equities market or a
similarly broad international equities mar-
ket. For example, a RIC that has most
of its assets invested in securities of is-
suers (including other RICs) concentrated
in an industry sector or a country other than
the United States, that uses leverage, or
that has significant investment in deriva-
tive financial products, for the purpose of
achieving returns that amplify the returns
of an unleveraged investment, generally
would not meet this requirement. Thus, a
RIC that has most of its investments con-
centrated in the semiconductor industry or
that uses leverage in order to provide a
rate of return that is twice the rate of re-
turn on the Standard & Poor’s 500 index
(S&P 500) would not meet this require-
ment. On the other hand, a RIC whose in-
vestments track the rate of return on the
S&P 500, a broad-based “small-cap” in-
dex (such as the Russell 2000 index), or
November 29, 20108002010–48 I.R.B.

a broad-based international equities index
would meet this requirement.
*****
(6) * * *
(ii)Annual or more frequent floor ap-
plied to bond-based rates. An interest
crediting rate under a plan does not fail to
be described in paragraph (d)(3) or (d)(4)
of this section for an interest crediting pe-
riod merely because the plan provides that
the interest crediting rate for that interest
crediting period equals the greater of—
(A) An interest crediting rate described
in paragraph (d)(3) or (d)(4) of this section;
and
(B) An annual interest rate of 4 percent
(or apro rataportion of an annual inter-
est rate of 4 percent for plans that provide
interest credits more frequently than annu-
ally).
(iii)Cumulative floor applied to equity-
based or bond-based rates—(A)In gen-
eral. A plan that determines interest cred-
its under a statutory hybrid benefit for-
mula using a particular interest crediting
rate described in paragraph (d)(3), (d)(4),
or (d)(5) of this section (or an interest cred-
iting rate that can never be in excess of a
particular interest crediting rate described
in paragraph (d)(3), (d)(4), or (d)(5) of this
section) does not provide an effective in-
terest crediting rate in excess of a market
rate of return merelybecause the plan pro-
vides that the participant’s benefit under
the statutory hybrid benefit formula deter-
mined as of the participant’s annuity start-
ing date is equal to the greater of—
(1) The benefit determined using the in-
terest crediting rate; and
(2) The benefit determined as if the plan
had used a fixed annual interest crediting
rate equal to 3 percent (or a lower rate) for
all principal credits that are made during
the guarantee period (minimum guarantee
amount).
(B)Guarantee period defined.The
guarantee period is the prospective period
which begins on the date on which the cu-
mulative floor described in this paragraph
(d)(6)(iii) begins to apply to the partici-
pant’s benefit and which ends on the date
on which that cumulative floor ceases to
apply to the participant’s benefit.
(C)Application to multiple annuity
starting dates. The determination under
paragraph (d)(6)(iii)(A) of this section
is made only at an annuity starting date,
within the meaning of §1.401(a)–20,
A–10(b), on which a distribution of the
participant’s entire benefit under the plan’s
statutory hybrid benefit formula as of that
date commences. For a participant who
has more than one annuity starting date,
paragraph (d)(6)(iii)(D) of this section
provides rules for the application of para-
graph (d)(6)(iii)(A) of this section, taking
into account any prior distributions. If the
comparison under paragraph (d)(6)(iii)(D)
of this section results in the minimum
guarantee amount exceeding the sum
of the amounts described in paragraphs
(d)(6)(iii)(D)(1) through (d)(6)(iii)(D)(3)
of this section, then the participant’s ben-
efit to be distributed at the current annuity
starting date is increased by an amount
equal to the excess.
(D)Comparison to reflect prior distri-
butions. For a participant who has more
than one annuity starting date, the mini-
mum guarantee amount (described in para-
graph (d)(6)(iii)(A)(2)ofthissection),as
of the current annuity starting date, is com-
paredtothesumof—
(1) The participant’s benefit, as of the
current annuity starting date, to which a
minimum guaranteed rate described in
paragraph (d)(6)(iii)(A)(2) of this section
applies;
(2) The amount of the offset to the par-
ticipant’s benefit under the statutory hy-
brid benefit formula that is attributable to
any prior distribution of the participant’s
benefit under that formula and to which
a minimum guaranteed rate described in
paragraph (d)(6)(iii)(A)(2) of this section
applied, together with interest at that min-
imum guaranteed rate annually from the
prior annuity starting date to the current
annuity starting date; and
(3) The amount of any increase to the
participant’s benefit as a result of the ap-
plication of paragraph (d)(6)(iii)(A) of this
section to any prior distribution, together
with interest annually at the minimum
guaranteed rate thatapplied to the prior
distribution from the prior annuity starting
date to the current annuity starting date.
(E)Application to portion of partici-
pant’s benefit. A cumulative floor de-
scribed in this paragraph (d)(6)(iii) may
beappliedtoaportionofaparticipant’s
benefit, provided the requirements of this
paragraph (d)(6)(iii) are satisfied with re-
spect to that portion of the benefit. If a cu-
mulative floor described in this paragraph
(d)(6)(iii) applies to a portion of a partic-
ipant’s benefit, only the principal credits
that are attributable to that portion of the
participant’s benefit are taken into account
in determining the amount of the guarantee
described in paragraph (d)(6)(iii)(A)(2)of
this section.
*****
(e) * * *
(2)Plan termination—(i)In gen-
eral—(A)Interest crediting rates.Ifthe
interest crediting rate used to determine
a participant’s accumulated benefit (or a
portion thereof) has been a variable rate
during the interest crediting periods in the
5-year period ending on the plan termi-
nation date (including any case in which
the rate was not the same fixed rate during
all such periods), then a statutory hybrid
plan is treated as meeting the requirements
of section 411(b)(5)(B)(i) and paragraph
(d)(1) of this section only if the terms
of the plan satisfy the requirements of
paragraph (e)(2)(ii) of this section. See
regulations of the Pension Benefit Guar-
anty Corporation for additional rules that
applywhenapensionplanisterminated.
(B)Annuity conversion factors.A
statutory hybrid plan is treated as meeting
the requirements of section 411(b)(5)(B)(i)
and paragraph (d)(1) of this section only
if the terms of the plan provide that the
interest rate and mortality table (including
tabular adjustment factors) used on and
after plan termination for purposes of de-
termining the amount of any benefit under
the plan payable in the form of an annuity
commencing at or after normal retirement
age are the interest rate and mortality table
specified under the plan for that purpose as
of the termination date, except that if the
interest rate is a variable rate (as described
in paragraph (e)(2)(i) of this section), then
the interest rate for that purpose is deter-
mined pursuant to the rules of paragraph
(e)(2)(ii) of this section.
(ii)Interest crediting rates that are vari-
able—(A)General rule. Subject to the
other rules in this paragraph (e)(2), a plan
satisfies this paragraph (e)(2)(ii) only if the
terms of the plan provide that, on the plan
termination date, if the interest crediting
rate used to determine a participant’s ac-
cumulated benefit has been a variable rate
as described in paragraph (e)(2)(i) of this
section, then the interest crediting rate used
to determine the participant’s accumulated
2010–48 I.R.B.801November 29, 2010

benefit under the plan after the date of plan
termination is equal to the average of the
interest crediting rates used under the plan
during the 5-year period ending on the plan
termination date. For this purpose, an in-
terest crediting rate is used under the plan
if the rate applied under the terms of the
plan during an interest crediting period for
which the interest crediting date is within
the 5-year period ending on the plan termi-
nation date and the average is determined
as the arithmetic average of the rates used,
with each rate adjusted to reflect the length
of the interest crediting period and the av-
erage rate expressed as an annual rate.
(B)Variable interest crediting rates that
are based on interest rates. With respect to
an interest crediting rate that was a variable
interest rate described in paragraph (d)(3)
or (d)(4) of this section (taking into ac-
count the rules of paragraph (d)(6)(ii) of
this section), a variable interest rate that
can never be in excess of a rate described
in paragraph (d)(3) or (d)(4) of this section,
or a fixed interest rate that has not been the
same rate during the entire 5-year period
ending on the plan termination date, the ac-
tual interest rate that applied under the plan
for the interest crediting period is used for
purposes of determining the average inter-
est crediting rate. For this purpose, the rate
that applied for the interest crediting pe-
riod takes into account minimums, max-
imums, and other reductions that applied
in the period, other than cumulative floors
under paragraph (d)(6)(iii) of this section.
(C)Variable interest crediting rates that
are other rates of return. With respect to
any interest creditingrate not described in
paragraph (e)(2)(ii)(B) of this section (that
is, a variable rate described in paragraph
(d)(5) of this section), the interest credit-
ing rate that applied for the interest credit-
ing period for purposes of determining the
average interest crediting rate is deemed to
be equal to the third segment rate under
section 430(h)(2)(C)(iii) for the last calen-
dar month ending before the beginning of
the interest crediting period, as adjusted to
account for any minimums or maximums
that applied in the period (other than cu-
mulative floors under paragraph (d)(6)(iii)
of this section), but without regard to other
reductions that applied in the period. Thus,
for example, if the actual interest credit-
ing rate in an interest crediting period was
equal to the rate of return on plan assets,
but not greater than 5 percent, then for pur-
poses of determining the plan’s average in-
terest crediting rate, the interest crediting
rate for that interest crediting period would
be deemed to equal the lesser of the ap-
plicable third segment rate for the period
and 5 percent. However, if the actual in-
terest crediting rate in an interest crediting
period was equal to the rate of return on
plan assets minus 200 basis points, then for
purposes of determining the plan’s average
interest crediting rate, the interest crediting
rate for that interest crediting period would
be deemed to equal the third segment rate.
(iii)Rules of application—(A)Section
411(d)(6) protected benefits. In general,
for purposes of determining the average
interest crediting rate under paragraph
(e)(2)(ii) of this section, the interest cred-
iting rate that applied for each interest
crediting period is the ongoing interest
crediting rate that was specified under the
plan in that period, without regard to any
section 411(d)(6) protected benefit using
an interest crediting rate that applied under
the plan prior to amendment. However,
if, at the end of the last interest crediting
period prior to plan termination, the par-
ticipant’s accumulated benefit is based on
a section 411(d)(6) protected benefit that
results from a prior amendment to change
the rate of interest crediting applicable
under the plan, then, for purposes of deter-
mining the average interest crediting rate
under paragraph (e)(2)(ii) of this section,
the pre-amendment interest crediting rate
is treated as having applied for each inter-
est crediting period after the date of the
interest crediting rate change.
(B)Weighted averages. If the plan de-
termines the interest credit in any inter-
est crediting period by applying different
rates to different predetermined portions of
the accumulated benefit under paragraph
(d)(1)(vii) of this section, then, for pur-
poses of determining the average interest
crediting rate under paragraph (e)(2)(ii) of
this section, the interest crediting rate that
applied for the interest crediting period is
the weighted average of the relevant inter-
est rates that apply, under the rules of para-
graph (e)(2)(ii) of this section, to each por-
tion of the accumulated benefit.
(C)Participants with less than five
years of interest credits upon plan termi-
nation. If the plan provided for interest
credits for any interest crediting period in
which, pursuant to the terms of the plan,
the individual was not eligible to receive
interest credits (because the individual
was not a participant or beneficiary in the
relevant interest crediting period or other-
wise), then, for purposes of determining
the individual’s average interest crediting
rate under paragraph (e)(2)(ii) of this sec-
tion, the individual is treated as though the
individual received interest credits in that
period using the interest crediting rate that
applied in that period under the terms of
the plan to a similarly situated participant
or beneficiary who was eligible to receive
interest credits. However, if, under the
terms of the plan, the individual was not
eligible to receive any interest credits dur-
ing the entire 5-year period ending on the
plan termination date, then the rules under
paragraph (e)(2)(ii) do not apply to de-
termine the individual’s benefit after plan
termination.
(iv)Examples. The following examples
illustrate the rules of this paragraph (e)(2).
In each case, it is assumed that the plan is
terminated in a standard termination.
Example 1.(i)Facts. Plan A is a defined bene-
fit plan with a calendar plan year that expresses each
participant’s accumulated benefit in the form of a hy-
pothetical account balanceto which principal credits
are made at the end of each calendar quarter and to
which interest is credited at the end of each calendar
quarter based on the balance at the beginning of the
quarter. Interest credits under Plan A are based on
a rate of interest fixed at the beginning of each plan
year equal to the third segment rate for the preceding
December, except that the plan used the rate of in-
terest on 30-year Treasury bonds (instead of the third
segment rate) for plan years before 2012. The plan is
terminated on March 3, 2016. The third segment rate
credited under Plan A from January 1, 2012, through
December 31, 2015, is assumed to be: 6 percent an-
nually for each of the four quarters in 2015 (1.5 per-
cent quarterly); 6.5 percent annually for each of the
four quarters in 2014 (1.625 percent quarterly); 6 per-
cent annually for each of the four quarters in 2013
(1.5 percent quarterly); and 5.5 percent annually for
each of the four quarters in 2012 (1.375 percent quar-
terly). The rate of interest on 30-year Treasury bonds
credited under Plan A for each of the four quarters in
2011 is assumed to be 4.4 percent annually (1.1 per-
cent quarterly).
(ii)Conclusion.Pursuant to paragraph
(e)(2)(ii)(B) of this section, the interest crediting rate
used to determine accrued benefits under the plan
on and after the date of plan termination is 5.68 per-
cent. This is determined by calculating the average
quarterly rate of 1.42 percent (the sum of 1.5 percent
times 4, 1.625 times 4, 1.5 times 4, 1.375 times 4,
and 1.1 percent times 4, divided by the 20 quarters
that end in the 5-year period from March 4, 2011 to
March 3, 2016) and multiplying such rate by 4 to
determine the average annual rate.
Example 2.(i)Facts. The facts are the same as
Example 1, except that Participant B commenced par-
ticipation in Plan A on April 17, 2013.
November 29, 20108022010–48 I.R.B.

(ii)Conclusion.Pursuant to paragraph
(e)(2)(iii)(C) of this section, the interest crediting rate
used to determine Participant B’s accrued benefits
under Plan A on and after the date of plan termi-
nation is 5.68 percent, which is the same rate that
would have applied to Participant B if Participant B
had participated in the plan during the 5-year period
preceding the date of plan termination, as described
inExample 1.
Example 3.(i)Facts. Plan C is a defined bene-
fit plan with a calendar plan year that expresses each
participant’s accumulated benefit in the form of a hy-
pothetical account balance to which principal cred-
its are made at the end of each calendar year and to
which interest is credited at the end of each calen-
dar year based on the balance at the end of the pre-
ceding year. The plan is terminated on January 27,
2014. The plan’s interest crediting rate for each cal-
endar year during the entire 5-year period ending on
the plan termination date is equal to (A) 50 percent of
the greater of the rate of interest on 3-month Treasury
Bills for the preceding December and an annual rate
of 4 percent, plus (B) 50 percent of the rate of return
on plan assets. The rate of interest on 3-month Trea-
sury Bills credited under Plan C is assumed to be: 3.4
percent for 2013; 4 percent for 2012; 4.5 percent for
2011; 3.5 percent for 2010; and 4.2 percent for 2009.
Each of these rates applied under Plan C for interest
credited during this period for purposes of the inter-
est credits described in clause (A) of this paragraph
(i), except that the 4 percent minimum rate applied
for 2013 and 2010. For purposes of the interest cred-
its described in clause (B) of this paragraph (i), the
rate of interest on the third segment rate in the prior
years (based on the rate for the preceding December)
is assumed to be: 6 percent for 2013; 6.5 percent for
2012; 6 percent for 2011; 5.5 percent for 2010; and 6
percent for 2009.
(ii)Conclusion. Pursuant to paragraph (e)(2)(ii)
of this section, the interest crediting rate used to deter-
mine accrued benefits under the plan on and after the
date of plan termination is 5.07 percent. This num-
ber is equal to the sum of 50 percent of 4.14 percent
(which is the sum of 4 percent, 4 percent, 4.5 percent,
4percent,and4.2percent,dividedby5),and50per-
cent of 6 percent (which is the average third segment
rate for the 5 interest crediting periods ending within
the 5-year period).
Example 4.(i)Facts. The facts are the same as in
Example 3, except that the plan had credited interest
before January 1, 2012, using the rate of return on a
RIC and was amended effective January 1, 2012, to
base interest credits for all plan years after 2011 on
the interest rate formula described inExample 3(i).
In order to comply with section 411(d)(6), the plan
provides that, for each participant or beneficiary who
was a participant on December 31, 2011, the benefits
at any date are based on either the ongoing hypothet-
ical account balance on that date (which is based on
the December 31, 2011 balance, with interest credited
thereafter at the rate described in the first sentence of
Example 3(i) and taking principal credits after 2011
into account) or a special hypothetical account bal-
ance (the pre–2012 balance) on that date, whichever
balance is greater. For each participant, the pre–2012
balance is a hypothetical account balance equal to the
participant’s December 31, 2011, balance, with inter-
est credited thereafter at the RIC rate of return, but
with no principal credits after 2011. There are 10 par-
ticipants for whom his or her pre–2012 balance ex-
ceeded his or her ongoing hypothetical account bal-
ance at the end of 2013.
(ii)Conclusion. Since Plan C credited interest
prior to 2012 using the rate of return on a RIC (a rate
not described in paragraph (d)(3) or (d)(4) of this sec-
tion), for purposes of determining the average interest
crediting rate upon plan termination, the interest cred-
iting rate used to determine accrued benefits under
Plan C for all participants during those periods (for
the calendar years 2009, 2010, and 2011) is deemed
to be equal to the third segment rate for the preceding
December. In addition, since the pre–2012 balances
exceeded the ongoing hypothetical account balance
for 10 participants in the last interest crediting period
prior to plan termination, for purposes of determin-
ing the average interest crediting rate upon plan ter-
mination, the interest crediting rate used to determine
accrued benefits under Plan C for 2012 and 2013 for
those participants is deemed to be equal to the third
segment rate for the month of December preceding
2012 and the month of December preceding 2013, re-
spectively. For all other participants, for purposes of
determining the average interest crediting rate upon
plan termination, the interest crediting rate used to de-
termine accrued benefits under Plan C for 2012 and
2013 is based on the ongoing interest crediting rate
(the formula described inExample 3).
(3) * * *
(iii)Coordination of section 411(d)(6)
and market rate of return limitation—(A)
In general. An amendment to a statu-
tory hybrid plan that preserves a section
411(d)(6) protected benefit is subject to the
rules under paragraph (d) of this section re-
lating to market rate of return. However,
in the case of an amendment to change
a plan’s interest crediting rate for periods
after the applicable amendment date from
one interest crediting rate (the old rate) that
satisfies the requirements of paragraph (d)
of this section to another interest credit-
ing rate (the new rate) that satisfies the re-
quirements of paragraph (d) of this sec-
tion, the plan’s effective interest credit-
ing rate is not in excess of a market rate
of return for purposes of paragraph (d) of
this section merely because the plan pro-
vides for the benefit of any participant who
is benefiting under the plan (within the
meaning of §1.410(b)–3(a)) on the appli-
cable amendment date to never be less than
what it would be if the old rate had con-
tinued but without taking into account any
principal credits (as defined in paragraph
(d)(1)(ii)(D) of this section) after the ap-
plicable amendment date.
(B)Multiple amendments.Apatternof
repeated plan amendments each of which
provides for a prospective change in the
plan’s interest crediting rate with respect
to the benefit as of the applicable amend-
ment date will be treated as resulting in the
ongoing plan terms providing that the in-
terest crediting rate equals the greater of
each of the interest crediting rates, so that
the rule in paragraph (e)(3)(iii)(A) of this
section would not apply. See §1.411(d)–4,
A–1(c)(1).
(4)Actuarial increases after normal re-
tirement age. A statutory hybrid plan is
not treated as providing an effective inter-
est crediting rate that is in excess of a mar-
ket rate of return for purposes of paragraph
(d) of this section merely because the plan
provides that the participant’s benefit, as of
each annuity starting date after normal re-
tirement age, is equal to the greater of—
(i) The benefit determined using an in-
terest crediting rate that is not in excess of
a market rate of return under paragraph (d)
of this section; and
(ii) The benefit that satisfies the require-
ments of section 411(a)(2).
*****
(f) * * *
(2) * * *
(i) * * *
(B)Special effective date. Para-
graphs (c)(3)(iii), (d)(1)(iii), (d)(1)(iv)(D),
(d)(1)(vi), (d)(2)(ii), (d)(4)(iv), (d)(5)(iv),
(d)(6), (e)(2), (e)(3)(iii), and (e)(4) of this
section apply to plan years that begin on
or after January 1, 2012.
*****
Steven T. Miller,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on October 18,
2010, 8:45 a.m., and published in the issue of the Federal
Register for October 19, 2010, 75 F.R. 64197)
2010–48 I.R.B.803November 29, 2010

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
November 29, 2010i2010–48 I.R.B.

Numerical Finding List
1
Bulletins 2010–27 through 2010–48
Announcements:
2010-43, 2010-27 I.R.B.42
2010-44, 2010-28 I.R.B.54
2010-45, 2010-29 I.R.B.87
2010-46, 2010-29 I.R.B.87
2010-47, 2010-30 I.R.B.173
2010-48, 2010-32 I.R.B.234
2010-49, 2010-34 I.R.B.272
2010-50, 2010-33 I.R.B.260
2010-51, 2010-33 I.R.B.261
2010-52, 2010-36 I.R.B.315
2010-53, 2010-36 I.R.B.323
2010-54, 2010-38 I.R.B.386
2010-55, 2010-37 I.R.B.346
2010-56, 2010-39 I.R.B.398
2010-57, 2010-38 I.R.B.386
2010-58, 2010-38 I.R.B.387
2010-59, 2010-39 I.R.B.399
2010-60, 2010-40 I.R.B.417
2010-61, 2010-40 I.R.B.417
2010-62, 2010-40 I.R.B.417
2010-63, 2010-40 I.R.B.417
2010-64, 2010-40 I.R.B.418
2010-65, 2010-40 I.R.B.418
2010-66, 2010-40 I.R.B.418
2010-67, 2010-40 I.R.B.418
2010-68, 2010-40 I.R.B.418
2010-69, 2010-40 I.R.B.418
2010-70, 2010-40 I.R.B.418
2010-71, 2010-40 I.R.B.418
2010-72, 2010-40 I.R.B.419
2010-73, 2010-40 I.R.B.419
2010-74, 2010-40 I.R.B.419
2010-75, 2010-41 I.R.B.428
2010-76, 2010-41 I.R.B.432
2010-77, 2010-41 I.R.B.433
2010-78, 2010-41 I.R.B.433
2010-79, 2010-42 I.R.B.475
2010-80, 2010-45 I.R.B.638
2010-81, 2010-45 I.R.B.638
2010-82, 2010-42 I.R.B.476
2010-84, 2010-44 I.R.B.603
2010-85, 2010-44 I.R.B.604
2010-86, 2010-44 I.R.B.604
2010-87, 2010-43 I.R.B.557
2010-88, 2010-47 I.R.B.753
2010-89, 2010-46 I.R.B.669
Notices:
2010-48, 2010-27 I.R.B.9
2010-49, 2010-27 I.R.B.10
2010-50, 2010-27 I.R.B.12
Notices— Continued:
2010-51, 2010-29 I.R.B.83
2010-52, 2010-30 I.R.B.88
2010-53, 2010-31 I.R.B.182
2010-54, 2010-40 I.R.B.403
2010-55, 2010-33 I.R.B.253
2010-56, 2010-33 I.R.B.254
2010-57, 2010-34 I.R.B.267
2010-58, 2010-37 I.R.B.326
2010-59, 2010-39 I.R.B.396
2010-60, 2010-37 I.R.B.329
2010-61, 2010-40 I.R.B.408
2010-62, 2010-40 I.R.B.411
2010-63, 2010-41 I.R.B.420
2010-64, 2010-41 I.R.B.421
2010-65, 2010-41 I.R.B.424
2010-66, 2010-42 I.R.B.437
2010-67, 2010-43 I.R.B.529
2010-68, 2010-44 I.R.B.576
2010-69, 2010-44 I.R.B.576
2010-70, 2010-44 I.R.B.576
2010-72, 2010-46 I.R.B.661
2010-73, 2010-46 I.R.B.662
2010-74, 2010-46 I.R.B.663
2010-75, 2010-48 I.R.B.781
2010-76, 2010-47 I.R.B.712
Proposed Regulations:
REG-138637-07, 2010-44 I.R.B.581
REG-132554-08, 2010-48 I.R.B.783
REG-139343-08, 2010-33 I.R.B.256
REG-119921-09, 2010-45 I.R.B.626
REG-137486-09, 2010-46 I.R.B.668
REG-142800-09, 2010-44 I.R.B.580
REG-144762-09, 2010-45 I.R.B.637
REG-151605-09, 2010-31 I.R.B.184
REG-153340-09, 2010-42 I.R.B.469
REG-112841-10, 2010-27 I.R.B.41
REG-118412-10, 2010-29 I.R.B.85
REG-119046-10, 2010-40 I.R.B.415
REG-120391-10, 2010-35 I.R.B.310
REG-120399-10, 2010-32 I.R.B.239
REG-125592-10, 2010-43 I.R.B.556
Revenue Procedures:
2010-25, 2010-27 I.R.B.16
2010-26, 2010-30 I.R.B.91
2010-27, 2010-31 I.R.B.183
2010-28, 2010-34 I.R.B.270
2010-29, 2010-35 I.R.B.309
2010-30, 2010-36 I.R.B.316
2010-31, 2010-40 I.R.B.413
2010-32, 2010-36 I.R.B.320
2010-33, 2010-38 I.R.B.347
2010-34, 2010-41 I.R.B.426
2010-35, 2010-42 I.R.B.438
Revenue Procedures— Continued:
2010-36, 2010-42 I.R.B.439
2010-37, 2010-42 I.R.B.440
2010-38, 2010-43 I.R.B.530
2010-39, 2010-42 I.R.B.459
2010-40, 2010-46 I.R.B.663
2010-41, 2010-48 I.R.B.781
2010-42, 2010-47 I.R.B.715
2010-43, 2010-47 I.R.B.738
Revenue Rulings:
2010-18, 2010-27 I.R.B.1
2010-19, 2010-31 I.R.B.174
2010-20, 2010-36 I.R.B.312
2010-21, 2010-39 I.R.B.388
2010-22, 2010-39 I.R.B.388
2010-23, 2010-39 I.R.B.388
2010-24, 2010-40 I.R.B.400
2010-25, 2010-44 I.R.B.571
2010-26, 2010-44 I.R.B.573
2010-27, 2010-45 I.R.B.620
Tax Conventions:
2010-48, 2010-32 I.R.B.234
2010-52, 2010-36 I.R.B.315
Treasury Decisions:
9486, 2010-27 I.R.B.3
9487, 2010-28 I.R.B.48
9488, 2010-28 I.R.B.51
9489, 2010-29 I.R.B.55
9490, 2010-31 I.R.B.176
9491, 2010-32 I.R.B.186
9492, 2010-33 I.R.B.242
9493, 2010-35 I.R.B.273
9494, 2010-43 I.R.B.500
9495, 2010-43 I.R.B.477
9496, 2010-43 I.R.B.484
9497, 2010-44 I.R.B.558
9498, 2010-45 I.R.B.605
9499, 2010-45 I.R.B.622
9500, 2010-46 I.R.B.649
9501, 2010-46 I.R.B.651
9502, 2010-46 I.R.B.641
9503, 2010-47 I.R.B.706
9504, 2010-47 I.R.B.670
9505, 2010-48 I.R.B.755
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin
2010–26, dated June 28, 2010.
2010–48 I.R.B.iiNovember 29, 2010

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2010–27 through 2010–48
Notices:
96-53
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2003-19
Revoked by
Notice 2010-53, 2010-31 I.R.B.182
2004-2
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2004-50
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2005-90
Supplemented by
Notice 2010-65, 2010-41 I.R.B.424
2006-69
Amplified by
Notice 2010-59, 2010-39 I.R.B.396
2008-51
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2008-52
Modified by
Notice 2010-59, 2010-39 I.R.B.396
2009-47
Obsoleted by
Rev. Proc. 2010-28, 2010-34 I.R.B.270
2009-80
Corrected by
Ann. 2010-59, 2010-39 I.R.B.399
2009-90
Superseded by
Notice 2010-54, 2010-40 I.R.B.403
Proposed Regulations:
REG-115037-00
Withdrawn by
Ann. 2010-60, 2010-40 I.R.B.417
REG-146893-02
Withdrawn by
Ann. 2010-60, 2010-40 I.R.B.417
Revenue Procedures:
81-18
Obsoleted by
Rev. Proc. 2010-27, 2010-31 I.R.B.183
Revenue Procedures— Continued:
2007-44
Modified by
Notice 2010-48, 2010-27 I.R.B.9
2008-33
Superseded by
Rev. Proc. 2010-42, 2010-47 I.R.B.715
2008-49
Superseded by
Rev. Proc. 2010-38, 2010-43 I.R.B.530
2008-52
Modified by
T.D. 9504, 2010-47 I.R.B.670
2009-18
Obsoleted in part by
Rev. Proc. 2010-25, 2010-27 I.R.B.16
2009-30
Superseded by
Rev. Proc. 2010-26, 2010-30 I.R.B.91
2009-35
Superseded by
Rev. Proc. 2010-33, 2010-38 I.R.B.347
2009-46
Superseded by
Rev. Proc. 2010-37, 2010-42 I.R.B.440
2009-47
Superseded by
Rev. Proc. 2010-39, 2010-42 I.R.B.459
2009-48
Superseded by
Rev. Proc. 2010-43, 2010-47 I.R.B.738
2009-50
Modified by
Rev. Proc. 2010-35, 2010-42 I.R.B.438
2010-3
Modified by
Notice 2010-62, 2010-40 I.R.B.411
Revenue Rulings:
2003-102
Obsoleted by
Rev. Rul. 2010-23, 2010-39 I.R.B.388
67-436
Obsoleted by
T.D. 9504, 2010-47 I.R.B.670
Treasury Decisions:
9487
Corrected by
Ann. 2010-50, 2010-33 I.R.B.260
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2010–1 through 2010–26 is in Internal Revenue Bulletin 2010–26, dated June 28, 2010.
November 29, 2010iii2010–48 I.R.B.

INDEX
Internal Revenue Bulletins 2010–27 through
2010–48
The abbreviation and number in parenthesis following the index entry
refer to the specific item; numbers in roman and italic type following
the parenthesis refers to the Internal Revenue Bulletin in which the item
may be found and the page number on which it appears.
Key to Abbreviations:
AnnAnnouncement
CDCourt Decision
DODelegation Order
EOExecutive Order
PLPublic Law
PTEProhibited Transaction Exemption
RPRevenue Procedure
RRRevenue Ruling
SPRStatement of Procedural Rules
TCTax Convention
TDTreasury Decision
TDOTreasury Department Order
EMPLOYEE PLANS
Cash balance plans and other hybrid defined benefit pension
plans (TD 9505) 48,755; (REG–132554–08) 48,783
Disaster relief, qualified plans (Notice 48) 27,9
Excise taxes on prohibited tax shelter transactions and related
provisions (TD 9492) 33,242
Full funding limitations, weighted average interest rates, seg-
ment rates for:
July 2010 (Notice 52) 30,88
August 2010 (Notice 57) 34,267
September 2010 (Notice 61) 40,408
October 2010 (Notice 70) 44,576
November 2010 (Notice 76) 47,712
Nondiscrimination in favor of highly compensated individuals
under insured group health plans (Notice 63) 41,420
Proposed Regulations:
26 CFR 1.411(a)(13)–1, amended; 1.411(b)–1, amended;
1.411(b)(5)–1, amended; cash balance plans and other
hybrid defined benefit pension plans (REG–132554–08)
48,783
26 CFR 54.9815–1251T, added; rules relating to status as
grandfathered healthplans for group health plans and health
insurance coverage (REG–118412–10) 29,85
26 CFR 54.9815–2704, –2711, –2712, –2719A, added; re-
quirements for group healthplans and health insurance
issuers under the Patient Protection and Affordable Care
Act relating to preexisting condition exclusions, lifetime
and annual limits, rescissions, and patient protections
(REG–120399–99) 32,239
26 CFR 54.9815–2713, added; rules relating to coverage of
preventive health services (REG–120391–10) 35,310
EMPLOYEE PLANS—Cont.
26 CFR 54.9815–2719, added; rules relating to inter-
nal claims and appeals and external review processes
(REG–125592–10) 43,556
Qualified plans:
Alternative amortization schedules for single-employer plans
under PRA 2010 (Notice 55) 33,253
Special funding rules for multiemployer plans under PRA
2010 (Notice 56) 33,254
Rules relating to coverage of preventive health services (TD
9493) 35,273; (REG–120391–10) 35,310
Rules relating to internal claims and appeals and external review
processes (TD 9494) 43,500; (REG–125592–10) 43,556
Rules relating to preexisting condition exclusions, lifetime and
annual limits, rescissions, and patient protections (TD 9491)
32,186; (REG–120399–99) 32,239
Regulations:
26 CFR 1.411(a)(13)–1, added; 1.411(b)(5)–1, added; cash
balance plans and other hybrid defined benefit pension
plans (TD 9505) 48,755
26 CFR 1.6033–5, added; 1.6033–5T, removed; 53.4965–1
thru –9, added; 53.6071–1, revised; 53.6071–1T(g) &
(h), removed; 54.6011–1, revised; 54.6011–1T(c) & (d),
removed; 301.6011(g)–1, added; 301.6033–5, added;
301.6033–5T, removed; 602.101, amended; excise taxes
on prohibited tax shelter transactions and related disclo-
sure requirements, disclosure requirements with respect to
prohibited tax shelter transactions, requirement of return
and time for filing (TD 9492) 33,242
26 CFR 54.9801–2, –3, amended; 54.9815–2704T, –2711T,
–2712T, added; –2719AT, added; 602.101(b), amended;
requirements for group healthplans and health insurance
issuers under the Patient Protection and Affordable Care
Act relating to preexisting condition exclusions, lifetime
and annual limits, rescissions, and patient protections (TD
9491) 32,186
26 CFR 54.9815–1251T, added; rules relating to status as
grandfathered health plans for group health plans and health
insurance coverage (TD 9489) 29,55
26 CFR 54.9815–2713T, added; rules relating to coverage of
preventive health services (TD 9493) 35,273
26 CFR 54.9815–2719T, added; 602.101(b), amended; rules
relating to internal claims and appeals and external review
processes (TD 9494) 43,500
Revocation of Notice 2003–19 (Notice 53) 31,182
Rules relating to status as grandfathered health plans for group
health plans and health insurance coverage (TD 9489) 29,55;
(REG–118412–10) 29,85
Unforeseeable emergency distribution under section 457 (RR 27)
45,620
EMPLOYMENT TAX
Controlled services transactions, section 482, withdrawal of
REG–146893–02 (Ann 60) 40,417
2010–48 I.R.B.ivNovember 29, 2010

EMPLOYMENT TAX—Cont.
Disclosures of return information reflected on returns to officers
and employees of the Department of Commerce for certain
statistical purposes and related activities (TD 9500) 46,649;
(REG–137486–09) 46,668
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Examination of returns and claims for refund, credit or abate-
ment, determination of correct tax liability (RP 27) 31,183
Forms:
Substitute W-2 and W-3, generalrules and specifications (RP
42) 47,715
Substitute W-2c and W-3c, general rules and specifications
(RP 43) 47,738
Furnishing identifying number of tax return preparer (TD 9501)
46,651
Intangible property, allocation of income and deductions, with-
drawal of REG–115037–00 (Ann 60) 40,417
Interim relief for cost of healthcare coverage reporting on Form
W-2 (Notice 69) 44,576
Proposed Regulations:
Treatment of services under section 482, allocation of in-
come and deductions from intangibles, withdrawal of
REG–146893–02 and REG–115037–00 (Ann 60) 40,417
26 CFR 301.6103(j)(1)–1, amended; disclosures of return in-
formation reflected on returns to officers and employees
of the Department of Commerce for certain statistical pur-
poses and related activities (REG–137486–09) 46,668
Publications:
1141, General Rules and Specifications for Substitute Forms
W-2 and W-3, revised (RP 42) 47,715
1223, General Rules and Specifications for Substitute Forms
W-2c and W-3c, revised (RP 43) 47,738
Regulations:
26 CFR 1.6109–2, amended; 602.101, amended; furnishing
identifying number of tax return preparer (TD 9501) 46,651
26 CFR 301.6103(j)(1)–1, –1T, amended; disclosures of re-
turn information reflected onreturns to officers and em-
ployees of the Department of Commerce for certain statis-
tical purposes and relatedactivities (TD 9500) 46,649
Revocation of Notice 2003–19 (Notice 53) 31,182
ESTATE TAX
Cost-of-living adjustments for inflation for 2011 (RP 40) 46,663
Furnishing identifying number of tax return preparer (TD 9501)
46,651
Regulations:
26 CFR 1.6109–2, amended; 602.101, amended; furnishing
identifying number of tax return preparer (TD 9501) 46,651
Revocation of Notice 2003–19 (Notice 53) 31,182
EXCISE TAX
Cost-of-living adjustments for inflation for 2011 (RP 40) 46,663
EXCISE TAX—Cont.
Dyed diesel fuel and kerosene, nontaxable use, Alaska (Notice
68) 44,576
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Examination of returns and claims for refund, credit or abate-
ment, determination of correct tax liability (RP 27) 31,183
Excise taxes on prohibited tax shelter transactions and related
provisions (TD 9492) 33,242
Furnishing identifying number of tax return preparer (TD 9501)
46,651
Guidance on section 5000B, indoor tanning services excise tax
(TD 9486) 27,3; (REG–112841–10) 27,41
Nondiscrimination in favor of highly compensated individuals
under insured group health plans (Notice 63) 41,420
Rules relating to coverage of preventive health services (TD
9493) 35,273; (REG–120391–10) 35,310
Rules relating to internal claims and appeals and external review
processes (TD 9494) 43,500; (REG–125592–10) 43,556
Rules relating to preexisting condition exclusions, lifetime and
annual limits, rescissions, and patient protections (TD 9491)
32,186; (REG–120399–99) 32,239
Proposed Regulations:
26 CFR 40.0–1, amended; 40.6302(c)–1, amended; 49.0–3,
added; 49.5000B–1, added; indoor tanning services excise
tax (REG–112841–10) 27,41
26 CFR 54.9815–1251T, added; rules relating to status as
grandfathered health plans for group health plans and health
insurance coverage (REG–118412–10) 29,85
26 CFR 54.9815–2704, –2711, –2712, –2719A, added; re-
quirements for group health plans and health insurance
issuers under the Patient Protection and Affordable Care
Act relating to preexisting condition exclusions, lifetime
and annual limits, rescissions, and patient protections
(REG–120399–99) 32,239
26 CFR 54.9815–2713, added; rules relating to coverage of
preventive health services (REG–120391–10) 35,310
26 CFR 54.9815–2719, added; rules relating to inter-
nal claims and appeals and external review processes
(REG–125592–10) 43,556
Regulations:
26 CFR 1.6033–5, added; 1.6033–5T, removed; 53.4965–1
thru –9, added 53.6071–1, revised; 53.6071–1T(g) &
(h), removed; 54.6011–1, revised; 54.6011–1T(c) & (d),
removed; 301.6011(g)–1, added; 301.6033–5, added;
301.6033–5T, removed; 602.101, amended; excise taxes
on prohibited tax shelter transactions and related disclo-
sure requirements, disclosure requirements with respect to
prohibited tax shelter transactions, requirement of return
and time for filing (TD 9492) 33,242
26 CFR 1.6109–2, amended; 602.101, amended; furnishing
identifying number of tax return preparer (TD 9501) 46,651
26 CFR 40.0–1, amended; 40.0–1T, added; 40.6302(c)–1,
amended; 40.6302(c)–1T, added; 49.0–3T, added;
49.5000B–1T, added; 602.101, amended; indoor tanning
services excise taxes (TD 9486) 27,3
November 29, 2010v2010–48 I.R.B.

EXCISE TAX—Cont.
26 CFR 54.9801–2, –3, amended; 54.9815–2704T, –2711T,
–2712T, –2719AT, added; 602.101(b) amended; require-
ments for group health plans and health insurance issuers
under the Patient Protection and Affordable Care Act relat-
ing to preexisting condition exclusions, lifetime and annual
limits, rescissions, and patient protections (TD 9491) 32,
186
26 CFR 54.9815–1251T, added; rules relating to status as
grandfathered healthplans for group health plans and health
insurance coverage (TD 9489) 29,55
26 CFR 54.9815–2713T, added; rules relating to coverage of
preventive health services (TD 9493) 35,273
26 CFR 54.9815–2719T, added; 602.101(b), amended; rules
relating to internal claims and appeals and external review
processes (TD 9494) 43,500
Revocation of Notice 2003–19 (Notice 53) 31,182
Rules relating to status as grandfathered health plans for group
health plans and health insurance coverage (TD 9489) 29,55;
(REG–118412–10) 29,85
EXEMPT ORGANIZATIONS
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Excise taxes on prohibited tax shelter transactions and related
provisions (TD 9492) 33,242
Regulations:
26 CFR 1.6033–5, added; 1.6033–5T, removed; 53.4965–1
thru –9, added 53.6071–1, revised; 53.6071–1T(g) &
(h), removed; 54.6011–1, revised; 54.6011–1T(c) & (d),
removed; 301.6011(g)–1, added; 301.6033–5, added;
301.6033–5T, removed; 602.101, amended; excise taxes
on prohibited tax shelter transactions and related disclo-
sure requirements, disclosure requirements with respect to
prohibited tax shelter transactions, requirement of return
and time for filing (TD 9492) 33,242
Revocation of Notice 2003–19 (Notice 53) 31,182
Revocations (Ann 44) 28,54; (Ann 45) 29,87; (Ann 47) 30,
173;(Ann49)34,272; (Ann 55) 37,346; (Ann 57) 38,386
correction to Ann 47 (Ann 59) 39,399;correctiontoAnn59
(Ann 77) 41,433; (Ann 84) 44,603; (Ann 80) 45,638;(Ann
89) 46,669
GIFT TAX
Cost-of-living adjustments for inflation for 2011 (RP 40) 46,663
Furnishing identifying number of tax return preparer (TD 9501)
46,651
Regulations:
26 CFR 1.6109–2, amended; 602.101, amended; furnishing
identifying number of tax return preparer (TD 9501) 46,651
INCOME TAX
Basis reporting by securities brokers and basis determination for
stock (TD 9504) 47,670
Bonds:
Application by cooperative electrical companies to issue clean
renewable energy bonds (Ann 54) 38,386
Qualified zone academy bonds (TD 9495) 43,477
Clarification to section 6411 regulations (TD 9499) 45,622
Controlled services transactions, section 482, withdrawal of
REG–146893–02 (Ann 60) 40,417
Corporations, section 382 treatment of prepaid income under
built-in gain provisions of section 382(h) (TD 9487) 28,48;
corrections (Ann 50) 33,260
Cost-of-living adjustments for inflation for 2011 (RP 40) 46,663
Credits:
Adoption credit, foreign adoptions (RP 31) 40,413
Carbon dioxide sequestration, 2010 inflation adjustment (No-
tice 75) 48,781
Enhanced oil recovery credit, 2010 inflation adjustment (No-
tice 72) 46,661
Inflation adjustments, for adoption credit (RP 35) 42,438
Low-income housing credit, carryover to qualified states,
2010 National Pool (Notice 74) 46,663
Refundable adoption credit (Notice 66) 42,437
Section 45 production tax credit for refined coal (Notice 54)
40,403
Declaratory judgment suits (Ann 46) 29,87; (Ann 85) 44,604
Deferred discharge of indebtedness income of corporations and
deferred original issue discount deductions (TD 9497) 44,558;
(REG–142800–09) 44,580
Delay of renewal period for enrolled agents whose tax identifi-
cation numbers end in 4, 5, or 6 (Ann 81) 45,638
Disciplinary actionsinvolving attorneys,certified public accoun-
tants, enrolled agents, and enrolled actuaries (Ann 43) 27,42;
(Ann 51) 33,261;(Ann53)36,323; (Ann 78) 41,433
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Examination of returns and claims for refund, credit or abate-
ment, determination of correct tax liability (RP 27) 31,183
Exclusions from gross income of foreign corporations (TD 9502)
46,641
Extended carryback of losses to or from a consolidated group
(TD 9490) 31,176; (REG–151605–09) 31,184
Forms:
1042–S, Foreign Persons’s U.S. Source Income Subject to
Withholding, specifications for filing electronically (RP 33)
38,347
1097, 1098, 1099, 3921, 3922, 5498, 8935, and W-2G, re-
quirements for filing electronically, 2010 revision (RP 26)
30,91
8027, Employer’s Annual Information Return of Tips Income
and Allocated Tips, specified for filing electronically (RP
37) 42,440
Substitute W-2 and W-3, general rules and specifications (RP
42) 47,715
Substitute W-2c and W-3c, general rules and specifications
(RP 43) 47,738
2010–48 I.R.B.viNovember 29, 2010

INCOME TAX—Cont.
Furnishing identifying number of tax return preparer (TD 9501)
46,651; (RP 41) 48,781
Guidance and request for comments regarding implementation
of new chapter 4 of the Code (Notice 60) 37,329
Information reporting for payments made in settlement of pay-
ment card and third party network transactions (TD 9496) 43,
484
Information reporting under the amendments to section 6041 for
gross proceeds paid and for payments to corporations (Notice
51) 29,83
Institute on Current Issues in International Taxation (Ann 86) 44,
604
Insurance companies:
Effectively connected income, insurance (RP 29) 35,309
Safe harbor under sections 7702 and 7702A for contracts with
a maturity date of 100, life insurance (RP 28) 34,270
Intangible property, allocation of income and deductions, with-
drawal of REG–115037–00 (Ann 60) 40,417
Interim guidance under the codification of the economic sub-
stance doctrine and related provisions in the Health Care and
Education Reconciliation Act of 2010 (Notice 62) 40,411
Interest:
And penalty suspension provisions under section 6404(g) (TD
9488) 28,51
Investment:
Federal short-term, mid-term, and long-term rates for:
July 2010 (RR 18) 27,1
August 2010 (RR 19) 31,174
September 2010 (RR 20) 36,312
October 2010 (RR 24) 40,400
November 2010 (RR 26) 44,573
Qualified residence, limitations (RR 25) 44,571
Underpayment and overpayments, quarter beginning:
October 1, 2010 (RR 21) 39,388
Involuntary conversions, livestock sold on account of drought,
extension of replacement period, list of affected counties (No-
tice 64) 41,421
Losses, imported drywall (RP 36) 42,439
Marginal production rates, 2010 (Notice 73) 46,662
Net operating losses (Notice 58) 37,326
Nonshareholder contribution to capital, ARRA treatment (RP 34)
41,426
Over-the-counter drugs:
Amounts received under accident and health plans ((RR 23)
39,388
Partnerships and S corporations, application of section 108(i)
(TD 9498) 45,605
Revised definition of medicalexpense under section 106(f)
(Notice 59) 39,396
Partnerships and S corporations, application of section 108(i)
(TD 9498) 45,605; (REG–144762–09) 45,637
Per diem allowances, 2010–2011 (RP 39) 42,459
Proposed Regulations:
26 CFR 1.108(i)–0, –1, –3, added; deferred discharge of in-
debtedness income of corporations and deferred original is-
sue discount deductions (REG–142800–09) 44,580
INCOME TAX—Cont.
26 CFR 1.108(i)–2, added; application of section 108(i) to
partnerships and S corporations (REG–144762–09) 45,637
26 CFR 1.1502–21, revised; extended carryback of losses to
or from a consolidated group (REG–151605–09) 31,184
26 CFR 300.0 thru 300.8, amended; 300.9, added; user fees
relating to enrollment and preparer tax identification num-
ber (REG–139343–08) 33,256
26 CFR 301.6011–6, added; 301.6071–2, added; 301.7701–1,
amended; classification of series limited liability compa-
nies and cell companies (REG–119921–09) 45,626
31 CFR 10.0, revised; 10.2 thru 10.8, revised; 10.9, added;
10.30, 10.34, 10.36, 10.51, 10.90, revised; regulations
governing practice before the Internal Revenue Service
(REG–138637–07) 44,581
Publications:
1141, General Rules and Specifications for Substitute Forms
W-2 and W-3, revised (RP 42) 47,715
1187, Specifications for Filing Forms 1042–S, Foreign Per-
son’s U.S. Source Income Subject to Withholding, Elec-
tronically, revised (RP 33) 38,347
1516, Specifications for Filing Form 8596, Information Re-
turn for Federal Contracts,Electronically (RP 38) 43,530
1220, Specifications for Filing Forms 1097, 1098, 1099, 3921,
3922, 5498, 8935, and W-2G Electronically, 2010 revision
(RP 26) 30,91
1223, General Rules and Specifications for Substitute Forms
W-2c and W-3c, revised (RP 43) 47,738
1239, Specifications for filing Form 8027, Employer’s An-
nual Information Return of TipIncome and Allocated Tips,
Electronically, revised (RP 37) 42,440
Qualified mortgage bonds (QMBs) and mortgage credit certifi-
cate (MCCs), average area housing purchase price for 2010
(RP 25) 27,16
Qualifying advanced coal projectprogram, qualifying gasifica-
tion project program (Ann 56) 39,398
Regulations:
26 CFR 1.108(i)–0T, –1T, –3T, added; 602.101, amended;
deferred discharge of indebtedness income of corporations
and deferred original issue discount deductions (TD 9497)
44,558
26 CFR 1.108(i)–2T, added; 602.101, amended; application
of section 108(i) to partnerships and S corporations (TD
9498) 45,605
26 CFR 1.382–1, amended; 1.382–1T, added; 1.382–7, added;
1.382–7T, removed; built-in gains and losses under section
382(h) (TD 9487) 28,48; 1.382–2T, amended, correction
(Ann 50) 33,260
26 CFR 1.408–7, amended; 1.1012–1, amended; 1.6039–2,
amended; 1.6042–4, amended; 1.6044–5, amended;
1.6045–1 thru –5, amended; 1.6045A–1, added;
1.6045B–1, added; 1.6049–6, amended; 31.6051–4,
amended; 301.6721–1, amended; 301.6722–1, amended;
602.101, amended; basis reporting by securities brokers
and basis determination for stock (TD 9504) 47,670
26 CFR 1.883–0 thru –5, revised; 1.883–0T, thru –5T, re-
moved; 1.883–3, revised; 602.101, amended; exclusions
November 29, 2010vii2010–48 I.R.B.

INCOME TAX—Cont.
from gross income of foreign corporations (TD 9502) 46,
641
26 CFR 1.1397E–1, amended; 1.1397E–1T, removed;
602.101, amended; application by cooperative electrical
companies to issue clean renewable energy bonds (Ann 54)
38,386
26 CFR 1.1502–21, amended; 1.1502–2T, revised; 602.101,
revised; extended carryback of losses to or from a consoli-
dated group (TD 9490) 31,176
26 CFR 1.6012–2, amended; requirement of a statement dis-
closing uncertain tax positions (REG–119046–10) 40,415
26 CFR 1.6041–1, 1.6041A–1, amended; 1.6050W–1, –2,
amended; 31.3406–0, amended; 31.3406(b)(3), amended;
31.6051–4, –5, added; 301.6721–1, amended; 301.6722–1,
amended; information reporting for payments made in set-
tlement of payment card and third party network transac-
tions (TD 9496) 43,484
26 CFR 1.6109–2, amended; 602.101, amended; furnishing
identifying number of tax return preparer (TD 9501) 46,651
26 CFR 1.6411–2, –3, amended; 1.6411–2T, –3T, removed;
clarification to section 6411 regulations (TD 9499) 45,622
26 CFR 300.0 thru 300.8, amended; 300.9, added; user fees
relating to enrollment and preparer tax identification num-
bers (PTINs) (TD 9503) 47,706
26 CFR 301.6404–0, –4, added; 301.6404–4T, removed;
interest and penalty suspension provisions under section
6404(g) of the Internal Revenue Code (TD 9488) 28,51
Regulations governing practice before the Internal Revenue Ser-
vice (REG–138637–07) 44,581
Releases of liens on mortgage loans held by REMICs (RP 30)
36,316
Reporting of uncertain tax positions (Ann 75) 41,428
Request for documents provided to independent auditors, policy
of restraint and uncertain tax positions (Ann 76) 41,432
Requirement of a statement disclosing uncertain tax positions
(REG–119046–10) 40,415
Revocation of Notice 2003–19 (Notice 53) 31,182
Revocations, exempt organizations (Ann 44) 28,54;(Ann45)
29,87; (Ann 47) 30,173;(Ann49)34,272;(Ann55)37,
346;(Ann57)38,386; correction to Ann 47 (Ann 59) 39,399;
correction to Ann 59 (Ann 77) 41,433; (Ann 84) 44,603;(Ann
80) 45,638; (Ann 89) 46,669
Section 43 inflation adjustment, 2010 (Notice 72) 46,661
Section 301.9100 relief for certain foreign eligible entities (RP
32) 36,320
Section 382 limitation:
Fluctuation in value, ownership changes (Notice 50) 27,12
Ownership changes, small shareholders (Notice 49) 27,10
Section 901(1) application to certain back-to-back licensing ar-
rangements and certain retail distribution arrangements (No-
tice 65) 41,424
Series limited liability companies (LLCs) and cell companies,
classification (REG–119921–09) 45,626
Standard Industry Fare Level (SIFL) formula (RR 22) 39,388
INCOME TAX—Cont.
Tax Convention:
U.S. –Belgium, agreement with respect to fellowship pay-
ments made to researchers (Ann 52) 36,315
U.S. –Greenland reciprocalexemption agreement (Ann 48)
32,234
Treatment of services under section 482, allocation of in-
come and deductions from intangibles, withdrawal of
REG–146893–09 and REG–115037–00 (Ann 60) 40,417
Tribal economic development bonds, extension of deadline to
issue (Ann 88) 47,753
User fees relating to enrollment and preparer tax identification
numbers (PTINs) (REG–139343–08) 33,256; (TD 9503) 47,
706
SELF-EMPLOYMENT TAX
Disclosures of return information reflected on returns to officers
and employees of the Department of Commerce for certain
statistical purposes and related activities (TD 9500) 46,649;
(REG–137486–09) 46,668
Electronic Funds Transfer(EFT) of depository taxes
(REG–153340–09) 42,469
Furnishing identifying number of tax return preparer (TD 9501)
46,651
Proposed Regulations:
26 CFR 301.6103(j)(1)–1, amended; disclosures of return in-
formation reflected on returns to officers and employees
of the Department of Commerce for certain statistical pur-
poses and related activities (REG–137486–09) 46,668
Regulations:
26 CFR 1.6109–2, amended; 602.101, amended; furnishing
identifying number of tax return preparer (TD 9501) 46,651
26 CFR 301.6103(j)(1)–1, –1T, amended; disclosures of re-
turn information reflected on returns to officers and em-
ployees of the Department of Commerce for certain statis-
tical purposes and relatedactivities (TD 9500) 46,649
2010–48 I.R.B.viiiNovember 29, 2010

November 29, 20102010–48 I.R.B.

2010–48 I.R.B.November 29, 2010

November 29, 20102010–48 I.R.B.

INTERNAL REVENUE BULLETIN
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