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Federal Register / Vol. 71, No.

153 / Wednesday, August 9, 2006 / Rules and Regulations 45379

of any grant, scholarship, fellowship, or including the interaction between the benefits were being paid, in the case of
gift that you use or set aside to pay the anti-cutback rules of section 411(d)(6) a plan other than a multiemployer plan,
cost of tuition, fees, or other necessary and the nonforfeitability requirements or (2) in the case of a multiemployer
educational expenses at any educational of section 411(a). These regulations also plan, in the same industry, the same
institution, including vocational or provide a utilization test under which trade or craft, and the same geographic
technical institutions. The 9 months certain plan amendments are permitted area covered by the plan as when such
begin the month after the month you to eliminate or reduce certain early benefits commenced.
receive the educational assistance. retirement benefits, retirement-type The definition of employment for
(b)(1) We will count as a resource any subsidies, or optional forms of benefit. which benefit payments are permitted to
portion of a grant, scholarship, These regulations generally affect be suspended is set forth in 29 CFR
fellowship, or gift you (or your spouse, sponsors of, and participants and 2530.203–3 of the Department of Labor
if any) did not use or set aside to pay beneficiaries in, qualified retirement Regulations, which interprets section
tuition, fees, or other necessary plans. 203(a)(3)(B) of the Employee Retirement
educational expenses. We will count DATES: Effective Date: These regulations Income Security Act of 1974 (ERISA), as
such portion of a grant, scholarship, are effective August 9, 2006. amended, the counterpart to section
fellowship or gift as a resource in the Applicability Date: For dates of 411(a)(3)(B) of the Code. Employment
month following the month of receipt. applicability, see § 1.411(d)–3(j) of these that satisfies the conditions described in
(2) If you use any of the funds that regulations. section 203(a)(3)(B) of ERISA and the
were set aside for tuition, fees, or other regulations are referred to as ‘‘section
FOR FURTHER INFORMATION CONTACT:
necessary educational expenses for 203(a)(3)(B) service.’’ See 29 CFR
Pamela R. Kinard at (202) 622–6060 (not
another purpose within the 9-month 2530.203–3(c).
a toll-free number).
exclusion period, we will count such Under section 411(a)(10), a plan
SUPPLEMENTARY INFORMATION:
portion of the funds used for another amendment changing the plan’s vesting
purpose as income in the month you use Background schedule must satisfy certain
them. This document contains amendments requirements. Section 411(a)(10)(A)
(3) If any portion of the funds are no provides that a plan amendment
to 26 CFR part 1 under section 411(d)(6)
longer set aside for paying tuition, fees, changing any vesting schedule under
of the Code. These regulations revise
or other necessary educational expenses the plan does not satisfy the minimum
§ 1.411(d)–3 to provide guidance on the
within the 9-month exclusion period, vesting standards of section 411(a)(2) if
application of section 411(d)(6) to a plan
we will count the portion of the funds the nonforfeitable percentage of the
amendment that places greater
no longer set aside as income in the accrued benefit derived from employer
restrictions or conditions on a
month when they are no longer set aside contributions (determined as of the
participant’s rights to section 411(d)(6)
for paying tuition, fees, or other applicable amendment date) 1 of any
protected benefits, even if the
necessary educational expenses. We employee who is a participant in the
amendment merely adds a restriction or
will consider any remaining funds that plan is less than the nonforfeitable
condition that is permitted under the
are no longer set aside or used to pay percentage computed under the plan
vesting rules of section 411(a)(3)
tuition, fees, or other educational without regard to the amendment.
through (11). These rules are intended
expenses as a resource in the month Section 411(a)(10)(B) provides that a
to reflect Central Laborers’ Pension
following the month we count them as plan amendment changing any vesting
Fund v. Heinz, 541 U.S. 739 (2004).
income. schedule under the plan does not satisfy
These regulations also set forth
(4) We will count any portion of the minimum vesting standards of
standards for the utilization test, which
grants, scholarships, fellowships, or section 411(a)(2) unless each participant
is a permitted method of eliminating
gifts remaining unspent after the 9- with at least 3 years of service is
optional forms of benefit that are
month exclusion period as a resource permitted to elect to have his or her
burdensome to the plan and of de
beginning with the 10th month after you nonforfeitable percentage computed
minimis value to plan participants.
received the educational assistance. Section 401(a)(7) provides that a trust under the plan without regard to the
[FR Doc. E6–12942 Filed 8–8–06; 8:45 am] does not constitute a qualified trust plan amendment.
BILLING CODE 4191–02–P unless its related plan satisfies the Section 411(d)(6)(A) provides that a
requirements of section 411. Section plan is treated as not satisfying the
411(a) generally provides that an requirements of section 411 if the
employee’s right to the accrued benefit accrued benefit of a participant is
DEPARTMENT OF THE TREASURY
derived from employer contributions decreased by an amendment of the plan,
Internal Revenue Service must become nonforfeitable within a other than an amendment described in
specified period of service. Section section 412(c)(8) of the Code or section
26 CFR Part 1 411(a)(3) provides circumstances under 4281 of ERISA. Section 411(d)(6)(B)
which an employee’s benefit is provides that a plan amendment that
[TD 9280] has the effect of eliminating or reducing
permitted to be forfeited without
RIN 1545–BE10 violating section 411(a). Section an early retirement benefit or a
411(a)(3)(B) provides that a right to an retirement-type subsidy, or eliminating
Section 411(d)(6) Protected Benefits accrued benefit derived from employer an optional form of benefit, with respect
contributions is not treated as forfeitable to benefits attributable to service before
AGENCY: Internal Revenue Service (IRS),
solely because the plan provides that the amendment, is treated as
Treasury.
the payment of benefits is suspended for impermissibly reducing accrued
ACTION: Final regulations. benefits. This protection applies with
such period as the employee is
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SUMMARY: This document contains final employed, subsequent to the 1 The term applicable amendment date means the
regulations providing guidance on commencement of payment of such later of the effective date of the amendment or the
certain issues under section 411(d)(6) of benefits, either (1) by the employer who date that the amendmdent is adopted. See
the Internal Revenue Code (Code), maintains the plan under which such § 1.411(d)–3(g)(4).

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45380 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations

respect to an employee who satisfies the commenced payment of benefits. After guidance—a utilization test and the
preamendment conditions for the the two participants’ benefit payments interaction of the permitted forfeiture
subsidy either before or after the had commenced in 1996, the plan was rules under section 411(a) with the anti-
amendment. Section 411(d)(6)(B) also amended in 1998 to expand its cutback rules under section 411(d)(6)
authorizes the Secretary of the Treasury definition of disqualifying employment after taking into account the decision in
to provide, through regulations, that to include any employment in the same Central Laborers’.
section 411(d)(6)(B) does not apply to trade or craft, industry, and geographic In connection with the 2005 final
any plan amendment that eliminates an area covered by the plan, and the plan regulations, a notice of public
optional form of benefit (other than a stopped payments to the two rulemaking (REG–156518–04) under
plan amendment that has the effect of participants on account of their section 411(d)(6) of the Code was
eliminating or reducing an early disqualifying employment as published in the Federal Register (70
retirement benefit or a retirement-type construction supervisors. The two FR 47155) (the 2005 proposed
subsidy). participants sued to recover the regulations) to address the two reserved
Section 645(b)(1) of the Economic suspended payments, claiming that the topics discussed in this preamble. On
Growth and Tax Relief Reconciliation amendment expanding the plan’s December 6, 2005, the IRS held a public
Act of 2001, Public Law 107–16 (115 suspension provisions violated section hearing on the 2005 proposed
Stat. 38) (EGTRRA) amended section 204(g) of ERISA. regulations. Written comments
411(d)(6)(B) of the Code to direct the The Supreme Court, holding for the responding to the notice of public
Secretary of the Treasury to issue two participants, ruled that section rulemaking were also received. After
regulations providing that section 204(g) of ERISA prohibits a plan consideration of all the comments, the
411(d)(6)(B) does not apply to any amendment expanding the categories of 2005 proposed regulations are adopted,
amendment that reduces or eliminates post-retirement employment that result as amended by this Treasury Decision.
early retirement benefits or retirement- in suspension of the payment of early The revisions are discussed in this
type subsidies that create significant retirement benefits already accrued. The preamble.
burdens or complexities for the plan Court held that, while ERISA permits
Explanation of Provisions
and plan participants unless such certain conditions that are elements of
amendment adversely affects the rights the benefit itself (such as suspensions Application of Section 411(d)(6) to Plan
of any participant in a more than de under section 411(a)(3)(B) of the Code Amendments Affecting Vesting
minimis manner. and section 203(a)(3)(B) of ERISA), such In applying the holding in Central
Section 204(g) of ERISA contains a condition may not be imposed on a Laborers’, these regulations retain the
parallel rules to section 411(d)(6) of the benefit after the benefit has accrued, and rule in the 2005 proposed regulations
Code, including a similar directive to that the right to receive benefit that provides that a plan amendment
the Secretary of the Treasury to issue payments on a certain date may not be that places greater restrictions or
regulations providing that section 204(g) limited by a new condition narrowing conditions on a participant’s rights to
of ERISA does not apply to any that right. The Court agreed with the 7th section 411(d)(6) protected benefits by
amendment that reduces or eliminates Circuit that ‘‘[a] participant’s benefits adding or modifying a plan provision
early retirement benefits or retirement- cannot be understood without reference relating to suspension of benefit
type subsidies that create significant to the conditions imposed on receiving payments during a period of
burdens or complexities for the plan those benefits, and an amendment employment or reemployment violates
and plan participants unless such placing materially greater restrictions on section 411(d)(6). This rule applies for
amendment adversely affects the rights the receipt of the benefit ‘reduces’ the periods beginning on or after June 7,
of any participant in a more than de benefit just as surely as a decrease in the 2004, the date of the decision in Central
minimis manner. Under section 101 of size of the monthly benefit.’’ Central Laborers’. For relief limiting the
Reorganization Plan No. 4 of 1978 (43 Laborers’, 547 U.S. at 744, quoting retroactive application of Central
FR 47713) and section 204(g) of ERISA, Heinz v. Central Laborers’ Pension Laborers’, see the discussion under the
the Secretary of the Treasury has Fund, 303 F.3d 802, 805 (7th Cir. 2002). heading ‘‘Effective Dates’’ in this
interpretive jurisdiction over the subject On July 11, 1988, final regulations preamble.
matter addressed in these regulations for (TD 8212) under section 411(d)(6) were These regulations also address a
purposes of ERISA, as well as the Code. published in the Federal Register (53 broader question of the interaction of
Thus, these final regulations issued FR 26050). Those regulations are the vesting rules in section 411(a) with
under section 411(d)(6) of the Code also contained in § 1.411(d)–4 (the 1988 the requirements of section 411(d)(6),
apply for purposes of section 204(g) of regulations). On August 12, 2005, final applying the reasoning in Central
ERISA. regulations (TD 9219) under section Laborers’ to other situations. These
In Central Laborers’, the plaintiffs 411(d)(6) were published in the Federal regulations generally retain the rule in
were two inactive participants in a Register (70 FR 47109) (the 2005 final the 2005 proposed regulations that a
multiemployer pension plan who regulations). Those 2005 final plan amendment that decreases a
commenced payment of their benefits in regulations, which are largely contained participant’s accrued benefits, or
1996 after qualifying for subsidized in § 1.411(d)–3, set forth conditions otherwise places greater restrictions or
early retirement payments. The plan under which a plan amendment is conditions on a participant’s rights to
terms required that payments be permitted to eliminate an optional form section 411(d)(6) protected benefits,
suspended if a participant engaged in of benefit and to eliminate or reduce an violates section 411(d)(6), even if the
‘‘disqualifying employment.’’ At the early retirement benefit or a retirement- amendment merely adds a restriction or
time of their commencement of benefits, type subsidy that creates significant
condition that is otherwise permitted
the plan defined disqualifying burdens or complexities for the plan
under the vesting rules in section
employment to include only and its participants, but only if the
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411(a)(3) through (11).2 These


employment covered by the plan, but elimination does not adversely affect the
not work as a construction supervisor. rights of any participant in a more than 2 However, note that section 411(d)(6) does not
Both participants were employed as de minimis manner. However, those prohibit a plan amendment that reduces or
construction supervisors after they regulations reserved two topics for later suspends benefits under a multiemployer plan as

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 45381

regulations also provide examples of the 2005 proposed regulations for a plan Under the 2005 proposed regulations,
application of this rule, including an changing its vesting computation the look-back period was generally the
example illustrating, for changes in a period. Under this exception, a plan 2 plan years immediately preceding the
plan’s vesting schedule, the protection amendment that satisfies the rules for date on which the plan amendment
of a participant’s right to have post- changing a plan’s vesting computation eliminating the general optional form is
amendment vesting of the participant’s period, as set forth in applicable adopted. These regulations modify the
pre-amendment accrued benefit Department of Labor Regulations,3 does look-back period from the 2005
determined under the old vesting not fail to satisfy the requirements proposed regulations to include the
schedule. Of course, these regulations under section 411(d)(6) merely because portion of the plan year in which the
also retain the rule that such a plan the plan changes the plan’s vesting plan amendment is adopted that
amendment is permitted under section computation period. precedes the date of adoption (the pre-
411(d)(6) to the extent it applies to adoption period). Adding the pre-
Utilization Test
benefits accruing after the applicable adoption period to the look-back period
amendment date. These regulations generally retain the ensures that participants who elected
Some commentators agreed with the rule in the 2005 proposed regulations the generalized optional form with an
rule in the 2005 proposed regulations that a plan is permitted to be amended annuity commencement date within the
that adopts the holding and rationale of to eliminate optional forms of benefit year of adoption are taken into account.
Central Laborers’, but other that comprise a generalized optional However, in order to reduce burdens for
commentators raised concerns about the form 4 for a participant with respect to plans, the regulations permit a plan to
scope of the rule. Several commentators benefits accrued before the applicable exclude from the lookback period the
argued that Central Laborers’ only amendment date if certain requirements calendar month in which the
addresses the interaction of section relating to the use of the generalized amendment is adopted and the 1 or 2
411(d)(6) with the suspension of benefit optional form are satisfied. Under the preceding calendar months (to the
rules under section 411(a)(3)(B), and utilization test, a plan is not permitted extent those preceding months are
does not require the extension of its to eliminate any core option 5 offered within the pre-adoption period). These
holding to plan amendments relating to under the plan and the plan amendment regulations also retain the rule under
the other vesting provisions under eliminating the generalized optional the 2005 proposed regulations
section 411(a). Those commentators form cannot apply to an optional form permitting a plan to extend the look-
recommended that the regulations be of benefit with an annuity back period to include an additional 1,
revised to narrow the scope of the rule commencement date that is earlier than 2, or 3 plan years.
in the 2005 proposed regulations to the the number of days in the maximum Under the utilization test in the 2005
fact pattern in Central Laborers’. Other QJSA explanation period (for example, proposed regulations, the generalized
commentators recommended that the a 90-day period) after the date the optional form being eliminated must
final regulations provide that, for a plan amendment is adopted. The utilization have been available to at least 100
amendment changing the plan’s vesting test, along with the redundancy method participants who are taken into account
schedule, the rule in the 2005 proposed and the core options method, are three during the look-back period. A
regulations does not apply, so that permitted methods for eliminating or participant is generally taken into
reducing section 411(d)(6)(B) protected account only if, during the look-back
section 411(a)(10) would provide the
benefits. See § 1.411(d)–3(c), (d), and (e) period, the participant was eligible to
exclusive requirements for vesting
of the 2005 final regulations for rules commence payment of an optional form
schedule changes. Some of these
relating to the redundancy and core of benefit that is part of the generalized
commentators supported this request by
options methods. optional form being eliminated.
stating that the rule in the 2005 These regulations provide that, in
proposed regulations had the effect of However, the 2005 proposed regulations
order to eliminate a noncore optional provided that a participant is not taken
rendering section 411(a)(10) moot. form of benefit under the utilization
After consideration of the comments into account if the participant did not
test, the plan must satisfy two elect any optional form of benefit with
relating to the rule in the 2005 proposed
conditions. First, the generalized an annuity commencement date that is
regulations, the Treasury Department optional form must have been available
and the IRS believe that the holding and within the look-back period, elected an
to at least a minimum number of optional form of benefit that includes a
rationale in the Central Laborers’ participants who are taken into account
decision control and, thus, the rule in single-sum distribution that applies
during the relevant look-back period. with respect to at least 25% of the
the 2005 proposed regulations should be Second, no participant must have
retained, subject to a certain participant’s accrued benefit, elected an
elected the optional form of benefit that optional form of benefit that was only
modifications. In this regard, the is part of the generalized optional form
Treasury Department and the IRS note available during a limited period of time
with an annuity commencement date that contained a retirement-type subsidy
that the protection provided by section that is within the look-back period. that was not extended to the generalized
411(a)(10) applies with respect to future
optional form being eliminated, or
accruals, whereas the protection 3 See 29 CFR 2530.203–2(c) for rules relating to
elected an optional form of benefit with
extended by these regulations to changing a plan’s vesting computation period. See
also §§ 1.411(a)–8(b)(3) and 1.411(a)–8T(b)(3). an annuity commencement date that is
changes in a vesting schedule applies
4 The term generalized optional form is defined more than 10 years before normal
only with respect to benefits accrued in § 1.411(d)–3(g)(8) as a group of optional forms of retirement age.
before the applicable amendment date. benefit that are identical except for differences due Commentators recommended that the
However, in light of the comments, to the actuarial factors that are used to determine
regulations be revised to provide an
these final regulations provide a limited the amount of the distributions under those
optional forms of benefit and the annuity starting alternative for smaller plans that cannot
exception from the requirement in the meet the 100-participant requirement,
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dates.
5 The term core option is defined in § 1.411(d)–
even with the 5-year look-back rule.
permitted under section 411(a)(3)(F) (e.g., a plan 3(g)(5) as a straight life annuity, a 75% joint and
amendment to reduce benefits as permitted under contingent annuity, a 10-year term certain and life
Commentators also recommended that
section 418D or to suspend benefit payments as annuity, and the most valuable option for a the utilization test be revised to permit
permitted under section 418E). participant with a short life expectancy. a plan to use the utilization test to

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45382 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations

eliminate a general optional form even include specific reference to payments, the rules in these regulations
if a small percentage of participants amendments permitted under sections apply for periods beginning on or after
elected the generalized optional form. 418D and 418E (relating to, respectively, June 7, 2004. However, for a plan
The percentages proposed by the to multiemployer plans in amendment that places greater
commentators ranged from 1% to 5% of reorganization and accrued benefits restrictions or conditions on a
the participants. Commentators further attributable to employer contributions participant’s rights to section 411(d)(6)
recommended that the regulations be that are not eligible for the Pension protected benefits with respect to
revised to permit participants who Benefit Guaranty Corporation’s vesting, other than a plan amendment
elected single-sum distributions to be guarantee) as not being subject to the relating to a suspension of benefit
taken into account in determining the requirements of section 411(d)(6). See payments, the rules in these regulations
applicable number of participants. section 411(a)(3)(F), which permits the apply to plan amendments adopted after
In light of these comments, these reduction and suspension of accrued August 9, 2006.
regulations include a number of benefits by a multiemployer plan
revisions. In applying the utilization Applicability Date for Change to
pursuant to sections 418D and 418E, as Redundancy Rule Regarding Bifurcation
test, the generalized optional form must well as section 4281 of ERISA.
be available to at least the applicable of Benefits
These regulations also revise the
number of participants who are taken method for determining whether an The change to the regulations
into account. These regulations define optional form of benefit is within a permitting a plan to apply the
the term applicable number of family of optional forms of benefit for redundancy rules separately to each
participants as 50 participants. These purposes of eliminating redundant portion of a participant’s benefit to
regulations also set forth a special rule optional forms of benefit in situations in which separate distribution elections
that permits a plan to take into account which a plan permits a participant to apply is applicable for amendments
any participant who elects a single-sum make different distribution elections adopted after August 9, 2006.
distribution that applied with respect to with respect to two or more separate Applicability Date for Utilization Test
at least 25% of the participant’s accrued portions of the participant’s accrued
benefit, provided the applicable number The rules provided in the utilization
benefit. Comments were received
of participants is increased to 1,000 test are applicable for amendments
recommending that the regulations be
participants. adopted after December 31, 2006.
revised to permit a plan that provides
The Treasury Department and the IRS different elections with respect to Relief Limiting the Retroactive
continue to believe that the utilization separate portions of a participant’s Application of Central Laborers’
test, by its nature, determines which benefit (for example, plans with one set
optional forms are considered valuable Rev. Proc. 2005–23 (2005–18 I.R.B.
of generally applicable distribution 991), as modified by Rev. Proc. 2005–76
to participants. This determination is options and a second set of distribution
made by reference to participants’ (2005–50 I.R.B. 1139), limits the
options that apply only to a retroactive application of Central
elections. The fact that, during a 2-year participant’s benefit earned while
period, no participant in a substantial Laborers’ for qualified plans under
employed by a former employer) to be section 401(a) pursuant to the
number of participant elections elected permitted to apply the redundancy rules
any optional form of benefit that is Commissioner’s authority under section
separately to each set of distribution 7805(b)(8). Rev. Proc. 2005–23 provides
within a generalized optional form is a options.
compelling indication that elimination that a qualified plan will not be treated
In light of this comment, these as having failed to satisfy the
of that generalized optional form would regulations permit a plan to apply the
not adversely affect the rights of any requirements of section 401(a) merely
redundancy rules separately to each because a plan amendment that was
participant in a more than de minimis portion of the participant’s benefit to
manner. Conversely, if at least one adopted before June 7, 2004, violated
which separate distribution elections section 411(d)(6) by adding or
participant in the sample elected the apply as if that portion were the
generalized optional form, that election expanding a provision under which a
participant’s entire benefit. This change suspension of benefit provision occurs.
would provide significant evidence that
is similar to the bifurcation rule in To receive this treatment, a plan must
the elimination of the generalized
§ 1.417(a)(3)–1(c)(5)(iii), which permits adopt a reforming plan amendment,
optional form could adversely affect the
a plan that permits a participant to make comply operationally with the
rights of some other participant in a
separate distribution elections with reforming amendment, and provide to
more than de minimis manner. In
respect to two or more portions of the affected participants notice of the right
addition, a plan that satisfies the
participant’s benefit to describe the to elect retroactively to commence
requirements of the utilization test is
financial effect and relative value of payment of benefits. All of these actions
permitted to be amended to eliminate
combined optional forms of benefit must be completed on or before January
all of the optional forms of benefit that
separately for each such portion of the 1, 2007.
comprise a generalized optional form
benefit, rather than for each optional In response to the 2005 proposed
without having to satisfy separately the
form of benefit (for example, each regulations, some commentators
requirements of § 1.411(d)–3(e). Thus,
combination of possible elections). expressed concern on how section
these regulations retain the requirement
from the 2005 proposed regulations that Effective Dates 411(d)(6) would apply to plan
no participant must have elected any amendments adopted many years in the
Applicability Dates for Amendments past when both the rules for interpreting
optional form that is part of the
Relating to Vesting the suspension of benefit provisions
generalized optional form that is being
eliminated. With respect to a plan amendment under section 411(a)(3)(B) and the rules
that places greater restrictions or for satisfying section 411(d)(6) were still
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Other Issues conditions on a participant’s rights to being developed. Commentators


These regulations also include a few section 411(d)(6) protected benefits by specifically raised the issue of whether
modifications to the 2005 final adding or modifying a plan provision the adoption of a benefit suspension
regulations. Specifically, the regulations relating to suspension of benefit amendment in response to the final

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 45383

suspension of benefit regulations issued regulatory assessment is not required. It § 1.411(d)–3 Section 411(d)(6) protected
by the Department of Labor would has also been determined that section benefits.
violate section 411(d)(6).6 553(b) of the Administrative Procedure (a) Protection of accrued benefits—(1)
In light of these comments and taking Act (5 U.S.C. chapter 5) does not apply General rule. Under section
into account the Supreme Court’s to these regulations. In addition, 411(d)(6)(A), a plan is not a qualified
suggestion for relief in Central because no collection of information is plan (and a trust forming a part of such
Laborers’,7 the Treasury Department and imposed on small entities, the plan is not a qualified trust) if a plan
IRS believe that it is appropriate not to provisions of the Regulatory Flexibility amendment decreases the accrued
require that a plan correct under Rev. Act (5 U.S.C. chapter 6) do not apply, benefit of any plan participant, except
Proc. 2005–23 in order to qualify for and therefore, a Regulatory Flexibility as provided in section 412(c)(8), section
relief from disqualification under Analysis is not required. Pursuant to 4281 of the Employee Retirement
section 401(a) for a plan amendment section 7805(b) of the Code, the notice Income Security Act of 1974 as
that added or expanded a suspension of of proposed rulemaking preceding these amended (ERISA), or other applicable
benefit provision if the amendment was regulations was submitted to the Small law (see, for example, sections 418D and
adopted before the effective date of the Business Administration for comment 418E of the Internal Revenue Code, and
1988 regulations under section on its impact on small business. section 1541(a)(2) of the Taxpayer Relief
411(d)(6). Providing this section 7805(b) Act of 1997, Public Law 105–34 (111
treatment for any such amendment is Drafting Information Stat. 788, 1085)). * * *
appropriate because it would be The principal author of these * * * * *
difficult to determine whether a plan regulations is Pamela R. Kinard of the (3) Application of section 411(a)
amendment adding or expanding a Office of the Division Counsel/Associate nonforfeitability provisions with respect
suspension of benefit payment that was Chief Counsel (Tax Exempt and to section 411(d)(6) protected benefits—
adopted at that time violated section Government Entities), Internal Revenue (i) In general. The rules of this
411(d)(6). In addition, any correction Service. However, personnel from other paragraph (a) apply to a plan
made for any affected plan participant offices of the Internal Revenue Service amendment that decreases a
would likely be insignificant (especially and Treasury Department participated participant’s accrued benefits, or
in light of subsequent accruals), while in their development. otherwise places greater restrictions or
creating significant administrative conditions on a participant’s rights to
burdens for the plan. List of Subjects in 26 CFR Part 1
section 411(d)(6) protected benefits,
Accordingly, pursuant to the Income taxes, Reporting and even if the amendment merely adds a
Commissioner’s authority under section recordkeeping requirements. restriction or condition that is permitted
7805(b)(8), a plan will not fail to satisfy
Adoption of Amendments to the under the vesting rules in section
section 401(a) merely because the plan
Regulations 411(a)(3) through (11). However, such
was amended to add or expand a
an amendment does not violate section
suspension of benefit provision, ■Accordingly, 26 CFR part 1 is 411(d)(6) to the extent it applies with
provided that the amendment was amended as follows: respect to benefits that accrued prior to
adopted before January 1, 1989. In the
the applicable amendment date. See
case of collectively bargained plans, this PART 1—INCOME TAXES section 411(a)(10) and § 1.411(a)–8 for
relief applies to plan amendments
■ Paragraph 1. The authority citation additional rules relating to changes in a
adopted before January 1, 1991. These
dates are based on the effective dates of for part 1 continues to read in part as plan’s vesting schedule.
follows: (ii) Exception for changes in a plan’s
the 1988 regulations under § 1.411(d)–4
vesting computation period.
for plans generally existing as of August Authority: 26 U.S.C. 7805 * * * Notwithstanding paragraph (a)(3)(i) of
1, 1986.
■ Par. 2. Section 1.411(a)–8 is amended this section, a plan amendment that
Special Analyses by adding paragraph (c)(3) to read as satisfies the applicable requirements
It has been determined that this follows: under 29 CFR 2530.203–2(c) (rules
Treasury decision is not a significant relating to vesting computation periods)
§ 1.411(a)–8 Changes in vesting schedule.
regulatory action as defined in does not fail to satisfy the requirements
* * * * * of section 411(d)(6) merely because the
Executive Order 12866. Therefore, a
(c) * * * plan amendment changes the plan’s
6 See 29 CFR 2530.203–3, providing rules that (3) Relationship with section vesting computation period.
permit a plan to withhold permanently a plan 411(d)(6). For additional requirements (4) * * *
participant’s benefit payments on account of a relating to section 411(d)(6), see Example 3. (i) Facts. Employer N maintains
continuation of employment or reemployment after § 1.411(d)–3(a)(3).
the payments commenced. See also Notice 82–23 Plan C, a qualified defined benefit plan under
(1982–2 C.B. 752) (providing guidance on the need * * * * * which an employee becomes a participant
to amend and the timing for a plan to be amended ■ Par. 3. Section 1.411(d)–3 is amended
upon completion of 1 year of service and is
to comply with the final suspension of benefit vested in 100% of the employer-derived
regulations). by: accrued benefit upon completion of 5 years
7 The Court stated in Central Laborers’: ■ 1. Revising the first sentence of of service. Plan C provides that a former
Nothing we hold today requires the IRS to revisit paragraph (a)(1). employee’s years of service prior to a break
the tax-exempt status in past years of plans that ■ 2. Revising paragraphs (a)(3) and (f). in service will be reinstated upon completion
were amended in reliance on the agency’s ■ 3. Adding Examples 3 and 4 to of 1 year of service after being rehired. Plan
representations in its manual by expanding the C has participants who have fewer than 5
categories of work that would trigger suspension of paragraph (a)(4), Example 3 to
paragraph (b)(4), and Example 6 to years of service and who are accordingly 0%
benefit payments as to already-accrued benefits.
vested in their employer-derived accrued
The Internal Revenue Code gives the Commissioner paragraph (h).
jlentini on PROD1PC65 with RULES

discretion to decline to apply decisions of this benefits. On December 31, 2007, effective
■ 4. Adding paragraphs (c)(6), (j)(3), January 1, 2008, Plan C is amended, in
Court retroactively * * *. This would doubtless be
an appropriate occasion for exercise of that (j)(4), and (j)(5). accordance with section 411(a)(6)(D), to
discretion. The revisions and additions read as provide that any nonvested participant who
Central Laborers’, 541 U.S. at 748, n.4. follows: has at least 5 consecutive 1-year breaks in

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45384 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations

service and whose number of consecutive 1- participant who has fewer than 5 years of benefits that accrued before January 1, 2007.
year breaks in service exceeds his or her service and who elected (or was made subject The result would be the same even if the
number of years of service before the breaks to) the new vesting schedule. A method of amendment did not apply to former
will have his or her pre-break service avoiding a section 411(d)(6) violation with employees and instead applied only to
disregarded in determining vesting under the respect to account balances attributable to participants who were actively employed at
plan. benefits accrued as of the applicable the time of the applicable amendment.
(ii) Conclusion. Under paragraph (a)(3) of amendment date and earnings would be for * * * * *
this section, the plan amendment does not Plan D to provide for the vested percentage (c) * * *
satisfy the requirements of this paragraph (a), of G and each other participant in Plan E to (6) Separate application of
and thus violates section 411(d)(6), because be no less than the greater of the vesting redundancy rules for bifurcated
the amendment places greater restrictions or percentages under the two vesting schedules
conditions on the rights to section 411(d)(6) (for example, for G and each other participant benefits. If a plan permits the
protected benefits, as of January 1, 2008, for in Plan E to be 20% vested upon completion participant to make different
participants who have fewer than 5 years of of 3 years of service, 40% vested upon distribution elections with respect to
service, by restricting the ability of those completion of 4 years of service, and fully two or more separate portions of the
participants to receive further vesting vested upon completion of 5 years of service) participant’s benefit, the rules of this
protections on benefits accrued as of that for those account balances and earnings. paragraph (c) are permitted to be
date. applied separately to each such portion
(b) * * *
Example 4. (i) Facts. (A) Employer O of the participant’s benefit as if that
sponsors Plan D, a qualified profit sharing
(4)* * *
plan under which each employee has a
Example 3. (i) Facts. Plan C, a portion were the participant’s entire
multiemployer defined benefit plan in which benefit. Thus, for example, if one set of
nonforfeitable right to a percentage of his or
participation is limited to electricians in the distribution elections applies to a
her employer-derived accrued benefit based
construction industry, provides that a portion of the participant’s accrued
on the following table:
participant may elect to commence
benefit and another set of distribution
distributions only if the participant is not
Completed years of service Nonforfeitable currently employed by a participating elections applies to the other portion of
percentage the participant’s accrued benefit, then
employer and provides that, if the participant
has a specified number of years of service with respect to one portion of the
Fewer than 3 ...................... 0
3 ......................................... 20
and attains a specified age, the distribution participant’s benefit, the determination
is without any actuarial reduction for of whether any optional form of benefit
4 ......................................... 40
commencement before normal retirement is within a family of optional forms of
5 ......................................... 60
age. Since the plan’s inception, Plan C has benefit is permitted to be made
6 ......................................... 80
provided for suspension of pension benefits
7 ......................................... 100 disregarding elections that apply to the
during periods of disqualifying employment
(ERISA section 203(a)(3)(B) service). Before other portion of the participant’s
(B) In January 2006, Employer O acquires 2007, the plan defined disqualifying benefit. Similarly, if a participant can
Company X, which maintains Plan E, a employment to include any job as an elect to receive any portion of the
qualified profit sharing plan under which electrician in the particular industry and accrued benefit in a single sum and the
each employee who has completed 5 years of geographic location to which Plan C applies. remainder pursuant to a set of
service has a nonforfeitable right to 100% of This definition of disqualifying employment
the employer-derived accrued benefit. In
distribution elections, the rules of this
did not cover a job as an electrician paragraph (c) are permitted to be
2007, Plan E is merged into Plan D. On the supervisor. In 2005, Participant E, having
effective date for the merger, Plan D is applied separately to the set of
rendered the specified number of years of
amended to provide that the vesting schedule service and attained the specified age to distribution elections that apply to the
for participants of Plan E is the 7-year graded retire with a fully subsidized early retirement portion of the participant’s accrued
vesting schedule of Plan D. In accordance benefit, retires from E’s job as an electrician benefit that is not payable in a single
with section 411(a)(10)(A), the plan with Employer Y and starts a position with sum (for example, for the portion of a
amendment provides that any participant of Employer Z as an electrician supervisor. participant’s benefit that is not paid in
Plan E who had completed 5 years of service Employer Z is not a participating employer a single sum, the determination of
prior to the amendment is fully vested. In in Plan C but is an employer in the same
addition, as required under section
whether any optional form of benefit is
industry and geographic location as within a family of optional forms of
411(a)(10)(B), the amendment provides that Employer Y. When E left service with
any participant in Plan E who has at least 3 Employer Y, E’s position as an electrician benefit is permitted to be made
years of service prior to the amendment is supervisor was not disqualifying disregarding the fact that the other
permitted to make an irrevocable election to employment for purposes of Plan C’s portion of the participant’s benefit is
have the vesting of his or her nonforfeitable suspension of pension benefit provision, and paid in a single sum).
right to the employer-derived accrued benefit E elected to commence benefit payments in * * * * *
determined under either the 5-year cliff 2005. In 2006, effective January 1, 2007, Plan (f) Utilization test—(1) General rule. A
vesting schedule or the 7-year graded vesting C is amended to expand the definition of
schedule. Participant G, who has an account
plan is permitted to be amended to
disqualifying employment to include any job
balance of $10,000 on the applicable (including supervisory positions) as an
eliminate all of the optional forms of
amendment date, is a participant in Plan E electrician in the same industry and benefit that comprise a generalized
with 2 years of service as of the applicable geographic location to which Plan C applies. optional form (as defined in paragraph
amendment date. As of the date of the The plan’s definition of disqualifying (g)(8) of this section) for a participant
merger, Participant G’s nonforfeitable right to employment satisfies the requirements of with respect to benefits accrued before
G’s employer-derived accrued benefit is 0% section 411(a)(3)(B). On January 1, 2007, E’s the applicable amendment date if—
under both the 7-year graded vesting pension benefits are suspended because of (i) None of the optional forms of
schedule of Plan D and the 5-year cliff E’s disqualifying employment as an benefit being eliminated is a core
vesting schedule of Plan E. electrician supervisor. option, within the meaning of paragraph
(ii) Conclusion. Under paragraph (a)(3) of (ii) Conclusion. Under paragraphs (a)(3)
this section, the plan amendment does not and (b)(1) of this section, the 2007 plan
(g)(5) of this section;
(ii) The plan amendment is not
jlentini on PROD1PC65 with RULES

satisfy the requirements of this paragraph (a) amendment violates section 411(d)(6),
and violates section 411(d)(6), because the because the amendment places greater applicable with respect to an optional
amendment places greater restrictions or restrictions or conditions on a participant’s form of benefit with an annuity
conditions on the rights to section 411(d)(6) rights to section 411(d)(6) protected benefits commencement date that is earlier than
protected benefits with respect to G and any to the extent it applies with respect to the number of days in the maximum

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Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations 45385

Qualified Joint and Survivor Annuity optional form being eliminated with an (B) Utilization test. In 2007, the plan
explanation period (as defined in annuity commencement date that is sponsor of Plan G, after reviewing
paragraph (g)(9) of this section) after the within the look-back period. However, a participants’ benefit elections, determines
participant is not taken into account if that, during the period from January 1, 2005,
date the amendment is adopted;
through June 30, 2007, no participant has
(iii) During the look-back period— the participant— elected a 5-year term certain and life annuity
(A) The generalized optional form has (i) Did not elect any optional form of with a social security leveling option. During
been available to at least the applicable benefit with an annuity commencement that period, Plan G has made the 5-year term
number of participants who are taken date that was within the look-back certain and life annuity with a social security
into account under paragraph (f)(3) and period; leveling option available to 142 participants
(4) of this section; and (ii) Elected an optional form of benefit who were at least age 55 and who elected
(B) No participant has elected any that included a single-sum distribution optional forms of benefit with an annuity
optional form of benefit that is part of that applied with respect to at least 25% commencement dates during that period. In
the generalized optional form with an of the participant’s accrued benefit; addition, during that period, 20 of the 142
annuity commencement date that is (iii) Elected an optional form of participants elected a single-sum distribution
and there was no retirement-type subsidy
within the look-back period. benefit that was only available during a available for a limited period of time. Plan G,
(2) Look-back period—(i) In general. limited period of time and that in accordance with paragraph (f)(1) of this
For purposes of this paragraph (f), the contained a retirement-type subsidy section, is amended on September 15, 2007,
look-back period is the period that where the subsidy that is part of the effective as of January 1, 2008, to eliminate
includes— generalized optional form being all 5-year term certain and life annuities with
(A) The portion of the plan year in eliminated was not extended to any a social security leveling option for all
which such plan amendment is adopted optional form of benefit with the same annuity commencement dates on or after
that precedes the date of adoption (the annuity commencement date; or January 1, 2008.
pre-adoption period); and (iv) Elected an optional form of (ii) Conclusion. The amendment satisfies
(B) The 2 plan years immediately benefit with an annuity commencement the requirements of paragraph (f) of this
preceding the pre-adoption period. section. First, the 5-year term certain and life
date that was more than 10 years before annuity with a social security leveling option
(ii) Special look-back period rules— normal retirement age. is not a core option as defined in paragraph
(A) 12-month plan year. In the look- (4) Determining the applicable (g)(5) of this section. Second, the plan
back period, at least 1 of the plan years number of participants. For purposes of amendment is not applicable with respect to
must be a 12-month plan year. applying the rules in this paragraph (f), an optional form of benefit with an annuity
(B) Permitted 3-month exclusion in the applicable number of participants is commencement date that is earlier than the
the pre-adoption period. A plan is 50 participants. However, number of days in the maximum QJSA
permitted to exclude from the look-back notwithstanding paragraph (f)(3)(ii) of explanation period after the date the
period the calendar month in which the this section, a plan is permitted to take amendment is adopted. Third, the 5-year
amendment is adopted and the into account any participant who term certain and life annuity with a social
preceding 1 or 2 calendar months to the security leveling option has been available to
elected an optional form of benefit that at least 50 participants who are taken into
extent those preceding months are included a single-sum distribution that account for purposes of paragraph (f) of this
contained within the pre-adoption applied with respect to at least 25% of section during the look-back period. Fourth,
period. the participant’s accrued benefit, but during the look-back period, no participant
(C) Permission to extend the look- only if the applicable number of elected any optional form that is part of the
back period. In order to have a look- participants is increased to 1,000 generalized optional form being eliminated
back period that satisfies the minimum participants. (for example, the 5-year term and life annuity
applicable number of participants (5) Default elections. For purposes of with a social security leveling option).
requirement in paragraph (f)(1)(iii)(A) of this paragraph (f), an election includes * * * * *
this section, the look-back period the payment of an optional form of (j) * * *
described in paragraph (f)(2)(i)(B) of this benefit that applies in the absence of an (3) Effective dates for rules relating to
section is permitted to be expanded, so affirmative election. section 411(a) nonforfeitability
as to include the 3, 4, or 5 plan years * * * * * provisions—(i) Application of
immediately preceding the plan year in (h) * * * suspension of benefit rules to section
which the amendment is adopted. Thus, 411(d)(6) protected benefits. With
Example 6. (i) Facts involving elimination
in determining the look-back period, a of noncore options using utilization test—(A)
respect to a plan amendment that places
plan is permitted to substitute the 3, 4, In general. Plan G is a calendar year defined greater restrictions or conditions on a
or 5 plan years immediately preceding benefit plan under which participants may participant’s rights to section 411(d)(6)
the pre-adoption period for the 2 plan elect to commence distributions after protected benefits by adding or
years described in paragraph (f)(2)(i)(B) termination of employment in the following modifying a plan provision relating to
of this section. However, if a plan does actuarially equivalent forms, with spousal suspension of benefit payments during
not satisfy the minimum applicable consent, if applicable: a straight life annuity; a period of employment or
number of participants requirement of a 50%, 75%, or 100% joint and contingent reemployment, the rules provided in
annuity; or a 5-year, 10-year, or a 15-year
paragraph (f)(1)(iii)(A) of this section term certain and life annuity. A participant paragraph (a)(3) of this section apply to
using the pre-adoption period and the is permitted to elect a single-sum distribution periods beginning on or after June 7,
immediately preceding 5 plan years, the if the present value of the participant’s 2004.
plan is not permitted to be amended in nonforfeitable accrued benefit is not greater (ii) Application of section 411(a)
accordance with the utilization test in than $5,000. The annuities offered under the nonforfeitability provisions to section
this paragraph (f). plan are generally available both with and 411(d)(6) protected benefits. With
(3) Participants taken into account. A without a social security leveling feature. The respect to a plan amendment that places
participant is taken into account for social security leveling feature provides for greater restrictions or conditions on a
jlentini on PROD1PC65 with RULES

an assumed commencement of social security


purposes of this paragraph (f) only if the benefits at any age selected by the participant participant’s rights to section 411(d)(6)
participant was eligible to elect to between the ages of 62 and 67. Under Plan protected benefits other than a plan
commence payment of an optional form G, the normal retirement age is defined as age amendment described in paragraph
of benefit that is part of the generalized 65. (j)(3)(i) of this section, the rules

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45386 Federal Register / Vol. 71, No. 153 / Wednesday, August 9, 2006 / Rules and Regulations

provided in paragraph (a)(3) of this District Bridge Branch Office maintains ACTION: Notice of temporary deviation
section apply to plan amendments the public docket for this temporary from regulations.
adopted after August 9, 2006. deviation.
(4) Effective date for change to SUMMARY: The Commander, First Coast
FOR FURTHER INFORMATION CONTACT: Judy Guard District, has issued a temporary
redundancy rule regarding bifurcation Leung-Yee, Project Officer, First Coast
of benefits. The rules provided in deviation from the regulation governing
Guard District, at (212) 668–7195. the operation of the Loop Parkway
paragraph (c)(6) of this section are
SUPPLEMENTARY INFORMATION: The Bridge across Long Creek at mile 0.7, at
applicable for amendments adopted
after August 9, 2006. Marine Parkway Bridge, across Jamaica Jones Beach, New York. Under this
(5) Effective date for rules relating to Bay at mile 3.0, at Queens, New York, temporary deviation, the Loop Parkway
utilization test. The rules provided in has a vertical clearance in the closed Bridge need not open for the passage of
paragraph (f) of this section are position of 55 feet at mean high water vessel traffic from 8:30 a.m. through
applicable for amendments adopted and 59 feet at mean low water. The 11:30 a.m. and 1:30 p.m. through 4:30
after December 31, 2006. existing drawbridge operation p.m., daily, from September 6, 2006
regulations are listed at 33 CFR through October 26, 2006. A single
* * * * * 117.795(a). bridge opening for all inbound
Mark E. Matthews, The owner of the bridge, MTA Bridges commercial fishing vessels shall be
Deputy Commissioner for Services and and Tunnels, requested a temporary provided, if a request to open the bridge
Enforcement. deviation to facilitate bridge inspection is given, during the 1:30 p.m. to 4:30
operations. The bridge will not be able p.m. bridge closure period. This
Approved: July 31, 2006. to open while the bridge inspection deviation is necessary to facilitate
Eric Solomon, operation is underway. scheduled bridge maintenance.
Acting Deputy Assistant Secretary of the Under this temporary deviation, the
Treasury (Tax Policy). DATES: This deviation is effective from
Marine Parkway Bridge across Jamaica September 6, 2006 through October 26,
[FR Doc. E6–12885 Filed 8–8–06; 8:45 am] Bay at mile 3.0 need not open for the 2006.
BILLING CODE 4830–01–P passage of vessel traffic between 7 a.m.
ADDRESSES: Materials referred to in this
and 3 p.m. on August 28, 2006 and
document are available for inspection or
August 29, 2006.
In accordance with 33 CFR 117.35(c), copying at the First Coast Guard
DEPARTMENT OF HOMELAND
this work will be performed with all due District, Bridge Branch Office, One
SECURITY
speed in order to return the bridge to South Street, New York, New York
Coast Guard normal operation as soon as possible. 10004, between 7 a.m. and 4 p.m.,
Should the bridge maintenance Monday through Friday, except Federal
33 CFR Part 117 authorized by this temporary deviation holidays. The telephone number is (212)
be completed before the end of the 668–7165. The First Coast Guard
[CGD01–06–105] District Bridge Branch Office maintains
effective period published in this notice,
the Coast Guard will rescind the the public docket for this temporary
Drawbridge Operation Regulations; deviation.
Jamaica Bay and Connecting remainder of this temporary deviation,
Waterways, Queens, NY and the bridge shall be returned to its FOR FURTHER INFORMATION CONTACT: Judy
normal operating schedule. Notice of Leung-Yee, Project Officer, First Coast
AGENCY: Coast Guard, DHS. the above action shall be provided to the Guard District, at (212) 668–7195.
ACTION: Notice of temporary deviation public in the Local Notice to Mariners SUPPLEMENTARY INFORMATION: The Loop
from regulations. and the Federal Register, where Parkway Bridge, across Long Creek at
practicable. mile 0.7, at Jones Beach, New York, has
SUMMARY: The Commander, First Coast
This deviation from the operating a vertical clearance in the closed
Guard District, has issued a temporary regulations is authorized under 33 CFR
deviation from the regulation governing position of 21 feet at mean high water
117.35. and 25 feet at mean low water. The
the operation of the Marine Parkway
Bridge across Jamaica Bay at mile 3.0, at Dated: August 1, 2006. existing drawbridge operation
Queens, New York. Under this Gary Kassof, regulations are listed at 33 CFR
temporary deviation, the Marine Bridge Program Manager, First Coast Guard 117.799(f).
District. The owner of the bridge, New York
Parkway Bridge need not open for the
[FR Doc. E6–12983 Filed 8–8–06; 8:45 am]
State Department of Transportation,
passage of vessel traffic between 7 a.m.
requested a temporary deviation to
and 3 p.m. on August 28, 2006 and BILLING CODE 4910–15–P
facilitate bridge painting operations.
August 29, 2006. This deviation is
The bridge will not be able to open
necessary to facilitate scheduled bridge
DEPARTMENT OF HOMELAND while the bridge painting operation is
maintenance.
SECURITY underway.
DATES: This deviation is effective from Under this temporary deviation, the
August 28, 2006 through August 29, Loop Parkway Bridge across Long Creek
Coast Guard
2006. at mile 0.7, need not open for the
ADDRESSES: Materials referred to in this 33 CFR Part 117 passage of vessel traffic from 8:30 a.m.
document are available for inspection or through 11:30 a.m. and from 1:30 p.m.
copying at the First Coast Guard [CGD01–06–099] through 4:30 p.m., daily, from
District, Bridge Branch Office, One September 6, 2006 through October 26,
Drawbridge Operation Regulations;
South Street, New York, New York, 2006. All inbound commercial fishing
jlentini on PROD1PC65 with RULES

Long Island, New York Inland


10004, between 7 a.m. and 4 p.m., vessels shall be provided a single bridge
Waterway From East Rockaway Inlet to
Monday through Friday, except Federal opening during the 1:30 p.m. through
Shinnecock Canal, Jones Beach, NY
holidays. The telephone number is (212) 4:30 p.m. bridge closure period each day
668–7165. The First Coast Guard AGENCY: Coast Guard, DHS. provided a bridge opening request is

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