[Federal Register Volume 64, Number 151 (Friday, August 6, 1999)]
[Rules and Regulations]
[Pages 42831-42834]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19936]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 31
[TD 8832]
RIN 1545-AT56
Exception From Supplemental Annuity Tax on Railroad Employers
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations that provide guidance
to employers covered by the Railroad Retirement Tax Act. The Railroad
Retirement Tax Act imposes a supplemental tax on those employers, at a
rate determined by the Railroad Retirement Board, to fund the Railroad
Retirement Board's supplemental annuity benefit. These regulations
provide rules for applying the exception from the supplemental annuity
tax with respect to employees covered by a supplemental pension plan
established pursuant to a collective bargaining agreement and for
applying a related excise tax with respect to employees for whom the
exception applies.
DATES: Effective Date: These regulations are effective August 6, 1999.
Applicability Date: These regulations generally apply beginning on
October 1, 1998, except as provided in Sec. 31.3221-4(e)(2).
FOR FURTHER INFORMATION CONTACT: Linda S. F. Marshall, (202) 622-6030
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Employment Tax Regulations
(26 CFR part 31) under section 3221(d). On September 23, 1998, a notice
of proposed rulemaking was published in the Federal Register (63 FR
50819) under section 3221(d). The proposed
[[Page 42832]]
regulations provide guidance regarding the section 3221(d) exception
from the tax imposed under section 3221(c) with respect to employees
covered by a supplemental pension plan of the employer established
pursuant to an agreement reached through collective bargaining. Two
written comments were received on the proposed regulations. A public
hearing was held on the proposed regulations on January 20, 1999. After
consideration of the comments, the proposed regulations under section
3221(d) are adopted as revised by this Treasury decision.
Under the Railroad Retirement Act of 1974, as amended, codified at
45 U.S.C. 231 et seq., if an employee has performed at least 25 years
of covered service with the railroad industry, including service with
the railroad industry before October 1, 1981, the Railroad Retirement
Board (RRB) will pay the employee a supplemental annuity at retirement.
The monthly amount of the supplemental annuity ranges from $23 to $43,
based on the employee's number of years of service. See 45 U.S.C.
231b(e). Under 45 U.S.C. 231a(h)(2), the employee's supplemental
annuity is reduced by the amount of payments received by the employee
from any plan determined by the RRB to be a supplemental pension plan
of the employer, to the extent those payments are derived from employer
contributions.
Section 3221(c) imposes a tax on each railroad employer to fund the
supplemental annuity benefits payable by the RRB. The tax imposed under
section 3221(c) is based on work-hours for which compensation is paid.
The RRB establishes the rate of tax under section 3221(c) quarterly,
and calculates the rate to generate sufficient tax revenue to fund the
RRB's current supplemental annuity obligations.
Under section 3221(d), the tax imposed by section 3221(c) does not
apply to an employer with respect to employees who are covered by a
supplemental pension plan established pursuant to an agreement reached
through collective bargaining between the employer and employees.
However, if an employee for whom the employer is relieved of any tax
under the section 3221(d) exception becomes entitled to a supplemental
annuity from the RRB, the employer is subject to an excise tax equal to
the amount of the supplemental annuity paid to the employee (plus a
percentage determined by the RRB to be sufficient to cover
administrative costs attributable to those supplemental annuity
payments).
Section 3221(d) was enacted by Public Law 91-215, 84 Stat. 70,
which amended the Railroad Retirement Act of 1937 and the Railroad
Retirement Tax Act. The legislative history to Public Law 91-215
indicates that the exception under section 3221(d) from the tax imposed
under section 3221(c) was ``directed primarily at the situation
existing on certain short-line railroads which are owned by the steel
companies. The employees of these lines are, for the most part, covered
by other supplemental pension plans established pursuant to collective
bargaining agreements between the steel companies and the unions
representing the majority of their employees. * * * [T]hese railroads
will no longer be required to pay a tax to finance the supplemental
annuity fund, but will be required to reimburse the Railroad Retirement
Board for any supplemental annuities that their employees may be paid
upon retirement.'' S. Rep. 91-650, 91st Cong., 2d Sess. 6 (February 3,
1970).
Explanation of Provisions
These regulations retain the rules set forth in the proposed
regulations for determining whether a plan is a supplemental pension
plan established pursuant to an agreement reached through collective
bargaining. Under these regulations, a plan is a supplemental pension
plan only if the plan is a pension plan within the meaning of
Sec. 1.401-1(b)(1)(i). Under this definition, a plan is a pension plan
only if the plan is established and maintained primarily to provide
systematically for the payment of definitely determinable benefits to
employees over a period of years, usually for life, after retirement.
Thus, for example, a plan generally is not a supplemental pension plan
if distributions from the plan that are attributable to employer
contributions may be made prior to a participant's death, disability,
or termination of employment. See Rev. Rul. 74-254 (1974-1 C.B. 90);
Rev. Rul. 56-693 (1956-2 C.B. 282). A pension plan that is tax-
qualified under section 401(a) is subject to special rules with respect
to joint and survivor benefits under sections 401(a)(11) and 417.
One commentator requested clarification that these regulations do
not preclude a plan from being a supplemental pension plan merely
because the plan provides for a single sum distribution form (in
addition to providing for periodic payments as described above). A plan
is not precluded from being a pension plan within the meaning of
Sec. 1.401-1(b)(1)(i) merely because it provides for a single sum
distribution form in addition to providing for the required periodic
payment forms. See section 417(e)(1) and (2). Thus, the availability of
a single sum distribution form (offered in addition to the periodic
payment form or forms described above) does not preclude a plan from
being a supplemental pension plan under these regulations.
Another commentator requested clarification that a plan in which
the employer contribution is discretionary or conditioned on
contributions made at the election of employees pursuant to a qualified
cash or deferred arrangement described in section 401(k)(2) could not
qualify as a supplemental pension plan under section 3221(d) and the
regulations. A plan that provides for discretionary employer
contributions cannot be a pension plan under Sec. 1.401(b)-1(b)(1)(i)
because it does not provide for the payment of definitely determinable
benefits. Under section 401(k)(1), a qualified cash or deferred
arrangement under section 401(k) must be part of a profit-sharing or
stock bonus plan, a pre-ERISA money purchase plan, or a rural
cooperative plan. Thus, a plan that provides for a section 401(k)
qualified cash or deferred arrangement with employer matching
contributions cannot be a pension plan under Sec. 1.401(b)-1(b)(1)(i)
(unless the plan is a pre-ERISA money purchase plan or a rural
cooperative plan). Thus, apart from these narrow exceptions for certain
pre-ERISA and rural cooperative plans, neither of the types of plans
noted by the commentator could qualify as supplemental pension plans
under section 3221(d) and these regulations.
As provided in the proposed regulations, these regulations also
require that the RRB determine that a plan is a private pension under
its regulations in order for the plan to be a supplemental pension plan
under section 3221(d) and these regulations. This requirement is
included because the section 3221(d) exception to the section 3221(c)
tax is based on the assumption that any participant for whom the
exception applies will receive a reduced supplemental annuity because
of the supplemental pension plan on account of which the section
3221(c) tax is eliminated.
These regulations also retain the rules set forth in the proposed
regulations for determining whether a plan is established pursuant to a
collective bargaining agreement with respect to an employee. These
rules generally follow the rules applicable to qualified plans for this
purpose. Under these regulations, a plan is established pursuant to a
collective bargaining agreement with respect to an employee
[[Page 42833]]
only if the employee is included in the collective bargaining unit
covered by the collective bargaining agreement.
One commentator maintained that employers should also be exempted
from supplemental annuity tax with respect to nonbargaining unit
employees covered by a plan that is the subject of collective
bargaining. The IRS and Treasury Department have determined that it is
inappropriate to extend the exception to nonbargaining unit employees.
This determination is consistent with the RRB's administrative rulings.
As noted below, the final regulations include a delayed effective date
for this requirement.
Section 3221(d) imposes an excise tax equal to the amount of the
supplemental annuity paid to any employee with respect to whom the
employer has been excepted from the section 3221(c) excise tax under
the section 3221(d) exception. These regulations retain the rules set
forth in the proposed regulations for applying this excise tax under
section 3221(d).
Effective Date
These regulations generally apply beginning on October 1, 1998, as
provided in the proposed regulations. However, the IRS and Treasury
have determined that it is appropriate to provide a delayed
applicability date with respect to the portion of the final regulations
clarifying what constitutes a plan established pursuant to a collective
bargaining agreement with respect to an employee for purposes of
section 3221(d). Accordingly, the final regulations provide that the
definition in Sec. 31.3221-4(c) applies beginning on January 1, 2000.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action 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 Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations, and because the
regulation does not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations was submitted
to the Small Business Administration for comment on its impact on small
businesses.
Drafting Information
The principal author of these regulations is Linda S. F. Marshall,
Office of the Associate Chief Counsel (Employee Benefits and Exempt
Organizations). However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 31
Employment taxes, Fishing vessels, Gambling, Income taxes,
Penalties, Pensions, Railroad retirement, Reporting and recordkeeping
requirements, Social security, Unemployment compensation.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 31 is amended as follows:
PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME AT SOURCE
Paragraph 1. The authority citation for part 31 continues to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 31.3221-4 is added under the undesignated center
heading ``Tax on Employers'' to read as follows:
Sec. 31.3221-4 Exception from supplemental tax.
(a) General rule. Section 3221(d) provides an exception from the
excise tax imposed by section 3221(c). Under this exception, the excise
tax imposed by section 3221(c) does not apply to an employer with
respect to employees who are covered by a supplemental pension plan, as
defined in paragraph (b) of this section, that is established pursuant
to an agreement reached through collective bargaining between the
employer and employees, within the meaning of paragraph (c) of this
section.
(b) Definition of supplemental pension plan--(1) In general. A plan
is a supplemental pension plan covered by the section 3221(d) exception
described in paragraph (a) of this section only if it meets the
requirements of paragraphs (b)(2) through (b)(4) of this section.
(2) Pension benefit requirement. A plan is a supplemental pension
plan within the meaning of this section only if the plan is a pension
plan within the meaning of Sec. 1.401-1(b)(1)(i) of this chapter. Thus,
a plan is a supplemental pension plan only if the plan provides for the
payment of definitely determinable benefits to employees over a period
of years, usually for life, after retirement. A plan need not be funded
through a qualified trust that meets the requirements of section 401(a)
or an annuity contract that meets the requirements of section 403(a) in
order to meet the requirements of this paragraph (b)(2). A plan that is
a profit-sharing plan within the meaning of Sec. 1.401-1(b)(1)(ii) of
this chapter or a stock bonus plan within the meaning of Sec. 1.401-
1(b)(1)(iii) of this chapter is not a supplemental pension plan within
the meaning of this paragraph (b).
(3) Railroad Retirement Board determination with respect to the
plan. A plan is a supplemental pension plan within the meaning of this
paragraph (b) with respect to an employee only during any period for
which the Railroad Retirement Board has made a determination under 20
CFR 216.42(d) that the plan is a private pension, the payments from
which will result in a reduction in the employee's supplemental annuity
payable under 45 U.S.C. 231a(b). A plan is not a supplemental pension
plan for any time period before the Railroad Retirement Board has made
such a determination, or after that determination is no longer in
force.
(4) Other requirements. [Reserved]
(c) Collective bargaining agreement. A plan is established pursuant
to a collective bargaining agreement with respect to an employee only
if, in accordance with the rules of Sec. 1.410(b)-6(d)(2) of this
chapter, the employee is included in a unit of employees covered by an
agreement that the Secretary of Labor finds to be a collective
bargaining agreement between employee representatives and one or more
employers, provided that there is evidence that retirement benefits
were the subject of good faith bargaining between employee
representatives and the employer or employers.
(d) Substitute section 3221(d) excise tax. Section 3221(d) imposes
an excise tax on any employer who has been excepted from the excise tax
imposed under section 3221(c) by the application of section 3221(d) and
paragraph (a) of this section with respect to an employee. The excise
tax is equal to the amount of the supplemental annuity paid to that
employee under 45 U.S.C. 231a(b), plus a percentage thereof determined
by the Railroad Retirement Board to be sufficient to cover the
administrative costs attributable to such payments under 45 U.S.C.
231a(b).
(e) Effective date--(1) In general. Except as provided in paragraph
(e)(2) of this section, this section applies beginning on October 1,
1998.
(2) Delayed effective date for collective bargaining agreement
[[Page 42834]]
provisions. Paragraph (c) of this section applies beginning on January
1, 2000.
John M. Dalrymple,
Acting Deputy Commissioner of Internal Revenue.
Approved: July 9, 1999.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 99-19936 Filed 8-5-99; 8:45 am]
BILLING CODE 4830-01-P
