[Code of Federal Regulations]
[Title 26, Volume 5]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.401(a)(26)-9]

[Page 265-266]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.401(a)(26)-9  Effective dates and transition rules.

    (a) In general. Except as provided in paragraphs (b), (c), and (d) 
of this section, section 401(a)(26) and the regulations thereunder apply 
to plan years beginning on or after January 1, 1989.
    (b) Transition rules--(1) Governmental plans and certain section 
403(b) annuities. Section 401(a)(26) is treated as satisfied for plan 
years beginning before the later of January 1, 1996, or 90 days after 
the opening of the first legislative session beginning on or after 
January 1, 1996, of the governing body with authority to amend the plan, 
if that body does not meet continuously, in the case of governmental 
plans described in section 414(d), including plans subject to section 
403(b)(12)(A)(i) (nonelective plans). For purposes of this paragraph 
(b)(1), the term ``governing body with authority to amend the plan'' 
means the legislature, board, commission, council, or other governing 
body with authority to amend the plan.
    (2) Early retirement ``window-period'' benefits. Early retirement 
benefits available under a plan only to employees who retire within a 
limited period of time, not to exceed one year, are treated as 
satisfying section 401(a)(26) if such benefits are provided under plan 
terms that were adopted and in effect on or before March 14, 1989.
    (3) Employees who do not benefit because of a minimum-period-of-
service requirement or a last-day requirement. For the first plan year 
beginning after December 31, 1988, and before January 1, 1990, employees 
who are eligible to participate under the plan and who fail to accrue a 
benefit solely because of the failure to satisfy either a minimum-
period-of-service requirement of 1000 hours of service or less or a 
last-day requirement may be treated as benefiting under the plan.
    (4) Certain plan terminations--(i) In general. Except as provided in 
paragraph (b)(4)(ii) of this section, if a plan terminates after section 
401(a)(26) becomes effective with respect to the plan (as determined 
under paragraph (a) of this section), the plan is not treated as a 
qualified plan upon termination unless it complies with section 
401(a)(26) and the regulations thereunder (to the extent they are 
applicable) for all periods for which section 401(a)(26) is effective 
with respect to the plan.
    (ii) Exception. Notwithstanding paragraphs (a) and (b)(4)(i) of this 
section, a plan does not fail to be treated as a qualified plan upon 
termination merely because the plan fails to satisfy the requirements of 
section 401(a)(26) and the regulations thereunder if the plan is 
terminated with a termination date on or before December 31, 1989, and 
either of the following conditions is satisfied:
    (A) In the case of a defined benefit plan, no highly compensated 
employee has an accrued benefit under the plan exceeding the lesser of 
either the benefit the employee had accrued as of the close of the last 
plan year beginning before January 1, 1989, or the benefit the employee 
would have accrued as of the close of the last plan year under the terms 
of the plan in effect and applicable with respect to the employee on 
December 13, 1988.
    (B) In the case of a defined contribution plan, no highly 
compensated employee receives a contribution allocation for any plan 
year beginning after December 31, 1988. For this purpose, a contribution 
allocation with respect to an employee for a plan year beginning before 
January 1, 1989, may be treated as a contribution allocation for a plan 
year beginning after December 31, 1988, if the allocation for the prior 
year exceeds the allocation that the employee would have received for 
such year under the terms of the plan in effect and applicable with 
respect to the employee on December 13, 1988. An allocation of 
forfeitures to highly compensated employees with respect to 
contributions made for plan years beginning before January 1, 1988, does 
not cause a defined contribution plan to fail to satisfy the conditions 
of this paragraph (b)(4)(ii)(B).
    (5) ESOPs and non-ESOPs. Notwithstanding paragraph (a) of this 
section and Sec. 54.4975-11(a)(5) of this Chapter, an employer may 
treat the rule in Sec. 1.401(a)(26)-2(d)(1)(i), regarding mandatory 
disaggregation of ESOPs and non-ESOPs as not effective for plan years 
beginning before January 1, 1990.
    (c) Waiver of excise tax on reversions--(1) In general. Pursuant to 
section 1112(e)(3) of the Tax Reform Act of 1986

[[Page 266]]

(TRA '86), if certain conditions are satisfied, a waiver of the excise 
tax under section 4980 applies with respect to any employer reversion 
that occurs by reason of the termination or merger of a plan before the 
first year to which section 401(a)(26) applies to the plan. In general, 
the applicable conditions are that the plan must have been in existence 
on August 16, 1986; that if section 401(a)(26) was in effect for the 
plan year including August 16, 1986, the plan would have failed to 
satisfy the requirements of section 401(a)(26) and would have continued 
to fail the requirements at all times thereafter; that the plan 
satisfies the applicable conditions in paragraph (b)(4)(ii)(A) or (B) of 
this section; and that certain requirements regarding asset or liability 
transfers and mergers and spinoffs involving the plan after August 16, 
1986, are satisfied.
    (2) Termination date. An employer reversion with respect to a plan 
is eligible for the section 4980 excise tax waiver only if the employer 
reversion occurs by reason of the termination of the plan with a 
termination date prior to the first plan year for which section 
401(a)(26) applies to the plan. Solely for purposes of this waiver, the 
employer reversion is treated as satisfying this paragraph (c)(2) even 
though the plan's termination date is during the first plan year for 
which section 401(a)(26) applies to the plan if the plan's termination 
date is on or before May 31, 1989. If the termination date occurs in the 
first plan year for which section 401(a)(26) applied to the plan and the 
employer receives a reversion that is eligible for the waiver of the 
section 4980 tax, the plan is subject to the interest rate restriction 
set forth in section 11 12(e)(3)(B) of TRA `86 as amended.
    (3) Failure to satisfy section 401(a)(26). An employer reversion 
with respect to a plan is eligible for the excise tax waiver only if the 
plan was in existence on August 16, 1986, and, if section 401(a)(26) had 
applied to the plan for the plan year including such date, the plan 
would have failed to satisfy section 401(a)(26) for the plan year and 
continuously thereafter until the plan's termination or merger. For 
purposes of this paragraph (c)(3), a plan is treated as though it would 
have failed to satisfy section 401(a)(26) before such section actually 
applied to the plan only if the plan (as defined under section 414(1)) 
failed to benefit at least the lesser of 50 employees or 40 percent of 
the employer's employees. In general, this determination is to be made 
on the basis of only the applicable statutory provisions, without regard 
to the regulations under section 401(a)(26). Thus, for example, the 
prior benefit structure rules in Sec. 1.401(a)(26)-3 do not apply in 
determining whether a plan would have failed to satisfy section 
401(a)(26) for plan years beginning prior to the effective date of 
section 401(a)(26) with respect to the plan.
    (d) Special rule for collective bargaining agreements. In the case 
of a plan maintained pursuant to one or more collective bargaining 
agreements (as defined in Sec. 1.401(a)(26)-8(a)) that were ratified 
before March 1, 1986, section 401(a)(26) and the regulations thereunder 
shall not apply to plan years beginning before the earlier of--
    (1) January 1, 1991, or
    (2) The later of--
    (i) January 1, 1989, or
    (ii) The date on which the last of such collective bargaining 
agreements terminates. For purposes of this paragraph (d), any extension 
or renegotiation of any collective bargaining agreement that is ratified 
after February 28, 1986, is disregarded in determining the date on which 
such collective bargaining agreement terminates.

[T.D. 8375, 56 FR 63419, Dec. 4, 1991, as amended by T.D. 8487, 58 FR 
46838, Sept. 3, 1993]