26 CFR § 1.401(l)-4 - Special rules for railroad plans.
(a) In general. Section 401(l)(6) provides that, in the case of a plan maintained by a railroad employer that covers employees who are entitled to benefits under the Railroad Retirement Act of 1974, in determining whether such a plan satisfies section 401(l), rules similar to the rules under section 401(l) apply and such rules take into account the employer-derived portion of tier 2 and supplemental annuity benefits provided under the railroad retirement system. In general, for purposes of determining whether a defined contribution plan or a defined benefit plan maintained by a railroad employer and covering employees described in te preceding sentence, satisfies section 401(l), the employer-derived portion of an employee's tier 2 benefits and supplementary annuity benefits under the Railroad Retirement Act of 1974 are treated as though such benefits were provided by the railroad employer under a qualified plan. Paragraph (b) of this section contains rules for defined contribution plans. Paragraph (c) of this section contains rules for defined benefit excess plans. Paragraph (d) of this section contains rules for offset plans. Paragraph (e) of this section contains definitions and additional rules of application.
(b) Defined contribution plans—(1) In general. A defined contribution plan maintained by a railroad employer satisfies section 401(l) and § 1.401(l)–2 for a plan year only if the plan satisfies paragraph (b)(2) or (b)(3) of this section for the plan year.
(2) Single integration level method—(i) In general. A plan satisfies this paragraph (b)(2) if—
(A) The plan specifies a single integration level for all employees that does not exceed the railroad retirement taxable wage base in effect as of the beginning of the plan year,
(B) The plan uses the same base contribution percentage and the same excess contribution percentage for all employees, and
(C) The excess contribution percentage does not exceed the sum of 11.4 percentage points and the base contribution percentage.
(ii) Definitions. The following definitions govern for purposes of this paragraph (b)(2).
(A) Base contribution percentage means the rate at which employer contributions are allocated to the account of an employee under the plan with respect to the employee's plan year compensation at or below the railroad retirement taxable wage base (expressed as a percentage of such plan year compensation).
(B) Excess contribution percentage means the rate at which employer contributions are allocated to the account of an employee under the plan with respect to the employee's plan year compensation above the railroad retirement taxable wage base (expressed as a percentage of such plan year compensation).
(3) Two integration level method—(i) In general. A plan satisfies this paragraph (b)(3) if—
(A) The plan specifies two integration levels for all employees, equal to the railroad retirement taxable wage base in effect as of the beginning of the plan year and the taxable wage base in effect as of the beginning of the plan year, and
(B) The plan satisfies paragraphs (b)(3) (ii) and (iii) of this section.
(ii) Total disparity requirement. A plan satisfies this paragraph (b)(3)(ii) if—
(A) The plan uses the same base contribution percentage and the same excess contribution percentage for all employees, and
(B) The excess contribution percentage does not exceed the sum of 11.4 percentage points and the base contribution percentage.
(iii) Intermediate disparity requirement. A plan satisfies this paragraph (b)(3)(iii) if—
(A) The plan uses the same base contribution percentage and the same intermediate contribution percentage for all employees, and
(B) The intermediate contribution percentage does not exceed the sum of 5.7 percentage points and the base contribution percentage.
(iv) Definitions. The following definitions govern for purposes of this paragraph (b)(3).
(A) Base contribution percentage means the rate at which employer contributions are allocated to the account of an employee under the plan with respect to the employee's plan year compensation at or below the railroad retirement taxable wage base (expressed as a percentage of such plan year compensation).
(B) Intermediate contribution percentage means the rate at which employer contributions are allocated to the account of an employee under the plan with respect to the employee's plan year compensation between the railroad retirement taxable wage base and the taxable wage base (expressed as a percentage of such plan year compensation).
(C) Excess contribution percentage means the rate at which employer contributions are allocated to the account of an employee under the plan with respect to the employee's plan year compensation above the taxable wage base (expressed as a percentage of such plan year compensation).
(c) Defined benefit excess plans—(1) In general. A defined benefit excess plan maintained by a railroad employer satisfies section 401(l) and § 1.401(l)–3 for a plan year only if the plan satisfies paragraph (c)(2) or (c)(3) of this section for the plan year.
(2) Single integration level method—(i) In general. A plan satisfies this paragraph (c)(2) if—
(A) The plan specifies a single integration level for all employees that does not exceed railroad retirement covered compensation,
(B) The plan uses the same base benefit percentage and the same excess benefit percentage for all employees, and
(C) The excess benefit percentage does not exceed the lesser of—
(1) Two times the sum of 0.56 percent and the base benefit percentage, or
(2) 0.56 percent plus the base benefit percentage plus 0.75 percent.
(ii) Definitions. The following definitions govern for purposes of this paragraph (c)(2).
(A) Base benefit percentage means the rate at which employer-provided benefits are determined under the plan with respect to an employee's average annual compensation at or below the employee's railroad retirement covered compensation (expressed as a percentage of such average annual compensation).
(B) Excess benefit percentage means the rate at which employer-provided benefits are determined under the plan with respect to an employee's average annual compensation above the employee's railroad retirement covered compensation (expressed as a percentage of such average annual compensation).
(3) Two integration level method—(i) In general. A plan satisfies this paragraph (c)(3) for a plan year if—
(A) The plan specifies two integration levels for all employees, equal to each employee's railroad retirement covered compensation and each employee's covered compensation, and
(B) The plan satisfies paragraph (c)(3) (ii) and (iii) of this section.
(ii) Employee with lower covered compensation. A plan satisfies this paragraph (c)(3)(ii) if, with respect to each employee whose lower integration level is the employee's covered compensation—
(A) The plan uses the same base benefit percentage and the same intermediate benefit percentage for all employees,
(B) The intermediate benefit percentage does not exceed the base benefit percentage by more than the lesser of 0.75 percent or the base benefit percentage,
(C) The plan uses the same intermediate benefit percentage and the same excess benefit percentage for all employees, and
(D) The excess benefit percentage does not exceed the intermediate benefit percentage by more than 0.56 percent.
(iii) Employee with lower railroad retirement covered compensation. A plan satisfies this paragraph (c)(3)(iii) if, with respect to each employee whose lower integration level is the employee's railroad retirement covered compensation—
(A) The plan uses the same base benefit percentage and the same excess benefit percentage for all employees,
(B) The excess benefit percentage does not exceed the lesser of—
(1) Two times the sum of 0.56 percent and the base benefit percentage, or
(2) The sum of 0.56 percent plus the base benefit percentage plus 0.75 percent,
(C) The plan uses the same the base benefit percentage and the same intermediate benefit percentage for all employees, and
(D) The intermediate benefit percentage does not exceed the sum of 0.56 percent plus the base benefit percentage.
(iv) Definitions. The following definitions govern for purposes of this paragraph (c)(3).
(A) Base benefit percentage means the rate at which employer-provided benefits are determined under the plan with respect to an employee's average annual compensation at or below the lower integration level specified in the plan (expressed as a percentage of such average annual compensation).
(B) Intermediate benefit percentage means the rate at which employer-provided benefits are determined under the plan with respect to an employee's average annual compensation between the lower and higher integration levels specified in the plan (expressed as a percentage of such average annual compensation).
(C) Excess benefit percentage means the rate at which employer-provided benefits are determined under the plan with respect to an employee's average annual compensation above the higher integration level specified in the plan (expressed as a percentage of such average annual compensation).
(d) Offset plans—(1) In general. An offset plan maintained by a railroad employer satisfies section 401(l) and § 1.401(l)–3 for a plan year only if—
(i) The plan satisfies § 1.401(l)–3 for the plan year without regard to the offset for the employer-derived portion of tier 2 and supplementary annuity benefits provided under the railroad retirement system, and
(ii) The offset for the employer-derived portion of tier 2 and supplementary annuity benefits provided under the railroad retirement system does not exceed the maximum tier 2 and supplementary annuity offset allowance.
(2) Maximum tier 2 and supplementary annuity offset allowance. For purposes of paragraph (d)(1) of this section, the maximum tier 2 and supplementary annuity offset allowance for a plan year is equal to 0.56 percent of the employee's railroad retirement covered compensation for the plan year.
(e) Additional rules—(1) Definitions. The following definitions govern for purposes of this section.
(i) Railroad retirement taxable wage base means the applicable base, as determined under section 3231(e)(2)B)(ii), for purposes of the tax under section 3221(b) (the tier 2 tax).
(ii) Railroad retirement covered compensation for an employee means 12 multiplied by the average of the 60 highest monthly railroad retirement taxable wage bases in effect for the employee's period of employment. The monthly railroad retirement taxable wage base is determined by dividing the railroad retirement taxable wage base for the calendar year in which the month occurs by 12. An employee's railroad retirement covered compensation for the plan year is determined as of the beginning of the plan year. A plan must provide that an employee's railroad retirement covered compensation is automatically adjusted for each plan year. See § 1.401(l)–1(b) for rules relating to prohibited decreases in an employee's accrued benefit within the meaning of section 411(d)(6) or section 411(b)(1)(G).
(2) Adjustments to 0.75-percent factor. The 0.75-percent factor in the maximum excess allowance and in the maximum offset allowance is subject to the reductions prescribed in § 1.401(l)–3 (d) and (e), except that in the case of an employee with at least 30 years of service with a railroad employer, the following tables are substituted for Tables I through III contained in § 1.401(l)–3(e)(3).
Table I
[Social security retirement age 67]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 66 | 0.750 |
| 65 | 0.750 |
| 64 | 0.750 |
| 63 | 0.750 |
| 62 | 0.750 |
| 61 | 0.525 |
| 60 | 0.525 |
| 59 | 0.508 |
| 58 | 0.490 |
| 57 | 0.472 |
| 56 | 0.433 |
| 55 | 0.398 |
Table II
[Social security retirement age 66]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 65 | 0.750 |
| 64 | 0.750 |
| 63 | 0.750 |
| 62 | 0.750 |
| 61 | 0.563 |
| 60 | 0.563 |
| 59 | 0.544 |
| 58 | 0.525 |
| 57 | 0.506 |
| 56 | 0.488 |
| 55 | 0.447 |
Table III
[Social security retirement age 65]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 64 | 0.750 |
| 63 | 0.750 |
| 62 | 0.750 |
| 61 | 0.600 |
| 60 | 0.600 |
| 59 | 0.580 |
| 58 | 0.560 |
| 57 | 0.540 |
| 56 | 0.520 |
| 55 | 0.500 |
(3) Adjustments to 0.56-percent factor. The 0.56-percent factor for defined benefit excess plans and offset plans under paragraphs (c) and (d) of this section respectively is subject to the reductions prescribed in § 1.401(l)–3 (d) and (e), except that, for purposes of applying this paragraph (e)(3)—
(i) “Railroad retirement covered compensation” is substituted for “covered compensation” in § 1.401(l)–3(d),
(ii) The reductions under § 1.401(l)–3(d) are made by multiplying the 0.56-percent factor by the ratio of the applicable factor from the table in § 1.401(l)–(3)(d)(9)(iv)(A) to 0.75, and
(iii) The following tables are substituted for Tables I through III set forth in § 1.401(l)–3(e)(3).
(A) Tables applicable to 0.56% factor for employees covered by tier 2 of railroad retirement with 30 or more years of railroad service.
Table I
[Social security retirement age 67]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 66 | 0.560 |
| 65 | 0.560 |
| 64 | 0.560 |
| 63 | 0.560 |
| 62 | 0.560 |
| 61 | 0.560 |
| 60 | 0.560 |
| 59 | 0.541 |
| 58 | 0.523 |
| 57 | 0.504 |
| 56 | 0.462 |
| 55 | 0.425 |
Table II
[Social security retirement age 66]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 65 | 0.560 |
| 64 | 0.560 |
| 63 | 0.560 |
| 62 | 0.560 |
| 61 | 0.560 |
| 60 | 0.560 |
| 59 | 0.541 |
| 58 | 0.523 |
| 57 | 0.504 |
| 56 | 0.485 |
| 55 | 0.445 |
Table III
[Social security retirement age 65]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 64 | 0.560 |
| 63 | 0.560 |
| 62 | 0.560 |
| 61 | 0.560 |
| 60 | 0.560 |
| 59 | 0.541 |
| 58 | 0.523 |
| 57 | 0.504 |
| 56 | 0.485 |
| 55 | 0.467 |
(B) Tables applicable to 0.56% factor for employees covered by tier 2 of railroad retirement with less than 30 years of railroad service.
Table I
[Social security retirement age 67]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 66 | 0.523 |
| 65 | 0.485 |
| 64 | 0.448 |
| 63 | 0.420 |
| 62 | 0.392 |
| 61 | 0.379 |
| 60 | 0.366 |
| 59 | 0.353 |
| 58 | 0.340 |
| 57 | 0.327 |
| 56 | 0.300 |
| 55 | 0.275 |
Table II
[Social security retirement age 66]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 65 | 0.523 |
| 64 | 0.485 |
| 63 | 0.448 |
| 62 | 0.420 |
| 61 | 0.392 |
| 60 | 0.378 |
| 59 | 0.364 |
| 58 | 0.350 |
| 57 | 0.336 |
| 56 | 0.322 |
| 55 | 0.295 |
Table III
[Social security retirement age 65]
| Age at which benefits commence | Annual factor in maximum excess allowance and maximum offset allowance (percent) |
|---|---|
| 64 | 0.523 |
| 63 | 0.485 |
| 62 | 0.448 |
| 61 | 0.418 |
| 60 | 0.388 |
| 59 | 0.373 |
| 58 | 0.358 |
| 57 | 0.343 |
| 56 | 0.329 |
| 55 | 0.314 |
(4) Overall permitted disparity. The overall permitted disparity rules of § 1.401(l)–5 apply to employees who benefit under a plan maintained by a railroad employer.