[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2748 Introduced in House (IH)]

111th CONGRESS
  1st Session
                                H. R. 2748

  To amend the Internal Revenue Code of 1986 to encourage guaranteed 
  lifetime income payments by excluding from income a portion of such 
                               payments.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              June 8, 2009

    Mr. Pomeroy (for himself and Ms. Ginny Brown-Waite of Florida) 
 introduced the following bill; which was referred to the Committee on 
                             Ways and Means

_______________________________________________________________________

                                 A BILL


 
  To amend the Internal Revenue Code of 1986 to encourage guaranteed 
  lifetime income payments by excluding from income a portion of such 
                               payments.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Retirement Security Needs Lifetime 
Pay Act of 2009''.

SEC. 2. EXCLUSION FOR LIFETIME INCOME PAYMENTS.

    (a) Lifetime Income Payments Under Annuity Contracts.--Subsection 
(b) of section 72 of the Internal Revenue Code of 1986 is amended by 
adding at the end the following new paragraph:
            ``(5) Exclusion for lifetime income payments.--
                    ``(A) In general.--In the case of lifetime income 
                payments received under one or more annuity contracts 
                (which are not taken into account under subparagraph 
                (B)) in any taxable year, gross income shall not 
                include 50 percent of the portion of such payments 
                which would (without regard to this paragraph) be 
                includible in gross income under this section. For 
                purposes of the preceding sentence, the amount 
                excludible from gross income in any taxable year shall 
                not exceed $10,000.
                    ``(B) Lower percentage exclusion and separate 
                limitation for annuities provided under certain 
                retirement plans.--In the case of lifetime income 
                payments received under any qualified retirement plan 
                (as defined in section 4974(c)), or any eligible 
                deferred compensation plan (as defined in section 
                457(b)) of an eligible employer described in section 
                457(e)(1)(A), gross income shall not include 25 percent 
                of the portion of such payments which would (without 
                regard to this paragraph) be includible in gross income 
                under this section. For purposes of the preceding 
                sentence, the amount excludible from gross income in 
                any taxable year shall not exceed $5,000 (twice such 
                amount in the case of a joint return).
                    ``(C) Cost-of-living adjustment.--In the case of 
                taxable years beginning after December 31, 2010, the 
                dollar amounts in subparagraphs (A) and (B) shall each 
                be increased by an amount equal to--
                            ``(i) such dollar amount, multiplied by
                            ``(ii) the cost-of-living adjustment 
                        determined under section 1(f)(3) for the 
                        calendar year in which the taxable year begins, 
                        determined by substituting `calendar year 2009' 
                        for `calendar year 1992' in subparagraph (B) 
                        thereof.
                If any amount as increased under the preceding sentence 
                is not a multiple of $100, such amount shall be rounded 
                to the next lower multiple of $100.
                    ``(D) Application of paragraph.--Subparagraphs (A) 
                and (B) shall not apply to--
                            ``(i) any amount received under a defined 
                        benefit plan,
                            ``(ii) any amount paid under an annuity 
                        contract that is received by the beneficiary 
                        under the contract--
                                    ``(I) after the death of the 
                                annuitant in the case of payments 
                                described in subsection 
                                (c)(5)(A)(ii)(III), unless the 
                                beneficiary is the surviving spouse of 
                                the annuitant, or
                                    ``(II) after the death of the 
                                annuitant and joint annuitant in the 
                                case of payments described in 
                                subsection (c)(5)(A)(ii)(IV), unless 
                                the beneficiary is the surviving spouse 
                                of the last to die of the annuitant and 
                                the joint annuitant, or
                            ``(iii) any annuity contract that is a 
                        qualified funding asset (as defined in section 
                        130(d)), but without regard to whether there is 
                        a qualified assignment.
                    ``(E) Investment in the contract.--For purposes of 
                this section, the investment in the contract shall be 
                determined without regard to this paragraph.''.
    (b) Definitions.--Subsection (c) of section 72 of such Code is 
amended by adding at the end the following new paragraph:
            ``(5) Lifetime income payments.--
                    ``(A) In general.--For purposes of subsections (b) 
                and (x), the term `lifetime income payment' means any 
                amount received as an annuity under any portion of an 
                annuity contract, but only if--
                            ``(i) the only person (or persons in the 
                        case of payments described in subclause (II) or 
                        (IV) of clause (ii)) legally entitled (by 
                        operation of the contract, a trust, or other 
                        legally enforceable means) to receive such 
                        amount during the life of the annuitant or 
                        joint annuitant is such annuitant or joint 
                        annuitant, and
                            ``(ii) such amount is part of a series of 
                        substantially equal periodic payments made not 
                        less frequently than annually over--
                                    ``(I) the life of the annuitant,
                                    ``(II) the lives of the annuitant 
                                and a joint annuitant, but only to the 
                                extent that the requirement of 
                                subparagraph (D) is met,
                                    ``(III) the life of the annuitant 
                                with a minimum period of payments or 
                                with a minimum amount that must be paid 
                                in any event, or
                                    ``(IV) the lives of the annuitant 
                                and a joint annuitant with a minimum 
                                period of payments or with a minimum 
                                amount that must be paid in any event, 
                                but only to the extent that the 
                                requirement of subparagraph (D) is met.
                            ``(iii) Exceptions.--For purposes of clause 
                        (ii), annuity payments shall not fail to be 
                        treated as part of a series of substantially 
                        equal periodic payments--
                                    ``(I) because the amount of the 
                                periodic payments may vary in 
                                accordance with investment experience, 
                                reallocations among investment options, 
                                actuarial gains or losses, cost-of-
                                living indices, a constant percentage 
                                (not less than zero) applied not less 
                                frequently than annually, or similar 
                                fluctuating criteria,
                                    ``(II) due to the existence of, or 
                                modification of the duration of, a 
                                provision in the contract permitting a 
                                lump sum withdrawal after the annuity 
                                starting date,
                                    ``(III) because the period between 
                                each such payment is lengthened or 
                                shortened, but only if at all times 
                                such period is no longer than one 
                                calendar year,
                                    ``(IV) because the payments are 
                                reduced on account of a qualified 
                                domestic relations order (within the 
                                meaning of section 414(p)) which 
                                becomes effective after the 
                                commencement of the annuity payments, 
                                or
                                    ``(V) because, in the case of an 
                                annuity payable over the lives of the 
                                annuitant and a joint annuitant, the 
                                amounts paid after the death of the 
                                annuitant or joint annuitant are less 
                                than the amounts payable during their 
                                joint lives.
                    ``(B) Minimum period of payments.--For purposes of 
                subparagraph (A), the term `minimum period of payments' 
                means a guaranteed term of payments that does not 
                exceed the greater of 10 years or--
                            ``(i) the life expectancy of the annuitant 
                        as of the annuity starting date, in the case of 
                        lifetime income payments described in 
                        subparagraph (A)(ii)(III), or
                            ``(ii) the life expectancy of the annuitant 
                        and joint annuitant as of the annuity starting 
                        date, in the case of lifetime income payments 
                        described in subparagraph (A)(ii)(IV).
                For purposes of this subparagraph, life expectancy 
                shall be computed with reference to the tables 
                prescribed by the Secretary under paragraph (3). For 
                purposes of subsection (x)(1)(C)(ii), the minimum 
                period of payments shall be determined as of the 
                annuity starting date and reduced by one for each 
                subsequent year.
                    ``(C) Minimum amount that must be paid in any 
                event.--For purposes of subparagraph (A), the term 
                `minimum amount that must be paid in any event' means 
                an amount payable to the designated beneficiary under 
                an annuity contract that is in the nature of a refund 
                and does not exceed the greater of the amount applied 
                to produce the lifetime income payments under the 
                contract or the amount, if any, available for 
                withdrawal under the contract on the date of death.
                    ``(D) Special rules for joint annuitants.--For 
                purposes of subclauses (II) and (IV) of subparagraph 
                (A)(ii), the requirement of this subparagraph is met 
                only to the extent that--
                            ``(i) the annuitant is the spouse of the 
                        joint annuitant as of the annuity starting 
                        date,
                            ``(ii) the difference in age between the 
                        annuitant and joint annuitant is 15 years or 
                        less,
                            ``(iii) in the case of any payment received 
                        under an annuity contract described in 
                        subsection (b)(5)(A), such payment is made to 
                        or for the benefit of the individual who 
                        furnished the consideration for such annuity 
                        contract, or
                            ``(iv) in the case of any payment received 
                        under a plan described in subsection (b)(5)(B), 
                        such payment is made to or for the benefit of 
                        the employee or the individual for whose 
                        benefit the plan was established.
            ``(6) Annuity contract.--For purposes of paragraph (5) and 
        subsection (b)(5), the term `annuity contract' means a 
        commercial annuity (as defined by section 3405(e)(6)), other 
        than an endowment or life insurance contract.''.
    (c) Recapture Tax for Lifetime Income Payments.--Section 72 of such 
Code is amended by redesignating subsection (x) as subsection (y) and 
by inserting after subsection (w) the following new subsection:
    ``(x) Recapture Tax for Modifications to or Reductions in Lifetime 
Income Payments.--
            ``(1) In general.--If any amount received under an annuity 
        contract is excluded from income by reason of subsection (b)(5) 
        (relating to exclusion for lifetime income payments), and--
                    ``(A) the series of payments under such contract is 
                subsequently modified so any future payments are not 
                lifetime income payments,
                    ``(B) after the date of receipt of the first 
                lifetime income payment under the contract an annuitant 
                receives a lump sum and thereafter is to receive 
                annuity payments in a reduced amount under the 
                contract, or
                    ``(C) after the date of receipt of the first 
                lifetime income payment under the contract the dollar 
                amount of any subsequent annuity payment is reduced and 
                a lump sum is not paid in connection with the 
                reduction, unless such reduction is--
                            ``(i) due to an event described in 
                        subsection (c)(5)(A)(iii), or
                            ``(ii) due to the addition of, or increase 
                        in, a minimum period of payments within the 
                        meaning of subsection (c)(5)(B) or a minimum 
                        amount that must be paid in any event (within 
                        the meaning of subsection (c)(5)(C)),
                then gross income for the first taxable year in which 
                such modification or reduction occurs shall be 
                increased by the recapture amount.
            ``(2) Recapture amount.--
                    ``(A) In general.--For purposes of this subsection, 
                the recapture amount shall be the amount, determined 
                under rules prescribed by the Secretary, equal to the 
                excess of--
                            ``(i) the amount that was excluded from the 
                        taxpayer's gross income under subsection (b)(5) 
                        before the modification or reduction described 
                        in paragraph (1), over
                            ``(ii) the amount that would have been 
                        excludible under such subsection if such 
                        modification or reduction had been in effect at 
                        all times,
                plus interest for the deferral period at the 
                underpayment rate established by section 6621.
                    ``(B) Deferral period.--For purposes of this 
                subsection, the term `deferral period' means the period 
                beginning with the taxable year in which (without 
                regard to subsection (b)(5)) the payment would have 
                been includible in gross income and ending with the 
                taxable year in which the modification described in 
                paragraph (1) occurs.
            ``(3) Exceptions to recapture tax.--Paragraph (1) shall not 
        apply in the case of any modification or reduction that occurs 
        because an annuitant--
                    ``(A) dies or becomes disabled (within the meaning 
                of subsection (m)(7)),
                    ``(B) becomes a chronically ill individual within 
                the meaning of section 7702B(c)(2), or
                    ``(C) encounters hardship.''.
    (d) Lifetime Distributions of Life Insurance Death Benefits.--
            (1) In general.--Subsection (d) of section 101 of such Code 
        (relating to payment of life insurance proceeds at a date later 
        than death) is amended by redesignating paragraph (3) as 
        paragraph (4) and inserting after paragraph (2) the following 
        new paragraph:
            ``(3) Exclusion for lifetime income payments.--
                    ``(A) In general.--In the case of amounts to which 
                this subsection applies, gross income shall not include 
                the lesser of--
                            ``(i) 50 percent of the portion of lifetime 
                        income payments (within the meaning of section 
                        72(c)(5), applied with the substitutions 
                        described in subparagraph (B)) otherwise 
                        includible in gross income under this section 
                        (determined without regard to this paragraph), 
                        or
                            ``(ii) the amount in effect under section 
                        72(b)(5)(A).
                    ``(B) Recapture and other special rules.--For 
                purposes of this paragraph, rules similar to the rules 
                of subparagraphs (D) and (E) of section 72(b)(5) and 
                section 72(x) shall be applied by substituting 
                `beneficiary of the life insurance contract' for 
                `annuitant' and `life insurance contract' for `annuity 
                contract' therein.''.
            (2) Conforming amendment.--Paragraph (1) of section 101(d) 
        of such Code is amended by inserting ``or paragraph (3)'' after 
        ``to the extent not excluded by the preceding sentence''.
    (e) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to amounts received in taxable years beginning after the 
        date of the enactment of this Act.
            (2) Special rule for existing contracts.--In the case of a 
        contract in force on the date of the enactment of this Act that 
        does not satisfy the requirements of section 72(c)(5)(A) of the 
        Internal Revenue Code of 1986 (as added by this section), or 
        requirements similar to such section 72(c)(5)(A) in the case of 
        a life insurance contract, any modification to such contract 
        (including a change in ownership) or to the payments thereunder 
        that is made to satisfy the requirements of such section (or 
        similar requirements) shall not result in the recognition of 
        any gain or loss, any amount being included in gross income, or 
        any addition to tax that otherwise might result from such 
        modification, but only if the modification is completed prior 
        to the date that is 2 years after the date of the enactment of 
        this Act.

SEC. 3. FACILITATING LONGEVITY INSURANCE.

    (a) In General.--Paragraph (9) of section 401(a) of the Internal 
Revenue Code of 1986 is amended by inserting after subparagraph (H) the 
following new subparagraph:
                    ``(I) Longevity insurance.--
                            ``(i) In general.--For purposes of this 
                        paragraph, any value attributable to longevity 
                        insurance shall be disregarded in determining 
                        the value of an employee's interest under a 
                        plan prior to the first date that payments are 
                        made under the longevity insurance.
                            ``(ii) Longevity insurance defined.--For 
                        purposes of this subparagraph, the term 
                        `longevity insurance' means an annuity payable 
                        on behalf of the employee under which--
                                    ``(I) payments commence not later 
                                than 12 months following the calendar 
                                month in which the employee attains age 
                                85 (or would have attained age 85),
                                    ``(II) payments are made in 
                                substantially equal periodic payments 
                                (not less frequently than annually) 
                                over the life of the employee or the 
                                joint lives of the employee and the 
                                employee's designated beneficiary, 
                                taking into account the rules of clause 
                                (i) of section 402(e)(7)(D), except as 
                                otherwise provided in subclause (III) 
                                of such section,
                                    ``(III) prior to the death of the 
                                employee, the annuity does not make 
                                available any commutation benefit, cash 
                                surrender value, or other similar 
                                feature, and
                                    ``(IV) except as provided in rules 
                                prescribed by the Secretary, in the 
                                case of an employee's death prior to 
                                the date that payments commence, the 
                                value of any death benefits paid may 
                                not exceed the premiums paid for such 
                                annuity, plus interest compounded 
                                annually at 3 percent.
                            ``(iii) Adjusting age.--For purposes of 
                        clause (ii)(I), the Secretary shall annually 
                        increase age 85 to reflect increases in life 
                        expectancy (as determined by the Secretary) 
                        that occur on or after January 1, 2009, except 
                        that any such increased age which is not a 
                        whole number shall be rounded to the next lower 
                        whole number.''.
    (b) Rules.--Not later than one year after the date of enactment of 
this Act, the Secretary of the Treasury shall prescribe rules under 
which all or a portion of a participant's benefits under any plan 
described in section 402(c)(8)(B) of the Internal Revenue Code of 1986 
may be treated as longevity insurance under the rules of section 
401(a)(9)(H) of such Code.
    (c) Effective Date.--The amendments made by this section shall 
apply to years beginning after December 31, 2010.

SEC. 4. SPECIAL RULES FOR ANNUITIES RECEIVED FROM ONLY A PORTION OF A 
              CONTRACT.

    (a) In General.--Subsection (a) of section 72 of the Internal 
Revenue Code of 1986 is amended to read as follows:
    ``(a) General Rule for Annuities.--If any amount is received as an 
annuity (whether for a period certain or during one or more lives) 
under any portion of an annuity, endowment, or life insurance 
contract--
            ``(1) except as otherwise provided in this chapter, gross 
        income includes such amount,
            ``(2) such portion shall be treated as a separate contract 
        for purposes of this section,
            ``(3) for purposes of applying subsections (b), (c), and 
        (e), the investment in the contract shall be allocated pro rata 
        between each portion of the contract from which amounts are 
        received as an annuity and the portion of the contract from 
        which amounts are not received as an annuity, and
            ``(4) a separate annuity starting date under subsection 
        (c)(4) shall be determined with respect to each portion of the 
        contract from which amounts are received as an annuity.''.
    (b) Effective Date.--
            (1) In general.--The amendments made by this section shall 
        apply to amounts received in taxable years beginning after the 
        date of the enactment of this Act.
            (2) No inference as to prior years.--Nothing in the 
        amendments made by this section shall create an inference as to 
        the treatment of amounts received under any portion of an 
        annuity, endowment, or life insurance contract in any taxable 
        year beginning on or before the date of the enactment of this 
        Act.
                                 <all>