[Congressional Record Volume 155, Number 92 (Thursday, June 18, 2009)]
[Senate]
[Pages S6814-S6816]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CONRAD (for himself and Mr. Roberts):
  S. 1297. A bill to amend the Internal Revenue Code of 1986 to 
encourage guaranteed lifetime income payments from annuities and 
similar payments of life insurance proceeds at dates later than death 
by excluding from income a portion of such payments; to the Committee 
on Finance.
  Mr. CONRAD. Mr. President, I am pleased to be joined by my friend and 
Finance Committee colleague, Senator Pat Roberts from Kansas, in 
introducing legislation that can help Americans enjoy a more secure 
retirement. In these economically challenging

[[Page S6815]]

times, financial security--especially during retirement--can be a 
frustrating and elusive goal. In retirement, the chief anxiety for most 
people is protecting the savings they have accumulated while working 
and deciding how best to manage those assets.
  In 21st century America, there is another crucial challenge for 
retirees. The good news is that Americans are living longer, but it 
also means that people have to plan for a longer period of retirement. 
A successful long-term retirement income plan is difficult even in a 
bullish market. How much more difficult is this task in today's 
market--particularly for the millions of Americans with limited 
investment experience?
  We believe in encouraging people to save for retirement. Through the 
tax code, we encourage asset-building through home ownership. We 
provide significant tax incentives for employer-based pension plans and 
for retirement savings programs by individuals, such as IRAs and 401(k) 
plans.
  One of the biggest threats to retirement income security for baby 
boomers is their own longevity. It will not be easy to manage their 
accumulated assets so that they will last a lifetime. Unprecedented 
numbers of Americans are now living into their 90s and even past 100. 
Consequently, people are going to spend more time in retirement than 
previous generations.
  Now our society is witnessing the beginning of the retirement wave we 
knew was already building. Before it recedes, 77 million baby boomers 
will have entered their retirement years. Many of them will not have 
the guaranteed monthly retirement checks that many of their parents 
enjoyed as a result of employer-based pension plans. Traditional 
defined benefit pension plans have given way to defined contribution 
plans, which have shifted the retirement income security risk from the 
employer to the individual.
  Of course, there are still many Americans who have no access at all 
to employer-provided pension plans. Some have never been in the 
traditional workforce; others work in seasonal jobs or part time. In my 
state of North Dakota, as well as in rural and farming communities 
across America, there is an acute need for retirement vehicles that 
will provide a secure lifetime payout. Others who could face difficulty 
in securing retirement income are widowed individuals--both men and 
women--who suddenly find themselves having to make a life insurance 
benefit or proceeds from the sale of a business or family home last a 
lifetime.
  The proposal we are introducing today will provide a valuable tool 
for helping people avoid the risk of outliving their assets. 
Specifically, we are proposing a tax incentive to encourage Americans 
to annuitize a portion of their assets available for retirement. If 
they annuitize--in other words, elect to receive their money from an 
annuity in a series of payments for the rest of their lives, no matter 
how long that may be--they would be able to exclude from income 50 
percent of the annuity benefit that represents the accumulation in the 
annuity above and beyond the original investment. The exclusion would 
be capped at $20,000, indexed, to ensure that tax sheltering activity 
is not encouraged and that the incentive will be effective for people 
who would benefit most from securing a lifetime income stream.
  This proposal we offer today would apply only to life-contingent, 
non-qualified annuities. A life-contingent annuity that is subsequently 
modified to a fixed-term payout would be subject to a recapture tax.
  Baby boomers represent an unprecedented challenge to our retirement 
security policies. They should have a wide range of options available 
for responsible retirement planning. Our proposal focuses on non-
qualified annuities because it is important to have this option 
considered as part of the larger retirement income security debate that 
Congress should have before baby boomers begin retiring in large 
numbers. Options for making qualified plans more secure should be part 
of that debate as well.
  I hope that Congress will tackle this matter promptly because over 
the last few years too many people have seen their retirement savings 
severely eroded. This legislation will provide an important incentive 
to help them preserve what they have.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 1297

       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 for Life 
     Act of 2009''.

     SEC. 2. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS.

       (a) Lifetime Annuity Payments Under Annuity Contracts.--
     Section 72(b) of the Internal Revenue Code of 1986 is amended 
     by adding at the end the following new paragraph:
       ``(5) Exclusion for lifetime annuity payments.--
       ``(A) In general.--In the case of lifetime annuity payments 
     received under one or more annuity contracts in any taxable 
     year, gross income shall not include 50 percent of the 
     portion of lifetime annuity payments otherwise includible 
     (without regard to this paragraph) 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 $20,000.
       ``(B) Cost-of-living adjustment.--In the case of taxable 
     years beginning after December 31, 2010, the $20,000 amount 
     in subparagraph (A) shall 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 $500, such amount shall be rounded to the 
     next lower multiple of $500.
       ``(C) Application of paragraph.--Subparagraph (A) shall not 
     apply to--
       ``(i) any amount received under an eligible deferred 
     compensation plan (as defined in section 457(b)) or under a 
     qualified retirement plan (as defined in section 4974(c)),
       ``(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.
       ``(D) 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 the 
     Internal Revenue Code of 1986 is amended by adding at the end 
     the following new paragraph:
       ``(5) Lifetime annuity payment.--
       ``(A) In general.--For purposes of subsection (b)(5), the 
     term `lifetime annuity 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 if the annuitant is the spouse of the joint 
     annuitant as of the annuity starting date or the difference 
     in age between the annuitant and joint annuitant is 15 years 
     or less,
       ``(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 if the annuitant is 
     the spouse of the joint annuitant as of the annuity starting 
     date or the difference in age between the annuitant and joint 
     annuitant is 15 years or less.

       ``(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 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,

[[Page S6816]]

       ``(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, or
       ``(IV) because, in the case of an annuity payable over the 
     life of an annuitant and a joint annuitant, the amounts paid 
     to the surviving annuitant after the death of the first 
     annuitant are less than the amounts payable during the joint 
     lives of the two annuitants.

       ``(B) Annuity contract.--For purposes of subparagraph (A) 
     and subsections (b)(5) and (x), the term `annuity contract' 
     means a commercial annuity (as defined by section 
     3405(e)(6)), other than an endowment or life insurance 
     contract.
       ``(C) 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 annuity 
     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 annuity 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 permissible minimum period of payments 
     shall be determined as of the annuity starting date and 
     reduced by one for each subsequent year.
       ``(D) 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 annuity payments under 
     the contract or the amount, if any, available for withdrawal 
     under the contract on the date of death.''.
       (c) Recapture Tax for Lifetime Annuity Payments.--Section 
     72 of the Internal Revenue Code of 1986 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 Annuity Payments.--
       ``(1) In general.--If any amount received under an annuity 
     contract is excluded from income by reason of subsection 
     (b)(5), and--
       ``(A) the series of payments under such contract is 
     subsequently modified so that any future payments are not 
     lifetime annuity payments,
       ``(B) after the date of receipt of the first lifetime 
     annuity 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 
     annuity 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)(C) 
     or a minimum amount that must be paid in any event (within 
     the meaning of subsection (c)(5)(D)),

     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 sum of--
       ``(i) the excess of--

       ``(I) the amount that was excluded from the taxpayer's 
     gross income under subsection (b)(5) for all taxable years 
     prior to the modification or reduction described in paragraph 
     (1), over
       ``(II) the amount that would have been excludible under 
     such subsection for such taxable years had such modifications 
     or reductions been in effect at all times, plus

       ``(ii) 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.--Section 101(d) of the Internal Revenue 
     Code of 1986 (relating to payment of life insurance proceeds 
     at a date later than death) is amended by adding at the end 
     the following new paragraph:
       ``(4) Exclusion for lifetime annuity 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 annuity 
     payments otherwise includible in gross income under this 
     section (determined without regard to this paragraph), or
       ``(ii) the amount determined under section 72(b)(5).
       ``(B) Rules of section 72(b)(5) to apply.--For purposes of 
     this paragraph, rules similar to the rules of section 
     72(b)(5) and section 72(x) shall apply, substituting the term 
     `beneficiary of the life insurance contract' for the term 
     `annuitant' wherever it appears, and substituting the term 
     `life insurance contract' for the term `annuity contract' 
     wherever it appears.''.
       (2) Conforming amendment.--Section 101(d)(1) of such Code 
     is amended by inserting ``or paragraph (4)'' 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 calendar 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 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.
                                 ______