[House Report 117-283]
[From the U.S. Government Publishing Office]
117th Congress } { Rept. 117-283
HOUSE OF REPRESENTATIVES
2d Session } { Part 1
======================================================================
SECURING A STRONG RETIREMENT ACT OF 2021
----------
R E P O R T
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
on
H.R. 2954
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
March 29, 2022.--Ordered to be printed
SECURING A STRONG RETIREMENT ACT OF 2021
117th Congress } { Rept. 117-283
HOUSE OF REPRESENTATIVES
2d Session } { Part 1
======================================================================
SECURING A STRONG RETIREMENT ACT OF 2021
_______
March 29, 2022.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Neal, from the Committee on Ways and Means, submitted the following
R E P O R T
[To accompany H.R. 2954]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 2954) to increase retirement savings, simplify and
clarify retirement plan rules, and for other purposes, having
considered the same, reports favorably thereon with an
amendment and recommends that the bill as amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND..........................................39
A. Purpose and Summary................................. 39
B. Background and Need for Legislation................. 39
C. Legislative History................................. 39
II. EXPLANATION OF THE BILL.........................................41
TITLE I--EXPANDING COVERAGE AND INCREASING RETIREMENT SAVINGS.... 41
1. Expanding automatic enrollment in retirement plans
(sec. 101 of the bill and sec. 414 of the Code).... 41
2. Modification of credit for small employer pension
plan start-up costs (sec. 102 of the bill and sec.
45E of the Code)................................... 45
3. Promotion of the Saver's Credit (sec. 103 of the
bill and sec. 25B of the Code)..................... 47
4. Enhancement of 403(b) plans (sec. 104 of the bill
and sec. 403(b) of the Code)....................... 48
5. Increase in age for required beginning date for
mandatory distributions (sec. 105 of the bill and
sec. 401(a)(9) of the Code)........................ 52
6. Indexing IRA catch-up limit (sec. 106 of the bill
and sec. 219 of the Code).......................... 55
7. Higher catch-up limit to apply at age 62, 63, and 64
(sec. 107 of the bill and sec. 414(v) of the Code). 56
8. Multiple employer 403(b) plans (sec. 108 of the bill
and secs. 403(b), 6057, 6058 of the Code and secs.
3(43) and 3(44) of ERISA).......................... 58
9. Treatment of student loan payments as elective
deferrals for purposes of matching contributions
(sec. 109 of the bill and secs. 401(m), 403(b),
408(p), and 457(b) of the Code).................... 74
10. Application of credit for small employer pension
plan start-up costs to employers which join an
existing plan (sec. 110 of the bill and sec. 45E of
the Code).......................................... 80
11. Military spouse retirement plan eligibility credit
for small employers (sec. 111 of the bill and new
sec. 45U of the Code).............................. 82
12. Small immediate financial incentives for
contributing to a plan (sec. 112 of the bill and
secs. 401(k), 403(b), and 4975 of the Code)........ 83
13. Safe harbor for corrections of employee elective
deferral failures (sec. 113 of the bill and sec.
414 of the Code)................................... 86
14. One-year reduction in period of service requirement
for long-term, part-time workers (sec. 114 of the
bill and sec. 401(k) of the Code).................. 90
TITLE II--PRESERVATION OF INCOME................................. 92
1. Remove required minimum distribution barriers for
life annuities (sec. 201 of the bill and sec. 401
of the Code)....................................... 92
2. Qualifying longevity annuity contracts (sec. 202 of
the bill).......................................... 95
3. Insurance-dedicated exchange-traded funds (sec. 203
of the bill and sec. 817(h) of the Code)........... 98
TITLE III--SIMPLIFICATION AND CLARIFICATION OF RETIREMENT PLAN
RULES.......................................................... 101
1. Recovery of retirement plan overpayments (sec. 301
of the bill and secs. 402 and 414 of the Code, and
sec. 206 of ERISA)................................. 101
2. Reduction in excise tax on certain accumulations in
qualified retirement plans (sec. 302 of the bill
and sec. 4974 of the Code)......................... 107
3. Performance benchmarks for asset allocation funds
(sec. 303 of the bill)............................. 108
4. Review and report to the Congress relating to
reporting and disclosure requirements (sec. 304 of
the bill).......................................... 111
5. Eliminating unnecessary plan requirements related to
unenrolled participants (sec. 305 of the bill, sec.
414 of the Code, and new sec. 111 of ERISA)........ 113
6. Retirement savings lost and found (sec. 306 of the
bill, secs. 401(a)(31)(B), 402, 408, 411, 6011,
6057, and 6652 of the Code, and secs. 404, 4005,
and new sec. 4051 of ERISA)........................ 114
7. Expansion of Employee Plans Compliance Resolution
System (sec. 307 of the bill)...................... 125
8. Eliminate the ``first day of the month'' requirement
for governmental section 457(b) plans (sec. 308 of
the bill and sec. 457(b) of the Code).............. 128
9. One-time election for qualified charitable
distribution to split-interest entity; increase in
qualified charitable distribution limitation (sec.
309 of the bill and sec. 408(d)(8) of the Code).... 129
10. Distributions to firefighters (sec. 310 of the bill
and sec. 72(t) of the Code)........................ 135
11. Exclusion of certain disability-related first
responder retirement payments (sec. 311 of the bill
and sec. 139C of the Code)......................... 136
12. Individual retirement plan statute of limitations
for excise tax on excess contributions and certain
accumulations (sec. 312 of the bill and sec. 6501
of the Code)....................................... 138
13. Requirement to provide paper statements in certain
cases (sec. 313 of the bill and sec. 105 of ERISA). 140
14. Separate application of top heavy rules to defined
contribution plans covering excludible employees
(sec. 314 of the bill and sec. 416 of the Code).... 145
15. Repayment of qualified birth or adoption
distributions limited to three years (sec. 315 of
the bill and sec. 72 of the Code).................. 147
16. Employer may rely on employee certifying that
deemed hardship distribution conditions are met
(sec. 316 of the bill and secs. 401(k), 403(b), and
457(b) of the Code)................................ 149
17. Penalty-free withdrawals from retirement plans for
individuals in case of domestic abuse (sec. 317 of
the bill and sec. 72(t) of the Code)............... 152
18. Reform of family attribution rule (sec. 318 of the
bill and sec. 414 of the Code)..................... 155
19. Amendments to increase benefit accruals under plan
for previous plan year allowed until employer tax
return due date (sec. 319 of the bill and sec.
401(b) of the Code)................................ 157
20. Retroactive first year elective deferrals for sole
proprietors (sec. 320 of the bill and sec. 401(b)
of the Code)....................................... 159
21. Limiting cessation of IRA treatment to portion of
account involved in a prohibited transaction (sec.
321 of the bill and sec. 408 of the Code).......... 160
TITLE IV--TECHNICAL AMENDMENTS................................... 161
1. Amendments relating to Setting Every Community Up
for Retirement Enhancement Act of 2019 (sec. 401 of
the bill and secs. 401(a)(9) and 4973 of the Code). 161
TITLE V--ADMINISTRATIVE PROVISIONS............................... 162
1. Provisions relating to plan amendments (sec. 501 of
the bill).......................................... 162
TITLE VI--REVENUE PROVISIONS..................................... 164
1. SIMPLE and SEP Roth IRAs (sec. 601 of the bill and
secs 408A, 408, 402 of the Code)................... 164
2. Hardship withdrawal rules for 403(b) plans (sec. 602
of the bill and sec. 403(b) of the Code)........... 167
3. Elective deferrals generally limited to the regular
contribution limit (sec. 603 of the bill and secs.
414, 402, and 457 of the Code)..................... 167
4. Optional treatment of employer matching
contributions as Roth contributions (sec. 604 of
the bill and sec. 402A of the Code)................ 169
III. VOTES OF THE COMMITTEE.........................................171
IV. BUDGET EFFECTS OF THE BILL.....................................171
A. Committee Estimate of Budgetary Effects............. 171
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 176
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 176
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.....184
A. Committee Oversight Findings and Recommendations.... 184
B. Statement of General Performance Goals and
Objectives......................................... 185
C. Information Relating to Unfunded Mandates........... 185
D. Applicability of House Rule XXI, Clause 5(b)........ 185
E. Tax Complexity Analysis............................. 185
1. Increase in age for required beginning date for
mandatory distributions (sec. 105 of the bill). 185
2. Repayment of qualified birth or adoption
distribution limited to three years (sec. 315
of the bill)................................... 186
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 187
G. Duplication of Federal Programs..................... 187
H. Hearings............................................ 187
VI. CHANGES IN EXISTING LAW MADE BY THE BILL.......................187
A. Text of Existing Law Repealed by the Bill........... 187
B. Changes in Existing Law Proposed by the Bill........ 188
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) Short Title.--This Act may be cited as the ``Securing a Strong
Retirement Act of 2021''.
(b) Table of Contents.--The table of contents for this Act is as
follows:
Sec. 1. Short title; table of contents.
TITLE I--EXPANDING COVERAGE AND INCREASING RETIREMENT SAVINGS
Sec. 101. Expanding automatic enrollment in retirement plans.
Sec. 102. Modification of credit for small employer pension plan
startup costs.
Sec. 103. Promotion of Saver's Credit.
Sec. 104. Enhancement of 403(b) plans.
Sec. 105. Increase in age for required beginning date for mandatory
distributions.
Sec. 106. Indexing IRA catch-up limit.
Sec. 107. Higher catch-up limit to apply at age 62, 63, and 64.
Sec. 108. Multiple employer 403(b) plans.
Sec. 109. Treatment of student loan payments as elective deferrals for
purposes of matching contributions.
Sec. 110. Application of credit for small employer pension plan startup
costs to employers which join an existing plan.
Sec. 111. Military spouse retirement plan eligibility credit for small
employers.
Sec. 112. Small immediate financial incentives for contributing to a
plan.
Sec. 113. Safe harbor for corrections of employee elective deferral
failures.
Sec. 114. One-year reduction in period of service requirement for long-
term, part-time workers.
Sec. 115. Findings relating to S corporation ESOPs.
TITLE II--PRESERVATION OF INCOME
Sec. 201. Remove required minimum distribution barriers for life
annuities.
Sec. 202. Qualifying longevity annuity contracts.
Sec. 203. Insurance-dedicated exchange-traded funds.
TITLE III--SIMPLIFICATION AND CLARIFICATION OF RETIREMENT PLAN RULES
Sec. 301. Recovery of retirement plan overpayments.
Sec. 302. Reduction in excise tax on certain accumulations in qualified
retirement plans.
Sec. 303. Performance benchmarks for asset allocation funds.
Sec. 304. Review and report to the Congress relating to reporting and
disclosure requirements.
Sec. 305. Eliminating unnecessary plan requirements related to
unenrolled participants.
Sec. 306. Retirement savings lost and found.
Sec. 307. Expansion of Employee Plans Compliance Resolution System.
Sec. 308. Eliminate the ``first day of the month'' requirement for
governmental section 457(b) plans.
Sec. 309. One-time election for qualified charitable distribution to
split-interest entity; increase in qualified charitable distribution
limitation.
Sec. 310. Distributions to firefighters.
Sec. 311. Exclusion of certain disability-related first responder
retirement payments.
Sec. 312. Individual retirement plan statute of limitations for excise
tax on excess contributions and certain accumulations.
Sec. 313. Requirement to provide paper statements in certain cases.
Sec. 314. Separate application of top heavy rules to defined
contribution plans covering excludible employees.
Sec. 315. Repayment of qualified birth or adoption distribution limited
to 3 years.
Sec. 316. Employer may rely on employee certifying that deemed hardship
distribution conditions are met.
Sec. 317. Penalty-free withdrawals from retirement plans for
individuals in case of domestic abuse.
Sec. 318. Reform of family attribution rule.
Sec. 319. Amendments to increase benefit accruals under plan for
previous plan year allowed until employer tax return due date.
Sec. 320. Retroactive first year elective deferrals for sole
proprietors.
Sec. 321. Limiting cessation of IRA treatment to portion of account
involved in a prohibited transaction.
TITLE IV--TECHNICAL AMENDMENTS
Sec. 401. Amendments relating to Setting Every Community Up for
Retirement Enhancement Act of 2019.
TITLE V--ADMINISTRATIVE PROVISIONS
Sec. 501. Provisions relating to plan amendments.
TITLE VI--REVENUE PROVISIONS
Sec. 601. Simple and SEP Roth IRAs.
Sec. 602. Hardship withdrawal rules for 403(b) plans.
Sec. 603. Elective deferrals generally limited to regular contribution
limit.
Sec. 604. Optional treatment of employer matching contributions as Roth
contributions.
TITLE I--EXPANDING COVERAGE AND INCREASING RETIREMENT SAVINGS
SEC. 101. EXPANDING AUTOMATIC ENROLLMENT IN RETIREMENT PLANS.
(a) In General.--Subpart B of part I of subchapter D of chapter 1 of
the Internal Revenue Code of 1986 is amended by inserting after section
414 the following new section:
``SEC. 414A. REQUIREMENTS RELATED TO AUTOMATIC ENROLLMENT.
``(a) In General.--Except as otherwise provided in this section--
``(1) an arrangement shall not be treated as a qualified cash
or deferred arrangement described in section 401(k) unless such
arrangement meets the automatic enrollment requirements of
subsection (b), and
``(2) an annuity contract otherwise described in section
403(b)(1) which is purchased under a salary reduction agreement
shall not be treated as described in such section unless such
agreement meets the automatic enrollment requirements of
subsection (b).
``(b) Automatic Enrollment Requirements.--
``(1) In general.--An arrangement or agreement meets the
requirements of this subsection if such arrangement or
agreement is an eligible automatic contribution arrangement (as
defined in section 414(w)(3)) which meets the requirements of
paragraphs (2) through (4).
``(2) Allowance of permissible withdrawals.--An eligible
automatic contribution arrangement meets the requirements of
this paragraph if such arrangement allows employees to make
permissible withdrawals (as defined in section 414(w)(2)).
``(3) Minimum contribution percentage.--
``(A) In general.--An eligible automatic contribution
arrangement meets the requirements of this paragraph
if--
``(i) the uniform percentage of compensation
contributed by the participant under such
arrangement during the first year of
participation is not less than 3 percent and
not more than 10 percent (unless the
participant specifically elects not to have
such contributions made or to have such
contributions made at a different percentage),
and
``(ii) effective for the first day of each
plan year starting after each completed year of
participation under such arrangement such
uniform percentage is increased by 1 percentage
point (to at least 10 percent, but not more
than 15 percent) unless the participant
specifically elects not to have such
contributions made or to have such
contributions made at a different percentage.
``(B) Initial reduced ceiling for certain plans.--In
the case of any arrangement to which this section
applies (other than an arrangement that meets the
requirements of paragraph (12) or (13) of section
401(k)), for plan years ending before January 1, 2025,
subparagraph (A)(ii) shall be applied by substituting
`10 percent' for `15 percent'.
``(4) Investment requirements.--An eligible automatic
contribution arrangement meets the requirements of this
paragraph if amounts contributed pursuant to such arrangement,
and for which no investment is elected by the participant, are
invested consistent with the requirements of section 2550.404c-
5 of title 29, Code of Federal Regulations (or any successor
regulations).
``(c) Exceptions.--For purposes of this section--
``(1) Simple plans.--Subsection (a) shall not apply to any
simple plan (within the meaning of section 401(k)(11)).
``(2) Exception for plans or arrangements established before
enactment of section.--
``(A) In general.--Subsection (a) shall not apply
to--
``(i) any qualified cash or deferred
arrangement established before the date of the
enactment of this section, or
``(ii) any annuity contract purchased under a
plan established before the date of the
enactment of this section.
``(B) Post-enactment adoption of multiple employer
plan.--Subparagraph (A) shall not apply in the case of
an employer adopting after such date of enactment a
plan maintained by more than one employer, and
subsection (a) shall apply with respect to such
employer as if such plan were a single plan.
``(3) Exception for governmental and church plans.--
Subsection (a) shall not apply to any governmental plan (within
the meaning of section 414(d)) or any church plan (within the
meaning of section 414(e)).
``(4) Exception for new and small businesses.--
``(A) New business.--Subsection (a) shall not apply
to any qualified cash or deferred arrangement, or any
annuity contract purchased under a plan, while the
employer maintaining such plan (and any predecessor
employer) has been in existence for less than 3 years.
``(B) Small businesses.--Subsection (a) shall not
apply to any qualified cash or deferred arrangement,
any annuity contract purchased under a plan, earlier
than the date that is 1 year after the close of the
first taxable year with respect to which the employer
maintaining the plan normally employed more than 10
employees.
``(C) Treatment of multiple employer plans.--In the
case of a plan maintained by more than 1 employer,
subparagraphs (A) and (B) shall be applied separately
with respect to each such employer, and all such
employers to which subsection (a) applies (after the
application of this paragraph) shall be treated as
maintaining a separate plan for purposes of this
section.''.
(b) Clerical Amendment.--The table of sections for subpart B of part
I of subchapter D of chapter 1 of the Internal Revenue Code of 1986 is
amended by inserting after the item relating to section 414 the
following new item:
``Sec. 414A. Requirements related to automatic enrollment.''.
(c) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2022.
SEC. 102. MODIFICATION OF CREDIT FOR SMALL EMPLOYER PENSION PLAN
STARTUP COSTS.
(a) Increase in Credit Percentage for Smaller Employers.--Section
45E(e) of the Internal Revenue Code of 1986 is amended by adding at the
end the following new paragraph:
``(4) Increased credit for certain small employers.--In the
case of an employer which would be an eligible employer under
subsection (c) if section 408(p)(2)(C)(i) was applied by
substituting `50 employees' for `100 employees', subsection (a)
shall be applied by substituting `100 percent' for `50
percent'.''.
(b) Additional Credit for Employer Contributions by Certain Small
Employers.--Section 45E of such Code, as amended by subsection (a), is
amended by adding at the end the following new subsection:
``(f) Additional Credit for Employer Contributions by Certain
Eligible Employers.--
``(1) In general.--In the case of an eligible employer, the
credit allowed for the taxable year under subsection (a)
(determined without regard to this subsection) shall be
increased by an amount equal to the applicable percentage of
employer contributions (other than any elective deferrals (as
defined in section 402(g)(3)) by the employer to an eligible
employer plan (other than a defined benefit plan (as defined in
section 414(j))).
``(2) Limitations.--
``(A) Dollar limitation.--The amount determined under
paragraph (1) (before the application of subparagraph
(B)) with respect to any employee of the employer shall
not exceed $1,000.
``(B) Credit phase-in.--In the case of any eligible
employer which had for the preceding taxable year more
than 50 employees, the amount determined under
paragraph (1) (without regard to this subparagraph)
shall be reduced by an amount equal to the product of--
``(i) the amount otherwise so determined
under paragraph (1), multiplied by
``(ii) a percentage equal to 2 percentage
points for each employee of the employer for
the preceding taxable year in excess of 50
employees.
``(3) Applicable percentage.--For purposes of this section,
the applicable percentage for the taxable year during which the
eligible employer plan is established with respect to the
eligible employer shall be 100 percent, and for taxable years
thereafter shall be determined under the following table:
``In the case of the following The applicable percentage shall be:
taxable year beginning
after the taxable year
during which plan is
established with respect to
the eligible employer:
1st................................................ 100%
2nd................................................ 75%
3rd................................................ 50%
4th................................................ 25%
Any taxable year thereafter........................ 0%
``(4) Determination of eligible employer; number of
employees.--For purposes of this subsection, whether an
employer is an eligible employer and the number of employees of
an employer shall be determined under the rules of subsection
(c), except that paragraph (2) thereof shall only apply to the
taxable year during which the eligible employer plan to which
this section applies is established with respect to the
eligible employer.''.
(c) Disallowance of Deduction.--Section 45E(e)(2) of such Code is
amended to read as follows:
``(2) Disallowance of deduction.--No deduction shall be
allowed--
``(A) for that portion of the qualified startup costs
paid or incurred for the taxable year which is equal to
so much of the portion of the credit determined under
subsection (a) as is properly allocable to such costs,
and
``(B) for that portion of the employer contributions
by the employer for the taxable year which is equal to
so much of the credit increase determined under
subsection (f) as is properly allocable to such
contributions.''.
(d) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2021.
SEC. 103. PROMOTION OF SAVER'S CREDIT.
(a) In General.--The Secretary of the Treasury shall take such steps
as the Secretary determines are necessary and appropriate to increase
public awareness of the credit provided under section 25B of the
Internal Revenue Code of 1986.
(b) Report to Congress.--
(1) In general.--Not later than 90 days after the date of the
enactment of this Act, the Secretary shall provide a report to
Congress to summarize the anticipated promotion efforts of the
Treasury under subsection (a).
(2) Contents.--Such report shall include--
(A) a description of plans for--
(i) the development and distribution of
digital and print materials, including the
distribution of such materials to States for
participants in State facilitated retirement
savings programs, and
(ii) the translation of such materials into
the 10 most commonly spoken languages in the
United States after English (as determined by
reference to the most recent American Community
Survey of the Bureau of the Census), and
(B) such other information as the Secretary
determines is necessary
SEC. 104. ENHANCEMENT OF 403(B) PLANS.
(a) In General.--
(1) Permitted investments.--Section 403(b)(7)(A) of the
Internal Revenue Code of 1986 is amended by striking ``if the
amounts are to be invested in regulated investment company
stock to be held in that custodial account'' and inserting ``if
the amounts are to be held in that custodial account and
invested in regulated investment company stock or a group trust
intended to satisfy the requirements of Internal Revenue
Service Revenue Ruling 81-100 (or any successor guidance)''.
(2) Conforming amendment.--The heading of paragraph (7) of
section 403(b) of such Code is amended by striking ``for
regulated investment company stock''.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts invested after December 31, 2021.
(b) Amendments to the Investment Company Act of 1940.--Section
3(c)(11) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(c)(11))
is amended to read as follows:
``(11) Any--
``(A) employee's stock bonus, pension, or profit-
sharing trust which meets the requirements for
qualification under section 401 of the Internal Revenue
Code of 1986;
``(B) custodial account meeting the requirements of
section 403(b)(7) of such Code;
``(C) governmental plan described in section
3(a)(2)(C) of the Securities Act of 1933;
``(D) collective trust fund maintained by a bank
consisting solely of assets of one or more--
``(i) trusts described in subparagraph (A);
``(ii) government plans described in
subparagraph (C);
``(iii) church plans, companies, or accounts
that are excluded from the definition of an
investment company under paragraph (14) of this
subsection; or
``(iv) plans which meet the requirements of
section 403(b) of the Internal Revenue Code of
1986 if--
``(I) such plan is subject to title I
of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1001 et
seq.);
``(II) any employer making such plan
available agrees to serve as a
fiduciary for the plan with respect to
the selection of the plan's investments
among which participants can choose; or
``(III) such plan is a governmental
plan (as defined in section 414(d) of
such Code); or
``(E) separate account the assets of which are
derived solely from--
``(i) contributions under pension or profit-
sharing plans which meet the requirements of
section 401 of the Internal Revenue Code of
1986 or the requirements for deduction of the
employer's contribution under section 404(a)(2)
of such Code;
``(ii) contributions under governmental plans
in connection with which interests,
participations, or securities are exempted from
the registration provisions of section 5 of the
Securities Act of 1933 by section 3(a)(2)(C) of
such Act;
``(iii) advances made by an insurance company
in connection with the operation of such
separate account; and
``(iv) contributions to a plan described in
subparagraph (D)(iv).''.
(c) Amendments to the Securities Act of 1933.--Section 3(a)(2) of the
Securities Act of 1933 (15 U.S.C. 77c(a)(2)) is amended--
(1) by striking ``or (D)'' and inserting ``(D) a plan which
meets the requirements of section 403(b) of such Code if (i)
such plan is subject to title I of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1001 et seq.), (ii) any
employer making such plan available agrees to serve as a
fiduciary for the plan with respect to the selection of the
plan's investments among which participants can choose, or
(iii) such plan is a governmental plan (as defined in section
414(d) of such Code); or (E)'';
(2) by striking ``(C), or (D)'' and inserting ``(C), (D), or
(E)''; and
(3) by striking ``(iii) which is a plan funded'' and
inserting ``(iii) in the case of a plan not described in
subparagraph (D), which is a plan funded''.
(d) Amendments to the Securities Exchange Act of 1934.--Section
3(a)(12)(C) of the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(12)(C)) is amended--
(1) by striking ``or (iv)'' and inserting ``(iv) a plan which
meets the requirements of section 403(b) of such Code if (I)
such plan is subject to title I of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1001 et seq.), (II) any
employer making such plan available agrees to serve as a
fiduciary for the plan with respect to the selection of the
plan's investments among which participants can choose, or
(III) such plan is a governmental plan (as defined in section
414(d) of such Code), or (v)'';
(2) by striking ``(ii), or (iii)'' and inserting ``(ii),
(iii), or (iv)''; and
(3) by striking ``(II) is a plan funded'' and inserting
``(II) in the case of a plan not described in clause (iv), is a
plan funded''.
SEC. 105. INCREASE IN AGE FOR REQUIRED BEGINNING DATE FOR MANDATORY
DISTRIBUTIONS.
(a) In General.--Section 401(a)(9)(C)(i)(I) of the Internal Revenue
Code of 1986 is amended by striking ``age 72'' and inserting ``the
applicable age''.
(b) Spouse Beneficiaries; Special Rule for Owners.--Subparagraphs
(B)(iv)(I) and (C)(ii)(I) of section 401(a)(9) of such Code are each
amended by striking ``age 72'' and inserting ``the applicable age''.
(c) Applicable Age.--Section 401(a)(9)(C) of such Code is amended by
adding at the end the following new clause:
``(v) Applicable age.--
``(I) In the case of an individual
who attains age 72 after December 31,
2021, and age 73 before January 1,
2029, the applicable age is 73.
``(II) In the case of an individual
who attains age 73 after December 31,
2028, and age 74 before January 1,
2032, the applicable age is 74.
``(III) In the case of an individual
who attains age 74 after December 31,
2031, the applicable age is 75.''.
(d) Conforming Amendments.--The last sentence of section 408(b) of
such Code is amended by striking ``age 72'' and inserting ``the
applicable age (determined under section 401(a)(9)(C)(v) for the
calendar year in which such taxable year begins)''.
(e) Effective Date.--The amendments made by this section shall apply
to distributions required to be made after December 31, 2021, with
respect to individuals who attain age 72 after such date.
SEC. 106. INDEXING IRA CATCH-UP LIMIT.
(a) In General.--Subparagraph (C) of section 219(b)(5) of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new clause:
``(iii) Indexing of catch-up limitation.--In
the case of any taxable year beginning in a
calendar year after 2022, the $1,000 amount
under subparagraph (B)(ii) 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 2021' for `calendar year
2016' in subparagraph (A)(ii) thereof.
If any amount after adjustment under the
preceding sentence is not a multiple of $100,
such amount shall be rounded to the next lower
multiple of $100.''.
(b) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2022.
SEC. 107. HIGHER CATCH-UP LIMIT TO APPLY AT AGE 62, 63, AND 64.
(a) In General.--
(1) Plans other than simple plans.--Section 414(v)(2)(B)(i)
of the Internal Revenue Code of 1986 is amended by inserting
the following before the period: ``($10,000, in the case of an
eligible participant who has attained age 62, but not age 65,
before the close of the taxable year)''.
(2) Simple plans.--Section 414(v)(2)(B)(ii) of such Code is
amended by inserting the following before the period:
``($5,000, in the case of an eligible participant who has
attained age 62, but not age 65, before the close of the
taxable year)''.
(b) Cost-of-living Adjustments.--Subparagraph (C) of section
414(v)(2) of such Code is amended by adding at the end the following:
``In the case of a year beginning after December 31, 2022, the
Secretary shall adjust annually the $10,000 amount in subparagraph
(B)(i) and the $5,000 amount in subparagraph (B)(ii) for increases in
the cost-of-living at the same time and in the same manner as
adjustments under the preceding sentence; except that the base period
taken into account shall be the calendar quarter beginning July 1,
2021.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2022.
SEC. 108. MULTIPLE EMPLOYER 403(B) PLANS.
(a) In General.--Section 403(b) of the Internal Revenue Code of 1986
is amended by adding at the end the following new paragraph:
``(15) Multiple employer plans.--
``(A) In general.--Except in the case of a church
plan, this subsection shall not be treated as failing
to apply to an annuity contract solely by reason of
such contract being purchased under a plan maintained
by more than 1 employer.
``(B) Treatment of employers failing to meet
requirements of plan.--
``(i) In general.--In the case of a plan
maintained by more than 1 employer, this
subsection shall not be treated as failing to
apply to an annuity contract held under such
plan merely because of one or more employers
failing to meet the requirements of this
subsection if such plan satisfies rules similar
to the rules of section 413(e)(2) with respect
to any such employer failure.
``(ii) Additional requirements in case of
non-governmental plans.--A plan shall not be
treated as meeting the requirements of this
subparagraph unless the plan meets the
requirements of subparagraph (A) or (B) of
section 413(e)(1), except in the case of a
multiple employer plan maintained solely by any
of the following: A State, a political
subdivision of a State, or an agency or
instrumentality of any one or more of the
foregoing.''.
(b) Annual Registration for 403(b) Multiple Employer Plan.--Section
6057 of such Code is amended by redesignating subsection (g) as
subsection (h) and by inserting after subsection (f) the following new
subsection:
``(g) 403(b) Multiple Employer Plans Treated as One Plan.--In the
case of annuity contracts to which this section applies and to which
section 403(b) applies by reason of the plan under which such contracts
are purchased meeting the requirements of paragraph (15) thereof, such
plan shall be treated as a single plan for purposes of this section.''.
(c) Annual Information Returns for 403(b) Multiple Employer Plan.--
Section 6058 of the Internal Revenue Code of 1986 is amended by
redesignating subsection (f) as subsection (g) and by inserting after
subsection (e) the following new subsection:
``(f) 403(b) Multiple Employer Plans Treated as One Plan.--In the
case of annuity contracts to which this section applies and to which
section 403(b) applies by reason of the plan under which such contracts
are purchased meeting the requirements of paragraph (15) thereof, such
plan shall be treated as a single plan for purposes of this section.''.
(d) Amendments to Employee Retirement Income Security Act of 1974.--
(1) Treated as pooled employer plan.--
(A) In general.--Section 3(43)(A) of the Employee
Retirement Income Security Act of 1974 is amended--
(i) in clause (ii), by striking ``section
501(a) of such Code or'' and inserting ``501(a)
of such Code, a plan that consists of contracts
described in section 403(b) of such Code, or'';
and
(ii) in the flush text at the end, by
striking ``the plan.'' and inserting ``the
plan, but such term shall include any program
(other than a governmental plan) maintained for
the benefit of the employees of more than 1
employer that consists of contracts described
in section 403(b) of such Code and that meets
the requirements of subparagraph (A) or (B) of
section 413(e)(1) of such Code.''.
(B) Conforming amendments.--Sections 3(43)(B)(v)(II)
and 3(44)(A)(i)(I) of such Act are each amended by
striking ``section 401(a) of such Code or'' and
inserting ``401(a) of such Code, a plan that consists
of contracts described in section 403(b) of such Code,
or''.
(2) Fiduciaries.--Section 3(43)(B)(ii) of such Act is
amended--
(A) by striking ``trustees meeting the requirements
of section 408(a)(2) of the Internal Revenue Code of
1986'' and inserting ``trustees (or other fiduciaries
in the case of a plan that consists of contracts
described in section 403(b) of the Internal Revenue
Code of 1986) meeting the requirements of section
408(a)(2) of such Code'', and
(B) by striking ``holding'' and inserting ``holding
(or causing to be held under the terms of a plan
consisting of such contracts)''.
(e) Regulations Relating to Plan Termination.--The Secretary of the
Treasury (or the Secretary's designee) shall prescribe such regulations
as may be necessary to clarify the treatment of a plan termination by
an employer in the case of plans to which section 403(b)(15) of such
Code applies.
(f) Modification of Model Plan Language. etc.--
(1) Plan notifications.--The Secretary of the Treasury (or
the Secretary's designee) shall modify the model plan language
published under section 413(e)(5) of the Internal Revenue Code
of 1986 to include language which notifies participating
employers described in section 501(c)(3), and which are exempt
from tax under section 501(a), that the plan is subject to the
Employee Retirement Income Security Act of 1974 and that such
employer is a plan sponsor with respect to its employees
participating in the multiple employer plan and, as such, has
certain fiduciary duties with respect to the plan and to its
employees.
(2) Model plans for multiple employer 403(b) non-governmental
plans.--For plans to which section 403(b)(15)(A) of the
Internal Revenue Code of 1986 applies (other than a plan
maintained for its employees by a State, a political
subdivision of a State, or an agency or instrumentality of any
one or more of the foregoing) the Secretary shall publish model
plan language similar to model plan language published under
section 413(e)(5) of such Code.
(3) Educational outreach to employers exempt from tax.--The
Secretary shall provide education and outreach to increase
awareness to employers described in section 501(c)(3), and
which are exempt from tax under section 501(a), that multiple
employer plans are subject to the Employee Retirement Income
Security Act of 1974 and that such employer is a plan sponsor
with respect to its employees participating in the multiple
employer plan and, as such, has certain fiduciary duties with
respect to the plan and to its employees.
(g) No Inference With Respect to Church Plans.--Regarding any
application of section 403(b) of the Internal Revenue Code of 1986 to
an annuity contract purchased under a church plan (as defined in
section 414(e) of such Code) maintained by more than 1 employer, or to
any application of rules similar to section 413(e) of such Code to such
a plan, no inference shall be made from section 403(b)(15)(A) of such
Code (as added by this Act) not applying to such plans.
(h) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 2021.
(2) Rule of construction.--Nothing in the amendments made by
subsection (a) shall be construed as limiting the authority of
the Secretary of the Treasury or the Secretary's delegate
(determined without regard to such amendment) to provide for
the proper treatment of a failure to meet any requirement
applicable under such Code with respect to one employer (and
its employees) in the case of a plan to which section
403(b)(15) applies.
SEC. 109. TREATMENT OF STUDENT LOAN PAYMENTS AS ELECTIVE DEFERRALS FOR
PURPOSES OF MATCHING CONTRIBUTIONS.
(a) In General.--Section 401(m)(4)(A) of the Internal Revenue Code of
1986 is amended by striking ``and'' at the end of clause (i), by
striking the period at the end of clause (ii) and inserting ``, and'',
and by adding at the end the following new clause:
``(iii) subject to the requirements of
paragraph (13), any employer contribution made
to a defined contribution plan on behalf of an
employee on account of a qualified student loan
payment.''.
(b) Qualified Student Loan Payment.--Section 401(m)(4) of such Code
is amended by adding at the end the following new subparagraph:
``(D) Qualified student loan payment.--The term
`qualified student loan payment' means a payment made
by an employee in repayment of a qualified education
loan (as defined section 221(d)(1)) incurred by the
employee to pay qualified higher education expenses,
but only--
``(i) to the extent such payments in the
aggregate for the year do not exceed an amount
equal to--
``(I) the limitation applicable under
section 402(g) for the year (or, if
lesser, the employee's compensation (as
defined in section 415(c)(3)) for the
year), reduced by
``(II) the elective deferrals made by
the employee for such year, and
``(ii) if the employee certifies to the
employer making the matching contribution under
this paragraph that such payment has been made
on such loan.
For purposes of this subparagraph, the term `qualified
higher education expenses' means the cost of attendance
(as defined in section 472 of the Higher Education Act
of 1965, as in effect on the day before the date of the
enactment of the Taxpayer Relief Act of 1997) at an
eligible educational institution (as defined in section
221(d)(2)).''.
(c) Matching Contributions for Qualified Student Loan Payments.--
Section 401(m) of such Code is amended by redesignating paragraph (13)
as paragraph (14), and by inserting after paragraph (12) the following
new paragraph:
``(13) Matching contributions for qualified student loan
payments.--
``(A) In general.--For purposes of paragraph
(4)(A)(iii), an employer contribution made to a defined
contribution plan on account of a qualified student
loan payment shall be treated as a matching
contribution for purposes of this title if--
``(i) the plan provides matching
contributions on account of elective deferrals
at the same rate as contributions on account of
qualified student loan payments,
``(ii) the plan provides matching
contributions on account of qualified student
loan payments only on behalf of employees
otherwise eligible to receive matching
contributions on account of elective deferrals,
``(iii) under the plan, all employees
eligible to receive matching contributions on
account of elective deferrals are eligible to
receive matching contributions on account of
qualified student loan payments, and
``(iv) the plan provides that matching
contributions on account of qualified student
loan payments vest in the same manner as
matching contributions on account of elective
deferrals.
``(B) Treatment for purposes of nondiscrimination
rules, etc.--
``(i) Nondiscrimination rules.--For purposes
of subparagraph (A)(iii), subsection (a)(4),
and section 410(b), matching contributions
described in paragraph (4)(A)(iii) shall not
fail to be treated as available to an employee
solely because such employee does not have debt
incurred under a qualified education loan (as
defined in section 221(d)(1)).
``(ii) Student loan payments not treated as
plan contribution.--Except as provided in
clause (iii), a qualified student loan payment
shall not be treated as a contribution to a
plan under this title.
``(iii) Matching contribution rules.--Solely
for purposes of meeting the requirements of
paragraph (11)(B) or (12) of this subsection,
or paragraph (11)(B)(i)(II), (12)(B), or
(13)(D) of subsection (k), a plan may treat a
qualified student loan payment as an elective
deferral or an elective contribution, whichever
is applicable.
``(iv) Actual deferral percentage testing.--
In determining whether a plan meets the
requirements of subsection (k)(3)(A)(ii) for a
plan year, the plan may apply the requirements
of such subsection separately with respect to
all employees who receive matching
contributions described in paragraph
(4)(A)(iii) for the plan year.
``(C) Employer may rely on employee certification.--
The employer may rely on an employee certification of
payment under paragraph (4)(D)(ii).''.
(d) Simple Retirement Accounts.--Section 408(p)(2) of such Code is
amended by adding at the end the following new subparagraph:
``(F) Matching contributions for qualified student
loan payments.--
``(i) In general.--Subject to the rules of
clause (iii), an arrangement shall not fail to
be treated as meeting the requirements of
subparagraph (A)(iii) solely because under the
arrangement, solely for purposes of such
subparagraph, qualified student loan payments
are treated as amounts elected by the employee
under subparagraph (A)(i)(I) to the extent such
payments do not exceed--
``(I) the applicable dollar amount
under subparagraph (E) (after
application of section 414(v)) for the
year (or, if lesser, the employee's
compensation (as defined in section
415(c)(3)) for the year), reduced by
``(II) any other amounts elected by
the employee under subparagraph
(A)(i)(I) for the year.
``(ii) Qualified student loan payment.--For
purposes of this subparagraph--
``(I) In general.--The term
`qualified student loan payment' means
a payment made by an employee in
repayment of a qualified education loan
(as defined in section 221(d)(1))
incurred by the employee to pay
qualified higher education expenses,
but only if the employee certifies to
the employer making the matching
contribution that such payment has been
made on such a loan.
``(II) Qualified higher education
expenses.--The term `qualified higher
education expenses' has the same
meaning as when used in section
401(m)(4)(D).
``(iii) Applicable rules.--Clause (i) shall
apply to an arrangement only if, under the
arrangement--
``(I) matching contributions on
account of qualified student loan
payments are provided only on behalf of
employees otherwise eligible to elect
contributions under subparagraph
(A)(i)(I), and
``(II) all employees otherwise
eligible to participate in the
arrangement are eligible to receive
matching contributions on account of
qualified student loan payments.''.
(e) 403(b) Plans.--Section 403(b)(12)(A) of such Code is amended by
adding at the end the following: ``The fact that the employer offers
matching contributions on account of qualified student loan payments as
described in section 401(m)(13) shall not be taken into account in
determining whether the arrangement satisfies the requirements of
clause (ii) (and any regulation thereunder).''.
(f) 457(b) Plans.--Section 457(b) of such Code is amended by adding
at the end the following: ``A plan which is established and maintained
by an employer which is described in subsection (e)(1)(A) shall not be
treated as failing to meet the requirements of this subsection solely
because the plan, or another plan maintained by the employer which
meets the requirements of section 401(a) or 403(b), provides for
matching contributions on account of qualified student loan payments as
described in section 401(m)(13).''.
(g) Regulatory Authority.--The Secretary shall prescribe regulations
for purposes of implementing the amendments made by this section,
including regulations--
(1) permitting a plan to make matching contributions for
qualified student loan payments, as defined in sections
401(m)(4)(D) and 408(p)(2)(F) of the Internal Revenue Code of
1986, as added by this section, at a different frequency than
matching contributions are otherwise made under the plan,
provided that the frequency is not less than annually;
(2) permitting employers to establish reasonable procedures
to claim matching contributions for such qualified student loan
payments under the plan, including an annual deadline (not
earlier than 3 months after the close of each plan year) by
which a claim must be made; and
(3) promulgating model amendments which plans may adopt to
implement matching contributions on such qualified student loan
payments for purposes of sections 401(m), 408(p), 403(b), and
457(b) of the Internal Revenue Code of 1986.
(h) Effective Date.--The amendments made by this section shall apply
to contributions made for plan years beginning after December 31, 2021.
SEC. 110. APPLICATION OF CREDIT FOR SMALL EMPLOYER PENSION PLAN STARTUP
COSTS TO EMPLOYERS WHICH JOIN AN EXISTING PLAN.
(a) In General.--Section 45E(d)(3)(A) of the Internal Revenue Code of
1986 is amended by striking ``effective'' and inserting ``effective
with respect to the eligible employer''.
(b) Effective Date.--The amendment made by this section shall apply
to eligible employer plans which become effective with respect to the
eligible employer after the date of the enactment of this Act.
SEC. 111. MILITARY SPOUSE RETIREMENT PLAN ELIGIBILITY CREDIT FOR SMALL
EMPLOYERS.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1 of
the Internal Revenue Code of 1986 is amended by adding at the end the
following new section:
``SEC. 45U. MILITARY SPOUSE RETIREMENT PLAN ELIGIBILITY CREDIT FOR
SMALL EMPLOYERS.
``(a) In General.--For purposes of section 38, in the case of any
eligible small employer, the military spouse retirement plan
eligibility credit determined under this section for any taxable year
is an amount equal to the sum of--
``(1) $250 with respect to each military spouse who is an
employee of such employer and who is eligible to participate in
an eligible defined contribution plan of such employer at any
time during such taxable year, plus
``(2) so much of the contributions made by such employer to
all such plans with respect to such employee during such
taxable year as do not exceed $250.
``(b) Limitation.--An individual shall only be taken into account as
a military spouse under subsection (a) for the taxable year which
includes the date on which such individual began participating in the
eligible defined contribution plan of the employer and the 2 succeeding
taxable years.
``(c) Eligible Small Employer.--For purposes of this section--
``(1) In general.--The term `eligible small employer' means
an eligible employer (as defined in section
408(p)(2)(C)(i)(I)).
``(2) Application of 2-year grace period.--A rule similar to
the rule of section 408(p)(2)(C)(i)(II) shall apply for
purposes of this section.
``(d) Military Spouse.--For purposes of this section--
``(1) In general.--The term `military spouse' means, with
respect to any employer, any individual who is married (within
the meaning of section 7703 as of the first date that the
employee is employed by the employer) to an individual who is a
member of the uniformed services (as defined section 101(a)(5)
of title 10, United States Code). For purposes of this section,
an employer may rely on an employee's certification that such
employee's spouse is a member of the uniformed services if such
certification provides the name, rank, and service branch of
such spouse.
``(2) Exclusion of highly compensated employees.--With
respect to any employer, the term `military spouse' shall not
include any individual if such individual is a highly
compensated employee of such employer (within the meaning of
section 414(q)).
``(e) Eligible Defined Contribution Plan.--For purposes of this
section, the term `eligible defined contribution plan' means, with
respect to any eligible small employer, any defined contribution plan
(as defined in section 414(i)) of such employer if, under the terms of
such plan--
``(1) military spouses employed by such employer are eligible
to participate in such plan not later than the date which is 2
months after the date on which such individual begins
employment with such employer, and
``(2) military spouses who are eligible to participate in
such plan--
``(A) are immediately eligible to receive an amount
of employer contributions under such plan which is not
less the amount of such contributions that a similarly
situated participant who is not a military spouse would
be eligible to receive under such plan after 2 years of
service, and
``(B) immediately have a nonforfeitable right to the
employee's accrued benefit derived from employer
contributions under such plan.
``(f) Aggregation Rule.--All persons treated as a single employer
under subsection (b), (c), (m) or (o) of section 414 shall be treated
as one employer for purposes of this section.''.
(b) Credit Allowed as Part of General Business Credit.--Section 38(b)
of such Code is amended by striking ``plus'' at the end of paragraph
(32), by striking the period at the end of paragraph (33) and inserting
``, plus'', and by adding at the end the following new paragraph:
``(34) in the case of an eligible small employer (as defined
in section 45U(c)), the military spouse retirement plan
eligibility credit determined under section 45U(a).''.
(c) Specified Credit for Purposes of Certified Professional
Organizations.--Section 3511(d)(2) of such Code is amended by
redesignating subparagraphs (F), (G), and (H) as subparagraphs (G),
(H), and (I), respectively, and by inserting after subparagraph (E) the
following new subparagraph:
``(F) section 45U (military spouse retirement plan
eligibility credit),''.
(d) Clerical Amendment.--The table of sections for subpart D of part
IV of subchapter A of chapter 1 of such Code is amended by adding at
the end the following new item:
``Sec. 45U. Military spouse retirement plan eligibility credit for
small employers.''.
(e) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 112. SMALL IMMEDIATE FINANCIAL INCENTIVES FOR CONTRIBUTING TO A
PLAN.
(a) In General.--Subparagraph (A) of section 401(k)(4) of the
Internal Revenue Code of 1986 is amended by inserting ``(other than a
de minimis financial incentive)'' after ``any other benefit''.
(b) Section 403(b) Plans.--Subparagraph (A) of section 403(b)(12) of
such Code, as amended by the preceding provisions of this Act, is
further amended by adding at the end the following: ``A plan shall not
fail to satisfy clause (ii) solely by reason of offering a de minimis
financial incentive to employees to elect to have the employer make
contributions pursuant to a salary reduction agreement.''.
(c) Exemption From Prohibited Transaction Rules.--Subsection (d) of
section 4975 of such Code is amended by striking ``or'' at the end of
paragraph (22), by striking the period at the end of paragraph (23) and
inserting ``, or'', and by adding at the end the following new
paragraph:
``(24) the provision of a de minimis financial incentive
described in section 401(k)(4)(A) or 403(b)(12)(A).''.
(d) Amendment of Employee Retirement Income Security Act of 1974.--
Subsection (b) of section 408 of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1108(b)) is amended by adding at the
end the following new paragraph:
``(21) The provision of a de minimis financial incentive
described in section 401(k)(4)(A) or 403(b)(12)(A) of the
Internal Revenue Code of 1986.''.
(e) Effective Date.--The amendments made by this section shall apply
with respect to plan years beginning after the date of enactment of
this Act.
SEC. 113. SAFE HARBOR FOR CORRECTIONS OF EMPLOYEE ELECTIVE DEFERRAL
FAILURES.
(a) In General.--Section 414 of the Internal Revenue Code of 1986 is
amended by adding at the end the following new subsection:
``(aa) Correcting Automatic Contribution Errors.--
``(1) In general.--Any plan or arrangement shall not fail to
be treated as a plan described in sections 401(a), 403(b), 408,
or 457(b), as applicable, solely by reason of a corrected
error.
``(2) Corrected error defined.--For purposes of this
subsection, the term `corrected error' means a reasonable
administrative error in implementing an automatic enrollment or
automatic escalation feature in accordance with the terms of an
eligible automatic contribution arrangement (as defined under
subsection (w)(3)), provided that such implementation error--
``(A) is corrected by the date that is 9\1/2\ months
after the end of the plan year during which the failure
occurred,
``(B) is corrected in a manner that is favorable to
the participant, and
``(C) is of a type which is so corrected for all
similarly situated participants in a nondiscriminatory
manner.
Such correction may occur before or after the participant has
terminated employment and may occur without regard to whether
the error is identified by the Secretary.
``(3) Regulations and guidance for favorable correction
methods.--The Secretary shall, by regulations or other guidance
of general applicability, specify the correction methods that
are in a manner favorable to the participant for purposes of
paragraph (2)(B).''.
(b) Effective Date.--The amendment made by this section shall apply
with respect to any errors with respect to which the date referred to
in section 414(aa) (as added by this section) is after the date of
enactment of this Act.
SEC. 114. ONE-YEAR REDUCTION IN PERIOD OF SERVICE REQUIREMENT FOR LONG-
TERM, PART-TIME WORKERS.
(a) In General.--Section 401(k)(2)(D)(ii) of the Internal Revenue
Code of 1986 is amended by striking ``3'' and inserting ``2''.
(b) Clarification of Prior Service for Purposes of Vesting Rules.--
Section 112(b) of the Setting Every Community Up for Retirement
Enhancement Act of 2019 is amended by striking ``section
401(k)(2)(D)(ii)'' and inserting ``paragraphs (2)(D)(ii) and
(15)(B)(iii) of section 401(k)''.
(c) Effective Date.--The amendments made by this section shall take
effect as if included in the enactment of section 112 of the Setting
Every Community Up for Retirement Enhancement Act of 2019.
SEC. 115. FINDINGS RELATING TO S CORPORATION ESOPS.
Congress finds the following:
(1) On January 1, 1998, nearly 25 years after the Employee
Retirement Income Security Act of 1974 was enacted and the
employee stock ownership plan (hereafter in this section
referred to as an ``ESOP'') was created, employees were first
permitted to be owners of subchapter S corporations pursuant to
the Small Business Job Protection Act of 1996 (Public Law 104-
188).
(2) With the passage of the Taxpayer Relief Act of 1997
(Public Law 105-34), Congress designed incentives to encourage
businesses to become ESOP-owned S corporations.
(3) Since that time, several thousand companies have become
ESOP-owned S corporations, creating an ownership interest for
several million Americans in companies in every State in the
country, in industries ranging from heavy manufacturing to
construction and contracting to services.
(4) Every United States worker who is an employee-owner of an
S corporation company through an ESOP has a valuable qualified
retirement savings account.
(5) Recent studies have shown that employees of ESOP-owned S
corporations enjoy greater job stability, wages and benefits
than employees of comparable companies; and ESOP companies are
better able to weather economic downturns.
(6) Studies also show that employee-owners of S corporation
ESOP companies have amassed meaningful retirement savings
through their ESOP accounts that will give them the means to
retire with dignity.
(7) It is the goal of Congress to preserve and foster
employee ownership of S corporations through ESOPs.
TITLE II--PRESERVATION OF INCOME
SEC. 201. REMOVE REQUIRED MINIMUM DISTRIBUTION BARRIERS FOR LIFE
ANNUITIES.
(a) In General.--Section 401(a)(9) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(J) Certain increases in payments under a
commercial annuity.--Nothing in this section shall
prohibit a commercial annuity (within the meaning of
section 3405(e)(6)) that is issued in connection with
any eligible retirement plan (within the meaning of
section 402(c)(8)(B), other than a defined benefit
plan) from providing one or more of the following types
of payments on or after the annuity starting date:
``(i) annuity payments that increase by a
constant percentage, applied not less
frequently than annually, at a rate that is
less than 5 percent per year,
``(ii) a lump sum payment that--
``(I) results in a shortening of the
payment period with respect to an
annuity or a full or partial
commutation of the future annuity
payments, provided that such lump sum
is determined using reasonable
actuarial methods and assumptions, as
determined in good faith by the issuer
of the contract, or
``(II) accelerates the receipt of
annuity payments that are scheduled to
be received within the ensuing 12
months, regardless of whether such
acceleration shortens the payment
period with respect to the annuity,
reduces the dollar amount of benefits
to be paid under the contract, or
results in a suspension of annuity
payments during the period being
accelerated,
``(iii) an amount which is in the nature of a
dividend or similar distribution, provided that
the issuer of the contract determines such
amount based on a reasonable comparison of the
actuarial factors assumed when calculating the
initial annuity payments and the issuer's
experience with respect to those factors, or
``(iv) a final payment upon death that does
not exceed the excess of the total amount of
the consideration paid for the annuity
payments, less the aggregate amount of prior
distributions or payments from or under the
contract.''.
(b) Regulations and Enforcement.--
(1) Regulations.--By the date that is one year after the date
of enactment of this Act, the Secretary of the Treasury shall
amend the regulation issued by the Department of the Treasury
relating to ``Required Distributions from Retirement Plans,''
69 Fed. Reg. 33288 (June 15, 2004), and make any corresponding
amendments to other regulations, in order to--
(A) conform such regulations to subsection (a),
including by eliminating the types of payments
described in subsection (a) from the scope of the
requirement in Q&A-14(c) of Treasury Regulation section
1.401(a)(9)-6 that the total future expected payments
must exceed the total value being annuitized;
(B) amend Q&A-14(c) of Treasury Regulation section
1.401(a)(9)-6 to provide that a commercial annuity that
provides an initial payment that is at least equal to
the initial payment that would be required from an
individual account pursuant to Treasury Regulation
section 1.401(a)(9)-5 will be deemed to satisfy the
requirement in Q&A-14(c) of Treasury Regulation section
1.401(a)(9)-6 that the total future expected payments
must exceed the total value being annuitized; and
(C) amend Q&A-14(e)(3) of Treasury Regulation section
1.401(a)(9)-6 to provide that the total future expected
payments under a commercial annuity are determined
using the tables or other actuarial assumptions that
the issuer of the contract actually uses in pricing the
premiums and benefits with respect to the contract,
provided that such tables or other actuarial
assumptions are reasonable.
(2) Enforcement.--As of the date of enactment of this Act,
the Secretary of the Treasury shall administer and enforce the
law in accordance with subsections (a) and (b).
(c) Effective Date.--This section shall take effect on the date of
the enactment of this Act.
SEC. 202. QUALIFYING LONGEVITY ANNUITY CONTRACTS.
(a) In General.--Not later than the date which is 1 year after the
date of the enactment of this Act, the Secretary of the Treasury or the
Secretary's delegate (hereafter in this section referred to as the
``Secretary'') shall amend the regulation issued by the Department of
the Treasury relating to ``Longevity Annuity Contracts'' (79 Fed. Reg.
37633 (July 2, 2014)), as follows:
(1) Repeal 25-percent premium limit.--The Secretary shall
amend Q&A-17(b)(3) of Treasury Regulation section 1.401(a)(9)-6
and Q&A-12(b)(3) of Treasury Regulation section 1.408-8 to
eliminate the requirement that premiums for qualifying
longevity annuity contracts be limited to a percentage of an
individual's account balance, and to make such corresponding
changes to the regulations and related forms as are necessary
to reflect the elimination of this requirement.
(2) Facilitate joint and survivor benefits.--The Secretary
shall amend Q&A-17(c) of Treasury Regulation section
1.401(a)(9)-6, and make such corresponding changes to the
regulations and related forms as are necessary, to provide
that, in the case of a qualifying longevity annuity contract
which was purchased with joint and survivor annuity benefits
for the individual and the individual's spouse which were
permissible under the regulations at the time the contract was
originally purchased, a divorce occurring after the original
purchase and before the annuity payments commence under the
contract will not affect the permissibility of the joint and
survivor annuity benefits or other benefits under the contract,
or require any adjustment to the amount or duration of benefits
payable under the contract, provided that any qualified
domestic relations order (within the meaning of section 414(p)
of the Internal Revenue Code of 1986) or any divorce or
separation instrument (as defined in subsection (b))--
(A) provides that the former spouse is entitled to
the survivor benefits under the contract;
(B) does not modify the treatment of the former
spouse as the beneficiary under the contract who is
entitled to the survivor benefits; or
(C) does not modify the treatment of the former
spouse as the measuring life for the survivor benefits
under the contract.
(3) Permit short free look period.--The Secretary shall amend
Q&A-17(a)(4) of Treasury Regulation section 1.401(a)(9)-6 to
ensure that such Q&A does not preclude a contract from
including a provision under which an employee may rescind the
purchase of the contract within a period not exceeding 90 days
from the date of purchase.
(b) Divorce or Separation Instrument.--For purposes of subsection
(a)(2), the term ``divorce or separation instrument'' means--
(1) a decree of divorce or separate maintenance or a written
instrument incident to such a decree,
(2) a written separation agreement, or
(3) a decree (not described in paragraph (1)) requiring a
spouse to make payments for the support or maintenance of the
other spouse.
(c) Effective Dates, Enforcement, and Interpretations.--
(1) Effective dates.--
(A) Paragraph (1) of subsection (a) shall be
effective with respect to contracts purchased or
received in an exchange on or after the date of the
enactment of this Act.
(B) Paragraphs (2) and (3) of subsection (a) shall be
effective with respect to contracts purchased or
received in an exchange on or after July 2, 2014.
(2) Enforcement and interpretations.--Prior to the date on
which the Secretary issues final regulations pursuant to
subsection (a)--
(A) the Secretary (or delegate) shall administer and
enforce the law in accordance with subsection (a) and
the effective dates in paragraph (1) of this
subsection; and
(B) taxpayers may rely upon their reasonable good
faith interpretations of subsection (a).
SEC. 203. INSURANCE-DEDICATED EXCHANGE-TRADED FUNDS.
(a) In General.--Not later than the date which is 7 years after the
date of the enactment of this Act, the Secretary of the Treasury (or
the Secretary's delegate) shall amend the regulation issued by the
Department of the Treasury relating to ``Income Tax; Diversification
Requirements for Variable Annuity, Endowment, and Life Insurance
Contracts'', 54 Fed. Reg. 8728 (March 2, 1989), and make any necessary
corresponding amendments to other regulations, in order to facilitate
the use of exchange-traded funds as investment options under variable
contracts within the meaning of section 817(d) of the Internal Revenue
Code of 1986, in accordance with subsections (b) and (c) of this
section.
(b) Designate Certain Authorized Participants and Market Makers as
Eligible Investors.--The Secretary of the Treasury (or the Secretary's
delegate) shall amend Treas. Reg. section 1.817-5(f)(3) to provide that
satisfaction of the requirements in Treas. Reg. section 1.817-
5(f)(2)(i) with respect to an exchange-traded fund shall not be
prevented by reason of beneficial interests in such a fund being held
by 1 or more authorized participants or market makers.
(c) Define Relevant Terms.--In amending Treas. Reg. section 1.817-
5(f)(3) in accordance with subsections (b) of this section, the
Secretary of the Treasury (or the Secretary's delegate) shall provide
definitions consistent with the following:
(1) Exchange-traded fund.--The term ``exchange-traded fund''
means a regulated investment company, partnership, or trust--
(A) that is registered with the Securities and
Exchange Commission as an open-end investment company
or a unit investment trust;
(B) the shares of which can be purchased or redeemed
directly from the fund only by an authorized
participant; and
(C) the shares of which are traded throughout the day
on a national stock exchange at market prices that may
or may not be the same as the net asset value of the
shares.
(2) Authorized participant.--The term ``authorized
participant'' means a financial institution that is a member or
participant of a clearing agency registered under section
17A(b) of the Securities Exchange Act of 1934 that enters into
a contractual relationship with an exchange-traded fund
pursuant to which the financial institution is permitted to
purchase and redeem shares directly from the fund and to sell
such shares to third parties, but only if the contractual
arrangement or applicable law precludes the financial
institution from--
(A) purchasing the shares for its own investment
purposes rather than for the exclusive purpose of
creating and redeeming such shares on behalf of third
parties; and
(B) selling the shares to third parties who are not
market makers or otherwise described in Treas. Reg.
section 1.817-5(f) (1) and (3).
(3) Market maker.--The term ``market maker'' means a
financial institution that is a registered broker or dealer
under section 15(b) of the Securities Exchange Act of 1934 that
maintains liquidity for an exchange-traded fund on a national
stock exchange by being always ready to buy and sell shares of
such fund on the market, but only if the financial institution
is contractually or legally precluded from selling or buying
such shares to or from persons who are not authorized
participants or otherwise described in Treas. Reg. section
1.817-5(f) (2) and (3).
(d) Effective Date.--Subsections (b) and (c) shall apply to
segregated asset account investments made on or after the date that is
7 years after the date of the enactment of this Act.
TITLE III--SIMPLIFICATION AND CLARIFICATION OF RETIREMENT PLAN RULES
SEC. 301. RECOVERY OF RETIREMENT PLAN OVERPAYMENTS.
(a) Overpayments Under Internal Revenue Code of 1986.--
(1) Qualification requirements.--Section 414 of the Internal
Revenue Code of 1986, as amended by the preceding provisions of
this Act, is further amended by adding at the end the following
new subsection:
``(bb) Special Rules Applicable to Benefit Overpayments.--
``(1) In general.--A plan shall not fail to be treated as
described in clause (i), (ii), (iii), or (iv) of section
219(g)(5)(A) (and shall not fail to be treated as satisfying
the requirements of section 401(a) or 403) merely because--
``(A) the plan fails to obtain payment from any
participant, beneficiary, employer, plan sponsor,
fiduciary, or other party on account of any inadvertent
benefit overpayment made by the plan, or
``(B) the plan sponsor amends the plan to increase
past or future benefit payments to affected
participants and beneficiaries in order to adjust for
prior inadvertent benefit overpayments.
``(2) Reduction in future benefit payments and recovery from
responsible party.--Paragraph (1) shall not fail to apply to a
plan merely because, after discovering a benefit overpayment,
such plan--
``(A) reduces future benefit payments to the correct
amount provided for under the terms of the plan, or
``(B) seeks recovery from the person or persons
responsible for such overpayment.
``(3) Employer funding obligations.--Nothing in this
subsection shall relieve an employer of any obligation imposed
on it to make contributions to a plan to meet the minimum
funding standards under sections 412 and 430 or to prevent or
restore an impermissible forfeiture in accordance with section
411.
``(4) Observance of benefit limitations.--Notwithstanding
paragraph (1), a plan to which paragraph (1) applies shall
observe any limitations imposed on it by section 401(a)(17) or
415. The plan may enforce such limitations using any method
approved by the Secretary for recouping benefits previously
paid or allocations previously made in excess of such
limitations.
``(5) Coordination with other qualification requirements.--
The Secretary may issue regulations or other guidance of
general applicability specifying how benefit overpayments and
their recoupment or non-recoupment from a participant or
beneficiary shall be taken into account for purposes of
satisfying any requirement applicable to a plan to which
paragraph (1) applies.''.
(2) Rollovers.--Section 402(c) of such Code is amended by
adding at the end the following new paragraph:
``(12) In the case of an inadvertent benefit overpayment from
a plan to which section 414(bb)(1) applies which is transferred
to an eligible retirement plan by or on behalf of a participant
or beneficiary--
``(A) the portion of such overpayment with respect to
which recoupment is not sought on behalf of the plan
shall be treated as having been paid in an eligible
rollover distribution if the payment would have been an
eligible rollover distribution but for being an
overpayment, and
``(B) the portion of such overpayment with respect to
which recoupment is sought on behalf of the plan shall
be permitted to be returned to such plan and in such
case shall be treated as an eligible rollover
distribution transferred to such plan by the
participant or beneficiary who received such
overpayment (and the plans making and receiving such
transfer shall be treated as permitting such transfer).
In any case in which recoupment is sought on behalf of the plan
but is disputed by the participant or beneficiary who received
such overpayment, such dispute shall be subject to the claims
and appeals procedures of the plan that made such overpayment,
such plan shall notify the plan receiving the rollover of such
dispute, and the plan receiving the rollover shall retain such
overpayment on behalf of the participant or beneficiary (and
shall be entitled to treat such overpayment as plan assets)
pending the outcome of such procedures.''.
(b) Overpayments Under ERISA.--Section 206 of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1056) is amended by adding at
the end the following new subsection:
``(h) Special Rules Applicable to Benefit Overpayments.--
``(1) General rule.--In the case of an inadvertent benefit
overpayment by any pension plan, the responsible plan fiduciary
shall not be considered to have failed to comply with the
requirements of this title merely because such fiduciary
determines, in the exercise of its fiduciary discretion, not to
seek recovery of all or part of such overpayment from--
``(A) any participant or beneficiary,
``(B) any plan sponsor of, or contributing employer
to--
``(i) an individual account plan, provided
that the amount needed to prevent or restore
any impermissible forfeiture from any
participant's or beneficiary's account arising
in connection with the overpayment is,
separately from and independently of the
overpayment, allocated to such account pursuant
to the nonforfeitability requirements of
section 203 (for example, out of the plan's
forfeiture account, additional employer
contributions, or recoveries from those
responsible for the overpayment), or
``(ii) a defined benefit pension plan subject
to the funding rules in part 3 of this subtitle
B, unless the responsible plan fiduciary
determines, in the exercise of its fiduciary
discretion, that failure to recover all or part
of the overpayment faster than required under
such funding rules would materially affect the
plan's ability to pay benefits due to other
participants and beneficiaries, or
``(C) any fiduciary of the plan, other than a
fiduciary (including a plan sponsor or contributing
employer acting in a fiduciary capacity) whose breach
of its fiduciary duties resulted in such overpayment,
provided that if the plan has established prudent
procedures to prevent and minimize overpayment of
benefits and the relevant plan fiduciaries have
followed such procedures, an inadvertent benefit
overpayment will not give rise to a breach of fiduciary
duty.
``(2) Reduction in future benefit payments and recovery from
responsible party.--Paragraph (1) shall not fail to apply with
respect to any inadvertent benefit overpayment merely because,
after discovering such overpayment, the responsible plan
fiduciary--
``(A) reduces future benefit payments to the correct
amount provided for under the terms of the plan, or
``(B) seeks recovery from the person or persons
responsible for the overpayment.
``(3) Employer funding obligations.--Nothing in this
subsection shall relieve an employer of any obligation imposed
on it to make contributions to a plan to meet the minimum
funding standards under part 3 of this subtitle B or to prevent
or restore an impermissible forfeiture in accordance with
section 203.
``(4) Recoupment from participants and beneficiaries.--If the
responsible plan fiduciary, in the exercise of its fiduciary
discretion, decides to seek recoupment from a participant or
beneficiary of all or part of an inadvertent benefit
overpayment made by the plan to such participant or
beneficiary, it may do so, subject to the following conditions:
``(A) No interest or other additional amounts (such
as collection costs or fees) are sought on overpaid
amounts.
``(B) If the plan seeks to recoup past overpayments
of a non-decreasing periodic benefit by reducing future
benefit payments--
``(i) the reduction ceases after the plan has
recovered the full dollar amount of the
overpayment,
``(ii) the amount recouped each calendar year
does not exceed 10 percent of the full dollar
amount of the overpayment, and
``(iii) future benefit payments are not
reduced to below 90 percent of the periodic
amount otherwise payable under the terms of the
plan.
Alternatively, if the plan seeks to recoup past
overpayments of a non-decreasing periodic benefit
through one or more installment payments, the sum of
such installment payments in any calendar year does not
exceed the sum of the reductions that would be
permitted in such year under the preceding sentence.
``(C) If the plan seeks to recoup past overpayments
of a benefit other than a non-decreasing periodic
benefit, the plan satisfies requirements developed by
the Secretary of the Treasury for purposes of this
subparagraph.
``(D) Efforts to recoup overpayments are not made
through a collection agency or similar third party and
such efforts are not accompanied by threats of
litigation, unless the responsible plan fiduciary
reasonably believes it could prevail in a civil action
brought in Federal or State court to recoup the
overpayments.
``(E) Recoupment of past overpayments to a
participant is not sought from any beneficiary of the
participant, including a spouse, surviving spouse,
former spouse, or other beneficiary.
``(F) Recoupment may not be sought if the first
overpayment occurred more than 3 years before the
participant or beneficiary is first notified in writing
of the error.
``(G) A participant or beneficiary from whom
recoupment is sought is entitled to contest all or part
of the recoupment pursuant to the plan's claims and
appeals procedures.
``(H) In determining the amount of recoupment to
seek, the responsible plan fiduciary may take into
account the hardship that recoupment likely would
impose on the participant or beneficiary.
``(5) Effect of culpability.--Subparagraphs (A) through (F)
of paragraph (4) shall not apply to protect a participant or
beneficiary who is culpable. For purposes of this paragraph, a
participant or beneficiary is culpable if the individual bears
responsibility for the overpayment (such as through
misrepresentations or omissions that led to the overpayment),
or if the individual knew, or had good reason to know under the
circumstances, that the benefit payment or payments were
materially in excess of the correct amount. Notwithstanding the
preceding sentence, an individual is not culpable merely
because the individual believed the benefit payment or payments
were or might be in excess of the correct amount, if the
individual raised that question with an authorized plan
representative and was told the payment or payments were not in
excess of the correct amount. With respect to a culpable
participant or beneficiary, efforts to recoup overpayments
shall not be made through threats of litigation, unless a
lawyer for the plan could make the representations required
under Rule 11 of the Federal Rules of Civil Procedure if the
litigation were brought in Federal court.''.
(c) Effective Date.--The amendments made by this section shall apply
as of the date of the enactment of this Act.
(d) Certain Actions Before Date of Enactment.--Plans, fiduciaries,
employers, and plan sponsors are entitled to rely on--
(1) a good faith interpretation of then existing
administrative guidance for inadvertent benefit overpayment
recoupments and recoveries that commenced before the date of
enactment of this Act, and
(2) determinations made before such date of enactment by the
responsible plan fiduciary, in the exercise of its fiduciary
discretion, not to seek recoupment or recovery of all or part
of an inadvertent benefit overpayment.
In the case of a benefit overpayment that occurred prior to the date of
enactment of this Act, any installment payments by the participant or
beneficiary to the plan or any reduction in periodic benefit payments
to the participant or beneficiary, which were made in recoupment of
such overpayment and which commenced prior to such date, may continue
after such date. Nothing in this subsection shall relieve a fiduciary
from responsibility for an overpayment that resulted from a breach of
its fiduciary duties.
SEC. 302. REDUCTION IN EXCISE TAX ON CERTAIN ACCUMULATIONS IN QUALIFIED
RETIREMENT PLANS.
(a) In General.--Section 4974(a) of the Internal Revenue Code of 1986
is amended by striking ``50 percent'' and inserting ``25 percent''.
(b) Reduction in Excise Tax on Failures to Take Required Minimum
Distributions.--Section 4974 of such Code is amended by adding at the
end the following new subsection:
``(e) Reduction of Tax in Certain Cases.--
``(1) Reduction.--In the case of a taxpayer who--
``(A) corrects, during the correction window, a
shortfall of distributions from an individual
retirement plan which resulted in imposition of a tax
under subsection (a), and
``(B) submits a return, during the correction window,
reflecting such tax (as modified by this subsection),
the first sentence of subsection (a) shall be applied by
substituting `10 percent' for `25 percent'.
``(2) Correction window.--For purposes of this subsection,
the term `correction window' means the period of time beginning
on the date on which the tax under subsection (a) is imposed
with respect to a shortfall of distributions from an individual
retirement plan, and ending on the earlier of--
``(A) the date on which the Secretary initiates an
audit, or otherwise demands payment, with respect to
the shortfall of distributions, or
``(B) the last day of the second taxable year that
begins after the end of the taxable year in which the
tax under subsection (a) is imposed.''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2021.
SEC. 303. PERFORMANCE BENCHMARKS FOR ASSET ALLOCATION FUNDS.
(a) In General.--Not later than 6 months after the date of the
enactment of this Act, the Secretary of Labor (or the Secretary's
delegate) shall modify the regulations under section 404 of the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104) to
provide that, in the case of a designated investment alternative which
contains a mix of asset classes, a plan administrator may, but is not
required to, use a benchmark which is a blend of different broad-based
securities market indices if--
(1) the blend is reasonably representative of the asset class
holdings of the designated investment alternative;
(2) for purposes of determining the blend's returns for 1-,
5-, and 10-calendar-year periods (or for the life of the
alternative, if shorter), the blend is modified at least once
per year to reflect changes in the asset class holdings of the
designated investment alternative;
(3) the blend is furnished to participants and beneficiaries
in a manner that is reasonably designed to be understandable
and helpful; and
(4) each securities market index which is used for an
associated asset class would separately satisfy the
requirements of such regulations for such asset class.
(b) Study.--Not later than December 31, 2022, the Secretary of Labor
(or the Secretary's delegate) shall deliver a report to the Committees
on Ways and Means and Education and Labor of the House of
Representatives and the Committees on Finance and Health, Education,
Labor, and Pensions of the Senate regarding the effectiveness of the
benchmarking requirements under section 2550.404a-5 of title 29, Code
of Federal Regulations.
SEC. 304. REVIEW AND REPORT TO THE CONGRESS RELATING TO REPORTING AND
DISCLOSURE REQUIREMENTS.
(a) Study.--As soon as practicable after the date of the enactment of
this Act, the Secretary of Labor, the Secretary of the Treasury, and
the Pension Benefit Guaranty Corporation shall review the reporting and
disclosure requirements of--
(1) title I of the Employee Retirement Income Security Act of
1974 applicable to pension plans (as defined in section 3(2) of
such Act); and
(2) the Internal Revenue Code of 1986 applicable to qualified
retirement plans (as defined in section 4974(c) of such Code
without regard to paragraphs (4) and (5) thereof).
(b) Report.--Not later than 18 months after the date of the enactment
of this Act, the Secretary of Labor, the Secretary of the Treasury, and
the Pension Benefit Guaranty Corporation, jointly, and after
consultation with a balanced group of participant and employer
representatives, shall with respect to plans referenced in subsection
(a) report on the effectiveness of the applicable reporting and
disclosure requirements and make such recommendations as may be
appropriate to the appropriate committees of the Congress to
consolidate, simplify, standardize, and improve such requirements so as
to simplify reporting for such plans and ensure that plans can simply
furnish and participants and beneficiaries timely receive and better
understand the information they need to monitor their plans, plan for
retirement, and obtain the benefits they have earned. Such report shall
assess the extent to which retirement plans are retaining disclosures,
work records, and plan documents that are needed to ensure accurate
calculation of future benefits. To assess the effectiveness of the
applicable reporting and disclosure requirements, the report shall
include an analysis, based on plan data, of how participants and
beneficiaries are providing preferred contact information, the methods
by which plan sponsors and plans are furnishing disclosures, and the
rate at which participants and beneficiaries (grouped by key
demographics) are receiving, accessing, and retaining disclosures. The
agencies shall conduct appropriate surveys and data collection to
obtain any needed information.
SEC. 305. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO
UNENROLLED PARTICIPANTS.
(a) Amendment of Internal Revenue Code of 1986.--Section 414 of the
Internal Revenue Code of 1986, as amended by the preceding provisions
of this Act, is further amended by adding at the end the following new
subsection:
``(cc) Eliminating Unnecessary Plan Requirements Related to
Unenrolled Participants.--
``(1) In general.--Notwithstanding any other provision of
this title, with respect to any defined contribution plan, no
disclosure, notice, or other plan document (other than the
notices and documents described in subparagraphs (A) and (B))
shall be required to be furnished under this title to any
unenrolled participant if the unenrolled participant receives--
``(A) an annual reminder notice (in paper format, or
in any electronic format consented to by the
participant) of such participant's eligibility to
participate in such plan and any applicable election
deadlines under the plan, and
``(B) any document requested by such participant
which the participant would be entitled to receive
without regard to this subsection.
``(2) Unenrolled participant.--For purposes of this
subsection, the term `unenrolled participant' means an employee
who--
``(A) is eligible to participate in a defined
contribution plan,
``(B) has received all required notices, disclosures,
and other plan documents required to be furnished under
this title and the summary plan description as provided
in section 104(b) of the Employee Retirement Income
Security Act of 1974 in connection with such
participant's initial eligibility to participate in
such plan,
``(C) is not participating in such plan, and
``(D) does not have a balance in the plan.
For purposes of this subsection, any eligibility to participate
in the plan following any period for which such employee was
not eligible to participate shall be treated as initial
eligibility.
``(3) Annual reminder notice.--For purposes of this
subsection, the term `annual reminder notice' means the notice
described in section 111(c) of the Employee Retirement Income
Security Act of 1974.''.
(b) Amendment of Employee Retirement Income Security Act of 1974.--
(1) In general.--Part 1 of subtitle B of subchapter I of the
Employee Retirement Income Security Act of 1974 is amended by
redesignating section 111 as section 112 and by inserting after
section 110 the following new section:
``SEC. 111. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO
UNENROLLED PARTICIPANTS.
``(a) In General.--Notwithstanding any other provision of this title,
with respect to any individual account plan, no disclosure, notice, or
other plan document (other than the notices and documents described in
paragraphs (1) and (2)) shall be required to be furnished under this
title to any unenrolled participant if the unenrolled participant
receives--
``(1) an annual reminder notice of such participant's
eligibility to participate in such plan and any applicable
election deadlines under the plan; and
``(2) any document requested by such participant which the
participant would be entitled to receive without regard to this
section.
``(b) Unenrolled Participant.--For purposes of this section, the term
`unenrolled participant' means an employee who--
``(1) is eligible to participate in an individual account
plan;
``(2) has received all required notices, disclosures, and
other plan documents, including the summary plan description,
required to be furnished under this title in connection with
such participant's initial eligibility to participate in such
plan;
``(3) is not participating in such plan; and
``(4) does not have a balance in the plan.
For purposes of this section, any eligibility to participate in the
plan following any period for which such employee was not eligible to
participate shall be treated as initial eligibility.
``(c) Annual Reminder Notice.--For purposes of this section, the term
`annual reminder notice' means a notice provided in accordance with
section 2520.104b-1 of title 29, Code of Federal Regulations (or any
successor regulation), which--
``(1) is furnished in connection with the annual open season
election period with respect to the plan or, if there is no
such period, is furnished within a reasonable period prior to
the beginning of each plan year;
``(2) notifies the unenrolled participant of--
``(A) the unenrolled participant's eligibility to
participate in the plan; and
``(B) the key benefits under the plan and the key
rights and features under the plan affecting such
benefits; and
``(3) provides such information in a prominent manner
calculated to be understood by the average participant.''.
(2) Clerical amendment.--The table of contents in section 1
of the Employee Retirement Income Security Act of 1974 is
amended by striking the item relating to section 111 and by
inserting after the item relating to section 110 the following
new items:
``Sec. 111. Eliminating unnecessary plan requirements related to
unenrolled participants.
``Sec. 112. Repeal and effective date.''.
(c) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2021.
SEC. 306. RETIREMENT SAVINGS LOST AND FOUND.
(a) Retirement Savings Lost and Found.--
(1) Establishment.--
(A) In general.--Not later than 3 years after the
date of the enactment of this Act, the Secretary of
Labor, the Secretary of the Treasury, and the Secretary
of Commerce, in cooperation, shall establish an online
searchable database (to be managed by the Pension
Benefit Guaranty Corporation in accordance with section
4051 of the Employee Retirement Income Security Act of
1974) to be known as the ``Retirement Savings Lost and
Found''. The Retirement Savings Lost and Found shall--
(i) allow an individual to search for
information that enables the individual to
locate the plan administrator of any plans with
respect to which the individual is or was a
participant or beneficiary, and to provide
contact information for the plan administrator
of any plan described in subparagraph (B);
(ii) allow the corporation to assist such an
individual in locating any plan of the
individual; and
(iii) allow the corporation to make any
necessary changes to contact information on
record for the plan administrator based on any
changes to the plan due to merger or
consolidation of the plan with any other plan,
division of the plan into two or more plans,
bankruptcy, termination, change in name of the
plan, change in name or address of the plan
administrator, or other causes.
The Retirement Savings Lost and Found established under
this paragraph shall include information reported under
section 4051 of the Employee Retirement Income Security
Act of 1974 and other relevant information obtained by
the Pension Benefit Guaranty Corporation.
(B) Plans described.--A plan described in this
subparagraph is a plan to which the vesting standards
of section 203 of part 2 of subtitle B of title I of
the Employee Retirement Income Security Act of 1974
apply.
(2) Administration.--The Retirement Savings Lost and Found
established under paragraph (1) shall provide individuals
described in paragraph (1)(A) only with the ability to view
contact information for the plan administrator of any plan with
respect to which the individual is or was a participant or
beneficiary, sufficient to allow the individual to locate the
individual's plan in order to recover any benefit owing to the
individual under the plan.
(3) Safeguarding participant privacy and security.--In
establishing the Retirement Savings Lost and Found under
paragraph (1), the Pension Benefit Guaranty Corporation, in
consultation with the Secretary of Labor, the Secretary of
Treasury, and the Secretary of Commerce, shall take all
necessary and proper precautions to ensure that individuals'
plan information maintained by the Retirement Savings Lost and
Found is protected and that persons other than the individual
cannot fraudulently claim the benefits to which any individual
is entitled, and to allow any individual to opt out of
inclusion in the Retirement Savings Lost and Found at the
election of the individual.
(b) Office of the Retirement Savings Lost and Found.--
(1) In general.--Subtitle C of title IV of the Employee
Retirement Income Security Act of 1974 (29 U.S.C. 1341 et seq.)
is amended by adding at the end the following:
``SEC. 4051. OFFICE OF THE RETIREMENT SAVINGS LOST AND FOUND.
``(a) Establishment; Responsibilities of Office.--
``(1) In general.--Not later than 2 years after the date of
the enactment of this section, the Secretary of Labor, the
Secretary of Treasury, and the Secretary of Commerce shall
establish within the corporation an Office of the Retirement
Savings Lost and Found (in this section referred to as the
`Office').
``(2) Responsibilities of office.--
``(A) In general.--The Office shall--
``(i) carry out subsection (b) of this
section;
``(ii) maintain the Retirement Savings Lost
and Found established under section 306(a) of
the Securing a Strong Retirement Act of 2021;
and
``(iii) perform an annual audit of plan
information contained in the Retirement Savings
Lost and Found and ensure that such information
is current and accurate.
``(B) Option to contract.--
``(i) In general.--Not later than 2 years
after the date of enactment of this section,
the corporation shall conduct an analysis of
the cost effectiveness of contracting with a
third party to carry out the responsibilities
under subparagraph (A)(iii) and, upon a
determination that such contracting would be
more cost effective than carrying out such
responsibilities within the Office, the
corporation may enter into such contracts as
merited by such analysis.
``(ii) Report.--The corporation shall report
on the results of the analysis under clause (i)
to the Committees on Finance and Health,
Education, Labor, and Pensions of the Senate
and the Committees on Ways and Means and
Education and Labor of the House of
Representatives.
``(b) Certain Non-responsive Participants Entitled to Small
Benefits.--
``(1) General rule.--
``(A) Transfer to the office of the retirement
savings lost and found.--The administrator of a plan
that is not terminated and to which section
401(a)(31)(B) of the Internal Revenue Code of 1986
applies shall transfer to the Office the amount
required to be transferred under section
401(a)(31)(B)(iv) of such Code for a non-responsive
participant.
``(B) Information and payment to the office.--Upon
making a transfer under subparagraph (A), the plan
administrator shall provide such information and
certifications as the Office shall specify, including
with respect to the transferred amount and the non-
responsive participant.
``(C) Information requirements after transfer.--In
the event that, after a transfer is made under
subparagraph (A), the relevant non-responsive
participant contacts the plan administrator or the plan
administrator discovers information that may assist the
Office in locating the non-responsive participant, the
plan administrator shall notify and provide such
information as the Office shall specify to the Office.
``(D) Search and payment by the office following
transfer.--The Office shall periodically, and upon
receiving information described in subparagraph (C),
conduct a search for the non-responsive participant for
whom the Office has received a transfer under
subparagraph (A). Upon location of a non-responsive
participant who claims benefits, the Office shall make
a single payment to the non-responsive participant in
an amount equal to the sum of--
``(i) the amount transferred to the Office
under subparagraph (A) for such participant;
and
``(ii) the return on the investment
attributable to such amount under section
4005(j)(3).
``(2) Definition.--For purposes of this subsection, the term
`non-responsive participant' means a participant or beneficiary
of a plan described in paragraph (1)(A)--
``(A) who is entitled to a benefit subject to a
mandatory transfer under section 401(a)(31)(B)(iii) of
the Internal Revenue Code of 1986; and
``(B) for whom the plan has satisfied the conditions
in section 401(a)(31)(B)(iv) of such Code.
``(3) Regulatory authority.--The Office shall prescribe such
regulations as are necessary to carry out the purposes of this
section, including rules relating to the amount payable to the
Office and the amount to be paid by the Office.
``(c) Information Collection.--Within such period after the end of a
plan year as the Office may by regulations prescribe, the administrator
of a plan to which the vesting standards of section 203 apply shall
submit the following information, and such other information as the
corporation may require, to the corporation in such form as the
corporation may require:
``(1) The information described in paragraphs (1) through (4)
of section 6057(b) of the Internal Revenue Code of 1986.
``(2) The information described in subparagraphs (A), (B),
(E), and (F) of section 6057(a)(2) of the Internal Revenue Code
of 1986.
``(d) Effective Date.--The requirements of subsections (b) and (c)
shall apply with respect to plan years beginning after the second
December 31 occurring after the date of the enactment of this section.
``(e) Authorization of Appropriations.--There are authorized to be
appropriated such sums as may be necessary to carry out this
section.''.
(2) Establishment of fund for transferred assets.--Section
4005 of the Employee Retirement Income Security Act of 1974 (29
U.S.C. 1305) is amended by adding at the end the following:
``(j)(1) A ninth fund shall be established for the payment of
benefits under section 4051(b)(1)(D).
``(2) Such fund shall be credited with the appropriate--
``(A) amounts transferred to the Office of the Retirement
Savings Lost and Found under section 4051(b)(1)(A); and
``(B) earnings on investments of the fund or on assets
credited to the fund.
``(3) Whenever the corporation determines that the moneys of any fund
are in excess of current needs, it may request the investment of such
amounts as it determines advisable by the Secretary of the Treasury in
obligations issued or guaranteed by the United States.''.
(3) Conforming amendment.--The table of contents for the
Employee Retirement Income Security Act of 1974 (29 U.S.C. 1001
et seq.) is amended by inserting after the matter relating to
section 4050 the following:
``Sec. 4051. Certain non-responsive participants entitled to small
benefits.''.
(c) Mandatory Transfers of Rollover Distributions.--
(1) Investment options.--
(A) In general.--Subparagraph (B) of section
404(c)(3) of the Employee Retirement Income Security
Act of 1974 (29 U.S.C. 1104(c)(3)) is amended by
striking the period at the end and inserting ``, and,
to the extent the Secretary provides in guidance or
regulations issued after the enactment of the Securing
a Strong Retirement Act of 2021, is made to--
``(i) a target date or life cycle fund held
under such account;
``(ii) as described in section 2550.404a-2 of
title 29, Code of Federal Regulations, an
investment product held under such account
designed to preserve principal and provide a
reasonable rate of return;
``(iii) the Office of the Retirement Savings
Lost and Found in accordance with section
401(a)(31)(B)(iv) of the Internal Revenue Code
of 1986 and section 306(c)(2)(A)(ii) of the
Securing a Strong Retirement Act of 2020; or
``(iv) such other option as the Secretary may
so provide.''.
(B) Regulations.--Not later than 270 days after the
date of the enactment of this Act, the Secretary of
Labor shall promulgate regulations identifying the
target date or life cycle funds, or specifying the
characteristics of such a fund, that will be deemed to
meet the requirements of section 404(c)(3)(B)(i) of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1104(c)(3)(B)), as amended by subparagraph (A).
(2) Expansion of cap; authority to transfer lesser amounts.--
(A) Cap.--Sections 401(a)(31)(B)(ii) and
411(a)(11)(A) of the Internal Revenue Code of 1986 and
section 203(e)(1) of the Employee Retirement Income
Security Act of 1974 are each amended by striking
``$5,000'' and inserting ``$6,000''.
(B) Distribution of larger amounts to individual
retirement plans only.--Section 401(a)(31)(B)(i) of
such Code is amended by adding at the end the
following: ``The Office of the Retirement Savings Lost
and Found established by section 306 of the Securing a
Strong Retirement Act shall not be treated as a trustee
or issuer that is eligible to receive such
distributions.''.
(C) Lesser amounts.--Section 401(a)(31)(B) of such
Code is amended by adding at the end the following new
clauses:
``(iii) Treatment of lesser amounts.--In the
case of a trust which is part of an eligible
plan, such trust shall not be a qualified trust
under this section unless such plan provides
that, if a participant in the plan separates
from the service covered by the plan and the
nonforfeitable accrued benefit described in
clause (ii) is not in excess of $1,000, the
plan administrator shall (either separately or
as part of the notice under section 402(f))
notify the participant that the participant is
entitled to such benefit or attempt to pay the
benefit directly to the participant.
``(iv) Transfers to retirement savings lost
and found.--If, after a plan administrator
takes the action required under clause (iii),
the participant does not--
``(I) within 6 months of the
notification under such clause, make an
election under subparagraph (A) or
elect to receive a distribution of the
benefit directly, or
``(II) accept any direct payment made
under such clause within 6 months of
the attempted payment,
the plan administrator shall transfer the
amount of such benefit to the Office of the
Retirement Savings Lost and Found in accordance
with section 4051(b) of the Employee Retirement
Income Security Act of 1974.
``(v) Income tax treatment of transfers to
retirement savings lost and found.--For
purposes of determining the income tax
treatment of transfers to the Office of the
Retirement Savings Lost and Found under clause
(iv)--
``(I) such a transfer shall be
treated as a transfer to an individual
retirement plan under clause (i), and
``(II) the distribution of such
amounts by the Office of the Retirement
Savings Lost and Found shall be treated
as a distribution from an individual
retirement plan.''.
(D) Effective date.--The amendments made by this
paragraph shall apply to vested benefits with respect
to participants who separate from service connected to
the plan in plan years beginning after the second
December 31 occurring after the date of the enactment
of this Act.
(d) Better Reporting for Mandatory Transfers.--
(1) In general.--Paragraph (2) of section 6057(a) of the
Internal Revenue Code of 1986 is amended--
(A) in subparagraph (C)--
(i) by striking ``during such plan year'' in
clause (i) and inserting ``during the plan year
immediately preceding such plan year'';
(ii) by adding ``and'' at the end of clause
(i); and
(iii) by striking clause (iii);
(B) by redesignating subparagraph (E) as subparagraph
(G);
(C) by striking ``and'' at the end of subparagraph
(D); and
(D) by inserting after subparagraph (D) the following
new subparagraphs:
``(E) the name and taxpayer identifying number of
each participant or former participant in the plan--
``(i) who, during the current plan year or
any previous plan year, was reported under
subparagraph (C), and with respect to whom the
benefits described in subparagraph (C)(ii) were
fully paid during the plan year,
``(ii) with respect to whom any amount was
distributed under section 401(a)(31)(B) during
the plan year, or
``(iii) with respect to whom a deferred
annuity contract was distributed during the
plan year,
``(F) in the case of a participant or former
participant to whom subparagraph (E) applies--
``(i) in the case of a participant described
in clause (ii) thereof, the name and address of
the designated trustee or issuer described in
section 401(a)(31)(B)(i) and the account number
of the individual retirement plan to which the
amount was distributed, and
``(ii) in the case of a participant described
in clause (iii) thereof, the name and address
of the issuer of such annuity contract and the
contract or certificate number, and''.
(2) Rules relating to direct trustee-to-trustee transfers.--
(A) In general.--Paragraph (6) of section 402(e) of
such Code is amended--
(i) by striking ``transfers.--Any'' and
inserting ``transfers.--
``(A) In general.--Any''; and
(ii) by adding at the end the following new
subparagraph:
``(B) Notification of trustee.--In the case of a
distribution under section 401(a)(31)(B), the plan
administrator shall notify the designated trustee or
issuer described in clause (i) thereof that the
transfer is a mandatory distribution required by such
section.''.
(B) Penalty.--Subsection (i) of section 6652 of such
Code is amended--
(i) by striking ``to Recipients'' in the
heading and inserting ``or Notification'';
(ii) by striking ``402(f),'' and inserting
``402(f) or a notification as required by
section 402(e)(6)(B),''; and
(iii) by striking ``such written
explanation'' and inserting ``such written
explanation or notification''.
(C) Reports.--Subsection (i) of section 408 of such
Code is amended--
(i) by redesignating subparagraphs (A) and
(B) of paragraph (2) as clauses (i) and (ii),
respectively, and by moving such clauses 2 ems
to the right;
(ii) by redesignating paragraphs (1) and (2)
as subparagraphs (A) and (B), respectively, and
by moving such subparagraphs 2 ems to the
right;
(iii) by striking ``as the Secretary
prescribes'' in subparagraph (B)(ii), as so
redesignated, and all that follows through ``a
simple retirement account'' and inserting ``as
the Secretary prescribes.
``(3) Simple retirement accounts.--In the case of a simple
retirement account'';
(iv) by striking ``Reports.--The trustee of''
and inserting ``Reports.--
``(1) In general.--The trustee of'';
(v) by striking ``under paragraph (2)'' in
paragraph (3), as designated by clause (iii),
and inserting ``under paragraph (1)(B)''; and
(vi) by inserting after paragraph (1)(B)(ii),
as redesignated by the preceding clauses, the
following new paragraph:
``(2) Mandatory distributions.--In the case of an account,
contract, or annuity to which a transfer under section
401(a)(31)(B) is made (including a transfer from the individual
retirement plan to which the original transfer under such
section was made to another individual retirement plan), the
report required by this subsection for the year of the transfer
and any year in which the information previously reported in
subparagraph (B) changes shall--
``(A) identify such transfer as a mandatory
distribution required by such section,
``(B) include the name, address, and taxpayer
identifying number of the trustee or issuer of the
individual retirement plan to which the amount is
transferred, and
``(C) be filed with the Pension Benefit Guaranty
Corporation as well as with the Secretary.''.
(3) Notification of participants upon separation.--Subsection
(e) of section 6057 of such Code is amended by inserting ``,
and, with respect to any benefit of the individual subject to
section 401(a)(31)(B), a notice of availability of, and the
contact information for, the Retirement Savings Lost and Found
established under section 306(a)(1) of the Securing a Strong
Retirement Act of 2021'' before the period at the end of the
second sentence.
(4) Effective date.--The amendments made by this paragraph
shall apply to distributions made in, and returns and reports
relating to, years beginning after the second December 31
occurring after the date of the enactment of this Act.
(e) Requirement of Electronic Filing.--
(1) In general.--Paragraph (2) of section 6011(e) of the
Internal Revenue Code of 1986 is amended--
(A) by redesignating subparagraphs (A) and (B) as
clauses (i) and (ii), respectively, and by moving such
clauses 2 ems to the right;
(B) by striking ``regulations.--In prescribing'' and
inserting ``regulations.--
``(A) In general.--In prescribing''; and
(C) by adding at the end the following new
subparagraph:
``(B) Exceptions.--Notwithstanding subparagraph (A),
the Secretary shall require returns or reports required
under--
``(i) sections 6057, 6058, and 6059, and
``(ii) sections 408(i), 6041, and 6047 to the
extent such return or report relates to the tax
treatment of a distribution from a plan,
account, contract, or annuity,
to be filed on magnetic media, but only with respect to
persons who are required to file at least 50 returns
during the calendar year which includes the first day
of the plan year to which such returns or reports
relate.''.
(2) Effective date.--The amendments made by this paragraph
shall apply to returns and reports relating to years beginning
after the second December 31 occurring after the date of the
enactment of this Act.
(f) Rulemaking to Clarify Fiduciary Duties.--
(1) Request for information.--Not later than 1 year after the
date of enactment of this Act, the Secretary of Labor, in
consultation with the Secretary of the Treasury, shall issue a
request for information relating to the rulemaking described in
paragraph (2).
(2) Issuance of final rule.--Not later than 3 years after
such date, the Secretary of Labor, in consultation with the
Secretary of the Treasury, shall issue a final rule that
defines the following:
(A) The steps a plan sponsor must take to locate a
deferred vested participant in order to meet its
fiduciary duty under section 404 of the Employee
Retirement Income Security Act of 1974 with respect to
locating that participant.
(B) The ongoing practices and procedures a plan
sponsor must institute in order to meet such fiduciary
duty with respect to maintaining up-to-date contact
information on deferred vested participants.
SEC. 307. EXPANSION OF EMPLOYEE PLANS COMPLIANCE RESOLUTION SYSTEM.
(a) In General.--Except as otherwise provided in the Internal Revenue
Code of 1986 or regulations prescribed by the Secretary of the Treasury
or the Secretary's delegate (referred to in this section as the
``Secretary''), any eligible inadvertent failure to comply with the
rules applicable under section 401(a), 403(a), 403(b), 408(p), or
408(k) of such Code may be self-corrected under the Employee Plans
Compliance Resolution System (as described in Revenue Procedure 2019-19
or any successor guidance and hereafter in this section referred to as
the ``EPCRS''), except to the extent that such failure was identified
by the Secretary prior to any actions which demonstrate a commitment to
implement a self-correction. Revenue Procedure 2019-19 is deemed
amended as of the date of the enactment of this Act to provide that the
correction period under section 9.02 of such Revenue Procedure (or any
successor guidance) for an eligible inadvertent failure, except as
otherwise provided under such Code or in regulations prescribed by the
Secretary, is indefinite and has no last day, other than with respect
to failures identified by the Secretary prior to any self-correction as
described in the preceding sentence.
(b) Loan Errors.--In the case of an eligible inadvertent failure
relating to a loan from a plan to a participant--
(1) such failure may be self-corrected under subsection (a)
according to the rules of section 6.07 of Revenue Procedure
2019-19 (or any successor guidance), including the provisions
related to whether a deemed distribution must be reported on
Form 1099-R, and
(2) the Secretary of Labor shall treat any such failure which
is so self-corrected under subsection (a) as meeting the
requirements of the Voluntary Fiduciary Correction Program of
the Department of Labor if, with respect to the violation of
the fiduciary standards of the Employee Retirement Income
Security Act of 1974, there is a similar loan error eligible
for correction under EPCRS and the loan error is corrected in
such manner.
(c) EPCRS for IRAs.--The Secretary shall expand the EPCRS to allow
custodians of individual retirement plans (as defined in section
7701(a)(37) of the Internal Revenue Code of 1986) to address eligible
inadvertent failures with respect to an individual retirement plan (as
so defined), including (but not limited to)--
(1) waivers of the excise tax which would otherwise apply
under section 4974 of the Internal Revenue Code of 1986,
(2) under the self-correction component of the EPCRS, waivers
of the 60-day deadline for a rollover where the deadline is
missed for reasons beyond the reasonable control of the account
owner, and
(3) rules permitting a nonspouse beneficiary to return
distributions to an inherited individual retirement plan
described in section 408(d)(3)(C) of the Internal Revenue Code
of 1986 in a case where, due to an inadvertent error by a
service provider, the beneficiary had reason to believe that
the distribution could be rolled over without inclusion in
income of any part of the distributed amount.
(d) Additional Safe Harbors.--The Secretary shall expand the EPCRS to
provide additional safe harbor means of correcting eligible inadvertent
failures described in subsection (a), including safe harbor means of
calculating the earnings which must be restored to a plan in cases
where plan assets have been depleted by reason of an eligible
inadvertent failure.
(e) Eligible Inadvertent Failure.--For purposes of this section--
(1) In general.--Except as provided in paragraph (2), the
term ``eligible inadvertent failure'' means a failure that
occurs despite the existence of practices and procedures
which--
(A) satisfy the standards set forth in section 4.04
of Revenue Procedure 2019-19 (or any successor
guidance), or
(B) satisfy similar standards in the case of an
individual retirement plan.
(2) Exception.--The term ``eligible inadvertent failure''
shall not include any failure which is egregious, relates to
the diversion or misuse of plan assets, or is directly or
indirectly related to an abusive tax avoidance transaction.
(f) Application of Certain Requirements for Correcting Errors.--This
section shall not apply to any failure unless the correction of such
failure under this section is made in conformity with the general
principles that apply to corrections of such failures under the
Internal Revenue Code of 1986, including regulations or other guidance
issued thereunder and including those principles and corrections set
forth in Revenue Procedure 2019-19 (or any successor guidance).''
SEC. 308. ELIMINATE THE ``FIRST DAY OF THE MONTH'' REQUIREMENT FOR
GOVERNMENTAL SECTION 457(B) PLANS.
(a) In General.--Paragraph (4) of section 457(b) of the Internal
Revenue Code of 1986 is amended to read as follows:
``(4) which provides that compensation--
``(A) in the case of an eligible employer described
in subsection (e)(1)(A), will be deferred only if an
agreement providing for such deferral has been entered
into before the compensation is currently available to
the individual, and
``(B) in any other case, will be deferred for any
calendar month only if an agreement providing for such
deferral has been entered into before the beginning of
such month,''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
SEC. 309. ONE-TIME ELECTION FOR QUALIFIED CHARITABLE DISTRIBUTION TO
SPLIT-INTEREST ENTITY; INCREASE IN QUALIFIED
CHARITABLE DISTRIBUTION LIMITATION.
(a) One-time Election for Qualified Charitable Distribution to Split-
interest Entity.--Section 408(d)(8) of such Code is amended by adding
at the end the following new subparagraph:
``(F) One-time election for qualified charitable
distribution to split-interest entity.--
``(i) In general.--A taxpayer may for a
taxable year elect under this subparagraph to
treat as meeting the requirement of
subparagraph (B)(i) any distribution from an
individual retirement account which is made
directly by the trustee to a split-interest
entity, but only if--
``(I) an election is not in effect
under this subparagraph for a preceding
taxable year,
``(II) the aggregate amount of
distributions of the taxpayer with
respect to which an election under this
subparagraph is made does not exceed
$50,000, and
``(III) such distribution meets the
requirements of clauses (iii) and (iv).
``(ii) Split-interest entity.--For purposes
of this subparagraph, the term `split-interest
entity' means--
``(I) a charitable remainder annuity
trust (as defined in section
664(d)(1)), but only if such trust is
funded exclusively by qualified
charitable distributions,
``(II) a charitable remainder
unitrust (as defined in section
664(d)(2)), but only if such unitrust
is funded exclusively by qualified
charitable distributions, or
``(III) a charitable gift annuity (as
defined in section 501(m)(5)), but only
if such annuity is funded exclusively
by qualified charitable distributions
and commences fixed payments of 5
percent or greater not later than 1
year from the date of funding.
``(iii) Contributions must be otherwise
deductible.--A distribution meets the
requirement of this clause only if--
``(I) in the case of a distribution
to a charitable remainder annuity trust
or a charitable remainder unitrust, a
deduction for the entire value of the
remainder interest in the distribution
for the benefit of a specified
charitable organization would be
allowable under section 170 (determined
without regard to subsection (b)
thereof and this paragraph), and
``(II) in the case of a charitable
gift annuity, a deduction in an amount
equal to the amount of the distribution
reduced by the value of the annuity
described in section 501(m)(5)(B) would
be allowable under section 170
(determined without regard to
subsection (b) thereof and this
paragraph).
``(iv) Limitation on income interests.--A
distribution meets the requirements of this
clause only if--
``(I) no person holds an income
interest in the split-interest entity
other than the individual for whose
benefit such account is maintained, the
spouse of such individual, or both, and
``(II) the income interest in the
split-interest entity is nonassignable.
``(v) Special rules.--
``(I) Charitable remainder trusts.--
Notwithstanding section 664(b),
distributions made from a trust
described in subclause (I) or (II) of
clause (ii) shall be treated as
ordinary income in the hands of the
beneficiary to whom the annuity
described in section 664(d)(1)(A) or
the payment described in section
664(d)(2)(A) is paid.
``(II) Charitable gift annuities.--
Qualified charitable distributions made
to fund a charitable gift annuity shall
not be treated as an investment in the
contract for purposes of section
72(c).''.
(b) Inflation Adjustment.--Section 408(d)(8) of such Code, as amended
by subsection (a), is amended by adding at the end the following new
subparagraph:
``(G) Inflation adjustment.--
``(i) In general.--In the case of any taxable
year beginning after 2021, each of the dollar
amounts in subparagraphs (A) and (F) 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 2020' for `calendar year
2016' in subparagraph (A)(ii) thereof.
``(ii) Rounding.--If any dollar amount
increased under clause (i) is not a multiple of
$1,000, such dollar amount shall be rounded to
the nearest multiple of $1,000.''.
(c) Effective Date.--The amendment made by this section shall apply
to distributions made in taxable years ending after the date of the
enactment of this Act.
SEC. 310. DISTRIBUTIONS TO FIREFIGHTERS.
(a) In General.--Subparagraph (A) of section 72(t)(10) of the
Internal Revenue Code of 1986 is amended by striking ``414(d))'' and
inserting ``414(d)) or a distribution from a plan described in clause
(iii), (iv), or (vi) of section 402(c)(8)(B) to an employee who
provides firefighting services''.
(b) Conforming Amendment.--The heading of paragraph (10) of section
72(t) of such Code is amended--
(1) by striking ``qualified'', and
(2) by striking ``in governmental plans''.
(c) Effective Date.--The amendments made by this section shall apply
to distributions made after December 31, 2021.
SEC. 311. EXCLUSION OF CERTAIN DISABILITY-RELATED FIRST RESPONDER
RETIREMENT PAYMENTS.
(a) In General.--Part III of subchapter B of chapter 1 of the
Internal Revenue Code of 1986 is amended by inserting after section
139B the following new section:
``SEC. 139C. CERTAIN DISABILITY-RELATED FIRST RESPONDER RETIREMENT
PAYMENTS.
``(a) In General.--In the case of an individual who receives
qualified first responder retirement payments for any taxable year,
gross income shall not include so much of such payments as do not
exceed the annualized excludable disability amount with respect to such
individual.
``(b) Qualified First Responder Retirement Payments.--For purposes of
this section, the term `qualified first responder retirement payments'
means, with respect to any taxable year, any pension or annuity which
but for this section would be includible in gross income for such
taxable year and which is received--
``(1) from a plan described in clause (iii), (iv), (v), or
(vi) of section 402(c)(8)(B), and
``(2) in connection with such individual's qualified first
responder service.
``(c) Annualized Excludable Disability Amount.--For purposes of this
section--
``(1) In general.--The term `annualized excludable disability
amount' means, with respect to any individual, the service-
connected excludable disability amounts which are properly
attributable to the 12-month period immediately preceding the
date on which such individual attains retirement age.
``(2) Service-connected excludable disability amount.--The
term `service-connected excludable disability amount' means
periodic payments received by an individual which--
``(A) are not includible in such individual's gross
income under section 104(a)(1),
``(B) are received in connection with such
individual's qualified first responder service, and
``(C) terminate when such individual attains
retirement age.
``(3) Special rule for partial-year payments.--In the case of
an individual who only receives service-connected excludable
disability amounts properly attributable to a portion of the
12-month period described in paragraph (1), such paragraph
shall be applied by multiplying such amounts by the ratio of
365 to the number of days in such period to which such amounts
were properly attributable.
``(d) Qualified First Responder Service.--For purposes of this
section, the term `qualified first responder service' means service as
a law enforcement officer, firefighter, paramedic, or emergency medical
technician.''.
(b) Clerical Amendment.--The table of sections for part III of
subchapter B of chapter 1 of such Code is amended by inserting after
the item relating to section 139B the following new item:
``Sec. 139C. Certain disability-related first responder retirement
payments.''.
(c) Effective Date.--The amendments made by this section shall apply
to amounts received with respect to taxable years beginning after
December 31, 2026.
SEC. 312. INDIVIDUAL RETIREMENT PLAN STATUTE OF LIMITATIONS FOR EXCISE
TAX ON EXCESS CONTRIBUTIONS AND CERTAIN
ACCUMULATIONS.
Section 6501(l) of the Internal Revenue Code of 1986 is amended by
adding at the end the following new paragraph:
``(4) Individual retirement plans.--
``(A) In general.--For purposes of any tax imposed by
section 4973 or 4974 in connection with an individual
retirement plan, the return referred to in this section
shall be the income tax return filed by the person on
whom the tax under such section is imposed for the year
in which the act (or failure to act) giving rise to the
liability for such tax occurred.
``(B) Rule in case of individuals not required to
file return.--In the case of a person who is not
required to file an income tax return for such year--
``(i) the return referred to in this section
shall be the income tax return that such person
would have been required to file but for the
fact that such person was not required to file
such return, and
``(ii) the 3-year period referred to in
subsection (a) with respect to the return shall
be deemed to begin on the date by which the
return would have been required to be filed
(excluding any extension thereof).''.
SEC. 313. REQUIREMENT TO PROVIDE PAPER STATEMENTS IN CERTAIN CASES.
(a) In General.--Section 105(a)(2) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1025(a)(2)) is amended--
(1) in subparagraph (A)(iv), by inserting ``subject to
subparagraph (E),'' before ``may be delivered''; and
(2) by adding at the end the following:
``(E) Provision of paper statements.--With respect to
at least 1 pension benefit statement furnished for a
calendar year with respect to an individual account
plan under paragraph (1)(A), and with respect to at
least 1 pension benefit statement furnished every 3
calendar years with respect to a defined benefit plan
under paragraph (1)(B), such statement shall be
furnished on paper in written form except--
``(i) in the case of a plan that furnishes
such statement in accordance with section
2520.104b-1(c) of title 29, Code of Federal
Regulations; or
``(ii) in the case of a plan that permits a
participant or beneficiary to request that the
statements referred to in the matter preceding
clause (i) be furnished by electronic delivery,
if the participant or beneficiary requests that
such statements be delivered electronically and
the statements are so delivered.''.
(b) Implementation.--
(1) In general.--The Secretary of Labor shall, not later than
December 31, 2021, update section 2520.104b-1(c) of title 29,
Code of Federal Regulations, to provide that a plan may furnish
the statements referred to in subparagraph (E) of section
105(a)(2) by electronic delivery only if, in addition to
meeting the other requirements under the regulations--
(A) such plan furnishes each participant or
beneficiary, including participants described in
subparagraph (B), a one-time initial notice on paper in
written form, prior to the electronic delivery of any
pension benefit statement, of their right to request
that all documents required to be disclosed under title
I of the Employee Retirement Income Security Act of
1974 be furnished on paper in written form; and
(B) such plan furnishes each participant who is
separated from service with at least 1 pension benefit
statement on paper in written form for each calendar
year, unless, on election of the participant, the
participant receives such statements electronically.
(2) Other guidance.--In implementing the amendment made by
subsection (a) with respect to a plan that discloses required
documents or statements electronically, in accordance with
applicable guidance governing electronic disclosure by the
Department of Labor (with the exception of section 2520.104b-
1(c) of title 29, Code of Federal Regulations), the Secretary
of Labor shall, not later than December 31, 2021, update such
guidance to the extent necessary to ensure that--
(A) a participant or beneficiary under such a plan is
permitted the opportunity to request that any
disclosure required to be delivered on paper under
applicable guidance by the Department of Labor shall be
furnished by electronic delivery;
(B) each paper statement furnished under such a plan
pursuant to the amendment shall include--
(i) an explanation of how to request that all
such statements, and any other document
required to be disclosed under title I of the
Employee Retirement Income Security Act of
1974, be furnished by electronic delivery; and
(ii) contact information for the plan
sponsor, including a telephone number;
(C) the plan may not charge any fee to a participant
or beneficiary for the delivery of any paper
statements;
(D) each paper pension benefit statement shall
identify each plan document required to be disclosed
and shall include information about how a participant
or beneficiary may access each such document;
(E) each document required to be disclosed that is
furnished by electronic delivery under such a plan
shall include an explanation of how to request that all
such documents be furnished on paper in written form;
and
(F) a plan is permitted to furnish a duplicate
electronic statement in any case in which the plan
furnishes a paper pension benefit statement.
(c) Effective Date.--The amendment made by subsection (a) shall apply
with respect to plan years beginning after December 31, 2022.
SEC. 314. SEPARATE APPLICATION OF TOP HEAVY RULES TO DEFINED
CONTRIBUTION PLANS COVERING EXCLUDIBLE EMPLOYEES.
(a) In General.--Section 416(c)(2) of the Internal Revenue Code of
1986 is amended by adding at the end the following:
``(C) Separate application to employees not meeting
age and service requirements.--If employees not meeting
the age or service requirements of section 410(a)(1)
(without regard to subparagraph (B) thereof) are
covered under a plan of the employer which meets the
requirements of subparagraphs (A) and (B) separately
with respect to such employees, such employees may be
excluded from consideration in determining whether any
plan of the employer meets the requirements of
subparagraphs (A) and (B).''.
(b) Effective Date.--The amendment made by subsection (a) shall apply
to plan years beginning after the date of the enactment of this Act.
SEC. 315. REPAYMENT OF QUALIFIED BIRTH OR ADOPTION DISTRIBUTION LIMITED
TO 3 YEARS.
(a) In General.--Section 72(t)(2)(H)(v)(I) of the Internal Revenue
Code of 1986 is amended by striking ``may make'' and inserting ``may,
at any time during the 3-year period beginning on the day after the
date on which such distribution was received, make''.
(b) Effective Date.--The amendment made by this section shall take
effect as if included in the enactment of section 113 of the Setting
Every Community Up for Retirement Enhancement Act of 2019.
SEC. 316. EMPLOYER MAY RELY ON EMPLOYEE CERTIFYING THAT DEEMED HARDSHIP
DISTRIBUTION CONDITIONS ARE MET.
(a) Cash or Deferred Arrangements.--Section 401(k)(14) of the
Internal Revenue Code of 1986 is amended by adding at the end the
following new subparagraph:
``(C) Employee certification.--In determining whether
a distribution is upon the hardship of an employee, the
administrator of the plan may rely on a certification
by the employee that the distribution is on account of
a financial need of a type that is deemed in
regulations prescribed by the Secretary to be an
immediate and heavy financial need and that such
distribution is not in excess of the amount required to
satisfy such financial need.''.
(b) 403(b) Plans.--
(1) Custodial accounts.--Section 403(b)(7) of such Code is
amended by adding at the end the following new subparagraph:
``(D) Employee certification.--In determining whether
a distribution is upon the financial hardship of an
employee, the administrator of the plan may rely on a
certification by the employee that the distribution is
on account of a financial need of a type that is deemed
in regulations prescribed by the Secretary to be an
immediate and heavy financial need and that such
distribution is not in excess of the amount required to
satisfy such financial need.''.
(2) Annuity contracts.--Section 403(b)(11) of such Code is
amended by adding at the end the following: ``In determining
whether a distribution is upon hardship of an employee, the
administrator of the plan may rely on a certification by the
employee that the distribution is on account of a financial
need of a type that is deemed in regulations prescribed by the
Secretary to be an immediate and heavy financial need and that
such distribution is not in excess of the amount required to
satisfy such financial need.''.
(c) 457(b) Plan.--Section 457(d) of such Code is amended by adding at
the end the following new paragraph:
``(4) Participant certification.--In determining whether a
distribution of a participant is made when the participant is
faced with an unforeseeable emergency, the administrator of a
plan maintained by an eligible employer described in subsection
(e)(1)(A) may rely on a certification by the participant that
the distribution is made when the participant is faced with
unforeseeable emergency of a type that is specifically
described in regulations prescribed by the Secretary as an
unforeseeable emergency and that the distribution is not in
excess of the amount reasonably necessary to satisfy the
emergency need.''.
(d) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2021.
SEC. 317. PENALTY-FREE WITHDRAWALS FROM RETIREMENT PLANS FOR
INDIVIDUALS IN CASE OF DOMESTIC ABUSE.
(a) In General.--Section 72(t)(2) of the Internal Revenue Code of
1986 is amended by adding at the end the following new subparagraph:
``(I) Distributions from retirement plan in case of
domestic abuse.--
``(i) In general.--Any eligible distribution
to a domestic abuse victim.
``(ii) Limitation.--The aggregate amount
which may be treated as an eligible
distribution to a domestic abuse victim by any
individual shall not exceed an amount equal to
the lesser of--
``(I) $10,000, or
``(II) 50 percent of the present
value of the nonforfeitable accrued
benefit of the employee under the plan.
``(iii) Eligible distribution to a domestic
abuse victim.--For purposes of this
subparagraph--
``(I) In general.--A distribution
shall be treated as an eligible
distribution to a domestic abuse victim
if such distribution is from an
applicable eligible retirement plan to
an individual and made during the 1-
year period beginning on any date on
which the individual is a victim of
domestic abuse by a spouse or domestic
partner.
``(II) Domestic abuse.--The term
`domestic abuse' means physical,
psychological, sexual, emotional, or
economic abuse, including efforts to
control, isolate, humiliate, or
intimidate the victim, or to undermine
the victim's ability to reason
independently, including by means of
abuse of the victim's child or another
family member living in the household.
``(iv) Treatment of plan distributions.--
``(I) In general.--If a distribution
to an individual would (without regard
to clause (ii)) be an eligible
distribution to a domestic abuse victim
, a plan shall not be treated as
failing to meet any requirement of this
title merely because the plan treats
the distribution as an eligible
distribution to a domestic abuse
victim, unless the aggregate amount of
such distributions from all plans
maintained by the employer (and any
member of any controlled group which
includes the employer) to such
individual exceeds the limitation under
clause (ii).
``(II) Controlled group.--For
purposes of subclause (I), the term
`controlled group' means any group
treated as a single employer under
subsection (b), (c), (m), or (o) of
section 414.
``(v) Amount distributed may be repaid.--
``(I) In general.--Any individual who
receives a distribution described in
clause (i) may, at any time during the
3-year period beginning on the day
after the date on which such
distribution was received, make one or
more contributions in an aggregate
amount not to exceed the amount of such
distribution to an applicable eligible
retirement plan of which such
individual is a beneficiary and to
which a rollover contribution of such
distribution could be made under
section 402(c), 403(a)(4), 403(b)(8),
408(d)(3), or 457(e)(16), as the case
may be.
``(II) Limitation on contributions to
applicable eligible retirement plans
other than IRAs.--The aggregate amount
of contributions made by an individual
under subclause (I) to any applicable
eligible retirement plan which is not
an individual retirement plan shall not
exceed the aggregate amount of eligible
distributions to a domestic abuse
victim which are made from such plan to
such individual. Subclause (I) shall
not apply to contributions to any
applicable eligible retirement plan
which is not an individual retirement
plan unless the individual is eligible
to make contributions (other than those
described in subclause (I)) to such
applicable eligible retirement plan.
``(III) Treatment of repayments of
distributions from applicable eligible
retirement plans other than iras.--If a
contribution is made under subclause
(I) with respect to an eligible
distribution to a domestic abuse victim
from an applicable eligible retirement
plan other than an individual
retirement plan, then the taxpayer
shall, to the extent of the amount of
the contribution, be treated as having
received such distribution in an
eligible rollover distribution (as
defined in section 402(c)(4)) and as
having transferred the amount to the
applicable eligible retirement plan in
a direct trustee to trustee transfer
within 60 days of the distribution.
``(IV) Treatment of repayments for
distributions from iras.--If a
contribution is made under subclause
(I) with respect to an eligible
distribution to a domestic abuse victim
from an individual retirement plan,
then, to the extent of the amount of
the contribution, such distribution
shall be treated as a distribution
described in section 408(d)(3) and as
having been transferred to the
applicable eligible retirement plan in
a direct trustee to trustee transfer
within 60 days of the distribution.
``(vi) Definition and special rules.--For
purposes of this subparagraph:
``(I) Applicable eligible retirement
plan.--The term `applicable eligible
retirement plan' means an eligible
retirement plan (as defined in section
402(c)(8)(B)) other than a defined
benefit plan.
``(II) Exemption of distributions
from trustee to trustee transfer and
withholding rules.--For purposes of
sections 401(a)(31), 402(f), and 3405,
an eligible distribution to a domestic
abuse victim shall not be treated as an
eligible rollover distribution.
``(III) Distributions treated as
meeting plan distribution requirements;
self-certification.--Any distribution
which the employee or participant
certifies as being an eligible
distribution to a domestic abuse victim
shall be treated as meeting the
requirements of sections
401(k)(2)(B)(i), 403(b)(7)(A)(i),
403(b)(11), and 457(d)(1)(A).''.
(b) Effective Date.--The amendments made by this section shall apply
to distributions made after the date of the enactment of this Act.
SEC. 318. REFORM OF FAMILY ATTRIBUTION RULE.
(a) In General.--Section 414 of the Internal Revenue Code of 1986 is
amended--
(1) in subsection (b)--
(A) by striking ``For purposes of'' and inserting the
following:
``(1) In general.--For purposes of'', and
(B) by adding at the end the following new
paragraphs:
``(2) Special rules for applying family attribution.--For
purposes of applying the attribution rules under section 1563
with respect to paragraph (1), the following rules apply:
``(A) Community property laws shall be disregarded
for purposes of determining ownership.
``(B) Except as provided by the Secretary, stock of
an individual not attributed under section 1563(e)(5)
to such individual's spouse shall not be attributed to
such spouse by reason of section 1563(e)(6)(A).
``(C) Except as provided by the Secretary, in the
case of stock in different corporations that is
attributed to a child under section 1563(e)(6)(A) from
each parent, and is not attributed to such parents as
spouses under section 1563(e)(5), such attribution to
the child shall not by itself result in such
corporations being members of the same controlled
group.
``(3) Plan shall not fail to be treated as satisfying this
section.--If application of paragraph (2) causes two or more
entities to be a controlled group, or an affiliated service
group, or to no longer be in a controlled group or an
affiliated service group, such change shall be treated as a
transaction to which section 410(b)(6)(C) applies.'', and
(2) in subsection (m)(6)(B), by striking ``apply'' and
inserting ``apply, except that community property laws shall be
disregarded for purposes of determining ownership''.
(b) Effective Date.--The amendments made by this section shall apply
to plan years beginning on or after the date of the enactment of this
section.
SEC. 319. AMENDMENTS TO INCREASE BENEFIT ACCRUALS UNDER PLAN FOR
PREVIOUS PLAN YEAR ALLOWED UNTIL EMPLOYER TAX
RETURN DUE DATE.
(a) In General.--Section 401(b) of the Internal Revenue Code of 1986
is amended by adding at the end the following new paragraph:
``(3) Retroactive plan amendments that increase benefit
accruals.--If--
``(A) an employer amends a stock bonus, pension,
profit-sharing, or annuity plan to increase benefits
accrued under the plan effective for the preceding plan
year (other than increasing the amount of matching
contributions (as defined in subsection (m)(4)(A))),
``(B) such amendment would not otherwise cause the
plan to fail to meet any of the requirements of this
subchapter, and
``(C) such amendment is adopted before the time
prescribed by law for filing the return of the employer
for a taxable year (including extensions thereof)
during which such amendment is effective,
the employer may elect to treat such amendment as having been
adopted as of the last day of the plan year in which the
amendment is effective.''.
(b) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2022.
SEC. 320. RETROACTIVE FIRST YEAR ELECTIVE DEFERRALS FOR SOLE
PROPRIETORS.
(a) In General.--Section 401(b)(2) of the Internal Revenue Code of
1986 is amended by adding at the end the following: ``In the case of an
individual who owns the entire interest in an unincorporated trade or
business, and who is the only employee of such trade or business, any
elective deferrals (as defined in section 402(g)(3)) under a qualified
cash or deferred arrangement to which the preceding sentence applies,
which are made by such individual before the time for filing the return
of such individual for the taxable year (determined without regard to
any extensions) ending after or with the end of the plan's first year,
shall be treated as having been made before the end of such first plan
year.''.
(b) Effective Date.--The amendment made by this section shall apply
to plan years beginning after the date of the enactment of this Act.
SEC. 321. LIMITING CESSATION OF IRA TREATMENT TO PORTION OF ACCOUNT
INVOLVED IN A PROHIBITED TRANSACTION.
(a) In General.--Section 408(e)(2)(A) of the Internal Revenue Code of
1986 is amended by striking ``such account ceases to be an individual
retirement account'' and inserting the following: ``the portion of such
account which is used in such transaction shall be treated as
distributed to the individual''.
(b) Conforming Amendments.--
(1) Section 408(e)(2)(B) of such Code is amended--
(A) by striking ``all its assets.--In any case'' and
all that follows through ``by reason of subparagraph
(A)'' and inserting the following: ``portion of assets
used in prohibited transaction.--In any case in which a
portion of an individual retirement account is treated
as distributed under subparagraph (A)'', and
(B) by striking ``all assets in the account'' and
inserting ``such portion''.
(2) Section 4975(c)(3) of such Code is amended by striking
``the account ceases'' and all that follows and inserting the
following: ``the portion of the account used in the transaction
is treated as distributed under paragraph (2)(A) or (4) of
section 408(e).''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after the date of the enactment of this Act.
TITLE IV--TECHNICAL AMENDMENTS
SEC. 401. AMENDMENTS RELATING TO SETTING EVERY COMMUNITY UP FOR
RETIREMENT ENHANCEMENT ACT OF 2019.
(a) Technical Amendments.--
(1) Amendment relating to section 114.--Section
401(a)(9)(C)(iii) of the Internal Revenue Code of 1986 is
amended by striking ``employee to whom clause (i)(II) applies''
and inserting ``employee (other than an employee to whom clause
(i)(II) does not apply by reason of clause (ii))''.
(2) Amendment relating to section 116.--Section 4973(b) of
the Internal Revenue Code of 1986 is amended by adding at the
end of the flush matter the following: ``Such term shall not
include any designated nondeductible contribution (as defined
in subparagraph (C) of section 408(o)(2)) which does not exceed
the nondeductible limit under subparagraph (B) thereof by
reason of an election under section 408(o)(5).''.
(3) Effective date.--The amendments made by this section
shall take effect as if included in section of the Setting
Every Community Up for Retirement Enhancement Act of 2019 to
which the amendment relates.
(b) Clerical Amendment.--Section 72(t)(2)(H)(vi)(IV) of the Internal
Revenue Code of 1986 is amended by striking ``403(b)(7)(A)(ii)'' and
inserting `` 403(b)(7)(A)(i)''.
TITLE V--ADMINISTRATIVE PROVISIONS
SEC. 501. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) In General.--If this section applies to any retirement plan or
contract amendment--
(1) such retirement plan or contract shall be treated as
being operated in accordance with the terms of the plan during
the period described in subsection (b)(2)(A); and
(2) except as provided by the Secretary of the Treasury (or
the Secretary's delegate), such retirement plan shall not fail
to meet the requirements of section 411(d)(6) of the Internal
Revenue Code of 1986 and section 204(g) of the Employee
Retirement Income Security Act of 1974 by reason of such
amendment.
(b) Amendments to Which Section Applies.--
(1) In general.--This section shall apply to any amendment to
any retirement plan or annuity contract which is made--
(A) pursuant to any amendment made by this Act or
pursuant to any regulation issued by the Secretary of
the Treasury or the Secretary of Labor (or a delegate
of either such Secretary) under this Act; and
(B) on or before the last day of the first plan year
beginning on or after January 1, 2023, or such later
date as the Secretary of the Treasury may prescribe.
In the case of a governmental plan (as defined in section
414(d) of the Internal Revenue Code of 1986), this paragraph
shall be applied by substituting ``2025'' for ``2023''.
(2) Conditions.--This section shall not apply to any
amendment unless--
(A) during the period--
(i) beginning on the date the legislative or
regulatory amendment described in paragraph
(1)(A) takes effect (or in the case of a plan
or contract amendment not required by such
legislative or regulatory amendment, the
effective date specified by the plan); and
(ii) ending on the date described in
paragraph (1)(B) (as modified by the second
sentence of paragraph (1)) (or, if earlier, the
date the plan or contract amendment is
adopted),
the plan or contract is operated as if such plan or
contract amendment were in effect; and
(B) such plan or contract amendment applies
retroactively for such period.
(c) Coordination With Other Provisions Relating to Plan Amendments.--
(1) SECURE act.--Section 601(b)(1) of the Setting Every
Community Up for Retirement Enhancement Act of 2019 is
amended--
(A) by striking ``January 1, 2022'' in subparagraph
(B) and inserting ``January 1, 2023'', and
(B) by striking ``substituting `2024' for `2022'.''
in the flush matter at the end and inserting
``substituting `2025' for `2023'.''.
(2) CARES act.--
(A) Special rules for use of retirement funds.--
Section 2202(c)(2)(A) of the CARES Act is amended by
striking ``January 1, 2022'' in clause (ii) and
inserting ``January 1, 2023''.
(B) Temporary waiver of required minimum
distributions rules for certain retirement plans and
accounts.--Section 2203(c)(2)(B)(i) of the CARES Act is
amended--
(i) by striking ``January 1, 2022'' in
subclause (II) and inserting ``January 1,
2023'', and
(ii) by striking ``substituting `2024' for
`2022'.'' in the flush matter at the end and
inserting ``substituting `2025' for `2023'.''.
(C) Taxpayer certainty and disaster tax relief act of
2020.--Section 302(d)(2)(A) of the Taxpayer Certainty
and Disaster Tax Relief Act of 2020 is amended by
striking ``January 1, 2022'' in clause (ii) and
inserting ``January 1, 2023''.
TITLE VI--REVENUE PROVISIONS
SEC. 601. SIMPLE AND SEP ROTH IRAS.
(a) In General.--Section 408A of the Internal Revenue Code of 1986 is
amended by striking subsection (f).
(b) Rules Relating to Simplified Employee Pensions.--
(1) Contributions.--Section 402(h)(1) of such Code is amended
by striking ``and'' at the end of subparagraph (A), by striking
the period at the end of subparagraph (B) and inserting ``,
and'', and by adding at the end the following new subparagraph:
``(C) in the case of any contributions pursuant to a
simplified employer pension which are made to an
individual retirement plan designated as a Roth IRA,
such contribution shall not be excludable from gross
income.''.
(2) Distributions.--Section 402(h)(3) of such Code is amended
by inserting ``, or section 408A(d) in the case of an
individual retirement plan designated as a Roth IRA'' before
the period at the end.
(3) Election required.--Section 408(k) of such Code is
amended by redesignating paragraphs (7), (8), and (9) as
paragraphs (8), (9), and (10), respectively, and by inserting
the after paragraph (6) the following new paragraph:
``(7) Roth contribution election.--An individual retirement
plan which is designated as a Roth IRA shall not be treated as
a simplified employee pension under this subsection unless the
employee elects for such plan to be so treated (at such time
and in such manner as the Secretary may provide).''.
(c) Rules Relating to Simple Retirement Accounts.--
(1) Election required.--Section 408(p) of such Code is
amended by adding at the end the following new paragraph:
``(11) Roth contribution election.--An individual retirement
plan which is designated as a Roth IRA shall not be treated as
a simple retirement account under this subsection unless the
employee elects for such plan to be so treated (at such time
and in such manner as the Secretary may provide).''.
(2) Rollovers.--Section 408A(e) of such Code is amended by
adding at the end the following new paragraph:
``(3) Simple retirement accounts.--In the case of any payment
or distribution out of a simple retirement account (as defined
in section 408(p)) with respect to which an election has been
made under section 408(p)(11) and to which 72(t)(6) applies,
the term `qualified rollover contribution' shall not include
any payment or distribution paid into an account other than
another simple retirement account (as so defined).''.
(d) Coordination With Roth Contribution Limitation.--Section 408A(c)
of such Code is amended by adding at the end the following new
paragraph:
``(7) Coordination with limitation for simple retirement
plans and seps.--In the case of an individual on whose behalf
contributions are made to a simple retirement account or a
simplified employee pension, the amount described in paragraph
(2)(A) shall be increased by an amount equal to the
contributions made on the individual's behalf to such account
or pension for the taxable year, but only to the extent such
contributions--
``(A) in the case of a simplified retirement
account--
``(i) do not exceed the sum of the dollar
amount in effect for the taxable year under
section 408(p)(2)(A)(ii) and the employer
contribution required under subparagraph
(A)(iii) or (B)(i), as the case may be, of
section 408(p)(2), and
``(ii) do not cause the elective deferrals
(as defined in section 402(g)(3)) on behalf of
such individual to exceed the limitation under
section 402(g)(1) (taking into account any
additional elective deferrals permitted under
section 414(v)), or
``(B) in the case of a simplified employee pension,
do not exceed the limitation in effect under section
408(j).''.
(e) Conforming Amendment.--Section 408A(d)(2)(B) of such Code is
amended by inserting ``, or employer in the case of a simple retirement
account (as defined in section 408(p)) or simplified employee pension
(as defined in section 408(k)),'' after ``individual's spouse''.
(f) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2021.
SEC. 602. HARDSHIP WITHDRAWAL RULES FOR 403(B) PLANS.
(a) In General.--Section 403(b) of the Internal Revenue Code of 1986,
as amended by the preceding provisions of this Act, is amended by
adding at the end the following new paragraph:
``(16) Special rules relating to hardship withdrawals.--For
purposes of paragraphs (7) and (11)--
``(A) Amounts which may be withdrawn.--The following
amounts may be distributed upon hardship of the
employee:
``(i) Contributions made pursuant to a salary
reduction agreement (within the meaning of
section 3121(a)(5)(D)).
``(ii) Qualified nonelective contributions
(as defined in section 401(m)(4)(C)).
``(iii) Qualified matching contributions
described in section 401(k)(3)(D)(ii)(I).
``(iv) Earnings on any contributions
described in clause (i), (ii), or (iii).
``(B) No requirement to take available loan.--A
distribution shall not be treated as failing to be made
upon the hardship of an employee solely because the
employee does not take any available loan under the
plan.''.
(b) Conforming Amendments.--
(1) Section 403(b)(7)(A)(i)(V) of such Code is amended by
striking ``in the case of contributions made pursuant to a
salary reduction agreement (within the meaning of section
3121(a)(5)(D))'' and inserting ``subject to the provisions of
paragraph (16)''.
(2) Paragraph (11) of section 403(b) of such Code, as amended
by the preceding provisions of this Act, is amended--
(A) by striking ``in'' in subparagraph (B) and
inserting ``subject to the provisions of paragraph
(16), in'', and
(B) by striking the penultimate sentence.
(c) Effective Date.--The amendments made by this section shall apply
to plan years beginning after December 31, 2021.
SEC. 603. ELECTIVE DEFERRALS GENERALLY LIMITED TO REGULAR CONTRIBUTION
LIMIT.
(a) Applicable Employer Plans.--Section 414(v)(1) of the Internal
Revenue Code of 1986 is amended by adding at the end the following:
``Except in the case of an applicable employer plan described in
paragraph (6)(iv), the preceding sentence shall only apply if
contributions are designated Roth contributions (as defined in section
402A(c)(1)).''.
(b) Conforming Amendments.--
(1) Section 402(g)(1) of such Code is amended by striking
subparagraph (C).
(2) Section 457(e)(18)(A)(ii) of such Code is amended by
inserting ``the lesser of any designated Roth contributions
made by the participant to the plan or'' before ``the
applicable dollar amount''.
(c) Effective Date.--The amendments made by this section shall apply
to taxable years beginning after December 31, 2021.
SEC. 604. OPTIONAL TREATMENT OF EMPLOYER MATCHING CONTRIBUTIONS AS ROTH
CONTRIBUTIONS.
(a) In General.--Section 402A(a) of the Internal Revenue Code of 1986
is amended by redesignating paragraph (2) as paragraph (3), by striking
``and'' at the end of paragraph (1), and by inserting after paragraph
(1) the following new paragraph:
``(2) any designated Roth contribution which is made by the
employer to the program on the employee's behalf, and on
account of the employee's contribution or elective deferral,
shall be treated as a matching contribution for purposes of
this chapter, except that such contribution shall not be
excludable from gross income, and''.
(b) Matching Included in Qualified Roth Contribution Program.--
Section 402A(b)(1) of such Code is amended--
(1) by inserting ``, or to have made on the employee's
behalf,'' after ``elect to make'', and
(2) by inserting ``, or of matching contributions which may
otherwise be made on the employee's behalf,'' after ``otherwise
eligible to make''.
(c) Designated Roth Matching Contributions.--Section 402A(c)(1) of
such Code is amended by inserting ``or matching contribution'' after
``elective deferral''.
(d) Matching Contribution Defined.--Section 402A(e) of such Code is
amended by adding at the end the following:
``(3) Matching contribution.--The term `matching
contribution' means--
``(A) any matching contribution described in section
401(m)(4)(A), and
``(B) any contribution to an eligible deferred
compensation plan (as defined in section 457(b)) by an
eligible employer described in section 457(e)(1)(A) on
behalf of an employee and on account of such employee's
elective deferral under such plan.''.
(e) Effective Date.--The amendments made by this section shall apply
to contributions made after the date of the enactment of this Act.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 2954, the ``Securing a Strong Retirement Act
of 2021'' as amended and ordered reported by the Committee on
Ways and Means on May 5, 2021, amends the Internal Revenue Code
of 1986 to encourage retirement savings, and for other
purposes.
B. Background and Need for Legislation
Employer-sponsored retirement plans and Individual
Retirement Arrangements (IRAs) are valuable tools successfully
used by millions of Americans to help save for retirement. The
Committee believes that it should be easier for Americans to
use these accounts to save. The Committee also believes that it
should be easier for employers to offer retirement plans to
their employees.
H.R. 2954 addresses these issues by expanding opportunities
for Americans to increase their savings and making
administrative simplifications to the retirement system.
Specifically, H.R. 2954, as amended, requires new 401(k) and
403(b) plans to automatically enroll participants in the plans
upon becoming eligible and expands and increases the startup
credit to encourage small businesses to establish retirement
plans. H.R. 2954 also increases the required minimum
distribution age from age 72 to age 75, reduces the maximum
service requirement for long-term part-time workers to make
elective deferrals to 401(k) plans from 3 years to 2 years,
establishes a retirement lost and found to reconnect former
employees with their benefits, and makes various other changes.
C. Legislative History
Background
H.R. 2954 was introduced on May 4, 2021 and was referred to
the Committee on Ways and Means, and additionally to the
Committees on Financial Services, and Education and Labor.
The legislation builds upon several different bills. One of
those bills, H.R. 4524, the Retirement Plan Simplification and
Enhancement Act of 2017, was introduced December 1, 2017, in
the 115th Congress and was referred to the Committee on Ways
and Means and to the Committee on Education and the Workforce.
H.R. 2954 largely incorporates the text of H.R. 2741, which
was introduced April 21, 2021 in the 117th Congress and
referred to the Committee on Financial Services, and in
addition to the Committee on Ways and Means. H.R. 2741, as
included in H.R. 2954, eliminates the requirement that a
section 403(b)(7) custodial account be invested solely in
regulated investment company stock, allowing investment in
collective investment trusts. H.R. 2954 also includes
provisions from H.R. 2796, introduced April 22, 2021 in the
117th Congress and referred to the House Committee on Ways and
Means, to modernize family attribution rules for determining
ownership of a business in community property states and when
spouses share a minor child.
H.R. 2954 also incorporates provisions from several bills
introduced and referred to the Committee on Ways and Means
April 30, 2021 in the 117th Congress. It includes provisions
from H.R. 2913, which increase public awareness of the Saver's
Credit, a nonrefundable income tax credit for taxpayers who
make qualified retirement savings contributions, and from H.R.
2933 to increase the required minimum distribution age from age
72 to age 75. It includes provisions from H.R. 2927, also
introduced on April 30 and additionally referred to the
Committee on Education and Labor, to provide that a section
403(b) plan may be established and maintained as a multiple
employer plan. There are included provisions from H.R. 2917,
permitting retirement plan sponsors to make matching
contributions on account of student loan payments and from H.R.
2944 to reduce the maximum service requirement for long-term
part-time workers to make elective deferrals to 401(k) plans
from 3 years to 2 years. H.R. 2954 also incorporates H.R. 2951
which directs the Secretary of the Treasury to revise
regulations to facilitate the use of exchanged traded funds in
variable insurance contracts and H.R. 2909 to index the limit
on qualified charitable distributions (QCDs) and allow for a
one-time election for QCDs to split-interest entities.
The bill also includes provisions directing the Secretary
of Labor to modify its regulations so that an investment that
uses a mix of asset classes can be benchmarked against a blend
of broad-based securities market indices per H.R. 8660,
introduced October, 32, 2020, in the 116th Congress and
referred to the Committee on Education and Labor. H.R. 2954
also includes H.R. 2953, introduced May 4, 2021, in the 117th
Congress and referred to the Committee on Ways and Means, to
allow a victim of domestic violence to withdraw retirement
funds without penalty.
Committee hearings
The Committee on Ways and Means has held numerous hearings
on retirement security in multiple Congresses. In the 113th
Congress, the Subcommittee on Select Revenue Measures of the
Committee on Ways and Means held a hearing on ``Private
Employer Defined Benefit Pension Plans'' on September 17, 2014.
Witnesses included Deborah Tully, Director of Compensation and
Benefits Finance and Accounting Analysis, Raytheon; R. Dale
Hall, Managing Director of Research, Society of Actuaries;
Scott Henderson, Vice President of Pension Investment and
Strategy, The Kroger Co.; Jeremy Gold, FSA, MAAA, Jeremy Gold
Pensions; and Diane Oakley, Executive Director, National
Institute on Retirement Security.
In the 114th Congress, the Subcommittee on Oversight of the
Committee on Ways and Means held a hearing on the ``Department
of Labor's Proposed Fiduciary Rule'' on September 17, 2014.
Witnesses included Bradford Campbell, Counsel, Drinker Biddle &
Reath LLP, Washington, D.C.; Paul Schott Stevens, President and
CEO, Investment Company Institute, Washington, D.C.; Judy
VanArsdale, LPL Financial, Deer Park, IL; Kenneth Specht,
Financial Services Professional, Agent, New York Life Insurance
Company, Kenosha, WI; Patricia Owen, President, FACES DaySpa,
Hilton Head Island, SC; and Damon Silvers, Director of Policy
and Special Counsel, AFL-CIO, Washington, D.C.
In the 115th Congress, the Tax Policy Subcommittee of the
Committee on Ways & Means held a hearing on ``How Tax Reform
Will Simplify Our Broken Tax Code and Help Individuals and
Families'' on July 18, 2017. Witnesses included the Honorable
Bill Archer, Former Chairman, Committee on Ways and Means;
Bernard F. McKay, Chairman of the Board of Directors, Council
for Electronic Revenue Communication Advancement; Jania Stout,
Practice Leader and Co-Founder, Fiduciary Plan Advisors at
HighTower; and Eric Rodriguez, Vice President--Office of
Research, Advocacy, and Legislation, UnidosUS.
Most recently, in the 116th Congress, on February 6, 2019,
the Committee on Ways and Means held a hearing on ``Improving
Retirement Security for America's Workers.'' Witnesses included
Nancy Altman, President, Social Security Works; Andrew Biggs,
Resident Scholar, American Enterprise Institute; Roger J.
Crandall, Chairman, President & CEO, MassMutual; Robin
Diamonte, Corporate Vice President, Pension Investments, United
Technologies; Luke Huffstutter, Owner, Annastasia Salon and
Summit Salon Academy, Portland, OR; Cindy McDaniel, Co-
director, Missouri-Kansas City Committee to Protect Pensions;
and Diane Oakley Executive Director, National Institute on
Retirement Security.
Committee action
The Committee on Ways and Means met to consider H.R. 2954
on May 5, 2021, and ordered the bill, as amended, favorably
reported by a voice vote (with a quorum being present).
II. EXPLANATION OF THE BILL
TITLE I--EXPANDING COVERAGE AND INCREASING RETIREMENT SAVINGS
1. Expanding Automatic Enrollment in Retirement Plans (sec. 101 of the
bill and sec. 414 of the Code)
PRESENT LAW
Section 401(k) plans
A section 401(k) plan is a type of profit-sharing or stock
bonus plan that contains a qualified cash or deferred
arrangement. Such arrangements are subject to the rules
generally applicable to qualified defined contribution plans.
In addition, special rules apply to such arrangements.
Employees who participate in a section 401(k) plan may elect to
have contributions made to the plan (referred to as ``elective
deferrals'') rather than receive the same amount as current
compensation.\1\ The maximum annual amount of elective
deferrals that can be made by an employee for a year is $19,500
(for 2021) or, if less, the employee's compensation.\2\ For an
employee who attains age 50 by the end of the year, the dollar
limit on elective deferrals is increased by $6,500 (for 2021)
(called ``catch-up contributions'').\3\ An employee's elective
deferrals must be fully vested. A section 401(k) plan may also
provide for employer matching and nonelective contributions.
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\1\Elective deferrals generally are made on a pre-tax basis and
distributions attributable to elective deferrals are includible in
income. However, a section 401(k) plan is permitted to include a
``qualified Roth contribution program'' that permits a participant to
elect to have all or a portion of the participant's elective deferrals
under the plan treated as after-tax Roth contributions. Certain
distributions from a designated Roth account are excluded from income,
even though they include earnings not previously taxed.
\2\Sec. 402(g).
\3\Sec. 414(v).
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Section 403(b) plans
Tax-deferred annuity plans (referred to as section 403(b)
plans) are generally similar to qualified defined contribution
plans, but may be maintained only by (1) tax-exempt charitable
organizations,\4\ and (2) educational institutions of State or
local governments (that is, public schools, including colleges
and universities).\5\ Section 403(b) plans may provide for
employees to make elective deferrals (in pre-tax or designated
Roth form), including catch-up contributions, or other after-
tax employee contributions, and employers may make nonelective
or matching contributions on behalf of employees. Contributions
to a section 403(b) plan are generally subject to the same
contribution limits applicable to qualified defined
contribution plans, including the limits on elective deferrals.
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\4\These are organizations exempt from tax under section 501(c)(3).
Section 403(b) plans of private, tax-exempt employers may be subject to
ERISA as well as the requirements of section 403(b).
\5\Sec. 403(b).
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Automatic enrollment
Section 401(k) plans and section 403(b) plans must provide
each eligible employee with an effective opportunity to make or
change an election to make elective deferrals at least once
each plan year.\6\ Whether an employee has an effective
opportunity is determined based on all the relevant facts and
circumstances, including the adequacy of notice of the
availability of the election, the period of time during which
an election may be made, and any other conditions on elections.
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\6\Treas. Reg. secs. 1. 401(k)-1(e)(2)(ii); 1.403(b)-5(b)(2).
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Section 401(k) plans, and section 403(b) plans that have
salary reduction arrangements, are generally designed so that
an employee will receive cash compensation unless the employee
affirmatively elects to make elective deferrals to the plan.
Alternatively, such plans may provide that elective deferrals
are made at a specified rate (when the employee becomes
eligible to participate) unless the employee elects otherwise
(i.e., affirmatively elects not to make contributions or to
make contributions at a different rate). This alternative plan
design is referred to as automatic enrollment.
Nondiscrimination test and automatic enrollment safe harbor
An annual nondiscrimination test, called the actual
deferral percentage test (the ``ADP'' test) applies to elective
deferrals under a section 401(k) plan.\7\ The ADP test
generally compares the average rate of deferral for highly
compensated employees to the average rate of deferral for non-
highly compensated employees and requires that the average
deferral rate for highly compensated employees not exceed the
average rate for non-highly compensated employees by more than
certain specified amounts. If a plan fails to satisfy the ADP
test for a plan year based on the deferral elections of highly
compensated employees, the plan is permitted to distribute
deferrals to highly compensated employees (``excess
deferrals'') in a sufficient amount to correct the failure. The
distribution of the excess deferrals must be made by the close
of the following plan year.\8\
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\7\Sec. 401(k)(3).
\8\Sec. 401(k)(8).
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The ADP test is deemed to be satisfied if a section 401(k)
plan includes certain minimum matching or nonelective
contributions under either of two plan designs (a ``section
401(k) safe harbor plan''), as well as certain required rights
and features, and satisfies a notice requirement.\9\ One type
of section 401(k) safe harbor plan includes automatic
enrollment.
---------------------------------------------------------------------------
\9\Sec. 401(k)(12) and (13). If certain additional requirements are
met, matching contributions under a section 401(k) safe harbor plan may
also satisfy a nondiscrimination test applicable under section 401(m).
---------------------------------------------------------------------------
An automatic enrollment section 401(k) safe harbor plan
must provide that, unless an employee elects otherwise, the
employee is treated as electing to make elective deferrals at a
default rate equal to a percentage of compensation as stated in
the plan and at least (1) three percent of compensation for the
first year the deemed election applies to the participant, (2)
four percent during the second year, (3) five percent during
the third year, and (4) six percent during the fourth year and
thereafter. Although an automatic enrollment section 401(k)
safe harbor plan generally may provide for default rates higher
than these minimum rates, the default rate cannot exceed 15
percent for any year.
Eligible automatic contribution arrangements
Plans that include eligible automatic contribution
arrangements may allow participants to withdraw certain
elective contributions (``permissive withdrawals'').\10\ For
this purpose, an eligible automatic contribution arrangement is
an arrangement under an employer plan\11\ that meets the
following conditions: (1) a participant under the arrangement
may elect to have the employer make payments as contributions
under the plan on behalf of the participant, or to the
participant directly in cash; (2) the participant is treated as
having elected to have the employer make such contributions in
an amount equal to a uniform percentage of compensation
provided under the plan until the participant specifically
elects not to have such contributions made (or specifically
elects to have such contributions made at a different
percentage); and (3) the administrator of the plan meets
certain notice requirements described below.\12\
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\10\For this purpose, elective contributions are elective deferrals
under section 402(g) or contributions to certain governmental plans (as
described in Treas. Reg. sec. 1.457-2(f)) that would be elective
contributions if they were made under a qualified plan. Treas. Reg.
sec. 1.414(w)-1(e)(4).
\11\The employer plan must be one of the following: a plan
qualified under section 401(a); a section 403(b) plan; a governmental
section 457(b) plan; a simplified employer pension (``SEP'') under
section 408(k)(6) that provides for a salary reduction arrangement; or
a SIMPLE IRA, as defined in section 408(p).
\12\Sec. 414(w)(3).
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A permissive withdrawal is an election by the employee to
withdraw elective contributions described in clause (2) above
(and earnings attributable thereto). Such withdrawals are
excludable from the employee's gross income for that taxable
year and are not subject to the 10-percent additional tax\13\
on early distributions from a retirement plan. The employee's
election to make a permissive withdrawal must be made no later
than 90 days after the date of the employee's first elective
contribution under the arrangement.
---------------------------------------------------------------------------
\13\Under section 72(t).
---------------------------------------------------------------------------
Under the notice requirements, the administrator must,
within a reasonable period before each plan year, give to each
employee to whom the eligible automatic contribution
arrangement applies a notice of the employee's rights and
obligations under the arrangement which (1) is sufficiently
accurate and comprehensive to apprise the employee of such
rights and obligations, and (2) is written in a manner
calculated to be understood by the average employee to whom the
arrangement applies. The notice must describe the level of the
default electronic contributions that will be made on the
employee's behalf if the employee does not make an affirmative
election.\14\ It also must include an explanation of the
employee's right under the arrangement to elect not to have
elective contributions made on the employee's behalf (or to
elect to have a different percentage of compensation or a
different amount of contribution made to the plan on his or her
behalf),\15\ as well as an explanation of how contributions
made under the arrangement will be invested in the absence of
any investment election by the employee. If the plan allows
permissive withdrawals, it must explain the employee's right to
make such a withdrawal and describe the procedures to elect
such withdrawal. In addition, the employee must have a
reasonable period of time after receipt of the notice and
before the first elective contribution is made to make an
election with respect to such contributions.\16\
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\14\Treas. Reg. sec. 1.414(w)-1(b)(3)(ii).
\15\Treas. Reg. sec. 1.414(w)-1(b)(3)(ii)(B).
\16\Sec. 414(w)(4).
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REASONS FOR CHANGE
The Committee recognizes that one of the main reasons many
Americans reach retirement age with little or no savings is
that too few workers are offered an opportunity to save for
retirement through their employers. However, even for those
employees who are offered a retirement plan at work, many do
not participate. Automatic enrollment in section 401(k) plans
significantly increases participation. Since first defined and
approved by Treasury in 1998, automatic enrollment has boosted
participation by eligible employees generally, and particularly
for Black, Latinx, and lower-wage employees. For these reasons,
the Committee believes it is appropriate to generally require
section 401(k) plans and section 403(b) plans established after
the date of enactment to automatically enroll participants in
their plans.
EXPLANATION OF PROVISION
The provision generally requires newly established section
401(k) plans and section 403(b) plans with salary reduction
agreements to provide for automatic enrollment.\17\ Such plans
must include an eligible automatic contribution arrangement
that allows employees to make permissive withdrawals,\18\ and
that meets requirements relating to the minimum contribution
percentage and the investment of the employee's contributions.
---------------------------------------------------------------------------
\17\SIMPLE section 401(k) plans (section 401(k)(11)) are not
subject to the requirements of this provision.
\18\As defined in section 414(w)(2).
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Under the minimum contribution percentage requirements, the
eligible automatic contribution arrangement must provide that
the uniform percentage of compensation contributed by the
participant during the first year of participation is at least
three percent, and that such percentage increases by one
percentage point each year to at least 10 percent (but no more
than 15 percent), unless the participant specifically elects
not to have such contributions made or to have them made at a
different percentage. For a plan other than a section 401(k)
safe harbor plan, the percentage of compensation contributed
under the eligible automatic contribution arrangement (other
than due to a participant's election to change such percentage)
may not be greater than 10 percent in any plan year ending
before January 1, 2025.
The percentage increase under the eligible automatic
contribution arrangement must be effective as of the first day
of the first plan year commencing after the completion of each
year of participation. In addition, under the investment
requirements, amounts contributed pursuant to such arrangement
for which no investment is elected by the participant must be
invested consistent with certain Department of Labor (``DOL'')
regulations under which a participant is treated as exercising
control over the assets in the participant's account with
respect to certain default investments.\19\
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\19\29 C.F.R. sec. 2550.404c-5, or any successor regulations.
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Certain plans are exempt from the requirements of the
provision. First, the provision does not apply to plans
established before the date of enactment. However, this
grandfathering rule does not apply in the case of an employer
adopting a multiple employer plan after the date of enactment.
Second, governmental plans\20\ and church plans\21\ are exempt
from the provision. Third, the provision does not apply to a
plan while the employer maintaining the plan has been in
existence for less than three years. And fourth, the provision
does not apply to a plan earlier than the date that is one year
after the close of the first taxable year with respect to which
the employer maintaining the plan normally employed more than
10 employees. In the case of a multiple employer plan, the
exemptions relating to new employers and to small employers
apply separately with respect to each employer.
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\20\Within the meaning of section 414(d).
\21\Within the meaning of section 414(e).
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EFFECTIVE DATE
The provision is effective for plan years beginning after
December 31, 2022.
2. Modification of Credit for Small Employer Pension Plan Start-Up
Costs (sec. 102 of the bill and sec. 45E of the Code)
PRESENT LAW
Present law provides a nonrefundable income tax credit
equal to 50 percent of the qualified start-up costs paid or
incurred during the taxable year by an eligible employer\22\
that adopts a new eligible employer plan,\23\ provided that the
plan covers at least one non-highly compensated employee.\24\
Qualified start-up costs are expenses connected with the
establishment or administration of the plan and retirement-
related education of employees with respect to the plan. The
amount of the credit for any taxable year is limited to the
greater of (1) $500 or (2) the lesser of (a) $250 multiplied by
the number of non-highly compensated employees of the eligible
employer who are eligible to participate in the plan or (b)
$5,000. The credit applies for up to three consecutive taxable
years beginning with the taxable year the plan is first
effective, or, at the election of the employer, with the year
preceding the first plan year.
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\22\An eligible employer has the meaning given such term by section
408(p)(2)(C)(i).
\23\An eligible employer plan means a qualified employer plan
within the meaning of section 4972(d) and includes a section 401(a)
qualified retirement plan, a section 403 annuity, any simplified
employee pension (``SEP'') within the meaning of section 408(k), and
any simple retirement account (``SIMPLE'') within the meaning of
section 408(p). An eligible employer plan does not include a plan
maintained by a tax-exempt employer or a governmental plan, as defined
in section 414(d).
\24\A non-highly compensated employee is an employee who is not a
highly compensated employee as defined under section 414(q).
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An eligible employer is an employer that, for the preceding
year, had no more than 100 employees, each with compensation of
$5,000 or more.\25\ In addition, the employer must not have had
a qualified employer plan covering substantially the same
employees as the new plan with respect to which contributions
were made or benefits were accrued during the three years
preceding the first year for which the credit would apply.
Members of controlled groups and affiliated service groups are
treated as a single employer for purposes of these
requirements.\26\ All eligible employer plans of an employer
are treated as a single plan.
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\25\As defined in section 408(p)(2)(C).
\26\Sec. 52(a) or (b) and 414(m) or (o).
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No deduction is allowed for the portion of qualified start-
up costs paid or incurred for the taxable year equal to the
amount of the credit.
REASONS FOR CHANGE
The credit for small employer pension plan start-up costs
serves to encourage small employers to provide retirement
benefits to their employees. The Committee believes the
modifications to this credit will further encourage small
employers to provide these benefits.
EXPLANATION OF PROVISION
The provision increases from 50 percent to 100 percent of
qualified start-up costs, the amount of the nonrefundable
income tax credit allowed to an eligible employer with no more
than 50 employees.
The provision also increases by an additional amount up to
$1,000 per employee the credit allowed to any employer who is
eligible, as determined in the first taxable year in which the
plan is established. The additional amount of the credit is
equal to the applicable percentage of employer contributions
(not including any elective deferrals) by the employer to an
eligible employer plan (not including a defined benefit plan).
The applicable percentages are as follow:
------------------------------------------------------------------------
Taxable Year Applicable Percentage
------------------------------------------------------------------------
Taxable year in which the plan is established.. 100
1st taxable year after the taxable year in 100
which the plan is established.................
2nd taxable year after the taxable year in 75
which the plan is established.................
3rd taxable year after the taxable year in 50
which the plan is established.................
4th taxable year after the taxable year in 25
which the plan is established.................
Any taxable years thereafter................... 0
------------------------------------------------------------------------
In the case of an eligible employer which had more than 50
employees in the year preceding the taxable year in which the
plan is established, the amount of the additional credit is
reduced by an amount equal to two percent for each employee
above 50 employees and is zero for eligible employers with 100
employees.
No deduction is allowed for the portion of qualified start-
up costs paid or incurred or for the portion of employer
contributions for the taxable year equal to the increased
amounts of the credit.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2021.
3. Promotion of the Saver's Credit (sec. 103 of the bill and sec. 25B
of the Code)
PRESENT LAW
Present law provides a nonrefundable income tax credit for
eligible taxpayers who make qualified retirement savings
contributions.\27\ Subject to AGI limits, the credit is
available to individuals who are 18 or older, other than
individuals who are full-time students or claimed as a
dependent on another taxpayer's return. The AGI limits for 2021
(as indexed for inflation) are $66,000 for married taxpayers
filing joint returns, $49,500 for head of household taxpayers,
and $33,000 for single taxpayers and married taxpayers filing
separate returns.
---------------------------------------------------------------------------
\27\Sec. 25B.
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For purposes of the credit, qualified retirement savings
contributions include (1) elective deferrals to a section
401(k) plan, a section 403(b)plan, a governmental section 457
plan, a SIMPLE IRA, or a SEP; (2) contributions to a
traditional or Roth IRA; (3) voluntary after-tax employee
contributions to a qualified retirement plan or annuity or a
section 403(b) plan; (4) contributions to a 501(c)(18)(D) plan;
and (6) contributions made to an ABLE account for which the
taxpayer is the designated beneficiary. The maximum amount of
qualified retirement savings contributions taken into account
for purposes of the credit is $2,000. The amount of any
contribution eligible for the credit is reduced by
distributions received by the taxpayer (or by the taxpayer's
spouse if the taxpayer files a joint return with the spouse)
from any plan or IRA to which eligible contributions can be
made during the taxable year for which the credit is claimed,
the two taxable years prior to the year the credit is claimed,
and during the period after the end of the taxable year for
which the credit is claimed and prior to the due date for
filing the taxpayer's return for the year. Distributions that
are rolled over to another retirement plan do not affect the
credit.
The credit is a percentage of the taxpayer's qualified
retirement savings contributions up to $2,000. The credit
percentage may be 10 percent, 20 percent, or 50 percent,
depending on the AGI of the taxpayer, as shown in the table
below. The credit is in addition to any deduction or exclusion
that would otherwise apply with respect to the contribution.
The credit offsets minimum tax liability as well as regular tax
liability.
TABLE 1.--CREDIT RATES FOR SAVER'S CREDIT (FOR 2021)
----------------------------------------------------------------------------------------------------------------
Joint Filers Heads of Households All Other Filers Credit Rate
----------------------------------------------------------------------------------------------------------------
$0-$39,500........................... $0-$29,625 $0-$19,750 50 percent
$39,501-$43,000...................... $29,626-$32,250 $19,751-$21,500 20 percent
$43,001-$66,000...................... $32,251-$49,500 $21,501-$33,000 10 percent
----------------------------------------------------------------------------------------------------------------
REASONS FOR CHANGE
Many low- and middle-income individuals have inadequate
savings for retirement. The Committee believes that the saver's
credit provides an incentive for low- and middle-income
individuals to save for retirement. The principal criticisms of
the effectiveness of the credit focus on the low use of the
credit owing, in part, to the lack of awareness of the credit
by taxpayers. The Committee believes that increased promotion
of the credit in a variety of commonly spoken languages to
increase public awareness of the benefits will improve the
effectiveness of the credit.
EXPLANATION OF PROVISION
Under the provision, the Secretary shall take steps to
increase public awareness of the benefits provided under this
section and not later than 90 days after the date of enactment
provide a report to Congress summarizing anticipated promotion
efforts. The report will include a description of plan for the
development and distribution of digital and print materials as
well as the translation of such materials into the five most
commonly spoken languages as determined by data from the U.S.
Census Bureau, American Community Survey.
EFFECTIVE DATE
The provision applies to taxable years beginning after the
date of enactment.
4. Enhancement of 403(b) Plans (sec. 104 of the bill and sec. 403(b) of
the Code)
PRESENT LAW
Tax-sheltered annuities (``section 403(b) plans'')
Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provides tax benefits similar to qualified
retirement plans. Section 403(b) plans may be maintained only
by (1) charitable tax-exempt organizations, and (2) educational
institutions of State or local governments (that is, public
schools, including colleges and universities). Many of the
rules that apply to section 403(b) plans are similar to the
rules applicable to qualified retirement plans, including
section 401(k) plans.
Contributions to 403(b) plans
Employers may make nonelective or matching contributions to
such plans on behalf of their employees, and the plan may
provide for employees to make pre-tax elective deferrals,
designated Roth contributions (held in designated Roth
accounts)\28\ or other after-tax contributions.
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\28\Sec. 402A.
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Annuity contracts
Generally, section 403(b) plans provide for contributions
toward the purchase of annuity contracts. The employee's rights
under the annuity contract are nonforfeitable, except for a
failure to pay future premiums.\29\ Amounts contributed by an
employer for an annuity contract are excluded from the gross
income of the employee for the taxable year if certain
requirements are satisfied.
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\29\Sec. 403(b)(1)(C).
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Section 403(b) custodial accounts
Alternatively, such contributions may be held in custodial
accounts established for each employee if those accounts
satisfy certain requirements.
Contributions to a section 403(b) plan that are held in a
custodial account are treated as contributions to an annuity
contract\30\ if the assets are (1) held by a bank\31\ or
another person who demonstrates, to the satisfaction of the
Secretary, that the manner in which the assets will be held is
consistent with the requirements for a qualified retirement
plan\32\ and (2) invested only in regulated investment company
stock.\33\
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\30\Sec. 403(b)(7).
\31\A ``bank'' is defined as any bank as defined in section 581, an
insured credit union within the meaning of section 101, paragraph (6)
or (7) of the Federal Credit Union Act, and a corporation which, under
the laws of the State of its incorporation, is subject to supervision
and examination by the Commissioner of Banking or other officer of such
State in charge of the administration of the banking laws of such
State. Sec. 408(n).
\32\Sec. 401(f)(2) and Treas. Reg. sec. 1.401(f)-1. A custodial
account that satisfies the requirements of section 401(f)(2) is treated
as an organization described in section 401(a) solely for purposes of
subchapter F of chapter 1 of Subtitle A (secs. 501-530) and subtitle F
(pertaining to procedure and administration) with respect to amounts
received by the account and with respect to any income from the
investment of those amounts.
\33\Sec. 403(b)(7) and Treas. Reg. sec. 1.403(b)-8(d)(2)(i).
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In addition, assets of a section 403(b) custodial account
cannot be commingled in a group trust with any assets other
than those of a regulated investment company.\34\ Contributions
to a custodial account are not permitted to be distributed
before the employee dies, attains age 59\1/2\, has a severance
from employment, becomes disabled,\35\ or, in the case of
elective deferrals, encounters financial hardship; or, with
respect to lifetime income options, the date that is 90 days
prior to the date such lifetime income investment no longer is
held as an investment option and is distributed in the form of
a qualified distribution.\36\ Finally, a custodial account must
contain a written statement that the assets held in a custodial
account cannot be used for, or diverted to, purposes other than
for the exclusive benefit of plan participants and their
beneficiaries.\37\
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\34\Treas. Reg. sec. 1.403(b)-8(d)(2)(ii).
\35\Within the meaning of section 72(m)(7).
\36\In accordance with section 401(a)(38).
\37\Treas. Reg. sec. 1.403(b)-8(d)(2)(iii).
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GROUP TRUST
Under the Code, a trust created or organized in the United
States and forming a part of a stock bonus, pension, or profit-
sharing plan of an employer for the exclusive benefit of its
employees or their beneficiaries constitutes a qualified trust
if it provides that:
Contributions made to the trust by the
applicable employer or employers, or both, are used for
the purpose of distributing the corpus and income of
the trust, in accordance with the terms of the plan, to
such employees or their beneficiaries;\38\
---------------------------------------------------------------------------
\38\Sec. 401(a)(1).
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A trust described in section 401(a) is
exempt from income tax;\39\ and
---------------------------------------------------------------------------
\39\Sec. 501(a).
---------------------------------------------------------------------------
Under each trust instrument, it must be
impossible, at any time prior to the satisfaction of
all liabilities with respect to employees and their
beneficiaries under the plan and trust, for any part of
the corpus or income of the trust to be used for or
diverted to purposes other than for the exclusive
benefit of the employees or their beneficiaries.
A group trust is an arrangement under which individual
retirement plan trusts pool their assets in a group trust
(usually created for the purpose of providing diversification
of investments), where the trust is declared to be part of each
participating retirement plan and the trust instruments
creating both the participating and group trusts provide that
amounts are transferred from one trust to the other at the
direction of the trustee of the participating trust.\40\
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\40\See Rev. Rul. 81-100, 1981-1 C.B. 326, as modified by Rev. Rul.
2004-67, 2004-2 C.B. 28; Rev. Rul. 2008-40, 2008-2 C.B. 166; Rev. Rul.
2011-1, 2011-2 I.R.B. 251 which was modified by Notice 2012-6, 2012-3
I.R.B. 293, January 17, 2012; and Rev. Rul. 2014-24, 2014-37 I.R.B.
529.
---------------------------------------------------------------------------
The tax status of the group trust is derived from the tax
status of the entities participating in the group trust to the
extent of the entities' equitable interests in such trust if
the following requirements are satisfied:
The group trust is itself adopted as a part
of each adopting group trust retiree benefit plan;
The group trust instrument expressly limits
participation to pension, profit-sharing, and stock
bonus trusts or custodial accounts qualifying under
section 401(a) that are exempt under section 501(a);
individual retirement accounts that are exempt under
section 408(e); eligible governmental plan trusts or
custodial accounts under section 457(b) that are exempt
under section 457(g); custodial accounts under section
403(b)(7); retirement income accounts under section
403(b)(9); and section 401(a)(24) governmental plans;
The group trust instrument expressly
prohibits any part of its corpus or income that
equitably belongs to any adopting group trust retiree
benefit plan from being used for, or diverted to, any
purpose other than for the exclusive benefit of the
participants and beneficiaries of the group trust
retiree benefit plan;
Each group trust retiree benefit plan that
adopts the group trust is itself a trust, a custodial
account, or a similar entity that is tax-exempt under
section 408(e) or section 501(a) (or is treated as
exempt under section 501(a));
Each group trust retiree benefit plan that
adopts the group trust expressly provides in its
governing document that it is impossible for any part
of the corpus or income of the group trust retiree
benefit plan to be used for, or diverted to, purposes
other than for the exclusive benefit of the plan
participants and their beneficiaries;
The group trust instrument expressly limits
the assets that may be held by the group trust to
assets that are contributed by, or transferred from, a
group trust retiree benefit plan to the group trust
(and the earnings thereon), and the group trust
instrument expressly provides for separate accounting
to reflect the interest that each adopting group trust
retiree benefit plan has in the group trust, including
separate accounting for contributions to the group
trust from the adopting plan, disbursements made from
the adopting plan's account in the group trust, and
investment experience of the group trust allocable to
that account;
The group trust instrument expressly
prohibits an assignment by an adopting group trust
retiree benefit plan of any part of its equity or
interest in the group trust; and
The group trust is created or organized in
the United States and is maintained at all times as a
domestic trust in the United States.
With respect to section 403(b)(7) custodial accounts, under
Internal Revenue Service (``IRS'') guidance, such an account
fails to satisfy the requirements for a group trust if the
assets of the account are invested other than in the stock of a
regulated investment company, and any group trust in which the
assets of a section 403(b)(7) custodial account is invested
must comply with this restriction.\41\ As a result of this
investment restriction, the assets of a custodial account under
section 403(b)(7) generally will be commingled in a group trust
that solely contains the assets of other section 403(b)(7)
custodial accounts.
---------------------------------------------------------------------------
\41\Rev. Rul. 2011-1, 2011-2 I.R.B. 251.
---------------------------------------------------------------------------
REASONS FOR CHANGE
Under present law, group trusts permit certain retirement
plans and IRAs to pool their assets for investment purposes if
certain specified requirements are satisfied providing certain
cost savings and broader investment options to such plans than
might otherwise be available. Section 403(b) investments are
generally limited to annuity contracts and mutual funds. This
limitation restricts 403(b) plan participants who are generally
employees of charities and public educational organizations
from access to collective investment trusts, which are often
used by 401(a) plans due to their lower fees.
The Committee believes that section 403(b) custodial
accounts would benefit from participating in a group trust.
EXPLANATION OF PROVISION
The provision provides that contributions to a section
403(b) plan that are held in a custodial account are treated as
contributions to an annuity contract if the assets are to be
held in that custodial account and invested in regulated
investment company stock or a group trust intended to satisfy
the requirements of IRS Revenue Ruling 81-100 (or any successor
guidance).
EFFECTIVE DATE
The provision is applicable to amounts invested after
December 31, 2021.
5. Increase in Age for Required Beginning Date for Mandatory
Distributions (sec. 105 of the bill and sec. 401(a)(9) of the Code)
PRESENT LAW
Required minimum distributions
Employer-provided qualified retirement plans and IRAs are
subject to required minimum distribution rules.\42\ A qualified
retirement plan for this purpose means a tax-qualified plan
described in section 401(a) (such as a defined benefit pension
plan or a section 401(k) plan), an employee retirement annuity
described in section 403(a), a tax-sheltered annuity described
in section 403(b), and a plan described in section 457(b) that
is maintained by a governmental employer.\43\ An employer-
provided qualified retirement plan that is a defined
contribution plan is a plan that provides (1) an individual
account for each participant and (2) for benefits based on the
amount contributed to the participant's account and any income,
expenses, gains, losses, and forfeitures of accounts of other
participants which may be allocated to such participant's
account.\44\
---------------------------------------------------------------------------
\42\Secs. 401(a)(9) and 408(a)(6).
\43\The required minimum distribution rules also apply to section
457(b) plans maintained by tax-exempt employers other than governmental
employers.
\44\Sec. 414(i).
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Required minimum distributions generally must begin by
April 1 of the calendar year following the calendar year in
which the individual (employee or IRA owner) reaches age 72.
Prior to January 1, 2020, the age after which required minimum
distributions were required to begin was 70\1/2\.\45\ In the
case of an employer-provided qualified retirement plan, the
required minimum distribution date for an individual who is not
a five-percent owner of the employer maintaining the plan may
be delayed to April 1 of the year following the year in which
the individual retires, if the plan provides for this later
distribution date. For all subsequent years, including the year
in which the individual was paid the first required minimum
distribution by April 1, the individual must take the required
minimum distribution by December 31.
---------------------------------------------------------------------------
\45\The SECURE Act, enacted as part of the Further Consolidated
Appropriations Act, 2020, Pub. L. No. 116-94, Div. O, sec. 114,
increased the age after which required minimum distributions must begin
from 70\1/2\ to 72, effective for distributions required to be made
after December 31, 2019, with respect to individuals who attain age
70\1/2\ after that date.
---------------------------------------------------------------------------
For IRAs and defined contribution plans, the required
minimum distribution for each year generally is determined by
dividing the account balance as of the end of the prior year by
the number of years in the distribution period.\46\ The
distribution period is generally derived from the Uniform
Lifetime Table.\47\ This table is based on the joint life
expectancies of the individual and a hypothetical beneficiary
10 years younger than the individual. For an individual with a
spouse as designated beneficiary who is more than 10 years
younger, the joint life expectancy of the couple is used
(because the couple's remaining joint life expectancy is longer
than the length provided in the Uniform Lifetime Table). There
are special rules in the case of annuity payments from an
insurance contract.
---------------------------------------------------------------------------
\46\Treas. Reg. sec. 1.401(a)(9)-5.
\47\Treas. Reg. sec. 1.401(a)(9)-9.
---------------------------------------------------------------------------
If an individual dies before the individual's entire
interest is distributed, and the individual has a designated
beneficiary, unless the designated beneficiary is an eligible
designated beneficiary, the individual's entire account must be
distributed within 10 years after the individual's death. This
rule applies regardless of whether the individual dies before
or after the individual's required beginning date.
In the case of an eligible designated beneficiary, the
remaining required minimum distributions are distributed over
the life of the beneficiary (or over a period not extending
beyond the life expectancy of such beneficiary). Such
distributions must begin no later than December 31 of the
calendar year immediately following the calendar year in which
the individual dies. An eligible designated beneficiary is a
designated beneficiary who is (1) the surviving spouse of the
individual; (2) a child of the individual who has not reached
majority; (3) disabled; (4) chronically ill; or (5) not more
than 10 years younger than the individual.\48\ If the eligible
designated beneficiary is the individual's spouse, commencement
of distributions is permitted to be delayed until December 31
of the calendar year in which the deceased individual would
have attained age 72. The required minimum distribution for
each year is determined by dividing the account balance as of
the end of the prior year by a distribution period, which is
determined by reference to the beneficiary's life
expectancy.\49\ Special rules apply in the case of trusts for
disabled or chronically ill beneficiaries.\50\
---------------------------------------------------------------------------
\48\Sec. 401(a)(9)(E)(ii).
\49\Treas. Reg. sec. 1.401(a)(9)-5, A-5.
\50\Sec. 401(a)(9)(H)(iv).
---------------------------------------------------------------------------
In the case of an individual who does not have a designated
beneficiary, if an individual dies on or after the individual's
required beginning date, the distribution period for the
remaining required minimum distributions is equal to the
remaining years of the deceased individual's single life
expectancy, using the age of the deceased individual in the
year of death.\51\ If an individual dies before the required
beginning date, the individual's entire account must be
distributed no later than December 31 of the calendar year that
includes the fifth anniversary of the individual's death.\52\
---------------------------------------------------------------------------
\51\Treas. Reg. sec. 1.401(a)(9)-5, A-5(a).
\52\Treas. Reg. sec. 1.401(a)(9)-3, Q&As 1, 2.
---------------------------------------------------------------------------
A special after-death rule applies for an IRA if the
beneficiary of the IRA is the surviving spouse. The surviving
spouse is permitted to choose to calculate required minimum
distributions both while the surviving spouse is alive and
after death as though the surviving spouse is the IRA owner,
rather than a beneficiary.\53\
---------------------------------------------------------------------------
\53\Treas. Reg. sec. 1.408-8, Q&A 5.
---------------------------------------------------------------------------
Roth IRAs are not subject to the minimum distribution rules
during the IRA owner's lifetime. However, Roth IRAs are subject
to the post-death minimum distribution rules that apply to
traditional IRAs. For Roth IRAs, the IRA owner is treated as
having died before the individual's required beginning date.
Failure to make a required minimum distribution triggers a
50-percent excise tax, payable by the individual or the
individual's beneficiary. The tax is imposed during the taxable
year that begins with or within the calendar year during which
the distribution was required.\54\ The tax may be waived if the
failure to distribute is reasonable error and reasonable steps
are taken to remedy the violation.\55\
---------------------------------------------------------------------------
\54\Sec. 4974(a).
\55\Sec. 4974(d).
---------------------------------------------------------------------------
Eligible rollover distributions
With certain exceptions, distributions from an employer-
provided qualified retirement plan are eligible to be rolled
over tax free into another employer-provided qualified
retirement plan or an IRA. This can be achieved by contributing
the amount of the distribution to the other plan or IRA within
60 days of the distribution, or by a direct payment by the plan
to the other plan or IRA (referred to as a ``direct
rollover''). Distributions that are not eligible for rollover
include (i) any distribution that is one of a series of
periodic payments generally for a period of 10 years or more
(or a shorter period for distributions made for certain life
expectancies), and (ii) any distribution to the extent that the
distribution is a required minimum distribution.\56\
---------------------------------------------------------------------------
\56\Sec. 402(c)(4). Distributions that are not eligible rollover
distributions also include distributions made upon hardship of the
employee.
---------------------------------------------------------------------------
For any distribution that is eligible for rollover, an
employer-provided qualified retirement plan must offer the
distributee the right to have the distribution made in a direct
rollover.\57\ Before making the distribution, the plan
administrator must provide the distributee with a written
explanation of the direct rollover right and related tax
consequences.\58\ Unless a distributee elects to have the
distribution made in a direct rollover, the distribution is
generally subject to mandatory 20-percent income tax
withholding.\59\
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\57\Sec. 401(a)(31).
\58\Sec. 402(f).
\59\Sec. 3405(c). This mandatory withholding does not apply to a
distributee that is a beneficiary other than a surviving spouse of an
employee.
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REASONS FOR CHANGE
When mandatory distributions from qualified retirement
plans based on age were added to the Code in 1962,\60\ the life
expectancy of Americans was shorter. In addition, increasing
numbers of Americans are continuing to work past traditional
retirement ages. For these reasons, the Setting Every Community
Up for Retirement (``SECURE'') Act\61\ increased the age at
which required minimum distributions generally must be made
from age 70\1/2\ to age 72. The Committee believes it is
appropriate to further increase this age to more accurately
reflect present-day circumstances.
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\60\Sec. 2(2) of the Self-Employed Individuals Tax Retirement Act
of 1962, Pub. L. No. 87-792.
\61\Pub. L. No. 116-94.
---------------------------------------------------------------------------
EXPLANATION OF PROVISION
The provision changes the age on which the required
beginning date for required minimum distributions is based,
from the calendar year in which the employee or IRA owner
attains age 72 to the calendar year in which the employee or
IRA owner attains age 73, for individuals who attain age 72
after December 31, 2021, and who attain age 73 before January
1, 2029. In addition, the provision changes such age from 73
years to 74 years, for individuals who attain age 73 after
December 31, 2028, and who attain age 74 before January 1,
2032. Such age is further increased to age 75 for individuals
who attain age 74 after December 31, 2031.
EFFECTIVE DATE
The provision is effective for distributions required to be
made after December 31, 2021, for employees and IRA owners who
attain age 72 after such date.
6. Indexing IRA Catch-Up Limit (sec. 106 of the bill and sec. 219 of
the Code)
PRESENT LAW
There are two general types of individual retirement
arrangements (``IRAs''): traditional IRAs and Roth IRAs.\62\
The total amount that an individual may contribute to one or
more IRAs for a year is generally limited to the lesser of: (1)
a dollar amount ($6,000 for 2021); and (2) the amount of the
individual's compensation that is includible in gross income
for the year.\63\ In the case of an individual who has attained
age 50 by the end of the taxable year, the dollar amount is
increased by $1,000 (referred to as a ``catch-up
contribution''). In the case of a married couple, contributions
can be made up to the dollar limit for each spouse if the
combined compensation of the spouses that is includible in
gross income is at least equal to the contributed amount. An
individual may make contributions to a traditional IRA (up to
the contribution limit) without regard to his or her adjusted
gross income.
---------------------------------------------------------------------------
\62\Secs. 408 and 408A.
\63\Sec. 219(b)(2) and (5), as referenced in secs. 408(a)(1) and
(b)(2)(B) and 408A(c)(2). Under section 4973, IRA contributions in
excess of the applicable limit are generally subject to an excise tax
of six percent per year until withdrawn.
---------------------------------------------------------------------------
An individual may deduct his or her contributions to a
traditional IRA if neither the individual nor the individual's
spouse is an active participant in an employer-sponsored
retirement plan. If an individual or the individual's spouse is
an active participant in an employer-sponsored retirement plan,
the deduction is phased out for taxpayers with adjusted gross
income over certain levels.\64\
---------------------------------------------------------------------------
\64\Sec. 219(g).
---------------------------------------------------------------------------
Individuals with adjusted gross income below certain levels
may make contributions to a Roth IRA (up to the contribution
limit).\65\ Contributions to a Roth IRA are not deductible.
---------------------------------------------------------------------------
\65\Sec. 408A(c)(3).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee wishes to enhance an individual's ability to
save for retirement, and therefore believes it is appropriate
to increase the amount of catch-up contributions that an
individual may contribute to an IRA based on increases in cost
of living.
EXPLANATION OF PROVISION
Under the provision, the $1,000 amount that may be
contributed as a catch-up contribution by individuals who
attain age 50 by the end of the taxable year is increased for
cost-of-living adjustments for taxable years beginning in 2023
or later.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2022.
7. Higher Catch-Up Limit To Apply at Age 62, 63, and 64 (sec. 107 of
the bill and sec. 414(v) of the Code)
PRESENT LAW
Under certain types of employer-sponsored retirement plans,
including section 401(k) plans, section 403(b) plans, SIMPLE
IRAs,\66\ and governmental section 457(b) plans, an employee
may elect to have contributions (elective deferrals) made to
the plan, rather than receive the same amount in cash. The
maximum annual amount of elective deferrals that can be made by
an employee for a year is $19,500 for 2021 ($13,500 in the case
of a SIMPLE IRA or SIMPLE section 401(k) plan\67\) or, if less,
the employee's compensation.\68\ For individuals who will
attain age 50 by the end of the taxable year, this limit is
increased to allow additional ``catch-up contributions.''\69\
---------------------------------------------------------------------------
\66\Sec. 408(p).
\67\Sec. 401(k)(11).
\68\Secs. 402(g); 457(c). This limit applies to total elective
deferrals under all of a participant's section 401(k) plans and section
403(b) plans but applies separately to any governmental section 457(b)
plan. Sec. 414(v).
\69\Sec. 414(v).
---------------------------------------------------------------------------
A section 401(k) plan, section 403(b) plan, and
governmental section 457(b) plan may generally permit catch-up
contributions up to $6,500 in 2021 (indexed for inflation). A
SIMPLE IRA or SIMPLE section 401(k) plan may permit catch-up
contributions up to $3,000 in 2021. If elective deferral and
catch-up contributions are made to both a section 401(k) plan
and a section 403(b) plan for the same employee, a single limit
applies to the elective deferrals under both plans. Special
contribution limits apply to certain employees under a section
403(b) plan maintained by a church. In addition, under a
special catch-up rule, an increased elective deferral limit
applies under a plan maintained by an educational organization,
hospital, home health service agency, health and welfare
service agency, church, or convention or association of
churches in the case of employees who have completed 15 years
of service. In this case, the limit is increased by the least
of (1) $3,000, (2) $15,000, reduced by the employee's total
elective deferrals in prior years, and (3) $5,000 times the
employee's years of service, reduced by the employee's total
elective deferrals in prior years.
The section 457(b) plan limits apply separately from the
combined limit applicable to section 401(k) and section 403(b)
plan contributions, so that an employee covered by a
governmental section 457(b) plan and a section 401(k) or
section 403(b) plan can contribute the full amount to each
plan. In addition, under a special catch-up rule, for one or
more of the participant's last three years before normal
retirement age, the otherwise applicable limit is increased to
the lesser of (1) two times the normal annual limit ($39,000
for 2021) or (2) the sum of the otherwise applicable limit for
the year plus the amount by which the limit applicable in
preceding years of participation exceeded the deferrals for
that year.
Catch-up contributions are not subject to any other
contribution limits and are not taken into account in applying
other contribution limits. In addition, such contributions are
not subject to applicable nondiscrimination rules. However, a
plan fails to meet the applicable nondiscrimination
requirements under section 401(a)(4) with respect to benefits,
rights, and features unless the plan allows all eligible
individuals participating in the plan to make the same election
with respect to catch-up contributions. For purposes of this
rule, all plans of related employers are treated as a single
plan. In addition, the special nondiscrimination rule for
mergers and acquisitions applies for this purpose.\70\
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\70\Secs. 410(b)(6)(C); 414(v)(4)(B).
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An employer is permitted to make matching contributions
with respect to catch-up contributions. Any such matching
contributions are subject to the normally applicable rules.
REASONS FOR CHANGE
Under present law, the Code permits catch-up contributions
at a time when individuals are typically more advanced in their
careers and in a better financial position to contribute
additional funds to their retirement plans. In order to
increase such individuals' ability to grow their retirement
savings, the Committee believes it is appropriate to increase
the limit on catch-up contributions in the three years before
the individual attains age 65 (a typical normal retirement age
under a plan).
EXPLANATION OF PROVISION
Under the provision, the limit on catch-up contributions is
increased for individuals who have attained age 62, 63, or 64
(but who are not older than 64) by the end of the taxable year.
A section 401(k) plan (other than a SIMPLE section 401(k)
plan), section 403(b) plan, or governmental section 457(b) plan
may increase the limit on catch-up contributions for such
individuals to the lesser of (1) $10,000 or (2) the
participant's compensation for the year reduced by any other
elective deferrals of the participant for the year.\71\ A
SIMPLE section 401(k) plan or a SIMPLE IRA may increase the
limit on catch-up contributions for such individuals to the
lesser of (1) $5,000 or (2) the participant's compensation for
the year reduced by any other elective deferrals of the
participant for the year. Both the $10,000 amount and the
$5,000 amount are indexed for inflation beginning in 2023.
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\71\This increase also applies to catch-up contributions under a
simplified employee pension under section 408(k) that includes a salary
reduction arrangement.
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EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2022.
8. Multiple Employer 403(b) Plans (sec. 108 of the bill and secs.
403(b), 6057, 6058 of the Code and secs. 3(43) and 3(44) of ERISA)
PRESENT LAW
Retirement savings under the Code and ERISA
The Code provides tax-favored treatment for various types
of retirement plans, including employer-sponsored plans and
IRAs. Code provisions are generally within the jurisdiction of
the Secretary of the Treasury (the ``Secretary''), through his
or her delegate, the IRS.
The most common type of tax-favored employer-sponsored
retirement plan is a qualified retirement plan,\72\ which may
be a defined contribution plan or a defined benefit plan. Under
a defined contribution plan, separate individual accounts are
maintained for participants, to which accumulated
contributions, earnings, and losses are allocated, and
participants' benefits are based on the value of their
accounts.\73\ Defined contribution plans commonly allow
participants to direct the investment of their accounts,
usually by choosing among investment options offered under the
plan. Under a defined benefit plan, benefits are determined
under a plan formula and paid from general plan assets, rather
than individual accounts.\74\ Besides qualified retirement
plans, certain tax-exempt employers and public schools may
maintain tax-deferred annuity plans.\75\
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\72\Sec. 401(a). A qualified annuity plan under section 403(a) is
similar to and subject to requirements similar to those applicable to
qualified retirement plans.
\73\Sec. 414(i). Defined contribution plans generally provide for
contributions by employers and may include a qualified cash or deferred
arrangement under a section 401(k) plan, under which employees may
elect to contribute to the plan.
\74\Sec. 414(j).
\75\Sec. 403(b). Private and governmental employers that are exempt
from tax under section 501(c)(3), including tax-exempt private schools,
may maintain tax-deferred annuity plans (discussed further below).
State and local governmental employers may maintain another type of
tax-favored retirement plan, an eligible deferred compensation plan
under section 457(b).
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An IRA is generally established by the individual for whom
the IRA is maintained.\76\ However, in some cases, an employer
may establish IRAs on behalf of employees and provide
retirement contributions to the IRAs.\77\ In addition, IRA
treatment may apply to accounts maintained for employees under
a trust created by an employer (or an employee association) for
the exclusive benefit of employees or their beneficiaries,
provided that the trust complies with the relevant IRA
requirements and separate accounting is maintained for the
interest of each employee or beneficiary (referred to herein as
an ``IRA trust'').\78\ In that case, the assets of the trust
may be held in a common fund for the account of all individuals
who have an interest in the trust.
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\76\Sections 219, 408 and 408A provide rules for IRAs. Under
section 408(a)(2) and (n), only certain entities are permitted to be
the trustee of an IRA. The trustee of an IRA generally must be a bank,
an insured credit union, or a corporation subject to supervision and
examination by the Commissioner of Banking or other officer in charge
of the administration of the banking laws of the State in which it is
incorporated. Alternatively, an IRA trustee may be another person who
demonstrates to the satisfaction of the Secretary that the manner in
which the person will administer the IRA will be consistent with the
IRA requirements.
\77\Simplified employee pension (``SEP'') plans under section
408(k) and SIMPLE IRA plans under section 408(p) are employer-sponsored
retirement plans funded using IRAs for employees.
\78\Sec. 408(c).
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Tax-sheltered annuities (``section 403(b) plans'')
Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provide tax benefits similar to qualified
retirement plans. Section 403(b) plans may be maintained only
by (1) charitable tax-exempt organizations, and (2) educational
institutions of State or local governments (that is, public
schools, including colleges and universities).
Many of the rules that apply to section 403(b) plans are
similar to the rules applicable to qualified retirement plans,
including section 401(k) plans. Section 403(b) plans are
generally subject to the minimum coverage and nondiscrimination
rules that apply to qualified defined contribution plans.
However, as in the case of a qualified retirement plan, a
governmental section 403(b) plan is not subject to the
nondiscrimination rules.
Contributions to section 403(b) plans
Employers may make nonelective or matching contributions to
such plans on behalf of their employees, and the plan may
provide for employees to make pre-tax elective deferrals,
designated Roth contributions (held in designated Roth
accounts)\79\ or other after-tax contributions.
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\79\Sec. 402A.
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Annuity contracts
Generally, section 403(b) plans provide for contributions
toward the purchase of annuity contracts for providing
retirement benefits for their employees. The employee's rights
under the annuity contract are nonforfeitable, except for a
failure to pay future premiums.\80\ Section 403(b) generally
provides that amounts contributed by an employer for an annuity
contract are excluded from the gross income of the employee for
the taxable year if certain requirements are satisfied.
---------------------------------------------------------------------------
\80\Sec. 403(b)(1)(C).
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403(b) Custodial accounts
Alternatively, such contributions may be held in custodial
accounts established for each employee if those accounts
satisfy certain requirements.
Contributions to a section 403(b) plan that are held in a
custodial account are treated as contributions to an annuity
contract\81\ if the assets (1) are held by a bank\82\ or
another person who demonstrates, to the satisfaction of the
Secretary, that the manner in which the assets will be held is
consistent with the requirements for a qualified retirement
plan\83\ and (2) are invested only in regulated investment
company stock.\84\
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\81\Sec. 403(b)(7).
\82\A ``bank'' is defined as any bank as defined in section 581, an
insured credit union within the meaning of section 101, paragraph (6)
or (7) of the Federal Credit Union Act, and a corporation which, under
the laws of the State of its incorporation, is subject to supervision
and examination by the Commissioner of Banking or other officer of such
State in charge of the administration of the banking laws of such
State. Sec. 408(n).
\83\Sec. 401(f)(2) and Treas. Reg. sec. 1.401(f)-1. A custodial
account that satisfies the requirements of section 401(f)(2) is treated
as an organization described in section 401(a) solely for purposes of
subchapter F of chapter 1 of Subtitle A (secs. 501-530) and subtitle F
(pertaining to procedure and administration) with respect to amounts
received by the account and with respect to any income from the
investment of those amounts.
\84\Sec. 403(b)(7) and Treas. Reg. sec. 1.403(b)-8(d)(2)(i).
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Retirement income accounts
Assets of a section 403(b) plan generally must be invested
in annuity contracts or mutual funds.\85\ However, the
restrictions on investments do not apply to a retirement income
account, which is a type of section 403(b) plan that is a
defined contribution program established or maintained by a
church, or a convention or association of churches, to provide
benefits under the plan to employees of a religious, charitable
or similar tax-exempt organization.\86\
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\85\Sec. 403(b)(1)(A) and (7).
\86\ Sec. 403(b)(9)(B), referring to organizations exempt from tax
under section 501(c)(3). For this purpose, a church or a convention or
association of churches includes an organization described in section
414(e)(3)(A), that is, an organization, the principal purpose or
function of which is the administration or funding of a plan or program
for the provision of retirement benefits or welfare benefits, or both,
for the employees of a church or a convention or association of
churches, provided that the organization is controlled by, or
associated with, a church or a convention or association of churches.
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Certain rules prohibiting discrimination in favor of highly
compensated employees, which apply to section 403(b) plans
generally, do not apply to a plan maintained by a church or
qualified church-controlled organization.\87\ For this purpose,
church means a church, a convention or association of churches,
or an elementary or secondary school that is controlled,
operated, or principally supported by a church or by a
convention or association of churches, and includes a qualified
church-controlled organization. A qualified church-controlled
organization is any church-controlled tax-exempt organization
other than an organization that (1) offers goods, services, or
facilities for sale, other than on an incidental basis, to the
general public, other than goods, services, or facilities that
are sold at a nominal charge substantially less than the cost
of providing the goods, services, or facilities, and (2)
normally receives more than 25 percent of its support from
either governmental sources, or receipts from admissions, sales
of merchandise, performance of services, or furnishing of
facilities, in activities that are not unrelated trades or
businesses, or from both. Church-controlled organizations that
are not qualified church-controlled organizations are generally
referred to as ``nonqualified church-controlled
organizations.''
---------------------------------------------------------------------------
\87\Sec. 403(b)(1)(D) and (12).
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Church plans
A church plan is a plan established and maintained for
employees (or their beneficiaries) by the church or by a
convention or association of churches that is exempt from
tax.\88\ Church plans include plans maintained by an
organization, whether a corporation or otherwise, that has as
its principal purpose or function the administration or funding
of a plan or program for providing retirement or welfare
benefits for the employees of the church or convention or
association of churches.\89\
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\88\Sec. 414(e). The plan is exempt from tax under section 501.
\89\Sec. 414(e)(3)(A). With respect to certain provisions (e.g.,
the exemption for church plans from nondiscrimination rules applicable
for tax-sheltered annuities), the more limited definition of church
under the employment-tax rules applies (secs. 312l(w)(3)(A) and (B)).
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ERISA
Retirement plans of private employers, including qualified
retirement plans and tax-deferred annuity plans, are generally
subject to requirements under the Employee Retirement Income
Security Act of 1974 (``ERISA'').\90\ A plan covering only
business owners (or business owners and their spouses)--that
is, it covers no other employees--is exempt from ERISA.\91\
Thus, a plan covering only self-employed individuals is exempt
from ERISA. Tax-deferred annuity plans that provide solely for
salary reduction contributions by employees may be exempt from
ERISA.\92\ IRAs are generally exempt from ERISA.
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\90\ERISA applies to employee welfare benefit plans, such as health
plans, of private employers, as well as to employer-sponsored
retirement (or pension) plans. Employer-sponsored welfare and pension
plans are both referred to under ERISA as employee benefit plans. Under
ERISA sec. 4(b)(1) and (2), governmental plans and church plans are
generally exempt from ERISA.
\91\29 C.F.R. sec. 2510.3-3(b)-(c).
\92\29 C.F.R. sec. 2510.3-2(f).
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The provisions of Title I of ERISA are under the
jurisdiction of the Secretary of Labor.\93\ Many of the
requirements under Title I of ERISA parallel Code requirements
for qualified retirement plans. Under ERISA, in carrying out
provisions relating to the same subject matter, the Secretary
(of the Treasury) and the Secretary of Labor are required to
consult with each other and develop rules, regulations,
practices, and forms that, to the extent appropriate for
efficient administration, are designed to reduce duplication of
effort, duplication of reporting, conflicting or overlapping
requirements, and the burden of compliance by plan
administrators, employers, and participants and
beneficiaries.\94\ In addition, interpretive jurisdiction over
parallel Code and ERISA provisions relating to retirement plans
is divided between the two Secretaries by an Executive Order,
referred to as the Reorganization Plan No. 4 of 1978.\95\
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\93\The provisions of Title I of ERISA are codified at 29
U.S.C.1001-1191c. Under Title IV of ERISA, defined benefit plans of
private employers are generally covered by the PBGC's pension insurance
program.
\94\ERISA sec. 3004.
\95\43 Fed. Reg. 47713 (October 17, 1978).
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Certain church plans are exempt from the coverage, vesting,
funding, and fiduciary requirements of ERISA (``non-electing''
churches). Church plans may waive this exemption by
election.\96\ Electing plans become subject to all section
401(a) qualification requirements, Title I of ERISA, and the
excise tax on prohibited transactions.\97\ Such plans
participate in the termination insurance program administered
by the Pension Benefit Guaranty Corporation (``PBGC'').
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\96 \ Section 4(b)(2) of ERISA excepts a church plan (as defined in
section 3(3) of ERISA) with respect to which no election has been made
under Code section 410(d) from the provisions of Title I of ERISA
(including the fiduciary, participation and vesting, and funding
rules).
\97\Sec. 4975.
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Fiduciary and bonding requirements
Among other requirements, ERISA requires a plan to be
established and maintained pursuant to a written instrument
(that is, a plan document) that contains certain terms.\98\ The
terms of the plan must provide for one or more named
fiduciaries that jointly or severally have authority to control
and manage the operation and administration of the plan.\99\
Among other required plan terms are a procedure for the
allocation of responsibilities for the operation and
administration of the plan and a procedure for amending the
plan and for identifying the persons who have authority to
amend the plan. Among other permitted terms, a plan may provide
also that any person or group of persons may serve in more than
one fiduciary capacity with respect to the plan (including
service both as trustee and administrator) and that a person
who is a named fiduciary with respect to the control or
management of plan assets may appoint an investment manager or
managers to manage plan assets.
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\98\ERISA sec. 402.
\99\Fiduciary is defined in ERISA section 3(21), and named
fiduciary is defined in ERISA section 402(a)(2).
---------------------------------------------------------------------------
In general, a plan fiduciary is responsible for the
investment of plan assets. However, a special rule applies in
the case of a defined contribution plan that permits
participants to direct the investment of their individual
accounts.\100\ Under the special rule, if various requirements
are met, a participant is not deemed to be a fiduciary by
reason of directing the investment of the participant's account
and no person who is otherwise a fiduciary is liable for any
loss, or by reason of any breach, that results from the
participant's investments. Defined contribution plans that
provide for participant-directed investments commonly offer a
set of investment options among which participants may choose.
The selection of investment options to be offered under a plan
is subject to ERISA fiduciary requirements.
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\100\ERISA sec. 404(c). Under ERISA, a defined contribution plan is
also referred to as an individual account plan.
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Under ERISA, any plan fiduciary or person that handles plan
assets is required to be bonded, generally for an amount not to
exceed $500,000.\101\ In some cases, the maximum bond amount is
$1 million, rather than $500,000.
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\101\ERISA sec. 412.
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Tax-sheltered annuity plans under ERISA
ERISA generally applies to section 403(b) plans maintained
by tax-exempt organizations.
However, there is an exception from ERISA for certain tax-
sheltered annuity programs established by tax-exempt entities
which consist of a program for the purchase of an annuity
contract or the establishment of a custodial account pursuant
to salary reduction agreements or agreements to forego an
increase in salary where the tax-exempt entity has very limited
involvement. Under the program: (1) participation is completely
voluntary for employees, (2) all rights under the annuity
contract or custodial account are enforceable solely by the
employee, and (3) the employer's sole involvement in the
program is limited to the following, for example: (a)
permitting annuity contractors to publicize their products to
employees, (b) requesting information concerning proposed
funding, media, products, or annuity contracts, (c) summarizing
or otherwise compiling information provided, (d) collecting
annuity or custodial account contributions, or (e) holding in
the employer's name, one or more group annuity contracts
covering the employees; and (4) for which the employer receives
no direct or indirect consideration or compensation.\102\
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\102\29 C.F.R. sec. 2510.3-2(f).
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Section 403(b) plans sponsored by governmental and public
education employers are generally not subject to ERISA.
Similarly, non-electing church plans funded through section
403(b) annuities are generally not subject to ERISA.\103\
---------------------------------------------------------------------------
\103\However, whether or not they are maintained by a church, plans
that are funded through tax-deferred custodial accounts are subject to
annual reporting requirements and to the duty to report distributions
of $600 or more. This is because such an account constitutes a ``funded
plan of deferred compensation described in part I of subchapter D of
chapter 1.'' Sec. 6058, 6041; Treas. Reg. sec. 301.6058-1(a)(2).
---------------------------------------------------------------------------
Multiple employer plans under the Code
In general
Qualified retirement plans, either defined contribution or
defined benefit plans, are categorized as single employer plans
or multiple employer plans (``MEPs''). A single employer plan
is a plan maintained by one employer. For this purpose,
businesses and organizations that are members of a controlled
group of corporations, a group under common control, or an
affiliated service group are treated as one employer (referred
to as ``aggregation'').\104\
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\104\Sec. 414(b), (c), (m) and (o).
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A MEP generally is a single plan maintained by two or more
unrelated employers (that is, employers that are not treated as
a single employer under the aggregation rules).\105\ MEPs are
commonly maintained by employers in the same industry and are
used also by professional employer organizations (``PEOs'') to
provide qualified retirement plan benefits to employees working
for PEO clients.\106\
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\105\Sec. 413(c). Multiple employer status does not apply if the
plan is a multiemployer plan. Multiemployer plans are different from
single employer plans and MEPs. A multiemployer plan is defined under
section 414(f) as a plan maintained pursuant to one or more collective
bargaining agreements with two or more unrelated employers and to which
the employers are required to contribute under the collective
bargaining agreement(s). Multiemployer plans are also known as Taft-
Hartley plans.
\106\Rev. Proc. 2003-86, 2003-2 C.B. 1211, and Rev. Proc. 2002-21,
2002-1 C.B. 911, address the application of the MEP rules to qualified
defined contribution plans maintained by PEOs.
---------------------------------------------------------------------------
There is no specific provision in the Code that provides
for section 403(b) plans maintained by more than one
employer.\107\
---------------------------------------------------------------------------
\107\Section 413(c) provides rules governing MEPs subject to
sections 401(a), 410(a) and 411, in other words tax-qualified
retirement plans, but does not apply those rules to section 403(b)
plans.
---------------------------------------------------------------------------
Application of Code requirements to MEPs
Some requirements are applied to a MEP on a plan-wide
basis.\108\ For example, all employees covered by the plan are
treated as employees of all employers participating in the plan
for purposes of the exclusive benefit rule. Similarly, an
employee's service with all participating employers is taken
into account in applying the minimum participation and vesting
requirements. In applying the limits on contributions and
benefits, compensation, contributions, and benefits
attributable to all employers are taken into account.\109\
Other requirements are applied separately, including the
minimum coverage requirements, nondiscrimination requirements
(both the general requirements and the special tests for
section 401(k) plans), and the top-heavy rules.\110\
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\108\Sec. 413(c).
\109\Treas. Reg. sec. 1.415(a)-1(e).
\110\Treas. Reg. secs. 1.413-2(a)(3)(ii)-(iii) and 1.416-1, G-2.
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``One bad apple'' rule
The qualified status of the plan as a whole is determined
with respect to all employers maintaining the plan, and the
failure by one employer (or by the plan itself) to satisfy an
applicable qualification requirement may result in
disqualification of the plan with respect to all employers
(sometimes referred to as the ``one bad apple'' rule).\111\
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\111\Treas. Reg. sec. 1.413-2(a)(3)(iv).
---------------------------------------------------------------------------
The SECURE Act provided relief from the ``one bad apple''
rule under the Code for certain MEPs.\112\ MEPs that satisfy
certain requirements (referred to herein as a ``covered MEP'')
may avoid the consequences of the ``one bad apple rule.'' A
``covered MEP'' is a multiple employer qualified defined
contribution plan\113\ or a plan that consists of IRAs
(referred to herein as an ``IRA plan''), including under an IRA
trust,\114\ that either (1) is maintained by employers which
have a common interest other than having adopted the plan, or
(2) in the case of a plan not described in (1), has a pooled
plan provider (referred to herein as a ``pooled provider
plan''),\115\ and which meets certain other requirements as
described below.
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\112\Sec. 101 of Div. O. of Pub. L. No. 116-94, the Further
Consolidated Appropriations Act, 2020, December 20, 2019. With respect
to plans described under section 413(e)(1)(A), other than providing
relief from the ``one bad apple'' rule if certain requirements are met
and adding certain reporting requirements, the provision generally did
not change present law and related guidance applicable to such MEPs
under the Code or ERISA.
\113\To which section 413(c) applies.
\114\In applying the exclusive benefit requirement under section
408(c) to an IRA plan with an IRA trust covering employees of unrelated
employers, all employees covered by the plan are treated as employees
of all employers participating in the plan.
\115\Sec. 413(e)(1).
---------------------------------------------------------------------------
Relief from the ``one bad apple'' rule does not apply to a
plan unless the terms of the plan provide that, in the case of
any employer in the plan failing to take required actions
(referred to herein as a ``noncompliant employer''):
Plan assets attributable to employees of the
noncompliant employer (or beneficiaries of such
employees) will be transferred to a plan maintained
only by that employer (or its successor), to a tax-
favored retirement plan for each individual whose
account is transferred,\116\ or to any other
arrangement that the Secretary determines is
appropriate, unless the Secretary determines it is in
the best interests of the employees of the noncompliant
employer (and beneficiaries of such employees) to
retain the assets in the plan, and
---------------------------------------------------------------------------
\116\For this purpose, a tax-favored retirement plan means an
eligible retirement plan as defined in section 402(c)(8)(B), that is,
an IRA, a qualified retirement plan, a tax-deferred annuity plan under
section 403(b), or an eligible deferred compensation plan of a State or
local governmental employer under section 457(b).
---------------------------------------------------------------------------
The noncompliant employer (and not the plan
with respect to which the failure occurred or any other
employer in the plan) is, except to the extent provided
by the Secretary, liable for any plan liabilities
attributable to employees of the noncompliant employer
(or beneficiaries of such employees).
In addition, in the case of a pooled provider plan, if the
pooled plan provider does not perform substantially all the
administrative duties required of the provider (as described
below) for any plan year, the Secretary may provide that the
determination as to whether the plan meets the Code
requirements for tax-favored treatment will be made in the same
manner as would be made without regard to the relief under the
provision.
MEP status under ERISA
Like the Code, ERISA contains rules for multiple employer
retirement plans.\117\ However, a different concept of MEP
applies under ERISA.
---------------------------------------------------------------------------
\117\ERISA sec. 210(a).
---------------------------------------------------------------------------
Under ERISA, an employee benefit plan (whether a pension
plan or a welfare plan) must be sponsored by an employer, by an
employee organization, or by both.\118\ The definition of
employer is any person acting directly as an employer, or
indirectly in the interest of an employer, in relation to an
employee benefit plan, and includes a group or association of
employers acting for an employer in such capacity.\119\
---------------------------------------------------------------------------
\118\ERISA secs. 3(1) and (2).
\119\ERISA sec. 3(5).
---------------------------------------------------------------------------
Historically, these definitional provisions of ERISA have
been interpreted as only permitting a MEP to be established or
maintained by a cognizable, bona fide group or association of
employers, acting in the interests of its employer members to
provide benefits to their employees.\120\ This approach is
based on the premise that the person or group that maintains
the plan is tied to the employers and employees that
participate in the plan by some common economic or
representational interest or genuine organizational
relationship unrelated to the provision of benefits. Based on
the facts and circumstances, the employers that participate in
the benefit program must, either directly or indirectly,
exercise control over that program, both in form and in
substance, in order to act as a bona fide employer group or
association with respect to the program, or the plan is
sponsored by one or more employers as defined in section 3(5)
of ERISA.\121\ However, an employer association does not exist
where several unrelated employers merely execute participation
agreements or similar documents as a means to fund benefits, in
the absence of any genuine organizational relationship between
the employers. In that case, each participating employer
establishes and maintains a separate employee benefit plan for
the benefit of its own employees, rather than a MEP.
---------------------------------------------------------------------------
\120\See, e.g., Department of Labor Advisory Opinions 2012-04A,
2003-17A, 2001-04A, and 1994-07A, and other authorities cited therein.
\121\See, e.g., Department of Labor Advisory Opinion 2017-02AC.
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DOL MEP regulations
On July 31, 2019, the DOL issued final regulations\122\
pursuant to Executive Order 13847\123\ which had directed the
DOL to consider within 180 days whether to issue a notice of
proposed rulemaking, other guidance, or both, that would
clarify when a group or association of employers or other
appropriate business or organization could be an ``employer''
under ERISA.\124\ The final regulation focuses its scope on
MEPs sponsored by either a group or association of employers or
by a PEO and is limited to defined contribution plans.\125\ The
final regulation does not deal with pooled employer plans.
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\122\84 Fed. Reg. 37508, July 31, 2019. DOL noted in the preamble
to the final regulations that these final regulations differ
significantly from the legislative proposals introduced in Congress,
including the SECURE Act which ``makes comprehensive changes to ERISA
and the Code to facilitate open MEPs.'' DOL indicates that the final
rule is significantly more limited in scope because it relies solely on
the Department's authority to promulgate regulations administering
title I of ERISA and unlike Congress, DOL does not have the authority
to make statutory changes to ERISA and other areas of law that govern
retirement savings such as the Code.
\123\83 Fed. Reg. 45321, September 6, 2018. The Executive Order was
issued on August 31, 2018.
\124\Within the meaning of ERISA sec. 3(5).
\125\As defined in section 3(34) of ERISA.
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The final regulation recognizes that a bona fide group or
association of employers may establish a MEP if such group or
association meets the following requirements: (1) the primary
purpose of the group or association may be to provide MEP
coverage to its employer members and their employees, but there
must also be at least one substantial business purpose
unrelated to offering and providing MEP coverage or other
employee benefits to the employer members and their employees;
(2) each employer member of the group or association is a
person acting directly as an employer of at least one employee
who is a participant covered under the plan; (3) the group or
association has a formal organizational structure with a
governing body and has by-laws or other similar indications of
formality; (4) the functions and activities of the group or
association are controlled by its employer members, and the
group's or association's employer members that participate in
the plan control (in form and in substance) the plan; (5) the
employer members have a commonality of interest; (6) plan
participation is only permitted to employees and former
employees of employer members, and their beneficiaries; and (7)
the group or association is not a bank or trust company,
insurance issuer, broker-dealer or other similar financial
services firm. Under the final regulation, a bona fide PEO may
establish a MEP. Certain ``working owners'' may also establish
a MEP.
Section 403(b) Plans under ERISA
There is no specific provision in ERISA that provides for
section 403(b) plans maintained by more than one employer.\126\
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\126\ERISA section 210 provides rules related to MEPs. Section 29
C.F.R. sec. 2530.210(c) defines the term ``multiple employer plan'' to
mean a MEP within the meaning of sections 413(b) and (c) of the Code
and the regulations thereafter, and as previously noted, those rules
are applicable to plans subject to sections 401(a), 410(a) and 411.
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``Pooled'' MEPs under the Code and ERISA
As described above, the SECURE Act provided relief from the
``one bad apple'' rule under the Code for certain MEPs. The
SECURE Act also introduced the concept of a ``pooled'' MEP for
purposes of the Code and ERISA. Various requirements apply to a
``pooled provider plan'' under the Code, with similar, but not
identical, requirements applying under ERISA.
Pooled provider plan
A ``pooled provider plan'' is a qualified defined
contribution plan that is established or maintained for the
purpose of providing benefits to the employees of a MEP
administered by a ``pooled plan provider.'' A pooled provider
plan does not include a plan maintained by employers that have
a common interest other than having adopted the plan.
In the case of a pooled provider plan, if the pooled plan
provider does not perform substantially all the administrative
duties required of the provider (as described below) for any
plan year, the Secretary may provide that the determination as
to whether the plan meets the Code requirements for tax-favored
treatment will be made in the same manner as would be made
without regard to the relief under the provision.
Pooled plan provider
A ``pooled plan provider'' with respect to a plan means a
person that:
Is designated by the terms of the plan as a
named fiduciary under ERISA,\127\ as the plan
administrator, and as the person responsible to perform
all administrative duties (including conducting proper
testing with respect to the plan and the employees of
each employer in the plan) that are reasonably
necessary to ensure that the plan meets the Code
requirements for tax-favored treatment and the
requirements of ERISA and to ensure that each employer
in the plan takes actions as the Secretary or the
pooled plan provider determines necessary for the plan
to meet Code and ERISA requirements, including
providing to the pooled plan provider any disclosures
or other information that the Secretary may require or
that the pooled plan provider otherwise determines are
necessary to administer the plan or to allow the plan
to meet Code and ERISA requirements,
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\127\Within the meaning of ERISA section 402(a)(2).
---------------------------------------------------------------------------
Registers with the Secretary as a pooled
plan provider and provides any other information that
the Secretary may require, before beginning operations
as a pooled plan provider,
Acknowledges in writing its status as a
named fiduciary under ERISA and as the plan
administrator, and
Is responsible for ensuring that all persons
who handle plan assets or are plan fiduciaries are
bonded in accordance with ERISA requirements.
The Secretary may perform audits, examinations, and
investigations of pooled plan providers as may be necessary to
enforce and carry out the purposes of the statute.
In addition, in determining whether a person meets the
requirements to be a pooled plan provider with respect to any
plan, all persons who perform services for the plan and who are
treated as a single employer\128\ are treated as one person.
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\128\Under subsection (b), (c), (m), or (o) of section 414.
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Plan sponsor
Except with respect to the administrative duties (as a
named fiduciary, as the plan administrator, and as the person
responsible for the performance of all administrative duties)
for which the pooled plan provider is responsible as described
above, each employer in a plan which has a pooled plan provider
is treated as the plan sponsor with respect to the portion of
the plan attributable to that employer's employees (or
beneficiaries of such employees).
Guidance
The Secretary is directed to issue guidance (that the
Secretary determines appropriate) (1) to identify the
administrative duties and other actions required to be
performed by a pooled plan provider, (2) that describes the
procedures to be taken to terminate a plan that fails to meet
the requirements to be a covered MEP, including the proper
treatment of, and actions needed to be taken by, any employer
in the plan and plan assets and liabilities attributable to
employees of that employer (or beneficiaries of such
employees), and (3) to identify appropriate cases in which
corrective action will apply with respect to noncompliant
employers. For purposes of (3), the Secretary is to take into
account whether the failure of an employer or pooled plan
provider to provide any disclosures or other information, or to
take any other action, necessary to administer a plan or to
allow a plan to meet the Code requirements for tax-favored
treatment, has continued over a period of time that
demonstrates a lack of commitment to compliance. An employer or
pooled plan provider is not treated as failing to meet a
requirement of guidance issued by the Secretary if, before the
issuance of such guidance, the employer or pooled plan provider
complies in good faith with a reasonable interpretation of the
provisions to which the guidance relates.
The Secretary is directed to publish model plan language
that meets the Code and ERISA requirements and that may be
adopted in order for the plan to be treated as a pooled
employer plan under ERISA.
The Secretary (or the Secretary's delegate) has the
authority to provide for the proper treatment of a failure to
meet any Code requirement with respect to any employer (and its
employees) in a MEP.
Pooled employer plans under ERISA
In general
A pooled employer plan is treated for purposes of ERISA as
a single plan that is a MEP. A ``pooled employer plan'' is a
qualified defined contribution plan that is established or
maintained for the purpose of providing benefits to the
employees of two or more employers, that meets certain
requirements in order to be treated for purposes of ERISA as a
single plan. A pooled employer plan does not include a plan
maintained by employers that have a common interest other than
having adopted the plan.
In order for a plan to be a pooled employer plan, the plan
terms must:
Designate a pooled plan provider and provide
that the pooled plan provider is a named fiduciary of
the plan;
Designate one or more trustees (other than
an employer in the plan)\129\ to be responsible for
collecting contributions to, and holding the assets of,
the plan, and require the trustees to implement written
contribution collection procedures that are reasonable,
diligent, and systematic;
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\129\Any trustee must meet the requirements under the Code to be an
IRA trustee.
---------------------------------------------------------------------------
Provide that each employer in the plan
retains fiduciary responsibility for the selection and
monitoring, in accordance with ERISA fiduciary
requirements, of the person designated as the pooled
plan provider and any other person who is also
designated as a named fiduciary of the plan, and, to
the extent not otherwise delegated to another fiduciary
by the pooled plan provider (and subject to the ERISA
rules relating to self-directed investments), the
investment and management of the portion of the plan's
assets attributable to the employees of that employer
(or beneficiaries of such employees) in the plan;
Provide that employers in the plan, and
participants and beneficiaries, are not subject to
unreasonable restrictions, fees, or penalties with
regard to ceasing participation, receipt of
distributions, or otherwise transferring assets of the
plan in accordance with applicable rules for plan
mergers and transfers;
Require the pooled plan provider to provide
to employers in the plan any disclosures or other
information that the Secretary of Labor may require,
including any disclosures or other information to
facilitate the selection or any monitoring of the
pooled plan provider by employers in the plan, and
require each employer in the plan to take any actions
that the Secretary of Labor or pooled plan provider
determines are necessary to administer the plan or to
allow for the plan to meet the ERISA and Code
requirements applicable to the plan, including
providing any disclosures or other information that the
Secretary of Labor may require or that the pooled plan
provider otherwise determines are necessary to
administer the plan or to allow the plan to meet such
ERISA and Code requirements; and
Provide that any disclosure or other
information required to be provided as described above
may be provided in electronic form and will be designed
to ensure only reasonable costs are imposed on pooled
plan providers and employers in the plan.
In the case of a fiduciary of a pooled employer plan or a
person handling assets of a pooled employer plan, the maximum
bond amount under ERISA is $1 million.
The term ``pooled employer plan'' does not include a
multiemployer plan. Such term also does not include a plan
established before the date of enactment of the SECURE Act
unless the plan administrator elects to have the plan treated
as a pooled employer plan and the plan meets the ERISA
requirements applicable to a pooled employer plan established
on or after such date.
Pooled plan provider
The definition of pooled plan provider for ERISA purposes
is generally similar to the definition under the Code,
described above.\130\ The ERISA definition requires a person to
register as a pooled plan provider with the Secretary of Labor
and provide any other information that the Secretary of Labor
may require before beginning operations as a pooled plan
provider.
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\130\In determining whether a person meets the requirements to be a
pooled plan provider with respect to a plan, all persons who perform
services for the plan and who are treated as a single employer under
subsection (b), (c), (m), or (o) of section 414 are treated as one
person.
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The Secretary of Labor may perform audits, examinations,
and investigations of pooled plan providers as may be necessary
to enforce and carry out the purposes of the statute.
Plan sponsor
Except with respect to the administrative duties (as a
named fiduciary, as the plan administrator, and as the person
responsible for the performance of all administrative duties)
for which the pooled plan provider is responsible as described
above, each employer in a pooled employer plan will be treated
as the plan sponsor with respect to the portion of the plan
attributable to that employer's employees (or beneficiaries of
such employees).
Guidance
The Secretary of Labor is to issue guidance that he or she
determines appropriate (1) to identify the administrative
duties and other actions required to be performed by a pooled
plan provider,\131\ and (2) that requires, in appropriate cases
of a noncompliant employer, plan assets attributable to
employees of the noncompliant employer (or beneficiaries of
such employees) to be transferred to a plan maintained only by
that employer (or its successor), to a tax-favored retirement
plan for each individual whose account is transferred, or to
any other arrangement that the Secretary of Labor determines in
the guidance is appropriate,\132\ and the noncompliant employer
(and not the plan with respect to which the failure occurred or
any other employer in the plan) to be liable for any plan
liabilities attributable to employees of the noncompliant
employer (or beneficiaries of such employees), except to the
extent provided in the guidance. For purposes of (2), the
Secretary of Labor is to take into account whether the failure
of an employer or pooled plan provider to provide any
disclosures or other information, or to take any other action,
necessary to administer a plan or to allow a plan to meet the
requirements of ERISA and the Code requirements for tax-favored
treatment, has continued over a period of time that
demonstrates a lack of commitment to compliance. An employer or
pooled plan provider is not treated as failing to meet a
requirement of guidance issued by the Secretary if, before the
issuance of such guidance, the employer or pooled plan provider
complies in good faith with a reasonable interpretation of the
provisions to which the guidance relates.
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\131\The DOL has issued guidance on registering as a pooled plan
provider. See 85 Fed. Reg. 72934, November 16, 2020. (29 C.F.R. sec.
2510.3-44).
\132\The Secretary of Labor may waive the requirement to transfer
assets to another plan or arrangement in appropriate circumstances if
the Secretary of Labor determines it is in the best interests of the
employees of the noncompliant employer (and the beneficiaries of such
employees) to retain the assets in the pooled employer plan.
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Form 5500 reporting
Under the Code, an employer maintaining a qualified
retirement plan generally is required to file an annual return
containing information required under regulations with respect
to the qualification, financial condition, and operation of the
plan.\133\ ERISA requires the plan administrator of certain
pension and welfare benefit plans to file annual reports
disclosing certain
---------------------------------------------------------------------------
\133\Sec. 6058. In addition, under section 6059, the plan
administrator of a defined benefit plan subject to the minimum funding
requirements is required to file an annual actuarial report. Under
section 414(g) and ERISA section 3(16), plan administrator generally
means the person specifically so designated by the terms of the plan
document. In the absence of a designation, the plan administrator
generally is (1)in the case of a plan maintained by a single employer,
the employer, (2)in the case of a plan maintained by an employee
organization, the employee organization, or (3)in the case of a plan
maintained by two or more employers or jointly by one or more employers
and one or more employee organizations, the association, committee,
joint board of trustees, or other similar group of representatives of
the parties that maintain the plan. Under ERISA, the party described in
(1), (2), or (3) is referred to as the ``plan sponsor.''
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Information to the DOL.\134\ These filing requirements are
met by filing a completed Form 5500, Annual Return/Report of
Employee Benefit Plan. Forms 5500 are filed with DOL, and
information from Forms 5500 is shared with the IRS.\135\
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\134\ERISA secs. 103 and 104. Under ERISA section 4065, the plan
administrator of certain defined benefit plans must provide information
to the PBGC.
\135\Information is shared also with the PBGC, as applicable. Form
5500 filings are also publicly released in accordance with section
6104(b) and Treas. Reg. sec. 301.6104(b)-1 and ERISA sections 104(a)(1)
and 106(a).
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In the case of a MEP (including a pooled employer plan),
the Form 5500 filing must include a list of participating
employers in the plan; a good faith estimate of the percentage
of total contributions made by the participating employers
during the plan year; and the aggregate account balances
attributable to each employer in the plan (determined as the
sum of the account balances of the employees of each employer
(and the beneficiaries of such employees)); and with respect to
a pooled employer plan, the identifying information for the
person designated under the terms of the plan as the pooled
plan provider. The Secretary of Labor may prescribe simplified
reporting for a MEP that covers fewer than 1,000 participants,
but only if no single employer in the plan has 100 or more
participants covered by the plan.
REASONS FOR CHANGE
Under present law, employers eligible to sponsor section
401(a) tax-qualified defined contribution retirement plans may
maintain a multiple employer plan if the employers either (1)
have a common interest (other than having adopted the plan) or
(2) have a pooled plan provider. Multiple employer plans afford
an opportunity to small employers to band together to obtain
more favorable retirement plan investment results and more
efficient and less expensive management services. However, the
ability of employers eligible to sponsor section 403(b)
arrangements to sponsor and maintain multiple employer plans is
uncertain under the Code and ERISA.
The Committee believes that employers eligible to maintain
section 403(b) tax sheltered annuity arrangements should have
the same access to multiple employer plans as is provided to
sponsors of section 401(a) tax-qualified retirement plans.
EXPLANATION OF PROVISION
Section 403(b) MEPs under the Code
In general
The provision clarifies that a section 403(b) plan may be
established and maintained as a MEP. Specifically, it provides
that, except in the case of a church plan, section 403(b)
annuity contracts and 403(b) custodial accounts\136\ do not
fail to qualify as section 403(b) plans solely by reason of
such contracts being purchased or accounts being established
under a plan maintained by more than one employer.
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\136\Sec. 403(b)(7) provides that amounts paid by a tax-exempt
employer to a custodial account which satisfies the requirements of
section 401(f)(2) are treated as amounts contributed by him for an
annuity contract for his employee if the amounts are to be invested in
regulated investment company stock to be held in that custodial
account.
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For purposes of this provision, a section 403(b) plan
includes such a plan sponsored by (1) tax-exempt entities
(described in section 501(c)(3) which is exempt from tax under
section 501(a)) and (2) public schools (including state
colleges and universities).
Relief from ``one bad apple'' rule
Under the provision, as long as such a section 403(b) plan
maintained by more than one employer satisfies rules similar to
certain rules that apply to qualified retirement MEPs,\137\ the
section 403(b) plan will not fail to be treated as such merely
because one or more employers of employees covered by the plan
fail to meet the requirements of section 403(b). The rules
applicable to qualified retirement MEPs require that where one
or more employers of employees covered by the MEP fails to meet
the applicable qualification requirements:
---------------------------------------------------------------------------
\137\Under section 413(e)(2).
---------------------------------------------------------------------------
the assets of the plan attributable to
employees of such employer (or beneficiaries of such
employees) will be transferred to a plan maintained
only by such employer (or its successor), to an
eligible retirement plan\138\ for each individual whose
account is transferred, or to any other arrangement
that the Secretary determines is appropriate, unless
the Secretary determines it is in the best interests of
the employees of such employer (and the beneficiaries
of such employees) to retain the assets in the plan,
and
---------------------------------------------------------------------------
\138\As defined in section 402(c)(8)(B).
---------------------------------------------------------------------------
such employer (and not the plan with respect
to which the failure occurred or any other employer in
such plan) will, except to the extent provided by the
Secretary, be liable for any liabilities with respect
to such plan attributable to employees of such employer
(or beneficiaries of such employees).
In addition, in the case of a section 403(b) plan
maintained by tax-exempt entities, such plans must also meet
either the commonality rule\139\ or have a pooled plan
provider. This requirement does not apply to plans maintained
by governmental employers.
---------------------------------------------------------------------------
\139\Sec. 413(e)(1)(A).
---------------------------------------------------------------------------
Section 403(b) MEPs under ERISA
The provision:
Amends the definition of pooled employer
plan under ERISA\140\ to include a section 403(b) MEP
that meets the applicable requirements under the Code
(as added by this provision).\141\
---------------------------------------------------------------------------
\140\ERISA sec. 3(43)(A).
\141\Under section 403(b)(15), as added by this provision.
---------------------------------------------------------------------------
It also amends the requirements relating to
plan terms for pooled employer plans to permit, in the
case of section 403(b) plans, fiduciaries other than
trustees to hold certain responsibilities relating to
plan assets.\142\
---------------------------------------------------------------------------
\142\ERISA sec. 3(43)(B)(ii).
---------------------------------------------------------------------------
Disclosure Rules
Special disclosure rules for tax-exempt employers joining a
section 403(b) MEP
As noted above, there is an exception from ERISA for
certain tax-sheltered annuity programs established by tax-
exempt entities which consist of a program for the purchase of
annuity contracts or the establishment of custodial accounts
pursuant to salary reduction agreements or agreements to forego
an increase in salary where the tax-exempt entity has very
limited involvement in the program. However, if a tax-exempt
employer who had participated in such a non-ERISA program
decides to become a participating employer in a section 403(b)
MEP, that employer will become subject to ERISA because of the
fiduciary responsibilities imposed on each employer in a
section 403(b) MEP.
To ensure that such tax-exempt employers are aware of their
ERISA fiduciary duties, the provision imposes additional
disclosure to such employers. First, the provision directs the
Secretary (or the Secretary's delegate) to modify the model
plan language applicable to qualified retirement MEPs\143\ to
include language which notifies participating tax-exempt
employers that the plan is subject to ERISA and that each such
employer is a plan sponsor with respect to its employees
participating in the MEP, and, as such, has certain fiduciary
duties with respect to the plan and the employees. Second,
Treasury must undertake necessary education and outreach
efforts to increase awareness to tax-exempt employers that MEPs
are subject to ERISA, that such employers are plan sponsors
with respect to their employees participating in the MEP and,
as such, have certain fiduciary duties with respect to the plan
and to its employees.
---------------------------------------------------------------------------
\143\Sec. 413(e)(5).
---------------------------------------------------------------------------
Other disclosures
The provision also provides that the Secretary also publish
model plan language similar to the model plan language
published for qualified plan MEPs\144\ for section 403(b) MEPs
sponsored by nongovernmental employers.
---------------------------------------------------------------------------
\144\Under section 413(e)(5).
---------------------------------------------------------------------------
Reporting requirements for section 403(b) MEPs
In the case of any annuity contract described in section
403(b) that is a MEP, such plan is treated as a single plan for
purposes of the reporting requirements under the Code relating
to the annual registration statement and the annual return for
certain plans\145\ As a result, the plan can file a single Form
8955-SSA, Annual Registration Statement Identifying Separated
Participants With Deferred Vested Benefits, and a single Form
5500, Annual Return/Report of Employee Benefit Plan, rather
than having each participating employer in the section 403(b)
MEP file their own form. These filing requirements only apply
to tax-exempt employers because governmental employers are not
subject to ERISA.
---------------------------------------------------------------------------
\145\The reporting requirement relating to the annual registration
statement is under section 6057, and the requirement relating to the
annual return is under 6058. These requirements only apply in the case
of a section 403(b) plan that is otherwise subject to such
requirements.
---------------------------------------------------------------------------
Regulations
The Secretary (or the Secretary's designee) must prescribe
such regulations as may be necessary to clarify the treatment
of a plan termination by an employer in the case of section
403(b) MEPs.\146\
---------------------------------------------------------------------------
\146\As described in section 403(b)(15).
---------------------------------------------------------------------------
No inference with respect to church plans
The provision provides that regarding any application of
section 403(b) to an annuity contract purchased under a church
plan,\147\ maintained by more than one employer, or to any
application of rules similar to the rules that apply to
qualified retirement MEPs\148\ to such a plan, no inference is
to be made from the rules applicable to section 403(b) MEPs not
applying to such plans.
---------------------------------------------------------------------------
\147\As defined in section 414(e).
\148\Sec. 413(e).
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision is generally effective for plan years
beginning after December 31, 2021.
Nothing in the amendments made by the general rule is to be
construed as limiting the authority of the Secretary or the
Secretary's delegate (determined without regard to such
amendment) to provide for the proper treatment of a failure to
meet any requirement applicable under such Code with respect to
one employer (and its employees) in the case of a section
403(b) MEP.\149\
---------------------------------------------------------------------------
\149\As described in section 403(b)(15).
---------------------------------------------------------------------------
9. Treatment of Student Loan Payments as Elective Deferrals for
Purposes of Matching Contributions (sec. 109 of the bill and secs.
401(m), 403(b), 408(p), and 457(b) of the Code)
PRESENT LAW
Section 401(k) plans
A section 401(k) plan is a type of profit-sharing or stock
bonus plan that contains a qualified cash or deferred
arrangement. Such arrangements are subject to the rules
generally applicable to qualified defined contribution plans.
In addition, special rules apply to such arrangements.
Employees who participate in a section 401(k) plan may elect to
have contributions made to the plan (referred to as ``elective
deferrals'') rather than receive the same amount as current
compensation.\150\ The maximum annual amount of elective
deferrals that can be made by an employee for a year is $19,500
(for 2021) or, if less, the employee's compensation.\151\ For
an employee who attains age 50 by the end of the year, the
dollar limit on elective deferrals is increased by $6,500 (for
2021) (called ``catch-up contributions'').\152\ An employee's
elective deferrals must be fully vested. A section 401(k) plan
may also provide for employer matching and nonelective
contributions.
---------------------------------------------------------------------------
\150\Elective deferrals generally are made on a pre-tax basis and
distributions attributable to elective deferrals are includible in
income. However, a section 401(k) plan is permitted to include a
``qualified Roth contribution program'' that permits a participant to
elect to have all or a portion of the participant's elective deferrals
under the plan treated as after-tax Roth contributions. Certain
distributions from a designated Roth account are excluded from income,
even though they include earnings not previously taxed.
\151\Sec. 402(g).
\152\Sec. 414(v).
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In order to constitute a qualified cash or deferred
arrangement, no benefit under the arrangement may be
conditioned, directly or indirectly, on the employee electing
to have the employer make or not make contributions under the
arrangement in lieu of receiving cash.\153\ However, matching
contributions are exempt from this rule.
---------------------------------------------------------------------------
\153\Sec. 401(k)(4)(A).
---------------------------------------------------------------------------
Nondiscrimination test
Actual deferral percentage test
An annual nondiscrimination test, called the actual
deferral percentage test (the ``ADP'' test) applies to elective
deferrals under a section 401(k) plan.\154\ The ADP test
generally compares the average rate of deferral for highly
compensated employees to the average rate of deferral for non-
highly compensated employees and requires that the average
deferral rate for highly compensated employees not exceed the
average rate for non-highly compensated employees by more than
certain specified amounts. If a plan fails to satisfy the ADP
test for a plan year based on the deferral elections of highly
compensated employees, the plan is permitted to distribute
deferrals to highly compensated employees (``excess
deferrals'') in a sufficient amount to correct the failure. The
distribution of the excess deferrals must be made by the close
of the following plan year.\155\
---------------------------------------------------------------------------
\154\Sec. 401(k)(3). Long-term part-time workers may be excluded
from this and other nondiscrimination tests. Sec. 401(k)(2)(D).
\155\Sec. 401(k)(8).
---------------------------------------------------------------------------
The ADP test is deemed to be satisfied if a section 401(k)
plan includes certain minimum matching or nonelective
contributions under either of two plan designs (``401(k) safe
harbor plan''), described below, as well as certain required
rights and features and the plan satisfies a notice
requirement.\156\
---------------------------------------------------------------------------
\156\Sec. 401(k)(12) and (13). If certain additional requirements
are met, matching contributions under 401(k) safe harbor plan may also
satisfy a nondiscrimination test applicable under section 401(m).
---------------------------------------------------------------------------
Section 401(k) safe harbor contributions
Under one type of section 401(k) safe harbor plan (``basic
401(k) safe harbor plan''), the plan either (1) satisfies a
matching contribution requirement (``matching contribution
basic 401(k) safe harbor plan'') or (2) provides for the
employer to make a nonelective contribution to a defined
contribution plan of at least three percent of an employee's
compensation on behalf of each non-highly compensated employee
who is eligible to participate in the plan (``nonelective basic
401(k) safe harbor plan''). The matching contribution
requirement under the matching contribution basic 401(k) safe
harbor requires a matching contribution equal to at least 100
percent of elective contributions of the employee for
contributions not in excess of three percent of compensation,
and 50 percent of elective contributions for contributions that
exceed three percent of compensation but do not exceed five
percent, for a total matching contribution of up to four
percent of compensation. The required matching contributions
and the three percent nonelective contribution under the basic
401(k) safe harbor must be immediately nonforfeitable (that is,
100 percent vested) when made.
Another safe harbor applies for a section 401(k) plan that
includes automatic enrollment (``automatic enrollment 401(k)
safe harbor''). Under an automatic enrollment 401(k) safe
harbor, unless an employee elects otherwise, the employee is
treated as electing to make elective deferrals equal to a
percentage of compensation as stated in the plan, not in excess
of 15 percent and at least (1) three percent of compensation
for the first year the deemed election applies to the
participant, (2) four percent during the second year, (3) five
percent during the third year, and (4) six percent during the
fourth year and thereafter.\157\ The matching contribution
requirement under this safe harbor is 100 percent of elective
contributions of the employee for contributions not in excess
of one percent of compensation, and 50 percent of elective
contributions for contributions that exceed one percent of
compensation but do not exceed six percent, for a total
matching contribution of up to 3.5 percent of compensation
(``matching contribution automatic enrollment 401(k) safe
harbor''). Alternatively, the plan can provide that the
employer will make a nonelective contribution of three percent,
as under the basic 401(k) safe harbor (``nonelective
contribution automatic enrollment 401(k) safe harbor'').
However, under the automatic enrollment 401(k) safe harbors,
the matching and nonelective contributions are allowed to
become 100 percent vested after two years of service (rather
than being required to be immediately vested when made).
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\157\These automatic increases in default contribution rates are
required for plans using the safe harbor. Rev. Rul. 2009-30, 2009-39
I.R.B. 391, provides guidance for including automatic increases in
other plans using automatic enrollment, including under a plan that
includes an eligible automatic contribution arrangement.
---------------------------------------------------------------------------
Matching contribution nondiscrimination test
Employer matching contributions are also subject to a
special nondiscrimination test, the ``ACP test,'' which
compares the average actual contribution percentages (``ACPs'')
of matching contributions for the highly compensated employee
group and the non-highly compensated employee group. The plan
generally satisfies the ACP test if the ACP of the highly
compensated employee group for the current plan year is either
(1) not more than 125 percent of the ACP of the non-highly
compensated employee group for the prior plan year, or (2) not
more than 200 percent of the ACP of the non-highly compensated
employee group for the prior plan year and not more than two
percentage points greater than the ACP of the non-highly
compensated employee group for the prior plan year.
A safe harbor section 401(k) plan that provides for
matching contributions is deemed to satisfy the ACP test
(``401(m) safe harbor'') if, in addition to meeting the safe
harbor contribution and notice requirements under section
401(k), (1) matching contributions are not provided with
respect to elective deferrals in excess of six percent of
compensation, (2) the rate of matching contribution does not
increase as the rate of an employee's elective deferrals
increases, and (3) the rate of matching contribution with
respect to any rate of elective deferral of a highly
compensated employee is no greater than the rate of matching
contribution with respect to the same rate of deferral of a
non-highly compensated employee.\158\
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\158\Sec. 401(m)(11); 401(m)(12).
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SIMPLE IRA plan
A small employer that employs no more than 100 employees
who earned $5,000 or more during the prior calendar year can
establish a simplified tax-favored retirement plan, which is
called the SIMPLE IRA plan. A SIMPLE IRA plan is generally a
plan under which contributions are made to an IRA for each
employee (a ``SIMPLE IRA'').\159\ A SIMPLE IRA plan allows
employees to make elective deferrals to a SIMPLE IRA, subject
to a limit of $13,500 (for 2021). An individual who has
attained age 50 before the end of the taxable year may also
make catch-up contributions under a SIMPLE IRA plan up to a
limit of $3,000 (for 2021).
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\159\Sec. 408(p). Employer may also establish SIMPLE section 401(k)
plans. Sec. 401(k)(11).
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In the case of a SIMPLE IRA plan, the group of eligible
employees generally must include any employee who has received
at least $5,000 in compensation from the employer in any two
preceding years and is reasonably expected to receive $5,000 in
the current year. A SIMPLE IRA plan is not subject to the
nondiscrimination rules generally applicable to qualified
retirement plans.
Employer contributions to a SIMPLE IRA must satisfy one of
two contribution formulas. Under the matching contribution
formula, the employer generally is required to match employee
elective contributions on a dollar-for-dollar basis up to three
percent of the employee's compensation. The employer can elect
a lower percentage matching contribution for all employees (but
not less than one percent of each employee's compensation);
however, a lower percentage cannot be elected for more than two
years out of any five-year period. Alternatively, for any year,
an employer is permitted to elect, in lieu of making matching
contributions, to make a nonelective contribution of two
percent of compensation on behalf of each eligible employee
with at least $5,000 in compensation for such year, whether or
not the employee makes an elective contribution.
The employer must provide each employee eligible to make
elective deferrals under a SIMPLE IRA plan a 60-day election
period before the beginning of the calendar year and a notice
at the beginning of the 60-day period explaining the employee's
choices under the plan.\160\
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\160\Notice 98-4, 1998-1 C.B. 269.
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No contributions other than employee elective
contributions, required employer matching contributions, or
employer nonelective contributions can be made to a SIMPLE IRA
plan, and the employer may not maintain any other qualified
retirement plan.
Section 403(b) and governmental 457(b) plans
Tax-deferred annuity plans (referred to as section 403(b)
plans) are generally similar to qualified defined contribution
plans, but may be maintained only by (1) tax-exempt charitable
organizations,\161\ and (2) educational institutions of State
or local governments (that is, public schools, including
colleges and universities).\162\ Section 403(b) plans may
provide for employees to make elective deferrals (in pre-tax or
designated Roth form), including catch-up contributions, or
other after-tax employee contributions, and employers may make
nonelective or matching contributions on behalf of employees.
Contributions to a section 403(b) plan are generally subject to
the same contribution limits applicable to qualified defined
contribution plans, including the limits on elective deferrals.
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\161\These are organizations exempt from tax under section
501(c)(3). Section 403(b) plans of private, tax-exempt employers may be
subject to ERISA as well as the requirements of section 403(b).
\162\Sec. 403(b).
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Contributions to a section 403(b) plan must be fully
vested. The minimum coverage and general nondiscrimination
requirements applicable to a qualified retirement plan
generally apply to a section 403(b) plan and to employer
matching and nonelective contributions and after-tax employee
contributions to the plan.\163\ If a section 403(b) plan
provides for elective deferrals, the plan is subject to a
``universal availability'' requirement under which all
employees must be given the opportunity to make deferrals of
more than $200.\164\ In applying this requirement, nonresident
aliens, students, and employees who normally work less than 20
hours per week may be excluded.\165\
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\163\These requirements do not apply to a governmental section
403(b) plan or a section 403(b) plan maintained by a church or a
qualified church-controlled organization as defined in section 3121(w).
\164\Sec. 403(b)(12)(A)(ii).
\165\For this purpose, nonresident alien has the meaning in section
410(b)(3)(C), and student has the meaning in section 3121(b)(10). The
universal availability requirement does not apply to a section 403(b)
plan maintained by a church or a qualified church-controlled
organization.
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An eligible deferred compensation plan of a governmental
employer (referred to as a governmental section 457(b) plan) is
generally similar to a qualified cash or deferred arrangement
under a section 401(k) plan in that it consists of elective
deferrals, that is, contributions (in pre-tax or designated
Roth form) made at the election of an employee, including
catch-up contributions. Deferrals under a governmental section
457(b) plan are generally subject to the same limits as
elective deferrals under a section 401(k) plan or a section
403(b) plan.
REASONS FOR CHANGE
The Committee wishes to assist employees who may not be
able to save for retirement because they are overwhelmed with
student debt, and thus are missing out on available matching
contributions under retirement plans. Thus, this provision
allows a plan to provide such employees with matching
contributions based on student loan repayments.
EXPLANATION OF PROVISION
The provision modifies the definition of matching
contribution\166\ for purposes of defined contribution plans,
including section 401(k) plans, to include employer
contributions made to the plan on behalf of an employee on
account of a qualified student loan payment. For this purpose,
a qualified student loan payment is a payment made by an
employee in repayment of a qualified education loan\167\ and
incurred by the employee to pay qualified higher education
expenses, but only to the extent such payments in the aggregate
for the year do not exceed the amount of elective deferrals
that the employee would be permitted to contribute under the
Code\168\ (reduced by elective deferrals made by the employee
for the year). Qualified higher education expenses are defined
as the cost of attendance at an eligible educational
institution.\169\ In addition, in order for the student loan
payment to qualify, the employee must certify to the employer
making the matching contribution that the loan payment has been
made. The employer is permitted to rely on this certification.
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\166\Under section 401(m)(4)(A)(iii), as added by this provision.
\167\As defined in section 221(d)(1), a qualified education loan is
generally any indebtedness incurred by the taxpayer solely to pay
qualified higher education expenses (1) which are incurred on behalf of
the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer
as of the time the indebtedness was incurred; (2) which are paid or
incurred within a reasonable period of time before or after the
indebtedness is incurred; and (3) which are attributable to education
furnished during a period during which the recipient was an eligible
student.
\168\The limitation applicable under section 402(g) for the year
($19,500 for 2021), or, if less, the employee's compensation as defined
in section 415(c)(3) for the year.
\169\``Cost of attendance'' for this purpose is defined in section
472 of the Higher Education Act of 1965, as in effect on the day before
the enactment of the Taxpayer Relief Act of 1997. ``Eligible
educational institution'' is defined in section 221(d)(2) of the Code.
---------------------------------------------------------------------------
In order for an employer contribution made on account of a
qualified student loan payment to be treated as a matching
contribution under the provision, the plan must satisfy certain
requirements. The plan must provide matching contributions on
account of elective deferrals at the same rate as contributions
on account of qualified student loan payments. The plan must
provide matching contributions on account of qualified student
loan payments only on behalf of employees otherwise eligible to
receive matching contributions on account of elective deferrals
(and, similarly, must provide matching contributions on account
of elective deferrals only on behalf of employees eligible to
receive matching contributions on account of qualified student
loan payments). The plan must also provide that matching
contributions on account of qualified student loan payments
vest in the same manner as matching contributions on account of
elective deferrals.
Under the provision, for purposes of certain
nondiscrimination rules and minimum coverage requirements,\170\
matching contributions on account of qualified student loan
payments do not fail to be treated as available to an employee
solely because such employee does not have debt incurred under
a qualified education loan. In addition, the provision provides
that a qualified student loan payment is generally not treated
as a plan contribution. However, a plan may treat a qualified
student loan payment as an elective deferral or an elective
contribution (as applicable) for purposes of the matching
contribution requirement under a basic safe harbor 401(k) plan
or an automatic enrollment safe harbor 401(k) plan, as well as
for purposes of the section 401(m) safe harbors.\171\ A plan is
also permitted to apply the ADP test separately to employees
who receive matching contributions on account of qualified
student loan payments.
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\170\This rule applies for purposes of section 401(a)(4), section
410(b), and the rule under the provision that all employees eligible to
receive matching contributions on account of elective deferrals be
eligible to receive matching contributions on account of qualified
student loan payments.
\171\This rule applies for purposes of sections 401(k)(12)(B) and
(13)(B), and sections 401(m)(11)(B) and (12). It also applies to SIMPLE
section 401(k) plans under section 401(11)(B)(i)(II).
---------------------------------------------------------------------------
The provision also contains similar rules allowing matching
contributions to be made on account of qualified student loan
payments in the case of SIMPLE IRAs, section 403(b) plans, and
section 457(b) plans. In the case of SIMPLE IRAs, the provision
provides that a SIMPLE IRA does not fail to meet the matching
contribution requirement applicable to such arrangements solely
because the arrangement treats qualified student loan payments
as elective employer contributions to the extent such payments
do not exceed the amount of elective employer contributions the
employee is permitted to contribute under the Code\172\
(reduced by elective employer contributions contributed by the
employee for the year). As under a section 401(k) plan, in
order for the student loan payment to qualify, the employee
must certify to the employer making the matching contribution
that the loan payment has been made. In addition, matching
contributions on account of qualified student loan payments
must be provided only on behalf of employees otherwise eligible
to make elective employer contributions, and all employees
otherwise eligible to participate in the arrangement must be
eligible to receive matching contributions on account of
qualified student loan payments.
---------------------------------------------------------------------------
\172\The limitation applicable under section 408(p)(2)(E) for the
year, including permitted catch-up contributions under section 414(v),
or, if less, the employee's compensation as defined in section
415(c)(3) for the year.
---------------------------------------------------------------------------
In the case of a section 403(b) plan, under the provision,
the fact that the employer offers matching contributions on
account of qualified student loan payments\173\ is not taken
into account in determining whether the plan satisfies the
universal availability requirement.\174\ Similarly, in the case
of a governmental 457(b) plan, the provision provides that a
plan is not treated as failing to meet the requirements
applicable to such plans\175\ solely because the plan, or
another qualified plan\176\ or section 403(b) plan maintained
by the employer provides for matching contributions on account
of qualified student loan payments.\177\
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\173\As described in section 401(m)(13), as added by this
provision.
\174\Sec. 403(b)(12)(A)(ii).
\175\Under section 457(b).
\176\Under section 401(a).
\177\As described in section 401(m)(13), as added by this
provision.
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The provision directs the Secretary to prescribe
regulations for purposes of implementing the provision,
including regulations:
Permitting a plan to make matching
contributions for qualified student loan payments\178\
at a different frequency than matching contributions
are otherwise made under the plan, provided that the
frequency is not less than annually;
---------------------------------------------------------------------------
\178\As defined in sections 401(m)(4)(D) and 408(p)(2)(F), as added
by this provision.
---------------------------------------------------------------------------
Permitting employers to establish reasonable
procedures to claim matching contributions for such
qualified student loan payments under the plan,
including an annual deadline (not earlier than three
months after the close of each plan year) by which a
claim must be made; and
Promulgating model amendments which plans
may adopt to implement matching contributions on
qualified student loan payments.\179\
---------------------------------------------------------------------------
\179\For purposes of sections 401(m), 408(p), 403(b), and 457(b).
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EFFECTIVE DATE
The provision is effective for contributions made for plan
years beginning after December 31, 2021.
10. Application of Credit for Small Employer Pension Plan Start-Up
Costs to Employers Which Join an Existing Plan (sec. 110 of the bill
and sec. 45E of the Code)
PRESENT LAW
Present law provides a nonrefundable income tax credit
equal to 50 percent of the qualified start-up costs paid or
incurred during the taxable year by an eligible employer\180\
that adopts a new eligible employer plan\181\, provided that
the plan covers at least one non-highly compensated
employee.\182\ Qualified start-up costs are expenses connected
with the establishment or administration of the plan and
retirement-related education of employees with respect to the
plan. The amount of the credit for any taxable year is limited
to the greater of (1) $500 or (2) the lesser of (a) $250
multiplied by the number of non-highly compensated employees of
the eligible employer who are eligible to participate in the
plan or (b) $5,000. The credit applies for up to three
consecutive taxable years beginning with the taxable year the
plan is first effective, or, at the election of the employer,
with the year preceding the first plan year.
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\180\An eligible employer has the meaning given such term by
section 408(p)(2)(C)(i).
\181\An eligible employer plan means a qualified employer plan
within the meaning of section 4972(d) and includes a section 401(a)
qualified retirement plan, a section 403 annuity, any simplified
employee pension (``SEP'') within the meaning of section 408(k), and
any simple retirement account (``SIMPLE'') within the meaning of
section 408(p). An eligible employer plan does not include a plan
maintained by a tax-exempt employer or a governmental plan, as defined
in section 414(d).
\182\A non-highly compensated employee is an employee who is not a
highly compensated employee as defined under section 414(q).
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An eligible employer is an employer that, for the preceding
year, had no more than 100 employees, each with compensation of
$5,000 or more.\183\ In addition, the employer must not have
had a qualified employer plan covering substantially the same
employees as the new plan with respect to which contributions
were made or benefits were accrued during the three years
preceding the first year for which the credit would apply.
Members of controlled groups and affiliated service groups are
treated as a single employer for purposes of these
requirements.\184\ All eligible employer plans of an employer
are treated as a single plan.
---------------------------------------------------------------------------
\183\As defined in section 408(p)(2)(C).
\184\Sec. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
No deduction is allowed for the portion of qualified start-
up costs paid or incurred for the taxable year equal to the
amount of the credit.
REASONS FOR CHANGE
The credit for small employer pension plan start-up costs
serves to encourage small employers to provide retirement
benefits to their employees. The Committee believes the
modifications to this credit will clarify the application of
the credit to certain small employers who join an existing
plan.
EXPLANATION OF PROVISION
The provision clarifies that the first credit year is the
taxable year which includes the date that the eligible employer
plan to which such costs relate becomes effective with respect
to the eligible employer.
EFFECTIVE DATE
The provision applies to eligible employer plans which
become effective with respect to the eligible employer after
the date of enactment.
11. Military Spouse Retirement Plan Eligibility Credit For Small
Employers (sec. 111 of the bill and new sec. 45U of the Code)
PRESENT LAW
Currently, there are no special credits for small employers
that provide retirement benefits to military spouses.
REASONS FOR CHANGE
The credit for military spouse retirement plan eligibility
serves to encourage small employers to offer employees who are
married to members of the uniformed services access to defined
contribution plans. The Committee believes the credit will
improve the ability of military families to save for
retirement.
EXPLANATION OF PROVISION
The provision allows eligible small employers to take a new
nonrefundable income tax credit with respect to each individual
who is married to a member of the uniformed services and self-
certifies as such (referred to as a military spouse), who is an
employee of the employer, who is eligible to participate in an
eligible defined contribution plan of the employer, and who is
a non-highly compensated employee.\185\ The credit is
determined to be the sum of $250 for each such employee plus
the amount of the contributions made to all eligible defined
contribution plans by the employer with respect to the employee
up to a maximum of $250 for each such employee. The credit
applies for up to three consecutive years beginning with the
first taxable year in which the individual begins participating
in the plan.
---------------------------------------------------------------------------
\185\A non-highly compensated employee is an employee who is not a
highly compensated employee as defined under section 414(q).
---------------------------------------------------------------------------
An eligible small employer is an employer that, for the
preceding year, had no more than 100 employees, each with
compensation of $5,000 or more. In addition, the employer must
not have had a plan covering substantially the same employees
as the new plan during the three years preceding the first year
for which the credit would apply. Members of controlled groups
and affiliated service groups are treated as a single employer
for purposes of these requirements.\186\
---------------------------------------------------------------------------
\186\Sec. 52(a) or (b) and 414(m) or (o).
---------------------------------------------------------------------------
An eligible defined contribution plan is a plan in which
military spouses are eligible to participate within two months
of beginning employment, and in which military spouses who are
eligible to participate, (1) are immediately eligible to
receive employer contributions in amounts not less than that
received by similarly situated nonmilitary spouses with two
years of service, and (2) have an immediate, nonforfeitable
right to accrued benefits derived from employer contributions
under the plan.
EFFECTIVE DATE
The provision applies to taxable years beginning after the
date of enactment.
12. Small Immediate Financial Incentives for Contributing to a Plan
(sec. 112 of the bill and secs. 401(k), 403(b), and 4975 of the Code)
PRESENT LAW
Section 401(k) plans
A section 401(k) plan is a type of profit-sharing or stock
bonus plan that contains a qualified cash or deferred
arrangement. Such arrangements are subject to the rules
generally applicable to qualified defined contribution plans.
In addition, special rules apply to such arrangements.
Employees who participate in a section 401(k) plan may elect to
have contributions made to the plan (elective deferrals) rather
than receive the same amount as current compensation.\187\ The
maximum annual amount of elective deferrals that can be made by
an employee for a year is $19,500 (for 2021) or, if less, the
employee's compensation.\188\ For an employee who attains age
50 by the end of the year, the dollar limit on elective
deferrals is increased by $6,500 (for 2021) (called ``catch-up
contributions'').\189\ An employee's elective deferrals must be
fully vested. A section 401(k) plan may also provide for
employer matching and nonelective contributions.
---------------------------------------------------------------------------
\187\Elective deferrals generally are made on a pre-tax basis and
distributions attributable to elective deferrals are includible in
income. However, a section 401(k) plan is permitted to include a
``qualified Roth contribution program'' that permits a participant to
elect to have all or a portion of the participant's elective deferrals
under the plan treated as after-tax Roth contributions. Certain
distributions from a designated Roth account are excluded from income,
even though they include earnings not previously taxed.
\188\Sec. 402(g).
\189\Sec. 414(v).
---------------------------------------------------------------------------
In order to constitute a qualified cash or deferred
arrangement, no benefit under the arrangement may be
conditioned, directly or indirectly, on the employee electing
to have the employer make or not make contributions under the
arrangement in lieu of receiving cash.\190\ However, matching
contributions are exempt from this rule.
---------------------------------------------------------------------------
\190\Sec. 401(k)(4)(A).
---------------------------------------------------------------------------
Tax-sheltered annuities (section 403(b) plans)
Section 403(b) plans are a form of tax-favored employer-
sponsored plan that provide tax benefits similar to qualified
retirement plans. Section 403(b) plans may be maintained only
by (1) charitable tax-exempt organizations, and (2) educational
institutions of State or local governments (that is, public
schools, including colleges and universities). Many of the
rules that apply to section 403(b) plans are similar to the
rules applicable to qualified retirement plans, including
section 401(k) plans. Employers may make nonelective or
matching contributions to such plans on behalf of their
employees, and the plan may provide for employees to make pre-
tax elective deferrals, designated Roth contributions (held in
designated Roth accounts)\191\ or other after-tax
contributions. Generally, section 403(b) plans provide for
contributions toward the purchase of annuity contracts or
provide for contributions to be held in custodial accounts for
each employee. In the case of contributions to custodial
accounts under a section 403(b) plan, the amounts must be
invested only in regulated investment company stock.\192\
---------------------------------------------------------------------------
\191\Sec. 402A.
\192\Sec. 403(b)(7).
---------------------------------------------------------------------------
Contributions to a section 403(b) plan must be fully
vested. The minimum coverage and general nondiscrimination
requirements applicable to a qualified retirement plan
generally apply to a section 403(b) plan and to employer
matching and nonelective contributions and after-tax employee
contributions to the plan.\193\ If a section 403(b) plan
provides for elective deferrals, the plan is subject to a
``universal availability'' requirement under which all
employees must be given the opportunity to make deferrals of
more than $200. In applying this requirement, nonresident
aliens, students, and employees who normally work less than 20
hours per week may be excluded.\194\
---------------------------------------------------------------------------
\193\These requirements do not apply to a governmental section
403(b) plan or a section 403(b) plan maintained by a church or a
qualified church-controlled organization as defined in section 3121(w).
\194\For this purpose, nonresident has the meaning in section
410(b)(3)(C), and student has the meaning in section 3121(b)(10). The
universal availability requirement does not apply to a section 403(b)
plan maintained by a church or a qualified church-controlled
organization.
---------------------------------------------------------------------------
Prohibited transactions
In general
The Code and ERISA prohibit certain transactions
(``prohibited transaction'') between a qualified retirement
plan and a disqualified person (referred to as a ``party in
interest'' under ERISA).\195\ The prohibited transaction rules
under the Code apply also to IRAs, Archer MSAs, HSAs, and
Coverdell ESAs.\196\
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\195\Sec. 4975; ERISA sec. 406. The prohibited transaction rules of
the Code and ERISA are very similar; however, some differences exist
between the two sets of rules. As mentioned above, ERISA generally does
not apply to governmental plans or church plans. The prohibited
transaction rules under the Code also generally do not apply to
governmental plans or church plans. However, under section 503, the
trust holding assets of a governmental or church plan may lose its tax-
exempt status in the case of a prohibited transaction listed in section
503(b). Before the enactment of ERISA in 1974, section 503 applied to
qualified retirement plans generally. In connection with the enactment
of section 4975 by ERISA, section 503 was amended to apply only to
governmental and church plans.
\196\These are included in the definition of ``plan'' under section
4975(e)(1).
---------------------------------------------------------------------------
Disqualified persons include a fiduciary of the plan; a
person providing services to the plan; an employer with
employees covered by the plan; an employee organization any of
whose members are covered by the plan; certain owners,
officers, directors, highly compensated employees, family
members, and related entities.\197\ A fiduciary includes any
person who (1) exercises any discretionary authority or
discretionary control respecting management of the plan or
exercises any authority or control respecting management or
disposition of the plan's assets, (2) renders investment advice
for a fee or other compensation, direct or indirect, with
respect to any moneys or other property of the plan, or has any
authority or responsibility to do so, or (3) has any
discretionary authority or discretionary responsibility in the
administration of the plan.\198\
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\197\Sec. 4975(e)(2). Party in interest is defined similarly under
ERISA section 3(14) with respect to an employee benefit plan. Under
ERISA, employee benefit plans, defined in ERISA section 3(3), consist
of two types: pension plans (that is, retirement plans), defined in
ERISA section 3(2), and welfare plans, defined in ERISA section 3(1).
\198\Sec. 4975(d)(3); ERISA sec. 3(21)(A). Under ERISA, fiduciary
also includes any person designated under ERISA section 405(c)(1)(B) by
a named fiduciary (that is, a fiduciary named in the plan document) to
carry out fiduciary responsibilities.
---------------------------------------------------------------------------
Prohibited transactions include the following transactions,
whether direct or indirect, between a plan and a disqualified
person:
1. The sale or exchange or leasing of property,
2. The lending of money or other extension of credit,
3. The furnishing of goods, services, or facilities,
4. The transfer to, or use by or for the benefit of,
the income or assets of the plan,
5. In the case of a fiduciary, an act dealing with
the plan's income or assets in the fiduciary's own
interest or for the fiduciary's own account, and
6. The receipt by a fiduciary of any consideration
for the fiduciary's own personal account from any party
dealing with the plan in connection with a transaction
involving the income or assets of the plan.\199\
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\199\Sec. 4975(c)(1)(A)-(F) and ERISA sec. 406(a)(1)(A)-(D) and
(b)(1) and (3). Under ERISA section 406(a)(1), a plan fiduciary is
prohibited from causing the plan to engage in a transaction described
in paragraphs (A)-(D). ERISA section 406(b)(2) also prohibits a plan
fiduciary, in the fiduciary's individual capacity or any other
capacity, from acting in any transaction involving the plan on behalf
of a party (or represent a party) whose interests are adverse to the
interests of the plan or the interests of plan participants or
beneficiaries. ERISA section 406(a)(1)(E) and (a)(2) relate to
limitations under ERISA section 407 on a plan's acquisition or holding
of employer securities and real property.
---------------------------------------------------------------------------
Exemptions from prohibited transaction treatment
Certain transactions are statutorily exempt from prohibited
transaction treatment, for example, certain loans to plan
participants and arrangements with a disqualified person for
legal, accounting or other services necessary for the
establishment or operation of a plan if no more than reasonable
compensation is paid for the services.\200\
---------------------------------------------------------------------------
\200\Sec. 4975(d) and ERISA sec. 408. The Code and ERISA also
provide for the grant of administrative exemptions, on either an
individual or class basis, subject to a finding that the exemption is
administratively feasible, in the interests of the plan and of its
participants and beneficiaries, and protective of the rights of
participants and beneficiaries of the plan.
---------------------------------------------------------------------------
Sanctions for violations
Under the Code, if a prohibited transaction occurs, the
disqualified person who participated in the transaction is
generally subject to a two-tiered excise tax. The first tier
tax is 15 percent of the amount involved in the transaction.
The second tier tax, imposed if the prohibited transaction is
not corrected within a certain period, is 100 percent of the
amount involved. In the case of an IRA, HSA, Archer MSA or
Coverdell ESA, the sanction for some prohibited transactions is
the loss of tax favored status, rather than an excise tax. A
private right of action is not available for a Code violation.
Under ERISA, DOL may assess a civil penalty against a
person who engages in a prohibited transaction, other than a
transaction with a plan covered by the prohibited transaction
rules of the Code.\201\ The penalty may not exceed five percent
of the amount involved in the transaction for each year or part
of a year that the prohibited transaction continues. If the
prohibited transaction is not corrected within 90 days after
notice from DOL, the penalty can be up to 100 percent of the
amount involved in the transaction. A prohibited transaction by
a fiduciary may also be the basis for an action for a breach of
fiduciary responsibility by DOL, a plan participant or
beneficiary, or another plan fiduciary (as discussed above).
---------------------------------------------------------------------------
\201\ERISA sec. 502(i).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee recognizes that individuals can be especially
motivated by immediate financial incentives. Thus, in addition
to providing matching contributions as a long-term incentive
for employees to contribute to a section 401(k) plan or section
403(b) plan, the Committee wishes to provide employers the
flexibility to be able to offer small immediate financial
incentives, such as gift cards in small amounts, to employees
who participate in the plan.
EXPLANATION OF PROVISION
The provision modifies the rule applicable to section
401(k) plans that prohibits the conditioning of benefits (other
than matching contributions) on an employee's election to
defer. As modified, the rule exempts de minimis financial
incentives in addition to matching contributions. Thus, a
section 401(k) plan will not fail to include a qualified cash
or deferred arrangement merely because it conditions a de
minimis financial incentive on an employee's election to defer.
Similarly, in the case of a section 403(b) plan, the
provision provides that a plan does not fail to satisfy the
universal availability requirement\202\ solely by reason of
offering a de minimis financial incentive to employees to elect
to have the employer make contributions pursuant to a salary
reduction agreement.
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\202\Sec. 403(b)(12)(A)(ii).
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In addition, under the provision, the provision of such de
minimis financial incentives under a section 401(k) plan or a
section 403(b) plan is not treated as a prohibited transaction
under the Code or ERISA.\203\
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\203\Under section 4975 and section 408 of ERISA.
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EFFECTIVE DATE
The provision applies to plan years beginning after the
date of enactment.
13. Safe Harbor for Corrections of Employee Elective Deferral Failures
(sec. 113 of the bill and sec. 414 of the Code)
PRESENT LAW
Background on automatic enrollment features in retirement
plans may be found in section I.1 of this document.
Employee Plans Compliance Resolution System
A retirement plan that is intended to be a tax-qualified
plan provides retirement benefits on a tax-favored basis if the
plan satisfies all of the qualification requirements under the
Code.\204\ Similarly, an annuity that is intended to be a tax-
sheltered annuity provides retirement benefits on a tax-favored
basis if the program satisfies all of the requirements under
the Code applicable to section 403(b) plans. Failure to satisfy
all of the applicable requirements may disqualify a plan or
annuity for the intended tax-favored treatment.
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\204\Sec. 401(a).
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The IRS has established the Employee Plans Compliance
Resolution System (``EPCRS''), which is a comprehensive system
of correction programs for sponsors of retirement plans and
annuities that are intended, but have failed, to satisfy the
applicable requirements under the Code.\205\ EPCRS permits
employers to correct compliance failures and continue to
provide their employees with retirement benefits on a tax-
favored basis.
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\205\The requirements under sections 401(a), 403(a), or 403(b), as
applicable. Rev. Proc. 2019-19, 2019-19 I.R.B. 1086.
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The IRS designed EPCRS to (1) encourage operational and
formal compliance, (2) promote voluntary and timely correction
of compliance failures, (3) provide sanctions for compliance
failures identified on audit that are reasonable in light of
the nature, extent, and severity of the violation, (4) provide
consistent and uniform administration of the correction
programs, and (5) permit employers to rely on the availability
of EPCRS in taking corrective actions to maintain the tax-
favored status of their retirement plans and annuities.
The basic elements of the programs that comprise EPCRS are
self-correction, voluntary correction with IRS approval, and
correction on audit. The Self-Correction Program (``SCP'')
generally permits a plan sponsor that has established practices
and procedures (formal or informal) reasonably designed to
promote and facilitate overall compliance in form and operation
with applicable Code requirements to correct certain
insignificant failures at any time (including during an audit),
and certain significant failures within a two-year period,
without payment of any fee or sanction. The Voluntary
Correction Program (``VCP'') permits an employer, at any time
before an audit, to pay a limited fee and receive IRS approval
of a correction. For a failure that is discovered on audit and
corrected, the Audit Closing Agreement Program (``Audit CAP'')
provides for a sanction that bears a reasonable relationship to
the nature, extent, and severity of the failure and that takes
into account the extent to which correction occurred before
audit.
SCP, VCP and Audit CAP are not available to correct
failures relating to the diversion or misuses of plan
assets.\206\ With respect to the SCP program, in the event that
the plan or the plan sponsor has been a party to an abusive tax
avoidance transaction, SCP is not available to correct any
operational failure that is directly or indirectly related to
the abusive tax avoidance transaction.\207\
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\206\Sec. 4.11 of Rev. Proc. 2019-19.
\207\Sec. 4.12 of Rev. Proc. 2019-19.
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SEP and SIMPLE plans
SCP and VCP\208\ under EPCRS are available to a SEP or
SIMPLE plan.\209\ SCP is only available to such a plan to
correct insignificant operational failures,\210\ and only if
the SEP or SIMPLE plan is established and maintained on a
document approved by the IRS.
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\208\Sec. 6.11 of Rev. Proc. 2019-9.
\209\Secs. 1.01 and 1.02 of Rev. Proc. 2019-19. A SEP is a plan
intended to satisfy the requirements of Code section 408(k); a SIMPLE
plan is a plan intended to satisfy the requirements of Code section
408(p).Secs. 5.06 and 5.07 of Rev. Proc. 2019-19.
\210\Sec. 4.01(c) of Rev. Proc. 2019-19.
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Section 457(b) plans
EPCRS does not apply to section 457(b) plans. However, the
IRS will accept submissions relating to section 457(b) plans on
a provisional basis outside of EPCRS through standards that are
similar to those that apply to VCP filings.\211\
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\211\Sec. 4.09 of Rev. Proc. 2019-19.
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Special safe harbor correction method for failures related to automatic
contribution features in a section 401(k) or 403(b) plan
Employee elective deferral failures
A safe harbor correction method is available for certain
employee elective deferral failures associated with missed
elective deferrals for eligible employees who are subject to an
automatic contribution feature in a section 401(k) or 403(b)
plan (including employees who made affirmative elections in
lieu of automatic contributions but whose elections were not
implemented correctly).\212\
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\212\Sec. 05(8) of Appendix A of Rev. Proc. 2019-19.
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An ``employee elective deferral failure''\213\ is a failure
to implement elective deferrals correctly in a section 401(k)
plan or 403(b) plan, including elective deferrals pursuant to
an affirmative election or pursuant to an automatic
contribution feature under such a plan, and a failure to afford
an employee the opportunity to make an affirmative election
because the employee was improperly excluded from the plan.
Automatic contribution features include automatic enrollment
and automatic escalation features that are affirmatively
elected.\214\
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\213\Sec. 05(10) of Appendix A of Rev. Proc. 2019-19.
\214\Sec. .05(10) of Appendix A of Rev. Proc. 2019-19.
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If the failure to implement an automatic contribution
feature for an affected eligible employee or the failure to
implement an affirmative election of an eligible employee who
is otherwise subject to an automatic contribution feature does
not extend beyond the end of the nine and one-half month period
after the end of the plan year of the failure (which is
generally the filing deadline of the Form 5500 series return,
including automatic extensions), no qualified nonelective
contribution (``QNEC'')\215\ for the missed elective deferrals
is required, provided that the following conditions are
satisfied:
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\215\A QNEC, as defined in Treas. Reg. sec. 1.401(k)-6 means
``employer contributions, other than elective contributions or matching
contributions, that, except as provided otherwise in Sec. 1.401(k)-1(c)
and (d), satisfy the requirements of Sec. 1.401(k)-1(c) and (d) as
though the contributions were elective contributions, without regard to
whether the contributions are actually taken into account under the ADP
test under Sec. 1.401(k)-2(a)(6) or the ACP test under Sec. 1.401(m)-
2(a)(6). Thus, the nonelective contributions must satisfy the
nonforfeitability requirements of Sec. 1.401(k)-1(c) and be subject to
the distribution limitations of Sec. 1.401(k)-1(d) when they are
allocated to participants' accounts.''
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1. Correct deferrals begin no later than the earlier
of the first payment of compensation made on or after
the last day of the nine and one-half month period
after the end of the plan year in which the failure
first occurred for the affected eligible employee or,
if the plan sponsor was notified of the failure by the
affected eligible employee, the first payment of
compensation made on or after the end of the month
after the month of notification;
2. Notice of the failure, that satisfies the content
requirements described below, is given to the affected
eligible employee not later than 45 days after the date
on which correct deferrals begin; and
3. If the eligible employee would have been entitled
to additional matching contributions had the missed
deferrals been made, the plan sponsor makes a
corrective allocation (adjusted for earnings) on behalf
of the employee equal to the matching contributions
that would have been required under the terms of the
plan as if the missed deferrals had been contributed to
the plan in accordance with the timing requirements
under SCP for significant operational failures. This
correction method provides an alternative safe harbor
method for calculating earnings for Employee Elective
Deferral Failures under section 401(k) plans or 403(b)
plans.\216\
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\216\The plan may also use the earnings adjustment methods set
forth in section 3 of Appendix B of Rev. Proc. 2019-19.
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Content of notice requirement
The required notice must include the following information:
1. General information relating to the failure, such
as the percentage of eligible compensation that should
have been deferred, and the approximate date that the
compensation should have begun to be deferred. The
general information need not include a statement of the
dollar amounts that should have been deferred;
2. A statement that appropriate amounts have begun to
be deducted from compensation and contributed to the
plan (or that appropriate deductions and contributions
will begin shortly);
3. A statement that corrective allocations relating
to missed matching contributions have been made (or
that corrective allocations will be made). Information
relating to the date and the amount of corrective
allocations need not be provided;
4. An explanation that the affected participant may
increase his or her deferral percentage in order to
make up for the missed deferral opportunity, subject to
applicable limits for elective deferrals;\217\ and
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\217\Under sec. 402(g).
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5. The name of the plan and plan contact information
(including name, street address, email address, and
telephone number of a plan contact).
Sunset of safe harbor correction method
The safe harbor correction method is available for plans
only with respect to failures that begin on or before December
31, 2020.
REASONS FOR CHANGE
Automatic enrollment and automatic escalation features in
defined contribution plans enhance the opportunity for
individuals to increase their retirement savings. However,
inadvertent errors in the implementation and administration of
such features may subject the plan sponsor to expensive
corrections and the potential for significant penalties when
even honest mistakes are made.
The Committee believes that providing a grace period to
correct, without penalty, reasonable errors in administering
these features will encourage plan sponsors to include such
features in their plans.
EXPLANATION OF PROVISION
Under the provision, a plan will not fail to be treated as
a qualified plan, a section 403(b) tax sheltered annuity, an
IRA or a section 457(b) plan solely by reason of a ``corrected
error.''
For purposes of this provision, a ``corrected error'' means
a reasonable administrative error in implementing an automatic
enrollment or automatic escalation feature in accordance with
the terms of an eligible automatic contribution
arrangement,\218\ provided that such implementation error:
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\218\As defined in section 414(w)(3).
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1. Is corrected by the date that is nine and one-half
months after the end of the plan year during which the
failure occurred;
2. Is corrected in a manner that is favorable to the
participant; and
3. Is of a type which is so corrected for all
similarly situated participants in a nondiscriminatory
manner.
The correction may occur before or after the participant has
terminated employment and may occur without regard to whether
the error is identified by the Secretary.
The Secretary must issue regulations or other guidance of
general applicability specifying the methods that are ``in a
manner favorable to the participant.''
EFFECTIVE DATE
The provision applies to any errors with respect to which
the date that is nine and one-half months after the end of the
plan year during which the error occurred is after the date of
enactment of this Act.
14. One-Year Reduction in Period of Service Requirement for Long-Term,
Part-Time Workers (sec. 114 of the bill and sec. 401(k) of the Code)
PRESENT LAW
Background on section 401(k) plans may be found in section
I.9 of this document.
General participation requirements
A qualified retirement plan generally can delay
participation in the plan based on attainment of age or
completion of years of service but not beyond the later of
completion of one year of service (that is, a 12-month period
with at least 1,000 hours of service) or attainment of age
21.\219\ A plan also cannot exclude an employee from
participation (on the basis of age) when that employee has
attained a specified age.\220\ Employees can be excluded from
plan participation on other bases, such as job classification,
as long as the other basis is not an indirect age or service
requirement. A plan can provide that an employee is not
entitled to an allocation of employer nonelective or matching
contributions for a plan year unless the employee completes
either 1,000 hours of service during the plan year or is
employed on the last day of the year even if the employee
previously completed 1,000 hours of service in a prior year.
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\219\Secs. 401(a)(3) and 410(a)(1). Parallel requirements generally
apply to plans of private employers under section 202 of ERISA.
Governmental plans under section 414(d) and church plans under section
414(e) are generally exempt from these Code requirements and from
ERISA.
\220\Sec. 410(a)(2).
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Long-term part-time workers
Section 401(k) plans generally must permit an employee to
make elective deferrals if the employee has worked at least 500
hours per year with the employer for at least three consecutive
years and has met the minimum age requirement (age 21) by the
end of the three-consecutive-year period (for this provision,
an employee is referred to as a ``long-term part-time
employee'' after having completed this period of service).\221\
Thus, a long-term part-time employee may not be excluded from
the plan merely because the employee has not completed a year
of service. Once a long-term part-time employee meets the age
and service requirements, such employee must be able to
commence participation no later than the earlier of (1) the
first day of the first plan year beginning after the date on
which the employee satisfied the age and service requirements
or (2) the date six months after the date on which the
individual satisfied those requirements.
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\221\Sec. 401(k)(2)(D). This rule does not apply to collectively
bargained plans.
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The plan is not required to provide that a long-term part-
time employee is otherwise eligible to participate in the plan.
Thus, the plan can continue to treat a long-term part-time
employee as ineligible under the plan for employer nonelective
and matching contributions based on not having completed a year
of service. However, for a plan that does provide employer
contributions for long-term part-time employees, the plan must
credit, for each year in which such an employee worked at least
500 hours, a year of service for purposes of vesting in any
employer contributions. If a long-term part-time employee under
such a plan becomes a full-time employee, the plan must
continue to credit the employee with any years of service
earned under the special rule for long-term part-time
employees.
Employers are permitted to exclude long-term part-time
employees from nondiscrimination testing,\222\ including top-
heavy vesting and top-heavy benefit requirements. However, the
relief from the nondiscrimination rules ceases to apply to any
employee who becomes a full-time employee (as of the first plan
year beginning after the plan year in which the employee
completes a 12-month period with at least 1,000 hours of
service).
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\222\Nondiscrimination testing relief applies to sections
401(a)(4), 401(k)(3), 401(k)(12), 401(k)(13), 401(m)(2), and 410(b).
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The long-term part-time employee rules are effective for
plan years beginning after December 31, 2020, except that for
determining whether the three-consecutive-year period has been
met, 12-month periods beginning before January 1, 2021 are not
taken into account.
REASONS FOR CHANGE
The SECURE Act\223\ requires employers to allow long-term,
part-time workers to participate in their section 401(k) plans
after the worker has completed three consecutive years of part-
time service. As women are more likely to work part-time than
men, this provision is particularly important for women in the
workforce. The Committee wishes to make it easier for part-time
workers to save for retirement by requiring section 401(k)
plans to allow part-time workers to participate after two
consecutive years of part-time service.
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\223\Pub. L. No. 116-94, Division O.
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EXPLANATION OF PROVISION
The provision modifies the rules that apply to long-time
part-time employees under a section 401(k) plan to reduce the
service requirement for such employees from three years to two
years. Thus, under the provision, a section 401(k) plan
generally must permit an employee to make elective deferrals if
the employee has worked at least 500 hours per year with the
employer for at least two consecutive years and has met the
minimum age requirement (age 21) by the end of the two-
consecutive-year period.
In addition, the provision clarifies the effective date of
the long-term part-time employee rules. Under the provision,
12-month periods beginning before January 1, 2021 (which, under
the SECURE Act, are not taken into account in determining the
consecutive 12-month periods of part-time service) are also not
taken into account in determining a year of service for
purposes of the rules applicable to the vesting of employer
contributions.
EFFECTIVE DATE
The provision is effective as if included in the enactment
of section 112 of the SECURE Act.
TITLE II--PRESERVATION OF INCOME
1. Remove Required Minimum Distribution Barriers for Life Annuities
(sec. 201 of the bill and sec. 401 of the Code)
PRESENT LAW
Required minimum distributions
Background on required minimum distributions under
qualified retirement plans may be found in section I.5 of this
document.
Annuities
A plan will not fail to satisfy the minimum required
distribution rules merely because distributions are made from
an annuity contract which is purchased with the employee's
benefit by the plan from an insurance company.\224\ Prior to
the date that an annuity contract under an individual account
plan commences benefits under the contract, the interest of the
employee or beneficiary under that contract is treated as an
individual account for purposes of the required minimum
distribution requirements.\225\ Once distributions are required
to begin (on the required beginning date), payments under the
annuity contract will satisfy the required minimum distribution
rules if distributions of the employee's entire interest are
paid in the form of periodic annuity payments for the
employee's life (or the joint lives of the employee and
beneficiary) or over a period certain as defined in the
regulations.\226\
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\224\Treas. Reg. sec. 1.401(a)(9)-6, A-4.
\225\Treas. Reg. sec. 1.401(a)(9)-6, A-12(a).
\226\Treas. Reg. sec. 1.401(a)(9)-6, A-1, -3 and -4. If the annuity
contract is purchased after the required beginning date, the first
payment must begin on or before the purchase date and the payment
required must be made no later than the end of that required period.
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All annuity payments (whether paid over an employee's life,
joint lives, or a period certain) must be nonincreasing, or
only increase in accordance with certain exceptions.\227\
---------------------------------------------------------------------------
\227\Treas. Reg. sec. 1.401(a)(9)-6, A-14(a). The exceptions
include eligible cost of living increases, increased benefits resulting
from a plan amendment, and lump sum distributions made to a beneficiary
upon the death of the employee.
---------------------------------------------------------------------------
There are additional increases permitted for annuity
payments under annuity contracts purchased from insurance
companies. If the total future payments expected to be made
under the annuity contract (``future expected payments'')
exceed the ``total value being annuitized,'' the payments under
the annuity contract will not fail to satisfy the nonincreasing
payment requirement merely because the payments (1) are
increased by a constant percentage, applied not less frequently
than annually; (2) provide for a final payment upon the death
of the employee that does not exceed the excess of the total
value being annuitized over the total of payments before the
death of the employee; (3) are increased as a result of
dividend payments or other payments that result from actuarial
gains but only if actuarial gain is measured no less frequently
than annually and the resulting payments are either paid no
later than the year following the year for which the actuarial
experience is measured or paid in the same form as the payment
of the annuity over the remaining period of the annuity; and
(4) are increased for certain accelerations of payment.\228\
However, in operation, this actuarial test does not permit
certain guarantees in life annuities such as certain guaranteed
annual increases, return of premium death benefits and period
certain guarantees for participating annuities.
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\228\Treas. Reg. sec. 1.401(a)(9)-6, A-14(c).
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REASONS FOR CHANGE
The required minimum distribution rules contain an
actuarial test, intended to limit tax deferral by precluding
commercial annuities from providing payments that increase
excessively over time. In operation, however, the test commonly
prohibits many important guarantees and features of commercial
annuities that provide only modest benefit increases that make
these annuities attractive to individuals participating in
defined contribution plans. For example, guaranteed annual
increases of only one or two percent, return of premium death
benefits, and period certain guarantees for participating
annuities are commonly prohibited by this test. Without these
types of guarantees, many individuals are unwilling to elect a
life annuity under a defined contribution plan or IRA.
Such annuities also provide individuals in defined
contribution plans with protection against outliving their
assets in retirement. The Committee believes that making it
easier for commercial annuities to offer these types of
benefits will encourage individuals participating in defined
contribution plans to purchase such annuities.
EXPLANATION OF PROVISION
The provision amends the minimum required distribution
rules to permit commercial annuities\229\ that are issued in
connection with any eligible retirement plan\230\ to provide
one or more of the following types of payments on or after the
annuity starting date:
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\229\Within the meaning of section 3405(e)(6).
\230\Within the meaning of section 402(c)(8)(B), other than a
defined benefit plan.
---------------------------------------------------------------------------
Annuity payments that increase by a constant
percentage, applied not less frequently than annually,
at a rate that is less than five percent per year;
A lump sum payment that results in a
shortening of the payment period with respect to an
annuity, or a full or partial commutation of the future
annuity payments, provided that such a lump sum is
determined using reasonable actuarial methods and
assumptions, determined in good faith by the issuer of
the contract;
A lump sum payment that accelerates the
receipt of annuity payments that are scheduled to be
received within the ensuing 12 months, regardless of
whether such acceleration shortens the payment period
with respect to the annuity, reduces the dollar amount
of benefits to be paid under the contract, or results
in a suspension of annuity payments during the period
being accelerated;
Dividends or similar distributions
determined in an actuarially reasonable manner; or
A lump sum return of premium death benefits.
The provision also directs the Secretary, within one year
after the date of enactment, to conform the regulations to the
foregoing statutory amendments and thereby exempt the listed
annuity benefits from the actuarial test in the regulations.
The Secretary is also directed to provide that any commercial
annuity that provides an initial payment that is at least equal
to the initial payment that is required from an individual
account is deemed to satisfy the actuarial test in the
regulations. The Secretary is also directed to amend the
actuarial test in the regulations to provide that the
calculations under the test are made using the reasonable
tables or other actuarial assumptions that the issuer of the
contract actually uses in pricing the premiums and benefits
under the contract, provided that such tables or other
actuarial assumptions are reasonable, rather than using the
life expectancy tables in the regulations.
The provision also directs the Secretary as of the date of
enactment to administer and enforce the law in accordance with
the requirements of this provision.
EFFECTIVE DATE
The provision is effective as of the date of enactment.
2. Qualifying Longevity Annuity Contracts (sec. 202 of the bill)
PRESENT LAW
Required minimum distributions
Background on required minimum distributions under
qualified retirement plans may be found in section I.5 of this
document.
Annuity distributions
The regulations provide rules for the amount of annuity
distributions from a defined benefit plan, or from an annuity
purchased by the plan from an insurance company (including
annuity contracts under a defined contribution plan), that are
paid over life or life expectancy. Annuity distributions are
generally required to be nonincreasing with certain exceptions,
which include, for example, (i) increases to the extent of
certain specified cost-of-living indices, (ii) a constant
percentage increase (for a qualified defined benefit plan, the
constant percentage cannot exceed five percent per year), (iii)
certain accelerations of payments, and (iv) increases to
reflect when an annuity is converted to a single life annuity
after the death of the beneficiary under a joint and survivor
annuity or after termination of the survivor annuity under a
qualified domestic relations order.\231\ If distributions are
in the form of a joint and survivor annuity and the survivor
annuitant both is not the surviving spouse and is younger than
the employee (or IRA owner), the survivor annuity benefit is
limited to a percentage of the life annuity benefit for the
employee (or IRA owner). The survivor benefit as a percentage
of the benefit of the primary annuitant is required to be
smaller (but not required to be less than 52 percent) as the
difference in the ages of the primary annuitant and the
survivor annuitant become greater.
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\231\Treas. Reg. sec. 1.401(a)(9)-6, A-14.
---------------------------------------------------------------------------
If an annuity contract held under a defined contribution
plan has not yet been annuitized, the interest of an employee
or beneficiary under that contract is treated as an individual
account for purposes of the minimum required distribution
rules. Thus, the value of that contract is included in the
account balance used to determine required minimum
distributions from the employee's individual account.\232\
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\232\Treas. Reg. sec. 1.401(a)(9)-6, A-12.
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Plan amendment and anti-cutback requirements
Present law provides a remedial amendment period during
which, under certain circumstances, a qualified retirement plan
may be amended retroactively in order to comply with the
qualification requirements.\233\ In general, plan amendments to
reflect changes in the law generally must be made by the time
prescribed by law for filing the income tax return of the
employer for the employer's taxable year in which the change in
law occurs.\234\ The Secretary may extend the time by which
plan amendments need to be made.
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\233\Sec. 401(b).
\234\In addition, if an employer adopts a qualified retirement plan
after the close of a taxable year but before the time prescribed by law
for filing the return of tax of the employer for the taxable year
(including extensions thereof), the employer may elect to treat the
plan as having been adopted as of the last day of the taxable year. See
401(b)(2), as enacted under section 201 of the SECURE Act. See also the
description of the provision in section III.19 of this document,
Amendments to increase benefit accruals under plan for previous plan
year allowed until employer tax return due date.
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The Code and ERISA generally prohibit plan amendments that
reduce accrued benefits, including amendments that eliminate or
reduce optional forms of benefit with respect to benefits
already accrued except to the extent prescribed in
regulations.\235\ This prohibition on the reduction of accrued
benefits is commonly referred to as the ``anti-cutback rule.''
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\235\Sec. 411(d)(6) and ERISA sec. 204(g).
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Qualifying longevity annuity contracts
A ``qualifying longevity annuity contract'' (``QLAC'') is a
deferred annuity contract that is purchased from an insurance
company for an employee that is generally scheduled to commence
payments at an advanced age (but no later than age 85)\236\ and
which satisfies each of the following requirements:\237\
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\236\Because under section 401(a)(9), minimum required
distributions must generally begin no later than the April 1 of the
year following the year in which the individual attains age 72, without
these special rules, QLACs would violate the requirements of section
401(a)(9). See the description of the provision in section I.5 of this
document, which proposes an increase in the age for the required
beginning date for mandatory distributions.
\237\Treas. Reg. sec. 401(a)(9)-6, A-17.
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1. Premiums for the QLAC do not exceed the lesser of
a dollar or percentage limitation. The dollar
limitation is (1) $125,000 (as adjusted) ($135,000 for
2020 and 2021) over (2) the sum of (a) the premiums
previously paid with respect to the contract and (b)
the premiums previously paid with respect to any other
QLAC that is purchased for the employee under the plan,
or any other plan of the employer.\238\ The percentage
limitation is 25 percent of the employee's account
balance under the plan (including the value of any QLAC
held under the plan for the employee) over the
previously paid premiums with respect to the contract
or with respect to any other QLAC that is purchased for
the employee under the plan, or any other plan of the
employer.
---------------------------------------------------------------------------
\238\Including any other plan, annuity, or account described in
sections 401(a), 403(a), 403(b), or 408, or an eligible governmental
plan under section 457(b).
---------------------------------------------------------------------------
2. The QLAC provides that distributions under the
contract must commence not later than the first day of
the month following the individual's attainment of age
85.
3. The QLAC provides that once distributions begin
under the contract, the distributions satisfy the
minimum required distribution rules, except for the
rule that annuity payments commence on or before the
required beginning date.
4. The contract does not make available any
commutation benefit, cash surrender right, or other
similar feature.
5. No benefits are provided under the contract after
the death of the employee other than those provided for
in the regulations.
6. When the contract is issued, the contract (or a
rider or endorsement) states that it is intended to be
a QLAC.
7. The contract is not a variable contract, an
indexed contract, or a similar contract, except as
provided in guidance.
REASONS FOR CHANGE
QLACs are intended to be an inexpensive way for individuals
to hedge the risk of outliving their savings in defined
contribution plans and IRAs. In 2014, final regulations were
published relating to QLACs.\239\ However, the final
regulations imposed certain limits on QLACs in order to comply
with statutory requirements. These limits prevent QLACs from
achieving their intended purpose in providing longevity
protection by, for example, limiting the percentage of an
individual's account that may be used to acquire such
contracts.
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\239\79 FR 37633.
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The Committee believes that repealing that 25 percent
limitation, clarifying that free-look periods up to 90 days are
permitted, and facilitating the sales of such contracts with
spousal survival rights, will eliminate certain barriers to the
purchase of QLACs.
EXPLANATION OF PROVISION
Under the provision, no later than one year after the date
of enactment, the Secretary (or the Secretary's delegate) is
directed to amend the minimum required distribution regulation
which applies to QLACs:
To eliminate the requirement that premiums
for QLACs be limited to 25 percent (or any other
percentage) of an individual's account balance;
To provide that in the case of a QLAC
purchased with joint and survivor annuity benefits for
the individual and his or her spouse that were
permissible under the regulations at the time the
contract was originally purchased, a divorce occurring
after the original purchase and before the annuity
payments commence under the contract, will not affect
the permissibility of the joint and survivor annuity
benefits or other benefits under the contract, or
require any adjustment to the amount or duration of
benefits payable under the contract provided that any
qualified domestic relations order\240\ or any divorce
or separation instrument (1) provides that the former
spouse is entitled to the survivor benefits under the
contract, (2) does not modify the treatment of the
former spouse as beneficiary under the contract who is
entitled to the survivor benefits, or (3) does not
modify the treatment of the former spouse as the
measuring life for the survivor benefits under the
contract. For purposes of this provision, the term
``divorce or separation instrument'' means (1) a decree
of divorce or separate maintenance or a written
instrument incident to such a decree, (2) a written
separation agreement, or (3) a decree (not described in
(1)) requiring a spouse to make payments for the
support or maintenance of the other spouse; and
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\240\Within the meaning of section 414(p).
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To ensure that the regulation does not
preclude a contract from including a provision under
which an employee may rescind the purchase of the
contract within a period not exceeding 90 days from the
date of purchase (the ``short free look period.'')
EFFECTIVE DATE
The provision is generally effective with respect to
contracts purchased or received in an exchange on or after the
date of enactment. The changes with respect to joint and
survivor annuities and the short free look period are effective
with respect to contracts purchased or received in an exchange
on or after July 2, 2014.
Prior to the date the Secretary issues final regulations,
the Secretary must administer and enforce the law in accordance
with the effective dates above, and taxpayers may rely upon
their reasonable good faith interpretations of the law prior to
this provision becoming effective.
3. Insurance-Dedicated Exchange-Traded Funds (sec. 203 of the bill and
sec. 817(h) of the Code)
PRESENT LAW
Income exclusion and deferred tax treatment for life insurance and
annuity contracts
An exclusion from gross income is provided for amounts
received under a life insurance contract paid by reason of the
death of the insured.\241\ Further, no Federal income tax
generally is imposed on a policyholder with respect to the
earnings under a life insurance contract (``inside buildup'').
Distributions from a life insurance contract (other than a
modified endowment contract\242\) that are made prior to the
death of the insured generally are includible in income only to
the extent that the amounts distributed exceed the taxpayer's
investment in the contract. Such distributions generally are
treated first as a tax-free recovery of the investment in the
contract, and then as income.\243\ Present law provides a
definition of life insurance designed to limit the investment
orientation of the contract.\244\
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\241\Sec. 101(a).
\242\Sec. 7702A. A modified endowment contract is generally a life
insurance contract funded more rapidly than in seven level annual
premiums. Distributions (including loans) from a modified endowment
contract are generally treated as income first, then as a tax-free
return of basis. Sec. 72(e)(10).
\243\Sec. 72(e).
\244\Sec. 7702.
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No Federal income tax is generally imposed on a deferred
annuity contract holder who is a natural person with respect to
the earnings on the contract (inside buildup) in the absence of
a distribution under the contract. Annuity distributions
generally are treated as partially excludable return of basis
and partially ordinary income under an ``exclusion ratio'' (the
ratio of the investment in the contract to the expected return
under the contract as of that date).\245\ Other distributions
(which for this purpose include loans) are treated as income
first, then as a tax-free return of basis.\246\ An additional
10-percent tax is imposed on the income portion of
distributions made before age 59\1/2\, and in certain other
circumstances.\247\ An annuity contract must provide for
certain required distributions if the holder dies before the
entire interest in the contract has been distributed.\248\ No
dollar limit is imposed on the amount that may be paid into an
annuity contract (that is not a pension plan contract) for
Federal income tax purposes.
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\245\Sec. 72(b).
\246\Sec. 72(e).
\247\Sec. 72(q).
\248\Sec. 72(s).
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Variable contracts
A variable contract is generally an annuity or life
insurance contract whose death benefit, payout, or premium
amounts are based on the return on and market value of
underlying assets. For tax purposes, a variable contract is
defined by statute.\249\ Under the statutory criteria, all or
part of the amounts received for the contract (premiums) must
be allocated to a segregated asset account of the insurer. The
contract must provide for the payment of annuities, must be a
life insurance contract,\250\ or must fund insurance on retired
lives.\251\ The contract must reflect the investment return and
the market value of the segregated asset account, or in the
case of a life insurance contract, the amount of the death
benefit or period of coverage must be adjusted on the basis of
the investment return and the market value of the segregated
asset account. The segregated asset accounts for variable
contracts generally are invested in a variety of investment
funds.
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\249\Sec. 817(d).
\250\As defined for Federal tax purposes in section 7702.
\251\As described in section 807(c)(6) (governing life insurer
reserve deductions).
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Diversification requirements
The investment assets held in the segregated asset account
for a variable contract must be adequately diversified.\252\ If
the assets are not adequately diversified, the variable
contract is not treated as an annuity or life insurance
contract.\253\ As a result, otherwise tax-deferred or excluded
income on the contract is treated as ordinary income received
or accrued by the contract holder during the taxable year.\254\
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\252\Sec. 817(h).
\253\The investor control doctrine can also apply in some fact
situations. This two-pronged doctrine generally treats a contract as
not a life insurance contract or not an annuity contract if the
contract holder has significant incidents of ownership with respect to
the investments in the insurer segregated asset account, or if
segregated asset account assets are publicly available for purchase
(i.e, not exclusively available through purchase of the variable
contract). See Rev. Rul. 81-225, 1981-2 C.B.12, as modified by Rev.
Proc. 99-44 and as clarified and amplified by Rev. Rul. 2007-7;
Christofferson v. U.S., 749 F.2d 513 (8th Cir. 1984); Webber v.
Commissioner, 144 T. C. 324 (2015).
\254\Secs. 72 and 7702, and Treas. Reg. sec. 1.817-5(a).
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When the diversification requirement for variable contracts
was added in 1984, the Conference Report stated, ``[i]n
authorizing Treasury to prescribe diversification standards,
the conferees intend that standards be designed to deny annuity
or life insurance treatment for investments that are publicly
available to investors and investments that are made, in
effect, at the direction of the investor.''\255\
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\255\H.R. Conf. Rep. No. 861, 98th Cong., 2d Sess. (1984), page
1055. Similarly, the Blue Book for the 1984 Act states that the
diversification requirements were enacted ``to discourage the use of
tax-preferred variable annuities and variable life insurance primarily
as investment vehicles. The Congress believed that a limitation on a
customer's ability to select specific investments underlying a variable
contract will help ensure that a customer's primary motivation in
purchasing the contract is more likely to be the traditional economic
protections provided by annuities and life insurance.'' Joint Committee
on Taxation, General Explanation of the Revenue Provisions of the
Deficit Reduction Act of 1984, Pub. L. No. 98-369, JCS-41-84, December
31, 1984, page 607.
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The regulatory diversification requirements impose
investment concentration limits based on percentages of the
total value of the assets in the segregated asset account.\256\
A safe harbor is provided for a segregated asset account
holding a regulated investment company (``RIC'' or mutual fund)
that is at least as diversified as is required under the RIC
rules of section 851(b)(4) and no more than 55 percent of the
value of whose assets is in cash, cash items, government
securities, and securities of other RICs.\257\
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\256\Treas. Reg. sec. 1.817-5(b).
\257\Treas. Reg. sec. 1.817-5(b)(2).
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The diversification requirements provide a lookthrough rule
for assets held through a RIC, real estate investment trust
(``REIT''), partnership, or certain trusts such as a grantor
trust. This lookthrough rule provides that the RIC, REIT,
partnership or trust is not treated as a single investment of
the segregated asset account, but rather, a pro rata portion of
each of its assets is treated as an asset of the account.\258\
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\258\Treas. Reg. sec. 1.817(f)(1).
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However, the lookthrough rule imposes requirements.\259\
All the beneficial interests in the RIC, REIT, partnership, or
trust generally must be held by a segregated asset account.
Public access to the RIC, REIT, partnership, or trust must
generally be available exclusively through the purchase of a
variable contract. For example, if an investment fund's
interests are held by a market maker or by a financial
institution that, as a participant in a clearing agency, is
permitted to purchase and redeem shares directly from the fund
and sell them to third parties, then the fund does not satisfy
this requirement of the lookthrough rule.
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\259\Treas. Reg. sec. 1.817(f)(2) and (3).
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REASONS FOR CHANGE
The Committee has become aware of the growing acceptance of
and increase in the number of exchange traded funds (``ETFs''),
investment funds that are traded on national securities
exchanges. The Committee finds it appropriate to allow ETFs to
be held in life insurance companies' segregated asset accounts
for variable insurance contracts, provided that doing so does
not violate the investor control doctrine limiting public
availability of, and investor control over, investment funds
held by such accounts.
So as to allow ETFs under the diversification requirements
applicable to variable insurance contracts, the Committee
directs the Secretary to amend regulations interpreting those
diversification requirements. In particular, the Committee
intends that under the amended regulatory interpretation of the
diversification requirements, the look through rule available
to other investment funds such as mutual funds also be
available to ETFs notwithstanding that beneficial interests in
the ETF are held by clearing agencies that are authorized
participants, or held by market makers, as those terms are used
in the context of the Securities Exchange Act of 1934. Due to
the need for further development of market and tax regulatory
mechanisms needed to implement this intent, the effective date
of the amendment to the regulations is deferred.
EXPLANATION OF PROVISION
Diversification requirements
The provision directs the Secretary to revise the
regulations setting forth diversification requirements with
respect to variable contracts under section 817(h) to
facilitate the use of ETFs under variable contracts. The
provision directs that the lookthrough rule requirements in the
regulations be amended so that satisfaction of those
requirements with respect to an ETF is not prevented by reason
of beneficial interests in an investment fund being held by one
or more authorized participants or market makers.
Under the provision, an ETF means a RIC, partnership, or
trust that is registered with the SEC as an open-end investment
company or unit investment trust, and the shares of which can
be purchased or redeemed directly from the fund only by an
authorized participant, and the shares of which are traded
throughout the day on a national stock exchange at market
prices that may or may not be the same as the net asset value
of the shares. An authorized participant means a financial
institution that is a member or participant in a clearing
agency registered under section 17A(b) of the Securities
Exchange Act of 1934 that contracts with an ETF to permit the
financial institution to purchase or redeem shares of the ETF
and to sell the shares to third parties, provided that the
financial institution is precluded from purchasing the shares
for its own investment purposes and from selling the shares to
persons that are not market makers. A market maker means a
financial institution that is a registered broker or dealer
under section 15(b) of the Securities Exchange Act of 1934 and
that maintains liquidity for an ETF on a national stock
exchange by always being ready to buy and sell shares, provided
that the financial institution is precluded from buying or
selling shares to or from persons who are not authorized
participants or who are persons not permitted to buy or sell
shares under the lookthrough rule in the regulations.
EFFECTIVE DATE
The provision relating to the amendments to the regulatory
diversification requirements is effective for segregated asset
account investments made on or after the date that is seven
years after the date of enactment.
TITLE III--SIMPLIFICATION AND CLARIFICATION OF RETIREMENT PLAN RULES
1. Recovery of Retirement Plan Overpayments (sec. 301 of the bill and
secs. 402 and 414 of the Code, and sec. 206 of ERISA)
PRESENT LAW
Employee Plans Compliance Resolution System
A general description of the Employee Plans Compliance
Resolution System that this provision modifies may be found in
section I.13 of this document.
Recoupment of overpayments
An overpayment is defined as a qualification failure due to
a payment being made to a participant or beneficiary that
exceeds the amount payable to such individual under the terms
of the plan or that exceeds a limitation provided in the Code
or regulations.\260\ Overpayments include both payments from a
defined benefit plan and from a defined contribution plan
(either not made from the individual's account under the plan
or not permitted to be paid under the Code, the regulations, or
the terms of the plan).
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\260\Sec. 5.01(3)(c) of Rev. Proc. 2019-19.
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An overpayment from a defined benefit plan generally is
corrected either by having the plan sponsor take reasonable
steps to have the overpayment (with appropriate interest)
returned by the recipient to the plan and then reducing future
benefit payments (if any) due to the employee or any other
appropriate correction method.\261\ Depending on the nature of
the overpayment, an appropriate correction method may include
having the employer or another person contribute the amount of
the overpayment (with appropriate interest) to the plan instead
of seeking recoupment from a plan participant or beneficiary.
Another appropriate correction method may include a plan
sponsor adopting a retroactive amendment to conform the plan
document to the plan's operations.
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\261\Sec. 6.06(3) of Rev. Proc. 2019-19. Prior to 2015, the
correction method for overpayments was solely for the employer to take
reasonable steps to have the overpayment returned to the plan by the
participant or beneficiary. The IRS was informed that some plans had
demanded recoupment of large amounts from plan participants and
beneficiaries on account of plan administration errors made over
lengthy periods of time, and that those individuals, particularly older
individuals, might have financial difficulty meeting those corrective
actions including the return of overpayments with substantial
accumulated interest. As a result, IRS and Treasury issued Revenue
Procedure 2015-27, 2015-16 I.R.B. 914 providing more flexibility to
plans, stating that depending on the facts and circumstances,
correcting an overpayment under EPCRS may not need to include
requesting that an overpayment be returned to the plan by plan
participants and beneficiaries but could include such options as having
the employer or another person contribute the amount of the overpayment
(with appropriate interest) to the plan in lieu of seeking recoupment
from plan participants and beneficiaries or having a plan sponsor adopt
a retroactive amendment to conform the plan document to the plan's
operations. Treasury and IRS requested comments on a number of issues,
including whether, and under what circumstances, correction should
require employer make-whole contributions rather than recouping
overpayments from participants and beneficiaries and whether additional
guidance was needed related to unusual circumstances in which full
corrective payments to a plan should not be required. Treasury and IRS
are continuing to review these comments and have indicated that they
are in the process of developing further changes.
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An overpayment from a defined contribution plan or section
403(b) plan is generally corrected by having the employer take
reasonable steps to have the overpayment repaid to the plan,
adjusted for earnings at the plan's earnings rate from the date
of the distribution to the date of the correction of the
overpayment.\262\ To the extent such a repayment is not made by
the participant or beneficiary, the employer or another person
must contribute the difference to the plan (``make-whole
contribution method''). The make-whole contribution method does
not apply when the failure arises solely because a payment was
made from the plan to a participant or beneficiary in the
absence of a distributable event (but was otherwise determined
in accordance with the terms of the plan (for example, an
impermissible in-service distribution).
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\262\Sec. 6.06(4) of Rev. Proc. 2019-19.
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The employer must generally notify the employee that the
overpayment is not eligible for favorable tax treatment
accorded to distributions from an eligible retirement plan (and
specifically, is not eligible for tax-free rollover).
However, if the total amount of an overpayment to a
participant or beneficiary is $100 or less, the plan sponsor is
not required to seek the return of the overpayment from the
participant or beneficiary and the plan sponsor is not required
to notify the participant or beneficiary that the overpayment
is not eligible for favorable tax treatment accorded to
distributions from the plan (and specifically, is not eligible
for tax-free rollover).
PBGC overpayment recoupment policy
Private defined benefit plans are covered by the PBGC
insurance program, under which the PBGC guarantees the payment
of certain plan benefits, and plans are required to pay annual
premiums to the PBGC.\263\ Single-employer and multiple-
employer plans, including CSEC plans, are subject to the same
PBGC premium requirements, consisting of flat-rate, per
participant premiums and variable rate premiums, based on the
unfunded vested benefits under the plan. For 2021, flat-rate
premiums are $86 per participant, and variable rate premiums
are $46 for each $1,000 of unfunded vested benefits, subject to
a limit of $582 multiplied by the number of plan
participants.\264\ For this purpose, unfunded vested benefits
under a plan for a plan year is the excess (if any) of (1) the
plan's funding target for the plan year, determined by taking
into account only vested benefits and using specified interest
rates, over (2) the fair market value of plan assets.
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\263\Title IV of ERISA.
\264\These premium rates have been increased several times by
legislation since 2005 and are subject to automatic increases to
reflect inflation (referred to as ``indexing'').
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If at any time, the PBGC determines that net benefits paid
to a participant in a PBGC-trusteed plan exceed the total
amount to which the participant or beneficiary is entitled up
to that time under Title IV of ERISA, and the participant or
beneficiary is, as of the plan termination date, entitled to
receive future benefits, the PBGC will recoup the net
overpayment by calculating a monthly account balance for each
month ending after the termination date. The PBGC will subtract
from the account balance the amount of overpayments made in
that month. Only overpayments made on or after the latest of
the proposed termination date, the termination date, or, if no
notice of intent to terminate was issued, the date on which
proceedings to terminate the plan are instituted by the PBGC.
The PBGC will recoup net overpayments of benefits by
reducing the amount of each future benefit payment to which the
participant or beneficiary is entitled by a fraction which is
determined by dividing the amount of the net overpayment by the
present value of the benefit payable with respect to the
participant or beneficiary under Title IV of ERISA. The PBGC
will reduce benefits to a participant or beneficiary by no more
than the greater of (1) 10 percent per month; or (2) the amount
of benefit per month in excess of the maximum guaranteed
benefit payable under ERISA, determined without adjustment for
age and benefit form. Before affecting a benefit reduction, the
PBGC will notify the participant or beneficiary in writing of
the amount of the net overpayment and of the amount of the
reduced benefit. The PBGC may, in its discretion, decide not to
recoup net overpayments that it determines to be de minimis.
REASONS FOR CHANGE
On occasion, individuals may mistakenly receive more money
than they are entitled to under a retirement plan. These errors
may persist over a number of years before being discovered,
creating issues when plan fiduciaries later seek to recover
these overpayments (plus interest), which may be substantial,
from unsuspecting retirees. Even small overpayment amounts may
create a hardship for a retiree living on a fixed income.
The Committee believes that allowing retirement plan
fiduciaries the discretion to determine how to correct such
inadvertent failures, for example, by making additional
contributions to the plan rather than recouping such
overpayments from the retiree, will alleviate undue burdens on
unsuspecting retirees.
EXPLANATION OF PROVISION
Overpayments under the Code
Under the provision, a plan will not fail to be treated as
a qualified plan, section 403(a) annuity, section 403(b) tax
sheltered annuity or a governmental plan\265\ (and will not
fail to be treated as satisfying the requirements of section
401 or 403) merely because (1) the plan fails to obtain payment
from any participant, beneficiary, employer, plan sponsor,
fiduciary, or other party on account of any inadvertent benefit
overpayment made by the plan, or (2) the plan sponsor amends
the plan to increase past or future benefit payments to
affected participants and beneficiaries in order to adjust for
prior inadvertent benefit overpayments. Notwithstanding the
foregoing, the plan may instead reduce future benefit payments
to the correct amount provided for under the terms of the plan
or seek recovery from the person or persons responsible for the
overpayment. If an employer decides not to recover an
overpayment, nothing in this provision relieves that employer
of any obligation imposed upon it to make contributions to a
plan to satisfy the minimum funding requirements\266\ or to
prevent or restore an impermissible forfeiture.\267\ In
addition, the plan must observe any salary, compensation or
benefit limitations imposed upon it,\268\ and may enforce such
limitations using any method approved by the Secretary for
recouping benefits previously paid or allocations previously
made in excess of such limitations.
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\265\Under section 219(g)(5)(A)(i), (ii), (iii) or (iv).
\266\Under sections 412 and 430.
\267\In accordance with section 411.
\268\Secs. 401(a)(17) and 415.
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The Secretary may issue regulations or other guidance of
general applicability specifying how benefit overpayments and
their recoupment or non-recoupment from a participant or
beneficiary are to be taken into account for purposes of
satisfying any requirement applicable to such a plan.
Rollovers
In the case of an inadvertent benefit overpayment from a
plan which is transferred to an eligible retirement plan by or
on behalf of a participant or beneficiary, (1) the portion of
the overpayment with respect to which recoupment is not sought
on behalf of the plan will be treated as having been paid in an
eligible rollover distribution if the payment would have been
an eligible rollover distribution but for being an overpayment,
and (2) the portion of such overpayment with respect to which
recoupment is sought on behalf of the plan will be permitted to
be returned to the plan, and in such case, will be treated as
an eligible rollover distribution transferred to such plan by
the participant or beneficiary who received the overpayment
(and the plans making and receiving such transfer will be
treated as permitting such transfer).
In any case in which recoupment is sought on behalf of the
plan, but is disputed by the participant or beneficiary who
received the overpayment, where the recoupment has been
transferred to another eligible retirement plan, the dispute
will be subject to the claims and appeals procedures of the
plan that made the overpayment, that plan will notify the plan
receiving the rollover of the dispute, and the plan receiving
the rollover will retain the overpayment on behalf of the
participant or beneficiary (and will be entitled to treat the
overpayment as plan assets) pending the outcome of the
procedures.
Overpayments under ERISA
Fiduciary duties
Under the provision, in the case of an inadvertent benefit
overpayment by any pension plan, the responsible plan fiduciary
will not be considered to have failed to comply with its
fiduciary responsibilities merely because such fiduciary
determines, in the exercise of its fiduciary discretion, not to
seek recovery of all or part of such overpayment from:
1. Any participant or beneficiary;
2. Any plan sponsor of, or contributing employer to,
(a) an individual account plan, provided that the
amount needed to prevent or restore any impermissible
forfeiture from any participant's or beneficiary's
account arising in connection with the overpayment is,
separately from and independently of the overpayment,
allocated to such account pursuant to the
nonforfeitability requirements of ERISA\269\ (for
example, out of the plan's forfeiture account,
additional employer contributions, or recoveries from
those responsible for the overpayment), or (b) a
defined benefit pension plan subject to the funding
rules of ERISA,\270\ unless the responsible plan
fiduciary determines, in the exercise of its fiduciary
discretion, that failure to recover all or a part of
the overpayment faster than required under such funding
rules would materially affect the plan's ability to pay
benefits due to other participants and beneficiaries;
or
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\269\Sec. 203 of ERISA.
\270\In part 3 of subtitle B of ERISA.
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3. Any fiduciary of the plan, other than a fiduciary
(including a plan sponsor or contributing employer
acting in a fiduciary capacity) whose breach of its
fiduciary duties resulted in such overpayment, provided
that if the plan has established prudent procedures to
prevent and minimize overpayment of benefits and the
relevant plan fiduciaries have followed such
procedures, an inadvertent benefit overpayment will not
give rise to a breach of fiduciary duty.
Notwithstanding the foregoing, the responsible plan
fiduciary may instead reduce future benefit payments to
the correct amount provided for under the terms of the
plan or seek recovery from the person or persons
responsible for the overpayment.
If an employer decides not to recover an overpayment,
nothing in this provision relieves that employer of any
obligation imposed upon it to make contributions to a plan to
satisfy the minimum funding requirements\271\ or to prevent or
restore an impermissible forfeiture.\272\
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\271\Under part 3 of Subtitle B of Title I of ERISA.
\272\In accordance with section 203 of ERISA.
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Conditions imposed upon recoupment
If the responsible plan fiduciary, in the exercise of its
fiduciary discretion, decides to seek recoupment from a
participant or beneficiary of all or part of an inadvertent
benefit overpayment made by the plan to such participant or
beneficiary, it may do so, subject to the following conditions:
1. No interest or other additional amounts (such as
collection costs or fees) are sought on overpaid
accounts;
2. If the plan seeks to recoup past overpayments of a
non-decreasing periodic benefit by reducing future
benefit payments:
The reduction ceases after the plan
has recovered the full dollar amount of the
overpayment;
The amount recouped each calendar
year does not exceed 10 percent of the full
dollar amount of the overpayment; and
Future benefit payments are not
reduced to below 90 percent of the periodic
amount otherwise payable under the terms of the
plan.
3. Alternatively, if the plan seeks to recoup past
overpayments of a non-decreasing periodic benefit
through one or more installment payments, the sum of
such installment payments in any calendar year does not
exceed the sum of the reductions that would be
permitted in such year under the preceding sentence;
4. If the plan seeks to recoup past overpayments of a
benefit other than a non-decreasing periodic benefit,
the plan satisfies requirements developed by the
Secretary;
5. Efforts to recoup overpayments are not made
through a collection agency or similar third party and
such efforts are not accompanied by threats of
litigation, unless the responsible plan fiduciary
reasonably believes it could prevail in a civil action
brought in Federal or State court to recoup the
overpayments;
6. Recoupment of past overpayments to a participant
is not sought from any beneficiary of the participant,
including a spouse, surviving spouse, former spouse or
other beneficiary;
7. Recoupment may not be sought if the first
overpayment occurred more than three years before the
participant or beneficiary is first notified in writing
of the error;
8. A participant or beneficiary from whom recoupment
is sought is entitled to contest all or part of the
recoupment pursuant to the plan's claims and appeals
procedures; and
9. In determining the amount of recoupment to seek,
the responsible plan fiduciary may take into account
the hardship that recoupment likely would impose on the
participant or beneficiary.
Conditions (1) through (6) do not apply to protect a
participant or beneficiary who is culpable. For purposes of
this rule, a participant or beneficiary is culpable if the
individual bears responsibility for the overpayment (such as
through misrepresentations or omissions that led to the
overpayment), or if the individual knew, or had good reason to
know under the circumstances, that the benefit payment or
payments were materially in excess of the correct amount.
Notwithstanding the preceding sentence, an individual is not
culpable merely because the individual believed the benefit
payment or payments were or might be in excess of the correct
amount, if the individual raised that question with an
authorized plan representative and was told the payment or
payments were not in excess of the correct amount. With respect
to a culpable participant or beneficiary, efforts to recoup
overpayments must not be made through threats of litigation,
unless a lawyer for the plan could make the representations
required under Rule 11 of the Federal Rules of Civil Procedure
if the litigation were brought in Federal court.
EFFECTIVE DATE
The provision applies on the date of enactment.
Plans, fiduciaries, employers, and plan sponsors are
entitled to rely on (1) a good faith interpretation of then
existing administrative guidance for inadvertent benefit
overpayment recoupments and recoveries that commenced before
the date of enactment and (2) determinations made before the
date of enactment by the responsible plan fiduciary, in the
exercise of its fiduciary discretion, not to seek recoupment or
recovery of all or part of an inadvertent benefit overpayment.
In the case of a benefit overpayment that occurred prior to
the date of enactment, any installment payments by the
participant or beneficiary to the plan or any reduction in
periodic benefit payments to the participant or beneficiary,
which were made in recoupment of such overpayment and which
commenced prior to such date, may continue after such date.
Nothing in this subsection relieves a fiduciary from
responsibility for an overpayment that resulted from a breach
of its fiduciary duties.
2. Reduction in Excise Tax on Certain Accumulations in Qualified
Retirement Plans (sec. 302 of the bill and sec. 4974 of the Code)
PRESENT LAW
Background on required minimum distributions under
qualified retirement plans may be found in section I.5 of this
document.
The Code imposes an excise tax on an individual if the
amount distributed to an individual during a taxable year is
less than the required minimum distribution under the plan for
that year.\273\ The excise tax is equal to 50 percent of the
shortfall (that is, 50 percent of the amount by which the
required minimum distribution exceeds the actual distribution).
However, the Secretary may waive the tax if the individual
establishes that the shortfall was due to reasonable error and
reasonable steps are being taken to remedy the error.
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\273\Sec. 4974.
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REASONS FOR CHANGE
The Committee recognizes that in many cases, failures to
take a required minimum distribution are inadvertent. The
Committee thus wishes to reduce the overall excise tax that
applies to such failures, in particular in the case of an
individual who discovers such a failure and takes steps to
correct it.
EXPLANATION OF PROVISION
The provision reduces the excise tax that generally applies
to the failure to take required minimum distributions from 50
percent of the shortfall to 25 percent.
In addition, the provision further reduces the excise tax
to 10 percent in the case of an individual who, during the
correction window, corrects the shortfall and submits a return
reflecting the excise tax. The correction window is defined as
the time period beginning on the date the excise tax is imposed
on the shortfall and ending on the earlier of (1) the date the
Secretary initiates an audit with respect to the shortfall or
otherwise demands payment, and (2) the last day of the second
taxable year that begins after the end of the taxable year in
which the excise tax is imposed.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2021.
3. Performance Benchmarks for Asset Allocation Funds (sec. 303 of the
bill)
PRESENT LAW
Fiduciary rules under ERISA
ERISA contains general fiduciary duty standards that apply
to all fiduciary actions, including investment decisions. ERISA
requires that a plan fiduciary generally discharge its duties
solely in the interests of participants and beneficiaries and
with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like
aims. With respect to plan assets, ERISA requires a fiduciary
to diversify the investments of the plan so as to minimize the
risk of large losses, unless under the circumstances it is
clearly prudent not to do so.
Special rule for participant control of assets
ERISA provides a special rule in the case of a defined
contribution plan that permits participants to exercise control
over the assets in their individual accounts. Under the special
rule, if a participant exercises control over the assets in his
or her account (as determined under regulations), the
participant is not deemed to be a fiduciary by reason of such
exercise, and no person who is otherwise a fiduciary is liable
for any loss, or by reason of any breach, that results from the
participant's exercise of control.
Regulations issued by the DOL describe the requirements
that must be met in order for a participant to be treated as
exercising control over the assets in his or her account. With
respect to investment options, the regulations provide, in
part, that:
The plan must provide at least three
different investment options, each of which is
diversified and has materially different risk and
return characteristics;
The plan must allow participants to give
investment instructions with respect to each investment
option under the plan with a frequency that is
appropriate in light of the reasonably expected market
volatility of the investment option (the ``general
volatility rule'');
At a minimum, participants must be allowed
to give investment instructions at least every three
months with respect to at least three of the investment
options, and those investment options must constitute a
broad range of options (the ``three-month minimum
rule:);
Participants must be provided with detailed
information about the investment options, information
regarding fees, investment instructions and
limitations, and copies of financial data and
prospectuses; and
Specific requirements must be satisfied with
respect to investments in employer stock to ensure that
employees'' buying, selling, and voting decisions are
confidential and free from employer influence.
Under the regulations,\274\ the plan administrator (or
person designated by the plan administrator to act on its
behalf), based on the latest information available, must
furnish to each participant or beneficiary on or before the
date on which he or she can first direct his or her investments
and at least annually thereafter, the following information (as
well as certain other information), with respect to each
designated investment alternative offered under the plan:
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\274\29 C.F.R. sec. 2550.404a-5(d).
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Identifying information including the name
of each designated investment alternative and the type
or category of the investment (e.g., money market fund,
balanced fund (stocks and bonds), large-cap stock fund,
or employer securities);
Performance data including:
For designated investment
alternatives with respect to which the return
is not fixed, the average annual total return
of the investment for 1, 5, and 10 calendar
year periods (or for the life of the
alternative, if shorter) ending on the date of
the most recently completed calendar year; as
well as a statement indicating that an
investment's past performance is not
necessarily an indication of how the investment
will perform in the future; and
For designated investment
alternatives with respect to which the return
is fixed or stated for the term of the
investment, both the fixed or stated annual
rate of return and the term of the investment.
If, with respect to such a designated
investment alternative, the issuer reserves the
right to adjust the fixed or stated rate of
return prospectively during the term of the
contract or agreement, the current rate of
return, the minimum rate guaranteed under the
contract, if any, and a statement advising
participants and beneficiaries that the issuer
may adjust the rate of return prospectively and
how to obtain (e.g., telephone or website) the
most recent rate of return required under this
section.
Benchmarks. For designated investment
alternatives with respect to which the return is not
fixed, the name and returns of an appropriate broad-
based securities market index over the 1, 5, and 10
calendar year periods (or for the life of the
alternative, if shorter) comparable to the performance
data periods provided for designated investment
alternatives with respect to which the return is not
fixed, and which is not administered by an affiliate of
the investment issuer, its investment adviser, or a
principal underwriter, unless the index is widely
recognized and used.
If these and the other requirements under the regulations
are met, a plan fiduciary may be liable for the investment
options made available under the plan, but not for the specific
investment decisions made by participants. However, the
regulations currently do not provide guidance as to a
designated investment alternative which contains a mix of asset
classes.
REASONS FOR CHANGE
As noted, DOL regulations require certain disclosures to
participants for each designated investment alternative offered
under a plan including a benchmark comparison of the historical
performance of each alternative compared to an appropriate
broad-based securities market index. Thus, for example, if the
plan offers an equity fund, the plan will show participants the
1, 5 and 10 year returns of that fund compared to the returns
on an appropriate index such as the S&P 500, which represents
an index in the same asset class. However, the rules do not
adequately address the benchmark to be used for increasingly
popular investments, like target date funds which include a mix
of asset classes rather than a single asset class.
The Committee believes that a modification of the
regulations to permit a designated investment alternative that
uses a mix of asset classes, such as a target date fund, to be
benchmarked against a blend of broad-based securities market
indices, provided that certain conditions are satisfied, will
facilitate the ability of participants to compare and decide
between investment alternatives, including those that use a mix
of asset classes, offered under the plan.
EXPLANATION OF PROVISION
Not later than six months after the date of enactment, the
provision requires that the Secretary of Labor (or the
Secretary's delegate) modify the regulations on fiduciary
duties\275\ to provide that, in the case of a designated
investment alternative which contains a mix of asset classes, a
plan administrator may, but is not required to, use a benchmark
which is a blend of different broad-based securities market
indices if:
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\275\Under section 404 of ERISA.
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1. The blend is reasonably representative of the
asset class holdings of the designated investment
alternative;
2. For purposes of determining the blend's returns
for 1, 5, and 10 calendar-year periods (or for the life
of the alternative, if shorter), the blend is modified
at least once per year to reflect changes in the asset
class holdings of the designated investment
alternative;
3. The blend is furnished to participants and
beneficiaries in a manner that is reasonably designed
to be understandable and helpful; and
4. Each securities market index which is used for an
associated asset class would separately satisfy the
requirements of such regulations for such asset class.
Not later than December 31, 2022, the Secretary of Labor
(or the Secretary's delegate) must deliver a report to the
Committees on Ways and Means and Education and Labor of the
House of Representatives and the Committees on Finance and
Health, Education, Labor, and Pensions of the U.S. Senate
regarding the effectiveness of the benchmarking requirements
under the DOL regulations.\276\
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\276\29 C.F.R. sec. 2550.404a-5.
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EFFECTIVE DATE
The provision is effective on the date of enactment.
4. Review and Report to the Congress Relating to Reporting and
Disclosure Requirements (sec. 304 of the bill)
PRESENT LAW
Under the Code and ERISA, plans must satisfy requirements
relating to reporting and disclosure of plan information. These
requirements include information required to be reported to the
IRS, the DOL, and the PBGC, as well as to participants and
beneficiaries.\277\
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\277\In certain cases, plan information also must be provided to
other interested parties such as unions (in the case of multiemployer
plans).
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For example, plan administrators generally must file an
annual return with the IRS, an annual report with the DOL, and
certain information annually with the PBGC. Form 5500, which
consists of a primary form and various schedules, includes the
information required to be filed with all three agencies. The
plan administrator satisfies the reporting requirement with
respect to each agency by filing the Form 5500 with the DOL.
Other information required to be reported to the IRS includes
plan distributions, excise taxes imposed on the plan, and
separated participants with deferred vested benefits.\278\
Defined benefit plans must report certain information to the
PBGC, including information relating funding, terminations, and
reportable events.
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\278\This information is reported on the Form 1099-R (plan
distributions), Form 5330 (excise tax), and Form 8955-SSA (separated
participants with deferred vested benefits).
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With respect to participants and beneficiaries, the
reporting and disclosure requirements include the provision of
a summary plan description, which describes the plan's
eligibility requirements for participation and benefits,
vesting provisions, procedures for claiming benefits under the
plan, and other information.\279\ Plans must also furnish
participants and beneficiaries with periodic benefit statements
that indicate the total benefits accrued and the nonforfeitable
benefits (or the earliest date on which benefits become
nonforfeitable).\280\ Certain information is required to be
provided upon certain events, such as termination of
employment,\281\ plan termination,\282\ reduction in future
benefit accruals,\283\ or a plan distribution that is eligible
for rollover treatment.\284\ Certain requirements also apply
depending on the type of plan. For example, section 401(k)
plans and section 403(b) plans must advise employees of
opportunities to make or change elective deferrals under the
plan,\285\ and section 401(k) safe harbor plans and plans with
automatic enrollment features have special notice
requirements.\286\ Certain notices must be provided to
participants and beneficiaries in individual account plans who
are permitted to exercise control over account assets.\287\ In
the case of defined benefit plans, notices relating to plan
funding, such as an annual funding notice, must be furnished to
participants and beneficiaries.\288\
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\279\ERISA sec. 102; 29 C.F.R. sec. 2520.102-2 and -3. Plans must
also provide summaries of material modifications to the plan. ERISA
sec. 102.
\280\ERISA sec. 105.
\281\ERISA sec. 209.
\282\29 C.F.R. sec. 2550.404a-3 (relating to termination of
individual account plans); ERISA sec. 4041(a)(2) (relating to
termination of single-employer defined benefits plans). Single employer
defined benefit plans also must report plan termination to the PBGC.
\283\Sec. 4980F; ERISA sec. 204(h).
\284\Sec. 402(f).
\285\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii); Treas. Reg. sec.
1.403(b)-5(b)(2). This requirement also applies to SIMPLE plans. Sec.
408(p)(5)(C).
\286\Sec. 401(k)(12)(D); sec. 401(k)(13)(E); sec. 414(w)(4).
\287\ERISA sec. 404(c).
\288\ERISA sec. 101. Certain notices related to plan funding also
must be provided to the PBGC.
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REASONS FOR CHANGE
The Committee wishes to consolidate, simplify, standardize,
and improve the reporting and disclosure requirements
applicable to retirement plans. Thus, the Committee believes
that it is appropriate to gather information and
recommendations on reporting and disclosure requirements from
Treasury, the DOL, and the PBGC.
EXPLANATION OF PROVISION
The provision requires the Secretary, the Secretary of
Labor, and the PBGC to review the reporting and disclosure
requirements that apply to pension plans\289\ under Title I of
ERISA and that apply to qualified retirement plans\290\ under
the Code. Such review must take place as soon as practicable
after the date of enactment, and, no later than 18 months after
such date, the agencies must report on the effectiveness of the
reporting and disclosure requirements and make certain
recommendations, as described below, to the appropriate
committees of the Congress. The agencies must conduct
appropriate surveys and data collection to obtain any needed
information.
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\289\ERISA sec. 3(2).
\290\For this purpose, qualified retirement plans include plans
qualified under section 401(a), annuity plans described in section
403(a), and section 403(b) plans. Sec. 4974(c)(1), (2), and (3).
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The report must include the following:
Recommendations as may be appropriate to
consolidate, simplify, standardize, and improve such
requirements so as to simplify reporting for such plans
and ensure that plans can simply furnish and
participants and beneficiaries timely receive and
better understand the information they need to monitor
their plans, plan for retirement, and obtain the
benefits they have earned;
An assessment of the extent to which
retirement plans are retaining disclosures, work
records, and plan documents that are needed to ensure
accurate calculation of future benefits; and
To assess the effectiveness of the
applicable reporting and disclosure requirements, an
analysis, based on plan data, of how participants and
beneficiaries are providing preferred contact
information, the methods by which plan sponsors and
plans are furnishing disclosures, and the rate at which
participants and beneficiaries (grouped by key
demographics) are receiving, accessing, and retaining
disclosures.
EFFECTIVE DATE
The provision is effective on date of enactment.
5. Eliminating Unnecessary Plan Requirements Related to Unenrolled
Participants (sec. 305 of the bill, sec. 414 of the Code, and new sec.
111 of ERISA)
PRESENT LAW
Background on the reporting and disclosure requirements
that apply to plans under the Code and ERISA may be found in
section III.4 of this document.
REASONS FOR CHANGE
Under present law, employees eligible to participate in a
retirement plan are required to receive a broad array of
notices that are intended to inform them of their various
options and rights under the plan. In the case of eligible
employees who have not elected to participate in the plan
(``unenrolled participants''), these notices, such as notices
regarding the different investment options available under the
plan, are generally unnecessary, and can even have adverse
effects on savings and coverage. Thus, the Committee believes
it is appropriate to cease to require defined contribution
plans to provide many of these notices to unenrolled
participants. However, to further encourage participation of
unenrolled participants, such plans would still be required to
send an annual reminder notice relating to the participant's
eligibility to participate in the plan and any otherwise
required document requested by the participant.
EXPLANATION OF PROVISION
The provision generally exempts defined contribution plans
from requirements under the Code and ERISA to provide
disclosures, notices, and other plan documents to unenrolled
participants, provided that the unenrolled participant
receives: (1) an annual reminder notice of the participant's
eligibility to participate in the plan and any applicable
election deadlines, and (2) any document the participant
requests that the participant would be entitled to if not for
this provision.
Under the provision, the annual reminder notice must be
furnished in connection with the plan's annual open season
election period (or, if there is no such period, within a
reasonable period prior to the beginning of each plan year),
and must notify the participant of (1) the participant's
eligibility to participate in the plan, and (2) the key
benefits under the plan and key rights and features under the
plan affecting such benefits. The annual reminder notice must
be provided in accordance with the DOL regulations relating to
disclosure\291\ and may be provided in paper or, if the
participant consents, electronically. The notice must provide
the required information in a prominent manner calculated to be
understood by the average participant.
---------------------------------------------------------------------------
\291\29 C.F.R. sec. 2520.104(b)-1 (or any successor regulation).
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The provision defines ``unenrolled participant'' as an
employee who (1) is eligible to participate in a defined
contribution plan; (2) has received all required notices,
disclosures, and other plan documents, including the summary
plan description, required to be furnished under the Code or
ERISA in connection with the participant's initial eligibility
to participate in the plan; (3) is not participating the plan;
and (4) does not have a balance in the plan. For this purpose,
any eligibility to participate in the plan following any period
of ineligibility is treated as initial eligibility.
EFFECTIVE DATE
The provision is effective for plan years beginning after
December 31, 2021.
6. Retirement Savings Lost and Found (sec. 306 of the bill, secs.
401(a)(31)(B), 402, 408, 411, 6011, 6057, and 6652 of the Code, and
secs. 404, 4005, and new sec. 4051 of ERISA)
PRESENT LAW
Pension Benefit Guaranty Corporation Missing Participants Program
When a defined benefit pension plan (maintained by a single
employer and subject to the plan termination insurance program
under Title IV of ERISA) terminates under a standard
termination, the plan administrator generally must purchase
annuity contracts from a private insurer to provide the
benefits to which participants are entitled and distribute the
annuity contracts to the participants.
If the plan administrator of a terminating single employer
plan cannot locate a participant after a diligent search (has a
``missing participant''), the plan administrator may satisfy
the distribution requirement only by purchasing an annuity from
an insurer or transferring the participant's designated benefit
to the PBGC. The PBGC holds the benefit of the missing
participant as trustee until the PBGC locates the missing
participant and distributes the benefit.\292\
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\292\Sec. 4041(b)(3)(A); sec. 4050 of ERISA.
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Pursuant to the Pension Protection Act of 2006,\293\ the
PBGC prescribed rules for terminating multiemployer plans
similar to the missing participant rules applicable to
terminating single employer plans subject to Title IV of ERISA.
In addition, plan administrators of certain types of plans not
otherwise subject to the PBGC termination insurance program are
permitted, but not required, to elect to transfer missing
participants' benefits to the PBGC upon plan termination.
Specifically, the provision extends the missing participants
program (in accordance with regulations) to defined
contribution plans,\294\ defined benefit pension plans that
have no more than 25 active participants and are maintained by
professional service employers, and the portion of defined
benefit pension plans that provide benefits based upon the
separate accounts of participants and therefore are treated as
defined contribution plans under ERISA.
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\293\Pub. L. No. 109-280, August 17, 2006.
\294\The Missing Participants program for Defined Contribution
plans covers common types of defined contribution pension plans;
specifically section 401(k) plans, profit sharing plans, money purchase
plans, target benefit plans, employee stock ownership plans, stock
bonus plans, and section 403(b)(7) plans subject to Title I of ERISA.
Some examples of plans not covered are governmental plans, church
plans, and plans that cannot pay benefits to the PBGC in cash. See 29
C.F.R. sec. 4050.201.
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On December 22, 2017, the PBGC established the PBGC Defined
Contribution Missing Participants Program (``Missing
Participants Program'') to hold retirement benefits for missing
participants and beneficiaries in most terminated defined
contribution plans and to help those participants and
beneficiaries find and receive those benefits.\295\
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\295\29 C.F.R. sec. 4050.201-207.1.
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Department of Labor
A fiduciary safe harbor\296\ may apply with respect to
distributions from terminated individual account plans\297\ and
abandoned plans\298\ on behalf of participants and
beneficiaries who fail to make an election regarding a form of
benefit distribution, including ``missing participants.'' The
safe harbor generally requires that distributions be rolled
over to an individual retirement account or annuity (IRA),
although in limited circumstances fiduciaries may make
distributions to certain bank accounts or to a state unclaimed
property fund. If the conditions of the safe harbor are met, a
fiduciary (including a Qualified Termination Administrator
(``QTA'') in the case of an abandoned plan) is deemed to have
satisfied the requirements of section 404(a) of ERISA with
respect to distributing benefits, selecting a transferee
entity, and investing funds in connection with the
distribution.
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\296\29 C.F.R. sec. 2550.404a-3.
\297\297 Sec. 3(34) of ERISA.
\298\298 As described in 29 C.F.R. sec. 2578.1.
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The DOL consulted with the PBGC during the PBGC's
development of its Missing Participants Program. As noted in
the preamble to the final rule adopting the Missing
Participants Program, the DOL may revise its fiduciary safe
harbor regulation so that transfers to the PBGC by terminating
individual account plans would be eligible for relief under the
safe harbor.
On January 12, 2021, the DOL issued Field Assistance
Bulletin 2021-01\299\ in which it announced that pending
further guidance, the DOL will not pursue fiduciary violations
against either responsible plan fiduciaries of terminating
defined contribution plans or QTAs of abandoned plans\300\ in
connection with the transfer of a missing or non-responsive
participant's or beneficiary's account balance to the PBGC in
accordance with the PBGC's missing participant regulations
(rather than to an IRA, certain bank accounts, or to a state
unclaimed property fund),\301\ if the plan fiduciary or QTA
complies with the guidance in the Bulletin and has acted in
accordance with a good faith, reasonable interpretation of the
fiduciary rules under ERISA\302\ with respect to matters not
specifically addressed in the guidance.
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\299\Field Assistance Bulletin 2021-01 can be found at: https://
www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-
assistance-bulletins/2021-01.
\300\As described in 29 C.F.R. sec. 2578.1.
\301\As specified in 29 C.F.R. sec. 2550.404a-3.
\302\Sec. 404 of ERISA.
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Mandatory rollovers
If a qualified retirement plan participant ceases to be
employed by the employer that maintains the plan, the plan may
distribute the participant's nonforfeitable accrued benefit
without the consent of the participant and, if applicable, the
participant's spouse, if the present value of the benefit does
not exceed $5,000. If such an involuntary distribution occurs
and the participant subsequently returns to employment covered
by the plan, then service taken into account in computing
benefits payable under the plan after the return need not
include service with respect to which a benefit was
involuntarily distributed unless the employee repays the
benefit.
Generally, a participant may roll over an involuntary
distribution from a qualified plan to an IRA or to another
qualified plan. Before making a distribution that is eligible
for rollover, a plan administrator must provide the participant
with a written explanation of the ability to have the
distribution rolled over directly to an IRA or another
qualified plan and the related tax consequences.
A direct rollover is the default option for involuntary
distributions that exceed $1,000 and that are eligible rollover
distributions from qualified retirement plans. The distribution
must be rolled over automatically to a designated IRA, unless
the participant affirmatively elects to have the distribution
transferred to a different IRA or a qualified plan or to
receive it directly. The written explanation provided by the
plan administrator is required to explain that an automatic
direct rollover will be made unless the participant elects
otherwise. The plan administrator is also required to notify
the participant in writing (as part of the general written
explanation or separately) that the distribution may be
transferred without cost to another IRA.
Under the fiduciary rules of ERISA, in the case of an
automatic direct rollover, the participant is treated as
exercising control over the assets in the IRA upon the earlier
of: (1) the rollover of any portion of the assets to another
IRA, or (2) one year after the automatic rollover.
Lost and Found
Under present law, there is not a ``Lost and Found''
database to collect information on benefits owed to missing,
lost or non-responsive participants and beneficiaries in tax-
qualified retirement plans (other than terminated plans) and to
assist such plan participants and beneficiaries in locating
those benefits.
REASONS FOR CHANGE
Every year, thousands of people approach retirement, but
may be unaware of, or are unable to locate and recover,
benefits that they have earned (frequently with employers from
whom they have separated service) for a number of reasons,
including because that employer moved, changed its name, or
merged with a different company. Similarly, every year there
are employers around the country ready to pay these benefits to
retirees, but they cannot locate those individuals.
The Committee believes that the creation of a national,
online, lost and found dedicated to matching these individuals
with their benefits would facilitate the recovery of such
benefits by these individuals.
EXPLANATION OF PROVISION
Establishment of the Lost and Found Under the provision,
not later than three years after the date of enactment, the
Secretary of Labor, the Secretary of the Treasury, and the
Secretary of Commerce, in cooperation, will establish an online
searchable database to be managed by the PBGC,\303\ to be known
as the Retirement Savings Lost and Found (the ``Lost and
Found''), containing information on plans, subject to the
vesting standards under ERISA,\304\ as well as certain
additional information related to the location of certain
unclaimed vested benefits of missing, lost and non-responsive
participants and beneficiaries in such plans.\305\ The Lost and
Found database will contain information: (1) provided by plan
administrators that are required to periodically report to the
Office of the Lost or Found each plan year;\306\ (2) provided
by plan administrators that transfer certain small benefits of
non-responsive participants and beneficiaries to the Lost and
Found; and (3) other relevant information obtained by the PBGC.
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\303\The Office of the Retirement Savings Lost and Found (the
``Office of the Lost and Found'') will be established within the PBGC
to maintain the Retirement Savings Lost and Found.
\304\Sec. 203 of ERISA.
\305\Tax-qualified defined benefit and defined contribution plans
(as set forth in 29 C.F.R. sec. 4050.201) that are subject to the
vesting standards contained in section 203 of ERISA.
\306\In accordance with section 4051 of ERISA, as added by this
provision. See also, discussion of Annual Reporting Requirements below.
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The collection of this information in the Lost and Found
will allow the PBGC to assist participants and beneficiaries by
providing contact information\307\ on record for the plan
administrator of any plan in which the participant or
beneficiary may have an unclaimed benefit sufficient to allow
that participant or beneficiary to locate the individual's plan
in order to recover any benefit owing to that individual under
the plan. With respect to those plans which have transferred
such benefits to the PBGC, the PBGC will also be able to pay
those benefits to such participants and beneficiaries. Because
the PBGC would be provided additional and updated information
from plan administrators through reporting requirements, the
PBGC will also be able to make any necessary changes to the
database reflecting updates to contact information on record
for the plan administrator based on any changes to such plans
including those arising from mergers or consolidations of the
plan with any other plan, division of the plan into two or more
plans, bankruptcy, termination, change in name of the plan,
change in name or address of the plan administrator, transfers
of such accounts to IRAs, purchase of annuities, or other
causes.
---------------------------------------------------------------------------
\307\Such individuals will be provided only with the ability to
view contact information for the plan administrator of any plan with
respect to which the individual is or was a participant or beneficiary.
---------------------------------------------------------------------------
Safeguarding participant privacy and security
In establishing the Lost and Found, the PBGC, in
consultation with the Secretary of Labor, the Secretary of
Treasury, and the Secretary of Commerce must take all necessary
and proper precautions to ensure that individuals' plan
information maintained by the Lost and Found is protected and
that persons other than the individual cannot fraudulently
claim the benefits to which any individual is entitled, and to
allow any individual to opt out of inclusion in the Lost and
Found at the election of the individual.
Establishment and responsibilities of the Office of the Retirement
Savings Lost and Found
Not later than two years after the date of the enactment of
this Act, the Secretary of Labor, the Secretary of Treasury,
and the Secretary of Commerce must establish, within the PBGC,
an Office of the Retirement Savings Lost and Found (``Office of
the Lost and Found'').
The ``Office of the Lost and Found'' will (1) maintain the
Lost and Found database; (2) facilitate the transfer of small
benefits of non-responsive participants and beneficiaries\308\
to the Office of the Lost and Found by (a) collecting
information, applicable fees, and benefits related to such
individuals from the applicable plan; and (b) investing such
benefits; (3) searching for and paying out benefits to those
participants and beneficiaries for whom benefits have been
transferred to the Office of the Lost and Found; and (4)
performing an annual audit of plan information contained in the
Lost and Found and ensuring that such information is current
and accurate.
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\308\In defined benefit and defined contribution plans subject to
the vesting requirements of section 203 of ERISA.
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Required transfer of small benefits of certain non-
responsive participants by plans to the Office of
the Lost and Found
Under the provision, the administrator of a plan that is
not terminated\309\ must transfer a non-responsive
participant's\310\ benefit to the Office of the Lost and
Found\311\ if the nonforfeitable accrued benefit\312\ is no
greater than $1,000.
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\309\And to which section 401(a)(31)(B) of the Code applies.
\310\For this provision, a non-responsive participant means a
participant or beneficiary of a plan who is entitled to a benefit
subject to a mandatory transfer under section 401(a)(31)(B)(iii) and
for whom the plan has satisfied the conditions in section
401(a)(31)(B)(iv).
\311\Under sec. 401(a)(31)(B) and sec. 4051(b) of ERISA.
\312\Under sec. 401(a)(31)(B) and sec. 4051(b) of ERISA.
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Upon making a transfer to the Office of the Lost and Found
of small benefits of non-responsive participants, the plan
administrator must provide such information and certifications
as the Office of the Lost and Found specifies including with
respect to the transferred amount of the benefit and the
identification of the non-responsive participant. In the event
that, after such a transfer, the relevant non-responsive
participant contacts the plan administrator or the plan
administrator discovers information that may assist the Office
of the Lost and Found in locating the non-responsive
participant, the plan administrator must notify and provide
such information to the Office of the Lost and Found as such
Office specifies.
A transfer of such benefits to the Office of the Lost and
Found under this provision will be treated as a transfer to an
individual retirement plan. Such benefits will be held in a new
ninth fund\313\ established for the payment of such
benefits\314\ which fund will also be credited with earnings on
investments in the fund or on assets credited to the fund.
Whenever the PBGC determines that the moneys of any fund are in
excess of current needs, it may request the investment of such
amounts as it determines advisable by the Secretary in
obligations issued or guaranteed by the United States.
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\313\For amounts transferred to the Lost and Found under section
4051(b)(1)(A).
\314\Pursuant to section 4005(j) as set forth in this provision.
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Following a transfer of such benefits to the Office of the
Lost and Found, the Office of the Lost and Found will
periodically, and upon receiving information from the plan
administrator as described above, conduct a search for the non-
responsive participant for whom the Office of the Lost and
Found has received a transfer. Upon location of such a non-
responsive participant who claims benefits, the Office of the
Lost and Found will pay the non-responsive participant the
amount transferred to it in a single sum (plus an amount
reflecting the return on the investment attributable to such
amount). The PBGC has the regulatory authority to prescribe
regulations as are necessary to carry out the transfer of small
benefits including rules relating to the amount payable to the
Office of the Lost and Found by the plan administrator and the
amount to be paid to the non-responsive participant or
beneficiary by the Office of the Lost and Found when that
individual is located.
Annual reporting requirements
Under the provision, within such period after the end of
each plan year beginning after the second December 31 occurring
after the date of enactment, as the Office of the Lost and
Found may prescribe, the plan administrator of a plan to which
the vesting standards of ERISA apply\315\ will submit the
following information, and such other information as the Office
of the Lost and Found may require:\316\
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\315\Sec. 203 of ERISA.
\316\Because this reporting begins approximately two years after
the date of enactment, unless the Office of the Lost and Found
prescribes otherwise, this information will only be provided to the
Office of the Lost and Found prospectively.
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The name of the plan;
The name and address of the plan
administrator;
Any change in the name of the plan;
Any change in the name or address of the
plan administrator;
The name and taxpayer identifying number of
each participant or former participant in the plan:
Who, during the current plan
year or any previous plan year, was reported to
IRS\317\ as a separated participant with a
deferred vested benefit that had not been paid
as of the end of the previous plan year, and
with respect to whom such benefit was fully
paid during the plan year;
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\317\Under sec. 6057.
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With respect to whom any amount
was distributed as a mandatory distribution
during the plan year; or
With respect to whom a deferred
annuity contract was distributed during the
plan year;
The termination of the plan;
The merger or consolidation of the plan with
any other plan or its division into two or more plans;
In the case of a participant or former
participant whose benefit was distributed as a
mandatory distribution during the plan year, the name
and address of the designated trustee or issuer and the
account number of the individual retirement plan to
which the amount was distributed; and
In the case of a participant or former
participant to whom a deferred annuity contract was
distributed during the plan year, the name and address
of the issuer of such annuity contract and the contract
or certificate number.
Guidance
The Office of the Lost and Found will prescribe such
regulations as are necessary to carry out the purposes of this
provision, including rules relating to the amount payable to
the Office of the Lost and Found and the amount to be paid by
the Office of the Lost and Found.
Option to contract
Not later than two years after the date of enactment, the
PBGC must conduct an analysis of the cost effectiveness of
contracting with a third party to carry out the
responsibilities of the Office of the Lost and Found. If the
PBGC determines that it would be more cost effective to do so
than to carry out such responsibilities within the Office of
the Lost and Found, the PBGC may enter into such contracts as
merited by the analysis. The PBGC must report on the results of
its analysis to the Committees on Finance and Health,
Education, Labor, and Pensions of the Senate and the Committees
on Ways and Means and Education and Labor of the House of
Representatives.
Authorization of appropriations
There are authorized to be appropriated such sums as may be
necessary to carry out the purposes of the Lost and Found.
Mandatory transfers of rollover distributions and coordination with
distribution requirements
Investment options
The provision amends ERISA\318\ to provide that in the case
of a pension plan which makes a transfer to an IRA under the
mandatory distribution rules under the Code,\319\ the Secretary
of Labor may provide, in guidance or regulations issued after
the enactment of this provision, that such transfer may be made
to:
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\318\Sec. 404(c)(3) of ERISA.
\319\Sec. 401(a)(31)(B).
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A target date or life cycle fund held under
such account;
An investment product held under such
account designed to preserve principal and provide a
reasonable rate of return;\320\
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\320\As described in 29 C.F.R. sec. 2550.404a-2.
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The Office of the Lost and Found in
accordance with the mandatory distribution rules in the
Code\321\ and the rules in this provision for the
transfer of certain benefits to the Office of the Lost
and Found; or
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\321\Sec. 401(a)(31)(B)(iv).
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Such other option as the Secretary of Labor
may so provide.
Not later than 270 days after the date of enactment, the
Secretary of Labor must promulgate regulations identifying the
target date or life cycle funds, or specifying the
characteristics of such a fund, that will be deemed to meet the
applicable requirements of ERISA.\322\
---------------------------------------------------------------------------
\322\Sec. 404(c)(3)(B) of ERISA.
---------------------------------------------------------------------------
Expansion of cap
The provision increases the cap on mandatory distributions
from $5,000 to $6,000.\323\
---------------------------------------------------------------------------
\323\Under section 401(a)(31)(B)(ii)(I) and section 203(e)(1) of
ERISA.
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Distribution of larger amounts only to IRAs, not to the
Office of the Lost and Found
Under the provision, the Office of the Lost and Found is
not treated as a trustee eligible to receive mandatory
distributions\324\ that are in excess of $1,000 but not in
excess of $6,000. In other words, the PBGC may only accept
transfers of nonforfeitable accrued benefits in the amount of
$1,000 or less.
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\324\Sec. 401(a)(31)(B).
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Mandatory distributions of lesser amounts for non-
responsive individuals to the Office of the Lost
and Found
Under the provision, in the case of a plan that provides
for mandatory distributions of amounts of $6,000 or less, the
trust of such plan will not be considered a qualified trust
under the Code unless the plan provides that, if a participant
in the plan separates from the service covered by the plan and
the participant's nonforfeitable accrued benefit is not in
excess of $1,000, the plan administrator must (either
separately or as part of the written notice to recipients of
distributions eligible for rollover treatment) either (1)
notify the participant that the participant is entitled to such
benefit, or (2) attempt to pay the benefit directly to the
participant.
If, after a plan administrator either notifies the
participant of the entitlement to the benefit or attempts to
pay the benefit directly to the participant, the participant
does not:
Within 6 months of the notification either
make an election to have the distribution paid directly
to a specified eligible retirement plan\325\ or elect
to receive a distribution of the benefit directly, or
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\325\Sec. 402(c)(8)(B), except that a qualified trust is considered
an eligible retirement plan only if it is a defined contribution plan
that accepts rollovers.
---------------------------------------------------------------------------
Accept any direct payment made within 6
months of the attempted payment (in other words, does
not cash the check),
then the plan administrator must transfer
the amount of such benefit to the Office of the Lost
and Found.\326\
---------------------------------------------------------------------------
\326\In accordance with section 4051(b) of ERISA.
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A transfer of such a distribution to the Office of the Lost
and Found is treated as a transfer to an individual retirement
plan, and the distribution of such amounts by the Office of the
Lost and Found to a non-responsive participant who is
subsequently located will be treated as a distribution from an
individual retirement account.
Reporting for mandatory transfers
The provision modifies the reporting requirements by plan
administrators with respect to plans that are subject to the
vesting standards of section 203 of ERISA, which include tax
qualified defined benefit and defined contribution plans, as
follows:
By providing that plan administrators must
report\327\ the name and taxpayer identification number
of each participant in the plan who, during the plan
year immediately preceding such plan year separated
from the service covered by the plan.
---------------------------------------------------------------------------
\327\Pursuant to sec. 6057.
---------------------------------------------------------------------------
By requiring that the following information
must also be included:
The name and taxpayer identifying
number of each participant or former
participant in the plan:
b Who, during the current plan year
or any previous plan year, was reported
to IRS\328\ as a separated participant
with a deferred vested benefit that had
not been paid as of the end of the
previous plan year, and with respect to
whom such benefit was fully paid during
the plan year;
---------------------------------------------------------------------------
\328\Under sec. 6057.
---------------------------------------------------------------------------
b With respect to whom any amount was
distributed as a mandatory distribution
during the plan year; or
b With respect to whom a deferred
annuity contract was distributed during
the plan year;
In the case of a participant or former
participant whose benefit was distributed as a
mandatory distribution during the plan year, the name
and address of the designated trustee or issuer and the
account number of the individual retirement plan to
which the amount was distributed; and
In the case of a participant or former
participant to whom a deferred annuity contract was
distributed during the plan year, the name and address
of the issuer of such annuity contract and the contract
or certificate number.
Rules relating to direct trustee-to-trustee transfers
Under the provision, additional reporting is required with
respect to direct trustee-to-trustee transfers as follows:
Notification of the Trustee: In the case of
a mandatory distribution under the Code,\329\ the plan
administrator must notify the designated trustee of the
account or issuer, or the plan administrator will be
subject to a penalty equal to $100 for each such
failure, up to a maximum for all such failures during
any calendar year not to exceed $50,000, unless it is
shown that the failure was due to reasonable cause and
not to willful neglect.\330\
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\329\Pursuant to section 401(a)(31)(B).
\330\Sec. 6652(i) of the Code.
---------------------------------------------------------------------------
The reports required to be made to the
Secretary by the trustee of an IRA or the issuer of an
endowment contract\331\ are modified to require, in the
case of an IRA account, endowment contract or IRA
annuity to which a mandatory transfer\332\ is made
(including a transfer from the individual retirement
plan to which the original transfer was made to another
individual retirement plan), for the year of the
transfer and any year in which the information
previously reported changes that such report:
---------------------------------------------------------------------------
\331\Sec. 408(i).
\332\Under section 401(a)(31)(B.
---------------------------------------------------------------------------
1. Identify the transfer as a required
mandatory distribution;
2. Include the name, address, and taxpayer
identifying number of the trustee or issuer of
the individual retirement plan to which the
amount is transferred; and
3. Be filed with the PBGC as well as with the
Secretary.
There is also a similar rule for Savings Incentive Match
Plan for Employees (``SIMPLE'') plans where the benefit is
transferred from a SIMPLE plan to another individual retirement
plan. The report required for the year of the transfer and any
year in which the information previously reported is changed
must: (1) identify the transfer as a required mandatory
distribution; (2) include the name, address, and taxpayer
identifying number of the trustee or issuer of the individual
retirement plan to which the amount is transferred; and (3) be
filed with the PBGC as well as with the Secretary.
Notification of participant upon separation of service
The individual registration statement that needs to be
provided to each separated participant\333\ by the plan
administrator must include a notice of availability of, and the
contact information for, the Office of the Lost and Found.
---------------------------------------------------------------------------
\333\Pursuant to section 6057(e).
---------------------------------------------------------------------------
Requirement of electronic filing
Under the provision, reports required with respect to
separated participants from retirement plans,\334\ information
required with respect to certain plans of deferred
compensation,\335\ and periodic reports of actuaries,\336\ as
well as certain reports with respect to IRAs, (including
endowment contracts),\337\ information returns at source,\338\
and information reports relating to certain trust and annuity
plans,\339\ (to the extent each such return or report relates
to the tax treatment of a distribution from a plan, account,
contract, or annuity) must be filed on magnetic media, but only
with respect to persons who are required to file at least 50
returns during the calendar year which includes the first day
of the plan year to which such returns or reports relate.
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\334\Sec. 6057.
\335\Sec. 6058.
\336\Sec. 6059.
\337\Pursuant to section 408(i).
\338\Sec. 6047.
\339\Sec. 6041.
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Fiduciary duties under the Code and ERISA
Under the provision, not later than one year after the date
of enactment, the Secretary of Labor, in consultation with the
Secretary of the Treasury, must issue a request for information
(with a final rule to be issued not later than three years
after such date) with respect to the following:
1. The steps a plan sponsor must take to locate a
deferred vested participant in order to meet its
fiduciary duty under ERISA with respect to locating
that participant; and
2. The ongoing practices and procedures a plan
sponsor must institute in order to meet such fiduciary
duty with respect to maintaining up-to-date contact
information on deferred vested participants.
EFFECTIVE DATE
The effective date of the provision is generally on the
date of enactment.
The provisions related to the transfer of small benefits to
the Office of the Lost and Found for certain non-responsive
participants and the submission of information by plan
administrators to the Office of the Lost and Found are
effective with respect to plan years beginning after the second
December 31 occurring after the date of the enactment.
The provisions related to changes to the mandatory
distribution rules are applicable to vested benefits with
respect to participants who separate from service connected to
the plan in plan years beginning after the second December 31
occurring after the date of enactment.
The provisions related to modified reporting requirements
under the Code and to filing certain reports electronically are
applicable to returns and reports relating to years beginning
after the second December 31 occurring after the date of
enactment.
7. Expansion of Employee Plans Compliance Resolution System (sec. 307
of the bill)
PRESENT LAW
Employee Plans Compliance Resolution System\340\
---------------------------------------------------------------------------
\340\See sec. 72(p)(2).
---------------------------------------------------------------------------
General description of the Employee Plans Compliance
Resolution System that this provision modifies may be found in
section I.13 of this document.
The current EPCRS program does not provide corrections for
individual IRAs although it does provide for certain
corrections for SIMPLE plans and SEPs. SCP and VCP\341\ are
available to a SEP or SIMPLE plan.\342\ SCP is only available
to such a plan to correct insignificant operational
failures,\343\ and only if the SEP or SIMPLE plan is
established and maintained on a document approved by the IRS.
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\341\Sec. 6.11 of Rev. Proc. 2019-9.
\342\Secs. 1.01 and 1.02 of Rev. Proc. 2019-19. A SEP is a plan
intended to satisfy the requirements of Code section 408(k); a SIMPLE
plan is a plan intended to satisfy the requirements of Code section
408(p).Secs. 5.06 and 5.07 of Rev. Proc. 2019-19.
\343\Sec. 4.01(c) of Rev. Proc. 2019-19.
---------------------------------------------------------------------------
Loans
EPCRS is available for plan loans that do not comply with
one or more Code requirements (for example, the amount of the
loan must not exceed the lesser of 50 percent of the
participant's account balance or $50,000\344\ (generally taking
into account outstanding balances of previous loans); the terms
of the loan must provide for a repayment period of not more
than five years\345\ and provide for level amortization of loan
payments (with payments not less frequently than quarterly);
and the terms of the loan must be legally enforceable) and such
errors are corrected through VCP or Audit CAP.
---------------------------------------------------------------------------
\344\There are certain exceptions to these rules for loans, for
example, individuals eligible to receive a coronavirus-related
distribution under section 2202 of the Coronavirus Aid, Relief, and
Economic Security Act, Pub. L. No. 116-136, March 27, 2020, may take a
loan during a specified period of time equal to the lesser of the
present value of the nonforfeitable accrued benefit of the employee
under the plan or $100,000 and certain other rules apply to such loans.
Special rules for loans also apply for certain individuals impacted by
specified disasters, see, e.g., section 302 of Div. EE of the
Consolidated Appropriations Act, 2021, Pub. L. No. 116-260, December
27, 2020.
\345\Loans specifically for home purchases may be repaid over a
longer period.
---------------------------------------------------------------------------
Unless correction is made, a deemed distribution\346\ in
connection with a failure relating to a loan to a participant
made from a plan must be reported\347\ with respect to the
affected participant and any applicable income tax withholding
amount that was required to be paid in connection with the
failure must be paid by the employer. As part of VCP and Audit
CAP, the deemed distribution may be reported with respect to
the affected participant for the year of correction (instead of
the year of the failure) if the plan sponsor requests such
reporting relief. Where certain requirements in EPCRS are met,
no reporting may be required but this relief applies only if
the plan sponsor requests the relief and provides an
explanation supporting the request.
---------------------------------------------------------------------------
\346\Under sec. 72(p)(1).
\347\On IRS Form 1099-R.
---------------------------------------------------------------------------
Voluntary Fiduciary Correction Program
The DOL also has a correction program entitled the
Voluntary Fiduciary Correction Program (``VFCP'')\348\ under
the Employee Retirement Income Security Act (``ERISA'')\349\
designed to encourage the voluntary correction of fiduciary
violations under Title I of ERISA. VFCP also provides for the
correction of certain participant loan failures including
situations where participant loans exceed the Code section
72(p) limitations on amount or duration.
---------------------------------------------------------------------------
\348\71 Fed. Reg. 20261, April 19, 2006.
\349\Pub. L. No. 93-406, Sept. 2, 1974.
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REASONS FOR CHANGE
The Committee believes that because of the ever growing
complexity of retirement plan administration, EPCRS needs to be
expanded to (1) allow more types of inadvertent errors to be
corrected through self-correction, rather than requiring the
time and expense of submitting such corrections to the IRS
through VCP; (2) apply to certain inadvertent IRA errors; and
(3) direct the Secretary to provide additional safe harbors to
correct certain eligible individual failures.
EXPLANATION OF PROVISION
In general
Under the provision, except as otherwise set forth in the
Code or regulations prescribed by the Secretary (or the
Secretary's delegate), any eligible inadvertent failure to
comply with the rules applicable to certain tax-qualified
retirement plans\350\ may be self-corrected under EPCRS,\351\
except to the extent that such failure was identified by the
Secretary prior to any actions which demonstrate a commitment
by the plan to implement a self-correction. As of the date of
the enactment of this Act, EPCRS is deemed amended to provide
that the correction period\352\ for an eligible inadvertent
failure, except as otherwise provided under the Code or in
regulations prescribed by the Secretary, is indefinite and has
no last day (other than with respect to failures identified by
the Secretary prior to any self-correction by the plan as noted
above).
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\350\Under sections 401(a), 403(a), 403(b), 408(p), or 408(k).
\351\For purposes of this provision, references to corrections
under EPCRS refers those described under Rev. Proc. 2019-19 or any
successor guidance.
\352\Under sec. 9.02 of Rev. Proc. 2019-19 or any successor
guidance.
---------------------------------------------------------------------------
Loan errors
Under this provision, in the case of an eligible
inadvertent plan loan error:
Such failure may be self-corrected according
to the rules of EPCRS,\353\ including the provisions
related to whether a deemed distribution must be
reported on Form 1099-R, (rather than being corrected
in VCP or Audit CAP); and
---------------------------------------------------------------------------
\353\According to the rules of section 6.07 of Rev. Proc. 2019-19
(or any successor guidance).
---------------------------------------------------------------------------
the Secretary of Labor must treat such
correction as meeting the requirements of VFCP if, with
respect to the violation of the fiduciary standards of
ERISA, there is a similar loan error eligible for
correction under EPCRS and the loan error is corrected
in such manner.
IRAs
The provision also directs the Secretary to expand EPCRS to
allow custodians of IRAs\354\ to address eligible inadvertent
failures with respect to an IRA, including, but not limited to:
---------------------------------------------------------------------------
\354\As defined in section 7701(a)(37).
---------------------------------------------------------------------------
1. Waivers of the excise tax\355\ that would
otherwise apply to certain accumulations in an IRA
where the amount distributed during a taxable year of a
participant or beneficiary is less than the minimum
required distribution for such taxable year;
---------------------------------------------------------------------------
\355\Sec. 4974.
---------------------------------------------------------------------------
2. Under the self-correction component of EPCRS,
waivers of the 60-day deadline for a rollover where the
deadline is missed for reasons beyond the reasonable
control of the account owner; and
3. Rules permitting a nonspouse beneficiary to return
distributions to an inherited individual IRA\356\
where, due to an inadvertent error by a service
provider, the beneficiary had reason to believe that
the distribution could be rolled over without inclusion
in income of any part of the distributed amount.
---------------------------------------------------------------------------
\356\As described in section 408(d)(3)(C).
---------------------------------------------------------------------------
Additional safe harbors
The Secretary is directed to expand EPCRS to provide
additional safe harbor means of correcting eligible inadvertent
failures including safe harbor means of calculating the
earnings which must be restored to a plan in cases where plan
assets have been depleted by reason of an eligible inadvertent
failure.
Definition of eligible inadvertent failure
An eligible inadvertent failure means a failure that occurs
despite the existence of practices and procedures which either
(1) satisfy the standards set forth in EPCRS;\357\ or (2)
satisfy similar standards in the case of an individual
retirement plan. However, an eligible inadvertent failure does
not include any failure which is egregious, relates to the
diversion or misuse of plan assets, or is directly or
indirectly related to an abusive tax avoidance transaction.
---------------------------------------------------------------------------
\357\Sec. 4.04 of Rev. Proc. 2019-19 (or any successor guidance).
Section 4.04 provides that the plan sponsor or plan administrator has
established practices and procedures in place which are reasonably
designed to promote and facilitate overall compliance in form and
operation with applicable Code provisions and such practices and
procedures have been in place and are routinely followed.
---------------------------------------------------------------------------
This provision does not apply to any such failure unless
the correction is made in conformity with the general
principles that apply to corrections of such failures under the
Code, including regulations, or other guidance issued
thereunder and including those principles and corrections set
forth in EPCRS.
EFFECTIVE DATE
The provision is effective on the date of enactment.
8. Eliminate the ``First Day of the Month'' Requirement for
Governmental Section 457(b) Plans (sec. 308 of the bill and sec. 457(b)
of the Code)
PRESENT LAW
Section 457(b) plans
Among the various types of tax-favored retirement plans
under present law are eligible deferred compensation plans
under section 457(b). A section 457(b) plan is a plan
maintained by a State or local government or a tax-exempt
organization that meets certain requirements. Generally, the
maximum amount that can be deferred under a section 457(b) plan
by an individual during any taxable year is limited to the
lesser of 100 percent of the participant's includible
compensation or the applicable dollar amount for the taxable
year. The applicable dollar amount for 2021 is $19,500 and is
indexed for future taxable years. For an employee who attains
age 50 by the end of the year, the dollar limit on deferrals is
increased by $6,500 (for 2021)\358\ (called catch-up
contributions).\359\ A participant's includible compensation
means the compensation of the participant from the eligible
employer for the taxable year.
---------------------------------------------------------------------------
\358\For 2020 and 2021, this amount is $6,500.
\359\Sec. 414(v).
---------------------------------------------------------------------------
One of the requirements to be an eligible deferred
compensation plan under section 457(b) is that a participant's
compensation is deferred for any calendar month only if an
agreement providing for such deferral has been entered into
before the beginning of such month.\360\
---------------------------------------------------------------------------
\360\Sec. 457(b)(4).
---------------------------------------------------------------------------
REASONS FOR CHANGE
Under present law, participants in a governmental section
457(b) plan must request changes in their contribution deferral
rate to the plan prior to the beginning of the month in which
the deferral is made. This rule is inconsistent with the rule
that applies to other defined contribution plans.
The Committee believes that such elections should be
permitted to be made at any time prior to the date that the
compensation being deferred is made available to the
participant.
EXPLANATION OF PROVISION
The provision provides that compensation is deferred under
a governmental section 457(b) plan only if an agreement
providing for such deferral has been entered into before the
compensation is currently available to the individual,
consistent with the rule for section 401(k) and 403(b) plans.
In the case of a section 457(b) plan maintained by a tax-exempt
organization, the provision provides that compensation is
deferred under the plan for a calendar month only if an
agreement providing for such deferral has been entered into
before the beginning of such month.
EFFECTIVE DATE
The provision applies to taxable years beginning after the
date of enactment.
9. One-Time Election for Qualified Charitable Distribution to Split-
Interest Entity; Increase in Qualified Charitable Distribution
Limitation (sec. 309 of the bill and sec. 408(d)(8) of the Code)
PRESENT LAW
In general
If an amount withdrawn from a traditional individual
retirement arrangement (``IRA'') or a Roth IRA is donated to a
charitable organization, the rules relating to the tax
treatment of withdrawals from IRAs apply to the amount
withdrawn and the charitable contribution is subject to the
normally applicable limitations on deductibility of such
contributions. An exception applies in the case of a qualified
charitable distribution.
Charitable contributions
In computing taxable income, an individual taxpayer who
itemizes deductions generally is allowed to deduct the amount
of cash and up to the fair market value of property contributed
to the following entities: (1) a charity described in section
170(c)(2); (2) certain veterans' organizations, fraternal
societies, and cemetery companies;\361\ and (3) a Federal,
State, or local governmental entity, but only if the
contribution is made for exclusively public purposes.\362\ The
deduction also is allowed for purposes of calculating
alternative minimum taxable income.
---------------------------------------------------------------------------
\361\Secs. 170(c)(3)-(5).
\362\Sec. 170(c)(1).
---------------------------------------------------------------------------
The amount of the deduction allowable for a taxable year
with respect to a charitable contribution of property may be
reduced depending on the type of property contributed, the type
of charitable organization to which the property is
contributed, and the income of the taxpayer.\363\
---------------------------------------------------------------------------
\363\Secs. 170(b) and (e).
---------------------------------------------------------------------------
A taxpayer who takes the standard deduction (i.e., who does
not itemize deductions) generally may not take a separate
deduction for charitable contributions.\364\ Under a temporary
provision in effect for contributions made in any taxable year
beginning in 2021, however, a taxpayer who does not itemize
deductions is permitted to take a deduction for contributions
of cash to a public charity (other than a donor advised fund or
a supporting organization) not to exceed $300 ($600 in the case
of a joint return).\365\
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\364\Sec. 170(a).
\365\Secs. 63(b)(4) and 170(p).
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A payment to a charity (regardless of whether it is termed
a ``contribution'') in exchange for which the donor receives an
economic benefit is not deductible, except to the extent that
the donor can demonstrate, among other things, that the payment
exceeds the fair market value of the benefit received from the
charity. To facilitate distinguishing charitable contributions
from purchases of goods or services from charities, present law
provides that no charitable contribution deduction is allowed
for a separate contribution of $250 or more unless the donor
obtains a contemporaneous written acknowledgement of the
contribution from the charity indicating whether the charity
provided any good or service (and an estimate of the value of
any such good or service provided) to the taxpayer in
consideration for the contribution.\366\ In addition, present
law requires that any charity that receives a contribution
exceeding $75 made partly as a gift and partly as consideration
for goods or services furnished by the charity (a ``quid pro
quo'' contribution) is required to inform the contributor in
writing of an estimate of the value of the goods or services
furnished by the charity and that only the portion exceeding
the value of the goods or services may be deductible as a
charitable contribution.\367\
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\366\Sec. 170(f)(8). For any contribution of a cash, check, or
other monetary gift, no deduction is allowed unless the donor maintains
as a record of such contribution a bank record or written communication
from the donee charity showing the name of the donee organization, the
date of the contribution, and the amount of the contribution. Sec.
170(f)(17).
\367\Sec. 6115.
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Under present law, total deductible contributions of an
individual taxpayer to public charities, private operating
foundations, and certain types of private nonoperating
foundations generally may not exceed 50 percent of the
taxpayer's contribution base, which is the taxpayer's adjusted
gross income for a taxable year (disregarding any net operating
loss carryback). To the extent a taxpayer has not exceeded the
50-percent limitation, (1) contributions of capital gain
property to public charities generally may be deducted up to 30
percent of the taxpayer's contribution base, (2) contributions
of cash to most private nonoperating foundations and certain
other charitable organizations generally may be deducted up to
30 percent of the taxpayer's contribution base, and (3)
contributions of capital gain property to private foundations
and certain other charitable organizations generally may be
deducted up to 20 percent of the taxpayer's contribution base.
For taxable years beginning after December 31, 2017, and before
January 1, 2026, the 50-percent limit is increased to 60
percent for contributions of cash.\368\
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\368\Sec. 170(b)(1)(G).
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Contributions by individuals in excess of the applicable
limits generally may be carried over and deducted over the next
five taxable years, subject to the relevant percentage
limitations on the deduction in each of those years.
In general, a charitable deduction is not allowed for
income, estate, or gift tax purposes if the donor transfers an
interest in property to a charity (e.g., a remainder) while
also either retaining an interest in that property (e.g., an
income interest) or transferring an interest in that property
to a noncharity for less than full and adequate
consideration.\369\ Exceptions to this general rule are
provided for, among other interests, remainder interests in
charitable remainder trusts (discussed below), pooled income
funds, and present interests in the form of a guaranteed
annuity or a fixed percentage of the annual value of the
property.\370\ For such interests, a charitable deduction is
allowed to the extent of the present value of the interest
designated for a charitable organization.
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\369\Secs. 170(f), 2055(e)(2), and 2522(c)(2).
\370\Sec. 170(f)(2).
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Charitable remainder trusts and charitable gift annuities
Both charitable remainder trusts and charitable gift
annuities are arrangements under which a taxpayer contributes
assets to charity (directly or through a trust) but retains an
interest. As part of these arrangements, a stream of payments
is guaranteed to one or more noncharitable beneficiaries
(possibly including the taxpayer) over a period of time, with
the remaining interest passing to charity. The taxpayer claims
a charitable deduction for the portion of the transfer
attributable to the charitable interest.
Charitable remainder trusts
A charitable remainder annuity trust is a trust that is
required to pay, at least annually, a fixed dollar amount of at
least five percent of the initial value of the trust to a
noncharity for the life of an individual or for a period of 20
years or less, with the remainder passing to charity. A
charitable remainder unitrust is a trust that generally is
required to pay, at least annually, a fixed percentage of at
least five percent of the fair market value of the trust's
assets determined at least annually to a noncharity for the
life of an individual or for a period of 20 years or less, with
the remainder passing to charity.\371\
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\371\Sec. 664(d). Charitable remainder annuity trusts and
charitable remainder unitrusts are exempt from Federal income tax for a
tax year unless the trust has any unrelated business taxable income for
the year (including certain debt financed income). A charitable
remainder trust that loses its exemption from income tax for a taxable
year is taxed as a complex trust. As such, the trust is allowed a
deduction in computing taxable income for amounts required to be
distributed in a taxable year, not to exceed the amount of the trust's
distributable net income for the year. Taxes imposed on the trust are
required to be allocated to corpus. Treas. Reg. sec. 1.664-1(d)(2).
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A trust does not qualify as a charitable remainder annuity
trust if the annuity for a year is greater than 50 percent of
the initial fair market value of the trust's assets. A trust
does not qualify as a charitable remainder unitrust if the
percentage of assets that are required to be distributed at
least annually is less than five percent or greater than 50
percent. A trust does not qualify as a charitable remainder
annuity trust or a charitable remainder unitrust unless the
value of the remainder interest in the trust is at least 10
percent of the value of the assets contributed to the trust.
Distributions from a charitable remainder annuity trust or
charitable remainder unitrust are treated in the following
order as: (1) ordinary income to the extent of the trust's
current and previously undistributed ordinary income for the
trust's year in which the distribution occurred, (2) capital
gains to the extent of the trust's current capital gain and
previously undistributed capital gain for the trust's year in
which the distribution occurred, (3) other income (e.g., tax-
exempt income) to the extent of the trust's current and
previously undistributed other income for the trust's year in
which the distribution occurred, and (4) corpus.\372\
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\372\Sec. 664(b).
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In general, distributions to the extent they are
characterized as income are includible in the income of the
beneficiary for the year that the annuity or unitrust amount is
required to be distributed even though the annuity or unitrust
amount is not distributed until after the close of the trust's
taxable year.\373\
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\373\Treas. Reg. sec. 1.664-1(d)(4).
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Charitable gift annuities
A charitable gift annuity is similar in concept to a
charitable remainder annuity trust, except that, under a
contract between the taxpayer and a charity, the assets are
transferred to the charity (not to a separate trust) in
exchange for the charity's promise to make fixed annuity
payments for life to the donor or to the donor and one other
person.
Charitable gift annuities are not treated as commercial-
type insurance for purposes of section 501(m), under which an
organization is not described in section 501(c)(3) if a
substantial part of its activities consists of providing
commercial-type insurance.\374\
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\374\Sec. 501(m)(3)(E) and (5).
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IRA rules
Within limits, individuals may make deductible and
nondeductible contributions to a traditional IRA. Amounts in a
traditional IRA are includible in income when withdrawn (except
to the extent the withdrawal represents a return of
nondeductible contributions). Certain individuals also may make
nondeductible contributions to a Roth IRA (deductible
contributions cannot be made to Roth IRAs). Qualified
withdrawals from a Roth IRA are excludable from gross income.
Withdrawals from a Roth IRA that are not qualified withdrawals
are includible in gross income to the extent attributable to
earnings. Includible amounts withdrawn from a traditional IRA
or a Roth IRA before attainment of age 59\1/2\ are subject to
an additional 10-percent early withdrawal tax unless an
exception applies. Under present law, minimum distributions are
required to be made from tax-favored retirement arrangements,
including IRAs. Minimum required distributions from a
traditional IRA must generally begin by April 1 of the calendar
year following the year in which the IRA owner attains age
72.\375\
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\375\Minimum distribution rules also apply in the case of
distributions after the death of a traditional or Roth IRA owner.
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If an individual has made nondeductible contributions to a
traditional IRA, a portion of each distribution from an IRA is
nontaxable until the total amount of nondeductible
contributions has been received. In general, the amount of a
distribution that is nontaxable is determined by multiplying
the amount of the distribution by the ratio of the remaining
nondeductible contributions to the account balance. In making
the calculation, all traditional IRAs of an individual are
treated as a single IRA, all distributions during any taxable
year are treated as a single distribution, and the value of the
contract, income on the contract, and investment in the
contract are computed as of the close of the calendar year.
In the case of a distribution from a Roth IRA that is not a
qualified distribution, in determining the portion of the
distribution attributable to earnings, contributions and
distributions are deemed to be distributed in the following
order: (1) regular Roth IRA contributions; (2) taxable
conversion contributions;\376\ (3) nontaxable conversion
contributions; and (4) earnings. In determining the amount of
taxable distributions from a Roth IRA, all Roth IRA
distributions in the same taxable year are treated as a single
distribution, all regular Roth IRA contributions for a year are
treated as a single contribution, and all conversion
contributions during the year are treated as a single
contribution.
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\376\Conversion contributions refer to conversions of amounts in a
traditional IRA to a Roth IRA.
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Distributions from an IRA (other than a Roth IRA) are
generally subject to withholding unless the individual elects
not to have withholding apply.\377\ Elections not to have
withholding apply are to be made in the time and manner
prescribed by the Secretary.
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\377\Sec. 3405.
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Qualified charitable distributions
Otherwise taxable IRA distributions from a traditional or
Roth IRA are excluded from gross income to the extent they are
qualified charitable distributions.\378\ The exclusion may not
exceed $100,000 per taxpayer per taxable year.
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\378\Sec. 408(d)(8). The exclusion does not apply to distributions
from employer-sponsored retirement plans, including SIMPLE IRAs and
simplified employee pensions (``SEPs'').
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An individual who receives a deduction for a contribution
to a traditional IRA for years ending on or after age 70\1/2\
is not eligible to exclude such amount from income as a
qualified charitable distribution. Thus, the amount of
qualified charitable distributions otherwise excludable from an
individual's gross income for a taxable year is reduced (but
not below zero) by the excess of (i) the aggregate amount of
deductions allowed to the taxpayer for contributions to a
traditional IRA for taxable years ending on or after the
individual attains age 70\1/2\, over (ii) the aggregate amount
of reductions for all taxable years preceding the current year.
Special rules apply in determining the amount of an IRA
distribution that is otherwise taxable. The otherwise
applicable rules regarding taxation of IRA distributions and
the deduction of charitable contributions continue to apply to
distributions from an IRA that are not qualified charitable
distributions. A qualified charitable distribution is taken
into account for purposes of the minimum distribution rules
applicable to traditional IRAs to the same extent the
distribution would have been taken into account under such
rules had the distribution not been directly distributed under
the qualified charitable distribution provision. An IRA does
not fail to qualify as an IRA as a result of qualified
charitable distributions being made from the IRA.
A qualified charitable distribution is any distribution
from an IRA directly by the IRA trustee to an organization
described in section 170(b)(1)(A) (generally, public charities)
other than a supporting organization (as described in section
509(a)(3)) or a donor advised fund (as defined in section
4966(d)(2)). Distributions are eligible for the exclusion only
if made on or after the date the IRA owner attains age 70\1/2\
and only to the extent the distribution would be includible in
gross income (without regard to this provision).
The exclusion applies only if a charitable contribution
deduction for the entire distribution otherwise would be
allowable (under present law), determined without regard to the
generally applicable percentage limitations. Thus, for example,
if the deductible amount is reduced because of a benefit
received in exchange, or if a deduction is not allowable
because the donor did not obtain sufficient substantiation, the
exclusion is not available with respect to any part of the IRA
distribution.
If the IRA owner has any IRA that includes nondeductible
contributions, a special rule applies in determining the
portion of a distribution that is includible in gross income
(but for the qualified charitable distribution provision) and
thus is eligible for qualified charitable distribution
treatment. Under the special rule, the distribution is treated
as consisting of income first, up to the aggregate amount that
would be includible in gross income (but for the qualified
charitable distribution provision) if the aggregate balance of
all IRAs having the same owner were distributed during the same
year. In determining the amount of subsequent IRA distributions
includible in income, proper adjustments are to be made to
reflect the amount treated as a qualified charitable
distribution under the special rule.
Distributions that are excluded from gross income by reason
of the qualified charitable distribution provision are not
taken into account in determining the deduction for charitable
contributions under section 170.
REASONS FOR CHANGE
The present-law qualified charitable distribution rules
provide senior citizens with flexibility in making gifts to
charity by treating certain charitable distributions from an
IRA as required minimum distributions while excluding these
distributions from gross income. The $100,000 annual exclusion
limit, however, has not been increased since the provision
first went into effect in 2006. The Committee believes it is
important to index the annual exclusion limit for inflation to
prevent future erosion of the qualified charitable distribution
tax benefit. In addition, the Committee wishes to build on the
success of the present-law rules by allowing additional
flexibility for seniors in the form of a one-time election to
make qualified charitable distributions to a split-interest
entity, such as a charitable gift annuity or a charitable
remainder trust.
EXPLANATION OF PROVISION
First, the provision indexes the annual $100,000 exclusion
limit for inflation for taxable years beginning after 2021.
Second, the provision allows a taxpayer to elect for a
taxable year to treat certain distributions from an IRA to a
split-interest entity as if the contributions were made
directly to a qualifying charity for purposes of the exclusion
from gross income for qualified charitable distributions. Such
an election may not have been in effect for a preceding taxable
year; thus, the election may be made for only one taxable year
during the taxpayer's lifetime. The aggregate amount of
distributions of the taxpayer with respect to the election may
not exceed $50,000 (indexed for inflation for taxable years
beginning after 2021).
A split-interest entity means: (1) a charitable remainder
annuity trust (as defined in section 664(d)(1)); (2) a
charitable remainder unitrust (as defined in section
664(d)(2)); or (3) a charitable gift annuity (as defined in
section 501(m)). In each case, the trust or arrangement must be
funded exclusively by qualified charitable distributions. In
the case of a charitable gift annuity, fixed payments of 5
percent or greater must commence not later than one year from
the date of funding.
In the case of a distribution from an IRA to a charitable
remainder annuity trust or charitable remainder unitrust, the
distribution qualifies for the one-time election only if a
charitable deduction for the entire value of the charitable
remainder interest would be allowable under section 170
(determined without regard to this provision or the charitable
deduction percentage limits under section 170(b)). In the case
of a distribution to a charitable gift annuity, the
distribution qualifies for the one-time election only if a
charitable deduction in an amount equal to the amount of the
distribution reduced by the value of the annuity\379\ would be
allowable under section 170 (determined without regard to this
provision or the charitable deduction percentage limits under
section 170(b)).
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\379\The annuity must be described in section 501(m)(5)(B), which
provides that the annuity is described in section 514(c)(5), determined
as if the amount paid in cash for the issuance of the annuity were
property. Section 514(c)(5), in turn, describes when an obligation to
pay an annuity is not treated as ``acquisition indebtedness'' for
purposes of the section 514 debt-financed income rules. Under that
section, the obligation to pay the annuity: (1) generally must be the
sole consideration issued in exchange for property if, at the time of
the exchange, the value of the annuity is less than 90 percent of the
value of the property received in exchange; (2) is payable over the
life of one individual or the lives of two individuals in being at such
time; and (3) does not guarantee a minimum amount of payments or
specify a maximum amount of payments and does not provide for any
adjustment of the amount of the annuity payments by reference to the
income received from the transferred property or any other property.
Sec. 514(c)(5).
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In addition, a distribution from an IRA to a split-interest
entity qualifies for the one-time election only if: (1) no
person holds an income interest in the split-interest entity
other than the individual for whose benefit such account is
maintained, the spouse of such individual, or both; and (2) the
income interest in the split-interest entity is nonassignable.
In the case of a charitable remainder annuity trust or a
charitable remainder unitrust that is funded by qualified
charitable distributions, distributions are treated as ordinary
income in the hands of a beneficiary to whom an annuity or
unitrust payment is made. A qualified charitable distribution
made to fund a charitable gift annuity is not treated as an
investment in the contract for purposes of section 72(c).
EFFECTIVE DATE
The provision is effective for distributions made in
taxable years ending after the date of enactment.
10. Distributions to Firefighters (sec. 310 of the bill and sec. 72(t)
of the Code)
PRESENT LAW
Distributions from tax-favored retirement plans A
distribution from a qualified retirement plan,\380\ a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible
deferred compensation plan of a State or local government
employer (a ``governmental section 457(b) plan''), or an IRA
generally is included in income for the year distributed.\381\
These plans are referred to collectively as ``eligible
retirement plans.'' In addition, unless an exception applies, a
distribution from a qualified retirement plan, a section 403(b)
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal
tax'') on the amount includible in income.\382\
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\380\Qualified under section 401(a).
\381\Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section
3405, distributions from these plans are generally subject to income
tax withholding unless the recipient elects otherwise. In addition,
certain distributions from a qualified retirement plan, a section
403(b) plan, or a governmental section 457(b) plan are subject to
mandatory income tax withholding at a 20-percent rate unless the
distribution is rolled over.
\382\Sec. 72(t). Under present law, the 10-percent early withdrawal
tax does not apply to distributions from a governmental section 457(b)
plan.
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Qualified public safety employees in governmental plans
An exception to the early withdrawal tax applies if a
distribution is made to an employee after separation from
service after attainment of age 55.\383\ Under a special rule
for distributions to qualified public safety employees in a
governmental plan,\384\ this exception applies to distributions
made after separation from service after attainment of age 50
(``age 50 exception'').\385\ For this purpose, a qualified
public safety employee means (1) any employee of a State or a
political subdivision of a State who provides police
protection, firefighting services, or emergency medical
services for any area within the State or political
subdivision's jurisdiction; or (2) any Federal law enforcement
officer,\386\ any Federal customs and border protection
officer,\387\ any Federal firefighter,\388\ any Federal
employee who is an air traffic controller\389\ or nuclear
materials courier,\390\ any member of the United States Capitol
Police, any member of the Supreme Court Police, or any
diplomatic security special agent of the Department of State.
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\383\Sec. 72(t)(2)(A)(v).
\384\As defined in section 414(d).
\385\Sec. 72(t)(10).
\386\As defined in 5 U.S.C. secs. 8331(20) or 8401(17).
\387\As defined in 5 U.S.C. secs. 8331(31) or 8401(36).
\388\As defined in 5 U.S.C. secs. 8331(21) or 8401(14).
\389\As defined in 5 U.S.C. secs. 8331(30) or 8401(35).
\390\As defined in 5 U.S.C. secs. 8331(27) or 8401(33).
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REASONS FOR CHANGE
The Committee believes that private sector firefighters
merit the same treatment as public sector firefighters, and
thus wishes to extend the age 50 exception to private sector
firefighters.
EXPLANATION OF PROVISION
The provision amends the age 50 exception for qualified
public safety employees in governmental plans so that the
exception also applies to distributions from a qualified
retirement plan or section 403(b) plan\391\ to an employee who
provides firefighting services. Thus, the provision expands the
age 50 exception to also apply to private-sector firefighters
receiving distributions from a qualified retirement plan or
section 403(b) plan.
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\391\The provision applies to a distribution from a qualified
retirement plan, an annuity plan described in section 403(a), or an
annuity contract described in section 403(b). Sec. 402(c)(8)(B)(iii),
(iv), and (vi).
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EFFECTIVE DATE
The provision is effective for distributions made after
December 31, 2021.
11. Exclusion of Certain Disability-Related First Responder Retirement
Payments (sec. 311 of the bill and sec. 139C of the Code)
PRESENT LAW
Qualified retirement plans (and other tax-favored employer-
sponsored retirement plans) are accorded special tax treatment
and fall into two categories: defined benefit plans and defined
contribution plans. A defined contribution plan is a type of
qualified retirement plan whereby contributions, earnings, and
losses are allocated to a separate account for each
participant. Defined contribution plans may provide for
nonelective contributions and matching contributions by
employers and pre-tax (that is, contributions are either
excluded from income or deductible) or after-tax contributions
by employees.
Disability-related payments
Amounts received under worker's compensation acts as
compensation for personal injuries or sickness (``disability
payments'') generally are excluded from the gross income of the
recipients.\392\ The exclusion from gross income includes
compensation for personal injuries or sickness received under a
statute in the nature of a worker's compensation act, and also
extends such exclusion to survivors of the affected worker.
However, these exclusions generally do not apply to amounts
received as a retirement pension or annuity (including
retirement disability payments) to the extent that the amounts
are determined by reference to the employee's age, length of
service, or prior contributions. Such retirement payments,
which may be distributed from a section 401(a) qualified
retirement plan, a section 403(a) or (b) tax-sheltered annuity
plan, or an eligible deferred compensation plan of a State or
local government employer under section 457(b) (``retirement
distributions''), generally are included in income for the year
distributed.
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\392\Sec. 104(a)(1).
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REASONS FOR CHANGE
The Committee believes that certain retirement
distributions paid to qualified first responders should be
excluded from gross income to the extent such payments are
related to the first responders' disability.
EXPLANATION OF PROVISION
The provision adds Section 139C to the Code to address the
tax treatment of certain disability-related retirement
distributions to qualified first responders. An individual's
gross income does not include qualified first responder
retirement payments for any taxable year to the extent such
payments do not exceed an annualized excludable disability
amount. A qualified first responder retirement payment that is
excluded from gross income is a pension or annuity that would
otherwise be includible in gross income, is received in
connection with the individual's qualified first responder
service, and is paid from a qualified trust, annuity plan,
governmental deferred compensation plan under section 457(b),
or a section 403(b) plan.\393\ Also, for this purpose,
qualified first responder service means services performed as a
law enforcement officer, firefighter, paramedic, or emergency
medical technician. The provision does not limit the exclusion
from gross income to individuals who provide such services in a
public capacity or to individuals who address only emergency
situations.
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\393\These plans are described in clauses (iii), (iv), (v), and
(vi) of section 402(c)(8)(B), respectively.
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The portion of the retirement distributions which is
exempted from gross income is the ``annualized excludable
disability amount.'' This is based on the determination of the
excludable amount of disability payments (``service-connected
excludable disability amount'') that the individual received
during the 12-month period before the individual attained
retirement age. A service-connected excludable disability
amount means periodic payments which are not includible in the
individual's gross income because they are amounts received
under workmen's compensation acts as compensation for personal
injuries or sickness,\394\ are received in connection with the
individual's qualified first responder service, and terminate
when the individual attains retirement age.
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\394\Sec. 104(a)(1).
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The provision also provides that for an individual who only
receives service-connected excludable disability amounts for a
portion of the year, the annualized excludable disability
amount is determined by multiplying the service-connected
excludable disability amounts by the ratio of 365 to the number
of days in such period to which amounts were properly
attributable.
Unlike worker's compensation payments, the exclusion under
the provision that is applicable to eligible first responders
does not extend to surviving spouses or other survivors once
the eligible individual is deceased.
EFFECTIVE DATE
The provision is effective for amounts received with
respect to taxable years beginning after December 31, 2026.
12. Individual Retirement Plan Statute of Limitations for Excise Tax on
Excess Contributions and Certain Accumulations (sec. 312 of the bill
and sec. 6501 of the Code)
PRESENT LAW
Excise taxes
If an individual makes excess contributions to an
individual retirement account\395\ or individual retirement
annuity,\396\ an excise tax in the amount equal to six percent
of the amount of the excess contributions to such individual's
IRAs (determined as of the close of the taxable year) is
imposed for each taxable year as long as the amount of the
excess contributions remain in the plan.\397\ However, the
amount of the tax for any taxable year is limited so that it
does not exceed six percent of the value of the account or
annuity (determined as of the close of the taxable year).
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\395\Sec. 408(a).
\396\Sec. 408(b).
\397\Sec. 4973.
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An ``excess contribution'' generally means the excess (if
any) of the amount of contributions made to the individual's
IRAs (other than a Roth IRA) for the taxable year over the
amount allowable as a deduction for such contributions.\398\
For 2021, the total contributions an individual could make to
his or her traditional and Roth IRAs was the lesser of $6,000
($7,000 if the participant was age 50 or older), or the
individual's taxable compensation for the year.
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\398\Under section 219.
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In addition, an excise tax on ``certain accumulations''
applies if the amount distributed during a taxable year of a
participant or beneficiary of a qualified retirement plan\399\
or any eligible deferred compensation plan,\400\ is less than
the minimum required distribution for such taxable year. The
excise tax is equal to 50 percent of the amount by which such
minimum required distribution exceeds the actual amount
distributed during the taxable year and is imposed on the
individual required to take the distribution. The Secretary may
waive the excise tax where the taxpayer establishes (to the
satisfaction of the Secretary) that the failure is due to
reasonable error and reasonable steps are taken to remedy the
shortfall.
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\399\As defined in section 4974(d) and including a section 401(a)
qualified plan, a section 403(a) annuity plan, a section 403(b) tax-
sheltered annuity, and an IRA (a section 408 individual retirement
account or annuity).
\400\As defined in section 457(b).
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Statute of limitations
In general, the statute of limitations with respect to a
tax liability starts to run within three years after the return
is filed.\401\ The term ``return'' means the return required to
be filed by the taxpayer relating to the particular type of tax
(and does not include a return of any person from whom the
taxpayer has received an item of income, gain, loss, deduction,
or credit). With respect to the excise taxes imposed on excess
contributions and certain accumulations,\402\ Form 5329,
Additional Taxes on Qualified Plans (Including IRAs) and Other
Tax-Favored Accounts, is the return that needs to be filed to
start the statute of limitations.\403\ Unless Form 5329 is
filed with the Form 1040, the statute of limitations will not
begin to run.\404\
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\401\Sec. 6501(a).
\402\Secs. 4973 and 4974, respectively.
\403\Internal Revenue Service, Internal Revenue Manual, Forms
Reporting More Than One Item of Tax, Ch. 25.6, sec. 25.6.1.9.4.3 (May
2, 2019).
\404\Ibid. at 25.6.1.9.4.3(6)(b). ``The period of limitations on
assessment for the miscellaneous excise taxes does not begin with the
filing of the Form 1040. The other miscellaneous excise taxes carry
their own period of assessment based on when the Form 5329 is received
for assessment.'' See also, Robert K. Paschall, et ux. V. Commissioner,
137 T.C. 8 (2011). ``We hold that the filing of the Forms 1040 did not
start the statute of limitations running for purposes of the section
4973 excise tax in the absence of accompanying Forms 5329.''
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REASONS FOR CHANGE
Under present law, the statute of limitations with respect
to the excise taxes imposed on excess contributions and certain
accumulations in connection with an IRA starts as of the date
the Form 5329 is filed with the individual's tax return with
respect to the underlying violation.
The Committee believes the statute of limitations should
begin in such circumstances when the taxpayer files an
individual tax return for the year of the violation, thereby
providing relief from the possibility that the statute of
limitations does not start because the taxpayer failed to file
the Form 5329 with the individual's tax return because the
taxpayer was unaware of the Form or the obligation to file it.
EXPLANATION OF PROVISION
The provision provides that for purposes of any excise tax
imposed on excess contributions or on certain accumulations in
connection with an IRA, the return referred to in this section
is the income tax return filed by the person on whom the tax is
imposed for the year in which the act (or failure to act)
giving rise to the liability for such tax occurred. The filing
of Form 5329 will generally no longer be required to start the
three-year statute of limitations.
In the case of a person who is not required to file an
income tax return for such year, (1) the relevant return is the
income tax return that such person would have been required to
file but for the fact that such person was not required to file
such return, and (2) the three-year statute of limitations
period is deemed to begin on the date by which the return would
have been required to be filed (excluding any extension
thereof).
EFFECTIVE DATE
The provision is effective on the date of enactment.
13. Requirement To Provide Paper Statements in Certain Cases (sec. 313
of the bill and sec. 105 of ERISA)
PRESENT LAW
Pension benefit statement
ERISA requires plan administrators to periodically furnish
participants and beneficiaries with statements describing the
individual's benefit under the plan. Such requirements depend
in part on the type of plan and the individual to whom the
statement is provided.\405\
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\405\ERISA sec. 105. The requirement does not apply to a one-
participant retirement plan described in section 101(i)(8)(B) of ERISA.
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In general, a benefit statement is required to indicate, on
the basis of the latest available information: (1) the total
benefits accrued; (2) the vested accrued benefit or the
earliest date on which the accrued benefit will become vested;
and (3) an explanation of any permitted disparity or floor-
offset arrangement that may be applied in determining accrued
benefits under the plan.\406\ With respect to information on
vested benefits, the Secretary of Labor is required to provide
that the requirements are met if, at least annually, the plan:
(1) updates the information on vested benefits that is provided
in the benefit statement; or (2) provides in a separate
statement information as is necessary to enable participants
and beneficiaries to determine their vested benefits. The
benefit statement must be written in a manner calculated to be
understood by the average plan participant.
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\406\Sec. 401(l). Under the permitted disparity rules,
contributions or benefits may be provided at a higher rate with respect
to compensation above a specified level and at a lower rate with
respect to compensation up to the specified level. In addition,
benefits under a defined benefit plan may be offset by a portion of a
participant's expected social security benefits. Under a floor-offset
arrangement, benefits under a defined benefit pension plan are reduced
by benefits under a defined contribution plan.
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If a plan administrator fails to provide a required benefit
statement to a participant or beneficiary, the participant or
beneficiary may bring a civil action to recover from the plan
administrator $100 a day, within the court's discretion, or
other relief that the court deems proper.
Requirements for defined contribution plans
The administrator of a defined contribution plan is
required to provide a benefit statement (1) to a participant or
beneficiary who has the right to direct the investment of the
assets in his or her account, at least quarterly, (2) to any
other participant or other beneficiary who has his or her own
account under the plan, at least annually, and (3) to other
beneficiaries, upon written request, but limited to one request
during any 12-month period.
A benefit statement provided with respect to a defined
contribution plan must include the value of each investment to
which assets in the individual's account are allocated
(determined as of the plan's most recent valuation date),
including the value of any assets held in the form of employer
securities (without regard to whether the securities were
contributed by the employer or acquired at the direction of the
individual). In at least one benefit statement provided during
a 12-month period, the statement must include a lifetime income
disclosure that sets forth the lifetime income stream
equivalent of the total benefits accrued with respect to the
participant or beneficiary.\407\
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\407\ERISA sec. 105(a)(2)(B)(iii). The term ``lifetime income
stream equivalent of the total benefits accrued'' means the amount of
monthly payments the participant or beneficiary would receive if the
total accrued benefits of such participant or beneficiary were used to
provide lifetime income streams, based on assumptions specified in
rules prescribed by the Secretary. Lifetime income streams for this
purpose are a qualified joint and survivor annuity (as defined in ERISA
section 205(d)), based on assumptions specified in rules prescribed by
the Secretary of Labor, including the assumption that the participant
or beneficiary has a spouse of equal age, and a single life annuity.
Such lifetime income streams may have a term certain or other features
to the extent permitted under rules prescribed by the Secretary of
Labor.
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A quarterly benefit statement provided to a participant or
beneficiary who has the right to direct investments must also
include: (1) an explanation of any limitations or restrictions
on any right of the individual to direct an investment; (2) an
explanation, written in a manner calculated to be understood by
the average plan participant, of the importance, for the long-
term retirement security of participants and beneficiaries, of
a well-balanced and diversified investment portfolio, including
a statement of the risk that holding more than 20 percent of a
portfolio in the security of one entity (such as employer
securities) may not be adequately diversified; and (3) a notice
directing the participant or beneficiary to the DOL's website
for sources of information on individual investing and
diversification.
Requirements for defined benefit plans
The administrator of a defined benefit plan is required
either: (1) to furnish a benefit statement at least once every
three years to each participant who has a vested accrued
benefit under the plan and who is employed by the employer at
the time the benefit statements are furnished to participants;
or (2) to furnish at least annually to each such participant
notice of the availability of a benefit statement and the
manner in which the participant can obtain it. The Secretary of
Labor is authorized to provide that years in which no employee
or former employee benefits under the plan need not be taken
into account in determining the three-year period.
The administrator of a defined benefit pension plan is also
required to furnish a benefit statement to a participant or
beneficiary upon written request, limited to one request during
any 12-month period.
In the case of a statement provided to a participant with
respect to a defined benefit plan (other than at the
participant's request), information may be based on reasonable
estimates determined under regulations prescribed by the
Secretary of Labor in consultation with the PBGC.
Delivery of pension benefit statement
The pension benefit statement may be delivered in written,
electronic, or other appropriate form to the extent such form
is reasonably accessible to the recipient. DOL regulations
provide guidance on the disclosure of the pension benefit
statement, in addition to other required statements and
information.\408\ Under the regulations, the plan administrator
generally must use measures reasonably calculated to ensure
actual receipt of the material by plan participants,
beneficiaries, and other specified individuals. The guidance
includes two safe harbors pursuant to which an administrator
may disclose information electronically and be treated as
meeting this requirement.
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\408\29 C.F.R. sec. 2520.104b-1.
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2002 safe harbor
Under the first safe harbor, provided by regulation in 2002
(``2002 safe harbor''), a plan administrator is treated as
meeting the above requirement if the administrator takes
appropriate and necessary measures reasonably calculated to
ensure that the system for furnishing documents (1) results in
actual receipt of transmitted information, and (2) protects the
confidentiality of personal information relating to the
individual's accounts and benefits.\409\ In addition,
electronically-delivered documents must be prepared and
furnished in a manner that is consistent with the style,
format, and content requirements applicable to the particular
document. Notice (either electronic or non-electronic) must
also be provided at the time the document is furnished
electronically that apprises the individual of the significance
of the document when it is not otherwise reasonably evident and
of the right to request and obtain a paper version. The plan
must provide any paper versions that are requested.
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\409\29 C.F.R. sec. 2520.104b-1(c).
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The 2002 safe harbor applies only to individuals who
generally either (1) have the ability to effectively access
electronic documents at work, and access to the employer or
plan sponsor's electronic information system is an integral
part of the individual's duties; or (2) have consented to
receiving documents electronically, have not withdrawn such
consent, and were provided a statement prior to consent that
contains certain required disclosures regarding such consent.
Additional information must be furnished upon certain changes
to hardware or software requirements.
Alternative safe harbor
Under a safe harbor that is an alternative to the 2002 safe
harbor (``alternative safe harbor''), a plan administrator is
deemed to meet the requirement relating to taking measures
reasonably calculated to ensure actual receipt of covered
documents if the plan administrator complies with certain
notice, access, and other requirements described in the
regulations.\410\ For this purpose, covered documents are
generally documents that the plan administrator is required to
furnish to participants and beneficiaries under ERISA, except
documents required to be furnished only upon request.
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\410\29 C.F.R. sec. 2520.104b-31.
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In order to satisfy the alternative safe harbor, a notice
of internet availability must be furnished at the time the
covered document is made available on the website. Subject to
certain additional rules, a notice of internet availability may
be provided annually and apply to multiple covered documents.
The notice must comply with certain content requirements and
must be written in a manner reasonably calculated to be
understood by the average plan participant. Certain
requirements also apply to the website where the covered
documents are posted.
If an individual requests a paper version of a covered
document, under the alternative safe harbor, the plan
administrator must promptly furnish such paper version free of
charge. Additional requirements relating to the opting out of
electronic delivery apply, including that individual must be
able to globally opt out of electronic delivery. In addition,
the plan administrator must furnish to each individual, prior
to the administrator's reliance on the safe harbor, a paper
notification that covered documents will be furnished
electronically. Such paper notice must include certain
information, including the electronic address that will be used
for the individual and any necessary instructions. Special
rules apply to separated participants.
Under the alternative safe harbor, a plan administrator is
also permitted to satisfy the safe harbor by using an email
address to furnish covered documents to an individual, provided
certain requirements are met.
The alternative safe harbor only applies to participants,
beneficiaries, and other individuals entitled to receive
disclosures if the individual provides an electronic address at
which the individual may receive a written notice of internet
availability or email of covered documents, or if the
individual is assigned an electronic address for employment-
related purposes.
REASONS FOR CHANGE
The Committee recognizes the importance of pension benefit
statements to a participant's understanding of his or her
benefit under a retirement plan. In addition, the Committee
recognizes that some participants may be more likely to see and
review their benefit statements if they receive a statement on
paper (rather than merely electronically). Thus, the Committee
believes that it is appropriate to generally require (unless
the participant elects otherwise) defined contribution plans to
provide at least one paper pension benefit statement per year,
and defined benefit plans to provide at least one such
statement every three years.
EXPLANATION OF PROVISION
The provision modifies the requirement under ERISA relating
to the delivery of pension benefit statements to generally
require that, for a defined contribution plan, at least one
such statement with respect to an individual must be provided
on paper in written form for each calendar year. Similarly, for
a defined benefit plan, at least one pension benefit statement
with respect to an individual must be provided on paper every
three years. An exception applies to (1) a plan that discloses
documents using the 2002 safe harbor (subject to the
modifications to this safe harbor described below); or (2) a
plan that permits participants and beneficiaries to request
electronic delivery of pension benefit statements, if the
participant or beneficiary makes such a request and the
statement is so delivered.
The provision also directs the Secretary of Labor to make
certain amendments to its regulations. With respect to the 2002
safe harbor,\411\ the Secretary of Labor is directed to update
the regulation no later than December 31, 2021 to provide that
a plan may furnish pension benefit statements\412\
electronically only if, in addition to meeting other
requirements under the regulations, the plan (1) furnishes each
participant and beneficiary a one-time initial paper notice,
prior to the electronic delivery of any pension benefit
statement, of the participant's right to request that all
documents required to be disclosed under title I of ERISA be
furnished on paper, and (2) furnishes each participant who is
separated from service at least one paper pension benefit
statement each year, unless the participant requests electronic
delivery of such statements (and such statements are so
delivered).
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\411\29 C.F.R. sec. 2520.104b-1(c).
\412\The pension benefit statement that is required to be provided
on paper under the provision at least once per calendar year for a
defined contribution plan and at least once every three years for a
defined benefit plan.
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In addition, the Secretary must update guidance governing
electronic disclosure (other than the 2002 safe harbor) no
later than December 31, 2021 to the extent necessary to ensure
the following, with respect to a plan that discloses required
documents or statements electronically:
A participant or beneficiary under such a
plan is permitted the opportunity to request that any
disclosure required to be delivered on paper under
applicable guidance by the DOL is furnished by
electronic delivery;
Each paper statement furnished under such a
plan includes (1) an explanation of how to request that
all such statements, and any other document required to
be disclosed, be furnished by electronic delivery; and
(2) contact information for the plan sponsor, including
a telephone number;
The plan may not charge any fee to a
participant or beneficiary for the delivery of paper
statements;
Each paper pension benefit statement
identifies each plan document required to be disclosed
and includes information about how a participant or
beneficiary may access each such document;
Each document required to be disclosed that
is furnished by electronic delivery includes an
explanation of how to request that all such documents
be furnished on paper; and
A plan is permitted to furnish a duplicate
electronic statement in any case in which the plan
furnishes a paper pension benefit statement.
EFFECTIVE DATE
The provision applies to plan years beginning after
December 31, 2022.
14. Separate Application of Top Heavy Rules to Defined Contribution
Plans Covering Excludible Employees (sec. 314 of the bill and sec. 416
of the Code)
PRESENT LAW
Top-heavy requirements
Top-heavy requirements apply to limit the extent to which
accumulated benefits or account balances under a qualified
retirement plan can be concentrated with key employees.\413\
Whereas the general nondiscrimination requirements are designed
to test annual contributions or benefits for highly compensated
employees, compared to those of non-highly compensated
employees, the top-heavy rules test the portion of the total
plan contributions or benefits that have accumulated for the
benefit of key employees as a group. If a plan is top-heavy,
minimum contributions or benefits must be provided for non-key
employees and, in some cases, faster vesting is required. In
general, for a defined contribution plan, this minimum
contribution is three percent of the participant's
compensation; however, such contribution is limited by the
percentage at which contributions are made for the key employee
with the highest percentage of contributions.
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\413\Secs. 401(a)(10)(B) and 416.
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For this purpose, a key employee is an officer with annual
compensation greater than $185,000 (for 2021), a five-percent
owner, or a one-percent owner with compensation in excess of
$150,000. A defined benefit plan generally is top-heavy if the
present value of cumulative accrued benefits for key employees
exceeds 60 percent of the cumulative accrued benefits for all
employees. A defined contribution plan is top-heavy if the
aggregate of accounts for key employees exceeds 60 percent of
the aggregate accounts for all employees. The nature of the
top-heavy test is such that a plan of a large business with
many employees is unlikely to be top-heavy. The top-heavy
requirements are therefore viewed as primarily affecting plans
of smaller employers in which the owners participate.
Minimum coverage requirements
As part of the general nondiscrimination requirements, a
qualified retirement plan must satisfy the minimum coverage
requirement.\414\ Under the minimum coverage requirement, the
plan's coverage of employees must be nondiscriminatory. This is
determined by calculating the plan's ratio percentage, that is,
the ratio of the percentage of non-highly compensated employees
(of all non-highly compensated employees in the workforce)
covered under the plan over the percentage of highly
compensated employees covered. If the plan's ratio percentage
is 70 percent or greater, the plan satisfies the minimum
coverage requirement. If the plan's ratio percentage is less
than 70 percent, a multi-part test applies.\415\ In addition,
the average benefit percentage test must be satisfied. Under
the average benefit percentage test, the average rate of
contributions or benefit accruals for all non-highly
compensated employees in the workforce (taking into account all
plans of the employer) must be at least 70 percent of the
average contribution or accrual rate of all highly compensated
employees.
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\414\Sec. 410(b).
\415\The plan must cover a group (or classification) of employees
that is reasonable and established under objective business criteria,
such as hourly or salaried employees (referred to as a reasonable
classification), and the plan's ratio percentage must be at or above a
specific level specified in the regulations.
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The minimum coverage and general nondiscrimination
requirements apply annually on the basis of the plan year.
Employees who have not satisfied minimum age and service
conditions under the plan, certain nonresident aliens, and
employees covered by a collective bargaining agreement are
generally disregarded.\416\ However, a plan that covers
employees with less than a year of service or who are under age
21 (``otherwise excludable employees'') must generally include
those employees in any nondiscrimination test for the year but
can test the plan for nondiscrimination in two parts: (1) by
separately testing the portion of the plan covering otherwise
excludable employees and treating all such employees as the
only employees of the employer; and (2) then testing the rest
of the plan taking into account the rest of the employees of
the employer and excluding the otherwise excludable employees.
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\416\Qualified plans generally cannot delay an employee's
participation in the plan beyond the later of completion of one year of
service (i.e., a 12-month period with at least 1,000 hours of service)
or attainment of age 21. Sec. 410(a)(1). A plan or portion of a plan
covering collectively bargained employees is generally deemed to
satisfy the nondiscrimination requirements.
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REASONS FOR CHANGE
The Committee believes that the rules allowing an employer
to separately test otherwise excludable employees for certain
nondiscrimination testing purposes were intended to encourage
plan sponsors to permit employees to defer earlier than when
the employee meets the minimum age and service conditions under
the Code. Such separate testing is not allowed for the top-
heavy test. Small business retirement plans often do not cover
employees that do not meet the minimum age and service
requirements because if the plan is or becomes top heavy, the
employer may be required to contribute a top-heavy employer
contribution for all employees who are eligible to participate
in the plan, straining the budget for these small businesses.
Thus, the Committee believes it is appropriate to allow an
employer to perform the top-heavy test separately with respect
to otherwise excludable employees. This policy would remove the
financial incentive to exclude employees who do not meet
minimum age and service from retirement plans and extend
retirement plan coverage to more workers.
EXPLANATION OF PROVISION
Under the provision, if a top-heavy defined contribution
plan covers employees who do not meet the minimum age and
service requirements under the Code, and the plan satisfies the
top-heavy minimum contribution requirement separately with
respect to such employees, such employees may be excluded from
consideration in determining whether any plan of the employer
satisfies the top-heavy minimum contribution requirement.
EFFECTIVE DATE
The provision applies to plan years beginning after date of
enactment.
15. Repayment of Qualified Birth or Adoption Distributions Limited to
Three Years (sec. 315 of the bill and sec. 72 of the Code)
PRESENT LAW
Distributions from tax-favored retirement plans
A distribution from a qualified retirement plan, a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible
deferred compensation plan of a State or local government
employer (a ``governmental section 457(b) plan''), or an IRA
generally is included in income for the year distributed.\417\
These plans are referred to collectively as ``eligible
retirement plans.'' In addition, unless an exception applies, a
distribution from a qualified retirement plan, a section 403(b)
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal
tax'') on the amount includible in income.\418\
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\417\Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section
3405, distributions from these plans are generally subject to income
tax withholding unless the recipient elects otherwise. In addition,
certain distributions from a qualified retirement plan, a section
403(b) plan, or a governmental section 457(b) plan are subject to
mandatory income tax withholding at a 20-percent rate unless the
distribution is rolled over.
\418\Sec. 72(t). Under present law, the 10-percent early withdrawal
tax does not apply to distributions from a governmental section 457(b)
plan.
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In general, a distribution from an eligible retirement plan
may be rolled over to another eligible retirement plan within
60 days, in which case the amount rolled over generally is not
includible in income. The IRS has the authority to waive the
60-day requirement if failure to waive the requirement would be
against equity or good conscience, including cases of casualty,
disaster, or other events beyond the reasonable control of the
individual.
The terms of a qualified retirement plan, section 403(b)
plan, or governmental section 457(b) plan generally determine
when distributions are permitted. However, in some cases,
restrictions may apply to distributions before an employee's
termination of employment, referred to as ``in-service''
distributions. Despite such restrictions, an in-service
distribution may be permitted in the case of financial hardship
or an unforeseeable emergency.
Distributions in the event of a qualified birth or adoption
An exception to the 10-percent early withdrawal tax applies
in the case of a qualified birth or adoption distribution from
an applicable eligible retirement plan (as defined). In
addition, qualified birth or adoption distributions may be
recontributed to an individual's applicable eligible retirement
plans, subject to certain requirements.
A qualified birth or adoption distribution is a permissible
distribution from an applicable eligible retirement plan which,
for this purpose, encompasses eligible retirement plans other
than defined benefit plans, including qualified retirement
plans, section 403(b) plans, governmental section 457(b) plans,
and IRAs.\419\
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\419\A qualified birth or adoption distribution is subject to
income tax withholding unless the recipient elects otherwise. Mandatory
20-percent withholding does not apply.
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A qualified birth or adoption distribution is a
distribution from an applicable eligible retirement plan to an
individual if made during the one-year period beginning on the
date on which a child of the individual is born or on which the
legal adoption by the individual of an eligible adoptee is
finalized. An eligible adoptee means any individual (other than
a child of the taxpayer's spouse) who has not attained age 18
or is physically or mentally incapable of self-support. The
name, age, and taxpayer identification number of the child or
eligible adoptee to which any qualified birth or adoption
distribution relates must be provided on the tax return of the
individual taxpayer for the taxable year.
The maximum aggregate amount which may be treated as
qualified birth or adoption distributions by any individual
with respect to a birth or adoption is $5,000. The maximum
aggregate amount applies on an individual basis. Therefore,
each spouse separately may receive a maximum aggregate amount
of $5,000 of qualified birth or adoption distributions (with
respect to a birth or adoption) from applicable eligible
retirement plans in which each spouse participates or holds
accounts.
An employer plan is not treated as violating any Code
requirement merely because it treats a distribution (that would
otherwise be a qualified birth or adoption distribution) to an
individual as a qualified birth or adoption distribution,
provided that the aggregate amount of such distributions to
that individual from plans maintained by the employer and
members of the employer's controlled group\420\ does not exceed
$5,000. Under such circumstances an employer plan is not
treated as violating any Code requirement merely because an
individual might receive total distributions in excess of
$5,000 as a result of distributions from plans of other
employers or IRAs.
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\420\The term ``controlled group'' means any group treated as a
single employer under subsection (b), (c), (m), or (o) of section 414.
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Recontributions to applicable eligible retirement plans
Generally, any portion of a qualified birth or adoption
distribution may, at any time after the date on which the
distribution was received, be recontributed to an applicable
eligible retirement plan to which a rollover can be made. Such
a recontribution is treated as a rollover and thus is not
includible in income. If an employer adds the ability for plan
participants to receive qualified birth or adoption
distributions from a plan, the plan must permit an employee who
has received qualified birth or adoption distributions from
that plan to recontribute only up to the amount that was
distributed from that plan to that employee, provided the
employee otherwise is eligible to make contributions (other
than recontributions of qualified birth or adoption
distributions) to that plan. Any portion of a qualified birth
or adoption distribution from an individual's applicable
eligible retirement plans (whether employer plans or IRAs) may
be recontributed to an IRA held by such an individual which is
an applicable eligible retirement plan to which a rollover can
be made.
REASONS FOR CHANGE
Under present law, distributions from retirement plans for
the birth or adoption of a child may be recontributed to a
retirement plan at any time after the distribution is received
and are treated as rollovers to the plan. However, a taxpayer
making such a recontribution more than three years after the
distribution was received might be denied a refund for taxes
paid on such distribution if such refund is claimed after the
statute of limitations period for the return has been closed,
which generally occurs after three years. Therefore, someone
who took a birth or adoption distribution and recontributes
such amount more than three years later might not be able to
amend his or her return to request a refund for the taxes that
were paid in the year of the withdrawal.
The Committee believes that in order to avoid such a
result, recontributions should be required to be made within
three years of the date the distribution is received.
EXPLANATION OF PROVISION
Under the provision, a recontribution of any portion of a
qualified birth or adoption distribution, may, at any time
during the three-year period beginning on the day after the
date on which the distribution was received, be recontributed
to an applicable eligible retirement plan to which a rollover
can be made.
EFFECTIVE DATE
The provision provides that the amendment made to this
section takes effect as if included in the enactment of section
113 of the Setting Every Community Up for Retirement
Enhancement Act of 2019.\421\
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\421\Sec. 113 of Div. O of the Further Consolidated Appropriations
Act, 2020, Pub. L. No. 116-94, December 20, 2019.
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16. Employer May Rely on Employee Certifying That Deemed Hardship
Distribution Conditions are met (sec. 316 of the bill and secs. 401(k),
403(b), and 457(b) of the Code)
PRESENT LAW
Section 401(k) plan and section 403(b) plan hardship distributions
A qualified defined contribution plan may include a
qualified cash or deferred arrangement, under which employees
may elect to have contributions made to the plan (referred to
as ``elective deferrals'') rather than receive the same amount
as current compensation (referred to as a ``section 401(k)
plan''). A section 403(b) plan may also include an elective
deferral arrangement. Amounts attributable to elective
deferrals under a section 401(k) plan or a section 403(b) plan
generally cannot be distributed before the occurrence of one or
more specified events, including financial hardship of the
employee.\422\
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\422\Secs. 401(k)(2)(B)(i)(IV) and 403(b)(7)(A)(i)(V) and (11)(B).
Other types of contributions may also be subject to this restriction.
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A hardship distribution from a section 401(k) plan may
include, in addition to the employee's elective deferrals,
qualified matching contributions, qualified nonelective
contributions, and earnings on any of these amounts.\423\ A
hardship distribution from a section 403(b) plan may include
elective deferrals, but not earnings on those deferrals.\424\
Qualified matching contributions and qualified nonelective
contributions to a section 403(b) plan that are in a custodial
account are not eligible to be distributed on account of
hardship.\425\ A distribution under a section 401(k) plan is
not treated as failing to be on account of hardship solely
because the employee does not take any available plan loan.
Distributions on account of hardship may be subject to an
additional 10-percent early withdrawal tax.\426\
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\423\Sec. 401(k)(14). Qualified matching contributions (as defined
in section 401(k)(3)(D)(ii)(I)) and qualified nonelective contributions
(as defined in section 401(m)(4)(C)) may be used to enable the plan to
satisfy certain nondiscrimination tests, to prevent discrimination in
favor of highly compensated employees.
\424\Sec. 403(b)(11).
\425\Treas. Reg. sec. 1.403(b)-6(c).
\426\Sec. 72(t).
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Applicable Treasury regulations provide that a distribution
is made on account of hardship only if the distribution is made
on account of an immediate and heavy financial need of the
employee and is necessary to satisfy the financial need.\427\
Generally, the determination of whether an employee has an
immediate and heavy financial need is based on the relevant
facts and circumstances. However, a distribution is deemed to
be made on account of an immediate and heavy financial need if
it is for: (1) generally, deductible expenses for medical
care;\428\ (2) costs directly related to the purchase of a
principal residence for the employee (excluding mortgage
payments); (3) payment of tuition, related educational fees,
and room and board expenses, for up to the next 12 months of
post-secondary education for the employee, the employee's
spouse, child, or dependent,\429\ or for a primary beneficiary
under the plan; (4) payments necessary to prevent the eviction
of the employee from the employee's principal residence or
foreclosure on the mortgage on that residence; (5) payments for
burial or funeral expenses for the employee's deceased parent,
spouse, child, or dependent, or for a deceased primary
beneficiary under the plan; (6) expenses for the repair of
damage to the employee's principal residence that would qualify
for the casualty deduction;\430\ or (7) expenses and losses
(including loss of income) incurred by the employee on account
of a federally-declared disaster.\431\
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\427\Treas. Reg. secs. 1.401(k)-1(d)(3); 1.403(b)-6(d)(2).
\428\Expenses for (or necessary to obtain) medical care that would
be deductible under section 213(d), determined without regard to the
limitations in section 213(a) (relating to the applicable percentage of
adjusted gross income and the recipients of the medical care) provided
that, if the recipient of the medical care is not listed in section
213(a), the recipient is a primary beneficiary under the plan.
\429\As defined in section 152 without regard to section 152(b)(1),
(b)(2), and (d)(1)(B).
\430\Under section 165 (determined without regard to section
165(h)(5) and whether the loss exceeds 10 percent of adjusted gross
income).
\431\A disaster declared by the Federal Emergency Management Agency
(``FEMA'') under the Robert T. Stafford Disaster Relief and Emergency
Assistance Act, Pub. L. No. 100-707, provided that the employee's
principal residence or principal place of employment at the time of the
disaster was located in an area designated by FEMA for individual
assistance with respect to the disaster.
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A distribution is treated as necessary to satisfy the
financial need under the Treasury regulations only to the
extent that the amount of the distribution does not exceed the
amount required. In addition, in order to be treated as
necessary to satisfy the financial need, the following
requirements must be met: (1) the employee has obtained all
other currently available distributions under all plans of the
employer; (2) the employee has provided to the plan
administrator a written representation that he or she has
insufficient cash or other liquid assets reasonably available
to satisfy the need; and (3) the plan administrator does not
have actual knowledge contrary to the representation.\432\
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\432\Treas. Reg. sec. 1.401(k)-1(d)(3)(iii).
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Governmental section 457(b) plan distributions upon unforeseeable
emergency
An eligible deferred compensation plan of a governmental
employer (referred to as a ``governmental section 457(b)
plan'') is generally similar to a qualified cash or deferred
arrangement under a section 401(k) plan in that it consists of
elective deferrals made at the election of an employee. Such
deferrals generally may not be distributed from the plan before
the occurrence of one or more specified events, including when
the participant is faced with an unforeseeable emergency.\433\
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\433\Sec. 457(d)(1)(A)(iii).
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Under Treasury regulations, the unforeseeable emergency
must be defined in the plan as a severe financial hardship of
the participant or beneficiary resulting from an illness or
accident of the participant or beneficiary, or the
participant's or beneficiary's spouse or dependent;\434\ loss
of the participant's or beneficiary's property due to
casualty;\435\ or other similar extraordinary and unforeseeable
circumstances arising as a result of events beyond the control
of the participant or the beneficiary.\436\ The Treasury
regulations provide the following as examples of unforeseeable
emergencies: (1) the imminent foreclosure of or eviction from
the participant's or beneficiary's primary residence; (2) the
need to pay for medical expenses, including non-refundable
deductibles, as well as for the cost of prescription drug
medication; and (3) the need to pay for the funeral expenses of
a spouse or a dependent of a participant or beneficiary. The
purchase of a home and the payment of college tuition are not
unforeseeable emergencies, unless such expenses otherwise
qualify.
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\434\As defined in section 152, and, for taxable years beginning on
or after January 1, 2005, without regard to section 152(b)(1), (b)(2),
and (d)(1)(B).
\435\This includes the need to rebuild a home following damage to a
home not otherwise covered by homeowner's insurance, such as damage
that is the result of a natural disaster.
\436\Treas. Reg. sec. 1.457-6(c)(2).
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In general, under the regulations, whether a participant or
beneficiary is faced with an unforeseeable emergency permitting
a distribution is to be determined based on the relevant facts
and circumstances of each case, but, in any case, a
distribution on account of unforeseeable emergency may not be
made to the extent that such emergency is or may be relieved
through reimbursement or compensation from insurance or
otherwise, by liquidation of the participant's assets, to the
extent the liquidation of such assets would not itself cause
severe financial hardship, or by cessation of deferrals under
the plan. Distributions on account of an unforeseeable
emergency must be limited to the amount reasonably necessary to
satisfy the emergency need.
REASONS FOR CHANGE
The Committee believes that the existing administrative
barriers to taking hardship withdrawals from retirement plans
should be reduced, making it easier for participants who wish
to access retirement funds in times of financial need. The
Committee believes that generally allowing self-certification
is a logical step in light of the success of the coronavirus-
related distribution self-certification rules and the current
hardship regulations under which employees self-certify the
unavailability of funds to address the hardship.
EXPLANATION OF PROVISION
Under the provision, in determining whether a distribution
is due to an employee hardship, the plan administrator of a
section 401(k) plan or a section 403(b) plan may rely on the
employee's certification that the distribution is on account of
a financial need of a type that is deemed in Treasury
regulations to be an immediate and heavy financial need. Thus,
if the employee certifies that the financial need for the
hardship distribution is one of the types of deemed immediate
and heavy financial needs that are described in the Treasury
regulations,\437\ such as funeral expenses for the employee's
deceased parent, the distribution is treated as being made on
account of an immediate and heavy financial need. In addition,
under the provision, the plan administrator may rely on the
employee's certification that the distribution is not in excess
of the amount required to satisfy the financial need.
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\437\Treas. Reg. sec. 1.401(k)-1(d)(3)(ii)(B), or any successor
regulation.
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Similarly, with respect to a governmental section 457(b)
plan, in determining whether a participant's distribution is
made when the participant is faced with an unforeseeable
emergency, a plan administrator may rely on the participant's
certification that the distribution is on account of an
unforeseeable emergency of a type that is specifically
described in Treasury regulations as an unforeseeable
emergency\438\ and that the distribution does not exceed the
amount reasonably necessary to satisfy the emergency need.
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\438\Treas. Reg. sec. 1.457-6(c)(2)(i), or any successor
regulation.
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EFFECTIVE DATE
The provision is effective for plan years beginning after
December 31, 2021.
17. Penalty-Free Withdrawals From Retirement Plans for Individuals in
Case of Domestic Abuse (sec. 317 of the bill and sec. 72(t) of the
Code)
PRESENT LAW
Distributions from tax-favored retirement plans
A distribution from a tax-qualified plan described in
section 401(a) (a ``qualified retirement plan''), a tax-
sheltered annuity plan (a ``section 403(b) plan''), an eligible
deferred compensation plan of a State or local government
employer (a ``governmental section 457(b) plan''), or an
individual retirement arrangement (an ``IRA'') generally is
included in income for the year distributed.\439\ These plans
are referred to collectively as ``eligible retirement
plans.''\440\ In addition, unless an exception applies, a
distribution from a qualified retirement plan, a section 403(b)
plan, or an IRA received before age 59\1/2\ is subject to a 10-
percent additional tax (referred to as the ``early withdrawal
tax'') on the amount includible in income.\441\
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\439\Secs. 401(a), 403(a), 403(b), 457(b), and 408. Under section
3405, distributions from these plans are generally subject to income
tax withholding unless the recipient elects otherwise. In addition,
certain distributions from a qualified retirement plan, a section
403(b) plan, or a governmental section 457(b) plan are subject to
mandatory income tax withholding at a 20-percent rate unless the
distribution is rolled over.
\440\Sec. 402(c)(8)(B). Eligible retirement plans also include
annuity plans described in section 403(a).
\441\Sec. 72(t). The 10-percent early withdrawal tax does not apply
to distributions from a governmental section 457(b) plan.
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In general, a distribution from an eligible retirement plan
may be rolled over to another eligible retirement plan within
60 days, in which case the amount rolled over generally is not
includible in income. The IRS has the authority to waive the
60-day requirement if failure to waive the requirement would be
against equity or good conscience, including cases of casualty,
disaster, or other events beyond the reasonable control of the
individual.\442\
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\442\Rev. Proc. 2016-47, 2016-37 I.R.B. 346, provides for a self-
certification procedure (subject to verification on audit) that may be
used by a taxpayer claiming eligibility for a waiver of the 60-day
requirement with respect to a rollover into a plan or IRA in certain
specified circumstances.
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The terms of a qualified retirement plan, section 403(b)
plan, or governmental section 457(b) plan generally determine
when distributions are permitted. However, for many types of
plans, restrictions apply to distributions before an employee's
termination of employment, referred to as ``in-service''
distributions or withdrawals. Despite such restrictions, an in-
service distribution from a qualified retirement plan that
includes a qualified cash-or-deferred arrangement (a ``section
401(k) plan'') or a section 403(b) plan may be permitted in the
case of financial hardship. Similarly, a governmental section
457(b) plan may permit distributions in the case of an
unforeseeable emergency. Under a qualified retirement plan that
is a pension plan (i.e., defined benefit pension plan or money
purchase pension plan), distributions generally may be made
only in the event of retirement, death, disability, or other
separation from service, although in-service distributions may
be permitted after age 59\1/2\.\443\
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\443\Sec. 401(a)(36); Treas. Reg. secs. 1.401-1(b)(1)(i) and
1.401(a)-1(b)(1)(i). Section 401(k) plans, section 403(b) plans, and
governmental section 457(b) plans also may permit in-service
distributions after age 59\1/2\.
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REASONS FOR CHANGE
The Committee recognizes that a domestic abuse victim may
need funds to escape an unsafe situation. The Committee
believes that such individuals should be able to access funds
from retirement plans when needed, with minimal administrative
hurdle and without being subject to the 10-percent early
withdrawal tax that otherwise generally applies to early
distributions from a retirement plan. In addition, the
Committee wishes to permit such individuals to recontribute
such withdrawals to a retirement plan, so that individuals who
are able to later repay the funds do not miss out valuable
retirement savings.
EXPLANATION OF PROVISION
Under the provision, an exception to the 10-percent early
withdrawal tax applies in the case of an eligible distribution
to a domestic abuse victim. In addition, such eligible
distributions may be recontributed to applicable eligible
retirement plans, subject to certain requirements.
Eligible distributions to a domestic abuse victim
The provision provides that an eligible distribution to a
domestic abuse victim is a distribution from an applicable
eligible retirement plan to an individual if made during the
one-year period beginning on a date on which the individual is
a victim of domestic abuse by a spouse or domestic partner.
Domestic abuse is defined under the provision as physical,
psychological, sexual, emotional, or economic abuse, including
efforts to control, isolate, humiliate, or intimidate the
victim, or to undermine the victim's ability to reason
independently, including by means of abuse of the victim's
child or another family member living in the household. In
making such a distribution, a plan administrator may rely on
the participant's certification that the distribution is an
eligible distribution to a domestic abuse victim.
An applicable eligible retirement plan, for this purpose,
encompasses eligible retirement plans other than defined
benefit plans, including qualified retirement plans, section
403(b) plans, governmental section 457(b) plans, and IRAs.\444\
The maximum aggregate amount which may be treated as an
eligible distribution to a domestic abuse victim by an
individual is the lesser of $10,000 or 50 percent of the value
of the employee's account under the plan.\445\ An eligible
distribution to a domestic abuse victim is treated as meeting
requirements relating to the timing of distributions under a
section 401(k) plan, section 403(b) plan, or governmental
section 457(b) plan.
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\444\An eligible distribution to a domestic abuse victim is subject
to income tax withholding unless the recipient elects otherwise.
Mandatory 20-percent withholding does not apply.
\445\50 percent of the present value of the nonforfeitable accrued
benefit of the employee under the plan.
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Under the provision, an employer plan is not treated as
violating any Code requirement merely because it treats a
distribution to an individual (that would otherwise be an
eligible distribution to a domestic abuse victim) as an
eligible distribution to a domestic abuse victim, provided that
the aggregate amount of such distributions to that individual
from plans maintained by the employer and members of the
employer's controlled group\446\ does not exceed the lesser of
$10,000 or 50 percent of the value of the employee's accounts
under the plans of the employer's controlled group. Thus, under
such circumstances an employer plan is not treated as violating
any Code requirement merely because an individual might
receive, for example, total distributions in excess of $10,000
as a result of distributions from plans of other employers or
IRAs.
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\446\The term ``controlled group'' means any group treated as a
single employer under subsection (b), (c), (m), or (o) of section 414.
---------------------------------------------------------------------------
Recontributions to applicable eligible retirement plans
The provision provides that any portion of an eligible
distribution to a domestic abuse victim may generally, at any
time after the date on which the distribution was received, be
recontributed to an applicable eligible retirement plan to
which a rollover can be made. Such a recontribution is treated
as a rollover and thus is not includible in income. If an
employer adds the ability for plan participants to receive
eligible distributions to domestic abuse victims from a plan,
the plan must permit an employee who has received such an
eligible distribution from that plan to recontribute only up to
the amount that was distributed from that plan to that
employee, provided the employee otherwise is eligible to make
contributions (other than recontributions of eligible
distributions to domestic abuse victims) to that plan. Any
portion of an eligible distribution to a domestic abuse victim
from an individual's applicable eligible retirement plans
(whether employer plans or IRAs) may be recontributed to an IRA
held by such an individual which is an applicable eligible
retirement plan to which a rollover can be made.
EFFECTIVE DATE
The provision is effective for distributions made after the
date of enactment.
18. Reform of Family Attribution Rule (sec. 318 of the bill and sec.
414 of the Code)
PRESENT LAW
Nondiscrimination requirements
A qualified retirement plan is prohibited from
discriminating in favor of highly compensated employees,
referred to as the nondiscrimination requirements. These
requirements are intended to ensure that a qualified retirement
plan provides meaningful benefits to an employer's rank-and-
file employees as well as highly compensated employees so that
qualified retirement plans achieve the goal of retirement
security for both lower-paid and higher-paid employees. The
nondiscrimination requirements consist of a minimum coverage
requirement and general nondiscrimination requirements.\447\
For purposes of these requirements, an employee generally is
treated as highly compensated if the employee (1) was a five-
percent owner of the employer at any time during the year or
the preceding year, or (2) had compensation for the preceding
year in excess of $130,000 (for 2021).\448\
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\447\Sections 401(a)(3) and 410(b) address the minimum coverage
requirement; section 401(a)(4) describes the general nondiscrimination
requirements, with related rules in section 401(a)(5). Detailed
regulations implement the statutory requirements. Governmental plans
are generally exempt from these requirements.
\448\Sec. 414(q). At the election of the employer, employees who
are highly compensated based on compensation may be limited to the top
20 percent highest paid employees. A non-highly compensated employee is
an employee other than a highly compensated employee.
---------------------------------------------------------------------------
The minimum coverage and general nondiscrimination
requirements apply annually on the basis of the plan year. In
applying these requirements, as discussed below, employees of
all members of a controlled group or affiliated service group
are treated as employed by a single employer. Employees who
have not satisfied minimum age and service conditions under the
plan, certain nonresident aliens, and employees covered by a
collective bargaining agreement are generally disregarded.\449\
However, a plan that covers employees with less than a year of
service or who are under age 21 must generally include those
employees in any nondiscrimination test for the year but can
test the plan for nondiscrimination in two parts: (1) by
separately testing the portion of the plan covering employees
who have not completed a year of service or are under age 21
and treating all of the employer's employees with less than a
year of service or under age 21 as the only employees of the
employer; and (2) then testing the rest of the plan taking into
account the rest of the employees of the employer and excluding
those employees. If a plan does not satisfy the
nondiscrimination requirements on its own, it may in some
circumstances be aggregated with another plan, and the two
plans tested together as a single plan.
---------------------------------------------------------------------------
\449\A plan or portion of a plan covering collectively bargained
employees is generally deemed to satisfy the nondiscrimination
requirements.
---------------------------------------------------------------------------
Aggregation rules for groups under common control
In general, in applying the requirements for tax-favored
treatment for retirement plans, employees of employers
(including corporations and other entities) that are members of
a group under common control are treated as employed by a
single employer (referred to as aggregation rules).\450\ For
example, in applying the nondiscrimination requirements, the
employees of all the members of a group, and the benefits
provided under plans maintained by any member of the group, are
generally taken into account. In the case of taxable entities,
common control is generally based on the percentage of equity
ownership with a general threshold of 80 percent ownership.
Other tests apply for entities that do not involve ownership.
---------------------------------------------------------------------------
\450\Sec. 414(c) and the regulations thereunder provide for
aggregation of groups under common control. Section 414(b), (m) and (o)
also provide aggregation rules for a controlled group of corporations
and affiliated service groups. Under section 414(t), the aggregation
rules apply also for purposes of various benefits other than retirement
benefits. In addition, other provisions incorporate the aggregation
rules by reference, such as section 4980H, requiring certain employers
to offer health coverage to full-time employees.
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Family attribution rules
The family attribution rules address the scenarios in which
a person, such as a family member, is treated as having an
ownership interest in a business.\451\ For example, a spouse is
generally attributed their spouse's ownership unless certain
criteria are satisfied.\452\
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\451\Family attribution can address interests owned between spouses
or among parents and children or grandparents and grandchildren.
\452\Sec. 1563(e)(5). For example, if a husband and wife each owned
25 percent of a business, generally both spouses would be treated as
owning 50 percent of that business.
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One common exception to spousal attribution is for
individuals who are legally separated under a divorce
decree.\453\ Other exceptions include spouses who do not
directly own any stock in the business during the taxpayer
year, a spouse who is neither an employee or director nor
participates in the management of the business at any time
during the year, where no more than 50 percent of the business'
gross income derives from passive investments, and where the
stock is transferable (i.e., is not subject to restrictions)
that are in favor of the individual or his or her minor
children (e.g., the business owner cannot be required to offer
a right of first refusal to his or her spouse or their children
before selling the business to a third party).
---------------------------------------------------------------------------
\453\Sec. 1563(e).
---------------------------------------------------------------------------
A parent is generally attributed the ownership of a minor
child under the age of 21 and is attributed the ownership of an
adult child, age 21 or older, if the parent owns more than 50
percent of the business. A minor child is attributed the
ownership of a parent while an adult child is attributed the
ownership of a parent only if the adult child owns more than 50
percent of the business. There is no exception to the
application of the family attribution rules for a minor child
of individuals who are separated or divorced. For example,
ownership of a business may be attributed to a divorced spouse
through his or her minor child to the extent the exceptions for
marital attribution do not apply.
The application of these rules is impacted by the laws on
familial property ownership in community property state. In
such a state, spouses may be deemed to own half of the property
acquired during a marriage, except under limited circumstances.
Accordingly, spouses in community property states may fail to
satisfy the criteria that a spouse does not directly own any
stock in the business during the taxpayer year.
REASONS FOR CHANGE
The Committee believes that there should be an exception to
the family attribution rules to account for community property
states and situations where spouses who are divorced or
separated may be combined in a controlled group due to the
spouses' minor child.
EXPLANATION OF PROVISION
The provision adds special rules to address family
attribution and to disregard community property laws for
purposes of determining ownership of a business.\454\ For
purposes of applying the attribution rules,\455\ community
property laws are disregarded for purposes of determining
ownership. In addition, the stock of an individual not
attributed under section 1563(e)(5) to the individual's spouse
shall not be attributed to such spouse by reason of section
1563(e)(6)(A), which addresses minor children. Except as
provided by the Secretary, stock in different corporations that
is attributed to a child under section 1563(e)(6)(A) from each
parent, but that is not attributed to such parents as spouses
under section 1563(e)(5), shall not by itself result in such
corporations being members of the same controlled group. If
these modifications under the provision causes two or more
entities to be a controlled group, or an affiliated service
group, or to no longer be in a controlled group or affiliated
service group, such change shall be treated as a transaction to
which the special minimum coverage rule for certain
dispositions or acquisitions applies.\456\
EFFECTIVE DATE
The provision applies to plan years beginning on or after
the date of enactment.
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\454\Sec. 414(m)(6)(B).
\455\Under sec. 1563.
\456\Sec. 410(b)(6)(C).
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19. Amendments to Increase Benefit Accruals Under Plan for Previous
Plan Year Allowed Until Employer Tax Return Due Date (sec. 319 of the
bill and sec. 401(b) of the Code)
PRESENT LAW
Present law provides a remedial amendment period during
which, under certain circumstances, a retirement plan may be
amended retroactively in order to comply with the tax
qualification requirements.\457\ In general, plan amendments to
reflect changes in the law generally must be made by the time
prescribed by law for filing the income tax return of the
employer for the employer's taxable year in which the change in
law occurs (including extensions). Discretionary amendments
must be adopted by the end of the plan year.\458\ The Secretary
may extend the time by which plan amendments need to be made.
---------------------------------------------------------------------------
\457\Sec. 401(b).
\458\Rev. Proc. 2016-37, .2016-29 I.R.B. 136, June 29, 2016.
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Section 201 of the SECURE Act\459\ provides that if an
employer adopts a qualified retirement plan after the close of
a taxable year but before the time prescribed by law for filing
the return of tax of the employer for the taxable year
(including extensions thereof), the employer may elect to treat
the plan as having been adopted as of the last day of the
taxable year.
---------------------------------------------------------------------------
\459\Sec. 201 of Div. O. of the Further Consolidated Appropriations
Act, 2020, Pub. L. No. 116-94, December 20, 2019.
---------------------------------------------------------------------------
REASONS FOR CHANGE
Present law requires that discretionary plan amendments to
an existing retirement plan must generally be adopted by the
last day of the plan year in which the amendment is effective,
but an employer may adopt a new retirement plan by the due date
of the employer's tax return for the fiscal year in which the
plan is effective. This rule precludes an employer from adding
plan provisions to an existing plan that may be beneficial to
participants after the end of the plan year but before the due
date for the employer's tax return.
The Committee believes that discretionary amendments to an
existing plan that increase participants' benefits to a plan
for the prior plan year should be permitted to be adopted up
until the date that the employer's tax return is due to be
filed.
EXPLANATION OF PROVISION
Under the provision, if an employer amends a stock bonus,
pension, profit-sharing, or annuity plan to increase benefits
accrued under the plan effective for the preceding plan year
(other than increasing the amount of matching
contributions),\460\ the amendment would not otherwise cause
the plan to fail to meet any of qualification requirements, and
the amendment is adopted before the time prescribed by law for
filing the return of the employer for a taxable year (including
extensions) during which the amendment is effective, the
employer may elect to treat such amendment as having been
adopted as of the last day of the plan year in which the
amendment is effective.
---------------------------------------------------------------------------
\460\As defined in subsection 401(m)(4)(A).
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision applies to amendments made in plan years
beginning after December 31, 2022.
20. Retroactive First Year Elective Deferrals for Sole Proprietors
(sec. 320 of the bill and sec. 401(b) of the Code)
PRESENT LAW
Present law provides a remedial amendment period during
which, under certain circumstances, a retirement plan may be
amended retroactively in order to comply with the tax
qualification requirements.\461\ In general, plan amendments to
reflect changes in the law generally must be made by the time
prescribed by law for filing the income tax return of the
employer for the employer's taxable year in which the change in
law occurs (including extensions). The Secretary may extend the
time by which plan amendments need to be made.
---------------------------------------------------------------------------
\461\Sec. 401(b).
---------------------------------------------------------------------------
Section 201 of SECURE Act\462\ provides that if an employer
adopts a qualified retirement plan after the close of a taxable
year but before the time prescribed by law for filing the
return of tax of the employer for the taxable year (including
extensions thereof), the employer may elect to treat the plan
as having been adopted as of the last day of the taxable year.
That provision permits employers to establish and fund a
qualified plan by the due date for filing the employer's return
for the preceding plan year. However, that provision does not
override rules requiring certain plan provisions to be in
effect during a plan year, such as the provision for elective
deferrals under a qualified cash or deferral arrangement
(generally referred to as a ``section 401(k) plan'').\463\
---------------------------------------------------------------------------
\462\Sec. 201 of Div. O. of the Further Consolidated Appropriations
Act, 2020, Pub. L. No. 116-94, December 20, 2019.
\463\Treas. Reg. sec. 1.401(k)-1(e)(2)(ii).
---------------------------------------------------------------------------
Under section 201 of the SECURE Act, a section 401(k) plan
of a sole proprietor can be funded with employer contributions
as of the due date for the business's return, but the elective
deferrals must be made as of December 31 of the prior year.
However, an individual is deemed to have made a contribution to
an individual retirement plan for a taxable year if it is
contributed after the taxable year has ended but is made ``on
account of'' that year and before the due date for filing the
IRA owner's tax return, (generally) for that year without
extensions, (generally, April 15).\464\
---------------------------------------------------------------------------
\464\Sec. 219(f)(3). For taxpayers affected by a federally declared
disaster, the IRS has the authority to postpone various tax deadlines
for a period of up to one year. Sec. 7508A and ERISA sec. 518.
---------------------------------------------------------------------------
REASONS FOR CHANGE
An employer may establish a new section 401(k) plan after
the end of the taxable year, but before the due date for the
employer's tax return and treat the plan as having been
established on the last day of the taxable year. Such plans may
be funded by employer contributions for which the employer may
take a deduction, up to the employer's tax filing date.
The Committee believes that such plans when sponsored by
sole proprietors or single-member LLCs, should be able to
receive employee contributions up to the date of the employee's
tax return filing date, but only for the initial year in which
the plan is established.
EXPLANATION OF PROVISION
Under the provision, in the case of an individual who owns
the entire interest in an unincorporated trade or business, and
who is the only employee of such trade or business, any
elective deferral\465\ under a section 401(k) plan to which the
preceding sentence applies which is made by such individual
before the time for filing the return of such individual for
the taxable year (determined without regard to any extensions)
ending after or with the end of the plan's first plan year is
treated as having been made before the end of the plan's first
plan year. This extension of time would only apply to the first
plan year in which the section 401(k) plan is established.
---------------------------------------------------------------------------
\465\As defined in section 402(g)(3).
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EFFECTIVE DATE
The provision is effective for plan years beginning after
the date of enactment.
21. Limiting Cessation of IRA Treatment to Portion of Account Involved
in a Prohibited Transaction (sec. 321 of the bill and sec. 408 of the
Code)
PRESENT LAW
Background on prohibited transactions may be found in
section I.12 of this document.
Disqualification of IRA in certain prohibited transactions
If an individual for whose benefit an IRA is established
(or such individual's beneficiary) engages in a prohibited
transaction with respect to the IRA, the IRA loses its tax-
favored status and ceases to be an IRA as of the first day of
the taxable year in which the prohibited transaction
occurs.\466\ As a result, the IRA is treated as distributing to
the individual on the first day of that taxable year the fair
market value of all of the assets in the account. If the fair
market value of the IRA assets exceeds the basis in the
account, the individual has taxable gain that is includible in
gross income. If the individual is under age 59\1/2\, the
individual may also be subject to the 10-percent tax on early
distributions.\467\ The individual and the individual's
beneficiaries are exempt, however, from the excise tax that
otherwise applies to prohibited transactions.\468\
---------------------------------------------------------------------------
\466\Sec. 408(e)(2). ``Prohibited transaction'' means a transaction
prohibited by section 4975.
\467\Sec. 72(t).
\468\Sec. 4975(c)(3).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee recognizes that many prohibited transactions
involving IRAs are inadvertent. In addition, under present law,
the entire IRA is disqualified when the IRA owner or
beneficiary engages in a prohibited transaction, regardless of
the size of the prohibited transaction. The Committee believes
it is appropriate to treat only the portion of the IRA that is
involved in the prohibited transaction as distributed.
EXPLANATION OF PROVISION
The provision modifies the disqualification rule that
applies when an IRA owner or beneficiary engages in a
prohibited transaction so that only the portion of the IRA that
is used in the prohibited transaction is treated as distributed
to the individual. Thus, under the provision, if an IRA owner
or beneficiary engages in a prohibited transaction with respect
to the IRA, the portion of the account used in the transaction
is treated as distributed to the individual as of the first day
of the taxable year in which the transaction occurred (using
fair market value of the portion on that first day).
EFFECTIVE DATE
The provision applies to taxable years beginning after date
of enactment.
TITLE IV--TECHNICAL AMENDMENTS
1. Amendments Relating to Setting Every Community Up for Retirement
Enhancement Act of 2019 (sec. 401 of the bill and secs. 401(a)(9) and
4973 of the Code)
PRESENT LAW
Increase in age for required beginning date for mandatory distributions
The SECURE Act changed the age on which the required
beginning date for required minimum distributions was based,
from age 70\1/2\ to age 72.\469\ Background on these rules may
be found in section I.5 of this document.
---------------------------------------------------------------------------
\469\Pub. L. No. 116-94, Division O, sec. 114.
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Difficulty of care payments
The SECURE Act also modified certain retirement
contribution limits as they apply to ``difficulty of care''
payments.\470\ A difficulty of care payment is compensation for
providing the additional care needed for certain qualified
foster individuals.\471\ Such payments are excludable from
gross income. Generally, the amount that may be contributed to
an IRA is limited by the compensation that is includible in an
individual's gross income for the taxable year.\472\ However,
the SECURE Act modified the limit on nondeductible
contributions to a traditional IRA to generally allow an
individual to contribute a difficulty of care payment.\473\
Under the SECURE Act, if the deductible amount of IRA
contributions in effect for a taxable year (which is tied to
the amount of nondeductible contributions that may be made)
exceeds the individual's compensation that is includible in
gross income, the individual may elect to increase the limit on
nondeductible contributions by the amount of the difficulty of
care payment (or, if less, the excess of the deductible amount
of IRA contributions over the individual's compensation for the
year).
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\470\Pub. L. No. 116-94, Division O, sec. 116.
\471\Sec. 131(c).
\472\Secs. 408(o)(2) and 408A(c)(2).
\473\Sec. 408(o)(5).
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EXCISE TAX ON EXCESS IRA CONTRIBUTIONS
To the extent that contributions to an IRA exceed the
contribution limits, the individual is subject to an excise tax
equal to six percent of the excess amount.\474\ This excise tax
generally applies each year until the excess amount is
distributed.
---------------------------------------------------------------------------
\474\Secs. 4973(b) and (f).
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REASONS FOR CHANGE
The Committee wishes to clarify certain provisions of the
SECURE Act.
EXPLANATION OF PROVISION\475\
---------------------------------------------------------------------------
\475\In addition to the clarifications described below, the
provision fixes a clerical error in section 72(t).
---------------------------------------------------------------------------
The provision clarifies that the increase in the age on
which the required beginning date for required minimum
distributions is based (to age 72) does not change the general
requirement to actuarially increase the accrued benefit of an
employee who retires in a calendar year after the year the
employee attains age 70\1/2\ (other than a five-percent owner)
to take into account the period after age 70\1/2\ in which the
employee was not receiving any benefits under the plan.\476\
---------------------------------------------------------------------------
\476\Sec. 401(a)(9)(C)(iii).
---------------------------------------------------------------------------
The provision also clarifies that the excise tax on excess
contributions to an IRA generally does not apply to difficulty
of care payments contributed to an IRA.\477\
---------------------------------------------------------------------------
\477\The excise tax does not apply to any designated nondeductible
contribution to an IRA that does not exceed the limit on nondeductible
contributions by reason of the individual's election to increase such
limit to account for the difficulty of care payment. Sec. 4973(b) (as
amended by this provision).
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EFFECTIVE DATE
The amendments made by the provision are effective as if
included in the section of the SECURE Act to which the
amendment relates.
TITLE V--ADMINISTRATIVE PROVISIONS
1. Provisions Relating To Plan Amendments (sec. 501 of the bill)
PRESENT LAW
Present law provides a remedial amendment period during
which, under certain circumstances, a retirement plan may be
amended retroactively in order to comply with tax qualification
requirements.\478\ In general, plan amendments to reflect
changes in the law generally must be made by the time
prescribed by law for filing the income tax return of the
employer for the employer's taxable year in which the change in
law occurs (including extensions). The Secretary may extend the
time by which plan amendments need to be made.
---------------------------------------------------------------------------
\478\Sec. 401(b).
---------------------------------------------------------------------------
The Code and ERISA provide that, in general, accrued
benefits cannot be reduced by a plan amendment.\479\ This
prohibition on the reduction of accrued benefits is commonly
referred to as the ``anti-cut-back rule.''
---------------------------------------------------------------------------
\479\Code sec. 411(d)(6); ERISA sec. 204(g).
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee recognizes that it may be difficult for plan
sponsors to amend their plans in order to implement the
provisions of this bill at the time such provisions become
effective. The Committee therefore believes it is appropriate
to offer relief to plans and allow for retroactive amendments.
EXPLANATION OF PROVISION
The provision permits certain plan amendments made pursuant
to the changes in the Act, or regulations issued thereunder, to
be retroactively effective. If a plan amendment meets the
requirements of the provision, then the plan will be treated as
being operated in accordance with its terms, and the amendment
will not violate the anti-cut-back rule. In order for this
treatment to apply, the plan must be operated as if the plan
amendment were in effect, and the amendment is required to be
made on or before the last day of the first plan year beginning
on or after January 1, 2023 (or such later date as the
Secretary may prescribe). However, if the plan is a
governmental plan, the amendment is required to be made on or
before the last day of the first plan year beginning on or
after January 1, 2025 (or such later date as the Secretary may
prescribe).
If the amendment is required to be made to retain qualified
status as a result of the changes in the law (or regulations),
the amendment is required to be made retroactively effective as
of the date on which the change became effective with respect
to the plan and the plan is required to be operated in
compliance until the amendment is made. Amendments that are not
required to retain qualified status but that are made pursuant
to the changes made by the Act (or applicable regulations) may
be made retroactively effective as of the first day the
amendment is effective.
A plan amendment will not be considered to be pursuant to
the Act (or applicable regulations) if it has an effective date
before the effective date of the provision under the Act (or
regulations) to which it relates. Similarly, the provision does
not provide relief from the anti-cut-back rule for periods
prior to the effective date of the relevant provision (or
regulations) or the plan amendment. The Secretary (or the
Secretary's delegate) is authorized to provide exceptions to
the relief from the prohibition on reductions in accrued
benefits. It is intended that the Secretary will not permit
inappropriate reductions in contributions or benefits that are
not directly related to the provisions under the Act.
The provision also amends the deadlines for certain plan
amendments made pursuant to the SECURE Act and the Coronavirus
Aid, Relief, and Economic Security Act, to conform with the
deadlines provided under this provision.\480\
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\480\The provision modifies the general deadlines for plan
amendments under the SECURE Act (section 601 of the SECURE Act), and
the deadlines for amendments relating to coronavirus-related
distributions and the waiver of required minimum distributions under
the Coronavirus Aid, Relief, and Economic Security Act, Pub. L. No.
116-136, sections 2202 and 2203.
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision is effective on date of enactment.
TITLE VI--REVENUE PROVISIONS
1. SIMPLE and SEP Roth IRAs (sec. 601 of the bill and secs 408A, 408,
402 of the Code)
PRESENT LAW
An IRA is generally established by an individual for whom
the IRA is maintained.\481\ In some cases, an employer may
establish IRAs on behalf of employees and provide retirement
contributions to the IRAs. In addition, IRA treatment may apply
to accounts maintained for employees under a trust created by
an employer (or an employee association) for the exclusive
benefit of employees or their beneficiaries, provided that the
trust complies with the relevant IRA requirements and separate
accounting is maintained for the interest of each employee or
beneficiary.\482\ In that case, the assets of the trust may be
held in a common fund for the account of all individuals who
have an interest in the trust.
---------------------------------------------------------------------------
\481\Secs. 219, 408, and 408A provide the rules for IRAs. Under
section 408(a)(2) and (n), only certain entities are permitted to be
the trustee of an IRA. The trustee of an IRA generally must be a bank,
an insured credit union, or a corporation subject to supervision and
examination by the Commissioner of Banking or other officer in charge
of the administration of the banking laws of the State in which it is
incorporated. Alternatively, an IRA trustee may be another person who
demonstrates to the satisfaction of the Secretary that the manner in
which the person will administer the IRA will be consistent with the
IRA requirements.
\482\Sec. 408(c).
---------------------------------------------------------------------------
There are two basic types of IRAs: traditional IRAs, to
which deductible or nondeductible contributions can be made,
and Roth IRAs, contributions to which are not deductible. The
total contributions made to all IRAs for a year cannot exceed
$6,000 (for 2021), plus an additional $1,000 (not indexed) in
catch-up contributions for individuals age 50 or older. Certain
individuals are not permitted to make deductible contributions
to a traditional IRA or to make contributions to a Roth IRA,
depending on their income.
Distributions from traditional IRAs are generally
includible in income, except to the extent a portion of the
distribution is treated as a recovery of the individual's basis
(if any). Qualified distributions from a Roth IRA are excluded
from income;\483\ other distributions from a Roth IRA are
includible in income to the extent of earnings. IRA
distributions generally can be rolled over to another IRA or
qualified retirement plan; however, a distribution from a Roth
IRA generally can be rolled over only to another Roth IRA or a
designated Roth account.
---------------------------------------------------------------------------
\483\A qualified distribution is a distribution that (1) is made
after the five-taxable-year period beginning with the first taxable
year for which the individual first made a contribution to a Roth IRA,
and (2) is made after attainment of age 59\1/2\, on account of death or
disability, or is made for first-time homebuyer expenses of up to
$10,000. Sec. 408A(d)(2).
---------------------------------------------------------------------------
Savings Incentive Match Plan for Employees (``SIMPLE'')
plans and Simplified Employee Pension (``SEP'') plans are
special types of employer-sponsored retirement plans to which
the employer makes contributions to IRAs established for each
of the employer's employees in accordance with the Code
requirements for each type of plan.\484\ SIMPLE IRAs and SEPs
may not be designated as Roth IRAs.\485\
---------------------------------------------------------------------------
\484\Secs. 408(p), (k).
\485\Sec. 408A(f)(1).
---------------------------------------------------------------------------
SIMPLE IRA plans
An employer is generally eligible to establish a SIMPLE IRA
plan if it had no more than 100 employees who received at least
$5,000 of compensation from the employer in the preceding
year.\486\ Contributions to a SIMPLE IRA plan may include
employee salary reduction contributions (i.e., elective
deferrals) and employer contributions either in the form of
matching contributions up to three percent of an employee's
compensation or nonelective contributions of a flat two percent
of compensation regardless of the employee's elective deferral.
---------------------------------------------------------------------------
\486\Sec. 408(p).
---------------------------------------------------------------------------
SIMPLE IRA plans may be designed so that the employee will
receive cash compensation unless the employee affirmatively
elects to make elective deferrals to the plan. Alternatively, a
plan may provide that elective deferrals are made at a
specified rate (when the employee becomes eligible to
participate) unless the employee elects otherwise (i.e.,
affirmatively elects not to make contributions or to make
contributions at a different rate). This alternative plan
design is referred to as automatic enrollment. Starting with
taxable years after December 31, 2019, eligible employers are
allowed a credit of $500 per year for up to three years for
startup costs for new SIMPLE IRA plans that include automatic
enrollment. An employer is also allowed a credit of $500 per
year for up to three years if it converts an existing plan to
an automatic enrollment design.
There is an annual threshold on the amount of an elective
deferral that an employee may make to a SIMPLE IRA plan
(subject to cost of living adjustments). The salary reduction
contributions under a SIMPLE IRA plan count toward the overall
annual limit on elective deferrals an employee may make to this
and other plans permitting elective deferrals. For 2021, the
annual contribution limit for SIMPLE IRA plans is $13,500. If
permitted by the SIMPLE IRA plan, participants who are age 50
or above at the end of the calendar year may also make catch up
contributions, the limit for which is $3,000 in 2021.
SEP IRA plans
A Simplified Employee Pension (``SEP'') plan is a special
type of employer-sponsored retirement plan whereby only the
employer makes contributions to the plan.\487\ Unlike SIMPLE
IRA plans, any size employer may establish a SEP plan. The
amount of the contribution to the SEP IRA plan is up to the
lesser of 25 percent of the employee's compensation or the
dollar limit applicable to contributions to a qualified defined
contribution plan ($58,000 for 2021).\488\ A traditional IRA is
set up for each eligible employee, and all contributions must
be fully vested. Any employee must be eligible to participate
in the SEP if the employee has (1) attained age 21, (2)
performed services for the employer during at least three of
the immediately preceding five years, and (3) received at least
$650 (for 2021) in compensation from the employer for the
year.\489\ Contributions to a SEP generally must bear a uniform
relationship to compensation.
---------------------------------------------------------------------------
\487\Sec. 408(k).
\488\Ibid.
\489\The annual compensation limit for SEPs is $290,000.
---------------------------------------------------------------------------
Effective for taxable years beginning before January 1,
1997, certain employers with no more than 25 employees could
maintain a salary reduction SEP (``SARSEP'') under which
employees could make elective deferrals. The SARSEP rules were
generally repealed with the enactment of the SIMPLE plan rules.
However, contributions may continue to be made to SARSEPs that
were established before 1997. Salary reduction contributions to
a SARSEP are subject to the same limit that applies to elective
deferrals under a section 401(k) plan ($19,500 for 2021). An
individual who has attained age 50 before the end of the
taxable year may also make catch-up contributions to a SARSEP
up to a limit of $6,500 (for 2021).
Roth Contributions
Elective deferrals are generally made on a pre-tax basis.
However, certain retirement plans, such as section 401(k),
section 403(b), and governmental 457(b) plans, may include a
qualified Roth contribution program under which elective
deferrals are made on an after-tax basis (designated Roth
contributions), and attributable distributions are excluded
from income. The annual dollar limit on a participant's
designated Roth contributions is the same as the limit on
elective deferrals, reduced by the participant's elective
deferrals that are not designated Roth contributions.
Designated Roth contributions are generally treated the same as
any other elective deferral for certain purposes, including the
restrictions on distributions.
REASONS FOR CHANGE
Under present law, SEP and SIMPLE IRAs may only be
classified as traditional IRAs with elective deferrals made on
a pre-tax basis. The Committee believes that participants
should be able to contribute to SEP and SIMPLE IRAs as Roth
IRAs.
EXPLANATION OF PROVISION
Under the provision, a SEP and a SIMPLE IRA are permitted
to be designated as Roth IRAs. Contributions to a SEP or SIMPLE
IRA that is a designated Roth IRA are not excludable from gross
income (employer contributions as well as elective deferrals),
and qualified distributions from such Roth IRAs are excludable
from gross income. With respect to SEP and SIMPLE IRAs, an
individual retirement plan that is designated as a Roth IRA
shall not be treated as a SEP or SIMPLE IRA unless the employee
elects for the plan to be treated as such (at such time and in
such manner as the Secretary may provide). In the case of any
payment or distribution out of a SIMPLE IRA, with respect to
which an election has been made and which is received during
the two-year period beginning on the date the individual first
participated in any salary reduction arrangement in a SIMPLE
IRA maintained by the individual's employer,\490\ a ``qualified
rollover distribution'' shall not include any payment or
distribution paid into an account other than a SIMPLE IRA.
---------------------------------------------------------------------------
\490\Sec. 72(t)(6).
---------------------------------------------------------------------------
The contribution limit for Roth IRAs generally is increased
by the contributions made on the individual's behalf to the
SIMPLE IRA or SEP for the taxable year, subject to certain
limits. In this case of a SIMPLE IRA, the Roth IRA contribution
limit is increased only to the extent that the contributions
made on the individual's behalf (1) do not exceed the sum of
the limit on elective contributions to a SIMPLE IRA and the
required employer contribution to such IRA,\491\ and (2) do not
cause the individual's elective contributions to exceed the
elective deferral limit.\492\ In the case of a SEP plan, the
Roth IRA contribution limit is increased only to the extent
that the contributions made on the individual's behalf do not
exceed the annual contribution limit applicable to SEPs.\493\
---------------------------------------------------------------------------
\491\Sec. 408(p)(2).
\492\Sec. 402(g)(1) (taking into account any additional elective
deferrals permitted as catch-up contributions under section 414(v)).
\493\Sec. 408(j).
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2021.
2. Hardship Withdrawal Rules for 403(b) Plans (sec. 602 of the bill and
sec. 403(b) of the Code)
PRESENT LAW
Background on rules related to hardship distributions under
a section 403(b) plan may be found in section III.16 of this
document.
REASONS FOR CHANGE
The Committee believes that the rules that apply to the
types of contributions that may be withdrawn upon hardship
should be the same for section 401(k) plans and section 403(b)
plans.
EXPLANATION OF PROVISION
The provision conforms the hardship distribution rules for
section 403(b) plans to those of section 401(k) plans. Thus,
the provision provides that in addition to elective deferrals,
a section 403(b) plan may distribute, on account of an
employee's hardship, qualified nonelective contributions,\494\
qualified matching contributions,\495\ and earnings on any of
these contributions (including on elective deferrals).
---------------------------------------------------------------------------
\494\As defined in section 401(m)(4)(C).
\495\As defined in section 401(k)(3)(D)(ii)(I).
---------------------------------------------------------------------------
EFFECTIVE DATE
The provision is effective for plan years beginning after
December 31, 2021.
3. Elective Deferrals Generally Limited to the Regular Contribution
Limit (sec. 603 of the bill and secs. 414, 402, and 457 of the Code)
PRESENT LAW
Defined contribution plan limits
Qualified retirement plans (and other tax-favored employer-
sponsored retirement plans) are accorded special tax treatment
and fall into two categories: defined benefit plans and defined
contribution plans. A defined contribution plan is a type of
qualified retirement plan whereby contributions, earnings, and
losses are allocated to a separate account for each
participant.
Defined contribution plans may provide for nonelective
contributions and matching contributions by employers and pre-
tax (that is, contributions are either excluded from income or
deductible) or after-tax contributions by employees. Total
contributions made to an employee's account for a year cannot
exceed the lesser of $58,000 (for 2021) or the employee's
compensation.
Under certain types of defined contribution plans,
including section 401(k) plans, section 403(b) plans, or
governmental section 457(b) plans, an employee may elect to
have contributions (elective deferrals) made to the plan,
rather than receive the same amount in cash. The maximum annual
amount of elective deferrals that can be made by an employee
for a year is $19,500 (for 2021) or, if less, the employee's
compensation.\496\ For an employee who attains age 50 by the
end of the year, the dollar limit on elective deferrals is
increased by $6,500 (for 2021) (called ``catch-up
contributions'').\497\ Elective deferrals generally cannot be
distributed from the plan before the employee's severance from
employment, death, disability or attainment of age 59\1/2\ or
in the case of hardship or plan termination.
---------------------------------------------------------------------------
\496\Secs. 402(g); 457(c). This limit applies to total elective
deferrals under all of a participant's section 401(k) plans and section
403(b) plans but applies separately to any governmental section 457(b)
plan.
\497\Sec. 414(v).
---------------------------------------------------------------------------
Catch-up contributions
Certain retirement plans may permit employees to make
catch-up contributions, subject to certain limitations.
Employees aged 50 or older may make catchup contributions to a
section 401(k), section 403(b), and governmental 457(b) plans,
up to $6,500 in 2021 (indexed for inflation). If elective
deferral and catch-up contributions are made to both a
qualified defined contribution plan and a section 403(b) plan
for the same employee, a single limit applies to the elective
deferrals under both plans. Special contribution limits apply
to certain employees under a section 403(b) plan maintained by
a church. In addition, under a special catch-up rule, an
increased elective deferral limit applies under a plan
maintained by an educational organization, hospital, home
health service agency, health and welfare service agency,
church, or convention or association of churches in the case of
employees who have completed 15 years of service. In this case,
the limit is increased by the least of (1) $3,000, (2) $15,000,
reduced by the employee's total elective deferrals in prior
years, and (3) $5,000 times the employee's years of service,
reduced by the employee's total elective deferrals in prior
years.\498\
---------------------------------------------------------------------------
\498\Because contributions to a defined contribution plan cannot
exceed an employee's compensation, contributions for an employee are
generally not permitted after termination of employment. However, under
a special rule, a former employee may be deemed to receive compensation
for up to five years after termination of employment for purposes of
receiving employer nonelective contributions under a section 403(b)
plan.
---------------------------------------------------------------------------
The section 457(b) plan limits apply separately from the
combined limit applicable to section 401(k) and 403(b) plan
contributions, so that an employee covered by a governmental
section 457(b) plan and a section 401(k) or 403(b) plan can
contribute the full amount to each plan. In addition, under a
special catch-up rule, for one or more of the participant's
last three years before normal retirement age, the otherwise
applicable limit is increased to the lesser of (1) two times
the normal annual limit ($39,000 for 2021) or (2) the sum of
the otherwise applicable limit for the year plus the amount by
which the limit applicable in preceding years of participation
exceeded the deferrals for that year.
Roth contributions
Elective deferrals are generally made on a pre-tax basis.
However, certain retirement plans, such as section 401(k),
section 403(b), and governmental section 457(b) plans, may
include a qualified Roth contribution program under which
elective deferrals are made on an after-tax basis (designated
Roth contributions), and qualified distributions are excluded
from income.\499\ A qualified distribution is a distribution
that (1) is made after the five-taxable-year period beginning
with the first taxable year for which the individual first made
the contribution, and (2) is made after attainment of age 59\1/
2\, or on account of death or disability.
---------------------------------------------------------------------------
\499\Sec. 402A.
---------------------------------------------------------------------------
REASONS FOR CHANGE
The Committee believes that participants should be required
to make catch-up contributions to certain retirement plans,
such as section 401(a) qualified plans, section 403(b) plans,
and governmental section 457(b) plans, on an after-tax basis or
with Roth treatment.
EXPLANATION OF PROVISION
Under the provision, a section 401(a) qualified plan,
section 403(b) plan, or governmental section 457(b) plan that
permits an eligible participant to make catch-up contributions
must require such contributions to be designated Roth
contributions. The provision does not apply to a Savings
Incentive Match Plan for Employees (``SIMPLE'') IRA or
Simplified Employee Pension (``SEP'') plan.
EFFECTIVE DATE
The provision applies to taxable years beginning after
December 31, 2021.
4. Optional Treatment of Employer Matching Contributions as Roth
Contributions (sec. 604 of the bill and sec. 402A of the Code)
PRESENT LAW
Defined Contribution Plan Contributions
Defined contribution plans may provide for nonelective
contributions and matching contributions by employers and pre-
tax (that is, contributions are either excluded from income or
deductible) or after-tax contributions by employees. Total
contributions made to an employee's account for a year cannot
exceed the lesser of $58,000 (for 2021) or the employee's
compensation. The deduction for employer contributions to a
defined contribution plan for a year is generally limited to 25
percent of the participants' compensation. A participant must
at all times be fully vested in his or her own contributions to
a defined contribution plan and must vest in employer
contributions under three-year cliff vesting or two-to-six-year
graduated vesting.\500\
---------------------------------------------------------------------------
\500\Under the automatic enrollment 401(k) safe harbor, the
matching and nonelective contributions are allowed to become 100
percent vested only after two years of service (rather than being
required to be immediately vested when made).
---------------------------------------------------------------------------
Defined contribution plans can be further categorized into
different types, such as profit-sharing plans, stock bonus
plans, or money purchase plans, and may include special
features, such as a qualified cash or deferred arrangement
(section 401(k)) or an employee stock ownership plan
(``ESOP''). Under a common type of retirement arrangement, a
section 401(k) plan, an employee may elect to have
contributions (elective deferrals) made to the plan, rather
than receive the same amount in cash. For 2021, elective
deferrals of up to $19,500 may be made, plus, for employees
aged 50 or older, up to $6,500 in catch-up contributions.
Elective deferrals generally cannot be distributed from the
plan before the employee's severance from employment, death,
disability, or attainment of age 59\1/2\ or in the case of
hardship or plan termination.
Designated Roth contributions
Elective deferrals are generally made on a pre-tax
basis.\501\ However, certain defined contributions plans, such
as a section401(k), 403(b), or governmental 457(b) plan, may
include a qualified Roth contribution program under which
elective deferrals are made on an after-tax basis (designated
Roth contributions), but certain distributions (``qualified
distributions''), including earnings, are excluded from
income.\502\ A qualified distribution is a distribution that
(1) is made after the five-taxable-year period beginning with
the first taxable year for which the individual first made the
contribution, and (2) is made after attainment of age 59\1/2\,
or on account of death or disability.
---------------------------------------------------------------------------
\501\Section 401(k) plans may be designed so that elective
deferrals are made only if the employee affirmatively elects them.
However, a section401(k) plan may provide for ``automatic enrollment,''
under which elective deferrals are made at a specified rate unless the
employee affirmatively elects not to make contributions or to make
contributions at a different rate. Various rules have been developed to
provide favorable treatment for plans that provide for automatic
enrollment, subject to certain notice requirements.
\502\Sec. 402A.
---------------------------------------------------------------------------
Employer Contributions
Employers generally are not required to make contributions
to a defined contribution plan, but many employers make
matching contributions or nonelective contributions. Matching
contributions are employer contributions that are made only if
the employee makes contributions and can relate to pre-tax
elective deferrals, designated Roth contributions, or other
after-tax contributions. Matching contributions are generally
based on a formula that is a percentage of the employee's
contribution to the plan. Alternatively, matching contributions
may be made by the employer to the plan that are a flat dollar
amount up to a particular percentage of the employee's
compensation.
In contrast, nonelective contributions are made without
regard to whether the employee makes pre-tax or after-tax
contributions. Nonelective contributions by an employer are
based on a fixed or discretionary formula that could take into
account the participant's years of service or age. Nonelective
contributions could also generally be a flat dollar amount to
the plan for each eligible employee.
If an employee makes elective deferrals that are designated
Roth contributions to a defined contribution plan, the employer
may not make matching or nonelective contributions on a Roth
basis. The employer may only allocate contributions to match
designated Roth contributions into a pre-tax account.
REASONS FOR CHANGE
The Committee believes that employees should have the
option to elect to make matching contributions on a Roth basis.
EXPLANATION OF PROVISION
Under the provision, a section 401(a) qualified plan, a
section 403(b) plan, or a governmental 457(b) plan may permit
an employee to designate matching contributions as designated
Roth contributions. An employer matching contribution that is a
designated Roth contribution shall not be excludable from gross
income.
EFFECTIVE DATE
The provision applies to contributions made after the date
of the enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 2954, the ``Securing a Strong Retirement
Act of 2021''.
An amendment in the nature of a substitute to H.R. 2954
passed by voice vote with a quorum being present.
H.R. 2954 as amended by an amendment in the nature of a
substitute was ordered favorably reported to the House of
Representatives by voice vote with a quorum being present.
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill.
The bill is estimated to increase Federal fiscal year
budget receipts by $1.636 billion dollars for the period 2021
through 2031.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives, the Committee states that the bill
involves no new or increased budget authority. The Committee
further states that the bill involves no new tax expenditure.
C. Cost Estimate Prepared by the Congressional Budget Office
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, requiring a cost estimate prepared by
CBO, the following statement by CBO is provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 2, 2021.
Hon. Richard Neal,
Chairman, Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2954, the Securing
a Strong Retirement Act of 2021.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Ellen
Steele and James Williamson.
Sincerely,
Phillip L. Swagel,
Director.
Enclosure.
The bill would:
Increase the age at which required minimum
distributions from retirement plans must begin
Require employers to automatically enroll
eligible employees in certain defined contribution
retirement plans, including section 401(k) and 403(b)
plans
Increase the current tax credit for start-up
costs an employer incurs in adopting a new pension plan
Make a portion of disability-related
distributions from pensions or annuities to first
responders nontaxable
Require the Pension Benefit Guaranty
Corporation to establish the Retirement Savings Lost
and Found program
Require certain retirement plans to
designate catch-up contributions as Roth contributions
Allow certain retirement plans to permit
employees to designate employer matching contributions
as Roth contributions
Estimated budgetary effects would mainly stem from:
Additional revenues from requiring some
retirement contributions to be made on an after-tax
basis
Reduced revenues from provisions that would
increase before-tax retirement contributions
Areas of significant uncertainty include:
Projections of contributions to and
participation in retirement plans
The Congressional Budget Act of 1974, as amended,
stipulates that revenue estimates provided by the staff of the
Joint Committee on Taxation (JCT) are the official estimates
for all tax legislation considered by the Congress. CBO
therefore incorporates such estimates into its cost estimates
of the effects of legislation. Most of the estimates for the
provisions of H.R. 2954 were provided by JCT.
Bill summary: H.R. 2954 would amend the tax code to modify
rules for retirement plans and tax-favored savings accounts.
Several provisions would reduce revenues significantly by
expanding automatic enrollment in retirement plans and raising
the age at which required minimum distributions (RMDs) from
defined contribution retirement plans or traditional individual
retirement arrangements (IRAs) must begin. Other provisions
would increase revenues by directing some retirement plans to
require catch-up contributions to be designated as Roth
contributions and allowing some plans to permit employees to
designate their employers' matching contributions as Roth
contributions.
Estimated Federal cost: The estimated budgetary effect of
H.R. 2954 is shown in Table 1. The costs of the legislation
fall within budget function 600 (Income Security).
TABLE 1.--ESTIMATED BUDGETARY EFFECTS OF H.R. 2954
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, millions of dollars--
------------------------------------------------------------------------------------------------------------------------------------------
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2021-2026 2021-2031
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Increases or Decreases (-) in Revenues
Title I. Expanding Coverage and Increasing Retirement
Savings:
Estimated Revenues................................... 22 -581 -1,209 -1,567 -1,701 -1,948 -2,048 -2,114 -3,223 -3,383 -3,286 -6,984 -21,040
On-Budget........................................ 23 -564 -1,142 -1,480 -1,604 -1,845 -1,943 -2,005 -3,112 -3,271 -3,173 -6,614 -20,122
Off-Budget....................................... -1 -16 -66 -87 -97 -102 -104 -108 -110 -112 -114 -370 -918
Title II. Preservation of Income:
Estimated Revenues................................... -6 -68 -126 -162 -180 -196 -166 -175 -30 188 437 -737 -482
Title III. Simplification and Clarification of
Retirement Plan Rules:
Estimated Revenues................................... 67 -716 -352 -107 -139 -146 -535 -816 -910 -995 -1,076 -1,393 -5,727
On-Budget........................................ 67 -715 -346 -100 -129 -134 -519 -795 -888 -967 -1,045 -1,355 -5,573
Off-Budget....................................... 0 -2 -5 -7 -10 -13 -16 -20 -23 -27 -31 -38 -154
Title VI. Revenue Offsets:
Estimated Revenues................................... 249 4,180 5,258 5,364 4,652 4,581 3,399 1,988 592 -750 -2,105 24,284 27,407
Total Revenues....................................... 333 2,815 3,571 3,529 2,632 2,292 650 -1,117 -3,571 -4,940 -6,031 15,171 158
On-Budget........................................ 334 2,833 3,642 3,623 2,739 2,407 770 -989 -3,438 -4,801 -5,886 15,579 1,230
Off-Budget....................................... -1 -18 -71 -94 -107 -115 -120 -128 -133 -139 -145 -408 -1,072
Increases in Spending Subject to Appropriation
Estimated Authorization.............................. 0 5 5 10 20 30 n.e. n.e. n.e. n.e. n.e. 70 n.e.
Estimated Outlays.................................... 0 5 5 10 20 30 n.e. n.e. n.e. n.e. n.e. 70 n.e.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
Components may not sum to totals because of rounding; n.e. = not estimated.
Basis of estimate: The Congressional Budget Act of 1974, as
amended, stipulates that revenue estimates provided by the
staff of the Joint Committee on Taxation (JCT) will be the
official estimates for all tax legislation considered by the
Congress. CBO therefore incorporates those estimates into its
cost estimates of the effects of legislation. Most of the
estimates for the provisions of H.R. 2954 were provided by
JCT.\503\ For this estimate, CBO and JCT assume that the bill
will be enacted before the end of fiscal year 2021.
---------------------------------------------------------------------------
\503\For JCT's estimates of the provision that include detail
beyond the summary presented below, see Joint Committee on Taxation,
Estimated Revenue Effects of H.R. _, The ``Securing a Strong Retirement
Act of 2021,'' Sceduled fr Markup by the Committee on Ways and Means on
May 5, 2021, JCX-22-21 (May 3, 2021). www.jct.gov/publications/2021/
jcx-22-21.
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Revenues: In total, JCT estimates, H.R. 2954 would raise
revenues by $158 million over the 2021-2031 period, raising on-
budget revenues by $1.2 billion and reducing off-budget
revenues by $1.1 billion.
Title I. Expanding Coverage and Increasing Retirement
Savings. H.R. 2954 would implement changes to tax law
concerning the treatment of retirement plans. JCT estimates
that title I would reduce total revenues by $21.0 billion over
the 2021-2031 period. Five provisions in title I would affect
off-budget revenues over that period, reducing those revenues
by $918 million. The provisions listed here would have notable
effects.
Section 105 would raise the age at which
participants must begin to receive RMDs from retirement
plans. Under current law, participants generally must
take distributions starting at age 72. The bill would
raise the age for some participants to 73 on January 1,
2022, increase it to 74 on January 1, 2029, and raise
it again to 75 on January 1, 2032. JCT estimates that
the change would reduce revenues by $6.9 billion over
the 2021-2031 period.
Section 101 would require employers that
offer section 401(k) or 403(b) plans with salary
reduction agreements to automatically enroll eligible
employees in those plans. Under current law, retirement
plans may provide for automatic contributions. H.R.
2954 would require employers to automatically enroll
employees at contribution rates of 3 percent to 10
percent in the first year. That rate would increase by
1 percentage point annually until it reached at least
10 percent (with a cap at 15 percent). Employees could
still opt out of automatic enrollment or adjust their
contributions. JCT estimates that the change would
reduce revenues by $6.1 billion over the 2021-2031
period; of that amount, $449 million would be off-
budget.
Section 102 would increase the current
nonrefundable tax credit for start-up costs that
employers incur when they adopt a new pension plan.
Under current law, employers are allowed a
nonrefundable tax credit equal to 50 percent of the
cost of starting up a plan. H.R. 2954 would increase
the credit to 100 percent for employers with up to 50
employees. JCT estimates that the change would reduce
revenues by $3.1 billion over the 2021-2031 period.
Section 107 would raise the limits on catch-
up contributions to employer-sponsored retirement
plans. Under current law, starting at age 50, employees
can make additional contributions each year to their
401(k), 403(b), or governmental section 457(b) plan or
to a Savings Incentive Match Plan for Employees (SIMPLE
IRA). For 2021, the catch-up limit for most plans is
$6,500; the SIMPLE limit is $3,000. (Both amounts are
indexed to inflation.) H.R. 2954 would raise the catch-
up amount for employer-sponsored plans to $10,000 and
increase the SIMPLE amount to $5,000. The new limits
would apply at age 62, 63, and 64. JCT estimates that
the change would reduce revenues by $2.2 billion over
the 2021-2031 period.
Section 109 would allow employees to receive
matching contributions to their retirement plans when
they make payments on student loans. Under current law,
employers may make matching contributions when
employees make elective deferrals to retirement plans.
H.R. 2954 would allow employers to make matching
contributions to 401(k), 403(b), and 457(b) plans or to
a SIMPLE IRA when an employee makes a student loan
payment. The total payments for a year could not exceed
the amount of elective deferrals that the employee
would otherwise be permitted to contribute under
current law, and the payments would be reduced by any
elective deferrals made by the employee for the year.
JCT estimates that the change would reduce revenues by
$2.0 billion over the 2021-2031 period.
Section 113 would allow employers time to
correct mistakes to elective deferrals from or
automatic enrollments in retirement plans. H.R. 2954
would provide employers offering a 403(b) tax-sheltered
annuity, an IRA, or a 457(b) plan up to 9\1/2\ months
after the end of the plan year to correct such
mistakes. JCT estimates that the change would increase
revenues by $639 million over the 2021-2031 period.
Section 103 would direct the Internal
Revenue Service to promote the Saver's Credit (a tax
credit for contributions to retirement plans and IRAs)
to increase its use. JCT estimates that the change
would reduce revenues by $409 million over the 2021-
2031 period.
Section 114 would reduce the time some
employees must wait to participate in a 401(k) plan.
Under current law, employers offering those plans must
allow employees to participate if they complete one
year of employment in which they worked at least 1,000
hours or three consecutive years in which they worked
at least 500 hours. H.R. 2954 would reduce the latter
requirement to two years. JCT estimates that the change
would reduce revenues by $268 million over the 2021
2031 period.
Other provisions in title I include the
expansion of a start-up credit available for employers
joining multiemployer retirement plans and a new credit
for employers that would allow military spouses to
participate in retirement plans sooner than they would
otherwise be eligible. JCT estimates that those
provisions, along with others that would have smaller
budgetary effects, would reduce revenues by $432
million over the 2021-2031 period.
Title II. Preservation of Income. H.R. 2954 would make
several changes to the treatment of life annuities in
retirement plans and to regulations related to variable
annuities. JCT estimates that those provisions would reduce
revenues by $482 million over the 2021-2031 period. The
following provisions in title II would have the largest
effects:
Section 203 would allow variable annuities
to offer exchange-traded funds (ETFs) that are
insurance dedicated. ETFs are pooled investment
vehicles that are traded on stock exchanges and widely
available through retirement plans and taxable
investment accounts. Under current law, ETFs are not
generally available through individual variable
annuities because they cannot satisfy the regulatory
requirements to be insurance dedicated. H.R. 2954 would
direct the Department of the Treasury to update
regulations for annuities to allow ETFs to be offered.
JCT estimates that the change would reduce revenues by
$866 million over the 2021-2031 period.
Section 201 would remove certain required
minimum distribution rules related to life annuities in
retirement plans and IRAs. Under current law, several
tests regarding RMDs are intended to limit tax
deferrals by precluding commercial annuities from
providing certain guaranteed annual increases. Those
tests also may limit the return of premium death
benefit funds or guaranteed specific payment amounts
distributed over a set period of time (known as period
certain guarantees) for participating annuities. H.R.
2954 would amend the RMD rules to allow commercial
annuities to offer those features. For example, section
201 would allow annual annuity payments to increase by
a constant percentage and allow for a lump-sum payment
that accelerates a beneficiary's receipt of annuity
income. JCT estimates that the change would increase
revenues by $445 million over the 2021-2031 period.
Title III. Simplification and Clarification of Retirement
Plan Rules. This title would change certain rules for
retirement plans. JCT estimates that title III would reduce
total revenues by $5.7 billion over the 2021-2031 period. One
provision in title III (section 318) would affect off-budget
revenues over that period, reducing those revenues by $154
million. Six provisions in particular would have notable
revenue effects:
Section 311 would make a portion of certain
disability-connected distributions from pensions or
annuities to qualified first responders nontaxable. JCT
estimates that the provision would reduce revenues by
$2.6 billion over the 2021-2031 period.
Section 309 would allow for a onetime
$50,000 IRA distribution to a split-interest entity--a
planned-giving instrument, such as a charitable
remainder annuity trust, charitable remainder unitrust,
or a charitable gift annuity. The provision also would
index the exclusion limit on qualified distributions to
inflation. JCT estimates that the provision would
reduce revenues by $2.3 billion over the 2021-2031
period.
Section 318 would establish new rules for
determining ownership of a business for the purposes of
coverage and nondiscrimination tests for retirement
plans. JCT estimates that the provision would reduce
revenues by $1.0 billion over the 2021-2031 period.
Section 316 would allow certain retirement
plan administrators to rely on employees' certification
that they qualify for hardship distributions from
retirement plans and that the distribution amounts do
not exceed immediate and heavy financial need. JCT
estimates that the provision would increase revenues by
$407 billion over the 2021-2031 period.
Section 306 would require the Pension
Benefit Guaranty Corporation (PBGC) to create the
Retirement Savings Lost and Found program to collect
unclaimed pension balances of up to $1,000 from pension
funds and maintain a database allowing people to locate
their balances and contact plans in which they
participated. JCT estimates that the provision would
reduce revenues by $410 million over the 2021-2031
period. This provision also would affect discretionary
spending, which is discussed further under the heading
``Spending Subject to Appropriation.''
Section 314 would allow retirement plans to
separately apply the top-heavy test to excludable and
nonexcludable employees. Under current law, top-heavy
rules ensure that the benefits of employer-sponsored
retirement plans are not overly concentrated among
higher-compensated employees. H.R. 2954 would allow
retirement plans to separately consider nonexcludable
employees and excludable employees (such as workers
under age 21 who have less than one year of employment)
for determining whether a plan is top heavy, thus
reducing the risk to employers of allowing excludable
employees to participate. JCT estimates that the
provision would increase revenues by $398 million over
the 2021-2031 period.
Title VI. Revenue Offsets. This title contains four
provisions that would increase revenues by a total of $27.4
billion over the 2021-2031 period, as follows:
Section 603 would require certain retirement
plans to designate catch-up contributions as Roth
contributions. Under current law, employees age 50 or
older can make additional contributions to retirement
plans, usually on a before-tax basis. The bill would
require catch-up contributions to be made on an after-
tax (Roth) basis for certain government and private-
sector plans. JCT estimates that the provision would
increase revenues by $13.2 billion over the 2021-2031
period.
Section 604 would allow certain retirement
plans to permit employees to designate employers'
matching contributions as Roth contributions. Those
government and private-sector plans could make matching
contributions, designated as Roth contributions, on an
after-tax basis. JCT estimates that the provision would
increase revenues by $13.0 billion over the 2021-2031
period.
Section 601 would allow Simplified Employee
Pension and SIMPLE IRA plans to be designated as Roth
IRAs. JCT estimates that the provision would increase
revenues by $711 million over the 2021-2031 period.
Section 602 would allow 403(b) retirement
plans to make hardship distributions. Such plans are
most commonly available to employees of public schools
and nonprofit organizations. Currently, the plans can
distribute elective deferrals in the case of an
employee's immediate and heavy financial need. The
provision also would allow 403(b) plans to distribute
qualified nonelective contributions and qualified
matching contributions, or earnings on any
contributions, in a case of financial hardship. JCT
estimates that the provision would increase revenues by
$602 million over the 2021-2031 period.
Spending subject to appropriation: As discussed above,
section 306 would require PBGC to establish the Retirement
Savings Lost and Found program. Under that program, PBGC would
collect unclaimed pension balances of up to $1,000 and maintain
a database allowing people to find those balances and contact
the pension plans in which they participated. The program would
cover defined benefit plans as well as 401(k) and other defined
contribution plans. The bill would require PBGC to establish
the new program within three years of enactment. For this
provision, CBO assumes that the authorized and necessary
amounts will be provided in each year beginning in 2022.
Under current law, if a pension plan terminates but cannot
locate a participant who is owed benefits, the funds are
transferred to PBGC's Missing Participants Program. The new
program would be much larger than the existing one because it
would apply to all plans, not just terminated ones.
When a worker with accrued pension benefits of less than
$5,000 leaves a company, under current law the pension plan may
distribute the balance to the worker rather than maintaining
that worker in the plan; under H.R. 2954, that amount would
increase to $6,000. The bill also would require unclaimed
accrued benefits of less than $1,000 to be transferred to PBGC,
which would hold the assets as a trustee for the worker until
the benefits were claimed. Because those assets would still
belong to the worker, the transfer would not be considered a
governmental receipt.
CBO estimates that enacting H.R. 2954 would cost $70
million over the 2022-2026 period (see Table 1). Costs over the
first four years would mainly be for planning. Beginning in
2024, spending also would cover the initial costs of hardware
and software for the online system and initial operational
costs. (Using information from PBGC and data about similar
programs, CBO expects that more than three years would be
needed to implement the new PBGC program.)
Uncertainty
These estimates of the budgetary effects of H.R. 2954 are
subject to uncertainty because they are made on the basis of
underlying projections and other estimates that are subject to
change. Specifically, estimates for many of the bill's revenue
provisions rely on projections of contributions to and
participation in retirement plans, which in turn are based on
CBO's economic projections for the next decade under current
law and on estimates of the way taxpayers could change their
saving behavior in response to changes in retirement plan
rules.
The estimate of spending for the Retirement Savings Lost
and Found program also is subject to uncertainty in several
areas. For example, CBO cannot predict how many accounts would
be created under the program or what services would be provided
to people who are searching for their pension accounts. More
than half of U.S. workers now participate in a pension plan.
The number of transfers from those plans to PBGC would depend
on the number of workers participating in a plan who left a job
with less than $1,000 in accrued benefits and the share of that
group that did not claim those benefits. Under current law,
plans need not report unclaimed benefits, and CBO is unaware of
any current comprehensive data on such benefits, so it is
unclear how many transfers would be made to PBGC.
Pay-As-You-Go considerations: The Statutory Pay-As-You-Go
Act of 2010 establishes budget-reporting and enforcement
procedures for legislation affecting direct spending or
revenues. The net changes in revenues that are subject to those
pay-as-you-go procedures are shown in Table 1. Only on-budget
changes to outlays or revenues are subject to pay-as-you-go
procedures.
Increase in long-term deficits: CBO and JCT estimate that
enacting H.R. 2954 would increase on-budget deficits by more
than $5 billion in at least one of the four consecutive 10-year
periods beginning in 2032.
Mandates: JCT has determined that the tax provisions of
H.R. 2954 would impose intergovernmental and private-sector
mandates as defined in Unfunded Mandates Reform Act (UMRA) by
no longer allowing participants to make before-tax catch-up
contributions to retirement plans other than IRAs. The cost of
those mandates would exceed the annual intergovernmental and
private-sector thresholds established in UMRA ($85 million and
$170 million in 2021, respectively, adjusted annually for
inflation).
The nontax provisions of H.R. 2954 would impose a private-
sector mandate by requiring retirement plans to provide benefit
statements on paper at least once each year for defined
contribution plans and once every three years for defined
benefit plans. Under current law, such statements must be made
quarterly, and they can be delivered on paper or
electronically. CBO estimates that the cost of the mandate
would be small.
The nontax provisions of the bill would not impose an
intergovernmental mandate.
Estimate prepared by: Federal Revenues: Ellen Steele, James
Williamson, Staff of the Joint Committee on Taxation; Federal
Costs: Noah Meyerson, Mandates: Andrew Laughlin, Staff of the
Joint Committee on Taxation.
Estimate reviewed by: Joshua Shakin, Chief, Revenue
Estimating Unit; John McClelland, Director of Tax Analysis;
Sheila Dacey, Chief, Income Security and Education Cost
Estimates Unit; H. Samuel Papenfuss, Deputy Director of Budget
Analysis.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee made findings and recommendations that are
reflected in this report.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives is
required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4). The Committee has determined that the bill contains one
unfunded Federal mandate that is imposed on the private sector,
as well as on State, local, and tribal governments: the
requirement that catch-up contributions in a retirement plan
(other than an IRA) be made on a Roth basis.
D. Applicability of House Rule XXI, Clause 5(b)
Clause 5(b) of rule XXI of the Rules of the House of
Representatives provides, in part, that ``It shall not be in
order to consider a bill, joint resolution, amendment, or
conference report carrying a retroactive Federal income tax
rate increase.'' The Committee, after careful review, states
that the bill does not involve any retroactive Federal income
tax rate increase within the meaning of the rule.
E. Tax Complexity Analysis
Section 4022(b) of Pub. L. No. 105-266, the Internal
Revenue Service Restructuring and Reform Act of 1998 (the
``RRA''), requires the staff of the Joint Committee on Taxation
(in consultation with the IRS and the Treasury Department) to
provide a tax complexity analysis. The complexity analysis is
required for all legislation reported by the Senate Committee
on Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code of
1986 and has widespread applicability to individuals or small
businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, for each such provision identified by
the staff of the Joint Committee on Taxation, a summary
description of the provision is provided below along with an
estimate of the number and type of affected taxpayers, and a
discussion regarding the relevant complexity and administrative
issues.
Following the analysis of the staff of the Joint Committee
on Taxation are the comments of the IRS and Treasury regarding
each provision included in the complexity analysis.
List of Provisions in the Complexity Analysis
1. Increase in Age for Required Beginning Date for Mandatory
Distributions (sec. 105 of the bill)
Summary description of provision
The provision changes the age on which the required
beginning date for required minimum distributions is based,
from the calendar year in which the employee or IRA owner
attains age 72 to the calendar year in which the employee or
IRA owner attains age 73, for individuals who attain age 72
after December 31, 2021, and who attain age 73 before January
1, 2029. In addition, the provision changes such age from 73
years to 74 years, for individuals who attain age 73 after
December 31, 2028, and who attain age 74 before January 1,
2032. Such age is further increased to age 75 for individuals
who attain age 74 after December 31, 2031.
Number of affected taxpayers
It is estimated that the provision will affect over 10
percent of taxpayers during the budget window.
Discussion
The IRS will need to modify its forms and publications to
reflect the provision. It would also need to update information
on its website and provide communications to external
stakeholders. Additionally, both taxpayers and the IRS will
need to continue to monitor required minimum distributions as
well as claimed qualified charitable distributions based on the
potential mismatch created by the age requirements. Disputes
between taxpayers and the IRS may increase in the case of
discrepancies between these records.
2. Repayment of Qualified Birth or Adoption Distribution Limited to
Three Years (sec. 315 of the bill)
Summary description of the provision
A recontribution of any portion of a qualified birth or
adoption distribution may, at any time during the three-year
period beginning on the date after the date on which the
distribution was received, be recontributed to an applicable
eligible retirement plan to which a rollover can be made. Under
present law, generally, any portion of a qualified birth or
adoption distribution may, at any time after the date on which
the distribution was received, be recontributed to an
applicable eligible retirement plan to which a rollover can be
made. Accordingly, the time period during which a
recontribution may be made is limited to a three-year period,
rather than being permitted at any time after the date on which
the distribution was received.
The provision would take effect as if it were included in
the enactment of section 113 of the Setting Every Community Up
for Retirement Enhancement Act of 2019.\503\
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\503\Sec. 113 of Div. O of the Further Consolidated Appropriations
Act, 2020, Pub. L. No. 116-94, December 20, 2019.
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Number of affected taxpayers
It is estimated that the provision will affect over 10
percent of taxpayers during the budget window and will continue
to increase over time.
Discussion
The provision reduces the complexity created under present
law by reducing the recontribution period from an unlimited
period of time to a 3-year period. Specifically, employers will
be required to track such recontributions under the special
rules that apply to employer plans. The ability to recontribute
such distributions during the three-year period beginning on
the date after the date on which the distribution was received,
rather than with no time limit over the lifetime of an
individual, although not necessarily to the plan or IRA from
which the related distribution was made, will still require
tracking of recontributions to ensure amounts so denominated do
not exceed the aggregate lifetime qualified birth or adoption
distributions from all plans of an individual. Tracking these
amounts will also require that plan administrators and IRA
trustees, plan participants and IRA owners, and the IRS, keep
accurate and detailed records of distributions and
recontributions for a period of three years.
The provision will require the IRS to update its
publications to address qualified birth and adoption
distributions, as well as updating information on its website
and providing communications to external stakeholders. Both
taxpayers and the IRS will need to monitor recontributions
which will be limited to a period of three years, rather than
having no time limit. Because the three year period for
recontributions is consistent with the three-year statute of
limitations period in which a refund for taxes paid on such
distributions needs to be claimed, this modification will be
helpful in reducing the complexity of this provision.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill, and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with clause 3(c)(5) of rule XIII of the Rules
of the House of Representatives, the Committee states that no
provision of the bill establishes or reauthorizes: (1) a
program of the Federal Government known to be duplicative of
another Federal program; (2) a program included in any report
to Congress pursuant to section 21 of Pub. L. No. 111-139; or
(3) a program related to a program identified in the most
recent Catalog of Federal Domestic Assistance, published
pursuant to section 6104 of title 31, United States Code.
H. Hearings
Pursuant to clause 3(c)(6) of rule VIII, clause 12 of rule
XXI, and sec. 3(u) of H. Res. 8 (117th Congress),
(1) The following hearing was used to develop or consider
H.R. 2954: Member Day Hearing held on March 23, 2021.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL
A. Changes in Existing Law Proposed by the Bill
Pursuant to clause 3(e)(1)(B) of rule XIII of the Rules of
the House of Representatives, changes in existing law proposed
by the bill are shown as follows (existing law proposed to be
omitted is enclosed in black brackets, new matter is printed in
italics, existing law in which no change is proposed is shown
in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, and existing law in which no
change is proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle A--Income Taxes
* * * * * * *
CHAPTER 1--NORMAL TAXES AND SURTAXES
* * * * * * *
Subchapter A--DETERMINATION OF TAX LIABILITY
* * * * * * *
PART IV--CREDITS AGAINST TAX
* * * * * * *
Subpart D--BUSINESS RELATED CREDITS
Sec. 38. General business credit.
* * * * * * *
Sec. 45U. Military spouse retirement plan eligibility credit for small
employers.
* * * * * * *
SEC. 38. GENERAL BUSINESS CREDIT.
(a) Allowance of credit.--There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an
amount equal to the sum of--
(1) the business credit carryforwards carried to such
taxable year,
(2) the amount of the current year business credit,
plus
(3) the business credit carrybacks carried to such
taxable year.
(b) Current year business credit.--For purposes of this
subpart, the amount of the current year business credit is the
sum of the following credits determined for the taxable year:
(1) the investment credit determined under section
46,
(2) the work opportunity credit determined under
section 51(a),
(3) the alcohol fuels credit determined under section
40(a),
(4) the research credit determined under section
41(a),
(5) the low-income housing credit determined under
section 42(a),
(6) the enhanced oil recovery credit under section
43(a),
(7) in the case of an eligible small business (as
defined in section 44(b)), the disabled access credit
determined under section 44(a),
(8) the renewable electricity production credit under
section 45(a),
(9) the empowerment zone employment credit determined
under section 1396(a),
(10) the Indian employment credit as determined under
section 45A(a),
(11) the employer social security credit determined
under section 45B(a),
(12) the orphan drug credit determined under section
45C(a),
(13) the new markets tax credit determined under
section 45D(a),
(14) in the case of an eligible employer (as defined
in section 45E(c)), the small employer pension plan
startup cost credit determined under section 45E(a),
(15) the employer-provided child care credit
determined under section 45F(a),
(16) the railroad track maintenance credit determined
under section 45G(a),
(17) the biodiesel fuels credit determined under
section 40A(a),
(18) the low sulfur diesel fuel production credit
determined under section 45H(a),
(19) the marginal oil and gas well production credit
determined under section 45I(a),
(20) the distilled spirits credit determined under
section 5011(a),
(21) the advanced nuclear power facility production
credit determined under section 45J(a),
(22) the nonconventional source production credit
determined under section 45K(a),
(23) the new energy efficient home credit determined
under section 45L(a),
(24) the portion of the alternative motor vehicle
credit to which section 30B(g)(1) applies,
(25) the portion of the alternative fuel vehicle
refueling property credit to which section 30C(d)(1)
applies,
(26) the mine rescue team training credit determined
under section 45N(a),
(27) in the case of an eligible agricultural business
(as defined in section 45O(e)), the agricultural
chemicals security credit determined under section
45O(a),
(28) the differential wage payment credit determined
under section 45P(a),
(29) the carbon dioxide sequestration credit
determined under section 45Q(a),
(30) the portion of the new qualified plug-in
electric drive motor vehicle credit to which section
30D(c)(1) applies,
(31) the small employer health insurance credit
determined under section 45R,
(32) in the case of an eligible employer (as defined
in section 45S(c)), the paid family and medical leave
credit determined under section 45S(a), [plus]
(33) in the case of an eligible employer (as defined
in section 45T(c)), the retirement auto-enrollment
credit determined under section 45T(a)[.], plus
(34) in the case of an eligible small employer (as
defined in section 45U(c)), the military spouse
retirement plan eligibility credit determined under
section 45U(a).
(c) Limitation based on amount of tax.--
(1) In general.--The credit allowed under subsection
(a) for any taxable year shall not exceed the excess
(if any) of the taxpayer's net income tax over the
greater of--
(A) the tentative minimum tax for the taxable
year, or
(B) 25 percent of so much of the taxpayer's
net regular tax liability as exceeds $25,000.
For purposes of the preceding sentence, the term ``net
income tax'' means the sum of the regular tax liability
and the tax imposed by section 55, reduced by the
credits allowable under subparts A and B of this part,
and the term ``net regular tax liability'' means the
regular tax liability reduced by the sum of the credits
allowable under subparts A and B of this part.
(2) Empowerment zone employment credit may offset 25
percent of minimum tax.--
(A) In general.--In the case of the
empowerment zone employment credit--
(i) this section and section 39 shall
be applied separately with respect to
such credit, and
(ii) for purposes of applying
paragraph (1) to such credit--
(I) 75 percent of the
tentative minimum tax shall be
substituted for the tentative
minimum tax under subparagraph
(A) thereof, and
(II) the limitation under
paragraph (1) (as modified by
subclause (I)) shall be reduced
by the credit allowed under
subsection (a) for the taxable
year (other than the
empowerment zone employment
credit and the specified
credits).
(B) Empowerment zone employment credit.--For
purposes of this paragraph, the term
``empowerment zone employment credit'' means
the portion of the credit under subsection (a)
which is attributable to the credit determined
under section 1396 (relating to empowerment
zone employment credit).
(4) Special rules for specified credits.--
(A) In general.--In the case of specified
credits--
(i) this section and section 39 shall
be applied separately with respect to
such credits, and
(ii) in applying paragraph (1) to
such credits--
(I) the tentative minimum tax
shall be treated as being zero,
and
(II) the limitation under
paragraph (1) (as modified by
subclause (I)) shall be reduced
by the credit allowed under
subsection (a) for the taxable
year (other than the specified
credits).
(B) Specified credits.--For purposes of this
subsection, the term ``specified credits''
means--
(i) for taxable years beginning after
December 31, 2004, the credit
determined under section 40,
(ii) the credit determined under
section 41 for the taxable year with
respect to an eligible small business
(as defined in paragraph (5)(A) after
application of the rules of paragraph
(5)(B)),
(iii) the credit determined under
section 42 to the extent attributable
to buildings placed in service after
December 31, 2007,
(iv) the credit determined under
section 45 to the extent that such
credit is attributable to electricity
or refined coal produced--
(I) at a facility which is
originally placed in service
after the date of the enactment
of this paragraph, and
(II) during the 4-year period
beginning on the date that such
facility was originally placed
in service,
(v) the credit determined under
section 45 to the extent that such
credit is attributable to section
45(e)(10) (relating to Indian coal
production facilities),
(vi) the credit determined under
section 45B,
(vii) the credit determined under
section 45G,
(viii) the credit determined under
section 45R,
(ix) the credit determined under
section 45S,
(x) the credit determined under
section 46 to the extent that such
credit is attributable to the energy
credit determined under section 48,
(xi) the credit determined under
section 46 to the extent that such
credit is attributable to the
rehabilitation credit under section 47,
but only with respect to qualified
rehabilitation expenditures properly
taken into account for periods after
December 31, 2007, and
(xii) the credit determined under
section 51.
(5) Rules related to eligible small businesses.--
(A) Eligible small business.--For purposes of
this subsection, the term ``eligible small
business'' means, with respect to any taxable
year--
(i) a corporation the stock of which
is not publicly traded,
(ii) a partnership, or
(iii) a sole proprietorship,
if the average annual gross receipts of such
corporation, partnership, or sole
proprietorship for the 3-taxable-year period
preceding such taxable year does not exceed
$50,000,000. For purposes of applying the test
under the preceding sentence, rules similar to
the rules of paragraphs (2) and (3) of section
448(c) shall apply.
(B) Treatment of partners and S corporation
shareholders.--For purposes of paragraph
(4)(B)(ii), any credit determined under section
41 with respect to a partnership or S
corporation shall not be treated as a specified
credit by any partner or shareholder unless
such partner or shareholder meets the gross
receipts test under subparagraph (A) for the
taxable year in which such credit is treated as
a current year business credit.
(6) Special rules.--
(A) Married individuals.--In the case of a
husband or wife who files a separate return,
the amount specified under subparagraph (B) of
paragraph (1) shall be $12,500 in lieu of
$25,000. This subparagraph shall not apply if
the spouse of the taxpayer has no business
credit carryforward or carryback to, and has no
current year business credit for, the taxable
year of such spouse which ends within or with
the taxpayer's taxable year.
(B) Controlled groups.--In the case of a
controlled group, the $25,000 amount specified
under subparagraph (B) of paragraph (1) shall
be reduced for each component member of such
group by apportioning $25,000 among the
component members of such group in such manner
as the Secretary shall by regulations
prescribe. For purposes of the preceding
sentence, the term ``controlled group'' has the
meaning given to such term by section 1563(a).
(C) Limitations with respect to certain
persons.--In the case of a person described in
subparagraph (A) or (B) of section 46(e)(1) (as
in effect on the day before the date of the
enactment of the Revenue Reconciliation Act of
1990), the $25,000 amount specified under
subparagraph (B) of paragraph (1) shall equal
such person's ratable share (as determined
under section 46(e)(2) (as so in effect) of
such amount.
(D) Estates and trusts.--In the case of an
estate or trust, the $25,000 amount specified
under subparagraph (B) of paragraph (1) shall
be reduced to an amount which bears the same
ratio to $25,000 as the portion of the income
of the estate or trust which is not allocated
to beneficiaries bears to the total income of
the estate or trust.
(E) Corporations.--In the case of a
corporation, this subsection shall be applied
by treating the corporation as having a
tentative minimum tax of zero.
(d) Ordering rules.--For purposes of any provision of this
title where it is necessary to ascertain the extent to which
the credits determined under any section referred to in
subsection (b) are used in a taxable year or as a carryback or
carryforward--
(1) In general.--The order in which such credits are
used shall be determined on the basis of the order in
which they are listed in subsection (b) as of the close
of the taxable year in which the credit is used.
(2) Components of investment credit.--The order in
which the credits listed in section 46 are used shall
be determined on the basis of the order in which such
credits are listed in section 46 as of the close of the
taxable year in which the credit is used.
* * * * * * *
SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.
(a) General rule.--For purposes of section 38, in the case of
an eligible employer, the small employer pension plan startup
cost credit determined under this section for any taxable year
is an amount equal to 50 percent of the qualified startup costs
paid or incurred by the taxpayer during the taxable year.
(b) Dollar limitation.--The amount of the credit determined
under this section for any taxable year shall not exceed--
(1) for the first credit year and each of the 2
taxable years immediately following the first credit
year, the greater of--
(A) $500, or
(B) the lesser of--
(i) $250 for each employee of the
eligible employer who is not a highly
compensated employee (as defined in
section 414(q)) and who is eligible to
participate in the eligible employer
plan maintained by the eligible
employer, or
(ii) $5,000, and
(2) zero for any other taxable year.
(c) Eligible employer.--For purposes of this section--
(1) In general.--The term ``eligible employer'' has
the meaning given such term by section 408(p)(2)(C)(i).
(2) Requirement for new qualified employer plans.--
Such term shall not include an employer if, during the
3-taxable year period immediately preceding the 1st
taxable year for which the credit under this section is
otherwise allowable for a qualified employer plan of
the employer, the employer or any member of any
controlled group including the employer (or any
predecessor of either) established or maintained a
qualified employer plan with respect to which
contributions were made, or benefits were accrued, for
substantially the same employees as are in the
qualified employer plan.
(d) Other definitions.--For purposes of this section--
(1) Qualified startup costs.--
(A) In general.--The term ``qualified startup
costs'' means any ordinary and necessary
expenses of an eligible employer which are paid
or incurred in connection with--
(i) the establishment or
administration of an eligible employer
plan, or
(ii) the retirement-related education
of employees with respect to such plan.
(B) Plan must have at least 1 participant.--
Such term shall not include any expense in
connection with a plan that does not have at
least 1 employee eligible to participate who is
not a highly compensated employee.
(2) Eligible employer plan.--The term ``eligible
employer plan'' means a qualified employer plan within
the meaning of section 4972(d).
(3) First credit year.--The term ``first credit
year'' means--
(A) the taxable year which includes the date
that the eligible employer plan to which such
costs relate becomes [effective] effective with
respect to the eligible employer, or
(B) at the election of the eligible employer,
the taxable year preceding the taxable year
referred to in subparagraph (A).
(e) Special rules.--For purposes of this section--
(1) Aggregation rules.--All persons treated as a
single employer under subsection (a) or (b) of section
52, or subsection (m) or (o) of section 414, shall be
treated as one person. All eligible employer plans
shall be treated as 1 eligible employer plan.
[(2) Disallowance of deduction.--No deduction shall
be allowed for that portion of the qualified startup
costs paid or incurred for the taxable year which is
equal to the credit determined under subsection (a).]
(2) Disallowance of deduction.--No deduction shall be
allowed--
(A) for that portion of the qualified startup
costs paid or incurred for the taxable year
which is equal to so much of the portion of the
credit determined under subsection (a) as is
properly allocable to such costs, and
(B) for that portion of the employer
contributions by the employer for the taxable
year which is equal to so much of the credit
increase determined under subsection (f) as is
properly allocable to such contributions.
(3) Election not to claim credit.--This section shall
not apply to a taxpayer for any taxable year if such
taxpayer elects to have this section not apply for such
taxable year.
(4) Increased credit for certain small employers.--In
the case of an employer which would be an eligible
employer under subsection (c) if section
408(p)(2)(C)(i) was applied by substituting ``50
employees'' for ``100 employees'', subsection (a) shall
be applied by substituting ``100 percent'' for ``50
percent''.
(f) Additional Credit for Employer Contributions by Certain
Eligible Employers.--
(1) In general.--In the case of an eligible employer,
the credit allowed for the taxable year under
subsection (a) (determined without regard to this
subsection) shall be increased by an amount equal to
the applicable percentage of employer contributions
(other than any elective deferrals (as defined in
section 402(g)(3)) by the employer to an eligible
employer plan (other than a defined benefit plan (as
defined in section 414(j))).
(2) Limitations.--
(A) Dollar limitation.--The amount determined
under paragraph (1) (before the application of
subparagraph (B)) with respect to any employee
of the employer shall not exceed $1,000.
(B) Credit phase-in.--In the case of any
eligible employer which had for the preceding
taxable year more than 50 employees, the amount
determined under paragraph (1) (without regard
to this subparagraph) shall be reduced by an
amount equal to the product of--
(i) the amount otherwise so
determined under paragraph (1),
multiplied by
(ii) a percentage equal to 2
percentage points for each employee of
the employer for the preceding taxable
year in excess of 50 employees.
(3) Applicable percentage.--For purposes of this
section, the applicable percentage for the taxable year
during which the eligible employer plan is established
with respect to the eligible employer shall be 100
percent, and for taxable years thereafter shall be
determined under the following table:
The
In the case of the following taxable year beginning after applicable
the taxable year during which plan is established with percentage
respect to the eligible employer: shall be:
1st......................................................... 100%
2nd......................................................... 75%
3rd......................................................... 50%
4th......................................................... 25%
Any taxable year thereafter................................. 0%
(4) Determination of eligible employer; number of
employees.--For purposes of this subsection, whether an
employer is an eligible employer and the number of
employees of an employer shall be determined under the
rules of subsection (c), except that paragraph (2)
thereof shall only apply to the taxable year during
which the eligible employer plan to which this section
applies is established with respect to the eligible
employer.
* * * * * * *
SEC. 45U. MILITARY SPOUSE RETIREMENT PLAN ELIGIBILITY CREDIT FOR SMALL
EMPLOYERS.
(a) In General.--For purposes of section 38, in the case of
any eligible small employer, the military spouse retirement
plan eligibility credit determined under this section for any
taxable year is an amount equal to the sum of--
(1) $250 with respect to each military spouse who is
an employee of such employer and who is eligible to
participate in an eligible defined contribution plan of
such employer at any time during such taxable year,
plus
(2) so much of the contributions made by such
employer to all such plans with respect to such
employee during such taxable year as do not exceed
$250.
(b) Limitation.--An individual shall only be taken into
account as a military spouse under subsection (a) for the
taxable year which includes the date on which such individual
began participating in the eligible defined contribution plan
of the employer and the 2 succeeding taxable years.
(c) Eligible Small Employer.--For purposes of this section--
(1) In general.--The term ``eligible small employer''
means an eligible employer (as defined in section
408(p)(2)(C)(i)(I)).
(2) Application of 2-year grace period.--A rule
similar to the rule of section 408(p)(2)(C)(i)(II)
shall apply for purposes of this section.
(d) Military Spouse.--For purposes of this section--
(1) In general.--The term ``military spouse'' means,
with respect to any employer, any individual who is
married (within the meaning of section 7703 as of the
first date that the employee is employed by the
employer) to an individual who is a member of the
uniformed services (as defined section 101(a)(5) of
title 10, United States Code). For purposes of this
section, an employer may rely on an employee's
certification that such employee's spouse is a member
of the uniformed services if such certification
provides the name, rank, and service branch of such
spouse.
(2) Exclusion of highly compensated employees.--With
respect to any employer, the term ``military spouse''
shall not include any individual if such individual is
a highly compensated employee of such employer (within
the meaning of section 414(q)).
(e) Eligible Defined Contribution Plan.--For purposes of this
section, the term ``eligible defined contribution plan'' means,
with respect to any eligible small employer, any defined
contribution plan (as defined in section 414(i)) of such
employer if, under the terms of such plan--
(1) military spouses employed by such employer are
eligible to participate in such plan not later than the
date which is 2 months after the date on which such
individual begins employment with such employer, and
(2) military spouses who are eligible to participate
in such plan--
(A) are immediately eligible to receive an
amount of employer contributions under such
plan which is not less the amount of such
contributions that a similarly situated
participant who is not a military spouse would
be eligible to receive under such plan after 2
years of service, and
(B) immediately have a nonforfeitable right
to the employee's accrued benefit derived from
employer contributions under such plan.
(f) Aggregation Rule.--All persons treated as a single
employer under subsection (b), (c), (m) or (o) of section 414
shall be treated as one employer for purposes of this section.
* * * * * * *
Subchapter B--COMPUTATION OF TAXABLE INCOME
* * * * * * *
PART II--ITEMS SPECIFICALLY INCLUDED IN GROSS INCOME
* * * * * * *
SEC. 72. ANNUITIES; CERTAIN PROCEEDS OF ENDOWMENT AND LIFE INSURANCE
CONTRACTS.
(a) General rules for annuities.--
(1) Income inclusion.--Except as otherwise provided
in this chapter, gross income includes any amount
received as an annuity (whether for a period certain or
during one or more lives) under an annuity, endowment,
or life insurance contract.
(2) Partial annuitization.--If any amount is received
as an annuity for a period of 10 years or more or
during one or more lives under any portion of an
annuity, endowment, or life insurance contract--
(A) such portion shall be treated as a
separate contract for purposes of this section,
(B) 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
(C) 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) Exclusion ratio.--
(1) In general.--Gross income does not include that
part of any amount received as an annuity under an
annuity, endowment, or life insurance contract which
bears the same ratio to such amount as the investment
in the contract (as of the annuity starting date) bears
to the expected return under the contract (as of such
date).
(2) Exclusion limited to investment.--The portion of
any amount received as an annuity which is excluded
from gross income under paragraph (1) shall not exceed
the unrecovered investment in the contract immediately
before the receipt of such amount.
(3) Deduction where annuity payments cease before
entire investment recovered.--
(A) In general.--If--
(i) after the annuity starting date,
payments as an annuity under the
contract cease by reason of the death
of an annuitant, and
(ii) as of the date of such
cessation, there is unrecovered
investment in the contract,
the amount of such unrecovered investment (in
excess of any amount specified in subsection
(e)(5) which was not included in gross income)
shall be allowed as a deduction to the
annuitant for his last taxable year.
(B) Payments to other persons.--In the case
of any contract which provides for payments
meeting the requirements of subparagraphs (B)
and (C) of subsection (c)(2), the deduction
under subparagraph (A) shall be allowed to the
person entitled to such payments for the
taxable year in which such payments are
received.
(C) Net operating loss deductions provided.--
For purposes of section 172, a deduction
allowed under this paragraph shall be treated
as if it were attributable to a trade or
business of the taxpayer.
(4) Unrecovered investment.--For purposes of this
subsection, the unrecovered investment in the contract
as of any date is--
(A) the investment in the contract
(determined without regard to subsection
(c)(2)) as of the annuity starting date,
reduced by
(B) the aggregate amount received under the
contract on or after such annuity starting date
and before the date as of which the
determination is being made, to the extent such
amount was excludable from gross income under
this subtitle.
(c) Definitions.--
(1) Investment in the contract.--For purposes of
subsection (b), the investment in the contract as of
the annuity starting date is--
(A) the aggregate amount of premiums or other
consideration paid for the contract, minus
(B) the aggregate amount received under the
contract before such date, to the extent that
such amount was excludable from gross income
under this subtitle or prior income tax laws.
(2) Adjustment in investment where there is refund
feature.--If--
(A) the expected return under the contract
depends in whole or in part on the life
expectancy of one or more individuals;
(B) the contract provides for payments to be
made to a beneficiary (or to the estate of an
annuitant) on or after the death of the
annuitant or annuitants; and
(C) such payments are in the nature of a
refund of the consideration paid,
then the value (computed without discount for interest)
of such payments on the annuity starting date shall be
subtracted from the amount determined under paragraph
(1). Such value shall be computed in accordance with
actuarial tables prescribed by the Secretary. For
purposes of this paragraph and of subsection (e)(2)(A),
the term ``refund of the consideration paid'' includes
amounts payable after the death of an annuitant by
reason of a provision in the contract for a life
annuity with minimum period of payments certain, but
(if part of the consideration was contributed by an
employer) does not include that part of any payment to
a beneficiary (or to the estate of the annuitant) which
is not attributable to the consideration paid by the
employee for the contract as determined under paragraph
(1)(A).
(3) Expected return.--For purposes of subsection (b),
the expected return under the contract shall be
determined as follows:
(A) Life expectancy.--If the expected return
under the contract, for the period on and after
the annuity starting date, depends in whole or
in part on the life expectancy of one or more
individuals, the expected return shall be
computed with reference to actuarial tables
prescribed by the Secretary.
(B) Installment payments.--If subparagraph
(A) does not apply, the expected return is the
aggregate of the amounts receivable under the
contract as an annuity.
(4) Annuity starting date.--For purposes of this
section, the annuity starting date in the case of any
contract is the first day of the first period for which
an amount is received as an annuity under the contract.
(d) Special rules for qualified employer retirement plans.--
(1) Simplified method of taxing annuity payments.--
(A) In general.--In the case of any amount
received as an annuity under a qualified
employer retirement plan--
(i) subsection (b) shall not apply,
and
(ii) the investment in the contract
shall be recovered as provided in this
paragraph.
(B) Method of recovering investment in
contract.--
(i) In general.--Gross income shall
not include so much of any monthly
annuity payment under a qualified
employer retirement plan as does not
exceed the amount obtained by
dividing--
(I) the investment in the
contract (as of the annuity
starting date), by
(II) the number of
anticipated payments determined
under the table contained in
clause (iii) (or, in the case
of a contract to which
subsection (c)(3)(B) applies,
the number of monthly annuity
payments under such contract).
(ii) Certain rules made applicable.--
Rules similar to the rules of
paragraphs (2) and (3) of subsection
(b) shall apply for purposes of this
paragraph.
(iii) Number of anticipated
payments.--If the annuity is payable
over the life of a single individual,
the number of anticipated payments
shall be determined as follows:
(iv) Number of anticipated payments
where more than one life.--If the
annuity is payable over the lives of
more than 1 individual, the number of
anticipated payments shall be
determined as follows:
(C) Adjustment for refund feature not
applicable.--For purposes of this paragraph,
investment in the contract shall be determined
under subsection (c)(1) without regard to
subsection (c)(2).
(D) Special rule where lump sum paid in
connection with commencement of annuity
payments.--If, in connection with the
commencement of annuity payments under any
qualified employer retirement plan, the
taxpayer receives a lump-sum payment--
(i) such payment shall be taxable
under subsection (e) as if received
before the annuity starting date, and
(ii) the investment in the contract
for purposes of this paragraph shall be
determined as if such payment had been
so received.
(E) Exception.--This paragraph shall not
apply in any case where the primary annuitant
has attained age 75 on the annuity starting
date unless there are fewer than 5 years of
guaranteed payments under the annuity.
(F) Adjustment where annuity payments not on
monthly basis.--In any case where the annuity
payments are not made on a monthly basis,
appropriate adjustments in the application of
this paragraph shall be made to take into
account the period on the basis of which such
payments are made.
(G) Qualified employer retirement plan.--For
purposes of this paragraph, the term
``qualified employer retirement plan'' means
any plan or contract described in paragraph
(1), (2), or (3) of section 4974(c).
(2) Treatment of employee contributions under defined
contribution plans.--For purposes of this section,
employee contributions (and any income allocable
thereto) under a defined contribution plan may be
treated as a separate contract.
(e) Amounts not received as annuities.--
(1) Application of subsection.--
(A) In general.--This subsection shall apply
to any amount which--
(i) is received under an annuity,
endowment, or life insurance contract,
and
(ii) is not received as an annuity,
if no provision of this subtitle (other than
this subsection) applies with respect to such
amount.
(B) Dividends.--For purposes of this section,
any amount received which is in the nature of a
dividend or similar distribution shall be
treated as an amount not received as an
annuity.
(2) General rule.--Any amount to which this
subsection applies--
(A) if received on or after the annuity
starting date, shall be included in gross
income, or
(B) if received before the annuity starting
date--
(i) shall be included in gross income
to the extent allocable to income on
the contract, and
(ii) shall not be included in gross
income to the extent allocable to the
investment in the contract.
(3) Allocation of amounts to income and investment.--
For purposes of paragraph (2)(B)--
(A) Allocation to income.--Any amount to
which this subsection applies shall be treated
as allocable to income on the contract to the
extent that such amount does not exceed the
excess (if any) of--
(i) the cash value of the contract
(determined without regard to any
surrender charge) immediately before
the amount is received, over
(ii) the investment in the contract
at such time.
(B) Allocation to investment.--Any amount to
which this subsection applies shall be treated
as allocable to investment in the contract to
the extent that such amount is not allocated to
income under subparagraph (A).
(4) Special rules for application of paragraph
(2)(B).--For purposes of paragraph (2)(B)--
(A) Loans treated as distributions.--If,
during any taxable year, an individual--
(i) receives (directly or indirectly)
any amount as a loan under any contract
to which this subsection applies, or
(ii) assigns or pledges (or agrees to
assign or pledge) any portion of the
value of any such contract,
such amount or portion shall be treated as
received under the contract as an amount not
received as an annuity. The preceding sentence
shall not apply for purposes of determining
investment in the contract, except that the
investment in the contract shall be increased
by any amount included in gross income by
reason of the amount treated as received under
the preceding sentence.
(B) Treatment of policyholder dividends.--Any
amount described in paragraph (1)(B) shall not
be included in gross income under paragraph
(2)(B)(i) to the extent such amount is retained
by the insurer as a premium or other
consideration paid for the contract.
(C) Treatment of transfers without adequate
consideration.--
(i) In general.--If an individual who
holds an annuity contract transfers it
without full and adequate
consideration, such individual shall be
treated as receiving an amount equal to
the excess of--
(I) the cash surrender value
of such contract at the time of
transfer, over
(II) the investment in such
contract at such time,
under the contract as an amount not received
as an annuity.
(ii) Exception for certain transfers
between spouses or former spouses.--
Clause (i) shall not apply to any
transfer to which section 1041(a)
(relating to transfers of property
between spouses or incident to divorce)
applies.
(iii) Adjustment to investment in
contract of transferee.--If under
clause (i) an amount is included in the
gross income of the transferor of an
annuity contract, the investment in the
contract of the transferee in such
contract shall be increased by the
amount so included.
(5) Retention of existing rules in certain cases.--
(A) In general.--In any case to which this
paragraph applies--
(i) paragraphs (2)(B) and (4)(A)
shall not apply, and
(ii) if paragraph (2)(A) does not
apply,
the amount shall be included in gross income,
but only to the extent it exceeds the
investment in the contract.
(B) Existing contracts.--This paragraph shall
apply to contracts entered into before August
14, 1982. Any amount allocable to investment in
the contract after August 13, 1982, shall be
treated as from a contract entered into after
such date.
(C) Certain life insurance and endowment
contracts.--Except as provided in paragraph
(10) and except to the extent prescribed by the
Secretary by regulations, this paragraph shall
apply to any amount not received as an annuity
which is received under a life insurance or
endowment contract.
(D) Contracts under qualified plans.--Except
as provided in paragraph (8), this paragraph
shall apply to any amount received--
(i) from a trust described in section
401(a) which is exempt from tax under
section 501(a),
(ii) from a contract--
(I) purchased by a trust
described in clause (i),
(II) purchased as part of a
plan described in section
403(a),
(III) described in section
403(b), or
(IV) provided for employees
of a life insurance company
under a plan described in
section 818(a)(3), or
(iii) from an individual retirement
account or an individual retirement
annuity.
Any dividend described in section 404(k) which
is received by a participant or beneficiary
shall, for purposes of this subparagraph, be
treated as paid under a separate contract to
which clause (ii)(I) applies.
(E) Full refunds, surrenders, redemptions,
and maturities.--This paragraph shall apply
to--
(i) any amount received, whether in a
single sum or otherwise, under a
contract in full discharge of the
obligation under the contract which is
in the nature of a refund of the
consideration paid for the contract,
and
(ii) any amount received under a
contract on its complete surrender,
redemption, or maturity.
In the case of any amount to which the
preceding sentence applies, the rule of
paragraph (2)(A) shall not apply.
(6) Investment in the contract.--For purposes of this
subsection, the investment in the contract as of any
date is--
(A) the aggregate amount of premiums or other
consideration paid for the contract before such
date, minus
(B) the aggregate amount received under the
contract before such date, to the extent that
such amount was excludable from gross income
under this subtitle or prior income tax laws.
(8) Extension of paragraph (2)(b) to qualified
plans.--
(A) In general.--Notwithstanding any other
provision of this subsection, in the case of
any amount received before the annuity starting
date from a trust or contract described in
paragraph (5)(D), paragraph (2)(B) shall apply
to such amounts.
(B) Allocation of amount received.--For
purposes of paragraph (2)(B), the amount
allocated to the investment in the contract
shall be the portion of the amount described in
subparagraph (A) which bears the same ratio to
such amount as the investment in the contract
bears to the account balance. The determination
under the preceding sentence shall be made as
of the time of the distribution or at such
other time as the Secretary may prescribe.
(C) Treatment of forfeitable rights.--If an
employee does not have a nonforfeitable right
to any amount under any trust or contract to
which subparagraph (A) applies, such amount
shall not be treated as part of the account
balance.
(D) Investment in the contract before 1987.--
In the case of a plan which on May 5, 1986,
permitted withdrawal of any employee
contributions before separation from service,
subparagraph (A) shall apply only to the extent
that amounts received before the annuity
starting date (when increased by amounts
previously received under the contract after
December 31, 1986) exceed the investment in the
contract as of December 31, 1986.
(9) Extension of paragraph (2)(B) to qualified
tuition programs and Coverdell education savings
accounts.--Notwithstanding any other provision of this
subsection, paragraph (2)(B) shall apply to amounts
received under a qualified tuition program (as defined
in section 529(b)) or under a Coverdell education
savings account (as defined in section 530(b)). The
rule of paragraph (8)(B) shall apply for purposes of
this paragraph.
(10) Treatment of modified endowment contracts.--
(A) In general.--Notwithstanding paragraph
(5)(C), in the case of any modified endowment
contract (as defined in section 7702A)--
(i) paragraphs (2)(B) and (4)(A)
shall apply, and
(ii) in applying paragraph (4)(A),
``any person'' shall be substituted for
``an individual''.
(B) Treatment of certain burial contracts.--
Notwithstanding subparagraph (A), paragraph
(4)(A) shall not apply to any assignment (or
pledge) of a modified endowment contract if
such assignment (or pledge) is solely to cover
the payment of expenses referred to in section
7702(e)(2)(C)(iii) and if the maximum death
benefit under such contract does not exceed
$25,000.
(11) Special rules for certain combination contracts
providing long-term care insurance.--Notwithstanding
paragraphs (2), (5)(C), and (10), in the case of any
charge against the cash value of an annuity contract or
the cash surrender value of a life insurance contract
made as payment for coverage under a qualified long-
term care insurance contract which is part of or a
rider on such annuity or life insurance contract--
(A) the investment in the contract shall be
reduced (but not below zero) by such charge,
and
(B) such charge shall not be includible in
gross income.
(12) Anti-abuse rules.--
(A) In general.--For purposes of determining
the amount includible in gross income under
this subsection--
(i) all modified endowment contracts
issued by the same company to the same
policyholder during any calendar year
shall be treated as 1 modified
endowment contract, and
(ii) all annuity contracts issued by
the same company to the same
policyholder during any calendar year
shall be treated as 1 annuity contract.
The preceding sentence shall not apply to any
contract described in paragraph (5)(D).
(B) Regulatory authority.--The Secretary may
by regulations prescribe such additional rules
as may be necessary or appropriate to prevent
avoidance of the purposes of this subsection
through serial purchases of contracts or
otherwise.
(f) Special rules for computing employees' contributions.--In
computing, for purposes of subsection (c)(1)(A), the aggregate
amount of premiums or other consideration paid for the
contract, and for purposes of subsection (e)(6), the aggregate
premiums or other consideration paid, amounts contributed by
the employer shall be included, but only to the extent that--
(1) such amounts were includible in the gross income
of the employee under this subtitle or prior income tax
laws; or
(2) if such amounts had been paid directly to the
employee at the time they were contributed, they would
not have been includible in the gross income of the
employee under the law applicable at the time of such
contribution.
Paragraph (2) shall not apply to amounts which were contributed
by the employer after December 31, 1962, and which would not
have been includible in the gross income of the employee by
reason of the application of section 911 if such amounts had
been paid directly to the employee at the time of contribution.
The preceding sentence shall not apply to amounts which were
contributed by the employer, as determined under regulations
prescribed by the Secretary, to provide pension or annuity
credits, to the extent such credits are attributable to
services performed before January 1, 1963, and are provided
pursuant to pension or annuity plan provisions in existence on
March 12, 1962, and on that date applicable to such services,
or to the extent such credits are attributable to services
performed as a foreign missionary (within the meaning of
section 403(b)(2)(D)(iii), as in effect before the enactment of
the Economic Growth and Tax Relief Reconciliation Act of 2001).
(g) Rules for transferee where transfer was for value.--Where
any contract (or any interest therein) is transferred (by
assignment or otherwise) for a valuable consideration, to the
extent that the contract (or interest therein) does not, in the
hands of the transferee, have a basis which is determined by
reference to the basis in the hands of the transferor, then--
(1) for purposes of this section, only the actual
value of such consideration, plus the amount of the
premiums and other consideration paid by the transferee
after the transfer, shall be taken into account in
computing the aggregate amount of the premiums or other
consideration paid for the contract;
(2) for purposes of subsection (c)(1)(B), there shall
be taken into account only the aggregate amount
received under the contract by the transferee before
the annuity starting date, to the extent that such
amount was excludable from gross income under this
subtitle or prior income tax laws; and
(3) the annuity starting date is the first day of the
first period for which the transferee received an
amount under the contract as an annuity.
For purposes of this subsection, the term ``transferee''
includes a beneficiary of, or the estate of, the transferee.
(h) Option to receive annuity in lieu of lump sum.--If--
(1) a contract provides for payment of a lump sum in
full discharge of an obligation under the contract,
subject to an option to receive an annuity in lieu of
such lump sum;
(2) the option is exercised within 60 days after the
day on which such lump sum first became payable; and
(3) part or all of such lump sum would (but for this
subsection) be includible in gross income by reason of
subsection (e)(1),
then, for purposes of this subtitle, no part of such lump sum
shall be considered as includible in gross income at the time
such lump sum first became payable.
(j) Interest.--Notwithstanding any other provision of this
section, if any amount is held under an agreement to pay
interest thereon, the interest payments shall be included in
gross income.
(l) Face-amount certificates.--For purposes of this section,
the term ``endowment contract'' includes a face-amount
certificate, as defined in section 2(a)(15) of the Investment
Company Act of 1940 (15 U.S.C., sec. 80a-2), issued after
December 31, 1954.
(m) Special rules applicable to employee annuities and
distributions under employee plans.--
(2) Computation of consideration paid by the
employee.--In computing--
(A) the aggregate amount of premiums or other
consideration paid for the contract for
purposes of subsection (c)(1)(A) (relating to
the investment in the contract), and
(B) the aggregate premiums or other
consideration paid for purposes of subsection
(e)(6) (relating to certain amounts not
received as an annuity),
any amount allowed as a deduction with respect to the
contract under section 404 which was paid while the
employee was an employee within the meaning of section
401(c)(1) shall be treated as consideration contributed
by the employer, and there shall not be taken into
account any portion of the premiums or other
consideration for the contract paid while the employee
was an owner-employee which is properly allocable (as
determined under regulations prescribed by the
Secretary) to the cost of life, accident, health, or
other insurance.
(3) Life insurance contracts.--
(A) This paragraph shall apply to any life
insurance contract--
(i) purchased as a part of a plan
described in section 403(a), or
(ii) purchased by a trust described
in section 401(a) which is exempt from
tax under section 501(a) if the
proceeds of such contract are payable
directly or indirectly to a participant
in such trust or to a beneficiary of
such participant.
(B) Any contribution to a plan described in
subparagraph (A)(i) or a trust described in
subparagraph (A)(ii) which is allowed as a
deduction under section 404, and any income of
a trust described in subparagraph (A)(ii),
which is determined in accordance with
regulations prescribed by the Secretary to have
been applied to purchase the life insurance
protection under a contract described in
subparagraph (A), is includible in the gross
income of the participant for the taxable year
when so applied.
(C) In the case of the death of an individual
insured under a contract described in
subparagraph (A), an amount equal to the cash
surrender value of the contract immediately
before the death of the insured shall be
treated as a payment under such plan or a
distribution by such trust, and the excess of
the amount payable by reason of the death of
the insured over such cash surrender value
shall not be includible in gross income under
this section and shall be treated as provided
in section 101.
(5) Penalties applicable to certain amounts received
by 5-percent owners.--
(A) This paragraph applies to amounts which
are received from a qualified trust described
in section 401(a) or under a plan described in
section 403(a) at any time by an individual who
is, or has been, a 5-percent owner, or by a
successor of such an individual, but only to
the extent such amounts are determined, under
regulations prescribed by the Secretary, to
exceed the benefits provided for such
individual under the plan formula.
(B) If a person receives an amount to which
this paragraph applies, his tax under this
chapter for the taxable year in which such
amount is received shall be increased by an
amount equal to 10 percent of the portion of
the amount so received which is includible in
his gross income for such taxable year.
(C) For purposes of this paragraph, the term
``5-percent owner'' means any individual who,
at any time during the 5 plan years preceding
the plan year ending in the taxable year in
which the amount is received, is a 5-percent
owner (as defined in section 416(i)(1)(B)).
(6) Owner-employee defined.--For purposes of this
subsection, the term ``owner-employee'' has the meaning
assigned to it by section 401(c)(3) and includes an
individual for whose benefit an individual retirement
account or annuity described in section 408(a) or (b)
is maintained. For purposes of the preceding sentence,
the term ``owner-employee'' shall include an employee
within the meaning of section 401(c)(1).
(7) Meaning of disabled.--For purposes of this
section, an individual shall be considered to be
disabled if he is unable to engage in any substantial
gainful activity by reason of any medically
determinable physical or mental impairment which can be
expected to result in death or to be of long-continued
and indefinite duration. An individual shall not be
considered to be disabled unless he furnishes proof of
the existence thereof in such form and manner as the
Secretary may require.
(10) Determination of investment in the contract in
the case of qualified domestic relations orders.--Under
regulations prescribed by the Secretary, in the case of
a distribution or payment made to an alternate payee
who is the spouse or former spouse of the participant
pursuant to a qualified domestic relations order (as
defined in section 414(p)), the investment in the
contract as of the date prescribed in such regulations
shall be allocated on a pro rata basis between the
present value of such distribution or payment and the
present value of all other benefits payable with
respect to the participant to which such order relates.
(n) Annuities under retired serviceman's family protection
plan or survivor benefit plan.--Subsection (b) shall not apply
in the case of amounts received after December 31, 1965, as an
annuity under chapter 73 of title 10 of the United States Code,
but all such amounts shall be excluded from gross income until
there has been so excluded (under section 122(b)(1) or this
section, including amounts excluded before January 1, 1966) an
amount equal to the consideration for the contract (as defined
by section 122(b)(2)), plus any amount treated pursuant to
section 101(b)(2)(D) (as in effect on the day before the date
of the enactment of the Small Business Job Protection Act of
1996) as additional consideration paid by the employee.
Thereafter all amounts so received shall be included in gross
income.
(o) Special rules for distributions from qualified plans to
which employee made deductible contributions.--
(1) Treatment of contributions.--For purposes of this
section and sections 402 and 403, notwithstanding
section 414(h), any deductible employee contribution
made to a qualified employer plan or government plan
shall be treated as an amount contributed by the
employer which is not includible in the gross income of
the employee.
(3) Amounts constructively received.--
(A) In general.--For purposes of this
subsection, rules similar to the rules provided
by subsection (p) (other than the exception
contained in paragraph (2) thereof) shall
apply.
(B) Purchase of life insurance.--To the
extent any amount of accumulated deductible
employee contributions of an employee are
applied to the purchase of life insurance
contracts, such amount shall be treated as
distributed to the employee in the year so
applied.
(4) Special rule for treatment of rollover amounts.--
For purposes of sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3), and 457(e)(16), the Secretary shall
prescribe regulations providing for such allocations of
amounts attributable to accumulated deductible employee
contributions, and for such other rules, as may be
necessary to insure that such accumulated deductible
employee contributions do not become eligible for
additional tax benefits (or freed from limitations)
through the use of rollovers.
(5) Definitions and special rules.--For purposes of
this subsection--
(A) Deductible employee contributions.--The
term ``deductible employee contributions''
means any qualified voluntary employee
contribution (as defined in section 219(e)(2))
made after December 31, 1981, in a taxable year
beginning after such date and made for a
taxable year beginning before January 1, 1987,
and allowable as a deduction under section
219(a) for such taxable year.
(B) Accumulated deductible employee
contributions.--The term ``accumulated
deductible employee contributions'' means the
deductible employee contributions--
(i) increased by the amount of income
and gain allocable to such
contributions, and
(ii) reduced by the sum of the amount
of loss and expense allocable to such
contributions and the amounts
distributed with respect to the
employee which are attributable to such
contributions (or income or gain
allocable to such contributions).
(C) Qualified employer plan.--The term
``qualified employer plan'' has the meaning
given to such term by subsection (p)(3)(A)(i).
(D) Government plan.--The term ``government
plan'' has the meaning given such term by
subsection (p)(3)(B).
(6) Ordering rules.--Unless the plan specifies
otherwise, any distribution from such plan shall not be
treated as being made from the accumulated deductible
employee contributions, until all other amounts to the
credit of the employee have been distributed.
(p) Loans treated as distributions.--For purposes of this
section--
(1) Treatment as distributions.--
(A) Loans.--If during any taxable year a
participant or beneficiary receives (directly
or indirectly) any amount as a loan from a
qualified employer plan, such amount shall be
treated as having been received by such
individual as a distribution under such plan.
(B) Assignments or pledges.--If during any
taxable year a participant or beneficiary
assigns (or agrees to assign) or pledges (or
agrees to pledge) any portion of his interest
in a qualified employer plan, such portion
shall be treated as having been received by
such individual as a loan from such plan.
(2) Exception for certain loans.--
(A) General rule.--Paragraph (1) shall not
apply to any loan to the extent that such loan
(when added to the outstanding balance of all
other loans from such plan whether made on,
before, or after August 13, 1982), does not
exceed the lesser of--
(i) $50,000, reduced by the excess
(if any) of--
(I) the highest outstanding
balance of loans from the plan
during the 1-year period ending
on the day before the date on
which such loan was made, over
(II) the outstanding balance
of loans from the plan on the
date on which such loan was
made, or
(ii) the greater of (I) one-half of
the present value of the nonforfeitable
accrued benefit of the employee under
the plan, or (II) $10,000.
For purposes of clause (ii), the present value
of the nonforfeitable accrued benefit shall be
determined without regard to any accumulated
deductible employee contributions (as defined
in subsection (o)(5)(B)).
(B) Requirement that loan be repayable within
5 years.--
(i) In general.--Subparagraph (A)
shall not apply to any loan unless such
loan, by its terms, is required to be
repaid within 5 years.
(ii) Exception for home loans.--
Clause (i) shall not apply to any loan
used to acquire any dwelling unit which
within a reasonable time is to be used
(determined at the time the loan is
made) as the principal residence of the
participant.
(C) Requirement of level amortization.--
Except as provided in regulations, this
paragraph shall not apply to any loan unless
substantially level amortization of such loan
(with payments not less frequently than
quarterly) is required over the term of the
loan.
(D) Prohibition of loans through credit cards
and other similar arrangements.--Subparagraph
(A) shall not apply to any loan which is made
through the use of any credit card or any other
similar arrangement.
(E) Related employers and related plans.--For
purposes of this paragraph--
(i) the rules of subsections (b),
(c), and (m) of section 414 shall
apply, and
(ii) all plans of an employer
(determined after the application of
such subsections) shall be treated as 1
plan.
(3) Denial of interest deductions in certain cases.--
(A) In general.--No deduction otherwise
allowable under this chapter shall be allowed
under this chapter for any interest paid or
accrued on any loan to which paragraph (1) does
not apply by reason of paragraph (2) during the
period described in subparagraph (B).
(B) Period to which subparagraph (A)
applies.--For purposes of subparagraph (A), the
period described in this subparagraph is the
period--
(i) on or after the 1st day on which
the individual to whom the loan is made
is a key employee (as defined in
section 416(i)), or
(ii) such loan is secured by amounts
attributable to elective deferrals
described in subparagraph (A) or (C) of
section 402(g)(3).
(4) Qualified employer plan, etc..--For purposes of
this subsection--
(A) Qualified employer plan.--
(i) In general.--The term ``qualified
employer plan'' means--
(I) a plan described in
section 401(a) which includes a
trust exempt from tax under
section 501(a),
(II) an annuity plan
described in section 403(a),
and
(III) a plan under which
amounts are contributed by an
individual's employer for an
annuity contract described in
section 403(b).
(ii) Special rule.--The term
``qualified employer plan'' shall
include any plan which was (or was
determined to be) a qualified employer
plan or a government plan.
(B) Government plan.--The term ``government
plan'' means any plan, whether or not
qualified, established and maintained for its
employees by the United States, by a State or
political subdivision thereof, or by an agency
or instrumentality of any of the foregoing.
(5) Special rules for loans, etc., from certain
contracts.--For purposes of this subsection, any amount
received as a loan under a contract purchased under a
qualified employer plan (and any assignment or pledge
with respect to such a contract) shall be treated as a
loan under such employer plan.
(q) 10-percent penalty for premature distributions from
annuity contracts.--
(1) Imposition of penalty.--If any taxpayer receives
any amount under an annuity contract, the taxpayer's
tax under this chapter for the taxable year in which
such amount is received shall be increased by an amount
equal to 10 percent of the portion of such amount which
is includible in gross income.
(2) Subsection not to apply to certain
distributions.--Paragraph (1) shall not apply to any
distribution--
(A) made on or after the date on which the
taxpayer attains age 591/2,
(B) made on or after the death of the holder
(or, where the holder is not an individual, the
death of the primary annuitant (as defined in
subsection (s)(6)(B))),
(C) attributable to the taxpayer's becoming
disabled within the meaning of subsection
(m)(7),
(D) which is a part of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or
life expectancy) of the taxpayer or the joint
lives (or joint life expectancies) of such
taxpayer and his designated beneficiary,
(E) from a plan, contract, account, trust, or
annuity described in subsection (e)(5)(D),
(F) allocable to investment in the contract
before August 14, 1982, or
(G) under a qualified funding asset (within
the meaning of section 130(d), but without
regard to whether there is a qualified
assignment),
(H) to which subsection (t) applies (without
regard to paragraph (2) thereof),
(I) under an immediate annuity contract
(within the meaning of section 72(u)(4)), or
(J) which is purchased by an employer upon
the termination of a plan described in section
401(a) or 403(a) and which is held by the
employer until such time as the employee
separates from service.
(3) Change in substantially equal payments.--If--
(A) paragraph (1) does not apply to a
distribution by reason of paragraph (2)(D), and
(B) the series of payments under such
paragraph are subsequently modified (other than
by reason of death or disability)--
(i) before the close of the 5-year
period beginning on the date of the
first payment and after the taxpayer
attains age 591/2, or
(ii) before the taxpayer attains age
591/2,
the taxpayer's tax for the 1st taxable year in which
such modification occurs shall be increased by an
amount, determined under regulations, equal to the tax
which (but for paragraph (2)(D)) would have been
imposed, plus interest for the deferral period (within
the meaning of subsection (t)(4)(B)).
(r) Certain railroad retirement benefits treated as received
under employer plans.--
(1) In general.--Notwithstanding any other provision
of law, any benefit provided under the Railroad
Retirement Act of 1974 (other than a tier 1 railroad
retirement benefit) shall be treated for purposes of
this title as a benefit provided under an employer plan
which meets the requirements of section 401(a).
(2) Tier 2 taxes treated as contributions.--
(A) In general.--For purposes of paragraph
(1)--
(i) the tier 2 portion of the tax
imposed by section 3201 (relating to
tax on employees) shall be treated as
an employee contribution,
(ii) the tier 2 portion of the tax
imposed by section 3211 (relating to
tax on employee representatives) shall
be treated as an employee contribution,
and
(iii) the tier 2 portion of the tax
imposed by section 3221 (relating to
tax on employers) shall be treated as
an employer contribution.
(B) Tier 2 portion.--For purposes of
subparagraph (A)--
(i) After 1984.--With respect to
compensation paid after 1984, the tier
2 portion shall be the taxes imposed by
sections 3201(b), 3211(b), and 3221(b).
(ii) After September 30, 1981, and
before 1985.--With respect to
compensation paid before 1985 for
services rendered after September 30,
1981, the tier 2 portion shall be--
(I) so much of the tax
imposed by section 3201 as is
determined at the 2 percent
rate, and
(II) so much of the taxes
imposed by sections 3211 and
3221 as is determined at the
11.75 percent rate.
With respect to compensation paid for services
rendered after December 31, 1983, and before
1985, subclause (I) shall be applied by
substituting ``2.75 percent'' for ``2
percent'', and subclause (II) shall be applied
by substituting ``12.75 percent'' for ``11.75
percent''.
(iii) Before October 1, 1981.--With
respect to compensation paid for
services rendered during any period
before October 1, 1981, the tier 2
portion shall be the excess (if any)
of--
(I) the tax imposed for such
period by section 3201, 3211,
or 3221, as the case may be
(other than any tax imposed
with respect to man-hours),
over
(II) the tax which would have
been imposed by such section
for such period had the rates
of the comparable taxes imposed
by chapter 21 for such period
applied under such section.
(C) Contributions not allocable to
supplemental annuity or windfall benefits.--For
purposes of paragraph (1), no amount treated as
an employee contribution under this paragraph
shall be allocated to--
(i) any supplemental annuity paid
under section 2(b) of the Railroad
Retirement Act of 1974, or
(ii) any benefit paid under section
3(h), 4(e), or 4(h) of such Act.
(3) Tier 1 railroad retirement benefit.--For purposes
of paragraph (1), the term ``tier 1 railroad retirement
benefit'' has the meaning given such term by section
86(d)(4).
(s) Required distributions where holder dies before entire
interest is distributed.--
(1) In general.--A contract shall not be treated as
an annuity contract for purposes of this title unless
it provides that--
(A) if any holder of such contract dies on or
after the annuity starting date and before the
entire interest in such contract has been
distributed, the remaining portion of such
interest will be distributed at least as
rapidly as under the method of distributions
being used as of the date of his death, and
(B) if any holder of such contract dies
before the annuity starting date, the entire
interest in such contract will be distributed
within 5 years after the death of such holder.
(2) Exception for certain amounts payable over life
of beneficiary.--If--
(A) any portion of the holder's interest is
payable to (or for the benefit of) a designated
beneficiary,
(B) such portion will be distributed (in
accordance with regulations) over the life of
such designated beneficiary (or over a period
not extending beyond the life expectancy of
such beneficiary), and
(C) such distributions begin not later than 1
year after the date of the holder's death or
such later date as the Secretary may by
regulations prescribe,
then for purposes of paragraph (1), the portion
referred to in subparagraph (A) shall be treated as
distributed on the day on which such distributions
begin.
(3) Special rule where surviving spouse
beneficiary.--If the designated beneficiary referred to
in paragraph (2)(A) is the surviving spouse of the
holder of the contract, paragraphs (1) and (2) shall be
applied by treating such spouse as the holder of such
contract.
(4) Designated beneficiary.--For purposes of this
subsection, the term ``designated beneficiary'' means
any individual designated a beneficiary by the holder
of the contract.
(5) Exception for certain annuity contracts.--This
subsection shall not apply to any annuity contract--
(A) which is provided--
(i) under a plan described in section
401(a) which includes a trust exempt
from tax under section 501, or
(ii) under a plan described in
section 403(a),
(B) which is described in section 403(b),
(C) which is an individual retirement annuity
or provided under an individual retirement
account or annuity, or
(D) which is a qualified funding asset (as
defined in section 130(d), but without regard
to whether there is a qualified assignment).
(6) Special rule where holder is corporation or other
non-individual.--
(A) In general.--For purposes of this
subsection, if the holder of the contract is
not an individual, the primary annuitant shall
be treated as the holder of the contract.
(B) Primary annuitant.--For purposes of
subparagraph (A), the term ``primary
annuitant'' means the individual, the events in
the life of whom are of primary importance in
affecting the timing or amount of the payout
under the contract.
(7) Treatment of changes in primary annuitant where
holder of contract is not an individual.--For purposes
of this subsection, in the case of a holder of an
annuity contract which is not an individual, if there
is a change in a primary annuitant (as defined in
paragraph (6)(B)), such change shall be treated as the
death of the holder.
(t) 10-percent additional tax on early distributions from
qualified retirement plans.--
(1) Imposition of additional tax.--If any taxpayer
receives any amount from a qualified retirement plan
(as defined in section 4974(c)), the taxpayer's tax
under this chapter for the taxable year in which such
amount is received shall be increased by an amount
equal to 10 percent of the portion of such amount which
is includible in gross income.
(2) Subsection not to apply to certain
distributions.--Except as provided in paragraphs (3)
and (4), paragraph (1) shall not apply to any of the
following distributions:
(A) In general.--Distributions which are--
(i) made on or after the date on
which the employee attains age 591/2,
(ii) made to a beneficiary (or to the
estate of the employee) on or after the
death of the employee,
(iii) attributable to the employee's
being disabled within the meaning of
subsection (m)(7),
(iv) part of a series of
substantially equal periodic payments
(not less frequently than annually)
made for the life (or life expectancy)
of the employee or the joint lives (or
joint life expectancies) of such
employee and his designated
beneficiary,
(v) made to an employee after
separation from service after
attainment of age 55,
(vi) dividends paid with respect to
stock of a corporation which are
described in section 404(k),
(vii) made on account of a levy under
section 6331 on the qualified
retirement plan, or
(viii) payments under a phased
retirement annuity under section
8366a(a)(5) or 8412a(a)(5) of title 5,
United States Code, or a composite
retirement annuity under section
8366a(a)(1) or 8412a(a)(1) of such
title.
(B) Medical expenses.--Distributions made to
the employee (other than distributions
described in subparagraph (A), (C), or (D)) to
the extent such distributions do not exceed the
amount allowable as a deduction under section
213 to the employee for amounts paid during the
taxable year for medical care (determined
without regard to whether the employee itemizes
deductions for such taxable year).
(C) Payments to alternate payees pursuant to
qualified domestic relations orders.--Any
distribution to an alternate payee pursuant to
a qualified domestic relations order (within
the meaning of section 414(p)(1)).
(D) Distributions to unemployed individuals
for health insurance premiums.--
(i) In general.--Distributions from
an individual retirement plan to an
individual after separation from
employment--
(I) if such individual has
received unemployment
compensation for 12 consecutive
weeks under any Federal or
State unemployment compensation
law by reason of such
separation,
(II) if such distributions
are made during any taxable
year during which such
unemployment compensation is
paid or the succeeding taxable
year, and
(III) to the extent such
distributions do not exceed the
amount paid during the taxable
year for insurance described in
section 213(d)(1)(D) with
respect to the individual and
the individual's spouse and
dependents (as defined in
section 152, determined without
regard to subsections (b)(1),
(b)(2), and (d)(1)(B) thereof).
(ii) Distributions after
reemployment.--Clause (i) shall not
apply to any distribution made after
the individual has been employed for at
least 60 days after the separation from
employment to which clause (i) applies.
(iii) Self-employed individuals.--To
the extent provided in regulations, a
self-employed individual shall be
treated as meeting the requirements of
clause (i)(I) if, under Federal or
State law, the individual would have
received unemployment compensation but
for the fact the individual was self-
employed.
(E) Distributions from individual retirement
plans for higher education expenses.--
Distributions to an individual from an
individual retirement plan to the extent such
distributions do not exceed the qualified
higher education expenses (as defined in
paragraph (7)) of the taxpayer for the taxable
year. Distributions shall not be taken into
account under the preceding sentence if such
distributions are described in subparagraph
(A), (C), or (D) or to the extent paragraph (1)
does not apply to such distributions by reason
of subparagraph (B).
(F) Distributions from certain plans for
first home purchases.--Distributions to an
individual from an individual retirement plan
which are qualified first-time homebuyer
distributions (as defined in paragraph (8)).
Distributions shall not be taken into account
under the preceding sentence if such
distributions are described in subparagraph
(A), (C), (D), or (E) or to the extent
paragraph (1) does not apply to such
distributions by reason of subparagraph (B).
(G) Distributions from retirement plans to
individuals called to active duty.--
(i) In general.--Any qualified
reservist distribution.
(ii) Amount distributed may be
repaid.--Any individual who receives a
qualified reservist distribution may,
at any time during the 2-year period
beginning on the day after the end of
the active duty period, make one or
more contributions to an individual
retirement plan of such individual in
an aggregate amount not to exceed the
amount of such distribution. The dollar
limitations otherwise applicable to
contributions to individual retirement
plans shall not apply to any
contribution made pursuant to the
preceding sentence. No deduction shall
be allowed for any contribution
pursuant to this clause.
(iii) Qualified reservist
distribution.--For purposes of this
subparagraph, the term ``qualified
reservist distribution'' means any
distribution to an individual if--
(I) such distribution is from
an individual retirement plan,
or from amounts attributable to
employer contributions made
pursuant to elective deferrals
described in subparagraph (A)
or (C) of section 402(g)(3) or
section 501(c)(18)(D)(iii),
(II) such individual was (by
reason of being a member of a
reserve component (as defined
in section 101 of title 37,
United States Code)) ordered or
called to active duty for a
period in excess of 179 days or
for an indefinite period, and
(III) such distribution is
made during the period
beginning on the date of such
order or call and ending at the
close of the active duty
period.
(iv) Application of subparagraph.--
This subparagraph applies to
individuals ordered or called to active
duty after September 11, 2001. In no
event shall the 2-year period referred
to in clause (ii) end before the date
which is 2 years after the date of the
enactment of this subparagraph.
(H) Distributions from retirement plans in
case of birth of child or adoption.--
(i) In general.--Any qualified birth
or adoption distribution.
(ii) Limitation.--The aggregate
amount which may be treated as
qualified birth or adoption
distributions by any individual with
respect to any birth or adoption shall
not exceed $5,000.
(iii) Qualified birth or adoption
distribution.--For purposes of this
subparagraph--
(I) In general.--The term
``qualified birth or adoption
distribution'' means any
distribution from an applicable
eligible retirement plan to an
individual if made during the
1-year period beginning on the
date on which a child of the
individual is born or on which
the legal adoption by the
individual of an eligible
adoptee is finalized.
(II) Eligible adoptee.--The
term ``eligible adoptee'' means
any individual (other than a
child of the taxpayer's spouse)
who has not attained age 18 or
is physically or mentally
incapable of self-support.
(iv) Treatment of plan
distributions.--
(I) In general.--If a
distribution to an individual
would (without regard to clause
(ii)) be a qualified birth or
adoption distribution, a plan
shall not be treated as failing
to meet any requirement of this
title merely because the plan
treats the distribution as a
qualified birth or adoption
distribution, unless the
aggregate amount of such
distributions from all plans
maintained by the employer (and
any member of any controlled
group which includes the
employer) to such individual
exceeds $5,000.
(II) Controlled group.--For
purposes of subclause (I), the
term ``controlled group'' means
any group treated as a single
employer under subsection (b),
(c), (m), or (o) of section
414.
(v) Amount distributed may be
repaid.--
(I) In general.--Any
individual who receives a
qualified birth or adoption
distribution [may make] may, at
any time during the 3-year
period beginning on the day
after the date on which such
distribution was received, make
one or more contributions in an
aggregate amount not to exceed
the amount of such distribution
to an applicable eligible
retirement plan of which such
individual is a beneficiary and
to which a rollover
contribution of such
distribution could be made
under section 402(c),
403(a)(4), 403(b)(8),
408(d)(3), or 457(e)(16), as
the case may be.
(II) Limitation on
contributions to applicable
eligible retirement plans other
than IRAs.--The aggregate
amount of contributions made by
an individual under subclause
(I) to any applicable eligible
retirement plan which is not an
individual retirement plan
shall not exceed the aggregate
amount of qualified birth or
adoption distributions which
are made from such plan to such
individual. Subclause (I) shall
not apply to contributions to
any applicable eligible
retirement plan which is not an
individual retirement plan
unless the individual is
eligible to make contributions
(other than those described in
subclause (I)) to such
applicable eligible retirement
plan.
(III) Treatment of repayments
of distributions from
applicable eligible retirement
plans other than IRAs.--If a
contribution is made under
subclause (I) with respect to a
qualified birth or adoption
distribution from an applicable
eligible retirement plan other
than an individual retirement
plan, then the taxpayer shall,
to the extent of the amount of
the contribution, be treated as
having received such
distribution in an eligible
rollover distribution (as
defined in section 402(c)(4))
and as having transferred the
amount to the applicable
eligible retirement plan in a
direct trustee to trustee
transfer within 60 days of the
distribution.
(IV) Treatment of repayments
for distributions from IRAs.--
If a contribution is made under
subclause (I) with respect to a
qualified birth or adoption
distribution from an individual
retirement plan, then, to the
extent of the amount of the
contribution, such distribution
shall be treated as a
distribution described in
section 408(d)(3) and as having
been transferred to the
applicable eligible retirement
plan in a direct trustee to
trustee transfer within 60 days
of the distribution.
(vi) Definition and special rules.--
For purposes of this subparagraph--
(I) Applicable eligible
retirement plan.--The term
``applicable eligible
retirement plan'' means an
eligible retirement plan (as
defined in section
402(c)(8)(B)) other than a
defined benefit plan.
(II) Exemption of
distributions from trustee to
trustee transfer and
withholding rules.--For
purposes of sections
401(a)(31), 402(f), and 3405, a
qualified birth or adoption
distribution shall not be
treated as an eligible rollover
distribution.
(III) Taxpayer must include
TIN.--A distribution shall not
be treated as a qualified birth
or adoption distribution with
respect to any child or
eligible adoptee unless the
taxpayer includes the name,
age, and TIN of such child or
eligible adoptee on the
taxpayer's return of tax for
the taxable year.
(IV) Distributions treated as
meeting plan distribution
requirements.--Any qualified
birth or adoption distribution
shall be treated as meeting the
requirements of sections
401(k)(2)(B)(i),
[403(b)(7)(A)(ii)]
403(b)(7)(A)(i), 403(b)(11),
and 457(d)(1)(A).
(I) Distributions from retirement plan in
case of domestic abuse.--
(i) In general.--Any eligible
distribution to a domestic abuse
victim.
(ii) Limitation.--The aggregate
amount which may be treated as an
eligible distribution to a domestic
abuse victim by any individual shall
not exceed an amount equal to the
lesser of--
(I) $10,000, or
(II) 50 percent of the
present value of the
nonforfeitable accrued benefit
of the employee under the plan.
(iii) Eligible distribution to a
domestic abuse victim.--For purposes of
this subparagraph--
(I) In general.--A
distribution shall be treated
as an eligible distribution to
a domestic abuse victim if such
distribution is from an
applicable eligible retirement
plan to an individual and made
during the 1-year period
beginning on any date on which
the individual is a victim of
domestic abuse by a spouse or
domestic partner.
(II) Domestic abuse.--The
term ``domestic abuse'' means
physical, psychological,
sexual, emotional, or economic
abuse, including efforts to
control, isolate, humiliate, or
intimidate the victim, or to
undermine the victim's ability
to reason independently,
including by means of abuse of
the victim's child or another
family member living in the
household.
(iv) Treatment of plan
distributions.--
(I) In general.--If a
distribution to an individual
would (without regard to clause
(ii)) be an eligible
distribution to a domestic
abuse victim, a plan shall not
be treated as failing to meet
any requirement of this title
merely because the plan treats
the distribution as an eligible
distribution to a domestic
abuse victim, unless the
aggregate amount of such
distributions from all plans
maintained by the employer (and
any member of any controlled
group which includes the
employer) to such individual
exceeds the limitation under
clause (ii).
(II) Controlled group.--For
purposes of subclause (I), the
term ``controlled group'' means
any group treated as a single
employer under subsection (b),
(c), (m), or (o) of section
414.
(v) Amount distributed may be
repaid.--
(I) In general.--Any
individual who receives a
distribution described in
clause (i) may, at any time
during the 3-year period
beginning on the day after the
date on which such distribution
was received, make one or more
contributions in an aggregate
amount not to exceed the amount
of such distribution to an
applicable eligible retirement
plan of which such individual
is a beneficiary and to which a
rollover contribution of such
distribution could be made
under section 402(c),
403(a)(4), 403(b)(8),
408(d)(3), or 457(e)(16), as
the case may be.
(II) Limitation on
contributions to applicable
eligible retirement plans other
than iras.--The aggregate
amount of contributions made by
an individual under subclause
(I) to any applicable eligible
retirement plan which is not an
individual retirement plan
shall not exceed the aggregate
amount of eligible
distributions to a domestic
abuse victim which are made
from such plan to such
individual. Subclause (I) shall
not apply to contributions to
any applicable eligible
retirement plan which is not an
individual retirement plan
unless the individual is
eligible to make contributions
(other than those described in
subclause (I)) to such
applicable eligible retirement
plan.
(III) Treatment of repayments
of distributions from
applicable eligible retirement
plans other than iras.--If a
contribution is made under
subclause (I) with respect to
an eligible distribution to a
domestic abuse victim from an
applicable eligible retirement
plan other than an individual
retirement plan, then the
taxpayer shall, to the extent
of the amount of the
contribution, be treated as
having received such
distribution in an eligible
rollover distribution (as
defined in section 402(c)(4))
and as having transferred the
amount to the applicable
eligible retirement plan in a
direct trustee to trustee
transfer within 60 days of the
distribution.
(IV) Treatment of repayments
for distributions from iras.--
If a contribution is made under
subclause (I) with respect to
an eligible distribution to a
domestic abuse victim from an
individual retirement plan,
then, to the extent of the
amount of the contribution,
such distribution shall be
treated as a distribution
described in section 408(d)(3)
and as having been transferred
to the applicable eligible
retirement plan in a direct
trustee to trustee transfer
within 60 days of the
distribution.
(vi) Definition and special rules.--
For purposes of this subparagraph:
(I) Applicable eligible
retirement plan.--The term
``applicable eligible
retirement plan'' means an
eligible retirement plan (as
defined in section
402(c)(8)(B)) other than a
defined benefit plan.
(II) Exemption of
distributions from trustee to
trustee transfer and
withholding rules.--For
purposes of sections
401(a)(31), 402(f), and 3405,
an eligible distribution to a
domestic abuse victim shall not
be treated as an eligible
rollover distribution.
(III) Distributions treated
as meeting plan distribution
requirements; self-
certification.--Any
distribution which the employee
or participant certifies as
being an eligible distribution
to a domestic abuse victim
shall be treated as meeting the
requirements of sections
401(k)(2)(B)(i),
403(b)(7)(A)(i), 403(b)(11),
and 457(d)(1)(A).
(3) Limitations.--
(A) Certain exceptions not to apply to
individual retirement plans.--Subparagraphs
(A)(v) and (C) of paragraph (2) shall not apply
to distributions from an individual retirement
plan.
(B) Periodic payments under qualified plans
must begin after separation.--Paragraph
(2)(A)(iv) shall not apply to any amount paid
from a trust described in section 401(a) which
is exempt from tax under section 501(a) or from
a contract described in section 72(e)(5)(D)(ii)
unless the series of payments begins after the
employee separates from service.
(4) Change in substantially equal payments.--
(A) In general.--If--
(i) paragraph (1) does not apply to a
distribution by reason of paragraph
(2)(A)(iv), and
(ii) the series of payments under
such paragraph are subsequently
modified (other than by reason of death
or disability or a distribution to
which paragraph (10) applies)--
(I) before the close of the
5-year period beginning with
the date of the first payment
and after the employee attains
age 591/2, or
(II) before the employee
attains age 591/2,
the taxpayer's tax for the 1st taxable year in
which such modification occurs shall be
increased by an amount, determined under
regulations, equal to the tax which (but for
paragraph (2)(A)(iv)) would have been imposed,
plus interest for the deferral period.
(B) Deferral period.--For purposes of this
paragraph, the term ``deferral period'' means
the period beginning with the taxable year in
which (without regard to paragraph (2)(A)(iv))
the distribution would have been includible in
gross income and ending with the taxable year
in which the modification described in
subparagraph (A) occurs.
(5) Employee.--For purposes of this subsection, the
term ``employee'' includes any participant, and in the
case of an individual retirement plan, the individual
for whose benefit such plan was established.
(6) Special rules for simple retirement accounts.--In
the case of any amount received from a simple
retirement account (within the meaning of section
408(p)) during the 2-year period beginning on the date
such individual first participated in any qualified
salary reduction arrangement maintained by the
individual's employer under section 408(p)(2),
paragraph (1) shall be applied by substituting ``25
percent'' for ``10 percent''.
(7) Qualified higher education expenses.--For
purposes of paragraph (2)(E)--
(A) In general.--The term ``qualified higher
education expenses'' means qualified higher
education expenses (as defined in section
529(e)(3)) for education furnished to--
(i) the taxpayer,
(ii) the taxpayer's spouse, or
(iii) any child (as defined in
section 152(f)(1)) or grandchild of the
taxpayer or the taxpayer's spouse,
at an eligible educational institution (as
defined in section 529(e)(5)).
(B) Coordination with other benefits.--The
amount of qualified higher education expenses
for any taxable year shall be reduced as
provided in section 25A(g)(2).
(8) Qualified first-time homebuyer distributions.--
For purposes of paragraph (2)(F)--
(A) In general.--The term ``qualified first-
time homebuyer distribution'' means any payment
or distribution received by an individual to
the extent such payment or distribution is used
by the individual before the close of the 120th
day after the day on which such payment or
distribution is received to pay qualified
acquisition costs with respect to a principal
residence of a first-time homebuyer who is such
individual, the spouse of such individual, or
any child, grandchild, or ancestor of such
individual or the individual's spouse.
(B) Lifetime dollar limitation.--The
aggregate amount of payments or distributions
received by an individual which may be treated
as qualified first-time homebuyer distributions
for any taxable year shall not exceed the
excess (if any) of--
(i) $10,000, over
(ii) the aggregate amounts treated as
qualified first-time homebuyer
distributions with respect to such
individual for all prior taxable years.
(C) Qualified acquisition costs.--For
purposes of this paragraph, the term
``qualified acquisition costs'' means the costs
of acquiring, constructing, or reconstructing a
residence. Such term includes any usual or
reasonable settlement, financing, or other
closing costs.
(D) First-time homebuyer; other
definitions.--For purposes of this paragraph--
(i) First-time homebuyer.--The term
``first-time homebuyer'' means any
individual if--
(I) such individual (and if
married, such individual's
spouse) had no present
ownership interest in a
principal residence during the
2-year period ending on the
date of acquisition of the
principal residence to which
this paragraph applies, and
(II) subsection (h) or (k) of
section 1034 (as in effect on
the day before the date of the
enactment of this paragraph)
did not suspend the running of
any period of time specified in
section 1034 (as so in effect)
with respect to such individual
on the day before the date the
distribution is applied
pursuant to subparagraph (A).
(ii) Principal residence.--The term
``principal residence'' has the same
meaning as when used in section 121.
(iii) Date of acquisition.--The term
``date of acquisition'' means the
date--
(I) on which a binding
contract to acquire the
principal residence to which
subparagraph (A) applies is
entered into, or
(II) on which construction or
reconstruction of such a
principal residence is
commenced.
(E) Special rule where delay in
acquisition.--If any distribution from any
individual retirement plan fails to meet the
requirements of subparagraph (A) solely by
reason of a delay or cancellation of the
purchase or construction of the residence, the
amount of the distribution may be contributed
to an individual retirement plan as provided in
section 408(d)(3)(A)(i) (determined by
substituting ``120th day'' for ``60th day'' in
such section), except that--
(i) section 408(d)(3)(B) shall not be
applied to such contribution, and
(ii) such amount shall not be taken
into account in determining whether
section 408(d)(3)(B) applies to any
other amount.
(9) Special rule for rollovers to section 457
plans.--For purposes of this subsection, a distribution
from an eligible deferred compensation plan (as defined
in section 457(b)) of an eligible employer described in
section 457(e)(1)(A) shall be treated as a distribution
from a qualified retirement plan described in
4974(c)(1) to the extent that such distribution is
attributable to an amount transferred to an eligible
deferred compensation plan from a qualified retirement
plan (as defined in section 4974(c)).
(10) Distributions to [qualified] public safety
employees [in governmental plans].--
(A) In general.--In the case of a
distribution to a qualified public safety
employee from a governmental plan (within the
meaning of section [414(d))] 414(d)) or a
distribution from a plan described in clause
(iii), (iv), or (vi) of section 402(c)(8)(B) to
an employee who provides firefighting services,
paragraph (2)(A)(v) shall be applied by
substituting ``age 50'' for ``age 55''.
(B) Qualified public safety employee.--For
purposes of this paragraph, the term
``qualified public safety employee'' means--
(i) any employee of a State or
political subdivision of a State who
provides police protection,
firefighting services, or emergency
medical services for any area within
the jurisdiction of such State or
political subdivision, or
(ii) any Federal law enforcement
officer described in section 8331(20)
or 8401(17) of title 5, United States
Code, any Federal customs and border
protection officer described in section
8331(31) or 8401(36) of such title, any
Federal firefighter described in
section 8331(21) or 8401(14) of such
title, any air traffic controller
described in 8331(30) or 8401(35) of
such title, any nuclear materials
courier described in section 8331(27)
or 8401(33) of such title, any member
of the United States Capitol Police,
any member of the Supreme Court Police,
or any diplomatic security special
agent of the Department of State.
(u) Treatment of annuity contracts not held by natural
persons.--
(1) In general.--If any annuity contract is held by a
person who is not a natural person--
(A) such contract shall not be treated as an
annuity contract for purposes of this subtitle
(other than subchapter L), and
(B) the income on the contract for any
taxable year of the policyholder shall be
treated as ordinary income received or accrued
by the owner during such taxable year.
For purposes of this paragraph, holding by a trust or
other entity as an agent for a natural person shall not
be taken into account.
(2) Income on the contract.--
(A) In general.--For purposes of paragraph
(1), the term ``income on the contract'' means,
with respect to any taxable year of the
policyholder, the excess of--
(i) the sum of the net surrender
value of the contract as of the close
of the taxable year plus all
distributions under the contract
received during the taxable year or any
prior taxable year, reduced by
(ii) the sum of the amount of net
premiums under the contract for the
taxable year and prior taxable years
and amounts includible in gross income
for prior taxable years with respect to
such contract under this subsection.
Where necessary to prevent the avoidance of
this subsection, the Secretary may substitute
``fair market value of the contract'' for ``net
surrender value of the contract'' each place it
appears in the preceding sentence.
(B) Net premiums.--For purposes of this
paragraph, the term ``net premiums'' means the
amount of premiums paid under the contract
reduced by any policyholder dividends.
(3) Exceptions.--This subsection shall not apply to
any annuity contract which--
(A) is acquired by the estate of a decedent
by reason of the death of the decedent,
(B) is held under a plan described in section
401(a) or 403(a), under a program described in
section 403(b), or under an individual
retirement plan,
(C) is a qualified funding asset (as defined
in section 130(d), but without regard to
whether there is a qualified assignment),
(D) is purchased by an employer upon the
termination of a plan described in section
401(a) or 403(a) and is held by the employer
until all amounts under such contract are
distributed to the employee for whom such
contract was purchased or the employee's
beneficiary, or
(E) is an immediate annuity.
(4) Immediate annuity.--For purposes of this
subsection, the term ``immediate annuity'' means an
annuity--
(A) which is purchased with a single premium
or annuity consideration,
(B) the annuity starting date (as defined in
subsection (c)(4)) of which commences no later
than 1 year from the date of the purchase of
the annuity, and
(C) which provides for a series of
substantially equal periodic payments (to be
made not less frequently than annually) during
the annuity period.
(v) 10-percent additional tax for taxable distributions from
modified endowment contracts.--
(1) Imposition of additional tax.--If any taxpayer
receives any amount under a modified endowment contract
(as defined in section 7702A), the taxpayer's tax under
this chapter for the taxable year in which such amount
is received shall be increased by an amount equal to 10
percent of the portion of such amount which is
includible in gross income.
(2) Subsection not to apply to certain
distributions.--Paragraph (1) shall not apply to any
distribution--
(A) made on or after the date on which the
taxpayer attains age 591/2,
(B) which is attributable to the taxpayer's
becoming disabled (within the meaning of
subsection (m)(7)), or
(C) which is part of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or
life expectancy) of the taxpayer or the joint
lives (or joint life expectancies) of such
taxpayer and his beneficiary.
(w) Application of basis rules to nonresident aliens.--
(1) In general.--Notwithstanding any other provision
of this section, for purposes of determining the
portion of any distribution which is includible in
gross income of a distributee who is a citizen or
resident of the United States, the investment in the
contract shall not include any applicable nontaxable
contributions or applicable nontaxable earnings.
(2) Applicable nontaxable contribution.--For purposes
of this subsection, the term ``applicable nontaxable
contribution'' means any employer or employee
contribution--
(A) which was made with respect to
compensation--
(i) for labor or personal services
performed by an employee who, at the
time the labor or services were
performed, was a nonresident alien for
purposes of the laws of the United
States in effect at such time, and
(ii) which is treated as from sources
without the United States, and
(B) which was not subject to income tax (and
would have been subject to income tax if paid
as cash compensation when the services were
rendered) under the laws of the United States
or any foreign country.
(3) Applicable nontaxable earnings.--For purposes of
this subsection, the term ``applicable nontaxable
earnings'' means earnings--
(A) which are paid or accrued with respect to
any employer or employee contribution which was
made with respect to compensation for labor or
personal services performed by an employee,
(B) with respect to which the employee was at
the time the earnings were paid or accrued a
nonresident alien for purposes of the laws of
the United States, and
(C) which were not subject to income tax
under the laws of the United States or any
foreign country.
(4) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the
provisions of this subsection, including regulations
treating contributions and earnings as not subject to
tax under the laws of any foreign country where
appropriate to carry out the purposes of this
subsection.
(x) Cross reference.--For limitation on adjustments to basis
of annuity contracts sold, see section 1021.
* * * * * * *
PART III--ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME
Sec. 101. Certain death payments.
* * * * * * *
Sec. 139C. Certain disability-related first responder retirement
payments.
* * * * * * *
SEC. 139C. CERTAIN DISABILITY-RELATED FIRST RESPONDER RETIREMENT
PAYMENTS.
(a) In General.--In the case of an individual who receives
qualified first responder retirement payments for any taxable
year, gross income shall not include so much of such payments
as do not exceed the annualized excludable disability amount
with respect to such individual.
(b) Qualified First Responder Retirement Payments.--For
purposes of this section, the term ``qualified first responder
retirement payments'' means, with respect to any taxable year,
any pension or annuity which but for this section would be
includible in gross income for such taxable year and which is
received--
(1) from a plan described in clause (iii), (iv), (v),
or (vi) of section 402(c)(8)(B), and
(2) in connection with such individual's qualified
first responder service.
(c) Annualized Excludable Disability Amount.--For purposes of
this section--
(1) In general.--The term ``annualized excludable
disability amount'' means, with respect to any
individual, the service-connected excludable disability
amounts which are properly attributable to the 12-month
period immediately preceding the date on which such
individual attains retirement age.
(2) Service-connected excludable disability amount.--
The term ``service-connected excludable disability
amount'' means periodic payments received by an
individual which--
(A) are not includible in such individual's
gross income under section 104(a)(1),
(B) are received in connection with such
individual's qualified first responder service,
and
(C) terminate when such individual attains
retirement age.
(3) Special rule for partial-year payments.--In the
case of an individual who only receives service-
connected excludable disability amounts properly
attributable to a portion of the 12-month period
described in paragraph (1), such paragraph shall be
applied by multiplying such amounts by the ratio of 365
to the number of days in such period to which such
amounts were properly attributable.
(d) Qualified First Responder Service.--For purposes of this
section, the term ``qualified first responder service'' means
service as a law enforcement officer, firefighter, paramedic,
or emergency medical technician.
* * * * * * *
PART VII--ADDITIONAL ITEMIZED DEDUCTIONS FOR INDIVIDUALS
* * * * * * *
SEC. 219. RETIREMENT SAVINGS.
(a) Allowance of deduction.--In the case of an individual,
there shall be allowed as a deduction an amount equal to the
qualified retirement contributions of the individual for the
taxable year.
(b) Maximum amount of deduction.--
(1) In general.--The amount allowable as a deduction
under subsection (a) to any individual for any taxable
year shall not exceed the lesser of--
(A) the deductible amount, or
(B) an amount equal to the compensation
includible in the individual's gross income for
such taxable year.
(2) Special rule for employer contributions under
simplified employee pensions.--This section shall not
apply with respect to an employer contribution to a
simplified employee pension.
(3) Plans under section 501(c)(18).--Notwithstanding
paragraph (1), the amount allowable as a deduction
under subsection (a) with respect to any contributions
on behalf of an employee to a plan described in section
501(c)(18) shall not exceed the lesser of--
(A) $7,000, or
(B) an amount equal to 25 percent of the
compensation (as defined in section 415(c)(3))
includible in the individual's gross income for
such taxable year.
(4) Special rule for simple retirement accounts.--
This section shall not apply with respect to any amount
contributed to a simple retirement account established
under section 408(p).
(5) Deductible amount.--For purposes of paragraph
(1)(A)--
(A) In general.--The deductible amount is
$5,000.
(B) Catch-up contributions for individuals 50
or older.--
(i) In general.--In the case of an
individual who has attained the age of
50 before the close of the taxable
year, the deductible amount for such
taxable year shall be increased by the
applicable amount.
(ii) Applicable amount.--For purposes
of clause (i), the applicable amount is
$1,000.
(C) Cost-of-living adjustment.--
(i) In general.--In the case of any
taxable year beginning in a calendar
year after 2008, the $5,000 amount
under 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
2007'' for ``calendar year
2016'' in subparagraph (A)(ii)
thereof.
(ii) Rounding rules.--If any amount
after adjustment under clause (i) is
not a multiple of $500, such amount
shall be rounded to the next lower
multiple of $500.
(iii) Indexing of catch-up
limitation.--In the case of any taxable
year beginning in a calendar year after
2022, the $1,000 amount under
subparagraph (B)(ii) 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
2021'' for ``calendar year
2016'' in subparagraph (A)(ii)
thereof.
If any amount after adjustment under
the preceding sentence is not a
multiple of $100, such amount shall be
rounded to the next lower multiple of
$100.
(c) Kay Bailey Hutchison Spousal IRA.--
(1) In general.--In the case of an individual to whom
this paragraph applies for the taxable year, the
limitation of paragraph (1) of subsection (b) shall be
equal to the lesser of--
(A) the dollar amount in effect under
subsection (b)(1)(A) for the taxable year, or
(B) the sum of--
(i) the compensation includible in
such individual's gross income for the
taxable year, plus
(ii) the compensation includible in
the gross income of such individual's
spouse for the taxable year reduced
by--
(I) the amount allowed as a
deduction under subsection (a)
to such spouse for such taxable
year,
(II) the amount of any
designated nondeductible
contribution (as defined in
section 408(o)) on behalf of
such spouse for such taxable
year, and
(III) the amount of any
contribution on behalf of such
spouse to a Roth IRA under
section 408A for such taxable
year.
(2) Individuals to whom paragraph (1) applies.--
Paragraph (1) shall apply to any individual if--
(A) such individual files a joint return for
the taxable year, and
(B) the amount of compensation (if any)
includible in such individual's gross income
for the taxable year is less than the
compensation includible in the gross income of
such individual's spouse for the taxable year.
(d) Other limitations and restrictions.--
(2) Recontributed amounts.--No deduction shall be
allowed under this section with respect to a rollover
contribution described in section 402(c), 403(a)(4),
403(b)(8), 408(d)(3), or 457(e)(16).
(3) Amounts contributed under endowment contract.--In
the case of an endowment contract described in section
408(b), no deduction shall be allowed under this
section for that portion of the amounts paid under the
contract for the taxable year which is properly
allocable, under regulations prescribed by the
Secretary, to the cost of life insurance.
(4) Denial of deduction for amount contributed to
inherited annuities or accounts.--No deduction shall be
allowed under this section with respect to any amount
paid to an inherited individual retirement account or
individual retirement annuity (within the meaning of
section 408(d)(3)(C)(ii)).
(e) Qualified retirement contribution.--For purposes of this
section, the term ``qualified retirement contribution'' means--
(1) any amount paid in cash for the taxable year by
or on behalf of an individual to an individual
retirement plan for such individual's benefit, and
(2) any amount contributed on behalf of any
individual to a plan described in section 501(c)(18).
(f) Other definitions and special rules.--
(1) Compensation.--For purposes of this section, the
term ``compensation'' includes earned income (as
defined in section 401(c)(2)). The term
``compensation'' does not include any amount received
as a pension or annuity and does not include any amount
received as deferred compensation. For purposes of this
paragraph, section 401(c)(2) shall be applied as if the
term trade or business for purposes of section 1402
included service described in subsection (c)(6). The
term ``compensation'' includes any differential wage
payment (as defined in section 3401(h)(2)). The term
``compensation'' shall include any amount which is
included in the individual's gross income and paid to
the individual to aid the individual in the pursuit of
graduate or postdoctoral study.
(2) Married individuals.--The maximum deduction under
subsection (b) shall be computed separately for each
individual, and this section shall be applied without
regard to any community property laws.
(3) Time when contributions deemed made.--For
purposes of this section, a taxpayer shall be deemed to
have made a contribution to an individual retirement
plan on the last day of the preceding taxable year if
the contribution is made on account of such taxable
year and is made not later than the time prescribed by
law for filing the return for such taxable year (not
including extensions thereof).
(5) Employer payments.--For purposes of this title,
any amount paid by an employer to an individual
retirement plan shall be treated as payment of
compensation to the employee (other than a self-
employed individual who is an employee within the
meaning of section 401(c)(1)) includible in his gross
income in the taxable year for which the amount was
contributed, whether or not a deduction for such
payment is allowable under this section to the
employee.
(6) Excess contributions treated as contribution made
during subsequent year for which there is an unused
limitation.--
(A) In general.--If for the taxable year the
maximum amount allowable as a deduction under
this section for contributions to an individual
retirement plan exceeds the amount contributed,
then the taxpayer shall be treated as having
made an additional contribution for the taxable
year in an amount equal to the lesser of--
(i) the amount of such excess, or
(ii) the amount of the excess
contributions for such taxable year
(determined under section 4973(b)(2)
without regard to subparagraph (C)
thereof).
(B) Amount contributed.--For purposes of this
paragraph, the amount contributed--
(i) shall be determined without
regard to this paragraph, and
(ii) shall not include any rollover
contribution.
(C) Special rule where excess deduction was
allowed for closed year.--Proper reduction
shall be made in the amount allowable as a
deduction by reason of this paragraph for any
amount allowed as a deduction under this
section for a prior taxable year for which the
period for assessing deficiency has expired if
the amount so allowed exceeds the amount which
should have been allowed for such prior taxable
year.
(7) Special rule for compensation earned by members
of the Armed Forces for service in a combat zone..--For
purposes of subsections (b)(1)(B) and (c), the amount
of compensation includible in an individual's gross
income shall be determined without regard to section
112.
(8) Election not to deduct contributions.--For
election not to deduct contributions to individual
retirement plans, see section 408(o)(2)(B)(ii).
(g) Limitation on deduction for active participants in
certain pension plans.--
(1) In general.--If (for any part of any plan year
ending with or within a taxable year) an individual or
the individual's spouse is an active participant, each
of the dollar limitations contained in subsections
(b)(1)(A) and (c)(1)(A) for such taxable year shall be
reduced (but not below zero) by the amount determined
under paragraph (2).
(2) Amount of reduction.--
(A) In general.--The amount determined under
this paragraph with respect to any dollar
limitation shall be the amount which bears the
same ratio to such limitation as--
(i) the excess of--
(I) the taxpayer's adjusted
gross income for such taxable
year, over
(II) the applicable dollar
amount, bears to
(ii) $10,000 ($20,000 in the case of
a joint return).
(B) No reduction below $200 until complete
phase-out.--No dollar limitation shall be
reduced below $200 under paragraph (1) unless
(without regard to this subparagraph) such
limitation is reduced to zero.
(C) Rounding.--Any amount determined under
this paragraph which is not a multiple of $10
shall be rounded to the next lowest $10.
(3) Adjusted gross income; applicable dollar
amount.--For purposes of this subsection--
(A) Adjusted gross income.--Adjusted gross
income of any taxpayer shall be determined--
(i) after application of sections 86
and 469, and
(ii) without regard to sections 135,
137, 221, and 911 or the deduction
allowable under this section.
(B) Applicable dollar amount.--The term
``applicable dollar amount'' means the
following:
(i) In the case of a taxpayer filing
a joint return, $80,000.
(ii) In the case of any other
taxpayer (other than a married
individual filing a separate return),
$50,000.
(iii) In the case of a married
individual filing a separate return,
zero.
(4) Special rule for married individuals filing
separately and living apart.--A husband and wife who--
(A) file separate returns for any taxable
year, and
(B) live apart at all times during such
taxable year,
shall not be treated as married individuals for
purposes of this subsection.
(5) Active participant.--For purposes of this
subsection, the term ``active participant'' means, with
respect to any plan year, an individual--
(A) who is an active participant in--
(i) a plan described in section
401(a) which includes a trust exempt
from tax under section 501(a),
(ii) an annuity plan described in
section 403(a),
(iii) a plan established for its
employees by the United States, by a
State or political subdivision thereof,
or by an agency or instrumentality of
any of the foregoing,
(iv) an annuity contract described in
section 403(b),
(v) a simplified employee pension
(within the meaning of section 408(k)),
or
(vi) any simple retirement account
(within the meaning of section 408(p)),
or
(B) who makes deductible contributions to a
trust described in section 501(c)(18).
The determination of whether an individual is an active
participant shall be made without regard to whether or
not such individual's rights under a plan, trust, or
contract are nonforfeitable. An eligible deferred
compensation plan (within the meaning of section
457(b)) shall not be treated as a plan described in
subparagraph (A)(iii).
(6) Certain individuals not treated as active
participants.--For purposes of this subsection, any
individual described in any of the following
subparagraphs shall not be treated as an active
participant for any taxable year solely because of any
participation so described:
(A) Members of reserve components.--
Participation in a plan described in
subparagraph (A)(iii) of paragraph (5) by
reason of service as a member of a reserve
component of the Armed Forces (as defined in
section 10101 of title 10), unless such
individual has served in excess of 90 days on
active duty (other than active duty for
training) during the year.
(B) Volunteer firefighters.--A volunteer
firefighter--
(i) who is a participant in a plan
described in subparagraph (A)(iii) of
paragraph (5) based on his activity as
a volunteer firefighter, and
(ii) whose accrued benefit as of the
beginning of the taxable year is not
more than an annual benefit of $1,800
(when expressed as a single life
annuity commencing at age 65).
(7) Special rule for spouses who are not active
participants.--If this subsection applies to an
individual for any taxable year solely because their
spouse is an active participant, then, in applying this
subsection to the individual (but not their spouse)--
(A) the applicable dollar amount under
paragraph (3)(B)(i) shall be $150,000; and
(B) the amount applicable under paragraph
(2)(A)(ii) shall be $10,000.
(8) Inflation adjustment.--In the case of any taxable
year beginning in a calendar year after 2006, each of
the dollar amounts in paragraphs (3)(B)(i), (3)(B)(ii),
and (7)(A) shall be increased by an amount equal to--
(A) such dollar amount, multiplied by
(B) 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 2005'' for
``calendar year 2016'' in subparagraph (A)(ii)
thereof.
Any increase determined under the preceding sentence
shall be rounded to the nearest multiple of $1,000.
* * * * * * *
Subchapter D--DEFERRED COMPENSATION, ETC.
* * * * * * *
PART I--PENSION, PROFIT-SHARING, STOCK BONUS PLANS, ETC.
* * * * * * *
Subpart A--GENERAL RULE
* * * * * * *
SEC. 401. QUALIFIED PENSION, PROFIT-SHARING, AND STOCK BONUS PLANS.
(a) Requirements for qualification.--A trust created or
organized in the United States and forming part of a stock
bonus, pension, or profit-sharing plan of an employer for the
exclusive benefit of his employees or their beneficiaries shall
constitute a qualified trust under this section--
(1) if contributions are made to the trust by such
employer, or employees, or both, or by another employer
who is entitled to deduct his contributions under
section 404(a)(3)(B) (relating to deduction for
contributions to profit-sharing and stock bonus plans),
or by a charitable remainder trust pursuant to a
qualified gratuitous transfer (as defined in section
664(g)(1)), for the purpose of distributing to such
employees or their beneficiaries the corpus and income
of the fund accumulated by the trust in accordance with
such plan;
(2) if under the trust instrument it is impossible,
at any time prior to the satisfaction of all
liabilities with respect to employees and their
beneficiaries under the trust, for any part of the
corpus or income to be (within the taxable year or
thereafter) used for, or diverted to, purposes other
than for the exclusive benefit of his employees or
their beneficiaries (but this paragraph shall not be
construed, in the case of a multiemployer plan, to
prohibit the return of a contribution within 6 months
after the plan administrator determines that the
contribution was made by a mistake of fact or law
(other than a mistake relating to whether the plan is
described in section 401(a) or the trust which is part
of such plan is exempt from taxation under section
501(a), or the return of any withdrawal liability
payment determined to be an overpayment within 6 months
of such determination));
(3) if the plan of which such trust is a part
satisfies the requirements of section 410 (relating to
minimum participation standards); and
(4) if the contributions or benefits provided under
the plan do not discriminate in favor of highly
compensated employees (within the meaning of section
414(q)). For purposes of this paragraph, there shall be
excluded from consideration employees described in
section 410(b)(3)(A) and (C).
(5) Special rules relating to nondiscrimination
requirements.--
(A) Salaried or clerical employees.--A
classification shall not be considered
discriminatory within the meaning of paragraph
(4) or section 410(b)(2)(A)(i) merely because
it is limited to salaried or clerical
employees.
(B) Contributions and benefits may bear
uniform relationship to compensation.--A plan
shall not be considered discriminatory within
the meaning of paragraph (4) merely because the
contributions or benefits of, or on behalf of,
the employees under the plan bear a uniform
relationship to the compensation (within the
meaning of section 414(s)) of such employees.
(C) Certain disparity permitted.--A plan
shall not be considered discriminatory within
the meaning of paragraph (4) merely because the
contributions or benefits of, or on behalf of,
the employees under the plan favor highly
compensated employees (as defined in section
414(q)) in the manner permitted under
subsection (l).
(D) Integrated defined benefit plan.--
(i) In general.--A defined benefit
plan shall not be considered
discriminatory within the meaning of
paragraph (4) merely because the plan
provides that the employer-derived
accrued retirement benefit for any
participant under the plan may not
exceed the excess (if any) of--
(I) the participant's final
pay with the employer, over
(II) the employer-derived
retirement benefit created
under Federal law attributable
to service by the participant
with the employer.
For purposes of this clause, the employer-
derived retirement benefit created under
Federal law shall be treated as accruing
ratably over 35 years.
(ii) Final pay.--For purposes of this
subparagraph, the participant's final
pay is the compensation (as defined in
section 414(q)(4)) paid to the
participant by the employer for any
year--
(I) which ends during the 5-
year period ending with the
year in which the participant
separated from service for the
employer, and
(II) for which the
participant's total
compensation from the employer
was highest.
(E) 2 or more plans treated as single plan.--
For purposes of determining whether 2 or more
plans of an employer satisfy the requirements
of paragraph (4) when considered as a single
plan--
(i) Contributions.--If the amount of
contributions on behalf of the
employees allowed as a deduction under
section 404 for the taxable year with
respect to such plans, taken together,
bears a uniform relationship to the
compensation (within the meaning of
section 414(s)) of such employees, the
plans shall not be considered
discriminatory merely because the
rights of employees to, or derived
from, the employer contributions under
the separate plans do not become
nonforfeitable at the same rate.
(ii) Benefits.--If the employees'
rights to benefits under the separate
plans do not become nonforfeitable at
the same rate, but the levels of
benefits provided by the separate plans
satisfy the requirements of regulations
prescribed by the Secretary to take
account of the differences in such
rates, the plans shall not be
considered discriminatory merely
because of the difference in such
rates.
(F) Social security retirement age.--For
purposes of testing for discrimination under
paragraph (4)--
(i) the social security retirement
age (as defined in section 415(b)(8))
shall be treated as a uniform
retirement age, and
(ii) subsidized early retirement
benefits and joint and survivor
annuities shall not be treated as being
unavailable to employees on the same
terms merely because such benefits or
annuities are based in whole or in part
on an employee's social security
retirement age (as so defined).
(G) Governmental plans.--Paragraphs (3) and
(4) shall not apply to a governmental plan
(within the meaning of section 414(d)).
(6) A plan shall be considered as meeting the
requirements of paragraph (3) during the whole of any
taxable year of the plan if on one day in each quarter
it satisfied such requirements.
(7) A trust shall not constitute a qualified trust
under this section unless the plan of which such trust
is a part satisfies the requirements of section 411
(relating to minimum vesting standards).
(8) A trust forming part of a defined benefit plan
shall not constitute a qualified trust under this
section unless the plan provides that forfeitures must
not be applied to increase the benefits any employee
would otherwise receive under the plan.
(9) Required distributions.--
(A) In general.--A trust shall not constitute
a qualified trust under this subsection unless
the plan provides that the entire interest of
each employee--
(i) will be distributed to such
employee not later than the required
beginning date, or
(ii) will be distributed, beginning
not later than the required beginning
date, in accordance with regulations,
over the life of such employee or over
the lives of such employee and a
designated beneficiary (or over a
period not extending beyond the life
expectancy of such employee or the life
expectancy of such employee and a
designated beneficiary).
(B) Required distribution where employee dies
before entire interest is distributed.--
(i) Where distributions have begun
under subparagraph (A)(ii).--A trust
shall not constitute a qualified trust
under this section unless the plan
provides that if--
(I) the distribution of the
employee's interest has begun
in accordance with subparagraph
(A)(ii), and
(II) the employee dies before
his entire interest has been
distributed to him,
the remaining portion of such interest will be
distributed at least as rapidly as under the
method of distributions being used under
subparagraph (A)(ii) as of the date of his
death.
(ii) 5-year rule for other cases.--A
trust shall not constitute a qualified
trust under this section unless the
plan provides that, if an employee dies
before the distribution of the
employee's interest has begun in
accordance with subparagraph (A)(ii),
the entire interest of the employee
will be distributed within 5 years
after the death of such employee.
(iii) Exception to 5-year rule for
certain amounts payable over life of
beneficiary.--If--
(I) any portion of the
employee's interest is payable
to (or for the benefit of) a
designated beneficiary,
(II) such portion will be
distributed (in accordance with
regulations) over the life of
such designated beneficiary (or
over a period not extending
beyond the life expectancy of
such beneficiary), and
(III) such distributions
begin not later than 1 year
after the date of the
employee's death or such later
date as the Secretary may by
regulations prescribe,
for purposes of clause (ii), the portion
referred to in subclause (I) shall be treated
as distributed on the date on which such
distributions begin.
(iv) Special rule for surviving
spouse of employee.--If the designated
beneficiary referred to in clause
(iii)(I) is the surviving spouse of the
employee--
(I) the date on which the
distributions are required to
begin under clause (iii)(III)
shall not be earlier than the
date on which the employee
would have attained [age 72]
the applicable age, and
(II) if the surviving spouse
dies before the distributions
to such spouse begin, this
subparagraph shall be applied
as if the surviving spouse were
the employee.
(C) Required beginning date.--For purposes of
this paragraph--
(i) In general.--The term ``required
beginning date'' means April 1 of the
calendar year following the later of--
(I) the calendar year in
which the employee attains [age
72] the applicable age, or
(II) the calendar year in
which the employee retires.
(ii) Exception.--Subclause (II) of
clause (i) shall not apply--
(I) except as provided in
section 409(d), in the case of
an employee who is a 5-percent
owner (as defined in section
416) with respect to the plan
year ending in the calendar
year in which the employee
attains [age 72] the applicable
age, or
(II) for purposes of section
408(a)(6) or (b)(3).
(iii) Actuarial adjustment.--In the
case of an [employee to whom clause
(i)(II) applies] employee (other than
an employee to whom clause (i)(II) does
not apply by reason of clause (ii)) who
retires in a calendar year after the
calendar year in which the employee
attains age 701/2, the employee's
accrued benefit shall be actuarially
increased to take into account the
period after age 701/2 in which the
employee was not receiving any benefits
under the plan.
(iv) Exception for governmental and
church plans.--Clauses (ii) and (iii)
shall not apply in the case of a
governmental plan or church plan. For
purposes of this clause, the term
``church plan'' means a plan maintained
by a church for church employees, and
the term ``church'' means any church
(as defined in section 3121(w)(3)(A))
or qualified church-controlled
organization (as defined in section
3121(w)(3)(B)).
(v) Applicable age.--
(I) In the case of an
individual who attains age 72
after December 31, 2021, and
age 73 before January 1, 2029,
the applicable age is 73.
(II) In the case of an
individual who attains age 73
after December 31, 2028, and
age 74 before January 1, 2032,
the applicable age is 74.
(III) In the case of an
individual who attains age 74
after December 31, 2031, the
applicable age is 75.
(D) Life expectancy.--For purposes of this
paragraph, the life expectancy of an employee
and the employee's spouse (other than in the
case of a life annuity) may be redetermined but
not more frequently than annually.
(E) Definitions and rules relating to
designated beneficiaries.--For purposes of this
paragraph--
(i) Designated beneficiary.--The term
``designated beneficiary'' means any
individual designated as a beneficiary
by the employee.
(ii) Eligible designated
beneficiary.--The term ``eligible
designated beneficiary'' means, with
respect to any employee, any designated
beneficiary who is--
(I) the surviving spouse of
the employee,
(II) subject to clause (iii),
a child of the employee who has
not reached majority (within
the meaning of subparagraph
(F)),
(III) disabled (within the
meaning of section 72(m)(7)),
(IV) a chronically ill
individual (within the meaning
of section 7702B(c)(2), except
that the requirements of
subparagraph (A)(i) thereof
shall only be treated as met if
there is a certification that,
as of such date, the period of
inability described in such
subparagraph with respect to
the individual is an indefinite
one which is reasonably
expected to be lengthy in
nature), or
(V) an individual not
described in any of the
preceding subclauses who is not
more than 10 years younger than
the employee.
The determination of whether a designated
beneficiary is an eligible designated
beneficiary shall be made as of the date of
death of the employee.
(iii) Special rule for children.--
Subject to subparagraph (F), an
individual described in clause (ii)(II)
shall cease to be an eligible
designated beneficiary as of the date
the individual reaches majority and any
remainder of the portion of the
individual's interest to which
subparagraph (H)(ii) applies shall be
distributed within 10 years after such
date.
(F) Treatment of payments to children.--Under
regulations prescribed by the Secretary, for
purposes of this paragraph, any amount paid to
a child shall be treated as if it had been paid
to the surviving spouse if such amount will
become payable to the surviving spouse upon
such child reaching majority (or other
designated event permitted under regulations).
(G) Treatment of incidental death benefit
distributions.--For purposes of this title, any
distribution required under the incidental
death benefit requirements of this subsection
shall be treated as a distribution required
under this paragraph.
(H) Special rules for certain defined
contribution plans.--In the case of a defined
contribution plan, if an employee dies before
the distribution of the employee's entire
interest--
(i) In general.--Except in the case
of a beneficiary who is not a
designated beneficiary, subparagraph
(B)(ii)--
(I) shall be applied by
substituting ``10 years'' for
``5 years'', and
(II) shall apply whether or
not distributions of the
employee's interests have begun
in accordance with subparagraph
(A).
(ii) Exception for eligible
designated beneficiaries.--Subparagraph
(B)(iii) shall apply only in the case
of an eligible designated beneficiary.
(iii) Rules upon death of eligible
designated beneficiary.--If an eligible
designated beneficiary dies before the
portion of the employee's interest to
which this subparagraph applies is
entirely distributed, the exception
under clause (ii) shall not apply to
any beneficiary of such eligible
designated beneficiary and the
remainder of such portion shall be
distributed within 10 years after the
death of such eligible designated
beneficiary.
(iv) Special rule in case of certain
trusts for disabled or chronically ill
beneficiaries.--In the case of an
applicable multi-beneficiary trust, if
under the terms of the trust--
(I) it is to be divided
immediately upon the death of
the employee into separate
trusts for each beneficiary, or
(II) no individual (other
than a eligible designated
beneficiary described in
subclause (III) or (IV) of
subparagraph (E)(ii)) has any
right to the employee's
interest in the plan until the
death of all such eligible
designated beneficiaries with
respect to the trust,
for purposes of a trust described in subclause
(I), clause (ii) shall be applied separately
with respect to the portion of the employee's
interest that is payable to any eligible
designated beneficiary described in subclause
(III) or (IV) of subparagraph (E)(ii); and, for
purposes of a trust described in subclause
(II), subparagraph (B)(iii) shall apply to the
distribution of the employee's interest and any
beneficiary who is not such an eligible
designated beneficiary shall be treated as a
beneficiary of the eligible designated
beneficiary upon the death of such eligible
designated beneficiary.
(v) Applicable multi-beneficiary
trust.--For purposes of this
subparagraph, the term ``applicable
multi-beneficiary trust'' means a
trust--
(I) which has more than one
beneficiary,
(II) all of the beneficiaries
of which are treated as
designated beneficiaries for
purposes of determining the
distribution period pursuant to
this paragraph, and
(III) at least one of the
beneficiaries of which is an
eligible designated beneficiary
described in subclause (III) or
(IV) of subparagraph (E)(ii).
(vi) Application to certain eligible
retirement plans.--For purposes of
applying the provisions of this
subparagraph in determining amounts
required to be distributed pursuant to
this paragraph, all eligible retirement
plans (as defined in section
402(c)(8)(B), other than a defined
benefit plan described in clause (iv)
or (v) thereof or a qualified trust
which is a part of a defined benefit
plan) shall be treated as a defined
contribution plan.
(I) Temporary waiver of minimum required
distribution.--
(i) In general.--The requirements of
this paragraph shall not apply for
calendar year 2020 to--
(I) a defined contribution
plan which is described in this
subsection or in section 403(a)
or 403(b),
(II) a defined contribution
plan which is an eligible
deferred compensation plan
described in section 457(b) but
only if such plan is maintained
by an employer described in
section 457(e)(1)(A), or
(III) an individual
retirement plan.
(ii) Special rule for required
beginning dates in 2020.--Clause (i)
shall apply to any distribution which
is required to be made in calendar year
2020 by reason of--
(I) a required beginning date
occurring in such calendar
year, and
(II) such distribution not
having been made before January
1, 2020.
(iii) Special rules regarding waiver
period.--For purposes of this
paragraph--
(I) the required beginning
date with respect to any
individual shall be determined
without regard to this
subparagraph for purposes of
applying this paragraph for
calendar years after 2020, and
(II) if clause (ii) of
subparagraph (B) applies, the
5-year period described in such
clause shall be determined
without regard to calendar year
2020.
(J) Certain increases in payments under a
commercial annuity.--Nothing in this section
shall prohibit a commercial annuity (within the
meaning of section 3405(e)(6)) that is issued
in connection with any eligible retirement plan
(within the meaning of section 402(c)(8)(B),
other than a defined benefit plan) from
providing one or more of the following types of
payments on or after the annuity starting date:
(i) annuity payments that increase by
a constant percentage, applied not less
frequently than annually, at a rate
that is less than 5 percent per year,
(ii) a lump sum payment that--
(I) results in a shortening
of the payment period with
respect to an annuity or a full
or partial commutation of the
future annuity payments,
provided that such lump sum is
determined using reasonable
actuarial methods and
assumptions, as determined in
good faith by the issuer of the
contract, or
(II) accelerates the receipt
of annuity payments that are
scheduled to be received within
the ensuing 12 months,
regardless of whether such
acceleration shortens the
payment period with respect to
the annuity, reduces the dollar
amount of benefits to be paid
under the contract, or results
in a suspension of annuity
payments during the period
being accelerated,
(iii) an amount which is in the
nature of a dividend or similar
distribution, provided that the issuer
of the contract determines such amount
based on a reasonable comparison of the
actuarial factors assumed when
calculating the initial annuity
payments and the issuer's experience
with respect to those factors, or
(iv) a final payment upon death that
does not exceed the excess of the total
amount of the consideration paid for
the annuity payments, less the
aggregate amount of prior distributions
or payments from or under the contract.
(10) Other requirements.--
(A) Plans benefiting owner-employees.--In the
case of any plan which provides contributions
or benefits for employees some or all of whom
are owner-employees (as defined in subsection
(c)(3)), a trust forming part of such plan
shall constitute a qualified trust under this
section only if the requirements of subsection
(d) are also met.
(B) Top-heavy plans.--
(i) In general.--In the case of any
top-heavy plan, a trust forming part of
such plan shall constitute a qualified
trust under this section only if the
requirements of section 416 are met.
(ii) Plans which may become top-
heavy.--Except to the extent provided
in regulations, a trust forming part of
a plan (whether or not a top-heavy
plan) shall constitute a qualified
trust under this section only if such
plan contains provisions--
(I) which will take effect if
such plan becomes a top-heavy
plan, and
(II) which meet the
requirements of section 416.
(iii) Exemption for governmental
plans.--This subparagraph shall not
apply to any governmental plan.
(11) Requirement of joint and survivor annuity and
preretirement survivor annuity.--
(A) In general.--In the case of any plan to
which this paragraph applies, except as
provided in section 417, a trust forming part
of such plan shall not constitute a qualified
trust under this section unless--
(i) in the case of a vested
participant who does not die before the
annuity starting date, the accrued
benefit payable to such participant is
provided in the form of a qualified
joint and survivor annuity, and
(ii) in the case of a vested
participant who dies before the annuity
starting date and who has a surviving
spouse, a qualified preretirement
survivor annuity is provided to the
surviving spouse of such participant.
(B) Plans to which paragraph applies.--This
paragraph shall apply to--
(i) any defined benefit plan,
(ii) any defined contribution plan
which is subject to the funding
standards of section 412, and
(iii) any participant under any other
defined contribution plan unless--
(I) such plan provides that
the participant's
nonforfeitable accrued benefit
(reduced by any security
interest held by the plan by
reason of a loan outstanding to
such participant) is payable in
full, on the death of the
participant, to the
participant's surviving spouse
(or, if there is no surviving
spouse or the surviving spouse
consents in the manner required
under section 417(a)(2), to a
designated beneficiary),
(II) such participant does
not elect a payment of benefits
in the form of a life annuity,
and
(III) with respect to such
participant, such plan is not a
direct or indirect transferee
(in a transfer after December
31, 1984) of a plan which is
described in clause (i) or (ii)
or to which this clause applied
with respect to the
participant.
Clause (iii)(III) shall apply only with respect
to the transferred assets (and income
therefrom) if the plan separately accounts for
such assets and any income therefrom.
(C) Exception for certain ESOP benefits.--
(i) In general.--In the case of--
(I) a tax credit employee
stock ownership plan (as
defined in section 409(a)), or
(II) an employee stock
ownership plan (as defined in
section 4975(e)(7)),
subparagraph (A) shall not apply to that
portion of the employee's accrued benefit to
which the requirements of section 409(h) apply.
(ii) Nonforfeitable benefit must be
paid in full, etc.--In the case of any
participant, clause (i) shall apply
only if the requirements of subclauses
(I), (II), and (III) of subparagraph
(B)(iii) are met with respect to such
participant.
(D) Special rule where participant and spouse
married less than 1 year.--A plan shall not be
treated as failing to meet the requirements of
subparagraphs (B)(iii) or (C) merely because
the plan provides that benefits will not be
payable to the surviving spouse of the
participant unless the participant and such
spouse had been married throughout the 1-year
period ending on the earlier of the
participant's annuity starting date or the date
of the participant's death.
(E) Exception for plans described in section
404(c).--This paragraph shall not apply to a
plan which the Secretary has determined is a
plan described in section 404(c) (or a
continuation thereof) in which participation is
substantially limited to individuals who,
before January 1, 1976, ceased employment
covered by the plan.
(F) Cross reference.--For--
(i) provisions under which
participants may elect to waive the
requirements of this paragraph, and
(ii) other definitions and special
rules for purposes of this paragraph,
see section 417.
(12) A trust shall not constitute a qualified trust
under this section unless the plan of which such trust
is a part provides that in the case of any merger or
consolidation with, or transfer of assets or
liabilities to, any other plan after September 2, 1974,
each participant in the plan would (if the plan then
terminated) receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or
greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation,
or transfer (if the plan had then terminated). The
preceding sentence does not apply to any multiemployer
plan with respect to any transaction to the extent that
participants either before or after the transaction are
covered under a multiemployer plan to which title IV of
the Employee Retirement Income Security Act of 1974
applies.
(13) Assignment and alienation.--
(A) In general.--A trust shall not constitute
a qualified trust under this section unless the
plan of which such trust is a part provides
that benefits provided under the plan may not
be assigned or alienated. For purposes of the
preceding sentence, there shall not be taken
into account any voluntary and revocable
assignment of not to exceed 10 percent of any
benefit payment made by any participant who is
receiving benefits under the plan unless the
assignment or alienation is made for purposes
of defraying plan administration costs. For
purposes of this paragraph a loan made to a
participant or beneficiary shall not be treated
as an assignment or alienation if such loan is
secured by the participant's accrued
nonforfeitable benefit and is exempt from the
tax imposed by section 4975 (relating to tax on
prohibited transactions) by reason of section
4975(d)(1). This paragraph shall take effect on
January 1, 1976 and shall not apply to
assignments which were irrevocable on September
2, 1974.
(B) Special rules for domestic relations
orders.--Subparagraph (A) shall apply to the
creation, assignment, or recognition of a right
to any benefit payable with respect to a
participant pursuant to a domestic relations
order, except that subparagraph (A) shall not
apply if the order is determined to be a
qualified domestic relations order.
(C) Special rule for certain judgments and
settlements.--Subparagraph (A) shall not apply
to any offset of a participant's benefits
provided under a plan against an amount that
the participant is ordered or required to pay
to the plan if--
(i) the order or requirement to pay
arises--
(I) under a judgment of
conviction for a crime
involving such plan,
(II) under a civil judgment
(including a consent order or
decree) entered by a court in
an action brought in connection
with a violation (or alleged
violation) of part 4 of
subtitle B of title I of the
Employee Retirement Income
Security Act of 1974, or
(III) pursuant to a
settlement agreement between
the Secretary of Labor and the
participant, or a settlement
agreement between the Pension
Benefit Guaranty Corporation
and the participant, in
connection with a violation (or
alleged violation) of part 4 of
such subtitle by a fiduciary or
any other person,
(ii) the judgment, order, decree, or
settlement agreement expressly provides
for the offset of all or part of the
amount ordered or required to be paid
to the plan against the participant's
benefits provided under the plan, and
(iii) in a case in which the survivor
annuity requirements of section
401(a)(11) apply with respect to
distributions from the plan to the
participant, if the participant has a
spouse at the time at which the offset
is to be made--
(I) either such spouse has
consented in writing to such
offset and such consent is
witnessed by a notary public or
representative of the plan (or
it is established to the
satisfaction of a plan
representative that such
consent may not be obtained by
reason of circumstances
described in section
417(a)(2)(B)), or an election
to waive the right of the
spouse to either a qualified
joint and survivor annuity or a
qualified preretirement
survivor annuity is in effect
in accordance with the
requirements of section 417(a),
(II) such spouse is ordered
or required in such judgment,
order, decree, or settlement to
pay an amount to the plan in
connection with a violation of
part 4 of such subtitle, or
(III) in such judgment,
order, decree, or settlement,
such spouse retains the right
to receive the survivor annuity
under a qualified joint and
survivor annuity provided
pursuant to section
401(a)(11)(A)(i) and under a
qualified preretirement
survivor annuity provided
pursuant to section
401(a)(11)(A)(ii), determined
in accordance with subparagraph
(D).
A plan shall not be treated as failing to meet
the requirements of this subsection, subsection
(k), section 403(b), or section 409(d) solely
by reason of an offset described in this
subparagraph.
(D) Survivor annuity.--
(i) In general.--The survivor annuity
described in subparagraph (C)(iii)(III)
shall be determined as if--
(I) the participant
terminated employment on the
date of the offset,
(II) there was no offset,
(III) the plan permitted
commencement of benefits only
on or after normal retirement
age,
(IV) the plan provided only
the minimum-required qualified
joint and survivor annuity, and
(V) the amount of the
qualified preretirement
survivor annuity under the plan
is equal to the amount of the
survivor annuity payable under
the minimum-required qualified
joint and survivor annuity.
(ii) Definition.--For purposes of
this subparagraph, the term ``minimum-
required qualified joint and survivor
annuity'' means the qualified joint and
survivor annuity which is the actuarial
equivalent of the participant's accrued
benefit (within the meaning of section
411(a)(7)) and under which the survivor
annuity is 50 percent of the amount of
the annuity which is payable during the
joint lives of the participant and the
spouse.
(14) A trust shall not constitute a qualified trust
under this section unless the plan of which such trust
is a part provides that, unless the participant
otherwise elects, the payment of benefits under the
plan to the participant will begin not later than the
60th day after the latest of the close of the plan year
in which--
(A) the date on which the participant attains
the earlier of age 65 or the normal retirement
age specified under the plan,
(B) occurs the 10th anniversary of the year
in which the participant commenced
participation in the plan, or
(C) the participant terminates his service
with the employer.
In the case of a plan which provides for the payment of
an early retirement benefit, a trust forming a part of
such plan shall not constitute a qualified trust under
this section unless a participant who satisfied the
service requirements for such early retirement benefit,
but separated from the service (with any nonforfeitable
right to an accrued benefit) before satisfying the age
requirement for such early retirement benefit, is
entitled upon satisfaction of such age requirement to
receive a benefit not less than the benefit to which he
would be entitled at the normal retirement age,
actuarially, reduced under regulations prescribed by
the Secretary.
(15) A trust shall not constitute a qualified trust
under this section unless under the plan of which such
trust is a part--
(A) in the case of a participant or
beneficiary who is receiving benefits under
such plan, or
(B) in the case of a participant who is
separated from the service and who has
nonforfeitable rights to benefits,
such benefits are not decreased by reason of any
increase in the benefit levels payable under title II
of the Social Security Act or any increase in the wage
base under such title II, if such increase takes place
after September 2, 1974, or (if later) the earlier of
the date of first receipt of such benefits or the date
of such separation, as the case may be.
(16) A trust shall not constitute a qualified trust
under this section if the plan of which such trust is a
part provides for benefits or contributions which
exceed the limitations of section 415.
(17) Compensation limit.--
(A) In general.--A trust shall not constitute
a qualified trust under this section unless,
under the plan of which such trust is a part,
the annual compensation of each employee taken
into account under the plan for any year does
not exceed $200,000.
(B) Cost-of-living adjustment.--The Secretary
shall adjust annually the $200,000 amount in
subparagraph (A) for increases in the cost-of-
living at the same time and in the same manner
as adjustments under section 415(d); except
that the base period shall be the calendar
quarter beginning July 1, 2001, and any
increase which is not a multiple of $5,000
shall be rounded to the next lowest multiple of
$5,000.
(19) A trust shall not constitute a qualified trust
under this section if under the plan of which such
trust is a part any part of a participant's accrued
benefit derived from employer contributions (whether or
not otherwise nonforfeitable), is forfeitable solely
because of withdrawal by such participant of any amount
attributable to the benefit derived from contributions
made by such participant. The preceding sentence shall
not apply to the accrued benefit of any participant
unless, at the time of such withdrawal, such
participant has a nonforfeitable right to at least 50
percent of such accrued benefit (as determined under
section 411). The first sentence of this paragraph
shall not apply to the extent that an accrued benefit
is permitted to be forfeited in accordance with section
411(a)(3)(D)(iii) (relating to proportional forfeitures
of benefits accrued before September 2, 1974, in the
event of withdrawal of certain mandatory
contributions).
(20) A trust forming part of a pension plan shall not
be treated as failing to constitute a qualified trust
under this section merely because the pension plan of
which such trust is a part makes 1 or more
distributions within 1 taxable year to a distributee on
account of a termination of the plan of which the trust
is a part, or in the case of a profit-sharing or stock
bonus plan, a complete discontinuance of contributions
under such plan. This paragraph shall not apply to a
defined benefit plan unless the employer maintaining
such plan files a notice with the Pension Benefit
Guaranty Corporation (at the time and in the manner
prescribed by the Pension Benefit Guaranty Corporation)
notifying the Corporation of such payment or
distribution and the Corporation has approved such
payment or distribution or, within 90 days after the
date on which such notice was filed, has failed to
disapprove such payment or distribution. For purposes
of this paragraph, rules similar to the rules of
section 402(a)(6)(B) (as in effect before its repeal by
section 521 of the Unemployment Compensation Amendments
of 1992) shall apply.
(22) If a defined contribution plan (other than a
profit-sharing plan)--
(A) is established by an employer whose stock
is not readily tradable on an established
market, and
(B) after acquiring securities of the
employer, more than 10 percent of the total
assets of the plan are securities of the
employer,
any trust forming part of such plan shall not
constitute a qualified trust under this section unless
the plan meets the requirements of subsection (e) of
section 409. The requirements of subsection (e) of
section 409 shall not apply to any employees of an
employer who are participants in any defined
contribution plan established and maintained by such
employer if the stock of such employer is not readily
tradable on an established market and the trade or
business of such employer consists of publishing on a
regular basis a newspaper for general circulation. For
purposes of the preceding sentence, subsections (b),
(c), (m), and (o) of section 414 shall not apply except
for determining whether stock of the employer is not
readily tradable on an established market.
(23) A stock bonus plan shall not be treated as
meeting the requirements of this section unless such
plan meets the requirements of subsections (h) and (o)
of section 409, except that in applying section 409(h)
for purposes of this paragraph, the term ``employer
securities'' shall include any securities of the
employer held by the plan.
(24) Any group trust which otherwise meets the
requirements of this section shall not be treated as
not meeting such requirements on account of the
participation or inclusion in such trust of the moneys
of any plan or governmental unit described in section
818(a)(6).
(25) Requirement that actuarial assumptions be
specified.--A defined benefit plan shall not be treated
as providing definitely determinable benefits unless,
whenever the amount of any benefit is to be determined
on the basis of actuarial assumptions, such assumptions
are specified in the plan in a way which precludes
employer discretion.
(26) Additional participation requirements.--
(A) In general.--In the case of a trust which
is a part of a defined benefit plan, such trust
shall not constitute a qualified trust under
this subsection unless on each day of the plan
year such trust benefits at least the lesser
of--
(i) 50 employees of the employer, or
(ii) the greater of--
(I) 40 percent of all
employees of the employer, or
(II) 2 employees (or if there
is only 1 employee, such
employee).
(B) Treatment of excludable employees.--
(i) In general.--A plan may exclude
from consideration under this paragraph
employees described in paragraphs (3)
and (4)(A) of section 410(b).
(ii) Separate application for certain
excludable employees.--If employees
described in section 410(b)(4)(B) are
covered under a plan which meets the
requirements of subparagraph (A)
separately with respect to such
employees, such employees may be
excluded from consideration in
determining whether any plan of the
employer meets such requirements if--
(I) the benefits for such
employees are provided under
the same plan as benefits for
other employees,
(II) the benefits provided to
such employees are not greater
than comparable benefits
provided to other employees
under the plan, and
(III) no highly compensated
employee (within the meaning of
section 414(q)) is included in
the group of such employees for
more than 1 year.
(C) Special rule for collective bargaining
units.--Except to the extent provided in
regulations, a plan covering only employees
described in section 410(b)(3)(A) may exclude
from consideration any employees who are not
included in the unit or units in which the
covered employees are included.
(D) Paragraph not to apply to multiemployer
plans.--Except to the extent provided in
regulations, this paragraph shall not apply to
employees in a multiemployer plan (within the
meaning of section 414(f)) who are covered by
collective bargaining agreements.
(E) Special rule for certain dispositions or
acquisitions.--Rules similar to the rules of
section 410(b)(6)(C) shall apply for purposes
of this paragraph.
(F) Separate lines of business.--At the
election of the employer and with the consent
of the Secretary, this paragraph may be applied
separately with respect to each separate line
of business of the employer. For purposes of
this paragraph, the term ``separate line of
business'' has the meaning given such term by
section 414(r) (without regard to paragraph
(2)(A) or (7) thereof).
(G) Exception for governmental plans.--This
paragraph shall not apply to a governmental
plan (within the meaning of section 414(d)).
(H) Regulations.--The Secretary may by
regulation provide that any separate benefit
structure, any separate trust, or any other
separate arrangement is to be treated as a
separate plan for purposes of applying this
paragraph.
(I) Protected participants.--
(i) In general.--A plan shall be
deemed to satisfy the requirements of
subparagraph (A) if--
(I) the plan is amended--
(aa) to cease all
benefit accruals, or
(bb) to provide
future benefit accruals
only to a closed class
of participants,
(II) the plan satisfies
subparagraph (A) (without
regard to this subparagraph) as
of the effective date of the
amendment, and
(III) the amendment was
adopted before April 5, 2017,
or the plan is described in
clause (ii).
(ii) Plans described.--A plan is
described in this clause if the plan
would be described in subsection
(o)(1)(C), as applied for purposes of
subsection (o)(1)(B)(iii)(IV) and by
treating the effective date of the
amendment as the date the class was
closed for purposes of subsection
(o)(1)(C).
(iii) Special rules.--For purposes of
clause (i)(II), in applying section
410(b)(6)(C), the amendments described
in clause (i) shall not be treated as a
significant change in coverage under
section 410(b)(6)(C)(i)(II).
(iv) Spun-off plans.--For purposes of
this subparagraph, if a portion of a
plan described in clause (i) is spun
off to another employer, the treatment
under clause (i) of the spun-off plan
shall continue with respect to the
other employer.
(27) Determinations as to profit-sharing plans.--
(A) Contributions need not be based on
profits.--The determination of whether the plan
under which any contributions are made is a
profit-sharing plan shall be made without
regard to current or accumulated profits of the
employer and without regard to whether the
employer is a tax-exempt organization.
(B) Plan must designate type.--In the case of
a plan which is intended to be a money purchase
pension plan or a profit-sharing plan, a trust
forming part of such plan shall not constitute
a qualified trust under this subsection unless
the plan designates such intent at such time
and in such manner as the Secretary may
prescribe.
(28) Additional requirements relating to employee
stock ownership plans.--
(A) In general.--In the case of a trust which
is part of an employee stock ownership plan
(within the meaning of section 4975(e)(7)) or a
plan which meets the requirements of section
409(a), such trust shall not constitute a
qualified trust under this section unless such
plan meets the requirements of subparagraphs
(B) and (C).
(B) Diversification of investments.--
(i) In general.--A plan meets the
requirements of this subparagraph if
each qualified participant in the plan
may elect within 90 days after the
close of each plan year in the
qualified election period to direct the
plan as to the investment of at least
25 percent of the participant's account
in the plan (to the extent such portion
exceeds the amount to which a prior
election under this subparagraph
applies). In the case of the election
year in which the participant can make
his last election, the preceding
sentence shall be applied by
substituting ``50 percent'' for ``25
percent''.
(ii) Method of meeting
requirements.--A plan shall be treated
as meeting the requirements of clause
(i) if--
(I) the portion of the
participant's account covered
by the election under clause
(i) is distributed within 90
days after the period during
which the election may be made,
or
(II) the plan offers at least
3 investment options (not
inconsistent with regulations
prescribed by the Secretary) to
each participant making an
election under clause (i) and
within 90 days after the period
during which the election may
be made, the plan invests the
portion of the participant's
account covered by the election
in accordance with such
election.
(iii) Qualified participant.--For
purposes of this subparagraph, the term
``qualified participant'' means any
employee who has completed at least 10
years of participation under the plan
and has attained age 55.
(iv) Qualified election period.--For
purposes of this subparagraph, the term
``qualified election period'' means the
6-plan-year period beginning with the
later of--
(I) the 1st plan year in
which the individual first
became a qualified participant,
or
(II) the 1st plan year
beginning after December 31,
1986.
For purposes of the preceding sentence, an
employer may elect to treat an individual first
becoming a qualified participant in the 1st
plan year beginning in 1987 as having become a
participant in the 1st plan year beginning in
1988.
(v) Exception.--This subparagraph
shall not apply to an applicable
defined contribution plan (as defined
in paragraph (35)(E)).
(C) Use of independent appraiser.--A plan
meets the requirements of this subparagraph if
all valuations of employer securities which are
not readily tradable on an established
securities market with respect to activities
carried on by the plan are by an independent
appraiser. For purposes of the preceding
sentence, the term ``independent appraiser''
means any appraiser meeting requirements
similar to the requirements of the regulations
prescribed under section 170(a)(1).
(29) Benefit limitations.--In the case of a defined
benefit plan (other than a multiemployer plan or a CSEC
plan) to which the requirements of section 412 apply,
the trust of which the plan is a part shall not
constitute a qualified trust under this subsection
unless the plan meets the requirements of section 436.
(30) Limitations on elective deferrals.--In the case
of a trust which is part of a plan under which elective
deferrals (within the meaning of section 402(g)(3)) may
be made with respect to any individual during a
calendar year, such trust shall not constitute a
qualified trust under this subsection unless the plan
provides that the amount of such deferrals under such
plan and all other plans, contracts, or arrangements of
an employer maintaining such plan may not exceed the
amount of the limitation in effect under section
402(g)(1)(A) for taxable years beginning in such
calendar year.
(31) Direct transfer of eligible rollover
distributions.--
(A) In general.--A trust shall not constitute
a qualified trust under this section unless the
plan of which such trust is a part provides
that if the distributee of any eligible
rollover distribution--
(i) elects to have such distribution
paid directly to an eligible retirement
plan, and
(ii) specifies the eligible
retirement plan to which such
distribution is to be paid (in such
form and at such time as the plan
administrator may prescribe),
such distribution shall be made in the form of
a direct trustee-to-trustee transfer to the
eligible retirement plan so specified.
(B) Certain mandatory distributions.--
(i) In general.--In case of a trust
which is part of an eligible plan, such
trust shall not constitute a qualified
trust under this section unless the
plan of which such trust is a part
provides that if--
(I) a distribution described
in clause (ii) in excess of
$1,000 is made, and
(II) the distributee does not
make an election under
subparagraph (A) and does not
elect to receive the
distribution directly,
the plan administrator shall make such
transfer to an individual retirement
plan of a designated trustee or issuer
and shall notify the distributee in
writing (either separately or as part
of the notice under section 402(f))
that the distribution may be
transferred to another individual
retirement plan. The Office of the
Retirement Savings Lost and Found
established by section 306 of the
Securing a Strong Retirement Act shall
not be treated as a trustee or issuer
that is eligible to receive such
distributions.
(ii) Eligible plan.--For purposes of
clause (i), the term ``eligible plan''
means a plan which provides that any
nonforfeitable accrued benefit for
which the present value (as determined
under section 411(a)(11)) does not
exceed $5,000 shall be immediately
distributed to the participant.
(iii) Treatment of lesser amounts.--
In the case of a trust which is part of
an eligible plan, such trust shall not
be a qualified trust under this section
unless such plan provides that, if a
participant in the plan separates from
the service covered by the plan and the
nonforfeitable accrued benefit
described in clause (ii) is not in
excess of $1,000, the plan
administrator shall (either separately
or as part of the notice under section
402(f)) notify the participant that the
participant is entitled to such benefit
or attempt to pay the benefit directly
to the participant.
(iv) Transfers to retirement savings
lost and found.--If, after a plan
administrator takes the action required
under clause (iii), the participant
does not--
(I) within 6 months of the
notification under such clause,
make an election under
subparagraph (A) or elect to
receive a distribution of the
benefit directly, or
(II) accept any direct
payment made under such clause
within 6 months of the
attempted payment,
the plan administrator shall transfer
the amount of such benefit to the
Office of the Retirement Savings Lost
and Found in accordance with section
4051(b) of the Employee Retirement
Income Security Act of 1974.
(v) Income tax treatment of transfers
to retirement savings lost and found.--
For purposes of determining the income
tax treatment of transfers to the
Office of the Retirement Savings Lost
and Found under clause (iv)--
(I) such a transfer shall be
treated as a transfer to an
individual retirement plan
under clause (i), and
(II) the distribution of such
amounts by the Office of the
Retirement Savings Lost and
Found shall be treated as a
distribution from an individual
retirement plan.
(C) Limitation.--Subparagraphs (A) and (B)
shall apply only to the extent that the
eligible rollover distribution would be
includible in gross income if not transferred
as provided in subparagraph (A) (determined
without regard to sections 402(c), 403(a)(4),
403(b)(8), and 457(e)(16)). The preceding
sentence shall not apply to such distribution
if the plan to which such distribution is
transferred--
(i) is a qualified trust which is
part of a plan which is a defined
contribution plan and agrees to
separately account for amounts so
transferred, including separately
accounting for the portion of such
distribution which is includible in
gross income and the portion of such
distribution which is not so
includible, or
(ii) is an eligible retirement plan
described in clause (i) or (ii) of
section 402(c)(8)(B).
(D) Eligible rollover distribution.--For
purposes of this paragraph, the term ``eligible
rollover distribution'' has the meaning given
such term by section 402(f)(2)(A).
(E) Eligible retirement plan.--For purposes
of this paragraph, the term ``eligible
retirement plan'' has the meaning given such
term by section 402(c)(8)(B), except that a
qualified trust shall be considered an eligible
retirement plan only if it is a defined
contribution plan, the terms of which permit
the acceptance of rollover distributions.
(32) Treatment of failure to make certain payments if
plan has liquidity shortfall.--
(A) In general.--A trust forming part of a
pension plan to which section 430(j)(4) or
433(f)(5) applies shall not be treated as
failing to constitute a qualified trust under
this section merely because such plan ceases to
make any payment described in subparagraph (B)
during any period that such plan has a
liquidity shortfall (as defined in section
430(j)(4) or 433(f)(5)).
(B) Payments described.--A payment is
described in this subparagraph if such payment
is--
(i) any payment, in excess of the
monthly amount paid under a single life
annuity (plus any social security
supplements described in the last
sentence of section 411(a)(9)), to a
participant or beneficiary whose
annuity starting date (as defined in
section 417(f)(2)) occurs during the
period referred to in subparagraph (A),
(ii) any payment for the purchase of
an irrevocable commitment from an
insurer to pay benefits, and
(iii) any other payment specified by
the Secretary by regulations.
(C) Period of shortfall.--For purposes of
this paragraph, a plan has a liquidity
shortfall during the period that there is an
underpayment of an installment under section
430(j)(3) or 433(f) by reason of section
430(j)(4)(A) or 433(f)(5), respectively.
(33) Prohibition on benefit increases while sponsor
is in bankruptcy.--
(A) In general.--A trust which is part of a
plan to which this paragraph applies shall not
constitute a qualified trust under this section
if an amendment to such plan is adopted while
the employer is a debtor in a case under title
11, United States Code, or similar Federal or
State law, if such amendment increases
liabilities of the plan by reason of--
(i) any increase in benefits,
(ii) any change in the accrual of
benefits, or
(iii) any change in the rate at which
benefits become nonforfeitable under
the plan,
with respect to employees of the debtor, and
such amendment is effective prior to the
effective date of such employer's plan of
reorganization.
(B) Exceptions.--This paragraph shall not
apply to any plan amendment if--
(i) the plan, were such amendment to
take effect, would have a funding
target attainment percentage (as
defined in section 430(d)(2)) of 100
percent or more,
(ii) the Secretary determines that
such amendment is reasonable and
provides for only de minimis increases
in the liabilities of the plan with
respect to employees of the debtor,
(iii) such amendment only repeals an
amendment described in section
412(d)(2), or
(iv) such amendment is required as a
condition of qualification under this
part.
(C) Plans to which this paragraph applies.--
This paragraph shall apply only to plans (other
than multiemployer plans or CSEC plans) covered
under section 4021 of the Employee Retirement
Income Security Act of 1974.
(D) Employer.--For purposes of this
paragraph, the term ``employer'' means the
employer referred to in section 412(b)(1),
without regard to section 412(b)(2).
(34) Benefits of missing participants on plan
termination.--In the case of a plan covered by title IV
of the Employee Retirement Income Security Act of 1974,
a trust forming part of such plan shall not be treated
as failing to constitute a qualified trust under this
section merely because the pension plan of which such
trust is a part, upon its termination, transfers
benefits of missing participants to the Pension Benefit
Guaranty Corporation in accordance with section 4050 of
such Act.
(35) Diversification requirements for certain defined
contribution plans.--
(A) In general.--A trust which is part of an
applicable defined contribution plan shall not
be treated as a qualified trust unless the plan
meets the diversification requirements of
subparagraphs (B), (C), and (D).
(B) Employee contributions and elective
deferrals invested in employer securities.--In
the case of the portion of an applicable
individual's account attributable to employee
contributions and elective deferrals which is
invested in employer securities, a plan meets
the requirements of this subparagraph if the
applicable individual may elect to direct the
plan to divest any such securities and to
reinvest an equivalent amount in other
investment options meeting the requirements of
subparagraph (D).
(C) Employer contributions invested in
employer securities.--In the case of the
portion of the account attributable to employer
contributions other than elective deferrals
which is invested in employer securities, a
plan meets the requirements of this
subparagraph if each applicable individual
who--
(i) is a participant who has
completed at least 3 years of service,
or
(ii) is a beneficiary of a
participant described in clause (i) or
of a deceased participant,
may elect to direct the plan to divest any such
securities and to reinvest an equivalent amount
in other investment options meeting the
requirements of subparagraph (D).
(D) Investment options.--
(i) In general.--The requirements of
this subparagraph are met if the plan
offers not less than 3 investment
options, other than employer
securities, to which an applicable
individual may direct the proceeds from
the divestment of employer securities
pursuant to this paragraph, each of
which is diversified and has materially
different risk and return
characteristics.
(ii) Treatment of certain
restrictions and conditions.--
(I) Time for making
investment choices.--A plan
shall not be treated as failing
to meet the requirements of
this subparagraph merely
because the plan limits the
time for divestment and
reinvestment to periodic,
reasonable opportunities
occurring no less frequently
than quarterly.
(II) Certain restrictions and
conditions not allowed.--Except
as provided in regulations, a
plan shall not meet the
requirements of this
subparagraph if the plan
imposes restrictions or
conditions with respect to the
investment of employer
securities which are not
imposed on the investment of
other assets of the plan. This
subclause shall not apply to
any restrictions or conditions
imposed by reason of the
application of securities laws.
(E) Applicable defined contribution plan.--
For purposes of this paragraph--
(i) In general.--The term
``applicable defined contribution
plan'' means any defined contribution
plan which holds any publicly traded
employer securities.
(ii) Exception for certain esops.--
Such term does not include an employee
stock ownership plan if--
(I) there are no
contributions to such plan (or
earnings thereunder) which are
held within such plan and are
subject to subsection (k) or
(m), and
(II) such plan is a separate
plan for purposes of section
414(l) with respect to any
other defined benefit plan or
defined contribution plan
maintained by the same employer
or employers.
(iii) Exception for one participant
plans.--Such term does not include a
one-participant retirement plan.
(iv) One-participant retirement
plan.--For purposes of clause (iii),
the term ``one-participant retirement
plan'' means a retirement plan that on
the first day of the plan year--
(I) covered only one
individual (or the individual
and the individual's spouse)
and the individual (or the
individual and the individual's
spouse) owned 100 percent of
the plan sponsor (whether or
not incorporated), or
(II) covered only one or more
partners (or partners and their
spouses) in the plan sponsor.
(F) Certain plans treated as holding publicly
traded employer securities.--
(i) In general.--Except as provided
in regulations or in clause (ii), a
plan holding employer securities which
are not publicly traded employer
securities shall be treated as holding
publicly traded employer securities if
any employer corporation, or any member
of a controlled group of corporations
which includes such employer
corporation, has issued a class of
stock which is a publicly traded
employer security.
(ii) Exception for certain controlled
groups with publicly traded
securities.--Clause (i) shall not apply
to a plan if--
(I) no employer corporation,
or parent corporation of an
employer corporation, has
issued any publicly traded
employer security, and
(II) no employer corporation,
or parent corporation of an
employer corporation, has
issued any special class of
stock which grants particular
rights to, or bears particular
risks for, the holder or issuer
with respect to any corporation
described in clause (i) which
has issued any publicly traded
employer security.
(iii) Definitions.--For purposes of
this subparagraph, the term--
(I) ``controlled group of
corporations'' has the meaning
given such term by section
1563(a), except that ``50
percent'' shall be substituted
for ``80 percent'' each place
it appears,
(II) ``employer corporation''
means a corporation which is an
employer maintaining the plan,
and
(III) ``parent corporation''
has the meaning given such term
by section 424(e).
(G) Other definitions.--For purposes of this
paragraph--
(i) Applicable individual.--The term
``applicable individual'' means--
(I) any participant in the
plan, and
(II) any beneficiary who has
an account under the plan with
respect to which the
beneficiary is entitled to
exercise the rights of a
participant.
(ii) Elective deferral.--The term
``elective deferral'' means an employer
contribution described in section
402(g)(3)(A).
(iii) Employer security.--The term
``employer security'' has the meaning
given such term by section 407(d)(1) of
the Employee Retirement Income Security
Act of 1974.
(iv) Employee stock ownership plan.--
The term ``employee stock ownership
plan'' has the meaning given such term
by section 4975(e)(7).
(v) Publicly traded employer
securities.--The term ``publicly traded
employer securities'' means employer
securities which are readily tradable
on an established securities market.
(vi) Year of service.--The term
``year of service'' has the meaning
given such term by section 411(a)(5).
(H) Transition rule for securities
attributable to employer contributions.--
(i) Rules phased in over 3 years.--
(I) In general.--In the case
of the portion of an account to
which subparagraph (C) applies
and which consists of employer
securities acquired in a plan
year beginning before January
1, 2007, subparagraph (C) shall
only apply to the applicable
percentage of such securities.
This subparagraph shall be
applied separately with respect
to each class of securities.
(II) Exception for certain
participants aged 55 or over.--
Subclause (I) shall not apply
to an applicable individual who
is a participant who has
attained age 55 and completed
at least 3 years of service
before the first plan year
beginning after December 31,
2005.
(ii) Applicable percentage.--For
purposes of clause (i), the applicable
percentage shall be determined as
follows:
(36) Distributions during working retirement.--
(A) In general.--A trust forming part of a
pension plan shall not be treated as failing to
constitute a qualified trust under this section
solely because the plan provides that a
distribution may be made from such trust to an
employee who has attained age 591/2 and who is
not separated from employment at the time of
such distribution.
(B) Certain employees in the building and
construction industry.--Subparagraph (A) shall
be applied by substituting ``age 55'' for ``age
591/2'' in the case of a multiemployer plan
described in section 4203(b)(1)(B)(i) of the
Employee Retirement Income Security Act of
1974, with respect to individuals who were
participants in such plan on or before April
30, 2013, if--
(i) the trust to which subparagraph
(A) applies was in existence before
January 1, 1970, and
(ii) before December 31, 2011, at a
time when the plan provided that
distributions may be made to an
employee who has attained age 55 and
who is not separated from employment at
the time of such distribution, the plan
received at least 1 written
determination from the Internal Revenue
Service that the trust to which
subparagraph (A) applies constituted a
qualified trust under this section.
(37) Death benefits under userra-qualified active
military service.--A trust shall not constitute a
qualified trust unless the plan provides that, in the
case of a participant who dies while performing
qualified military service (as defined in section
414(u)), the survivors of the participant are entitled
to any additional benefits (other than benefit accruals
relating to the period of qualified military service)
provided under the plan had the participant resumed and
then terminated employment on account of death.
(38) Portability of lifetime income.--
(A) In general.--Except as may be otherwise
provided by regulations, a trust forming part
of a defined contribution plan shall not be
treated as failing to constitute a qualified
trust under this section solely by reason of
allowing--
(i) qualified distributions of a
lifetime income investment, or
(ii) distributions of a lifetime
income investment in the form of a
qualified plan distribution annuity
contract,
on or after the date that is 90 days prior to
the date on which such lifetime income
investment is no longer authorized to be held
as an investment option under the plan.
(B) Definitions.--For purposes of this
subsection--
(i) the term ``qualified
distribution'' means a direct trustee-
to-trustee transfer described in
paragraph (31)(A) to an eligible
retirement plan (as defined in section
402(c)(8)(B)),
(ii) the term ``lifetime income
investment'' means an investment option
which is designed to provide an
employee with election rights--
(I) which are not uniformly
available with respect to other
investment options under the
plan, and
(II) which are to a lifetime
income feature available
through a contract or other
arrangement offered under the
plan (or under another eligible
retirement plan (as so
defined), if paid by means of a
direct trustee-to-trustee
transfer described in paragraph
(31)(A) to such other eligible
retirement plan),
(iii) the term ``lifetime income
feature'' means--
(I) a feature which
guarantees a minimum level of
income annually (or more
frequently) for at least the
remainder of the life of the
employee or the joint lives of
the employee and the employee's
designated beneficiary, or
(II) an annuity payable on
behalf of the employee under
which 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, and
(iv) the term ``qualified plan
distribution annuity contract'' means
an annuity contract purchased for a
participant and distributed to the
participant by a plan or contract
described in subparagraph (B) of
section 402(c)(8) (without regard to
clauses (i) and (ii) thereof).
Paragraphs (11), (12), (13), (14), (15), (19), and (20) shall
apply only in the case of a plan to which section 411 (relating
to minimum vesting standards) applies without regard to
subsection (e)(2) of such section.
(b) Certain plan amendments.--
(1) Certain retroactive changes in plan.--A stock
bonus, pension, profit-sharing, or annuity plan shall
be considered as satisfying the requirements of
subsection (a) for the period beginning with the date
on which it was put into effect, or for the period
beginning with the earlier of the date on which there
was adopted or put into effect any amendment which
caused the plan to fail to satisfy such requirements,
and ending with the time prescribed by law for filing
the return of the employer for his taxable year in
which such plan or amendment was adopted (including
extensions thereof) or such later time as the Secretary
may designate, if all provisions of the plan which are
necessary to satisfy such requirements are in effect by
the end of such period and have been made effective for
all purposes for the whole of such period.
(2) Adoption of plan.--If an employer adopts a stock
bonus, pension, profit-sharing, or annuity plan after
the close of a taxable year but before the time
prescribed by law for filing the return of the employer
for the taxable year (including extensions thereof),
the employer may elect to treat the plan as having been
adopted as of the last day of the taxable year. In the
case of an individual who owns the entire interest in
an unincorporated trade or business, and who is the
only employee of such trade or business, any elective
deferrals (as defined in section 402(g)(3)) under a
qualified cash or deferred arrangement to which the
preceding sentence applies, which are made by such
individual before the time for filing the return of
such individual for the taxable year (determined
without regard to any extensions) ending after or with
the end of the plan's first year, shall be treated as
having been made before the end of such first plan
year.
(3) Retroactive plan amendments that increase benefit
accruals.--If--
(A) an employer amends a stock bonus,
pension, profit-sharing, or annuity plan to
increase benefits accrued under the plan
effective for the preceding plan year (other
than increasing the amount of matching
contributions (as defined in subsection
(m)(4)(A))),
(B) such amendment would not otherwise cause
the plan to fail to meet any of the
requirements of this subchapter, and
(C) such amendment is adopted before the time
prescribed by law for filing the return of the
employer for a taxable year (including
extensions thereof) during which such amendment
is effective,
the employer may elect to treat such amendment as
having been adopted as of the last day of the plan year
in which the amendment is effective.
(c) Definitions and rules relating to self-employed
individuals and owner-employees.--For purposes of this
section--
(1) Self-employed individual treated as employee.--
(A) In general.--The term ``employee''
includes, for any taxable year, an individual
who is a self-employed individual for such
taxable year.
(B) Self-employed individual.--The term
``self-employed individual'' means, with
respect to any taxable year, an individual who
has earned income (as defined in paragraph (2))
for such taxable year. To the extent provided
in regulations prescribed by the Secretary,
such term also includes, for any taxable year--
(i) an individual who would be a
self-employed individual within the
meaning of the preceding sentence but
for the fact that the trade or business
carried on by such individual did not
have net profits for the taxable year,
and
(ii) an individual who has been a
self-employed individual within the
meaning of the preceding sentence for
any prior taxable year.
(2) Earned income.--
(A) In general.--The term ``earned income''
means the net earnings from self-employment (as
defined in section 1402(a)), but such net
earnings shall be determined--
(i) only with respect to a trade or
business in which personal services of
the taxpayer are a material income-
producing factor,
(ii) without regard to paragraphs (4)
and (5) of section 1402(c),
(iii) in the case of any individual
who is treated as an employee under
subparagraph (A), (C), or (D) of
section 3121(d)(3), without regard to
section 1402(c)(2),
(iv) without regard to items which
are not included in gross income for
purposes of this chapter, and the
deductions properly allocable to or
chargeable against such items,
(v) with regard to the deductions
allowed by section 404 to the taxpayer,
and
(vi) with regard to the deduction
allowed to the taxpayer by section
164(f).
For purposes of this subparagraph, section
1402, as in effect for a taxable year ending on
December 31, 1962, shall be treated as having
been in effect for all taxable years ending
before such date. For purposes of this part
only (other than sections 419 and 419A), this
subparagraph shall be applied as if the term
``trade or business'' for purposes of section
1402 included service described in section
1402(c)(6).
(C) Income from disposition of certain
property.--For purposes of this section, the
term ``earned income'' includes gains (other
than any gain which is treated under any
provision of this chapter as gain from the sale
or exchange of a capital asset) and net
earnings derived from the sale or other
disposition of, the transfer of any interest
in, or the licensing of the use of property
(other than good will) by an individual whose
personal efforts created such property.
(3) Owner-employee.--The term ``owner-employee''
means an employee who--
(A) owns the entire interest in an
unincorporated trade or business, or
(B) in the case of a partnership, is a
partner who owns more than 10 percent of either
the capital interest or the profits interest in
such partnership.
To the extent provided in regulations prescribed by the
Secretary, such term also means an individual who has
been an owner-employee within the meaning of the
preceding sentence.
(4) Employer.--An individual who owns the entire
interest in an unincorporated trade or business shall
be treated as his own employer. A partnership shall be
treated as the employer of each partner who is an
employee within the meaning of paragraph (1).
(5) Contributions on behalf of owner-employees.--The
term ``contribution on behalf of an owner-employee''
includes, except as the context otherwise requires, a
contribution under a plan--
(A) by the employer for an owner-employee,
and
(B) by an owner-employee as an employee.
(6) Special rule for certain fishermen.--For purposes
of this subsection, the term ``self-employed
individual'' includes an individual described in
section 3121(b)(20) (relating to certain fishermen).
(d) Contribution limit on owner-employees.--A trust forming
part of a pension or profit-sharing plan which provides
contributions or benefits for employees some or all of whom are
owner-employees shall constitute a qualified trust under this
section only if, in addition to meeting the requirements of
subsection (a), the plan provides that contributions on behalf
of any owner-employee may be made only with respect to the
earned income of such owner-employee which is derived from the
trade or business with respect to which such plan is
established.
(f) Certain custodial accounts and contracts.--For purposes
of this title, a custodial account, an annuity contract, or a
contract (other than a life, health or accident, property,
casualty, or liability insurance contract) issued by an
insurance company qualified to do business in a State shall be
treated as a qualified trust under this section if--
(1) the custodial account or contract would, except
for the fact that it is not a trust, constitute a
qualified trust under this section, and
(2) in the case of a custodial account the assets
thereof are held by a bank (as defined in section
408(n)) or another person who demonstrates, to the
satisfaction of the Secretary, that the manner in which
he will hold the assets will be consistent with the
requirements of this section.
For purposes of this title, in the case of a custodial account
or contract treated as a qualified trust under this section by
reason of this subsection, the person holding the assets of
such account or holding such contract shall be treated as the
trustee thereof.
(g) Annuity defined.--For purposes of this section and
sections 402, 403, and 404, the term ``annuity'' includes a
face-amount certificate, as defined in section 2(a)(15) of the
Investment Company Act of 1940 (15 U.S.C., sec. 80a-2); but
does not include any contract or certificate issued after
December 31, 1962, which is transferable, if any person other
than the trustee of a trust described in section 401(a) which
is exempt from tax under section 501(a) is the owner of such
contract or certificate.
(h) Medical, etc., benefits for retired employees and their
spouses and dependents.--Under regulations prescribed by the
Secretary, and subject to the provisions of section 420, a
pension or annuity plan may provide for the payment of benefits
for sickness, accident, hospitalization, and medical expenses
of retired employees, their spouses and their dependents, but
only if--
(1) such benefits are subordinate to the retirement
benefits provided by the plan,
(2) a separate account is established and maintained
for such benefits,
(3) the employer's contributions to such separate
account are reasonable and ascertainable,
(4) it is impossible, at any time prior to the
satisfaction of all liabilities under the plan to
provide such benefits, for any part of the corpus or
income of such separate account to be (within the
taxable year or thereafter) used for, or diverted to,
any purpose other than the providing of such benefits,
(5) notwithstanding the provisions of subsection
(a)(2), upon the satisfaction of all liabilities under
the plan to provide such benefits, any amount remaining
in such separate account must, under the terms of the
plan, be returned to the employer, and
(6) in the case of an employee who is a key employee,
a separate account is established and maintained for
such benefits payable to such employee (and his spouse
and dependents) and such benefits (to the extent
attributable to plan years beginning after March 31,
1984, for which the employee is a key employee) are
only payable to such employee (and his spouse and
dependents) from such separate account.
For purposes of paragraph (6), the term ``key employee'' means
any employee, who at any time during the plan year or any
preceding plan year during which contributions were made on
behalf of such employee, is or was a key employee as defined in
section 416(i). In no event shall the requirements of paragraph
(1) be treated as met if the aggregate actual contributions for
medical benefits, when added to actual contributions for life
insurance protection under the plan, exceed 25 percent of the
total actual contributions to the plan (other than
contributions to fund past service credits) after the date on
which the account is established. For purposes of this
subsection, the term ``dependent'' shall include any individual
who is a child (as defined in section 152(f)(1)) of a retired
employee who as of the end of the calendar year has not
attained age 27.
(i) Certain union-negotiated pension plans.--In the case of a
trust forming part of a pension plan which has been determined
by the Secretary to constitute a qualified trust under
subsection (a) and to be exempt from taxation under section
501(a) for a period beginning after contributions were first
made to or for such trust, if it is shown to the satisfaction
of the Secretary that--
(1) such trust was created pursuant to a collective
bargaining agreement between employee representatives
and one or more employers,
(2) any disbursements of contributions, made to or
for such trust before the time as of which the
Secretary determined that the trust constituted a
qualified trust, substantially complied with the terms
of the trust, and the plan of which the trust is a
part, as subsequently qualified, and
(3) before the time as of which the Secretary
determined that the trust constitutes a qualified
trust, the contributions to or for such trust were not
used in a manner which would jeopardize the interests
of its beneficiaries,
then such trust shall be considered as having constituted a
qualified trust under subsection (a) and as having been exempt
from taxation under section 501(a) for the period beginning on
the date on which contributions were first made to or for such
trust and ending on the date such trust first constituted
(without regard to this subsection) a qualified trust under
subsection (a).
(k) Cash or deferred arrangements.--
(1) General rule.--A profit-sharing or stock bonus
plan, a pre-ERISA money purchase plan, or a rural
cooperative plan shall not be considered as not
satisfying the requirements of subsection (a) merely
because the plan includes a qualified cash or deferred
arrangement.
(2) Qualified cash or deferred arrangement.--A
qualified cash or deferred arrangement is any
arrangement which is part of a profit-sharing or stock
bonus plan, a pre-ERISA money purchase plan, or a rural
cooperative plan which meets the requirements of
subsection (a)--
(A) under which a covered employee may elect
to have the employer make payments as
contributions to a trust under the plan on
behalf of the employee, or to the employee
directly in cash;
(B) under which amounts held by the trust
which are attributable to employer
contributions made pursuant to the employee's
election--
(i) may not be distributable to
participants or other beneficiaries
earlier than--
(I) severance from
employment, death, or
disability,
(II) an event described in
paragraph (10),
(III) in the case of a
profit-sharing or stock bonus
plan, the attainment of age
591/2,
(IV) subject to the
provisions of paragraph (14),
upon hardship of the employee,
(V) in the case of a
qualified reservist
distribution (as defined in
section 72(t)(2)(G)(iii)), the
date on which a period referred
to in subclause (III) of such
section begins, or
(VI) except as may be
otherwise provided by
regulations, with respect to
amounts invested in a lifetime
income investment (as defined
in subsection (a)(38)(B)(ii)),
the date that is 90 days prior
to the date that such lifetime
income investment may no longer
be held as an investment option
under the arrangement,
(ii) will not be distributable merely
by reason of the completion of a stated
period of participation or the lapse of
a fixed number of years, and
(iii) except as may be otherwise
provided by regulations, in the case of
amounts described in clause (i)(VI),
will be distributed only in the form of
a qualified distribution (as defined in
subsection (a)(38)(B)(i)) or a
qualified plan distribution annuity
contract (as defined in subsection
(a)(38)(B)(iv)),
(C) which provides that an employee's right
to his accrued benefit derived from employer
contributions made to the trust pursuant to his
election is nonforfeitable, and
(D) which does not require, as a condition of
participation in the arrangement, that an
employee complete a period of service with the
employer (or employers) maintaining the plan
extending beyond the close of the earlier of--
(i) the period permitted under
section 410(a)(1) (determined without
regard to subparagraph (B)(i) thereof),
or
(ii) subject to the provisions of
paragraph (15), the first period of [3]
2 consecutive 12-month periods during
each of which the employee has at least
500 hours of service.
(3) Application of participation and discrimination
standards.--
(A) A cash or deferred arrangement shall not
be treated as a qualified cash or deferred
arrangement unless--
(i) those employees eligible to
benefit under the arrangement satisfy
the provisions of section 410(b)(1),
and
(ii) the actual deferral percentage
for eligible highly compensated
employees (as defined in paragraph (5))
for the plan year bears a relationship
to the actual deferral percentage for
all other eligible employees for the
preceding plan year which meets either
of the following tests:
(I) The actual deferral
percentage for the group of
eligible highly compensated
employees is not more than the
actual deferral percentage of
all other eligible employees
multiplied by 1.25.
(II) The excess of the actual
deferral percentage for the
group of eligible highly
compensated employees over that
of all other eligible employees
is not more than 2 percentage
points, and the actual deferral
percentage for the group of
eligible highly compensated
employees is not more than the
actual deferral percentage of
all other eligible employees
multiplied by 2.
If 2 or more plans which include cash or
deferred arrangements are considered as 1 plan
for purposes of section 401(a)(4) or 410(b),
the cash or deferred arrangements included in
such plans shall be treated as 1 arrangement
for purposes of this subparagraph.
If any highly compensated employee is a
participant under 2 or more cash or deferred
arrangements of the employer, for purposes of
determining the deferral percentage with
respect to such employee, all such cash or
deferred arrangements shall be treated as 1
cash or deferred arrangement. An arrangement
may apply clause (ii) by using the plan year
rather than the preceding plan year if the
employer so elects, except that if such an
election is made, it may not be changed except
as provided by the Secretary.
(B) For purposes of subparagraph (A), the
actual deferral percentage for a specified
group of employees for a plan year shall be the
average of the ratios (calculated separately
for each employee in such group) of--
(i) the amount of employer
contributions actually paid over to the
trust on behalf of each such employee
for such plan year, to
(ii) the employee's compensation for
such plan year.
(C) A cash or deferred arrangement shall be
treated as meeting the requirements of
subsection (a)(4) with respect to contributions
if the requirements of subparagraph (A)(ii) are
met.
(D) For purposes of subparagraph (B), the
employer contributions on behalf of any
employee--
(i) shall include any employer
contributions made pursuant to the
employee's election under paragraph
(2), and
(ii) under such rules as the
Secretary may prescribe, may, at the
election of the employer, include--
(I) matching contributions
(as defined in 401(m)(4)(A))
which meet the requirements of
paragraph (2)(B) and (C), and
(II) qualified nonelective
contributions (within the
meaning of section
401(m)(4)(C)).
(E) For purposes of this paragraph, in the
case of the first plan year of any plan (other
than a successor plan), the amount taken into
account as the actual deferral percentage of
nonhighly compensated employees for the
preceding plan year shall be--
(i) 3 percent, or
(ii) if the employer makes an
election under this subclause, the
actual deferral percentage of nonhighly
compensated employees determined for
such first plan year.
(F) Special rule for early participation.--If
an employer elects to apply section
410(b)(4)(B) in determining whether a cash or
deferred arrangement meets the requirements of
subparagraph (A)(i), the employer may, in
determining whether the arrangement meets the
requirements of subparagraph (A)(ii), exclude
from consideration all eligible employees
(other than highly compensated employees) who
have not met the minimum age and service
requirements of section 410(a)(1)(A).
(G) Governmental plan.--A governmental plan
(within the meaning of section 414(d)) shall be
treated as meeting the requirements of this
paragraph.
(4) Other requirements.--
(A) Benefits (other than matching
contributions) must not be contingent on
election to defer.--A cash or deferred
arrangement of any employer shall not be
treated as a qualified cash or deferred
arrangement if any other benefit (other than a
de minimis financial incentive) is conditioned
(directly or indirectly) on the employee
electing to have the employer make or not make
contributions under the arrangement in lieu of
receiving cash. The preceding sentence shall
not apply to any matching contribution (as
defined in section 401(m)) made by reason of
such an election.
(B) Eligibility of State and local
governments and tax-exempt organizations.--
(i) Tax-exempts eligible.--Except as
provided in clause (ii), any
organization exempt from tax under this
subtitle may include a qualified cash
or deferred arrangement as part of a
plan maintained by it.
(ii) Governments ineligible.--A cash
or deferred arrangement shall not be
treated as a qualified cash or deferred
arrangement if it is part of a plan
maintained by a State or local
government or political subdivision
thereof, or any agency or
instrumentality thereof. This clause
shall not apply to a rural cooperative
plan or to a plan of an employer
described in clause (iii).
(iii) Treatment of Indian tribal
governments.--An employer which is an
Indian tribal government (as defined in
section 7701(a)(40)), a subdivision of
an Indian tribal government (determined
in accordance with section 7871(d)), an
agency or instrumentality of an Indian
tribal government or subdivision
thereof, or a corporation chartered
under Federal, State, or tribal law
which is owned in whole or in part by
any of the foregoing may include a
qualified cash or deferred arrangement
as part of a plan maintained by the
employer.
(C) Coordination with other plans.--Except as
provided in section 401(m), any employer
contribution made pursuant to an employee's
election under a qualified cash or deferred
arrangement shall not be taken into account for
purposes of determining whether any other plan
meets the requirements of section 401(a) or
410(b). This subparagraph shall not apply for
purposes of determining whether a plan meets
the average benefit requirement of section
410(b)(2)(A)(ii).
(5) Highly compensated employee.--For purposes of
this subsection, the term ``highly compensated
employee'' has the meaning given such term by section
414(q).
(6) Pre-ERISA money purchase plan.--For purposes of
this subsection, the term ``pre-ERISA money purchase
plan'' means a pension plan--
(A) which is a defined contribution plan (as
defined in section 414(i)),
(B) which was in existence on June 27, 1974,
and which, on such date, included a salary
reduction arrangement, and
(C) under which neither the employee
contributions nor the employer contributions
may exceed the levels provided for by the
contribution formula in effect under the plan
on such date.
(7) Rural cooperative plan.--For purposes of this
subsection--
(A) In general.--The term ``rural cooperative
plan'' means any pension plan--
(i) which is a defined contribution
plan (as defined in section 414(i)),
and
(ii) which is established and
maintained by a rural cooperative.
(B) Rural cooperative defined.--For purposes
of subparagraph (A), the term ``rural
cooperative'' means--
(i) any organization which--
(I) is engaged primarily in
providing electric service on a
mutual or cooperative basis, or
(II) is engaged primarily in
providing electric service to
the public in its area of
service and which is exempt
from tax under this subtitle or
which is a State or local
government (or an agency or
instrumentality thereof), other
than a municipality (or an
agency or instrumentality
thereof),
(ii) any organization described in
paragraph (4) or (6) of section 501(c)
and at least 80 percent of the members
of which are organizations described in
clause (i),
(iii) a cooperative telephone company
described in section 501(c)(12),
(iv) any organization which--
(I) is a mutual irrigation or
ditch company described in
section 501(c)(12) (without
regard to the 85 percent
requirement thereof), or
(II) is a district organized
under the laws of a State as a
municipal corporation for the
purpose of irrigation, water
conservation, or drainage, and
(v) an organization which is a
national association of organizations
described in clause (i), (ii),, (iii),
or (iv).
(C) Special rule for certain distributions.--
A rural cooperative plan which includes a
qualified cash or deferred arrangement shall
not be treated as violating the requirements of
section 401(a) or of paragraph (2) merely by
reason of a hardship distribution or a
distribution to a participant after attainment
of age 591/2. For purposes of this section, the
term ``hardship distribution'' means a
distribution described in paragraph
(2)(B)(i)(IV) (without regard to the limitation
of its application to profit-sharing or stock
bonus plans).
(8) Arrangement not disqualified if excess
contributions distributed.--
(A) In general.--A cash or deferred
arrangement shall not be treated as failing to
meet the requirements of clause (ii) of
paragraph (3)(A) for any plan year if, before
the close of the following plan year--
(i) the amount of the excess
contributions for such plan year (and
any income allocable to such
contributions through the end of such
year) is distributed, or
(ii) to the extent provided in
regulations, the employee elects to
treat the amount of the excess
contributions as an amount distributed
to the employee and then contributed by
the employee to the plan.
Any distribution of excess contributions (and
income) may be made without regard to any other
provision of law.
(B) Excess contributions.--For purposes of
subparagraph (A), the term ``excess
contributions'' means, with respect to any plan
year, the excess of--
(i) the aggregate amount of employer
contributions actually paid over to the
trust on behalf of highly compensated
employees for such plan year, over
(ii) the maximum amount of such
contributions permitted under the
limitations of clause (ii) of paragraph
(3)(A) (determined by reducing
contributions made on behalf of highly
compensated employees in order of the
actual deferral percentages beginning
with the highest of such percentages).
(C) Method of distributing excess
contributions.--Any distribution of the excess
contributions for any plan year shall be made
to highly compensated employees on the basis of
the amount of contributions by, or on behalf
of, each of such employees.
(D) Additional tax under section 72(t) not to
apply.--No tax shall be imposed under section
72(t) on any amount required to be distributed
under this paragraph.
(E) Treatment of matching contributions
forfeited by reason of excess deferral or
contribution or permissible withdrawal.--For
purposes of paragraph (2)(C), a matching
contribution (within the meaning of subsection
(m)) shall not be treated as forfeitable merely
because such contribution is forfeitable if the
contribution to which the matching contribution
relates is treated as an excess contribution
under subparagraph (B), an excess deferral
under section 402(g)(2)(A), a permissible
withdrawal under section 414(w), or an excess
aggregate contribution under section
401(m)(6)(B).
(F) Cross reference.--For excise tax on
certain excess contributions, see section 4979.
(9) Compensation.--For purposes of this subsection,
the term ``compensation'' has the meaning given such
term by section 414(s).
(10) Distributions upon termination of plan.--
(A) In general.--An event described in this
subparagraph is the termination of the plan
without establishment or maintenance of another
defined contribution plan (other than an
employee stock ownership plan as defined in
section 4975(e)(7)).
(B) Distributions must be lump sum
distributions.--
(i) In general.--A termination shall
not be treated as described in
subparagraph (A) with respect to any
employee unless the employee receives a
lump sum distribution by reason of the
termination.
(ii) Lump-sum distribution.--For
purposes of this subparagraph, the term
``lump-sum distribution'' has the
meaning given such term by section
402(e)(4)(D) (without regard to
subclauses (I), (II), (III), and (IV)
of clause (i) thereof). Such term
includes a distribution of an annuity
contract from--
(I) a trust which forms a
part of a plan described in
section 401(a) and which is
exempt from tax under section
501(a), or
(II) an annuity plan
described in section 403(a).
(11) Adoption of simple plan to meet
nondiscrimination tests.--
(A) In general.--A cash or deferred
arrangement maintained by an eligible employer
shall be treated as meeting the requirements of
paragraph (3)(A)(ii) if such arrangement
meets--
(i) the contribution requirements of
subparagraph (B),
(ii) the exclusive plan requirements
of subparagraph (C), and
(iii) the vesting requirements of
section 408(p)(3).
(B) Contribution requirements.--
(i) In general.--The requirements of
this subparagraph are met if, under the
arrangement--
(I) an employee may elect to
have the employer make elective
contributions for the year on
behalf of the employee to a
trust under the plan in an
amount which is expressed as a
percentage of compensation of
the employee but which in no
event exceeds the amount in
effect under section
408(p)(2)(A)(ii),
(II) the employer is required
to make a matching contribution
to the trust for the year in an
amount equal to so much of the
amount the employee elects
under subclause (I) as does not
exceed 3 percent of
compensation for the year, and
(III) no other contributions
may be made other than
contributions described in
subclause (I) or (II).
(ii) Employer may elect 2-percent
nonelective contribution.--An employer
shall be treated as meeting the
requirements of clause (i)(II) for any
year if, in lieu of the contributions
described in such clause, the employer
elects (pursuant to the terms of the
arrangement) to make nonelective
contributions of 2 percent of
compensation for each employee who is
eligible to participate in the
arrangement and who has at least $5,000
of compensation from the employer for
the year. If an employer makes an
election under this subparagraph for
any year, the employer shall notify
employees of such election within a
reasonable period of time before the
60th day before the beginning of such
year.
(iii) Administrative requirements.--
(I) In general.--Rules
similar to the rules of
subparagraphs (B) and (C) of
section 408(p)(5) shall apply
for purposes of this
subparagraph.
(II) Notice of election
period.--The requirements of
this subparagraph shall not be
treated as met with respect to
any year unless the employer
notifies each employee eligible
to participate, within a
reasonable period of time
before the 60th day before the
beginning of such year (and,
for the first year the employee
is so eligible, the 60th day
before the first day such
employee is so eligible), of
the rules similar to the rules
of section 408(p)(5)(C) which
apply by reason of subclause
(I).
(C) Exclusive plan requirement.--The
requirements of this subparagraph are met for
any year to which this paragraph applies if no
contributions were made, or benefits were
accrued, for services during such year under
any qualified plan of the employer on behalf of
any employee eligible to participate in the
cash or deferred arrangement, other than
contributions described in subparagraph (B).
(D) Definitions and special rule.--
(i) Definitions.--For purposes of
this paragraph, any term used in this
paragraph which is also used in section
408(p) shall have the meaning given
such term by such section.
(ii) Coordination with top-heavy
rules.--A plan meeting the requirements
of this paragraph for any year shall
not be treated as a top-heavy plan
under section 416 for such year if such
plan allows only contributions required
under this paragraph.
(12) Alternative methods of meeting nondiscrimination
requirements.--
(A) In general.--A cash or deferred
arrangement shall be treated as meeting the
requirements of paragraph (3)(A)(ii) if such
arrangement--
(i) meets the contribution
requirements of subparagraph (B) and
the notice requirements of subparagraph
(D), or
(ii) meets the contribution
requirements of subparagraph (C).
(B) Matching contributions.--
(i) In general.--The requirements of
this subparagraph are met if, under the
arrangement, the employer makes
matching contributions on behalf of
each employee who is not a highly
compensated employee in an amount equal
to--
(I) 100 percent of the
elective contributions of the
employee to the extent such
elective contributions do not
exceed 3 percent of the
employee's compensation, and
(II) 50 percent of the
elective contributions of the
employee to the extent that
such elective contributions
exceed 3 percent but do not
exceed 5 percent of the
employee's compensation.
(ii) Rate for highly compensated
employees.--The requirements of this
subparagraph are not met if, under the
arrangement, the rate of matching
contribution with respect to any
elective contribution of a highly
compensated employee at any rate of
elective contribution is greater than
that with respect to an employee who is
not a highly compensated employee.
(iii) Alternative plan designs.--If
the rate of any matching contribution
with respect to any rate of elective
contribution is not equal to the
percentage required under clause (i),
an arrangement shall not be treated as
failing to meet the requirements of
clause (i) if--
(I) the rate of an employer's
matching contribution does not
increase as an employee's rate
of elective contributions
increase, and
(II) the aggregate amount of
matching contributions at such
rate of elective contribution
is at least equal to the
aggregate amount of matching
contributions which would be
made if matching contributions
were made on the basis of the
percentages described in clause
(i).
(C) Nonelective contributions.--The
requirements of this subparagraph are met if,
under the arrangement, the employer is
required, without regard to whether the
employee makes an elective contribution or
employee contribution, to make a contribution
to a defined contribution plan on behalf of
each employee who is not a highly compensated
employee and who is eligible to participate in
the arrangement in an amount equal to at least
3 percent of the employee's compensation.
(D) Notice requirement.--An arrangement meets
the requirements of this paragraph if, under
the arrangement, each employee eligible to
participate is, within a reasonable period
before any year, given written notice of the
employee's rights and obligations under the
arrangement which--
(i) is sufficiently accurate and
comprehensive to apprise the employee
of such rights and obligations, and
(ii) is written in a manner
calculated to be understood by the
average employee eligible to
participate.
(E) Other requirements.--
(i) Withdrawal and vesting
restrictions.--An arrangement shall not
be treated as meeting the requirements
of subparagraph (B) or (C) of this
paragraph unless the requirements of
subparagraphs (B) and (C) of paragraph
(2) are met with respect to all
employer contributions (including
matching contributions) taken into
account in determining whether the
requirements of subparagraphs (B) and
(C) of this paragraph are met.
(ii) Social security and similar
contributions not taken into account.--
An arrangement shall not be treated as
meeting the requirements of
subparagraph (B) or (C) unless such
requirements are met without regard to
subsection (l), and, for purposes of
subsection (l), employer contributions
under subparagraph (B) or (C) shall not
be taken into account.
(F) Timing of plan amendment for employer
making nonelective contributions.--
(i) In general.--Except as provided
in clause (ii), a plan may be amended
after the beginning of a plan year to
provide that the requirements of
subparagraph (C) shall apply to the
arrangement for the plan year, but only
if the amendment is adopted--
(I) at any time before the
30th day before the close of
the plan year, or
(II) at any time before the
last day under paragraph (8)(A)
for distributing excess
contributions for the plan
year.
(ii) Exception where plan provided
for matching contributions.--Clause (i)
shall not apply to any plan year if the
plan provided at any time during the
plan year that the requirements of
subparagraph (B) or paragraph
(13)(D)(i)(I) applied to the plan year.
(iii) 4-percent contribution
requirement.--Clause (i)(II) shall not
apply to an arrangement unless the
amount of the contributions described
in subparagraph (C) which the employer
is required to make under the
arrangement for the plan year with
respect to any employee is an amount
equal to at least 4 percent of the
employee's compensation.
(G) Other plans.--An arrangement shall be
treated as meeting the requirements under
subparagraph (A)(i) if any other plan
maintained by the employer meets such
requirements with respect to employees eligible
under the arrangement.
(13) Alternative method for automatic contribution
arrangements to meet nondiscrimination requirements.--
(A) In general.--A qualified automatic
contribution arrangement shall be treated as
meeting the requirements of paragraph
(3)(A)(ii).
(B) Qualified automatic contribution
arrangement.--For purposes of this paragraph,
the term ``qualified automatic contribution
arrangement'' means a cash or deferred
arrangement--
(i) which is described in
subparagraph (D)(i)(I) and meets the
applicable requirements of
subparagraphs (C) through (E), or
(ii) which is described in
subparagraph (D)(i)(II) and meets the
applicable requirements of
subparagraphs (C) and (D).
(C) Automatic deferral.--
(i) In general.--The requirements of
this subparagraph are met if, under the
arrangement, each employee eligible to
participate in the arrangement is
treated as having elected to have the
employer make elective contributions in
an amount equal to a qualified
percentage of compensation.
(ii) Election out.--The election
treated as having been made under
clause (i) shall cease to apply with
respect to any employee if such
employee makes an affirmative
election--
(I) to not have such
contributions made, or
(II) to make elective
contributions at a level
specified in such affirmative
election.
(iii) Qualified percentage.--For
purposes of this subparagraph, the term
``qualified percentage'' means, with
respect to any employee, any percentage
determined under the arrangement if
such percentage is applied uniformly,
does not exceed 15 percent (10 percent
during the period described in
subclause (I)), and is at least--
(I) 3 percent during the
period ending on the last day
of the first plan year which
begins after the date on which
the first elective contribution
described in clause (i) is made
with respect to such employee,
(II) 4 percent during the
first plan year following the
plan year described in
subclause (I),
(III) 5 percent during the
second plan year following the
plan year described in
subclause (I), and
(IV) 6 percent during any
subsequent plan year.
(iv) Automatic deferral for current
employees not required.--Clause (i) may
be applied without taking into account
any employee who--
(I) was eligible to
participate in the arrangement
(or a predecessor arrangement)
immediately before the date on
which such arrangement becomes
a qualified automatic
contribution arrangement
(determined after application
of this clause), and
(II) had an election in
effect on such date either to
participate in the arrangement
or to not participate in the
arrangement.
(D) Matching or nonelective contributions.--
(i) In general.--The requirements of
this subparagraph are met if, under the
arrangement, the employer--
(I) makes matching
contributions on behalf of each
employee who is not a highly
compensated employee in an
amount equal to the sum of 100
percent of the elective
contributions of the employee
to the extent that such
contributions do not exceed 1
percent of compensation plus 50
percent of so much of such
contributions as exceed 1
percent but do not exceed 6
percent of compensation, or
(II) is required, without
regard to whether the employee
makes an elective contribution
or employee contribution, to
make a contribution to a
defined contribution plan on
behalf of each employee who is
not a highly compensated
employee and who is eligible to
participate in the arrangement
in an amount equal to at least
3 percent of the employee's
compensation.
(ii) Application of rules for
matching contributions.--The rules of
clauses (ii) and (iii) of paragraph
(12)(B) shall apply for purposes of
clause (i)(I).
(iii) Withdrawal and vesting
restrictions.--An arrangement shall not
be treated as meeting the requirements
of clause (i) unless, with respect to
employer contributions (including
matching contributions) taken into
account in determining whether the
requirements of clause (i) are met--
(I) any employee who has
completed at least 2 years of
service (within the meaning of
section 411(a)) has a
nonforfeitable right to 100
percent of the employee's
accrued benefit derived from
such employer contributions,
and
(II) the requirements of
subparagraph (B) of paragraph
(2) are met with respect to all
such employer contributions.
(iv) Application of certain other
rules.--The rules of subparagraphs
(E)(ii) and (F) of paragraph (12) shall
apply for purposes of subclauses (I)
and (II) of clause (i).
(E) Notice requirements.--
(i) In general.--The requirements of
this subparagraph are met if, within a
reasonable period before each plan
year, each employee eligible to
participate in the arrangement for such
year receives written notice of the
employee's rights and obligations under
the arrangement which--
(I) is sufficiently accurate
and comprehensive to apprise
the employee of such rights and
obligations, and
(II) is written in a manner
calculated to be understood by
the average employee to whom
the arrangement applies.
(ii) Timing and content
requirements.--A notice shall not be
treated as meeting the requirements of
clause (i) with respect to an employee
unless--
(I) the notice explains the
employee's right under the
arrangement to elect not to
have elective contributions
made on the employee's behalf
(or to elect to have such
contributions made at a
different percentage),
(II) in the case of an
arrangement under which the
employee may elect among 2 or
more investment options, the
notice explains how
contributions made under the
arrangement will be invested in
the absence of any investment
election by the employee, and
(III) the employee has a
reasonable period of time after
receipt of the notice described
in subclauses (I) and (II) and
before the first elective
contribution is made to make
either such election.
(F) Timing of plan amendment for employer
making nonelective contributions.--
(i) In general.--Except as provided
in clause (ii), a plan may be amended
after the beginning of a plan year to
provide that the requirements of
subparagraph (D)(i)(II) shall apply to
the arrangement for the plan year, but
only if the amendment is adopted--
(I) at any time before the
30th day before the close of
the plan year, or
(II) at any time before the
last day under paragraph (8)(A)
for distributing excess
contributions for the plan
year.
(ii) Exception where plan provided
for matching contributions.--Clause (i)
shall not apply to any plan year if the
plan provided at any time during the
plan year that the requirements of
subparagraph (D)(i)(I) or paragraph
(12)(B) applied to the plan year.
(iii) 4-percent contribution
requirement.--Clause (i)(II) shall not
apply to an arrangement unless the
amount of the contributions described
in subparagraph (D)(i)(II) which the
employer is required to make under the
arrangement for the plan year with
respect to any employee is an amount
equal to at least 4 percent of the
employee's compensation.
(14) Special rules relating to hardship
withdrawals.--For purposes of paragraph (2)(B)(i)(IV)--
(A) Amounts which may be withdrawn.--The
following amounts may be distributed upon
hardship of the employee:
(i) Contributions to a profit-sharing
or stock bonus plan to which section
402(e)(3) applies.
(ii) Qualified nonelective
contributions (as defined in subsection
(m)(4)(C)).
(iii) Qualified matching
contributions described in paragraph
(3)(D)(ii)(I).
(iv) Earnings on any contributions
described in clause (i), (ii), or
(iii).
(B) No requirement to take available loan.--A
distribution shall not be treated as failing to
be made upon the hardship of an employee solely
because the employee does not take any
available loan under the plan.
(C) Employee certification.--In determining
whether a distribution is upon the hardship of
an employee, the administrator of the plan may
rely on a certification by the employee that
the distribution is on account of a financial
need of a type that is deemed in regulations
prescribed by the Secretary to be an immediate
and heavy financial need and that such
distribution is not in excess of the amount
required to satisfy such financial need.
(15) Special rules for participation requirement for
long-term, part-time workers.--For purposes of
paragraph (2)(D)(ii)--
(A) Age requirement must be met.--Paragraph
(2)(D)(ii) shall not apply to an employee
unless the employee has met the requirement of
section 410(a)(1)(A)(i) by the close of the
last of the 12-month periods described in such
paragraph.
(B) Nondiscrimination and top-heavy rules not
to apply.--
(i) Nondiscrimination rules.--In the
case of employees who are eligible to
participate in the arrangement solely
by reason of paragraph (2)(D)(ii)--
(I) notwithstanding
subsection (a)(4), an employer
shall not be required to make
nonelective or matching
contributions on behalf of such
employees even if such
contributions are made on
behalf of other employees
eligible to participate in the
arrangement, and
(II) an employer may elect to
exclude such employees from the
application of subsection
(a)(4), paragraphs (3), (12),
and (13), subsection (m)(2),
and section 410(b).
(ii) Top-heavy rules.--An employer
may elect to exclude all employees who
are eligible to participate in a plan
maintained by the employer solely by
reason of paragraph (2)(D)(ii) from the
application of the vesting and benefit
requirements under subsections (b) and
(c) of section 416.
(iii) Vesting.--For purposes of
determining whether an employee
described in clause (i) has a
nonforfeitable right to employer
contributions (other than contributions
described in paragraph (3)(D)(i)) under
the arrangement, each 12-month period
for which the employee has at least 500
hours of service shall be treated as a
year of service, and section 411(a)(6)
shall be applied by substituting ``at
least 500 hours of service'' for ``more
than 500 hours of service'' in
subparagraph (A) thereof.
(iv) Employees who become full-time
employees.--This subparagraph (other
than clause (iii)) shall cease to apply
to any employee as of the first plan
year beginning after the plan year in
which the employee meets the
requirements of section
410(a)(1)(A)(ii) without regard to
paragraph (2)(D)(ii).
(C) Exception for employees under
collectively bargained plans, etc..--Paragraph
(2)(D)(ii) shall not apply to employees
described in section 410(b)(3).
(D) Special rules.--
(i) Time of participation.--The rules
of section 410(a)(4) shall apply to an
employee eligible to participate in an
arrangement solely by reason of
paragraph (2)(D)(ii).
(ii) 12-month periods.--12-month
periods shall be determined in the same
manner as under the last sentence of
section 410(a)(3)(A).
(l) Permitted disparity in plan contributions or benefits.--
(1) In general.--The requirements of this subsection
are met with respect to a plan if--
(A) in the case of a defined contribution
plan, the requirements of paragraph (2) are
met, and
(B) in the case of a defined benefit plan,
the requirements of paragraph (3) are met.
(2) Defined contribution plan.--
(A) In general.--A defined contribution plan
meets the requirements of this paragraph if the
excess contribution percentage does not exceed
the base contribution percentage by more than
the lesser of--
(i) the base contribution percentage,
or
(ii) the greater of--
(I) 5.7 percentage points, or
(II) the percentage equal to
the portion of the rate of tax
under section 3111(a) (in
effect as of the beginning of
the year) which is attributable
to old-age insurance.
(B) Contribution percentages.--For purposes
of this paragraph--
(i) Excess contribution percentage.--
The term ``excess contribution
percentage'' means the percentage of
compensation which is contributed by
the employer under the plan with
respect to that portion of each
participant's compensation in excess of
the integration level.
(ii) Base contribution percentage.--
The term ``base contribution
percentage'' means the percentage of
compensation contributed by the
employer under the plan with respect to
that portion of each participant's
compensation not in excess of the
integration level.
(3) Defined benefit plan.--A defined benefit plan
meets the requirements of this paragraph if--
(A) Excess plans.--
(i) In general.--In the case of a
plan other than an offset plan--
(I) the excess benefit
percentage does not exceed the
base benefit percentage by more
than the maximum excess
allowance,
(II) any optional form of
benefit, preretirement benefit,
actuarial factor, or other
benefit or feature provided
with respect to compensation in
excess of the integration level
is provided with respect to
compensation not in excess of
such level, and
(III) benefits are based on
average annual compensation.
(ii) Benefit percentages.--For
purposes of this subparagraph, the
excess and base benefit percentages
shall be computed in the same manner as
the excess and base contribution
percentages under paragraph (2)(B),
except that such determination shall be
made on the basis of benefits
attributable to employer contributions
rather than contributions.
(B) Offset plans.--In the case of an offset
plan, the plan provides that--
(i) a participant's accrued benefit
attributable to employer contributions
(within the meaning of section
411(c)(1)) may not be reduced (by
reason of the offset) by more than the
maximum offset allowance, and
(ii) benefits are based on average
annual compensation.
(4) Definitions relating to paragraph (3).--For
purposes of paragraph (3)--
(A) Maximum excess allowance.--The maximum
excess allowance is equal to--
(i) in the case of benefits
attributable to any year of service
with the employer taken into account
under the plan, 3/4 of a percentage
point, and
(ii) in the case of total benefits,
3/4 of a percentage point, multiplied
by the participant's years of service
(not in excess of 35) with the employer
taken into account under the plan.
In no event shall the maximum excess allowance
exceed the base benefit percentage.
(B) Maximum offset allowance.--The maximum
offset allowance is equal to--
(i) in the case of benefits
attributable to any year of service
with the employer taken into account
under the plan, 3/4 percent of the
participant's final average
compensation, and
(ii) in the case of total benefits,
3/4 percent of the participant's final
average compensation, multiplied by the
participant's years of service (not in
excess of 35) with the employer taken
into account under the plan.
In no event shall the maximum offset allowance
exceed 50 percent of the benefit which would
have accrued without regard to the offset
reduction.
(C) Reductions.--
(i) In general.--The Secretary shall
prescribe regulations requiring the
reduction of the 3/4 percentage factor
under subparagraph (A) or (B)--
(I) in the case of a plan
other than an offset plan which
has an integration level in
excess of covered compensation,
or
(II) with respect to any
participant in an offset plan
who has final average
compensation in excess of
covered compensation.
(ii) Basis of reductions.--Any
reductions under clause (i) shall be
based on the percentages of
compensation replaced by the employer-
derived portions of primary insurance
amounts under the Social Security Act
for participants with compensation in
excess of covered compensation.
(D) Offset plan.--The term ``offset plan''
means any plan with respect to which the
benefit attributable to employer contributions
for each participant is reduced by an amount
specified in the plan.
(5) Other definitions and special rules.--For
purposes of this subsection--
(A) Integration level.--
(i) In general.--The term
``integration level'' means the amount
of compensation specified under the
plan (by dollar amount or formula) at
or below which the rate at which
contributions or benefits are provided
(expressed as a percentage) is less
than such rate above such amount.
(ii) Limitation.--The integration
level for any year may not exceed the
contribution and benefit base in effect
under section 230 of the Social
Security Act for such year.
(iii) Level to apply to all
participants.--A plan's integration
level shall apply with respect to all
participants in the plan.
(iv) Multiple integration levels.--
Under rules prescribed by the
Secretary, a defined benefit plan may
specify multiple integration levels.
(B) Compensation.--The term ``compensation''
has the meaning given such term by section
414(s).
(C) Average annual compensation.--The term
``average annual compensation'' means the
participant's highest average annual
compensation for--
(i) any period of at least 3
consecutive years, or
(ii) if shorter, the participant's
full period of service.
(D) Final average compensation.--
(i) In general.--The term ``final
average compensation'' means the
participant's average annual
compensation for--
(I) the 3-consecutive year
period ending with the current
year, or
(II) if shorter, the
participant's full period of
service.
(ii) Limitation.--A participant's
final average compensation shall be
determined by not taking into account
in any year compensation in excess of
the contribution and benefit base in
effect under section 230 of the Social
Security Act for such year.
(E) Covered compensation.--
(i) In general.--The term ``covered
compensation'' means, with respect to
an employee, the average of the
contribution and benefit bases in
effect under section 230 of the Social
Security Act for each year in the 35-
year period ending with the year in
which the employee attains the social
security retirement age.
(ii) Computation for any year.--For
purposes of clause (i), the
determination for any year preceding
the year in which the employee attains
the social security retirement age
shall be made by assuming that there is
no increase in the bases described in
clause (i) after the determination year
and before the employee attains the
social security retirement age.
(iii) Social security retirement
age.--For purposes of this
subparagraph, the term ``social
security retirement age'' has the
meaning given such term by section
415(b)(8).
(F) Regulations.--The Secretary shall
prescribe such regulations as are necessary or
appropriate to carry out the purposes of this
subsection, including--
(i) in the case of a defined benefit
plan which provides for unreduced
benefits commencing before the social
security retirement age (as defined in
section 415(b)(8)), rules providing for
the reduction of the maximum excess
allowance and the maximum offset
allowance, and
(ii) in the case of an employee
covered by 2 or more plans of the
employer which fail to meet the
requirements of subsection (a)(4)
(without regard to this subsection),
rules preventing the multiple use of
the disparity permitted under this
subsection with respect to any
employee.
For purposes of clause (i), unreduced benefits
shall not include benefits for disability
(within the meaning of section 223(d) of the
Social Security Act).
(6) Special rule for plan maintained by railroads.--
In determining whether a plan which includes employees
of a railroad employer who are entitled to benefits
under the Railroad Retirement Act of 1974 meets the
requirements of this subsection, rules similar to the
rules set forth in this subsection shall apply. Such
rules shall take into account the employer-derived
portion of the employees' tier 2 railroad retirement
benefits and any supplemental annuity under the
Railroad Retirement Act of 1974.
(m) Nondiscrimination test for matching contributions and
employee contributions.--
(1) In general.--A defined contribution plan shall be
treated as meeting the requirements of subsection
(a)(4) with respect to the amount of any matching
contribution or employee contribution for any plan year
only if the contribution percentage requirement of
paragraph (2) of this subsection is met for such plan
year.
(2) Requirements.--
(A) Contribution percentage requirement.--A
plan meets the contribution percentage
requirement of this paragraph for any plan year
only if the contribution percentage for
eligible highly compensated employees for such
plan year does not exceed the greater of--
(i) 125 percent of such percentage
for all other eligible employees for
the preceding plan year, or
(ii) the lesser of 200 percent of
such percentage for all other eligible
employees for the preceding plan year,
or such percentage for all other
eligible employees for the preceding
plan year plus 2 percentage points.
This subparagraph may be applied by using the
plan year rather than the preceding plan year
if the employer so elects, except that if such
an election is made, it may not be changed
except as provided by the Secretary.
(B) Multiple plans treated as a single
plan.--If two or more plans of an employer to
which matching contributions, employee
contributions, or elective deferrals are made
are treated as one plan for purposes of section
410(b), such plans shall be treated as one plan
for purposes of this subsection. If a highly
compensated employee participates in two or
more plans of an employer to which
contributions to which this subsection applies
are made, all such contributions shall be
aggregated for purposes of this subsection.
(3) Contribution percentage.--For purposes of
paragraph (2), the contribution percentage for a
specified group of employees for a plan year shall be
the average of the ratios (calculated separately for
each employee in such group) of--
(A) the sum of the matching contributions and
employee contributions paid under the plan on
behalf of each such employee for such plan
year, to
(B) the employee's compensation (within the
meaning of section 414(s)) for such plan year.
Under regulations, an employer may elect to take into
account (in computing the contribution percentage)
elective deferrals and qualified nonelective
contributions under the plan or any other plan of the
employer. If matching contributions are taken into
account for purposes of subsection (k)(3)(A)(ii) for
any plan year, such contributions shall not be taken
into account under subparagraph (A) for such year.
Rules similar to the rules of subsection (k)(3)(E)
shall apply for purposes of this subsection.
(4) Definitions.--For purposes of this subsection--
(A) Matching contribution.--The term
``matching contribution'' means--
(i) any employer contribution made to
a defined contribution plan on behalf
of an employee on account of an
employee contribution made by such
employee, [and]
(ii) any employer contribution made
to a defined contribution plan on
behalf of an employee on account of an
employee's elective deferral[.], and
(iii) subject to the requirements of
paragraph (13), any employer
contribution made to a defined
contribution plan on behalf of an
employee on account of a qualified
student loan payment.
(B) Elective deferral.--The term ``elective
deferral'' means any employer contribution
described in section 402(g)(3).
(C) Qualified nonelective contributions.--The
term ``qualified nonelective contribution''
means any employer contribution (other than a
matching contribution) with respect to which--
(i) the employee may not elect to
have the contribution paid to the
employee in cash instead of being
contributed to the plan, and
(ii) the requirements of
subparagraphs (B) and (C) of subsection
(k)(2) are met.
(D) Qualified student loan payment.--The term
``qualified student loan payment'' means a
payment made by an employee in repayment of a
qualified education loan (as defined section
221(d)(1)) incurred by the employee to pay
qualified higher education expenses, but only--
(i) to the extent such payments in
the aggregate for the year do not
exceed an amount equal to--
(I) the limitation applicable
under section 402(g) for the
year (or, if lesser, the
employee's compensation (as
defined in section 415(c)(3))
for the year), reduced by
(II) the elective deferrals
made by the employee for such
year, and
(ii) if the employee certifies to the
employer making the matching
contribution under this paragraph that
such payment has been made on such
loan.
For purposes of this subparagraph, the term
``qualified higher education expenses'' means
the cost of attendance (as defined in section
472 of the Higher Education Act of 1965, as in
effect on the day before the date of the
enactment of the Taxpayer Relief Act of 1997)
at an eligible educational institution (as
defined in section 221(d)(2)).
(5) Employees taken into consideration.--
(A) In general.--Any employee who is eligible
to make an employee contribution (or, if the
employer takes elective contributions into
account, elective contributions) or to receive
a matching contribution under the plan being
tested under paragraph (1) shall be considered
an eligible employee for purposes of this
subsection.
(B) Certain nonparticipants.--If an employee
contribution is required as a condition of
participation in the plan, any employee who
would be a participant in the plan if such
employee made such a contribution shall be
treated as an eligible employee on behalf of
whom no employer contributions are made.
(C) Special rule for early participation.--If
an employer elects to apply section
410(b)(4)(B) in determining whether a plan
meets the requirements of section 410(b), the
employer may, in determining whether the plan
meets the requirements of paragraph (2),
exclude from consideration all eligible
employees (other than highly compensated
employees) who have not met the minimum age and
service requirements of section 410(a)(1)(A).
(6) Plan not disqualified if excess aggregate
contributions distributed before end of following plan
year.--
(A) In general.--A plan shall not be treated
as failing to meet the requirements of
paragraph (1) for any plan year if, before the
close of the following plan year, the amount of
the excess aggregate contributions for such
plan year (and any income allocable to such
contributions through the end of such year) is
distributed (or, if forfeitable, is forfeited).
Such contributions (and such income) may be
distributed without regard to any other
provision of law.
(B) Excess aggregate contributions.--For
purposes of subparagraph (A), the term ``excess
aggregate contributions'' means, with respect
to any plan year, the excess of--
(i) the aggregate amount of the
matching contributions and employee
contributions (and any qualified
nonelective contribution or elective
contribution taken into account in
computing the contribution percentage)
actually made on behalf of highly
compensated employees for such plan
year, over
(ii) the maximum amount of such
contributions permitted under the
limitations of paragraph (2)(A)
(determined by reducing contributions
made on behalf of highly compensated
employees in order of their
contribution percentages beginning with
the highest of such percentages).
(C) Method of distributing excess aggregate
contributions.--Any distribution of the excess
aggregate contributions for any plan year shall
be made to highly compensated employees on the
basis of the amount of contributions on behalf
of, or by, each such employee. Forfeitures of
excess aggregate contributions may not be
allocated to participants whose contributions
are reduced under this paragraph.
(D) Coordination with subsection (k) and
402(g).--The determination of the amount of
excess aggregate contributions with respect to
a plan shall be made after--
(i) first determining the excess
deferrals (within the meaning of
section 402(g)), and
(ii) then determining the excess
contributions under subsection (k).
(7) Treatment of distributions.--
(A) Additional tax of section 72(t) not
applicable.--No tax shall be imposed under
section 72(t) on any amount required to be
distributed under paragraph (6).
(B) Exclusion of employee contributions.--Any
distribution attributable to employee
contributions shall not be included in gross
income except to the extent attributable to
income on such contributions.
(8) Highly compensated employee.--For purposes of
this subsection, the term ``highly compensated
employee'' has the meaning given to such term by
section 414(q).
(9) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the
purposes of this subsection and subsection (k),
including regulations permitting appropriate
aggregation of plans and contributions.
(10) Alternative method of satisfying tests.--A
defined contribution plan shall be treated as meeting
the requirements of paragraph (2) with respect to
matching contributions if the plan--
(A) meets the contribution requirements of
subparagraph (B) of subsection (k)(11),
(B) meets the exclusive plan requirements of
subsection (k)(11)(C), and
(C) meets the vesting requirements of section
408(p)(3).
(11) Additional alternative method of satisfying
tests.--
(A) In general.--A defined contribution plan
shall be treated as meeting the requirements of
paragraph (2) with respect to matching
contributions if the plan--
(i) meets the contribution
requirements of subparagraph (B) or (C)
of subsection (k)(12),
(ii) meets the notice requirements of
subsection (k)(12)(D), and
(iii) meets the requirements of
subparagraph (B).
(B) Limitation on matching contributions.--
The requirements of this subparagraph are met
if--
(i) matching contributions on behalf
of any employee may not be made with
respect to an employee's contributions
or elective deferrals in excess of 6
percent of the employee's compensation,
(ii) the rate of an employer's
matching contribution does not increase
as the rate of an employee's
contributions or elective deferrals
increase, and
(iii) the matching contribution with
respect to any highly compensated
employee at any rate of an employee
contribution or rate of elective
deferral is not greater than that with
respect to an employee who is not a
highly compensated employee.
(12) Alternative method for automatic contribution
arrangements.--A defined contribution plan shall be
treated as meeting the requirements of paragraph (2)
with respect to matching contributions if the plan--
(A) is a qualified automatic contribution
arrangement (as defined in subsection (k)(13)),
and
(B) meets the requirements of paragraph
(11)(B).
(13) Matching contributions for qualified student
loan payments.--
(A) In general.--For purposes of paragraph
(4)(A)(iii), an employer contribution made to a
defined contribution plan on account of a
qualified student loan payment shall be treated
as a matching contribution for purposes of this
title if--
(i) the plan provides matching
contributions on account of elective
deferrals at the same rate as
contributions on account of qualified
student loan payments,
(ii) the plan provides matching
contributions on account of qualified
student loan payments only on behalf of
employees otherwise eligible to receive
matching contributions on account of
elective deferrals,
(iii) under the plan, all employees
eligible to receive matching
contributions on account of elective
deferrals are eligible to receive
matching contributions on account of
qualified student loan payments, and
(iv) the plan provides that matching
contributions on account of qualified
student loan payments vest in the same
manner as matching contributions on
account of elective deferrals.
(B) Treatment for purposes of
nondiscrimination rules, etc.--
(i) Nondiscrimination rules.--For
purposes of subparagraph (A)(iii),
subsection (a)(4), and section 410(b),
matching contributions described in
paragraph (4)(A)(iii) shall not fail to
be treated as available to an employee
solely because such employee does not
have debt incurred under a qualified
education loan (as defined in section
221(d)(1)).
(ii) Student loan payments not
treated as plan contribution.--Except
as provided in clause (iii), a
qualified student loan payment shall
not be treated as a contribution to a
plan under this title.
(iii) Matching contribution rules.--
Solely for purposes of meeting the
requirements of paragraph (11)(B) or
(12) of this subsection, or paragraph
(11)(B)(i)(II), (12)(B), or (13)(D) of
subsection (k), a plan may treat a
qualified student loan payment as an
elective deferral or an elective
contribution, whichever is applicable.
(iv) Actual deferral percentage
testing.--In determining whether a plan
meets the requirements of subsection
(k)(3)(A)(ii) for a plan year, the plan
may apply the requirements of such
subsection separately with respect to
all employees who receive matching
contributions described in paragraph
(4)(A)(iii) for the plan year.
(C) Employer may rely on employee
certification.--The employer may rely on an
employee certification of payment under
paragraph (4)(D)(ii).
[(13)] (14) Cross reference.--For excise tax on
certain excess contributions, see section 4979.
(n) Coordination with qualified domestic relations orders.--
The Secretary shall prescribe such rules or regulations as may
be necessary to coordinate the requirements of subsection
(a)(13)(B) and section 414(p) (and the regulations issued by
the Secretary of Labor thereunder) with the other provisions of
this chapter.
(o) Special rules for applying nondiscrimination rules to
protect older, longer service and grandfathered participants.--
(1) Testing of defined benefit plans with closed
classes of participants.--
(A) Benefits, rights, or features provided to
closed classes.--A defined benefit plan which
provides benefits, rights, or features to a
closed class of participants shall not fail to
satisfy the requirements of subsection (a)(4)
by reason of the composition of such closed
class or the benefits, rights, or features
provided to such closed class, if--
(i) for the plan year as of which the
class closes and the 2 succeeding plan
years, such benefits, rights, and
features satisfy the requirements of
subsection (a)(4) (without regard to
this subparagraph but taking into
account the rules of subparagraph (I)),
(ii) after the date as of which the
class was closed, any plan amendment
which modifies the closed class or the
benefits, rights, and features provided
to such closed class does not
discriminate significantly in favor of
highly compensated employees, and
(iii) the class was closed before
April 5, 2017, or the plan is described
in subparagraph (C).
(B) Aggregate testing with defined
contribution plans permitted on a benefits
basis.--
(i) In general.--For purposes of
determining compliance with subsection
(a)(4) and section 410(b), a defined
benefit plan described in clause (iii)
may be aggregated and tested on a
benefits basis with 1 or more defined
contribution plans, including with the
portion of 1 or more defined
contribution plans which--
(I) provides matching
contributions (as defined in
subsection (m)(4)(A)),
(II) provides annuity
contracts described in section
403(b) which are purchased with
matching contributions or
nonelective contributions, or
(III) consists of an employee
stock ownership plan (within
the meaning of section
4975(e)(7)) or a tax credit
employee stock ownership plan
(within the meaning of section
409(a)).
(ii) Special rules for matching
contributions.--For purposes of clause
(i), if a defined benefit plan is
aggregated with a portion of a defined
contribution plan providing matching
contributions--
(I) such defined benefit plan
must also be aggregated with
any portion of such defined
contribution plan which
provides elective deferrals
described in subparagraph (A)
or (C) of section 402(g)(3),
and
(II) such matching
contributions shall be treated
in the same manner as
nonelective contributions,
including for purposes of
applying the rules of
subsection (l).
(iii) Plans described.--A defined
benefit plan is described in this
clause if--
(I) the plan provides
benefits to a closed class of
participants,
(II) for the plan year as of
which the class closes and the
2 succeeding plan years, the
plan satisfies the requirements
of section 410(b) and
subsection (a)(4) (without
regard to this subparagraph but
taking into account the rules
of subparagraph (I)),
(III) after the date as of
which the class was closed, any
plan amendment which modifies
the closed class or the
benefits provided to such
closed class does not
discriminate significantly in
favor of highly compensated
employees, and
(IV) the class was closed
before April 5, 2017, or the
plan is described in
subparagraph (C).
(C) Plans described.--A plan is described in
this subparagraph if, taking into account any
predecessor plan--
(i) such plan has been in effect for
at least 5 years as of the date the
class is closed, and
(ii) during the 5-year period
preceding the date the class is closed,
there has not been a substantial
increase in the coverage or value of
the benefits, rights, or features
described in subparagraph (A) or in the
coverage or benefits under the plan
described in subparagraph (B)(iii)
(whichever is applicable).
(D) Determination of substantial increase for
benefits, rights, and features.--In applying
subparagraph (C)(ii) for purposes of
subparagraph (A)(iii), a plan shall be treated
as having had a substantial increase in
coverage or value of the benefits, rights, or
features described in subparagraph (A) during
the applicable 5-year period only if, during
such period--
(i) the number of participants
covered by such benefits, rights, or
features on the date such period ends
is more than 50 percent greater than
the number of such participants on the
first day of the plan year in which
such period began, or
(ii) such benefits, rights, and
features have been modified by 1 or
more plan amendments in such a way
that, as of the date the class is
closed, the value of such benefits,
rights, and features to the closed
class as a whole is substantially
greater than the value as of the first
day of such 5-year period, solely as a
result of such amendments.
(E) Determination of substantial increase for
aggregate testing on benefits basis.--In
applying subparagraph (C)(ii) for purposes of
subparagraph (B)(iii)(IV), a plan shall be
treated as having had a substantial increase in
coverage or benefits during the applicable 5-
year period only if, during such period--
(i) the number of participants
benefitting under the plan on the date
such period ends is more than 50
percent greater than the number of such
participants on the first day of the
plan year in which such period began,
or
(ii) the average benefit provided to
such participants on the date such
period ends is more than 50 percent
greater than the average benefit
provided on the first day of the plan
year in which such period began.
(F) Certain employees disregarded.--For
purposes of subparagraphs (D) and (E), any
increase in coverage or value or in coverage or
benefits, whichever is applicable, which is
attributable to such coverage and value or
coverage and benefits provided to employees--
(i) who became participants as a
result of a merger, acquisition, or
similar event which occurred during the
7-year period preceding the date the
class is closed, or
(ii) who became participants by
reason of a merger of the plan with
another plan which had been in effect
for at least 5 years as of the date of
the merger,
shall be disregarded, except that clause (ii)
shall apply for purposes of subparagraph (D)
only if, under the merger, the benefits,
rights, or features under 1 plan are conformed
to the benefits, rights, or features of the
other plan prospectively.
(G) Rules relating to average benefit.--For
purposes of subparagraph (E)--
(i) the average benefit provided to
participants under the plan will be
treated as having remained the same
between the 2 dates described in
subparagraph (E)(ii) if the benefit
formula applicable to such participants
has not changed between such dates, and
(ii) if the benefit formula
applicable to 1 or more participants
under the plan has changed between such
2 dates, then the average benefit under
the plan shall be considered to have
increased by more than 50 percent only
if--
(I) the total amount
determined under section
430(b)(1)(A)(i) for all
participants benefitting under
the plan for the plan year in
which the 5-year period
described in subparagraph (E)
ends, exceeds
(II) the total amount
determined under section
430(b)(1)(A)(i) for all such
participants for such plan
year, by using the benefit
formula in effect for each such
participant for the first plan
year in such 5-year period,
by more than 50 percent. In the case of a CSEC
plan (as defined in section 414(y)), the normal
cost of the plan (as determined under section
433(j)(1)(B)) shall be used in lieu of the
amount determined under section
430(b)(1)(A)(i).
(H) Treatment as single plan.--For purposes
of subparagraphs (E) and (G), a plan described
in section 413(c) shall be treated as a single
plan rather than as separate plans maintained
by each employer in the plan.
(I) Special rules.--For purposes of
subparagraphs (A)(i) and (B)(iii)(II), the
following rules shall apply:
(i) In applying section 410(b)(6)(C),
the closing of the class of
participants shall not be treated as a
significant change in coverage under
section 410(b)(6)(C)(i)(II).
(ii) 2 or more plans shall not fail
to be eligible to be aggregated and
treated as a single plan solely by
reason of having different plan years.
(iii) Changes in the employee
population shall be disregarded to the
extent attributable to individuals who
become employees or cease to be
employees, after the date the class is
closed, by reason of a merger,
acquisition, divestiture, or similar
event.
(iv) Aggregation and all other
testing methodologies otherwise
applicable under subsection (a)(4) and
section 410(b) may be taken into
account.
The rule of clause (ii) shall also apply for
purposes of determining whether plans to which
subparagraph (B)(i) applies may be aggregated
and treated as 1 plan for purposes of
determining whether such plans meet the
requirements of subsection (a)(4) and section
410(b).
(J) Spun-off plans.--For purposes of this
paragraph, if a portion of a defined benefit
plan described in subparagraph (A) or (B)(iii)
is spun off to another employer and the spun-
off plan continues to satisfy the requirements
of--
(i) subparagraph (A)(i) or
(B)(iii)(II), whichever is applicable,
if the original plan was still within
the 3-year period described in such
subparagraph at the time of the spin
off, and
(ii) subparagraph (A)(ii) or
(B)(iii)(III), whichever is applicable,
the treatment under subparagraph (A) or (B) of
the spun-off plan shall continue with respect
to such other employer.
(2) Testing of defined contribution plans.--
(A) Testing on a benefits basis.--A defined
contribution plan shall be permitted to be
tested on a benefits basis if--
(i) such defined contribution plan
provides make-whole contributions to a
closed class of participants whose
accruals under a defined benefit plan
have been reduced or eliminated,
(ii) for the plan year of the defined
contribution plan as of which the class
eligible to receive such make-whole
contributions closes and the 2
succeeding plan years, such closed
class of participants satisfies the
requirements of section 410(b)(2)(A)(i)
(determined by applying the rules of
paragraph (1)(I)),
(iii) after the date as of which the
class was closed, any plan amendment to
the defined contribution plan which
modifies the closed class or the
allocations, benefits, rights, and
features provided to such closed class
does not discriminate significantly in
favor of highly compensated employees,
and
(iv) the class was closed before
April 5, 2017, or the defined benefit
plan under clause (i) is described in
paragraph (1)(C) (as applied for
purposes of paragraph (1)(B)(iii)(IV)).
(B) Aggregation with plans including matching
contributions.--
(i) In general.--With respect to 1 or
more defined contribution plans
described in subparagraph (A), for
purposes of determining compliance with
subsection (a)(4) and section 410(b),
the portion of such plans which
provides make-whole contributions or
other nonelective contributions may be
aggregated and tested on a benefits
basis with the portion of 1 or more
other defined contribution plans
which--
(I) provides matching
contributions (as defined in
subsection (m)(4)(A)),
(II) provides annuity
contracts described in section
403(b) which are purchased with
matching contributions or
nonelective contributions, or
(III) consists of an employee
stock ownership plan (within
the meaning of section
4975(e)(7)) or a tax credit
employee stock ownership plan
(within the meaning of section
409(a)).
(ii) Special rules for matching
contributions.--Rules similar to the
rules of paragraph (1)(B)(ii) shall
apply for purposes of clause (i).
(C) Special rules for testing defined
contribution plan features providing matching
contributions to certain older, longer service
participants.--In the case of a defined
contribution plan which provides benefits,
rights, or features to a closed class of
participants whose accruals under a defined
benefit plan have been reduced or eliminated,
the plan shall not fail to satisfy the
requirements of subsection (a)(4) solely by
reason of the composition of the closed class
or the benefits, rights, or features provided
to such closed class if the defined
contribution plan and defined benefit plan
otherwise meet the requirements of subparagraph
(A) but for the fact that the make-whole
contributions under the defined contribution
plan are made in whole or in part through
matching contributions.
(D) Spun-off plans.--For purposes of this
paragraph, if a portion of a defined
contribution plan described in subparagraph (A)
or (C) is spun off to another employer, the
treatment under subparagraph (A) or (C) of the
spun-off plan shall continue with respect to
the other employer if such plan continues to
comply with the requirements of clauses (ii)
(if the original plan was still within the 3-
year period described in such clause at the
time of the spin off) and (iii) of subparagraph
(A), as determined for purposes of subparagraph
(A) or (C), whichever is applicable.
(3) Definitions and special rule.--For purposes of
this subsection--
(A) Make-whole contributions.--Except as
otherwise provided in paragraph (2)(C), the
term ``make-whole contributions'' means
nonelective allocations for each employee in
the class which are reasonably calculated, in a
consistent manner, to replace some or all of
the retirement benefits which the employee
would have received under the defined benefit
plan and any other plan or qualified cash or
deferred arrangement under subsection (k)(2) if
no change had been made to such defined benefit
plan and such other plan or arrangement. For
purposes of the preceding sentence, consistency
shall not be required with respect to employees
who were subject to different benefit formulas
under the defined benefit plan.
(B) References to closed class of
participants.--References to a closed class of
participants and similar references to a closed
class shall include arrangements under which 1
or more classes of participants are closed,
except that 1 or more classes of participants
closed on different dates shall not be
aggregated for purposes of determining the date
any such class was closed.
(C) Highly compensated employee.--The term
``highly compensated employee'' has the meaning
given such term in section 414(q).
(p) Cross reference.--For exemption from tax of a trust
qualified under this section, see section 501(a).
SEC. 402. TAXABILITY OF BENEFICIARY OF EMPLOYEES' TRUST.
(a) Taxability of beneficiary of exempt trust.--Except as
otherwise provided in this section, any amount actually
distributed to any distributee by any employees' trust
described in section 401(a) which is exempt from tax under
section 501(a) shall be taxable to the distributee, in the
taxable year of the distributee in which distributed, under
section 72 (relating to annuities).
(b) Taxability of beneficiary of nonexempt trust.--
(1) Contributions.--Contributions to an employees'
trust made by an employer during a taxable year of the
employer which ends with or within a taxable year of
the trust for which the trust is not exempt from tax
under section 501(a) shall be included in the gross
income of the employee in accordance with section 83
(relating to property transferred in connection with
performance of services), except that the value of the
employee's interest in the trust shall be substituted
for the fair market value of the property for purposes
of applying such section.
(2) Distributions.--The amount actually distributed
or made available to any distributee by any trust
described in paragraph (1) shall be taxable to the
distributee, in the taxable year in which so
distributed or made available, under section 72
(relating to annuities), except that distributions of
income of such trust before the annuity starting date
(as defined in section 72(c)(4)) shall be included in
the gross income of the employee without regard to
section 72(e)(5) (relating to amounts not received as
annuities).
(3) Grantor trusts.--A beneficiary of any trust
described in paragraph (1) shall not be considered the
owner of any portion of such trust under subpart E of
part I of subchapter J (relating to grantors and others
treated as substantial owners).
(4) Failure to meet requirements of section 410(b).--
(A) Highly compensated employees.--If 1 of
the reasons a trust is not exempt from tax
under section 501(a) is the failure of the plan
of which it is a part to meet the requirements
of section 401(a)(26) or 410(b), then a highly
compensated employee shall, in lieu of the
amount determined under paragraph (1) or (2)
include in gross income for the taxable year
with or within which the taxable year of the
trust ends an amount equal to the vested
accrued benefit of such employee (other than
the employee's investment in the contract) as
of the close of such taxable year of the trust.
(B) Failure to meet coverage tests.--If a
trust is not exempt from tax under section
501(a) for any taxable year solely because such
trust is part of a plan which fails to meet the
requirements of section 401(a)(26) or 410(b),
paragraphs (1) and (2) shall not apply by
reason of such failure to any employee who was
not a highly compensated employee during--
(i) such taxable year, or
(ii) any preceding period for which
service was creditable to such employee
under the plan.
(C) Highly compensated employee.--For
purposes of this paragraph, the term ``highly
compensated employee'' has the meaning given
such term by section 414(q).
(c) Rules applicable to rollovers from exempt trusts.--
(1) Exclusion from income.--If--
(A) any portion of the balance to the credit
of an employee in a qualified trust is paid to
the employee in an eligible rollover
distribution,
(B) the distributee transfers any portion of
the property received in such distribution to
an eligible retirement plan, and
(C) in the case of a distribution of property
other than money, the amount so transferred
consists of the property distributed,
then such distribution (to the extent so transferred)
shall not be includible in gross income for the taxable
year in which paid.
(2) Maximum amount which may be rolled over.--In the
case of any eligible rollover distribution, the maximum
amount transferred to which paragraph (1) applies shall
not exceed the portion of such distribution which is
includible in gross income (determined without regard
to paragraph (1)). The preceding sentence shall not
apply to such distribution to the extent--
(A) such portion is transferred in a direct
trustee-to-trustee transfer to a qualified
trust or to an annuity contract described in
section 403(b) and such trust or contract
provides for separate accounting for amounts so
transferred (and earnings thereon), including
separately accounting for the portion of such
distribution which is includible in gross
income and the portion of such distribution
which is not so includible, or
(B) such portion is transferred to an
eligible retirement plan described in clause
(i) or (ii) of paragraph (8)(B).
In the case of a transfer described in subparagraph (A)
or (B), the amount transferred shall be treated as
consisting first of the portion of such distribution
that is includible in gross income (determined without
regard to paragraph (1)).
(3) Time limit on transfers.--
(A) In general.--Except as provided in
subparagraphs (B) and (C), paragraph (1) shall
not apply to any transfer of a distribution
made after the 60th day following the day on
which the distributee received the property
distributed.
(B) Hardship exception.--The Secretary may
waive the 60-day requirement under subparagraph
(A) where the failure to waive such requirement
would be against equity or good conscience,
including casualty, disaster, or other events
beyond the reasonable control of the individual
subject to such requirement.
(C) Rollover of certain plan loan offset
amounts.--
(i) In general.--In the case of a
qualified plan loan offset amount,
paragraph (1) shall not apply to any
transfer of such amount made after the
due date (including extensions) for
filing the return of tax for the
taxable year in which such amount is
treated as distributed from a qualified
employer plan.
(ii) Qualified plan loan offset
amount.--For purposes of this
subparagraph, the term ``qualified plan
loan offset amount'' means a plan loan
offset amount which is treated as
distributed from a qualified employer
plan to a participant or beneficiary
solely by reason of--
(I) the termination of the
qualified employer plan, or
(II) the failure to meet the
repayment terms of the loan
from such plan because of the
severance from employment of
the participant.
(iii) Plan loan offset amount.--For
purposes of clause (ii), the term
``plan loan offset amount'' means the
amount by which the participant's
accrued benefit under the plan is
reduced in order to repay a loan from
the plan.
(iv) Limitation.--This subparagraph
shall not apply to any plan loan offset
amount unless such plan loan offset
amount relates to a loan to which
section 72(p)(1) does not apply by
reason of section 72(p)(2).
(v) Qualified employer plan.--For
purposes of this subsection, the term
``qualified employer plan'' has the
meaning given such term by section
72(p)(4).
(4) Eligible rollover distribution.--For purposes of
this subsection, the term ``eligible rollover
distribution'' means any distribution to an employee of
all or any portion of the balance to the credit of the
employee in a qualified trust; except that such term
shall not include--
(A) any distribution which is one of a series
of substantially equal periodic payments (not
less frequently than annually) made--
(i) for the life (or life expectancy)
of the employee or the joint lives (or
joint life expectancies) of the
employee and the employee's designated
beneficiary, or
(ii) for a specified period of 10
years or more,
(B) any distribution to the extent such
distribution is required under section
401(a)(9), and
(C) any distribution which is made upon
hardship of the employee.
If all or any portion of a distribution during 2020 is
treated as an eligible rollover distribution but would
not be so treated if the minimum distribution
requirements under section 401(a)(9) had applied during
2020, such distribution shall not be treated as an
eligible rollover distribution for purposes of section
401(a)(31) or 3405(c) or subsection (f) of this
section.
(5) Transfer treated as rollover contribution under
section 408.--For purposes of this title, a transfer to
an eligible retirement plan described in clause (i) or
(ii) of paragraph (8)(B) resulting in any portion of a
distribution being excluded from gross income under
paragraph (1) shall be treated as a rollover
contribution described in section 408(d)(3).
(6) Sales of distributed property.--For purposes of
this subsection--
(A) Transfer of proceeds from sale of
distributed property treated as transfer of
distributed property.--The transfer of an
amount equal to any portion of the proceeds
from the sale of property received in the
distribution shall be treated as the transfer
of property received in the distribution.
(B) Proceeds attributable to increase in
value.--The excess of fair market value of
property on sale over its fair market value on
distribution shall be treated as property
received in the distribution.
(C) Designation where amount of distribution
exceeds rollover contribution.--In any case
where part or all of the distribution consists
of property other than money--
(i) the portion of the money or other
property which is to be treated as
attributable to amounts not included in
gross income, and
(ii) the portion of the money or
other property which is to be treated
as included in the rollover
contribution,
shall be determined on a ratable basis unless
the taxpayer designates otherwise. Any
designation under this subparagraph for a
taxable year shall be made not later than the
time prescribed by law for filing the return
for such taxable year (including extensions
thereof). Any such designation, once made,
shall be irrevocable.
(D) Nonrecognition of gain or loss.--No gain
or loss shall be recognized on any sale
described in subparagraph (A) to the extent
that an amount equal to the proceeds is
transferred pursuant to paragraph (1).
(7) Special rule for frozen deposits.--
(A) In general.--The 60-day period described
in paragraph (3) shall not--
(i) include any period during which
the amount transferred to the employee
is a frozen deposit, or
(ii) end earlier than 10 days after
such amount ceases to be a frozen
deposit.
(B) Frozen deposits.--For purposes of this
subparagraph, the term ``frozen deposit'' means
any deposit which may not be withdrawn because
of--
(i) the bankruptcy or insolvency of
any financial institution, or
(ii) any requirement imposed by the
State in which such institution is
located by reason of the bankruptcy or
insolvency (or threat thereof) of 1 or
more financial institutions in such
State.
A deposit shall not be treated as a frozen
deposit unless on at least 1 day during the 60-
day period described in paragraph (3) (without
regard to this paragraph) such deposit is
described in the preceding sentence.
(8) Definitions.--For purposes of this subsection--
(A) Qualified trust.--The term ``qualified
trust'' means an employees' trust described in
section 401(a) which is exempt from tax under
section 501(a).
(B) Eligible retirement plan.--The term
``eligible retirement plan'' means--
(i) an individual retirement account
described in section 408(a),
(ii) an individual retirement annuity
described in section 408(b) (other than
an endowment contract),
(iii) a qualified trust,
(iv) an annuity plan described in
section 403(a),
(v) an eligible deferred compensation
plan described in section 457(b) which
is maintained by an eligible employer
described in section 457(e)(1)(A), and
(vi) an annuity contract described in
section 403(b).
If any portion of an eligible rollover
distribution is attributable to payments or
distributions from a designated Roth account
(as defined in section 402A), an eligible
retirement plan with respect to such portion
shall include only another designated Roth
account and a Roth IRA.
(9) Rollover where spouse receives distribution after
death of employee.--If any distribution attributable to
an employee is paid to the spouse of the employee after
the employee's death, the preceding provisions of this
subsection shall apply to such distribution in the same
manner as if the spouse were the employee.
(10) Separate accounting.--Unless a plan described in
clause (v) of paragraph (8)(B) agrees to separately
account for amounts rolled into such plan from eligible
retirement plans not described in such clause, the plan
described in such clause may not accept transfers or
rollovers from such retirement plans.
(11) Distributions to inherited individual retirement
plan of nonspouse beneficiary.--
(A) In general.--If, with respect to any
portion of a distribution from an eligible
retirement plan described in paragraph
(8)(B)(iii) of a deceased employee, a direct
trustee-to-trustee transfer is made to an
individual retirement plan described in clause
(i) or (ii) of paragraph (8)(B) established for
the purposes of receiving the distribution on
behalf of an individual who is a designated
beneficiary (as defined by section
401(a)(9)(E)) of the employee and who is not
the surviving spouse of the employee--
(i) the transfer shall be treated as
an eligible rollover distribution,
(ii) the individual retirement plan
shall be treated as an inherited
individual retirement account or
individual retirement annuity (within
the meaning of section 408(d)(3)(C))
for purposes of this title, and
(iii) section 401(a)(9)(B) (other
than clause (iv) thereof) shall apply
to such plan.
(B) Certain trusts treated as
beneficiaries.--For purposes of this paragraph,
to the extent provided in rules prescribed by
the Secretary, a trust maintained for the
benefit of one or more designated beneficiaries
shall be treated in the same manner as a
designated beneficiary.
(12) In the case of an inadvertent benefit
overpayment from a plan to which section 414(bb)(1)
applies which is transferred to an eligible retirement
plan by or on behalf of a participant or beneficiary--
(A) the portion of such overpayment with
respect to which recoupment is not sought on
behalf of the plan shall be treated as having
been paid in an eligible rollover distribution
if the payment would have been an eligible
rollover distribution but for being an
overpayment, and
(B) the portion of such overpayment with
respect to which recoupment is sought on behalf
of the plan shall be permitted to be returned
to such plan and in such case shall be treated
as an eligible rollover distribution
transferred to such plan by the participant or
beneficiary who received such overpayment (and
the plans making and receiving such transfer
shall be treated as permitting such transfer).
In any case in which recoupment is sought on behalf of
the plan but is disputed by the participant or
beneficiary who received such overpayment, such dispute
shall be subject to the claims and appeals procedures
of the plan that made such overpayment, such plan shall
notify the plan receiving the rollover of such dispute,
and the plan receiving the rollover shall retain such
overpayment on behalf of the participant or beneficiary
(and shall be entitled to treat such overpayment as
plan assets) pending the outcome of such procedures.
(d) Taxability of beneficiary of certain foreign situs
trusts.--For purposes of subsections (a), (b), and (c), a stock
bonus, pension, or profit-sharing trust which would qualify for
exemption from tax under section 501(a) except for the fact
that it is a trust created or organized outside the United
States shall be treated as if it were a trust exempt from tax
under section 501(a).
(e) Other rules applicable to exempt trusts.--
(1) Alternate payees.--
(A) Alternate payee treated as distributee.--
For purposes of subsection (a) and section 72,
an alternate payee who is the spouse or former
spouse of the participant shall be treated as
the distributee of any distribution or payment
made to the alternate payee under a qualified
domestic relations order (as defined in section
414(p)).
(B) Rollovers.--If any amount is paid or
distributed to an alternate payee who is the
spouse or former spouse of the participant by
reason of any qualified domestic relations
order (within the meaning of section 414(p)),
subsection (c) shall apply to such distribution
in the same manner as if such alternate payee
were the employee.
(2) Distributions by United States to nonresident
aliens.--The amount includible under subsection (a) in
the gross income of a nonresident alien with respect to
a distribution made by the United States in respect of
services performed by an employee of the United States
shall not exceed an amount which bears the same ratio
to the amount includible in gross income without regard
to this paragraph as--
(A) the aggregate basic pay paid by the
United States to such employee for such
services, reduced by the amount of such basic
pay which was not includible in gross income by
reason of being from sources without the United
States, bears to
(B) the aggregate basic pay paid by the
United States to such employee for such
services.
In the case of distributions under the civil service
retirement laws, the term ``basic pay'' shall have the
meaning provided in section 8331(3) of title 5, United
States Code.
(3) Cash or deferred arrangements.--For purposes of
this title, contributions made by an employer on behalf
of an employee to a trust which is a part of a
qualified cash or deferred arrangement (as defined in
section 401(k)(2)) or which is part of a salary
reduction agreement under section 403(b) shall not be
treated as distributed or made available to the
employee nor as contributions made to the trust by the
employee merely because the arrangement includes
provisions under which the employee has an election
whether the contribution will be made to the trust or
received by the employee in cash.
(4) Net unrealized appreciation.--
(A) Amounts attributable to employee
contributions.--For purposes of subsection (a)
and section 72, in the case of a distribution
other than a lump sum distribution, the amount
actually distributed to any distributee from a
trust described in subsection (a) shall not
include any net unrealized appreciation in
securities of the employer corporation
attributable to amounts contributed by the
employee (other than deductible employee
contributions within the meaning of section
72(o)(5)). This subparagraph shall not apply to
a distribution to which subsection (c) applies.
(B) Amounts attributable to employer
contributions.--For purposes of subsection (a)
and section 72, in the case of any lump sum
distribution which includes securities of the
employer corporation, there shall be excluded
from gross income the net unrealized
appreciation attributable to that part of the
distribution which consists of securities of
the employer corporation. In accordance with
rules prescribed by the Secretary, a taxpayer
may elect, on the return of tax on which a lump
sum distribution is required to be included,
not to have this subparagraph apply to such
distribution.
(C) Determination of amounts and
adjustments.--For purposes of subparagraphs (A)
and (B), net unrealized appreciation and the
resulting adjustments to basis shall be
determined in accordance with regulations
prescribed by the Secretary.
(D) Lump-sum distribution.--For purposes of
this paragraph--
(i) In general.--The term ``lump-sum
distribution'' means the distribution
or payment within one taxable year of
the recipient of the balance to the
credit of an employee which becomes
payable to the recipient--
(I) on account of the
employee's death,
(II) after the employee
attains age 591/2,
(III) on account of the
employee's separation from
service, or
(IV) after the employee has
become disabled (within the
meaning of section 72(m)(7)),
from a trust which forms a part of a plan
described in section 401(a) and which is exempt
from tax under section 501 or from a plan
described in section 403(a). Subclause (III) of
this clause shall be applied only with respect
to an individual who is an employee without
regard to section 401(c)(1), and subclause (IV)
shall be applied only with respect to an
employee within the meaning of section
401(c)(1). For purposes of this clause, a
distribution to two or more trusts shall be
treated as a distribution to one recipient. For
purposes of this paragraph, the balance to the
credit of the employee does not include the
accumulated deductible employee contributions
under the plan (within the meaning of section
72(o)(5)).
(ii) Aggregation of certain trusts
and plans.--For purposes of determining
the balance to the credit of an
employee under clause (i)--
(I) all trusts which are part
of a plan shall be treated as a
single trust, all pension plans
maintained by the employer
shall be treated as a single
plan, all profit-sharing plans
maintained by the employer
shall be treated as a single
plan, and all stock bonus plans
maintained by the employer
shall be treated as a single
plan, and
(II) trusts which are not
qualified trusts under section
401(a) and annuity contracts
which do not satisfy the
requirements of section
404(a)(2) shall not be taken
into account.
(iii) Community property laws.--The
provisions of this paragraph shall be
applied without regard to community
property laws.
(iv) Amounts subject to penalty.--
This paragraph shall not apply to
amounts described in subparagraph (A)
of section 72(m)(5) to the extent that
section 72(m)(5) applies to such
amounts.
(v) Balance to credit of employee not
to include amounts payable under
qualified domestic relations order.--
For purposes of this paragraph, the
balance to the credit of an employee
shall not include any amount payable to
an alternate payee under a qualified
domestic relations order (within the
meaning of section 414(p)).
(vi) Transfers to cost-of-living
arrangement not treated as
distribution.--For purposes of this
paragraph, the balance to the credit of
an employee under a defined
contribution plan shall not include any
amount transferred from such defined
contribution plan to a qualified cost-
of-living arrangement (within the
meaning of section 415(k)(2)) under a
defined benefit plan.
(vii) Lump-sum distributions of
alternate payees.--If any distribution
or payment of the balance to the credit
of an employee would be treated as a
lump-sum distribution, then, for
purposes of this paragraph, the payment
under a qualified domestic relations
order (within the meaning of section
414(p)) of the balance to the credit of
an alternate payee who is the spouse or
former spouse of the employee shall be
treated as a lump-sum distribution. For
purposes of this clause, the balance to
the credit of the alternate payee shall
not include any amount payable to the
employee.
(E) Definitions relating to securities.--For
purposes of this paragraph--
(i) Securities.--The term
``securities'' means only shares of
stock and bonds or debentures issued by
a corporation with interest coupons or
in registered form.
(ii) Securities of the employer.--The
term ``securities of the employer
corporation'' includes securities of a
parent or subsidiary corporation (as
defined in subsections (e) and (f) of
section 424) of the employer
corporation.
(6) Direct trustee-to-trustee [transfers.--]
transfers._[Any]
(A) In general._Any amount transferred in a
direct trustee-to-trustee transfer in
accordance with section 401(a)(31) shall not be
includible in gross income for the taxable year
of such transfer.
(B) Notification of trustee.--In the case of
a distribution under section 401(a)(31)(B), the
plan administrator shall notify the designated
trustee or issuer described in clause (i)
thereof that the transfer is a mandatory
distribution required by such section.
(f) Written explanation to recipients of distributions
eligible for rollover treatment.--
(1) In general.--The plan administrator of any plan
shall, within a reasonable period of time before making
an eligible rollover distribution, provide a written
explanation to the recipient--
(A) of the provisions under which the
recipient may have the distribution directly
transferred to an eligible retirement plan and
that the automatic distribution by direct
transfer applies to certain distributions in
accordance with section 401(a)(31)(B),
(B) of the provision which requires the
withholding of tax on the distribution if it is
not directly transferred to an eligible
retirement plan,
(C) of the provisions under which the
distribution will not be subject to tax if
transferred to an eligible retirement plan
within 60 days after the date on which the
recipient received the distribution,
(D) if applicable, of the provisions of
subsections (d) and (e) of this section, and
(E) of the provisions under which
distributions from the eligible retirement plan
receiving the distribution may be subject to
restrictions and tax consequences which are
different from those applicable to
distributions from the plan making such
distribution.
(2) Definitions.--For purposes of this subsection--
(A) Eligible rollover distribution.--The term
``eligible rollover distribution'' has the same
meaning as when used in subsection (c) of this
section, paragraph (4) of section 403(a),
subparagraph (A) of section 403(b)(8), or
subparagraph (A) of section 457(e)(16). Such
term shall include any distribution to a
designated beneficiary which would be treated
as an eligible rollover distribution by reason
of subsection (c)(11), or section 403(a)(4)(B),
403(b)(8)(B), or 457(e)(16)(B), if the
requirements of subsection (c)(11) were
satisfied.
(B) Eligible retirement plan.--The term
``eligible retirement plan'' has the meaning
given such term by subsection (c)(8)(B).
(g) Limitation on exclusion for elective deferrals.--
(1) In general.--
(A) Limitation.--Notwithstanding subsections
(e)(3) and (h)(1)(B), the elective deferrals of
any individual for any taxable year shall be
included in such individual's gross income to
the extent the amount of such deferrals for the
taxable year exceeds the applicable dollar
amount. The preceding sentence shall not apply
to the portion of such excess as does not
exceed the designated Roth contributions of the
individual for the taxable year.
(B) Applicable dollar amount.--For purposes
of subparagraph (A), the applicable dollar
amount is $15,000.
[(C) Catch-up contributions.--In addition to
subparagraph (A), in the case of an eligible
participant (as defined in section 414(v)),
gross income shall not include elective
deferrals in excess of the applicable dollar
amount under subparagraph (B) to the extent
that the amount of such elective deferrals does
not exceed the applicable dollar amount under
section 414(v)(2)(B)(i) for the taxable year
(without regard to the treatment of the
elective deferrals by an applicable employer
plan under section 414(v)).]
(2) Distribution of excess deferrals.--
(A) In general.--If any amount (hereinafter
in this paragraph referred to as ``excess
deferrals'') is included in the gross income of
an individual under paragraph (1) (or would be
included but for the last sentence thereof) for
any taxable year--
(i) not later than the 1st March 1
following the close of the taxable
year, the individual may allocate the
amount of such excess deferrals among
the plans under which the deferrals
were made and may notify each such plan
of the portion allocated to it, and
(ii) not later than the 1st April 15
following the close of the taxable
year, each such plan may distribute to
the individual the amount allocated to
it under clause (i) (and any income
allocable to such amount through the
end of such taxable year).
The distribution described in clause (ii) may
be made notwithstanding any other provision of
law.
(B) Treatment of distribution under section
401(k).--Except to the extent provided under
rules prescribed by the Secretary,
notwithstanding the distribution of any portion
of an excess deferral from a plan under
subparagraph (A)(ii), such portion shall, for
purposes of applying section 401(k)(3)(A)(ii),
be treated as an employer contribution.
(C) Taxation of distribution.--In the case of
a distribution to which subparagraph (A)
applies--
(i) except as provided in clause
(ii), such distribution shall not be
included in gross income, and
(ii) any income on the excess
deferral shall, for purposes of this
chapter, be treated as earned and
received in the taxable year in which
such income is distributed.
No tax shall be imposed under section 72(t) on
any distribution described in the preceding
sentence.
(D) Partial distributions.--If a plan
distributes only a portion of any excess
deferral and income allocable thereto, such
portion shall be treated as having been
distributed ratably from the excess deferral
and the income.
(3) Elective deferrals.--For purposes of this
subsection, the term ``elective deferrals'' means, with
respect to any taxable year, the sum of--
(A) any employer contribution under a
qualified cash or deferred arrangement (as
defined in section 401(k)) to the extent not
includible in gross income for the taxable year
under subsection (e)(3) (determined without
regard to this subsection),
(B) any employer contribution to the extent
not includible in gross income for the taxable
year under subsection (h)(1)(B) (determined
without regard to this subsection),
(C) any employer contribution to purchase an
annuity contract under section 403(b) under a
salary reduction agreement (within the meaning
of section 3121(a)(5)(D)), and
(D) any elective employer contribution under
section 408(p)(2)(A)(i).
An employer contribution shall not be treated as an
elective deferral described in subparagraph (C) if
under the salary reduction agreement such contribution
is made pursuant to a one-time irrevocable election
made by the employee at the time of initial eligibility
to participate in the agreement or is made pursuant to
a similar arrangement involving a one-time irrevocable
election specified in regulations.
(4) Cost-of-living adjustment.--In the case of
taxable years beginning after December 31, 2006, the
Secretary shall adjust the $15,000 amount under
paragraph (1)(B) at the same time and in the same
manner as under section 415(d), except that the base
period shall be the calendar quarter beginning July 1,
2005, and any increase under this paragraph which is
not a multiple of $500 shall be rounded to the next
lowest multiple of $500.
(5) Disregard of community property laws.--This
subsection shall be applied without regard to community
property laws.
(6) Coordination with section 72.--For purposes of
applying section 72, any amount includible in gross
income for any taxable year under this subsection but
which is not distributed from the plan during such
taxable year shall not be treated as investment in the
contract.
(7) Special rule for certain organizations.--
(A) In general.--In the case of a qualified
employee of a qualified organization, with
respect to employer contributions described in
paragraph (3)(C) made by such organization, the
limitation of paragraph (1) for any taxable
year shall be increased by whichever of the
following is the least:
(i) $3,000,
(ii) $15,000 reduced by the sum of--
(I) the amounts not included
in gross income for prior
taxable years by reason of this
paragraph, plus
(II) the aggregate amount of
designated Roth contributions
(as defined in section 402A(c))
permitted for prior taxable
years by reason of this
paragraph, or
(iii) the excess of $5,000 multiplied
by the number of years of service of
the employee with the qualified
organization over the employer
contributions described in paragraph
(3) made by the organization on behalf
of such employee for prior taxable
years (determined in the manner
prescribed by the Secretary).
(B) Qualified organization.--For purposes of
this paragraph, the term ``qualified
organization'' means any educational
organization, hospital, home health service
agency, health and welfare service agency,
church, or convention or association of
churches. Such term includes any organization
described in section 414(e)(3)(B)(ii). Terms
used in this subparagraph shall have the same
meaning as when used in section 415(c)(4) (as
in effect before the enactment of the Economic
Growth and Tax Relief Reconciliation Act of
2001).
(C) Qualified employee.--For purposes of this
paragraph, the term ``qualified employee''
means any employee who has completed 15 years
of service with the qualified organization.
(D) Years of service.--For purposes of this
paragraph, the term ``years of service'' has
the meaning given such term by section 403(b).
(8) Matching contributions on behalf of self-employed
individuals not treated as elective employer
contributions.--Except as provided in section
401(k)(3)(D)(ii), any matching contribution described
in section 401(m)(4)(A) which is made on behalf of a
self-employed individual (as defined in section 401(c))
shall not be treated as an elective employer
contribution under a qualified cash or deferred
arrangement (as defined in section 401(k)) for purposes
of this title.
(h) Special rules for simplified employee pensions.--For
purposes of this chapter--
(1) In general.--Except as provided in paragraph (2),
contributions made by an employer on behalf of an
employee to an individual retirement plan pursuant to a
simplified employee pension (as defined in section
408(k))--
(A) shall not be treated as distributed or
made available to the employee or as
contributions made by the employee, [and]
(B) if such contributions are made pursuant
to an arrangement under section 408(k)(6) under
which an employee may elect to have the
employer make contributions to the simplified
employee pension on behalf of the employee,
shall not be treated as distributed or made
available or as contributions made by the
employee merely because the simplified employee
pension includes provisions for such
election[.], and
(C) in the case of any contributions pursuant
to a simplified employer pension which are made
to an individual retirement plan designated as
a Roth IRA, such contribution shall not be
excludable from gross income.
(2) Limitations on employer contributions.--
Contributions made by an employer to a simplified
employee pension with respect to an employee for any
year shall be treated as distributed or made available
to such employee and as contributions made by the
employee to the extent such contributions exceed the
lesser of--
(A) 25 percent of the compensation (within
the meaning of section 414(s)) from such
employer includible in the employee's gross
income for the year (determined without regard
to the employer contributions to the simplified
employee pension), or
(B) the limitation in effect under section
415(c)(1)(A), reduced in the case of any highly
compensated employee (within the meaning of
section 414(q)) by the amount taken into
account with respect to such employee under
section 408(k)(3)(D).
(3) Distributions.--Any amount paid or distributed
out of an individual retirement plan pursuant to a
simplified employee pension shall be included in gross
income by the payee or distributee, as the case may be,
in accordance with the provisions of section 408(d), or
section 408A(d) in the case of an individual retirement
plan designated as a Roth IRA.
(i) Treatment of self-employed individuals.--For purposes of
this section, except as otherwise provided in subsection
(e)(4)(D)(i), the term ``employee'' includes a self-employed
individual (as defined in section 401(c)(1)(B)) and the
employer of such individual shall be the person treated as his
employer under section 401(c)(4).
(j) Effect of disposition of stock by plan on net unrealized
appreciation.--
(1) In general.--For purposes of subsection (e)(4),
in the case of any transaction to which this subsection
applies, the determination of net unrealized
appreciation shall be made without regard to such
transaction.
(2) Transaction to which subsection applies.--This
subsection shall apply to any transaction in which--
(A) the plan trustee exchanges the plan's
securities of the employer corporation for
other such securities, or
(B) the plan trustee disposes of securities
of the employer corporation and uses the
proceeds of such disposition to acquire
securities of the employer corporation within
90 days (or such longer period as the Secretary
may prescribe), except that this subparagraph
shall not apply to any employee with respect to
whom a distribution of money was made during
the period after such disposition and before
such acquisition.
(k) Treatment of simple retirement accounts.--Rules similar
to the rules of paragraphs (1) and (3) of subsection (h) shall
apply to contributions and distributions with respect to a
simple retirement account under section 408(p).
(l) Distributions from governmental plans for health and
long-term care insurance.--
(1) In general.--In the case of an employee who is an
eligible retired public safety officer who makes the
election described in paragraph (6) with respect to any
taxable year of such employee, gross income of such
employee for such taxable year does not include any
distribution from an eligible retirement plan
maintained by the employer described in paragraph
(4)(B) to the extent that the aggregate amount of such
distributions does not exceed the amount paid by such
employee for qualified health insurance premiums for
such taxable year.
(2) Limitation.--The amount which may be excluded
from gross income for the taxable year by reason of
paragraph (1) shall not exceed $3,000.
(3) Distributions must otherwise be includible.--
(A) In general.--An amount shall be treated
as a distribution for purposes of paragraph (1)
only to the extent that such amount would be
includible in gross income without regard to
paragraph (1).
(B) Application of section 72.--
Notwithstanding section 72, in determining the
extent to which an amount is treated as a
distribution for purposes of subparagraph (A),
the aggregate amounts distributed from an
eligible retirement plan in a taxable year (up
to the amount excluded under paragraph (1))
shall be treated as includible in gross income
(without regard to subparagraph (A)) to the
extent that such amount does not exceed the
aggregate amount which would have been so
includible if all amounts to the credit of the
eligible public safety officer in all eligible
retirement plans maintained by the employer
described in paragraph (4)(B) were distributed
during such taxable year and all such plans
were treated as 1 contract for purposes of
determining under section 72 the aggregate
amount which would have been so includible.
Proper adjustments shall be made in applying
section 72 to other distributions in such
taxable year and subsequent taxable years.
(4) Definitions.--For purposes of this subsection--
(A) Eligible retirement plan.--For purposes
of paragraph (1), the term ``eligible
retirement plan'' means a governmental plan
(within the meaning of section 414(d)) which is
described in clause (iii), (iv), (v), or (vi)
of subsection (c)(8)(B).
(B) Eligible retired public safety officer.--
The term ``eligible retired public safety
officer'' means an individual who, by reason of
disability or attainment of normal retirement
age, is separated from service as a public
safety officer with the employer who maintains
the eligible retirement plan from which
distributions subject to paragraph (1) are
made.
(C) Public safety officer.--The term ``public
safety officer'' shall have the same meaning
given such term by section 1204(9)(A) of the
Omnibus Crime Control and Safe Streets Act of
1968 (42 U.S.C. 3796b(9)(A)), as in effect
immediately before the enactment of the
National Defense Authorization Act for Fiscal
Year 2013.
(D) Qualified health insurance premiums.--The
term ``qualified health insurance premiums''
means premiums for coverage for the eligible
retired public safety officer, his spouse, and
dependents (as defined in section 152), by an
accident or health plan or qualified long-term
care insurance contract (as defined in section
7702B(b)).
(5) Special rules.--For purposes of this subsection--
(A) Direct payment to insurer required.--
Paragraph (1) shall only apply to a
distribution if payment of the premiums is made
directly to the provider of the accident or
health plan or qualified long-term care
insurance contract by deduction from a
distribution from the eligible retirement plan.
(B) Related plans treated as 1.--All eligible
retirement plans of an employer shall be
treated as a single plan.
(6) Election described.--
(A) In general.--For purposes of paragraph
(1), an election is described in this paragraph
if the election is made by an employee after
separation from service with respect to amounts
not distributed from an eligible retirement
plan to have amounts from such plan distributed
in order to pay for qualified health insurance
premiums.
(B) Special rule.--A plan shall not be
treated as violating the requirements of
section 401, or as engaging in a prohibited
transaction for purposes of section 503(b),
merely because it provides for an election with
respect to amounts that are otherwise
distributable under the plan or merely because
of a distribution made pursuant to an election
described in subparagraph (A).
(7) Coordination with medical expense deduction.--The
amounts excluded from gross income under paragraph (1)
shall not be taken into account under section 213.
(8) Coordination with deduction for health insurance
costs of self-employed individuals.--The amounts
excluded from gross income under paragraph (1) shall
not be taken into account under section 162(l).
SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH
CONTRIBUTIONS.
(a) General rule.--If an applicable retirement plan includes
a qualified Roth contribution program--
(1) any designated Roth contribution made by an
employee pursuant to the program shall be treated as an
elective deferral for purposes of this chapter, except
that such contribution shall not be excludable from
gross income, [and]
(2) any designated Roth contribution which is made by
the employer to the program on the employee's behalf,
and on account of the employee's contribution or
elective deferral, shall be treated as a matching
contribution for purposes of this chapter, except that
such contribution shall not be excludable from gross
income, and
[(2)] (3) such plan (and any arrangement which is
part of such plan) shall not be treated as failing to
meet any requirement of this chapter solely by reason
of including such program.
(b) Qualified Roth contribution program.--For purposes of
this section--
(1) In general.--The term ``qualified Roth
contribution program'' means a program under which an
employee may elect to make, or to have made on the
employee's behalf, designated Roth contributions in
lieu of all or a portion of elective deferrals the
employee is otherwise eligible to make, or of matching
contributions which may otherwise be made on the
employee's behalf, under the applicable retirement
plan.
(2) Separate accounting required.--A program shall
not be treated as a qualified Roth contribution program
unless the applicable retirement plan--
(A) establishes separate accounts
(``designated Roth accounts'') for the
designated Roth contributions of each employee
and any earnings properly allocable to the
contributions, and
(B) maintains separate recordkeeping with
respect to each account.
(c) Definitions and rules relating to designated Roth
contributions.--For purposes of this section--
(1) Designated Roth contribution.--The term
``designated Roth contribution'' means any elective
deferral or matching contribution which--
(A) is excludable from gross income of an
employee without regard to this section, and
(B) the employee designates (at such time and
in such manner as the Secretary may prescribe)
as not being so excludable.
(2) Designation limits.--The amount of elective
deferrals which an employee may designate under
paragraph (1) shall not exceed the excess (if any) of--
(A) the maximum amount of elective deferrals
excludable from gross income of the employee
for the taxable year (without regard to this
section), over
(B) the aggregate amount of elective
deferrals of the employee for the taxable year
which the employee does not designate under
paragraph (1).
(3) Rollover contributions.--
(A) In general.--A rollover contribution of
any payment or distribution from a designated
Roth account which is otherwise allowable under
this chapter may be made only if the
contribution is to--
(i) another designated Roth account
of the individual from whose account
the payment or distribution was made,
or
(ii) a Roth IRA of such individual.
(B) Coordination with limit.--Any rollover
contribution to a designated Roth account under
subparagraph (A) shall not be taken into
account for purposes of paragraph (1).
(4) Taxable rollovers to designated Roth accounts.--
(A) In general.--Notwithstanding sections
402(c), 403(b)(8), and 457(e)(16), in the case
of any distribution to which this paragraph
applies--
(i) there shall be included in gross
income any amount which would be
includible were it not part of a
qualified rollover contribution,
(ii) section 72(t) shall not apply,
and
(iii) unless the taxpayer elects not
to have this clause apply, any amount
required to be included in gross income
for any taxable year beginning in 2010
by reason of this paragraph shall be so
included ratably over the 2-taxable-
year period beginning with the first
taxable year beginning in 2011.
Any election under clause (iii) for any
distributions during a taxable year may not be
changed after the due date for such taxable
year.
(B) Distributions to which paragraph
applies.--In the case of an applicable
retirement plan which includes a qualified Roth
contribution program, this paragraph shall
apply to a distribution from such plan other
than from a designated Roth account which is
contributed in a qualified rollover
contribution (within the meaning of section
408A(e)) to the designated Roth account
maintained under such plan for the benefit of
the individual to whom the distribution is
made.
(C) Coordination with limit.--Any
distribution to which this paragraph applies
shall not be taken into account for purposes of
paragraph (1).
(D) Other rules.--The rules of subparagraphs
(D), (E), and (F) of section 408A(d)(3) (as in
effect for taxable years beginning after 2009)
shall apply for purposes of this paragraph.
(E) Special rule for certain transfers.--In
the case of an applicable retirement plan which
includes a qualified Roth contribution
program--
(i) the plan may allow an individual
to elect to have the plan transfer any
amount not otherwise distributable
under the plan to a designated Roth
account maintained for the benefit of
the individual,
(ii) such transfer shall be treated
as a distribution to which this
paragraph applies which was contributed
in a qualified rollover contribution
(within the meaning of section 408A(e))
to such account, and
(iii) the plan shall not be treated
as violating the provisions of section
401(k)(2)(B)(i), 403(b)(7)(A)(ii),
403(b)(11), or 457(d)(1)(A), or of
section 8433 of title 5, United States
Code, solely by reason of such
transfer.
(d) Distribution rules.--For purposes of this title--
(1) Exclusion.--Any qualified distribution from a
designated Roth account shall not be includible in
gross income.
(2) Qualified distribution.--For purposes of this
subsection--
(A) In general.--The term ``qualified
distribution'' has the meaning given such term
by section 408A(d)(2)(A) (without regard to
clause (iv) thereof).
(B) Distributions within nonexclusion
period.--A payment or distribution from a
designated Roth account shall not be treated as
a qualified distribution if such payment or
distribution is made within the 5-taxable-year
period beginning with the earlier of--
(i) the first taxable year for which
the individual made a designated Roth
contribution to any designated Roth
account established for such individual
under the same applicable retirement
plan, or
(ii) if a rollover contribution was
made to such designated Roth account
from a designated Roth account
previously established for such
individual under another applicable
retirement plan, the first taxable year
for which the individual made a
designated Roth contribution to such
previously established account.
(C) Distributions of excess deferrals and
contributions and earnings thereon.--The term
``qualified distribution'' shall not include
any distribution of any excess deferral under
section 402(g)(2) or any excess contribution
under section 401(k)(8), and any income on the
excess deferral or contribution.
(3) Treatment of distributions of certain excess
deferrals.--Notwithstanding section 72, if any excess
deferral under section 402(g)(2) attributable to a
designated Roth contribution is not distributed on or
before the 1st April 15 following the close of the
taxable year in which such excess deferral is made, the
amount of such excess deferral shall--
(A) not be treated as investment in the
contract, and
(B) be included in gross income for the
taxable year in which such excess is
distributed.
(4) Aggregation rules.--Section 72 shall be applied
separately with respect to distributions and payments
from a designated Roth account and other distributions
and payments from the plan.
(e) Other definitions.--For purposes of this section--
(1) Applicable retirement plan.--The term
``applicable retirement plan'' means--
(A) an employees' trust described in section
401(a) which is exempt from tax under section
501(a),
(B) a plan under which amounts are
contributed by an individual's employer for an
annuity contract described in section 403(b),
and
(C) an eligible deferred compensation plan
(as defined in section 457(b)) of an eligible
employer described in section 457(e)(1)(A).
(2) Elective deferral.--The term ``elective
deferral'' means--
(A) any elective deferral described in
subparagraph (A) or (C) of section 402(g)(3),
and
(B) any elective deferral of compensation by
an individual under an eligible deferred
compensation plan (as defined in section
457(b)) of an eligible employer described in
section 457(e)(1)(A).
(3) Matching contribution.--The term ``matching
contribution'' means--
(A) any matching contribution described in
section 401(m)(4)(A), and
(B) any contribution to an eligible deferred
compensation plan (as defined in section
457(b)) by an eligible employer described in
section 457(e)(1)(A) on behalf of an employee
and on account of such employee's elective
deferral under such plan.
SEC. 403. TAXATION OF EMPLOYEE ANNUITIES.
(a) Taxability of beneficiary under a qualified annuity
plan.--
(1) Distributee taxable under section 72.--If an
annuity contract is purchased by an employer for an
employee under a plan which meets the requirements of
section 404(a)(2) (whether or not the employer deducts
the amounts paid for the contract under such section),
the amount actually distributed to any distributee
under the contract shall be taxable to the distributee
(in the year in which so distributed) under section 72
(relating to annuities).
(2) Special rule for health and long-term care
insurance.--To the extent provided in section 402(l),
paragraph (1) shall not apply to the amount distributed
under the contract which is otherwise includible in
gross income under this subsection.
(3) Self-employed individuals.--For purposes of this
subsection, the term ``employee'' includes an
individual who is an employee within the meaning of
section 401(c)(1), and the employer of such individual
is the person treated as his employer under section
401(c)(4).
(4) Rollover amounts.--
(A) General rule.--If--
(i) any portion of the balance to the
credit of an employee in an employee
annuity described in paragraph (1) is
paid to him in an eligible rollover
distribution (within the meaning of
section 402(c)(4)),
(ii) the employee transfers any
portion of the property he receives in
such distribution to an eligible
retirement plan, and
(iii) in the case of a distribution
of property other than money, the
amount so transferred consists of the
property distributed,
then such distribution (to the extent so
transferred) shall not be includible in gross
income for the taxable year in which paid.
(B) Certain rules made applicable.--The rules
of paragraphs (2) through (7) and (11) and (9)
of section 402(c) and section 402(f) shall
apply for purposes of subparagraph (A).
(5) Direct trustee-to-trustee transfer.--Any amount
transferred in a direct trustee-to-trustee transfer in
accordance with section 401(a)(31) shall not be
includible in gross income for the taxable year of such
transfer.
(b) Taxability of beneficiary under annuity purchased by
section 501(c)(3) organization or public school.--
(1) General rule.--If--
(A) an annuity contract is purchased--
(i) for an employee by an employer
described in section 501(c)(3) which is
exempt from tax under section 501(a),
(ii) for an employee (other than an
employee described in clause (i)), who
performs services for an educational
organization described in section
170(b)(1) (A)(ii), by an employer which
is a State, a political subdivision of
a State, or an agency or
instrumentality of any one or more of
the foregoing, or
(iii) for the minister described in
section 414(e)(5)(A) by the minister or
by an employer,
(B) such annuity contract is not subject to
subsection (a),
(C) the employee's rights under the contract
are nonforfeitable, except for failure to pay
future premiums,
(D) except in the case of a contract
purchased by a church, such contract is
purchased under a plan which meets the
nondiscrimination requirements of paragraph
(12), and
(E) in the case of a contract purchased under
a salary reduction agreement, the contract
meets the requirements of section 401(a)(30),
then contributions and other additions by such employer
for such annuity contract shall be excluded from the
gross income of the employee for the taxable year to
the extent that the aggregate of such contributions and
additions (when expressed as an annual addition (within
the meaning of section 415(c)(2))) does not exceed the
applicable limit under section 415. The amount actually
distributed to any distributee under such contract
shall be taxable to the distributee (in the year in
which so distributed) under section 72 (relating to
annuities). For purposes of applying the rules of this
subsection to contributions and other additions by an
employer for a taxable year, amounts transferred to a
contract described in this paragraph by reason of a
rollover contribution described in paragraph (8) of
this subsection or section 408(d)(3)(A)(ii) shall not
be considered contributed by such employer.
(2) Special rule for health and long-term care
insurance.--To the extent provided in section 402(l),
paragraph (1) shall not apply to the amount distributed
under the contract which is otherwise includible in
gross income under this subsection.
(3) Includible compensation.--For purposes of this
subsection, the term ``includible compensation'' means,
in the case of any employee, the amount of compensation
which is received from the employer described in
paragraph (1)(A), and which is includible in gross
income (computed without regard to section 911) for the
most recent period (ending not later than the close of
the taxable year) which under paragraph (4) may be
counted as one year of service, and which precedes the
taxable year by no more than five years. Such term does
not include any amount contributed by the employer for
any annuity contract to which this subsection applies.
Such term includes--
(A) any elective deferral (as defined in
section 402(g)(3)), and
(B) any amount which is contributed or
deferred by the employer at the election of the
employee and which is not includible in the
gross income of the employee by reason of
section 125, 132(f)(4), or 457.
(4) Years of service.--In determining the number of
years of service for purposes of this subsection, there
shall be included--
(A) one year for each full year during which
the individual was a full-time employee of the
organization purchasing the annuity for him,
and
(B) a fraction of a year (determined in
accordance with regulations prescribed by the
Secretary) for each full year during which such
individual was a part-time employee of such
organization and for each part of a year during
which such individual was a full-time or part-
time employee of such organization.
In no case shall the number of years of service be less
than one.
(5) Application to more than one annuity contract.--
If for any taxable year of the employee this subsection
applies to 2 or more annuity contracts purchased by the
employer, such contracts shall be treated as one
contract.
(7) Custodial accounts [for regulated investment
company stock].--
(A) Amounts paid treated as contributions.--
For purposes of this title, amounts paid by an
employer described in paragraph (1)(A) to a
custodial account which satisfies the
requirements of section 401(f)(2) shall be
treated as amounts contributed by him for an
annuity contract for his employee [if the
amounts are to be invested in regulated
investment company stock to be held in that
custodial account] if the amounts are to be
held in that custodial account and invested in
regulated investment company stock or a group
trust intended to satisfy the requirements of
Internal Revenue Service Revenue Ruling 81-100
(or any successor guidance), and under the
custodial account--
(i) no such amounts may be paid or
made available to any distributee
(unless such amount is a distribution
to which section 72(t)(2)(G) applies)
before--
(I) the employee dies,
(II) the employee attains age
591/2,
(III) the employee has a
severance from employment,
(IV) the employee becomes
disabled (within the meaning of
section 72(m)(7)),
(V) [in the case of
contributions made pursuant to
a salary reduction agreement
(within the meaning of section
3121(a)(5)(D))] subject to the
provisions of paragraph (16),
the employee encounters
financial hardship, or
(VI) except as may be
otherwise provided by
regulations, with respect to
amounts invested in a lifetime
income investment (as defined
in section 401(a)(38)(B)(ii)),
the date that is 90 days prior
to the date that such lifetime
income investment may no longer
be held as an investment option
under the contract, and
(ii) in the case of amounts described
in clause (i)(VI), such amounts will be
distributed only in the form of a
qualified distribution (as defined in
section 401(a)(38)(B)(i)) or a
qualified plan distribution annuity
contract (as defined in section
401(a)(38)(B)(iv)).
(B) Account treated as plan.--For purposes of
this title, a custodial account which satisfies
the requirements of section 401(f)(2) shall be
treated as an organization described in section
401(a) solely for purposes of subchapter F and
subtitle F with respect to amounts received by
it (and income from investment thereof).
(C) Regulated investment company.--For
purposes of this paragraph, the term
``regulated investment company'' means a
domestic corporation which is a regulated
investment company within the meaning of
section 851(a).
(D) Employee certification.--In determining
whether a distribution is upon the financial
hardship of an employee, the administrator of
the plan may rely on a certification by the
employee that the distribution is on account of
a financial need of a type that is deemed in
regulations prescribed by the Secretary to be
an immediate and heavy financial need and that
such distribution is not in excess of the
amount required to satisfy such financial need.
(8) Rollover amounts.--
(A) General rule.--If--
(i) any portion of the balance to the
credit of an employee in an annuity
contract described in paragraph (1) is
paid to him in an eligible rollover
distribution (within the meaning of
section 402(c)(4)),
(ii) the employee transfers any
portion of the property he receives in
such distribution to an eligible
retirement plan described in section
402(c)(8)(B), and
(iii) in the case of a distribution
of property other than money, the
property so transferred consists of the
property distributed,
then such distribution (to the extent so
transferred) shall not be includible in gross
income for the taxable year in which paid.
(B) Certain rules made applicable.--The rules
of paragraphs (2) through (7), (9), and (11) of
section 402(c) and section 402(f) shall apply
for purposes of subparagraph (A), except that
section 402(f) shall be applied to the payor in
lieu of the plan administrator.
(9) Retirement income accounts provided by churches,
etc..--
(A) Amounts paid treated as contributions.--
For purposes of this title--
(i) a retirement income account shall
be treated as an annuity contract
described in this subsection, and
(ii) amounts paid by an employer
described in paragraph (1)(A) to a
retirement income account shall be
treated as amounts contributed by the
employer for an annuity contract for
the employee on whose behalf such
account is maintained.
(B) Retirement income account.--For purposes
of this paragraph, the term ``retirement income
account'' means a defined contribution program
established or maintained by a church, or a
convention or association of churches,
including an organization described in section
414(e)(3)(A), to provide benefits under section
403(b) for an employee described in paragraph
(1) (including an employee described in section
414(e)(3)(B)) or his beneficiaries.
(10) Distribution requirements.--Under regulations
prescribed by the Secretary, this subsection shall not
apply to any annuity contract (or to any custodial
account described in paragraph (7) or retirement income
account described in paragraph (9)) unless requirements
similar to the requirements of sections 401(a)(9) and
401(a)(31) are met (and requirements similar to the
incidental death benefit requirements of section 401(a)
are met) with respect to such annuity contract (or
custodial account or retirement income account). Any
amount transferred in a direct trustee-to-trustee
transfer in accordance with section 401(a)(31) shall
not be includible in gross income for the taxable year
of the transfer.
(11) Requirement that distributions not begin before
age 591/2, severance from employment, death, or
disability.--This subsection shall not apply to any
annuity contract unless under such contract
distributions attributable to contributions made
pursuant to a salary reduction agreement (within the
meaning of section 402(g)(3)(C)) may be paid only--
(A) when the employee attains age 591/2, has
a severance from employment, dies, or becomes
disabled (within the meaning of section
72(m)(7)),
(B) [in] subject to the provisions of
paragraph (16), in the case of hardship,
(C) for distributions to which section
72(t)(2)(G) applies, or
(D) except as may be otherwise provided by
regulations, with respect to amounts invested
in a lifetime income investment (as defined in
section 401(a)(38)(B)(ii))--
(i) on or after the date that is 90
days prior to the date that such
lifetime income investment may no
longer be held as an investment option
under the contract, and
(ii) in the form of a qualified
distribution (as defined in section
401(a)(38)(B)(i)) or a qualified plan
distribution annuity contract (as
defined in section 401(a)(38)(B)(iv)).
[Such contract may not provide for the distribution of
any income attributable to such contributions in the
case of hardship.] In determining whether a
distribution is upon hardship of an employee, the
administrator of the plan may rely on a certification
by the employee that the distribution is on account of
a financial need of a type that is deemed in
regulations prescribed by the Secretary to be an
immediate and heavy financial need and that such
distribution is not in excess of the amount required to
satisfy such financial need.
(12) Nondiscrimination requirements.--
(A) In general.--For purposes of paragraph
(1)(D), a plan meets the nondiscrimination
requirements of this paragraph if--
(i) with respect to contributions not
made pursuant to a salary reduction
agreement, such plan meets the
requirements of paragraphs (4), (5),
(17), and (26) of section 401(a),
section 401(m), and section 410(b) in
the same manner as if such plan were
described in section 401(a), and
(ii) all employees of the
organization may elect to have the
employer make contributions of more
than $200 pursuant to a salary
reduction agreement if any employee of
the organization may elect to have the
organization make contributions for
such contracts pursuant to such
agreement.
For purposes of clause (i), a contribution
shall be treated as not made pursuant to a
salary reduction agreement if under the
agreement it is made pursuant to a 1-time
irrevocable election made by the employee at
the time of initial eligibility to participate
in the agreement or is made pursuant to a
similar arrangement involving a one-time
irrevocable election specified in regulations.
For purposes of clause (ii), there may be
excluded any employee who is a participant in
an eligible deferred compensation plan (within
the meaning of section 457) or a qualified cash
or deferred arrangement of the organization or
another annuity contract described in this
subsection. Any nonresident alien described in
section 410(b)(3)(C) may also be excluded.
Subject to the conditions applicable under
section 410(b)(4), there may be excluded for
purposes of this subparagraph employees who are
students performing services described in
section 3121(b)(10) and employees who normally
work less than 20 hours per week. The fact that
the employer offers matching contributions on
account of qualified student loan payments as
described in section 401(m)(13) shall not be
taken into account in determining whether the
arrangement satisfies the requirements of
clause (ii) (and any regulation thereunder). A
plan shall not fail to satisfy clause (ii)
solely by reason of offering a de minimis
financial incentive to employees to elect to
have the employer make contributions pursuant
to a salary reduction agreement.
(B) Church.--For purposes of paragraph
(1)(D), the term ``church'' has the meaning
given to such term by section 3121(w)(3)(A).
Such term shall include any qualified church-
controlled organization (as defined in section
3121(w)(3)(B)).
(C) State and local governmental plans.--For
purposes of paragraph (1)(D), the requirements
of subparagraph (A)(i) (other than those
relating to section 401(a)(17)) shall not apply
to a governmental plan (within the meaning of
section 414(d)) maintained by a State or local
government or political subdivision thereof (or
agency or instrumentality thereof).
(13) Trustee-to-trustee transfers to purchase
permissive service credit.--No amount shall be
includible in gross income by reason of a direct
trustee-to-trustee transfer to a defined benefit
governmental plan (as defined in section 414(d)) if
such transfer is--
(A) for the purchase of permissive service
credit (as defined in section 415(n)(3)(A))
under such plan, or
(B) a repayment to which section 415 does not
apply by reason of subsection (k)(3) thereof.
(14) Death benefits under USERRA-qualified active
military service.--This subsection shall not apply to
an annuity contract unless such contract meets the
requirements of section 401(a)(37).
(15) Multiple employer plans.--
(A) In general.--Except in the case of a
church plan, this subsection shall not be
treated as failing to apply to an annuity
contract solely by reason of such contract
being purchased under a plan maintained by more
than 1 employer.
(B) Treatment of employers failing to meet
requirements of plan.--
(i) In general.--In the case of a
plan maintained by more than 1
employer, this subsection shall not be
treated as failing to apply to an
annuity contract held under such plan
merely because of one or more employers
failing to meet the requirements of
this subsection if such plan satisfies
rules similar to the rules of section
413(e)(2) with respect to any such
employer failure.
(ii) Additional requirements in case
of non-governmental plans.--A plan
shall not be treated as meeting the
requirements of this subparagraph
unless the plan meets the requirements
of subparagraph (A) or (B) of section
413(e)(1), except in the case of a
multiple employer plan maintained
solely by any of the following: A
State, a political subdivision of a
State, or an agency or instrumentality
of any one or more of the foregoing.
(16) Special rules relating to hardship
withdrawals.--For purposes of paragraphs (7) and (11)--
(A) Amounts which may be withdrawn.--The
following amounts may be distributed upon
hardship of the employee:
(i) Contributions made pursuant to a
salary reduction agreement (within the
meaning of section 3121(a)(5)(D)).
(ii) Qualified nonelective
contributions (as defined in section
401(m)(4)(C)).
(iii) Qualified matching
contributions described in section
401(k)(3)(D)(ii)(I).
(iv) Earnings on any contributions
described in clause (i), (ii), or
(iii).
(B) No requirement to take available loan.--A
distribution shall not be treated as failing to
be made upon the hardship of an employee solely
because the employee does not take any
available loan under the plan.
(c) Taxability of beneficiary under nonqualified annuities or
under annuities purchased by exempt organizations.--Premiums
paid by an employer for an annuity contract which is not
subject to subsection (a) shall be included in the gross income
of the employee in accordance with section 83 (relating to
property transferred in connection with performance of
services), except that the value of such contract shall be
substituted for the fair market value of the property for
purposes of applying such section. The preceding sentence shall
not apply to that portion of the premiums paid which is
excluded from gross income under subsection (b). In the case of
any portion of any contract which is attributable to premiums
to which this subsection applies, the amount actually paid or
made available under such contract to any beneficiary which is
attributable to such premiums shall be taxable to the
beneficiary (in the year in which so paid or made available)
under section 72 (relating to annuities).
* * * * * * *
SEC. 408. INDIVIDUAL RETIREMENT ACCOUNTS.
(a) Individual retirement account.--For purposes of this
section, the term ``individual retirement account'' means a
trust created or organized in the United States for the
exclusive benefit of an individual or his beneficiaries, but
only if the written governing instrument creating the trust
meets the following requirements:
(1) Except in the case of a rollover contribution
described in subsection (d)(3) or in section 402(c),
403(a)(4), 403(b)(8), or 457(e)(16), no contribution
will be accepted unless it is in cash, and
contributions will not be accepted for the taxable year
on behalf of any individual in excess of the amount in
effect for such taxable year under section
219(b)(1)(A).
(2) The trustee is a bank (as defined in subsection
(n)) or such other person who demonstrates to the
satisfaction of the Secretary that the manner in which
such other person will administer the trust will be
consistent with the requirements of this section.
(3) No part of the trust funds will be invested in
life insurance contracts.
(4) The interest of an individual in the balance in
his account is nonforfeitable.
(5) The assets of the trust will not be commingled
with other property except in a common trust fund or
common investment fund.
(6) Under regulations prescribed by the Secretary,
rules similar to the rules of section 401(a)(9) and the
incidental death benefit requirements of section 401(a)
shall apply to the distribution of the entire interest
of an individual for whose benefit the trust is
maintained.
(b) Individual retirement annuity.--For purposes of this
section, the term ``individual retirement annuity'' means an
annuity contract, or an endowment contract (as determined under
regulations prescribed by the Secretary), issued by an
insurance company which meets the following requirements:
(1) The contract is not transferable by the owner.
(2) Under the contract--
(A) the premiums are not fixed,
(B) the annual premium on behalf of any
individual will not exceed the dollar amount in
effect under section 219(b)(1)(A), and
(C) any refund of premiums will be applied
before the close of the calendar year following
the year of the refund toward the payment of
future premiums or the purchase of additional
benefits.
(3) Under regulations prescribed by the Secretary,
rules similar to the rules of section 401(a)(9) and the
incidental death benefit requirements of section 401(a)
shall apply to the distribution of the entire interest
of the owner.
(4) The entire interest of the owner is
nonforfeitable.
Such term does not include such an annuity contract for any
taxable year of the owner in which it is disqualified on the
application of subsection (e) or for any subsequent taxable
year. For purposes of this subsection, no contract shall be
treated as an endowment contract if it matures later than the
taxable year in which the individual in whose name such
contract is purchased attains [age 72] the applicable age
(determined under section 401(a)(9)(C)(v) for the calendar year
in which such taxable year begins); if it is not for the
exclusive benefit of the individual in whose name it is
purchased or his beneficiaries; or if the aggregate annual
premiums under all such contracts purchased in the name of such
individual for any taxable year exceed the dollar amount in
effect under section 219(b)(1)(A).
(c) Accounts established by employers and certain
associations of employees.--A trust created or organized in the
United States by an employer for the exclusive benefit of his
employees or their beneficiaries, or by an association of
employees (which may include employees within the meaning of
section 401(c)(1)) for the exclusive benefit of its members or
their beneficiaries, shall be treated as an individual
retirement account (described in subsection (a)), but only if
the written governing instrument creating the trust meets the
following requirements:
(1) The trust satisfies the requirements of
paragraphs (1) through (6) of subsection (a).
(2) There is a separate accounting for the interest
of each employee or member (or spouse of an employee or
member).
(3) There is a separate accounting for any interest
of an employee or member (or spouse of an employee or
member) in a Roth IRA.
The assets of the trust may be held in a common fund for the
account of all individuals who have an interest in the trust.
(d) Tax treatment of distributions.--
(1) In general.--Except as otherwise provided in this
subsection, any amount paid or distributed out of an
individual retirement plan shall be included in gross
income by the payee or distributee, as the case may be,
in the manner provided under section 72.
(2) Special rules for applying section 72.--For
purposes of applying section 72 to any amount described
in paragraph (1)--
(A) all individual retirement plans shall be
treated as 1 contract,
(B) all distributions during any taxable year
shall be treated as 1 distribution, and
(C) the value of the contract, income on the
contract, and investment in the contract shall
be computed as of the close of the calendar
year in which the taxable year begins.
For purposes of subparagraph (C), the value of the
contract shall be increased by the amount of any
distributions during the calendar year.
(3) Rollover contribution.--An amount is described in
this paragraph as a rollover contribution if it meets
the requirements of subparagraphs (A) and (B).
(A) In general.--Paragraph (1) does not apply
to any amount paid or distributed out of an
individual retirement account or individual
retirement annuity to the individual for whose
benefit the account or annuity is maintained
if--
(i) the entire amount received
(including money and any other
property) is paid into an individual
retirement account or individual
retirement annuity (other than an
endowment contract) for the benefit of
such individual not later than the 60th
day after the day on which he receives
the payment or distribution; or
(ii) the entire amount received
(including money and any other
property) is paid into an eligible
retirement plan for the benefit of such
individual not later than the 60th day
after the date on which the payment or
distribution is received, except that
the maximum amount which may be paid
into such plan may not exceed the
portion of the amount received which is
includible in gross income (determined
without regard to this paragraph).
For purposes of clause (ii), the term
``eligible retirement plan'' means an eligible
retirement plan described in clause (iii),
(iv), (v), or (vi) of section 402(c)(8)(B).
(B) Limitation.--This paragraph does not
apply to any amount described in subparagraph
(A)(i) received by an individual from an
individual retirement account or individual
retirement annuity if at any time during the 1-
year period ending on the day of such receipt
such individual received any other amount
described in that subparagraph from an
individual retirement account or an individual
retirement annuity which was not includible in
his gross income because of the application of
this paragraph.
(C) Denial of rollover treatment for
inherited accounts, etc..--
(i) In general.--In the case of an
inherited individual retirement account
or individual retirement annuity--
(I) this paragraph shall not
apply to any amount received by
an individual from such an
account or annuity (and no
amount transferred from such
account or annuity to another
individual retirement account
or annuity shall be excluded
from gross income by reason of
such transfer), and
(II) such inherited account
or annuity shall not be treated
as an individual retirement
account or annuity for purposes
of determining whether any
other amount is a rollover
contribution.
(ii) Inherited individual retirement
account or annuity.--An individual
retirement account or individual
retirement annuity shall be treated as
inherited if--
(I) the individual for whose
benefit the account or annuity
is maintained acquired such
account by reason of the death
of another individual, and
(II) such individual was not
the surviving spouse of such
other individual.
(D) Partial rollovers permitted.--
(i) In general.--If any amount paid
or distributed out of an individual
retirement account or individual
retirement annuity would meet the
requirements of subparagraph (A) but
for the fact that the entire amount was
not paid into an eligible plan as
required by clause (i) or (ii) of
subparagraph (A), such amount shall be
treated as meeting the requirements of
subparagraph (A) to the extent it is
paid into an eligible plan referred to
in such clause not later than the 60th
day referred to in such clause.
(ii) Eligible plan.--For purposes of
clause (i), the term ``eligible plan''
means any account, annuity, contract,
or plan referred to in subparagraph
(A).
(E) Denial of rollover treatment for required
distributions.--This paragraph shall not apply
to any amount to the extent such amount is
required to be distributed under subsection
(a)(6) or (b)(3).
(F) Frozen deposits.--For purposes of this
paragraph, rules similar to the rules of
section 402(c)(7) (relating to frozen deposits)
shall apply.
(G) Simple retirement accounts.--In the case
of any payment or distribution out of a simple
retirement account (as defined in subsection
(p)) to which section 72(t)(6) applies, this
paragraph shall not apply unless such payment
or distribution is paid into another simple
retirement account.
(H) Application of section 72.--
(i) In general.--If--
(I) a distribution is made
from an individual retirement
plan, and
(II) a rollover contribution
is made to an eligible
retirement plan described in
section 402(c)(8)(B)(iii),
(iv), (v), or (vi) with respect
to all or part of such
distribution,
then, notwithstanding paragraph (2), the rules
of clause (ii) shall apply for purposes of
applying section 72.
(ii) Applicable rules.--In the case
of a distribution described in clause
(i)--
(I) section 72 shall be
applied separately to such
distribution,
(II) notwithstanding the pro
rata allocation of income on,
and investment in, the contract
to distributions under section
72, the portion of such
distribution rolled over to an
eligible retirement plan
described in clause (i) shall
be treated as from income on
the contract (to the extent of
the aggregate income on the
contract from all individual
retirement plans of the
distributee), and
(III) appropriate adjustments
shall be made in applying
section 72 to other
distributions in such taxable
year and subsequent taxable
years.
(I) Waiver of 60-day requirement.--The
Secretary may waive the 60-day requirement
under subparagraphs (A) and (D) where the
failure to waive such requirement would be
against equity or good conscience, including
casualty, disaster, or other events beyond the
reasonable control of the individual subject to
such requirement.
(4) Contributions returned before due date of
return.--Paragraph (1) does not apply to the
distribution of any contribution paid during a taxable
year to an individual retirement account or for an
individual retirement annuity if--
(A) such distribution is received on or
before the day prescribed by law (including
extensions of time) for filing such
individual's return for such taxable year,
(B) no deduction is allowed under section 219
with respect to such contribution, and
(C) such distribution is accompanied by the
amount of net income attributable to such
contribution.
In the case of such a distribution, for purposes of
section 61, any net income described in subparagraph
(C) shall be deemed to have been earned and receivable
in the taxable year in which such contribution is made.
(5) Distributions of excess contributions after due
date for taxable year and certain excess rollover
contributions.--
(A) In general.--In the case of any
individual, if the aggregate contributions
(other than rollover contributions) paid for
any taxable year to an individual retirement
account or for an individual retirement annuity
do not exceed the dollar amount in effect under
section 219(b)(1)(A), paragraph (1) shall not
apply to the distribution of any such
contribution to the extent that such
contribution exceeds the amount allowable as a
deduction under section 219 for the taxable
year for which the contribution was paid--
(i) if such distribution is received
after the date described in paragraph
(4),
(ii) but only to the extent that no
deduction has been allowed under
section 219 with respect to such excess
contribution.
If employer contributions on behalf of the
individual are paid for the taxable year to a
simplified employee pension, the dollar
limitation of the preceding sentence shall be
increased by the lesser of the amount of such
contributions or the dollar limitation in
effect under section 415(c)(1)(A) for such
taxable year.
(B) Excess rollover contributions
attributable to erroneous information.--If--
(i) the taxpayer reasonably relies on
information supplied pursuant to
subtitle F for determining the amount
of a rollover contribution, but
(ii) the information was erroneous,
subparagraph (A) shall be applied by increasing
the dollar limit set forth therein by that
portion of the excess contribution which was
attributable to such information.
For purposes of this paragraph, the amount allowable as
a deduction under section 219 shall be computed without
regard to section 219(g).
(6) Transfer of account incident to divorce.--The
transfer of an individual's interest in an individual
retirement account or an individual retirement annuity
to his spouse or former spouse under a divorce or
separation instrument described in clause (i) of
section 121(d)(3)(C) is not to be considered a taxable
transfer made by such individual notwithstanding any
other provision of this subtitle, and such interest at
the time of the transfer is to be treated as an
individual retirement account of such spouse, and not
of such individual. Thereafter such account or annuity
for purposes of this subtitle is to be treated as
maintained for the benefit of such spouse.
(7) Special rules for simplified employee pensions or
simple retirement accounts.--
(A) Transfer or rollover of contributions
prohibited until deferral test met.--
Notwithstanding any other provision of this
subsection or section 72(t), paragraph (1) and
section 72(t)(1) shall apply to the transfer or
distribution from a simplified employee pension
of any contribution under a salary reduction
arrangement described in subsection (k)(6) (or
any income allocable thereto) before a
determination as to whether the requirements of
subsection (k)(6)(A)(iii) are met with respect
to such contribution.
(B) Certain exclusions treated as
deductions.--For purposes of paragraphs (4) and
(5) and section 4973, any amount excludable or
excluded from gross income under section 402(h)
or 402(k) shall be treated as an amount
allowable or allowed as a deduction under
section 219.
(8) Distributions for charitable purposes.--
(A) In general.--So much of the aggregate
amount of qualified charitable distributions
with respect to a taxpayer made during any
taxable year which does not exceed $100,000
shall not be includible in gross income of such
taxpayer for such taxable year. The amount of
distributions not includible in gross income by
reason of the preceding sentence for a taxable
year (determined without regard to this
sentence) shall be reduced (but not below zero)
by an amount equal to the excess of--
(i) the aggregate amount of
deductions allowed to the taxpayer
under section 219 for all taxable years
ending on or after the date the
taxpayer attains age 701/2, over
(ii) the aggregate amount of
reductions under this sentence for all
taxable years preceding the current
taxable year.
(B) Qualified charitable distribution.--For
purposes of this paragraph, the term
``qualified charitable distribution'' means any
distribution from an individual retirement plan
(other than a plan described in subsection (k)
or (p))--
(i) which is made directly by the
trustee to an organization described in
section 170(b)(1)(A) (other than any
organization described in section
509(a)(3) or any fund or account
described in section 4966(d)(2)), and
(ii) which is made on or after the
date that the individual for whose
benefit the plan is maintained has
attained age 701/2.
A distribution shall be treated as a qualified
charitable distribution only to the extent that
the distribution would be includible in gross
income without regard to subparagraph (A).
(C) Contributions must be otherwise
deductible.--For purposes of this paragraph, a
distribution to an organization described in
subparagraph (B)(i) shall be treated as a
qualified charitable distribution only if a
deduction for the entire distribution would be
allowable under section 170 (determined without
regard to subsection (b) thereof and this
paragraph).
(D) Application of section 72.--
Notwithstanding section 72, in determining the
extent to which a distribution is a qualified
charitable distribution, the entire amount of
the distribution shall be treated as includible
in gross income without regard to subparagraph
(A) to the extent that such amount does not
exceed the aggregate amount which would have
been so includible if all amounts in all
individual retirement plans of the individual
were distributed during such taxable year and
all such plans were treated as 1 contract for
purposes of determining under section 72 the
aggregate amount which would have been so
includible. Proper adjustments shall be made in
applying section 72 to other distributions in
such taxable year and subsequent taxable years.
(E) Denial of deduction.--Qualified
charitable distributions which are not
includible in gross income pursuant to
subparagraph (A) shall not be taken into
account in determining the deduction under
section 170.
(F) One-time election for qualified
charitable distribution to split-interest
entity.--
(i) In general.--A taxpayer may for a
taxable year elect under this
subparagraph to treat as meeting the
requirement of subparagraph (B)(i) any
distribution from an individual
retirement account which is made
directly by the trustee to a split-
interest entity, but only if--
(I) an election is not in
effect under this subparagraph
for a preceding taxable year,
(II) the aggregate amount of
distributions of the taxpayer
with respect to which an
election under this
subparagraph is made does not
exceed $50,000, and
(III) such distribution meets
the requirements of clauses
(iii) and (iv).
(ii) Split-interest entity.--For
purposes of this subparagraph, the term
``split-interest entity'' means--
(I) a charitable remainder
annuity trust (as defined in
section 664(d)(1)), but only if
such trust is funded
exclusively by qualified
charitable distributions,
(II) a charitable remainder
unitrust (as defined in section
664(d)(2)), but only if such
unitrust is funded exclusively
by qualified charitable
distributions, or
(III) a charitable gift
annuity (as defined in section
501(m)(5)), but only if such
annuity is funded exclusively
by qualified charitable
distributions and commences
fixed payments of 5 percent or
greater not later than 1 year
from the date of funding.
(iii) Contributions must be otherwise
deductible.--A distribution meets the
requirement of this clause only if--
(I) in the case of a
distribution to a charitable
remainder annuity trust or a
charitable remainder uni-trust,
a deduction for the entire
value of the remainder interest
in the distribution for the
benefit of a specified
charitable organization would
be allowable under section 170
(determined without regard to
subsection (b) thereof and this
paragraph), and
(II) in the case of a
charitable gift annuity, a
deduction in an amount equal to
the amount of the distribution
reduced by the value of the
annuity described in section
501(m)(5)(B) would be allowable
under section 170 (determined
without regard to subsection
(b) thereof and this
paragraph).
(iv) Limitation on income
interests.--A distribution meets the
requirements of this clause only if--
(I) no person holds an income
interest in the split-interest
entity other than the
individual for whose benefit
such account is maintained, the
spouse of such individual, or
both, and
(II) the income interest in
the split-interest entity is
nonassignable.
(v) Special rules.--
(I) Charitable remainder
trusts.--Notwithstanding
section 664(b), distributions
made from a trust described in
subclause (I) or (II) of clause
(ii) shall be treated as
ordinary income in the hands of
the beneficiary to whom the
annuity described in section
664(d)(1)(A) or the payment
described in section
664(d)(2)(A) is paid.
(II) Charitable gift
annuities.--Qualified
charitable distributions made
to fund a charitable gift
annuity shall not be treated as
an investment in the contract
for purposes of section 72(c).
(G) Inflation adjustment.--
(i) In general.--In the case of any
taxable year beginning after 2021, each
of the dollar amounts in subparagraphs
(A) and (F) 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
2020'' for ``calendar year
2016'' in subparagraph (A)(ii)
thereof.
(ii) Rounding.--If any dollar amount
increased under clause (i) is not a
multiple of $1,000, such dollar amount
shall be rounded to the nearest
multiple of $1,000.
(9) Distribution for health savings account
funding.--
(A) In general.--In the case of an individual
who is an eligible individual (as defined in
section 223(c)) and who elects the application
of this paragraph for a taxable year, gross
income of the individual for the taxable year
does not include a qualified HSA funding
distribution to the extent such distribution is
otherwise includible in gross income.
(B) Qualified HSA funding distribution.--For
purposes of this paragraph, the term
``qualified HSA funding distribution'' means a
distribution from an individual retirement plan
(other than a plan described in subsection (k)
or (p)) of the employee to the extent that such
distribution is contributed to the health
savings account of the individual in a direct
trustee-to-trustee transfer.
(C) Limitations.--
(i) Maximum dollar limitation.--The
amount excluded from gross income by
subparagraph (A) shall not exceed the
excess of--
(I) the annual limitation
under section 223(b) computed
on the basis of the type of
coverage under the high
deductible health plan covering
the individual at the time of
the qualified HSA funding
distribution, over
(II) in the case of a
distribution described in
clause (ii)(II), the amount of
the earlier qualified HSA
funding distribution.
(ii) One-time transfer.--
(I) In general.--Except as
provided in subclause (II), an
individual may make an election
under subparagraph (A) only for
one qualified HSA funding
distribution during the
lifetime of the individual.
Such an election, once made,
shall be irrevocable.
(II) Conversion from self-
only to family coverage.--If a
qualified HSA funding
distribution is made during a
month in a taxable year during
which an individual has self-
only coverage under a high
deductible health plan as of
the first day of the month, the
individual may elect to make an
additional qualified HSA
funding distribution during a
subsequent month in such
taxable year during which the
individual has family coverage
under a high deductible health
plan as of the first day of the
subsequent month.
(D) Failure to maintain high deductible
health plan coverage.--
(i) In general.--If, at any time
during the testing period, the
individual is not an eligible
individual, then the aggregate amount
of all contributions to the health
savings account of the individual made
under subparagraph (A)--
(I) shall be includible in
the gross income of the
individual for the taxable year
in which occurs the first month
in the testing period for which
such individual is not an
eligible individual, and
(II) the tax imposed by this
chapter for any taxable year on
the individual shall be
increased by 10 percent of the
amount which is so includible.
(ii) Exception for disability or
death.--Subclauses (I) and (II) of
clause (i) shall not apply if the
individual ceased to be an eligible
individual by reason of the death of
the individual or the individual
becoming disabled (within the meaning
of section 72(m)(7)).
(iii) Testing period.--The term
``testing period'' means the period
beginning with the month in which the
qualified HSA funding distribution is
contributed to a health savings account
and ending on the last day of the 12th
month following such month.
(E) Application of section 72.--
Notwithstanding section 72, in determining the
extent to which an amount is treated as
otherwise includible in gross income for
purposes of subparagraph (A), the aggregate
amount distributed from an individual
retirement plan shall be treated as includible
in gross income to the extent that such amount
does not exceed the aggregate amount which
would have been so includible if all amounts
from all individual retirement plans were
distributed. Proper adjustments shall be made
in applying section 72 to other distributions
in such taxable year and subsequent taxable
years.
(e) Tax treatment of accounts and annuities.--
(1) Exemption from tax.--Any individual retirement
account is exempt from taxation under this subtitle
unless such account has ceased to be an individual
retirement account by reason of paragraph (2) or (3).
Notwithstanding the preceding sentence, any such
account is subject to the taxes imposed by section 511
(relating to imposition of tax on unrelated business
income of charitable, etc. organizations).
(2) Loss of exemption of account where employee
engages in prohibited transaction.--
(A) In general.--If, during any taxable year
of the individual for whose benefit any
individual retirement account is established,
that individual or his beneficiary engages in
any transaction prohibited by section 4975 with
respect to such account, [such account ceases
to be an individual retirement account] the
portion of such account which is used in such
transaction shall be treated as distributed to
the individual as of the first day of such
taxable year. For purposes of this paragraph--
(i) the individual for whose benefit
any account was established is treated
as the creator of such account, and
(ii) the separate account for any
individual within an individual
retirement account maintained by an
employer or association of employees is
treated as a separate individual
retirement account.
(B) Account treated as distributing [all its
assets] portion of assets used in prohibited
transaction.--[In any case in which any account
ceases to be an individual retirement account
by reason of subparagraph (A)] In any case in
which a portion of an individual retirement
account is treated as distributed under
subparagraph (A) as of the first day of any
taxable year, paragraph (1) of subsection (d)
applies as if there were a distribution on such
first day in an amount equal to the fair market
value (on such first day) of [all assets in the
account] such portion (on such first day).
(3) Effect of borrowing on annuity contract.--If
during any taxable year the owner of an individual
retirement annuity borrows any money under or by use of
such contract, the contract ceases to be an individual
retirement annuity as of the first day of such taxable
year. Such owner shall include in gross income for such
year an amount equal to the fair market value of such
contract as of such first day.
(4) Effect of pledging account as security.--If,
during any taxable year of the individual for whose
benefit an individual retirement account is
established, that individual uses the account or any
portion thereof as security for a loan, the portion so
used is treated as distributed to that individual.
(5) Purchase of endowment contract by individual
retirement account.--If the assets of an individual
retirement account or any part of such assets are used
to purchase an endowment contract for the benefit of
the individual for whose benefit the account is
established--
(A) to the extent that the amount of the
assets involved in the purchase are not
attributable to the purchase of life insurance,
the purchase is treated as a rollover
contribution described in subsection (d)(3),
and
(B) to the extent that the amount of the
assets involved in the purchase are
attributable to the purchase of life, health,
accident, or other insurance, such amounts are
treated as distributed to that individual (but
the provisions of subsection (f) do not apply).
(6) Commingling individual retirement account amounts
in certain common trust funds and common investment
funds.--Any common trust fund or common investment fund
of individual retirement account assets which is exempt
from taxation under this subtitle does not cease to be
exempt on account of the participation or inclusion of
assets of a trust exempt from taxation under section
501(a) which is described in section 401(a).
(g) Community property laws.--This section shall be applied
without regard to any community property laws.
(h) Custodial accounts.--For purposes of this section, a
custodial account shall be treated as a trust if the assets of
such account are held by a bank (as defined in subsection (n))
or another person who demonstrates, to the satisfaction of the
Secretary, that the manner in which he will administer the
account will be consistent with the requirements of this
section, and if the custodial account would, except for the
fact that it is not a trust, constitute an individual
retirement account described in subsection (a). For purposes of
this title, in the case of a custodial account treated as a
trust by reason of the preceding sentence, the custodian of
such account shall be treated as the trustee thereof.
(i) [Reports.--] [The trustee of] Reports._
(1) In general._The trustee of an individual
retirement account and the issuer of an endowment
contract described in subsection (b) or an individual
retirement annuity shall make such reports regarding
such account, contract, or annuity to the Secretary and
to the individuals for whom the account, contract, or
annuity is, or is to be, maintained with respect to
contributions (and the years to which they relate),
distributions aggregating $10 or more in any calendar
year, and such other matters as the Secretary may
require. The reports required by this subsection--
[(1)] (A) shall be filed at such time and in
such manner as the Secretary prescribes, and
[(2)] (B) shall be furnished to individuals--
[(A)] (i) not later than January 31
of the calendar year following the
calendar year to which such reports
relate, and
[(B)] (ii) in such manner [as the
Secretary prescribes.] as the Secretary
prescribes.
(2) Mandatory distributions.--In the case of an
account, contract, or annuity to which a transfer under
section 401(a)(31)(B) is made (including a transfer
from the individual retirement plan to which the
original transfer under such section was made to
another individual retirement plan), the report
required by this subsection for the year of the
transfer and any year in which the information
previously reported in subparagraph (B) changes shall--
(A) identify such transfer as a mandatory
distribution required by such section,
(B) include the name, address, and taxpayer
identifying number of the trustee or issuer of
the individual retirement plan to which the
amount is transferred, and
(C) be filed with the Pension Benefit
Guaranty Corporation as well as with the
Secretary.
[In the case of a simple retirement account]
(3) Simple retirement accounts.--In the case of a
simple retirement account under subsection (p), only
one report under this subsection shall be required to
be submitted each calendar year to the Secretary (at
the time provided [under paragraph (2)] under paragraph
(1)(B)) but, in addition to the report under this
subsection, there shall be furnished, within 31 days
after each calendar year, to the individual on whose
behalf the account is maintained a statement with
respect to the account balance as of the close of, and
the account activity during, such calendar year.
(j) Increase in maximum limitations for simplified employee
pensions.--In the case of any simplified employee pension,
subsections (a)(1) and (b)(2) of this section shall be applied
by increasing the amounts contained therein by the amount of
the limitation in effect under section 415(c)(1)(A).
(k) Simplified employee pension defined.--
(1) In general.--For purposes of this title, the term
``simplified employee pension'' means an individual
retirement account or individual retirement annuity--
(A) with respect to which the requirements of
paragraphs (2), (3), (4), and (5) of this
subsection are met, and
(B) if such account or annuity is part of a
top-heavy plan (as defined in section 416),
with respect to which the requirements of
section 416(c)(2) are met.
(2) Participation requirements.--This paragraph is
satisfied with respect to a simplified employee pension
for a year only if for such year the employer
contributes to the simplified employee pension of each
employee who--
(A) has attained age 21,
(B) has performed service for the employer
during at least 3 of the immediately preceding
5 years, and
(C) received at least $450 in compensation
(within the meaning of section 414(q)(4)) from
the employer for the year.
For purposes of this paragraph, there shall be excluded
from consideration employees described in subparagraph
(A) or (C) of section 410(b)(3). For purposes of any
arrangement described in subsection (k)(6), any
employee who is eligible to have employer contributions
made on the employee's behalf under such arrangement
shall be treated as if such a contribution was made.
(3) Contributions may not discriminate in favor of
the highly compensated, etc..--
(A) In general.--The requirements of this
paragraph are met with respect to a simplified
employee pension for a year if for such year
the contributions made by the employer to
simplified employee pensions for his employees
do not discriminate in favor of any highly
compensated employee (within the meaning of
section 414(q)).
(B) Special rules.--For purposes of
subparagraph (A), there shall be excluded from
consideration employees described in
subparagraph (A) or (C) of section 410(b)(3).
(C) Contributions must bear uniform
relationship to total compensation.--For
purposes of subparagraph (A), and except as
provided in subparagraph (D), employer
contributions to simplified employee pensions
(other than contributions under an arrangement
described in paragraph (6)) shall be considered
discriminatory unless contributions thereto
bear a uniform relationship to the compensation
(not in excess of the first $200,000) of each
employee maintaining a simplified employee
pension.
(D) Permitted disparity.--For purposes of
subparagraph (C), the rules of section
401(l)(2) shall apply to contributions to
simplified employee pensions (other than
contributions under an arrangement described in
paragraph (6)).
(4) Withdrawals must be permitted.--A simplified
employee pension meets the requirements of this
paragraph only if--
(A) employer contributions thereto are not
conditioned on the retention in such pension of
any portion of the amount contributed, and
(B) there is no prohibition imposed by the
employer on withdrawals from the simplified
employee pension.
(5) Contributions must be made under written
allocation formula.--The requirements of this paragraph
are met with respect to a simplified employee pension
only if employer contributions to such pension are
determined under a definite written allocation formula
which specifies--
(A) the requirements which an employee must
satisfy to share in an allocation, and
(B) the manner in which the amount allocated
is computed.
(6) Employee may elect salary reduction
arrangement.--
(A) Arrangements which qualify.--
(i) In general.--A simplified
employee pension shall not fail to meet
the requirements of this subsection for
a year merely because, under the terms
of the pension, an employee may elect
to have the employer make payments--
(I) as elective employer
contributions to the simplified
employee pension on behalf of
the employee, or
(II) to the employee directly
in cash.
(ii) 50 percent of eligible employees
must elect.--Clause (i) shall not apply
to a simplified employee pension unless
an election described in clause (i)(I)
is made or is in effect with respect to
not less than 50 percent of the
employees of the employer eligible to
participate.
(iii) Requirements relating to
deferral percentage.--Clause (i) shall
not apply to a simplified employee
pension for any year unless the
deferral percentage for such year of
each highly compensated employee
eligible to participate is not more
than the product of--
(I) the average of the
deferral percentages for such
year of all employees (other
than highly compensated
employees) eligible to
participate, multiplied by
(II) 1.25.
(iv) Limitations on elective
deferrals.--Clause (i) shall not apply
to a simplified employee pension unless
the requirements of section 401(a)(30)
are met.
(B) Exception where more than 25 employees.--
This paragraph shall not apply with respect to
any year in the case of a simplified employee
pension maintained by an employer with more
than 25 employees who were eligible to
participate (or would have been required to be
eligible to participate if a pension was
maintained) at any time during the preceding
year.
(C) Distributions of excess contributions.--
(i) In general.--Rules similar to the
rules of section 401(k)(8) shall apply
to any excess contribution under this
paragraph. Any excess contribution
under a simplified employee pension
shall be treated as an excess
contribution for purposes of section
4979.
(ii) Excess contribution.--For
purposes of clause (i), the term
``excess contribution'' means, with
respect to a highly compensated
employee, the excess of elective
employer contributions under this
paragraph over the maximum amount of
such contributions allowable under
subparagraph (A)(iii).
(D) Deferral percentage.--For purposes of
this paragraph, the deferral percentage for an
employee for a year shall be the ratio of--
(i) the amount of elective employer
contributions actually paid over to the
simplified employee pension on behalf
of the employee for the year, to
(ii) the employee's compensation (not
in excess of the first $200,000) for
the year.
(E) Exception for State and local and tax-
exempt pensions.--This paragraph shall not
apply to a simplified employee pension
maintained by--
(i) a State or local government or
political subdivision thereof, or any
agency or instrumentality thereof, or
(ii) an organization exempt from tax
under this title.
(F) Exception where pension does not meet
requirements necessary to insure distribution
of excess contributions.--This paragraph shall
not apply with respect to any year for which
the simplified employee pension does not meet
such requirements as the Secretary may
prescribe as are necessary to insure that
excess contributions are distributed in
accordance with subparagraph (C), including--
(i) reporting requirements, and
(ii) requirements which,
notwithstanding paragraph (4), provide
that contributions (and any income
allocable thereto) may not be withdrawn
from a simplified employee pension
until a determination has been made
that the requirements of subparagraph
(A)(iii) have been met with respect to
such contributions.
(G) Highly compensated employee.--For
purposes of this paragraph, the term ``highly
compensated employee'' has the meaning given
such term by section 414(q).
(H) Termination.--This paragraph shall not
apply to years beginning after December 31,
1996. The preceding sentence shall not apply to
a simplified employee pension of an employer if
the terms of simplified employee pensions of
such employer, as in effect on December 31,
1996, provide that an employee may make the
election described in subparagraph (A).
(7) Roth contribution election.--An individual
retirement plan which is designated as a Roth IRA shall
not be treated as a simplified employee pension under
this subsection unless the employee elects for such
plan to be so treated (at such time and in such manner
as the Secretary may provide).
[(7)] (8) Definitions.--For purposes of this
subsection and subsection (l)--
(A) Employee, employer, or owner-employee.--
The terms ``employee'', ``employer'', and
``owner-employee'' shall have the respective
meanings given such terms by section 401(c).
(B) Compensation.--Except as provided in
paragraph (2)(C), the term ``compensation'' has
the meaning given such term by section 414(s).
(C) Year.--The term ``year'' means--
(i) the calendar year, or
(ii) if the employer elects, subject
to such terms and conditions as the
Secretary may prescribe, to maintain
the simplified employee pension on the
basis of the employer's taxable year.
[(8)] (9) Cost-of-living adjustment.--The Secretary
shall adjust the $450 amount in paragraph (2)(C) at the
same time and in the same manner as under section
415(d) and shall adjust the $200,000 amount in
paragraphs (3)(C) and (6)(D)(ii) at the same time, and
by the same amount, as any adjustment under section
401(a)(17)(B); except that any increase in the $450
amount which is not a multiple of $50 shall be rounded
to the next lowest multiple of $50.
[(9)] (10) Cross reference.--For excise tax on
certain excess contributions, see section 4979.
(l) Simplified employer reports.--
(1) In general.--An employer who makes a contribution
on behalf of an employee to a simplified employee
pension shall provide such simplified reports with
respect to such contributions as the Secretary may
require by regulations. The reports required by this
subsection shall be filed at such time and in such
manner, and information with respect to such
contributions shall be furnished to the employee at
such time and in such manner, as may be required by
regulations.
(2) Simple retirement accounts.--
(A) No employer reports.--Except as provided
in this paragraph, no report shall be required
under this section by an employer maintaining a
qualified salary reduction arrangement under
subsection (p).
(B) Summary description.--The trustee of any
simple retirement account established pursuant
to a qualified salary reduction arrangement
under subsection (p) and the issuer of an
annuity established under such an arrangement
shall provide to the employer maintaining the
arrangement, each year a description containing
the following information:
(i) The name and address of the
employer and the trustee or issuer.
(ii) The requirements for eligibility
for participation.
(iii) The benefits provided with
respect to the arrangement.
(iv) The time and method of making
elections with respect to the
arrangement.
(v) The procedures for, and effects
of, withdrawals (including rollovers)
from the arrangement.
(C) Employee notification.--The employer
shall notify each employee immediately before
the period for which an election described in
subsection (p)(5)(C) may be made of the
employee's opportunity to make such election.
Such notice shall include a copy of the
description described in subparagraph (B).
(m) Investment in collectibles treated as distributions.--
(1) In general.--The acquisition by an individual
retirement account or by an individually-directed
account under a plan described in section 401(a) of any
collectible shall be treated (for purposes of this
section and section 402) as a distribution from such
account in an amount equal to the cost to such account
of such collectible.
(2) Collectible defined.--For purposes of this
subsection, the term ``collectible'' means--
(A) any work of art,
(B) any rug or antique,
(C) any metal or gem,
(D) any stamp or coin,
(E) any alcoholic beverage, or
(F) any other tangible personal property
specified by the Secretary for purposes of this
subsection.
(3) Exception for certain coins and bullion.--For
purposes of this subsection, the term ``collectible''
shall not include--
(A) any coin which is--
(i) a gold coin described in
paragraph (7), (8), (9), or (10) of
section 5112(a) of title 31, United
States Code,
(ii) a silver coin described in
section 5112(e) of title 31, United
States Code,
(iii) a platinum coin described in
section 5112(k) of title 31, United
States Code, or
(iv) a coin issued under the laws of
any State, or
(B) any gold, silver, platinum, or palladium
bullion of a fineness equal to or exceeding the
minimum fineness that a contract market (as
described in section 5 of the Commodity
Exchange Act, 7 U.S.C. 7) requires for metals
which may be delivered in satisfaction of a
regulated futures contract,
if such bullion is in the physical possession of a
trustee described under subsection (a) of this section.
(n) Bank.--For purposes of subsection (a)(2), the term
``bank'' means--
(1) any bank (as defined in section 581),
(2) an insured credit union (within the meaning of
paragraph (6) or (7) of section 101 of the Federal
Credit Union Act), and
(3) a corporation which, under the laws of the State
of its incorporation, is subject to supervision and
examination by the Commissioner of Banking or other
officer of such State in charge of the administration
of the banking laws of such State.
(o) Definitions and rules relating to nondeductible
contributions to individual retirement plans.--
(1) In general.--Subject to the provisions of this
subsection, designated nondeductible contributions may
be made on behalf of an individual to an individual
retirement plan.
(2) Limits on amounts which may be contributed.--
(A) In general.--The amount of the designated
nondeductible contributions made on behalf of
any individual for any taxable year shall not
exceed the nondeductible limit for such taxable
year.
(B) Nondeductible limit.--For purposes of
this paragraph--
(i) In general.--The term
``nondeductible limit'' means the
excess of--
(I) the amount allowable as a
deduction under section 219
(determined without regard to
section 219(g)), over
(II) the amount allowable as
a deduction under section 219
(determined with regard to
section 219(g)).
(ii) Taxpayer may elect to treat
deductible contributions as
nondeductible.--If a taxpayer elects
not to deduct an amount which (without
regard to this clause) is allowable as
a deduction under section 219 for any
taxable year, the nondeductible limit
for such taxable year shall be
increased by such amount.
(C) Designated nondeductible contributions.--
(i) In general.--For purposes of this
paragraph, the term ``designated
nondeductible contribution'' means any
contribution to an individual
retirement plan for the taxable year
which is designated (in such manner as
the Secretary may prescribe) as a
contribution for which a deduction is
not allowable under section 219.
(ii) Designation.--Any designation
under clause (i) shall be made on the
return of tax imposed by chapter 1 for
the taxable year.
(3) Time when contributions made.--In determining for
which taxable year a designated nondeductible
contribution is made, the rule of section 219(f)(3)
shall apply.
(4) Individual required to report amount of
designated nondeductible contributions.--
(A) In general.--Any individual who--
(i) makes a designated nondeductible
contribution to any individual
retirement plan for any taxable year,
or
(ii) receives any amount from any
individual retirement plan for any
taxable year,
shall include on his return of the tax imposed
by chapter 1 for such taxable year and any
succeeding taxable year (or on such other form
as the Secretary may prescribe for any such
taxable year) information described in
subparagraph (B).
(B) Information required to be supplied.--The
following information is described in this
subparagraph:
(i) The amount of designated
nondeductible contributions for the
taxable year.
(ii) The amount of distributions from
individual retirement plans for the
taxable year.
(iii) The excess (if any) of--
(I) the aggregate amount of
designated nondeductible
contributions for all preceding
taxable years, over
(II) the aggregate amount of
distributions from individual
retirement plans which was
excludable from gross income
for such taxable years.
(iv) The aggregate balance of all
individual retirement plans of the
individual as of the close of the
calendar year in which the taxable year
begins.
(v) Such other information as the
Secretary may prescribe.
(C) Penalty for reporting contributions not
made.--For penalty where individual reports
designated nondeductible contributions not
made, see section 6693(b).
(5) Special rule for difficulty of care payments
excluded from gross income.--In the case of an
individual who for a taxable year excludes from gross
income under section 131 a qualified foster care
payment which is a difficulty of care payment, if--
(A) the deductible amount in effect for the
taxable year under subsection (b), exceeds
(B) the amount of compensation includible in
the individual's gross income for the taxable
year,
the individual may elect to increase the nondeductible
limit under paragraph (2) for the taxable year by an
amount equal to the lesser of such excess or the amount
so excluded.
(p) Simple retirement accounts.--
(1) In general.--For purposes of this title, the term
``simple retirement account'' means an individual
retirement plan (as defined in section 7701(a)(37))--
(A) with respect to which the requirements of
paragraphs (3), (4), and (5) are met; and
(B) except in the case of a rollover
contribution described in subsection (d)(3)(G)
or a rollover contribution otherwise described
in subsection (d)(3) or in section 402(c),
403(a)(4), 403(b)(8), or 457(e)(16), which is
made after the 2-year period described in
section 72(t)(6), with respect to which the
only contributions allowed are contributions
under a qualified salary reduction arrangement.
(2) Qualified salary reduction arrangement.--
(A) In general.--For purposes of this
subsection, the term ``qualified salary
reduction arrangement'' means a written
arrangement of an eligible employer under
which--
(i) an employee eligible to
participate in the arrangement may
elect to have the employer make
payments--
(I) as elective employer
contributions to a simple
retirement account on behalf of
the employee, or
(II) to the employee directly
in cash,
(ii) the amount which an employee may
elect under clause (i) for any year is
required to be expressed as a
percentage of compensation and may not
exceed a total of the applicable dollar
amount for any year,
(iii) the employer is required to
make a matching contribution to the
simple retirement account for any year
in an amount equal to so much of the
amount the employee elects under clause
(i)(I) as does not exceed the
applicable percentage of compensation
for the year, and
(iv) no contributions may be made
other than contributions described in
clause (i) or (iii).
(B) Employer may elect 2-percent nonelective
contribution.--
(i) In general.--An employer shall be
treated as meeting the requirements of
subparagraph (A)(iii) for any year if,
in lieu of the contributions described
in such clause, the employer elects to
make nonelective contributions of 2
percent of compensation for each
employee who is eligible to participate
in the arrangement and who has at least
$5,000 of compensation from the
employer for the year. If an employer
makes an election under this
subparagraph for any year, the employer
shall notify employees of such election
within a reasonable period of time
before the 60-day period for such year
under paragraph (5)(C).
(ii) Compensation limitation.--The
compensation taken into account under
clause (i) for any year shall not
exceed the limitation in effect for
such year under section 401(a)(17).
(C) Definitions.--For purposes of this
subsection--
(i) Eligible employer.--
(I) In general.--The term
``eligible employer'' means,
with respect to any year, an
employer which had no more than
100 employees who received at
least $5,000 of compensation
from the employer for the
preceding year.
(II) 2-year grace period.--An
eligible employer who
establishes and maintains a
plan under this subsection for
1 or more years and who fails
to be an eligible employer for
any subsequent year shall be
treated as an eligible employer
for the 2 years following the
last year the employer was an
eligible employer. If such
failure is due to any
acquisition, disposition, or
similar transaction involving
an eligible employer, the
preceding sentence shall not
apply.
(ii) Applicable percentage.--
(I) In general.--The term
``applicable percentage'' means
3 percent.
(II) Election of lower
percentage.--An employer may
elect to apply a lower
percentage (not less than 1
percent) for any year for all
employees eligible to
participate in the plan for
such year if the employer
notifies the employees of such
lower percentage within a
reasonable period of time
before the 60-day election
period for such year under
paragraph (5)(C). An employer
may not elect a lower
percentage under this subclause
for any year if that election
would result in the applicable
percentage being lower than 3
percent in more than 2 of the
years in the 5-year period
ending with such year.
(III) Special rule for years
arrangement not in effect.--If
any year in the 5-year period
described in subclause (II) is
a year prior to the first year
for which any qualified salary
reduction arrangement is in
effect with respect to the
employer (or any predecessor),
the employer shall be treated
as if the level of the employer
matching contribution was at 3
percent of compensation for
such prior year.
(D) Arrangement may be only plan of
employer.--
(i) In general.--An arrangement shall
not be treated as a qualified salary
reduction arrangement for any year if
the employer (or any predecessor
employer) maintained a qualified plan
with respect to which contributions
were made, or benefits were accrued,
for service in any year in the period
beginning with the year such
arrangement became effective and ending
with the year for which the
determination is being made. If only
individuals other than employees
described in subparagraph (A) of
section 410(b)(3) are eligible to
participate in such arrangement, then
the preceding sentence shall be applied
without regard to any qualified plan in
which only employees so described are
eligible to participate.
(ii) Qualified plan.--For purposes of
this subparagraph, the term ``qualified
plan'' means a plan, contract, pension,
or trust described in subparagraph (A)
or (B) of section 219(g)(5).
(E) Applicable dollar amount; cost-of-living
adjustment.--
(i) In general.--For purposes of
subparagraph (A)(ii), the applicable
amount is $10,000.
(ii) Cost-of-living adjustment.--In
the case of a year beginning after
December 31, 2005, the Secretary shall
adjust the $10,000 amount under clause
(i) at the same time and in the same
manner as under section 415(d), except
that the base period taken into account
shall be the calendar quarter beginning
July 1, 2004, and any increase under
this subparagraph which is not a
multiple of $500 shall be rounded to
the next lower multiple of $500.
(F) Matching contributions for qualified
student loan payments.--
(i) In general.--Subject to the rules
of clause (iii), an arrangement shall
not fail to be treated as meeting the
requirements of subparagraph (A)(iii)
solely because under the arrangement,
solely for purposes of such
subparagraph, qualified student loan
payments are treated as amounts elected
by the employee under subparagraph
(A)(i)(I) to the extent such payments
do not exceed--
(I) the applicable dollar
amount under subparagraph (E)
(after application of section
414(v)) for the year (or, if
lesser, the employee's
compensation (as defined in
section 415(c)(3)) for the
year), reduced by
(II) any other amounts
elected by the employee under
subparagraph (A)(i)(I) for the
year.
(ii) Qualified student loan
payment.--For purposes of this
subparagraph--
(I) In general.--The term
``qualified student loan
payment'' means a payment made
by an employee in repayment of
a qualified education loan (as
defined in section 221(d)(1))
incurred by the employee to pay
qualified higher education
expenses, but only if the
employee certifies to the
employer making the matching
contribution that such payment
has been made on such a loan.
(II) Qualified higher
education expenses.--The term
``qualified higher education
expenses'' has the same meaning
as when used in section
401(m)(4)(D).
(iii) Applicable rules.--Clause (i)
shall apply to an arrangement only if,
under the arrangement--
(I) matching contributions on
account of qualified student
loan payments are provided only
on behalf of employees
otherwise eligible to elect
contributions under
subparagraph (A)(i)(I), and
(II) all employees otherwise
eligible to participate in the
arrangement are eligible to
receive matching contributions
on account of qualified student
loan payments.
(3) Vesting requirements.--The requirements of this
paragraph are met with respect to a simple retirement
account if the employee's rights to any contribution to
the simple retirement account are nonforfeitable. For
purposes of this paragraph, rules similar to the rules
of subsection (k)(4) shall apply.
(4) Participation requirements.--
(A) In general.--The requirements of this
paragraph are met with respect to any simple
retirement account for a year only if, under
the qualified salary reduction arrangement, all
employees of the employer who--
(i) received at least $5,000 in
compensation from the employer during
any 2 preceding years, and
(ii) are reasonably expected to
receive at least $5,000 in compensation
during the year,
are eligible to make the election under
paragraph (2)(A)(i) or receive the nonelective
contribution described in paragraph (2)(B).
(B) Excludable employees.--An employer may
elect to exclude from the requirement under
subparagraph (A) employees described in section
410(b)(3).
(5) Administrative requirements.--The requirements of
this paragraph are met with respect to any simple
retirement account if, under the qualified salary
reduction arrangement--
(A) an employer must--
(i) make the elective employer
contributions under paragraph (2)(A)(i)
not later than the close of the 30-day
period following the last day of the
month with respect to which the
contributions are to be made, and
(ii) make the matching contributions
under paragraph (2)(A)(iii) or the
nonelective contributions under
paragraph (2)(B) not later than the
date described in section 404(m)(2)(B),
(B) an employee may elect to terminate
participation in such arrangement at any time
during the year, except that if an employee so
terminates, the arrangement may provide that
the employee may not elect to resume
participation until the beginning of the next
year, and
(C) each employee eligible to participate may
elect, during the 60-day period before the
beginning of any year (and the 60-day period
before the first day such employee is eligible
to participate), to participate in the
arrangement, or to modify the amounts subject
to such arrangement, for such year.
(6) Definitions.--For purposes of this subsection--
(A) Compensation.--
(i) In general.--The term
``compensation'' means amounts
described in paragraphs (3) and (8) of
section 6051(a). For purposes of the
preceding sentence, amounts described
in section 6051(a)(3) shall be
determined without regard to section
3401(a)(3).
(ii) Self-employed.--In the case of
an employee described in subparagraph
(B), the term ``compensation'' means
net earnings from self-employment
determined under section 1402(a)
without regard to any contribution
under this subsection. The preceding
sentence shall be applied as if the
term ``trade or business'' for purposes
of section 1402 included service
described in section 1402(c)(6).
(B) Employee.--The term ``employee'' includes
an employee as defined in section 401(c)(1).
(C) Year.--The term ``year'' means the
calendar year.
(7) Use of designated financial institution.--A plan
shall not be treated as failing to satisfy the
requirements of this subsection or any other provision
of this title merely because the employer makes all
contributions to the individual retirement accounts or
annuities of a designated trustee or issuer. The
preceding sentence shall not apply unless each plan
participant is notified in writing (either separately
or as part of the notice under subsection (l)(2)(C))
that the participant's balance may be transferred
without cost or penalty to another individual account
or annuity in accordance with subsection (d)(3)(G).
(8) Coordination with maximum limitation under
subsection (a).--In the case of any simple retirement
account, subsections (a)(1) and (b)(2) shall be applied
by substituting ``the sum of the dollar amount in
effect under paragraph (2)(A)(ii) of this subsection
and the employer contribution required under
subparagraph (A)(iii) or (B)(i) of paragraph (2) of
this subsection, whichever is applicable'' for ``the
dollar amount in effect under section 219(b)(1)(A)''.
(9) Matching contributions on behalf of self-employed
individuals not treated as elective employer
contributions.--Any matching contribution described in
paragraph (2)(A)(iii) which is made on behalf of a
self-employed individual (as defined in section 401(c))
shall not be treated as an elective employer
contribution to a simple retirement account for
purposes of this title.
(10) Special rules for acquisitions, dispositions,
and similar transactions.--
(A) In general.--An employer which fails to
meet any applicable requirement by reason of an
acquisition, disposition, or similar
transaction shall not be treated as failing to
meet such requirement during the transition
period if--
(i) the employer satisfies
requirements similar to the
requirements of section
410(b)(6)(C)(i)(II); and
(ii) the qualified salary reduction
arrangement maintained by the employer
would satisfy the requirements of this
subsection after the transaction if the
employer which maintained the
arrangement before the transaction had
remained a separate employer.
(B) Applicable requirement.--For purposes of
this paragraph, the term ``applicable
requirement'' means--
(i) the requirement under paragraph
(2)(A)(i) that an employer be an
eligible employer;
(ii) the requirement under paragraph
(2)(D) that an arrangement be the only
plan of an employer; and
(iii) the participation requirements
under paragraph (4).
(C) Transition period.--For purposes of this
paragraph, the term ``transition period'' means
the period beginning on the date of any
transaction described in subparagraph (A) and
ending on the last day of the second calendar
year following the calendar year in which such
transaction occurs.
(11) Roth contribution election.--An individual
retirement plan which is designated as a Roth IRA shall
not be treated as a simple retirement account under
this subsection unless the employee elects for such
plan to be so treated (at such time and in such manner
as the Secretary may provide).
(q) Deemed IRAs under qualified employer plans.--
(1) General rule.--If--
(A) a qualified employer plan elects to allow
employees to make voluntary employee
contributions to a separate account or annuity
established under the plan, and
(B) under the terms of the qualified employer
plan, such account or annuity meets the
applicable requirements of this section or
section 408A for an individual retirement
account or annuity,
then such account or annuity shall be treated for
purposes of this title in the same manner as an
individual retirement plan and not as a qualified
employer plan (and contributions to such account or
annuity as contributions to an individual retirement
plan and not to the qualified employer plan). For
purposes of subparagraph (B), the requirements of
subsection (a)(5) shall not apply.
(2) Special rules for qualified employer plans.--For
purposes of this title, a qualified employer plan shall
not fail to meet any requirement of this title solely
by reason of establishing and maintaining a program
described in paragraph (1).
(3) Definitions.--For purposes of this subsection--
(A) Qualified employer plan.--The term
``qualified employer plan'' has the meaning
given such term by section 72(p)(4)(A)(i);
except that such term shall also include an
eligible deferred compensation plan (as defined
in section 457(b)) of an eligible employer
described in section 457(e)(1)(A).
(B) Voluntary employee contribution.--The
term ``voluntary employee contribution'' means
any contribution (other than a mandatory
contribution within the meaning of section
411(c)(2)(C))--
(i) which is made by an individual as
an employee under a qualified employer
plan which allows employees to elect to
make contributions described in
paragraph (1), and
(ii) with respect to which the
individual has designated the
contribution as a contribution to which
this subsection applies.
(r) Cross references.--
(1) For tax on excess contributions in
individual retirement accounts or annuities,
see section 4973.
(2) For tax on certain accumulations in
individual retirement accounts or annuities,
see section 4974.
SEC. 408A. ROTH IRAS.
(a) General rule.--Except as provided in this section, a Roth
IRA shall be treated for purposes of this title in the same
manner as an individual retirement plan.
(b) Roth IRA.--For purposes of this title, the term ``Roth
IRA'' means an individual retirement plan (as defined in
section 7701(a)(37)) which is designated (in such manner as the
Secretary may prescribe) at the time of establishment of the
plan as a Roth IRA. Such designation shall be made in such
manner as the Secretary may prescribe.
(c) Treatment of contributions.--
(1) No deduction allowed.--No deduction shall be
allowed under section 219 for a contribution to a Roth
IRA.
(2) Contribution limit.--The aggregate amount of
contributions for any taxable year to all Roth IRAs
maintained for the benefit of an individual shall not
exceed the excess (if any) of--
(A) the maximum amount allowable as a
deduction under section 219 with respect to
such individual for such taxable year (computed
without regard to subsection (d)(1) or (g) of
such section), over
(B) the aggregate amount of contributions for
such taxable year to all other individual
retirement plans (other than Roth IRAs)
maintained for the benefit of the individual.
(3) Limits based on modified adjusted gross income.--
(A) Dollar limit.--The amount determined
under paragraph (2) for any taxable year shall
not exceed an amount equal to the amount
determined under paragraph (2)(A) for such
taxable year, reduced (but not below zero) by
the amount which bears the same ratio to such
amount as--
(i) the excess of--
(I) the taxpayer's adjusted
gross income for such taxable
year, over
(II) the applicable dollar
amount, bears to
(ii) $15,000 ($10,000 in the case of
a joint return or a married individual
filing a separate return).
The rules of subparagraphs (B) and (C) of
section 219(g)(2) shall apply to any reduction
under this subparagraph.
(B) Definitions.--For purposes of this
paragraph--
(i) adjusted gross income shall be
determined in the same manner as under
section 219(g)(3), except that any
amount included in gross income under
subsection (d)(3) shall not be taken
into account, and
(ii) the applicable dollar amount
is--
(I) in the case of a taxpayer
filing a joint return,
$150,000,
(II) in the case of any other
taxpayer (other than a married
individual filing a separate
return), $95,000, and
(III) in the case of a
married individual filing a
separate return, zero.
(C) Marital status.--Section 219(g)(4) shall
apply for purposes of this paragraph.
(D) Inflation adjustment.--In the case of any
taxable year beginning in a calendar year after
2006, the dollar amounts in subclauses (I) and
(II) of subparagraph (B)(ii) 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 2005'' for ``calendar
year 2016'' in subparagraph (A)(ii)
thereof.
Any increase determined under the preceding
sentence shall be rounded to the nearest
multiple of $1,000.
(4) Mandatory distribution rules not to apply before
death.--Notwithstanding subsections (a)(6) and (b)(3)
of section 408 (relating to required distributions),
the following provisions shall not apply to any Roth
IRA:
(A) Section 401(a)(9)(A).
(B) The incidental death benefit requirements
of section 401(a).
(5) Rollover contributions.--
(A) In general.--No rollover contribution may
be made to a Roth IRA unless it is a qualified
rollover contribution.
(B) Coordination with limit.--A qualified
rollover contribution shall not be taken into
account for purposes of paragraph (2).
(6) Time when contributions made.--For purposes of
this section, the rule of section 219(f)(3) shall
apply.
(7) Coordination with limitation for simple
retirement plans and seps.--In the case of an
individual on whose behalf contributions are made to a
simple retirement account or a simplified employee
pension, the amount described in paragraph (2)(A) shall
be increased by an amount equal to the contributions
made on the individual's behalf to such account or
pension for the taxable year, but only to the extent
such contributions--
(A) in the case of a simplified retirement
account--
(i) do not exceed the sum of the
dollar amount in effect for the taxable
year under section 408(p)(2)(A)(ii) and
the employer contribution required
under subparagraph (A)(iii) or (B)(i),
as the case may be, of section
408(p)(2), and
(ii) do not cause the elective
deferrals (as defined in section
402(g)(3)) on behalf of such individual
to exceed the limitation under section
402(g)(1) (taking into account any
additional elective deferrals permitted
under section 414(v)), or
(B) in the case of a simplified employee
pension, do not exceed the limitation in effect
under section 408(j).
(d) Distribution rules.--For purposes of this title--
(1) Exclusion.--Any qualified distribution from a
Roth IRA shall not be includible in gross income.
(2) Qualified distribution.--For purposes of this
subsection--
(A) In general.--The term ``qualified
distribution'' means any payment or
distribution--
(i) made on or after the date on
which the individual attains age 591/2,
(ii) made to a beneficiary (or to the
estate of the individual) on or after
the death of the individual,
(iii) attributable to the
individual's being disabled (within the
meaning of section 72(m)(7)), or
(iv) which is a qualified special
purpose distribution.
(B) Distributions within nonexclusion
period.--A payment or distribution from a Roth
IRA shall not be treated as a qualified
distribution under subparagraph (A) if such
payment or distribution is made within the 5-
taxable year period beginning with the first
taxable year for which the individual made a
contribution to a Roth IRA (or such
individual's spouse, or employer in the case of
a simple retirement account (as defined in
section 408(p)) or simplified employee pension
(as defined in section 408(k)), made a
contribution to a Roth IRA) established for
such individual.
(C) Distributions of excess contributions and
earnings.--The term ``qualified distribution''
shall not include any distribution of any
contribution described in section 408(d)(4) and
any net income allocable to the contribution.
(3) Rollovers from an eligible retirement plan other
than a Roth IRA.--
(A) In general.--Notwithstanding sections
402(c), 403(b)(8), 408(d)(3), and 457(e)(16),
in the case of any distribution to which this
paragraph applies--
(i) there shall be included in gross
income any amount which would be
includible were it not part of a
qualified rollover contribution,
(ii) section 72(t) shall not apply,
and
(iii) unless the taxpayer elects not
to have this clause apply, any amount
required to be included in gross income
for any taxable year beginning in 2010
by reason of this paragraph shall be so
included ratably over the 2-taxable-
year period beginning with the first
taxable year beginning in 2011.
Any election under clause (iii) for any
distributions during a taxable year may not be
changed after the due date for such taxable
year.
(B) Distributions to which paragraph
applies.--This paragraph shall apply to a
distribution from an eligible retirement plan
(as defined by section 402(c)(8)(B)) maintained
for the benefit of an individual which is
contributed to a Roth IRA maintained for the
benefit of such individual in a qualified
rollover contribution. This paragraph shall not
apply to a distribution which is a qualified
rollover contribution from a Roth IRA or a
qualified rollover contribution from a
designated Roth account which is a rollover
contribution described in section
402A(c)(3)(A).
(C) Conversions.--The conversion of an
individual retirement plan (other than a Roth
IRA) to a Roth IRA shall be treated for
purposes of this paragraph as a distribution to
which this paragraph applies.
(D) Additional reporting requirements.--
Trustees of Roth IRAs, trustees of individual
retirement plans, persons subject to section
6047(d)(1), or all of the foregoing persons,
whichever is appropriate, shall include such
additional information in reports required
under section 408(i) or 6047 as the Secretary
may require to ensure that amounts required to
be included in gross income under subparagraph
(A) are so included.
(E) Special rules for contributions to which
2-year averaging applies.--In the case of a
qualified rollover contribution to a Roth IRA
of a distribution to which subparagraph
(A)(iii) applied, the following rules shall
apply:
(i) Acceleration of inclusion.--
(I) In general.--The amount
otherwise required to be
included in gross income for
any taxable year beginning in
2010 or the first taxable year
in the 2-year period under
subparagraph (A)(iii) shall be
increased by the aggregate
distributions from Roth IRAs
for such taxable year which are
allocable under paragraph (4)
to the portion of such
qualified rollover contribution
required to be included in
gross income under subparagraph
(A)(i).
(II) Limitation on aggregate
amount included.--The amount
required to be included in
gross income for any taxable
year under subparagraph
(A)(iii) shall not exceed the
aggregate amount required to be
included in gross income under
subparagraph (A)(iii) for all
taxable years in the 2-year
period (without regard to
subclause (I)) reduced by
amounts included for all
preceding taxable years.
(ii) Death of distributee.--
(I) In general.--If the
individual required to include
amounts in gross income under
such subparagraph dies before
all of such amounts are
included, all remaining amounts
shall be included in gross
income for the taxable year
which includes the date of
death.
(II) Special rule for
surviving spouse.--If the
spouse of the individual
described in subclause (I)
acquires the individual's
entire interest in any Roth IRA
to which such qualified
rollover contribution is
properly allocable, the spouse
may elect to treat the
remaining amounts described in
subclause (I) as includible in
the spouse's gross income in
the taxable years of the spouse
ending with or within the
taxable years of such
individual in which such
amounts would otherwise have
been includible. Any such
election may not be made or
changed after the due date for
the spouse's taxable year which
includes the date of death.
(F) Special rule for applying section 72.--
(i) In general.--If--
(I) any portion of a
distribution from a Roth IRA is
properly allocable to a
qualified rollover contribution
described in this paragraph;
and
(II) such distribution is
made within the 5-taxable year
period beginning with the
taxable year in which such
contribution was made,
then section 72(t) shall be applied as if such
portion were includible in gross income.
(ii) Limitation.--Clause (i) shall
apply only to the extent of the amount
of the qualified rollover contribution
includible in gross income under
subparagraph (A)(i).
(4) Aggregation and ordering rules.--
(A) Aggregation rules.--Section 408(d)(2)
shall be applied separately with respect to
Roth IRAs and other individual retirement
plans.
(B) Ordering rules.--For purposes of applying
this section and section 72 to any distribution
from a Roth IRA, such distribution shall be
treated as made--
(i) from contributions to the extent
that the amount of such distribution,
when added to all previous
distributions from the Roth IRA, does
not exceed the aggregate contributions
to the Roth IRA; and
(ii) from such contributions in the
following order:
(I) Contributions other than
qualified rollover
contributions to which
paragraph (3) applies.
(II) Qualified rollover
contributions to which
paragraph (3) applies on a
first-in, first-out basis.
Any distribution allocated to a qualified
rollover contribution under clause (ii)(II)
shall be allocated first to the portion of such
contribution required to be included in gross
income.
(5) Qualified special purpose distribution.--For
purposes of this section, the term ``qualified special
purpose distribution'' means any distribution to which
subparagraph (F) of section 72(t)(2) applies.
(6) Taxpayer may make adjustments before due date.--
(A) In general.--Except as provided by the
Secretary, if, on or before the due date for
any taxable year, a taxpayer transfers in a
trustee-to-trustee transfer any contribution to
an individual retirement plan made during such
taxable year from such plan to any other
individual retirement plan, then, for purposes
of this chapter, such contribution shall be
treated as having been made to the transferee
plan (and not the transferor plan).
(B) Special rules.--
(i) Transfer of earnings.--
Subparagraph (A) shall not apply to the
transfer of any contribution unless
such transfer is accompanied by any net
income allocable to such contribution.
(ii) No deduction.--Subparagraph (A)
shall apply to the transfer of any
contribution only to the extent no
deduction was allowed with respect to
the contribution to the transferor
plan.
(iii) Conversions.--Subparagraph (A)
shall not apply in the case of a
qualified rollover contribution to
which subsection (d)(3) applies
(including by reason of subparagraph
(C) thereof).
(7) Due date.--For purposes of this subsection, the
due date for any taxable year is the date prescribed by
law (including extensions of time) for filing the
taxpayer's return for such taxable year.
(e) Qualified rollover contribution.--For purposes of this
section--
(1) In general.--The term ``qualified rollover
contribution'' means a rollover contribution--
(A) to a Roth IRA from another such account,
(B) from an eligible retirement plan, but
only if--
(i) in the case of an individual
retirement plan, such rollover
contribution meets the requirements of
section 408(d)(3), and
(ii) in the case of any eligible
retirement plan (as defined in section
402(c)(8)(B) other than clauses (i) and
(ii) thereof), such rollover
contribution meets the requirements of
section 402(c), 403(b)(8), or
457(e)(16), as applicable.
For purposes of section 408(d)(3)(B), there
shall be disregarded any qualified rollover
contribution from an individual retirement plan
(other than a Roth IRA) to a Roth IRA.
(2) Military death gratuity.--
(A) In general.--The term ``qualified
rollover contribution'' includes a contribution
to a Roth IRA maintained for the benefit of an
individual made before the end of the 1-year
period beginning on the date on which such
individual receives an amount under section
1477 of title 10, United States Code, or
section 1967 of title 38 of such Code, with
respect to a person, to the extent that such
contribution does not exceed--
(i) the sum of the amounts received
during such period by such individual
under such sections with respect to
such person, reduced by
(ii) the amounts so received which
were contributed to a Coverdell
education savings account under section
530(d)(9).
(B) Annual limit on number of rollovers not
to apply.--Section 408(d)(3)(B) shall not apply
with respect to amounts treated as a rollover
by subparagraph (A).
(C) Application of section 72.--For purposes
of applying section 72 in the case of a
distribution which is not a qualified
distribution, the amount treated as a rollover
by reason of subparagraph (A) shall be treated
as investment in the contract.
(3) Simple retirement accounts.--In the case of any
payment or distribution out of a simple retirement
account (as defined in section 408(p)) with respect to
which an election has been made under section
408(p)(11) and to which 72(t)(6) applies, the term
``qualified rollover contribution'' shall not include
any payment or distribution paid into an account other
than another simple retirement account (as so defined).
[(f) Individual retirement plan.--For purposes of this
section--
[(1) a simplified employee pension or a simple
retirement account may not be designated as a Roth IRA;
and
[(2) contributions to any such pension or account
shall not be taken into account for purposes of
subsection (c)(2)(B).]
* * * * * * *
Subpart B--SPECIAL RULES
* * * * * * *
Sec. 414A. Requirements related to automatic enrollment.
* * * * * * *
SEC. 414. DEFINITIONS AND SPECIAL RULES.
(a) Service for predecessor employer.--For purposes of this
part--
(1) in any case in which the employer maintains a
plan of a predecessor employer, service for such
predecessor shall be treated as service for the
employer, and
(2) in any case in which the employer maintains a
plan which is not the plan maintained by a predecessor
employer, service for such predecessor shall, to the
extent provided in regulations prescribed by the
Secretary, be treated as service for the employer.
(b) Employees of controlled group of corporations.--[For
purposes of]
(1) In general._For purposes of sections 401,
408(k), 408(p), 410, 411, 415, and 416, all employees
of all corporations which are members of a controlled
group of corporations (within the meaning of section
1563(a), determined without regard to section
1563(a)(4) and (e)(3)(C)) shall be treated as employed
by a single employer. With respect to a plan adopted by
more than one such corporation, the applicable
limitations provided by section 404(a) shall be
determined as if all such employers were a single
employer, and allocated to each employer in accordance
with regulations prescribed by the Secretary.
(2) Special rules for applying family attribution.--
For purposes of applying the attribution rules under
section 1563 with respect to paragraph (1), the
following rules apply:
(A) Community property laws shall be
disregarded for purposes of determining
ownership.
(B) Except as provided by the Secretary,
stock of an individual not attributed under
section 1563(e)(5) to such individual's spouse
shall not be attributed to such spouse by
reason of section 1563(e)(6)(A).
(C) Except as provided by the Secretary, in
the case of stock in different corporations
that is attributed to a child under section
1563(e)(6)(A) from each parent, and is not
attributed to such parents as spouses under
section 1563(e)(5), such attribution to the
child shall not by itself result in such
corporations being members of the same
controlled group.
(3) Plan shall not fail to be treated as satisfying
this section.--If application of paragraph (2) causes
two or more entities to be a controlled group, or an
affiliated service group, or to no longer be in a
controlled group or an affiliated service group, such
change shall be treated as a transaction to which
section 410(b)(6)(C) applies.
(c) Employees of partnerships, proprietorships, etc., which
are under common control.--
(1) In general.--Except as provided in paragraph (2),
for purposes of sections 401, 408(k), 408(p), 410, 411,
415, and 416, under regulations prescribed by the
Secretary, all employees of trades or businesses
(whether or not incorporated) which are under common
control shall be treated as employed by a single
employer. The regulations prescribed under this
subsection shall be based on principles similar to the
principles which apply in the case of subsection (b).
(2) Special rules relating to church plans.--
(A) General rule.--Except as provided in
subparagraphs (B) and (C), for purposes of this
subsection and subsection (m), an organization
that is otherwise eligible to participate in a
church plan shall not be aggregated with
another such organization and treated as a
single employer with such other organization
for a plan year beginning in a taxable year
unless--
(i) one such organization provides
(directly or indirectly) at least 80
percent of the operating funds for the
other organization during the preceding
taxable year of the recipient
organization, and
(ii) there is a degree of common
management or supervision between the
organizations such that the
organization providing the operating
funds is directly involved in the day-
to-day operations of the other
organization.
(B) Nonqualified church-controlled
organizations.--Notwithstanding subparagraph
(A), for purposes of this subsection and
subsection (m), an organization that is a
nonqualified church-controlled organization
shall be aggregated with 1 or more other
nonqualified church-controlled organizations,
or with an organization that is not exempt from
tax under section 501, and treated as a single
employer with such other organization, if at
least 80 percent of the directors or trustees
of such other organization are either
representatives of, or directly or indirectly
controlled by, such nonqualified church-
controlled organization. For purposes of this
subparagraph, the term ``nonqualified church-
controlled organization'' means a church-
controlled tax-exempt organization described in
section 501(c)(3) that is not a qualified
church-controlled organization (as defined in
section 3121(w)(3)(B)).
(C) Permissive aggregation among church-
related organizations.--The church or
convention or association of churches with
which an organization described in subparagraph
(A) is associated (within the meaning of
subsection (e)(3)(D)), or an organization
designated by such church or convention or
association of churches, may elect to treat
such organizations as a single employer for a
plan year. Such election, once made, shall
apply to all succeeding plan years unless
revoked with notice provided to the Secretary
in such manner as the Secretary shall
prescribe.
(D) Permissive disaggregation of church-
related organizations.--For purposes of
subparagraph (A), in the case of a church plan,
an employer may elect to treat churches (as
defined in section 403(b)(12)(B)) separately
from entities that are not churches (as so
defined), without regard to whether such
entities maintain separate church plans. Such
election, once made, shall apply to all
succeeding plan years unless revoked with
notice provided to the Secretary in such manner
as the Secretary shall prescribe.
(d) Governmental plan.--For purposes of this part, the term
``governmental plan'' means a plan established and maintained
for its employees by the Government of the United States, by
the government of any State or political subdivision thereof,
or by any agency or instrumentality of any of the foregoing.
The term ``governmental plan'' also includes any plan to which
the Railroad Retirement Act of 1935 or 1937 applies and which
is financed by contributions required under that Act and any
plan of an international organization which is exempt from
taxation by reason of the International Organizations
Immunities Act (59 Stat. 669). The term ``governmental plan''
includes a plan which is established and maintained by an
Indian tribal government (as defined in section 7701(a)(40)), a
subdivision of an Indian tribal government (determined in
accordance with section 7871(d)), or an agency or
instrumentality of either, and all of the participants of which
are employees of such entity substantially all of whose
services as such an employee are in the performance of
essential governmental functions but not in the performance of
commercial activities (whether or not an essential government
function).
(e) Church plan.--
(1) In general.--For purposes of this part, the term
``church plan'' means a plan established and maintained
(to the extent required in paragraph (2)(B)) for its
employees (or their beneficiaries) by a church or by a
convention or association of churches which is exempt
from tax under section 501.
(2) Certain plans excluded.--The term ``church plan''
does not include a plan--
(A) which is established and maintained
primarily for the benefit of employees (or
their beneficiaries) of such church or
convention or association of churches who are
employed in connection with one or more
unrelated trades or businesses (within the
meaning of section 513); or
(B) if less than substantially all of the
individuals included in the plan are
individuals described in paragraph (1) or
(3)(B) (or their beneficiaries).
(3) Definitions and other provisions.--For purposes
of this subsection--
(A) Treatment as church plan.--A plan
established and maintained for its employees
(or their beneficiaries) by a church or by a
convention or association of churches includes
a plan maintained by an organization, whether a
civil law corporation or otherwise, the
principal purpose or function of which is the
administration or funding of a plan or program
for the provision of retirement benefits or
welfare benefits, or both, for the employees of
a church or a convention or association of
churches, if such organization is controlled by
or associated with a church or a convention or
association of churches.
(B) Employee defined.--The term employee of a
church or a convention or association of
churches shall include--
(i) a duly ordained, commissioned, or
licensed minister of a church in the
exercise of his ministry, regardless of
the source of his compensation;
(ii) an employee of an organization,
whether a civil law corporation or
otherwise, which is exempt from tax
under section 501 and which is
controlled by or associated with a
church or a convention or association
of churches; and
(iii) an individual described in
subparagraph (E).
(C) Church treated as employer.--A church or
a convention or association of churches which
is exempt from tax under section 501 shall be
deemed the employer of any individual included
as an employee under subparagraph (B).
(D) Association with church.--An
organization, whether a civil law corporation
or otherwise, is associated with a church or a
convention or association of churches if it
shares common religious bonds and convictions
with that church or convention or association
of churches.
(E) Special rule in case of separation from
plan.--If an employee who is included in a
church plan separates from the service of a
church or a convention or association of
churches or an organization described in clause
(ii) of paragraph (3)(B), the church plan shall
not fail to meet the requirements of this
subsection merely because the plan--
(i) retains the employee's accrued
benefit or account for the payment of
benefits to the employee or his
beneficiaries pursuant to the terms of
the plan; or
(ii) receives contributions on the
employee's behalf after the employee's
separation from such service, but only
for a period of 5 years after such
separation, unless the employee is
disabled (within the meaning of the
disability provisions of the church
plan or, if there are no such
provisions in the church plan, within
the meaning of section 72(m)(7)) at the
time of such separation from service.
(4) Correction of failure to meet church plan
requirements.--
(A) In general.--If a plan established and
maintained for its employees (or their
beneficiaries) by a church or by a convention
or association of churches which is exempt from
tax under section 501 fails to meet one or more
of the requirements of this subsection and
corrects its failure to meet such requirements
within the correction period, the plan shall be
deemed to meet the requirements of this
subsection for the year in which the correction
was made and for all prior years.
(B) Failure to correct.--If a correction is
not made within the correction period, the plan
shall be deemed not to meet the requirements of
this subsection beginning with the date on
which the earliest failure to meet one or more
of such requirements occurred.
(C) Correction period defined.--The term
``correction period'' means--
(i) the period, ending 270 days after
the date of mailing by the Secretary of
a notice of default with respect to the
plan's failure to meet one or more of
the requirements of this subsection;
(ii) any period set by a court of
competent jurisdiction after a final
determination that the plan fails to
meet such requirements, or, if the
court does not specify such period, any
reasonable period determined by the
Secretary on the basis of all the facts
and circumstances, but in any event not
less than 270 days after the
determination has become final; or
(iii) any additional period which the
Secretary determines is reasonable or
necessary for the correction of the
default,
whichever has the latest ending date.
(5) Special rules for chaplains and self-employed
ministers.--
(A) Certain ministers may participate.--For
purposes of this part--
(i) In general.--A duly ordained,
commissioned, or licensed minister of a
church is described in paragraph (3)(B)
if, in connection with the exercise of
their ministry, the minister--
(I) is a self-employed
individual (within the meaning
of section 401(c)(1)(B), or
(II) is employed by an
organization other than an
organization which is described
in section 501(c)(3) and with
respect to which the minister
shares common religious bonds.
(ii) Treatment as employer and
employee.--For purposes of sections
403(b)(1)(A) and 404(a)(10), a minister
described in clause (i)(I) shall be
treated as employed by the minister's
own employer which is an organization
described in section 501(c)(3) and
exempt from tax under section 501(a).
(B) Special rules for applying section 403(b)
to self-employed ministers.--In the case of a
minister described in subparagraph (A)(i)(I)--
(i) the minister's includible
compensation under section 403(b)(3)
shall be determined by reference to the
minister's earned income (within the
meaning of section 401(c)(2)) from such
ministry rather than the amount of
compensation which is received from an
employer, and
(ii) the years (and portions of
years) in which such minister was a
self-employed individual (within the
meaning of section 401(c)(1)(B)) with
respect to such ministry shall be
included for purposes of section
403(b)(4).
(C) Effect on non-denominational plans.--If a
duly ordained, commissioned, or licensed
minister of a church in the exercise of his or
her ministry participates in a church plan
(within the meaning of this section) and in the
exercise of such ministry is employed by an
employer not otherwise participating in such
church plan, then such employer may exclude
such minister from being treated as an employee
of such employer for purposes of applying
sections 401(a)(3), 401(a)(4), and 401(a)(5),
as in effect on September 1, 1974, and sections
401(a)(4), 401(a)(5), 401(a)(26), 401(k)(3),
401(m), 403(b)(1)(D) (including section
403(b)(12)), and 410 to any stock bonus,
pension, profit-sharing, or annuity plan
(including an annuity described in section
403(b) or a retirement income account described
in section 403(b)(9)). The Secretary shall
prescribe such regulations as may be necessary
or appropriate to carry out the purpose of, and
prevent the abuse of, this subparagraph.
(D) Compensation taken into account only
once.--If any compensation is taken into
account in determining the amount of any
contributions made to, or benefits to be
provided under, any church plan, such
compensation shall not also be taken into
account in determining the amount of any
contributions made to, or benefits to be
provided under, any other stock bonus, pension,
profit-sharing, or annuity plan which is not a
church plan.
(E) Exclusion.--In the case of a contribution
to a church plan made on behalf of a minister
described in subparagraph (A)(i)(II), such
contribution shall not be included in the gross
income of the minister to the extent that such
contribution would not be so included if the
minister was an employee of a church.
(f) Multiemployer plan.--
(1) Definition.--For purposes of this part, the term
``multiemployer plan'' means a plan--
(A) to which more than one employer is
required to contribute,
(B) which is maintained pursuant to one or
more collective bargaining agreements between
one or more employee organizations and more
than one employer, and
(C) which satisfies such other requirements
as the Secretary of Labor may prescribe by
regulation.
(2) Cases of common control.--For purposes of this
subsection, all trades or businesses (whether or not
incorporated) which are under common control within the
meaning of subsection (c) are considered a single
employer.
(3) Continuation of status after termination.--
Notwithstanding paragraph (1), a plan is a
multiemployer plan on and after its termination date
under title IV of the Employee Retirement Income
Security Act of 1974 if the plan was a multiemployer
plan under this subsection for the plan year preceding
its termination date.
(4) Transitional rule.--For any plan year which began
before the date of the enactment of the Multiemployer
Pension Plan Amendments Act of 1980, the term
``multiemployer plan'' means a plan described in this
subsection as in effect immediately before that date.
(5) Special election.--Within one year after the date
of the enactment of the Multiemployer Pension Plan
Amendments Act of 1980, a multiemployer plan may
irrevocably elect, pursuant to procedures established
by the Pension Benefit Guaranty Corporation and subject
to the provisions of section 4403(b) and (c) of the
Employee Retirement Income Security Act of 1974, that
the plan shall not be treated as a multiemployer plan
for any purpose under such Act or this title, if for
each of the last 3 plan years ending prior to the
effective date of the Multiemployer Pension Plan
Amendments Act of 1980--
(A) the plan was not a multiemployer plan
because the plan was not a plan described in
section 3(37)(A)(iii) of the Employee
Retirement Income Security Act of 1974 and
section 414(f)(1)(C) (as such provisions were
in effect on the day before the date of the
enactment of the Multiemployer Pension Plan
Amendments Act of 1980); and
(B) the plan had been identified as a plan
that was not a multiemployer plan in
substantially all its filings with the Pension
Benefit Guaranty Corporation, the Secretary of
Labor and the Secretary.
(6) Election with regard to multiemployer status.--
(A) Within 1 year after the enactment of the Pension
Protection Act of 2006--
(i) An election under paragraph (5) may be
revoked, pursuant to procedures prescribed by
the Pension Benefit Guaranty Corporation, if,
for each of the 3 plan years prior to the date
of the enactment of that Act, the plan would
have been a multiemployer plan but for the
election under paragraph (5), and
(ii) a plan that meets the criteria in
subparagraph (A) and (B) of paragraph (1) of
this subsection or that is described in
subparagraph (E) may, pursuant to procedures
prescribed by the Pension Benefit Guaranty
Corporation, elect to be a multiemployer plan,
if--
(I) for each of the 3 plan years
immediately preceding the first plan
year for which the election under this
paragraph is effective with respect to
the plan, the plan has met those
criteria or is so described,
(II) substantially all of the plan's
employer contributions for each of
those plan years were made or required
to be made by organizations that were
exempt from tax under section 501, and
(III) the plan was established prior
to September 2, 1974.
(B) An election under this paragraph shall be
effective for all purposes under this Act and under the
Employee Retirement Income Security Act of 1974,
starting with any plan year beginning on or after
January 1, 1999, and ending before January 1, 2008, as
designated by the plan in the election made under
subparagraph (A)(ii).
(C) Once made, an election under this paragraph shall
be irrevocable, except that a plan described in
subparagraph (A)(ii) shall cease to be a multiemployer
plan as of the plan year beginning immediately after
the first plan year for which the majority of its
employer contributions were made or required to be made
by organizations that were not exempt from tax under
section 501.
(D) The fact that a plan makes an election under
subparagraph (A)(ii) does not imply that the plan was
not a multiemployer plan prior to the date of the
election or would not be a multiemployer plan without
regard to the election.
(E) A plan is described in this subparagraph if it is
a plan sponsored by an organization which is described
in section 501(c)(5) and exempt from tax under section
501(a) and which was established in Chicago, Illinois,
on August 12, 1881.
(F) Maintenance under collective bargaining
agreement.--For purposes of this title and the Employee
Retirement Income Security Act of 1974, a plan making
an election under this paragraph shall be treated as
maintained pursuant to a collective bargaining
agreement if a collective bargaining agreement,
expressly or otherwise, provides for or permits
employer contributions to the plan by one or more
employers that are signatory to such agreement, or
participation in the plan by one or more employees of
an employer that is signatory to such agreement,
regardless of whether the plan was created,
established, or maintained for such employees by virtue
of another document that is not a collective bargaining
agreement.
(g) Plan administrator.--For purposes of this part, the term
``plan administrator'' means--
(1) the person specifically so designated by the
terms of the instrument under which the plan is
operated;
(2) in the absence of a designation referred to in
paragraph (1)--
(A) in the case of a plan maintained by a
single employer, such employer,
(B) in the case of a plan maintained by two
or more employers or jointly by one or more
employers and one or more employee
organizations, the association, committee,
joint board of trustees, or other similar group
of representatives of the parties who
maintained the plan, or
(C) in any case to which subparagraph (A) or
(B) does not apply, such other person as the
Secretary may by regulation, prescribe.
(h) Tax treatment of certain contributions.--
(1) In general.--Effective with respect to taxable
years beginning after December 31, 1973, for purposes
of this title, any amount contributed--
(A) to an employees' trust described in
section 401(a), or
(B) under a plan described in section 403(a),
shall not be treated as having been made by the
employer if it is designated as an employee
contribution.
(2) Designation by units of government.--For purposes
of paragraph (1), in the case of any plan established
by the government of any State or political subdivision
thereof, or by any agency or instrumentality of any of
the foregoing, or a governmental plan described in the
last sentence of section 414(d) (relating to plans of
Indian tribal governments), where the contributions of
employing units are designated as employee
contributions but where any employing unit picks up the
contributions, the contributions so picked up shall be
treated as employer contributions.
(i) Defined contribution plan.--For purposes of this part,
the term ``defined contribution plan'' means a plan which
provides for an individual account for each participant and for
benefits based solely on the amount contributed to the
participant's account, and any income, expenses, gains and
losses, and any forfeitures of accounts of other participants
which may be allocated to such participant's account.
(j) Defined benefit plan.--For purposes of this part, the
term ``defined benefit plan'' means any plan which is not a
defined contribution plan.
(k) Certain plans.--A defined benefit plan which provides a
benefit derived from employer contributions which is based
partly on the balance of the separate account of a participant
shall--
(1) for purposes of section 410 (relating to minimum
participation standards), be treated as a defined
contribution plan,
(2) for purposes of sections 72(d) (relating to
treatment of employee contributions as separate
contract), 411(a)(7)(A) (relating to minimum vesting
standards), 415 (relating to limitations on benefits
and contributions under qualified plans), and 401(m)
(relating to nondiscrimination tests for matching
requirements and employee contributions), be treated as
consisting of a defined contribution plan to the extent
benefits are based on the separate account of a
participant and as a defined benefit plan with respect
to the remaining portion of benefits under the plan,
and
(3) for purposes of section 4975 (relating to tax on
prohibited transactions), be treated as a defined
benefit plan.
(l) Merger and consolidations of plans or transfers of plan
assets.--
(1) In general.--A trust which forms a part of a plan
shall not constitute a qualified trust under section
401 and a plan shall be treated as not described in
section 403(a) unless in the case of any merger or
consolidation of the plan with, or in the case of any
transfer of assets or liabilities of such plan to, any
other trust plan after September 2, 1974, each
participant in the plan would (if the plan then
terminated) receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or
greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation,
or transfer (if the plan had then terminated). The
preceding sentence does not apply to any multiemployer
plan with respect to any transaction to the extent that
participants either before or after the transaction are
covered under a multiemployer plan to which Title IV of
the Employee Retirement Income Security Act of 1974
applies.
(2) Allocation of assets in plan spin-offs, etc..--
(A) In general.--In the case of a plan spin-
off of a defined benefit plan, a trust which
forms part of--
(i) the original plan, or
(ii) any plan spun off from such
plan,
shall not constitute a qualified trust under
this section unless the applicable percentage
of excess assets are allocated to each of such
plans.
(B) Applicable percentage.--For purposes of
subparagraph (A), the term ``applicable
percentage'' means, with respect to each of the
plans described in clauses (i) and (ii) of
subparagraph (A), the percentage determined by
dividing--
(i) the excess (if any) of--
(I) the sum of the funding
target and target normal cost
determined under section 430,
over
(II) the amount of the assets
required to be allocated to the
plan after the spin-off
(without regard to this
paragraph), by
(ii) the sum of the excess amounts
determined separately under clause (i)
for all such plans.
(C) Excess assets.--For purposes of
subparagraph (A), the term ``excess assets''
means an amount equal to the excess (if any)
of--
(i) the fair market value of the
assets of the original plan immediately
before the spin-off, over
(ii) the amount of assets required to
be allocated after the spin-off to all
plans (determined without regard to
this paragraph).
(D) Certain spun-off plans not taken into
account.--
(i) In general.--A plan involved in a
spin-off which is described in clause
(ii), (iii), or (iv) shall not be taken
into account for purposes of this
paragraph, except that the amount
determined under subparagraph (C)(ii)
shall be increased by the amount of
assets allocated to such plan.
(ii) Plans transferred out of
controlled groups.--A plan is described
in this clause if, after such spin-off,
such plan is maintained by an employer
who is not a member of the same
controlled group as the employer
maintaining the original plan.
(iii) Plans transferred out of
multiple employer plans.--A plan as
described in this clause if, after the
spin-off, any employer maintaining such
plan (and any member of the same
controlled group as such employer) does
not maintain any other plan remaining
after the spin-off which is also
maintained by another employer (or
member of the same controlled group as
such other employer) which maintained
the plan in existence before the spin-
off.
(iv) Terminated plans.--A plan is
described in this clause if, pursuant
to the transaction involving the spin-
off, the plan is terminated.
(v) Controlled group.--For purposes
of this subparagraph, the term
``controlled group'' means any group
treated as a single employer under
subsection (b), (c), (m), or (o).
(E) Paragraph not to apply to multiemployer
plans.--This paragraph does not apply to any
multiemployer plan with respect to any spin-off
to the extent that participants either before
or after the spin-off are covered under a
multiemployer plan to which title IV of the
Employee Retirement Income Security Act of 1974
applies.
(F) Application to similar transaction.--
Except as provided by the Secretary, rules
similar to the rules of this paragraph shall
apply to transactions similar to spin-offs.
(G) Special rules for bridge depository
institutions.--For purposes of this paragraph,
in the case of a bridge depository institution
established under section 11(i) of the Federal
Deposit Insurance Act (12 U.S.C. 1821(i))--
(i) such bank shall be treated as a
member of any controlled group which
includes any insured bank (as defined
in section 3(h) of such Act (12 U.S.C.
1813(h)))--
(I) which maintains a defined
benefit plan,
(II) which is closed by the
appropriate bank regulatory
authorities, and
(III) any asset and
liabilities of which are
received by the bridge
depository institution, and
(ii) the requirements of this
paragraph shall not be treated as met
with respect to such plan unless during
the 180-day period beginning on the
date such insured bank is closed--
(I) the bridge depository
institution has the right to
require the plan to transfer
(subject to the provisions of
this paragraph) not more than
50 percent of the excess assets
(as defined in subparagraph
(C)) to a defined benefit plan
maintained by the bridge
depository institution with
respect to participants or
former participants (including
retirees and beneficiaries) in
the original plan employed by
the bridge depository
institution or formerly
employed by the closed bank,
and
(II) no other merger, spin-
off, termination, or similar
transaction involving the
portion of the excess assets
described in subclause (I) may
occur without the prior written
consent of the bridge
depository institution.
(m) Employees of an affiliated service group.--
(1) In general.--For purposes of the employee benefit
requirements listed in paragraph (4), except to the
extent otherwise provided in regulations, all employees
of the members of an affiliated service group shall be
treated as employed by a single employer.
(2) Affiliated service group.--For purposes of this
subsection, the term ``affiliated service group'' means
a group consisting of a service organization
(hereinafter in this paragraph referred to as the
``first organization'') and one or more of the
following:
(A) any service organization which--
(i) is a shareholder or partner in
the first organization, and
(ii) regularly performs services for
the first organization or is regularly
associated with the first organization
in performing services for third
persons, and
(B) any other organization if--
(i) a significant portion of the
business of such organization is the
performance of services (for the first
organization, for organizations
described in subparagraph (A), or for
both) of a type historically performed
in such service field by employees, and
(ii) 10 percent or more of the
interests in such organization is held
by persons who are highly compensated
employees (within the meaning of
section 414(q)) of the first
organization or an organization
described in subparagraph (A).
(3) Service organizations.--For purposes of this
subsection, the term ``service organization'' means an
organization the principal business of which is the
performance of services.
(4) Employee benefit requirements.--For purposes of
this subsection, the employee benefit requirements
listed in this paragraph are--
(A) paragraphs (3), (4), (7), (16), (17), and
(26) of section 401(a), and
(B) sections 408(k), 408(p), 410, 411, 415,
and 416.
(5) Certain organizations performing management
functions.--For purposes of this subsection, the term
``affiliated service group'' also includes a group
consisting of--
(A) an organization the principal business of
which is performing, on a regular and
continuing basis, management functions for 1
organization (or for 1 organization and other
organizations related to such 1 organization),
and
(B) the organization (and related
organizations) for which such functions are so
performed by the organization described in
subparagraph (A).
For purposes of this paragraph, the term ``related
organizations'' has the same meaning as the term
``related persons'' when used in section 144(a)(3).
(6) Other definitions.--For purposes of this
subsection--
(A) Organization defined.--The term
``organization'' means a corporation,
partnership, or other organization.
(B) Ownership.--In determining ownership, the
principles of section 318(a) shall [apply]
apply, except that community property laws
shall be disregarded for purposes of
determining ownership.
(n) Employee leasing.--
(1) In general.--For purposes of the requirements
listed in paragraph (3), with respect to any person
(hereinafter in this subsection referred to as the
``recipient'') for whom a leased employee performs
services--
(A) the leased employee shall be treated as
an employee of the recipient, but
(B) contributions or benefits provided by the
leasing organization which are attributable to
services performed for the recipient shall be
treated as provided by the recipient.
(2) Leased employee.--For purposes of paragraph (1),
the term ``leased employee'' means any person who is
not an employee of the recipient and who provides
services to the recipient if--
(A) such services are provided pursuant to an
agreement between the recipient and any other
person (in this subsection referred to as the
``leasing organization''),
(B) such person has performed such services
for the recipient (or for the recipient and
related persons) on a substantially full-time
basis for a period of at least 1 year, and
(C) such services are performed under primary
direction or control by the recipient.
(3) Requirements.--For purposes of this subsection,
the requirements listed in this paragraph are--
(A) paragraphs (3), (4), (7), (16), (17), and
(26) of section 401(a),
(B) sections 408(k), 408(p), 410, 411, 415,
and 416, and
(C) sections 79, 106, 117(d), 125, 127, 129,
132, 137, 274(j), 505, and 4980B.
(4) Time when first considered as employee.--
(A) In general.--In the case of any leased
employee, paragraph (1) shall apply only for
purposes of determining whether the
requirements listed in paragraph (3) are met
for periods after the close of the period
referred to in paragraph (2)(B).
(B) Years of service.--In the case of a
person who is an employee of the recipient
(whether by reason of this subsection or
otherwise), for purposes of the requirements
listed in paragraph (3), years of service for
the recipient shall be determined by taking
into account any period for which such employee
would have been a leased employee but for the
requirements of paragraph (2)(B).
(5) Safe harbor.--
(A) In general.--In the case of requirements
described in subparagraphs (A) and (B) of
paragraph (3), this subsection shall not apply
to any leased employee with respect to services
performed for a recipient if--
(i) such employee is covered by a
plan which is maintained by the leasing
organization and meets the requirements
of subparagraph (B), and
(ii) leased employees (determined
without regard to this paragraph) do
not constitute more than 20 percent of
the recipient's nonhighly compensated
work force.
(B) Plan requirements.--A plan meets the
requirements of this subparagraph if--
(i) such plan is a money purchase
pension plan with a nonintegrated
employer contribution rate for each
participant of at least 10 percent of
compensation,
(ii) such plan provides for full and
immediate vesting, and
(iii) each employee of the leasing
organization (other than employees who
perform substantially all of their
services for the leasing organization)
immediately participates in such plan.
Clause (iii) shall not apply to any individual
whose compensation from the leasing
organization in each plan year during the 4-
year period ending with the plan year is less
than $1,000.
(C) Definitions.--For purposes of this
paragraph--
(i) Highly compensated employee.--The
term ``highly compensated employee''
has the meaning given such term by
section 414(q).
(ii) Nonhighly compensated work
force.--The term ``nonhighly
compensated work force'' means the
aggregate number of individuals (other
than highly compensated employees)--
(I) who are employees of the
recipient (without regard to
this subsection) and have
performed services for the
recipient (or for the recipient
and related persons) on a
substantially full-time basis
for a period of at least 1
year, or
(II) who are leased employees
with respect to the recipient
(determined without regard to
this paragraph).
(iii) Compensation.--The term
``compensation'' has the same meaning
as when used in section 415; except
that such term shall include--
(I) any employer contribution
under a qualified cash or
deferred arrangement to the
extent not included in gross
income under section 402(e)(3)
or 402(h)(1)(B),
(II) any amount which the
employee would have received in
cash but for an election under
a cafeteria plan (within the
meaning of section 125), and
(III) any amount contributed
to an annuity contract
described in section 403(b)
pursuant to a salary reduction
agreement (within the meaning
of section 3121(a)(5)(D)).
(6) Other rules.--For purposes of this subsection--
(A) Related persons.--The term ``related
persons'' has the same meaning as when used in
section 144(a)(3).
(B) Employees of entities under common
control.--The rules of subsections (b), (c),
(m), and (o) shall apply.
(o) Regulations.--The Secretary shall prescribe such
regulations (which may provide rules in addition to the rules
contained in subsections (m) and (n)) as may be necessary to
prevent the avoidance of any employee benefit requirement
listed in subsection (m)(4) or (n)(3) or any requirement under
section 457 through the use of--
(1) separate organizations,
(2) employee leasing, or
(3) other arrangements.
The regulations prescribed under subsection (n) shall include
provisions to minimize the recordkeeping requirements of
subsection (n) in the case of an employer which has no top-
heavy plans (within the meaning of section 416(g)) and which
uses the services of persons (other than employees) for an
insignificant percentage of the employer's total workload.
(p) Qualified domestic relations order defined.--For purposes
of this subsection and section 401(a)(13)--
(1) In general.--
(A) Qualified domestic relations order.--The
term ``qualified domestic relations order''
means a domestic relations order--
(i) which creates or recognizes the
existence of an alternate payee's right
to, or assigns to an alternate payee
the right to, receive all or a portion
of the benefits payable with respect to
a participant under a plan, and
(ii) with respect to which the
requirements of paragraphs (2) and (3)
are met.
(B) Domestic relations order.--The term
``domestic relations order'' means any
judgment, decree, or order (including approval
of a property settlement agreement) which--
(i) relates to the provision of child
support, alimony payments, or marital
property rights to a spouse, former
spouse, child, or other dependent of a
participant, and
(ii) is made pursuant to a State
domestic relations law (including a
community property law).
(2) Order must clearly specify certain facts.--A
domestic relations order meets the requirements of this
paragraph only if such order clearly specifies--
(A) the name and the last known mailing
address (if any) of the participant and the
name and mailing address of each alternate
payee covered by the order,
(B) the amount or percentage of the
participant's benefits to be paid by the plan
to each such alternate payee, or the manner in
which such amount or percentage is to be
determined,
(C) the number of payments or period to which
such order applies, and
(D) each plan to which such order applies.
(3) Order may not alter amount, form, etc., of
benefits.--A domestic relations order meets the
requirements of this paragraph only if such order--
(A) does not require a plan to provide any
type or form of benefit, or any option, not
otherwise provided under the plan,
(B) does not require the plan to provide
increased benefits (determined on the basis of
actuarial value), and
(C) does not require the payment of benefits
to an alternate payee which are required to be
paid to another alternate payee under another
order previously determined to be a qualified
domestic relations order.
(4) Exception for certain payments made after
earliest retirement age.--
(A) In general.--A domestic relations order
shall not be treated as failing to meet the
requirements of subparagraph (A) of paragraph
(3) solely because such order requires that
payment of benefits be made to an alternate
payee--
(i) in the case of any payment before
a participant has separated from
service, on or after the date on which
the participant attains (or would have
attained) the earliest retirement age,
(ii) as if the participant had
retired on the date on which such
payment is to begin under such order
(but taking into account only the
present value of the benefits actually
accrued and not taking into account the
present value of any employer subsidy
for early retirement), and
(iii) in any form in which such
benefits may be paid under the plan to
the participant (other than in the form
of a joint and survivor annuity with
respect to the alternate payee and his
or her subsequent spouse).
For purposes of clause (ii), the interest rate
assumption used in determining the present
value shall be the interest rate specified in
the plan or, if no rate is specified, 5
percent.
(B) Earliest retirement age.--For purposes of
this paragraph, the term ``earliest retirement
age'' means the earlier of--
(i) the date on which the participant
is entitled to a distribution under the
plan, or
(ii) the later of--
(I) the date the participant
attains age 50, or
(II) the earliest date on
which the participant could
begin receiving benefits under
the plan if the participant
separated from service.
(5) Treatment of former spouse as surviving spouse
for purposes of determining survivor benefits.--To the
extent provided in any qualified domestic relations
order--
(A) the former spouse of a participant shall
be treated as a surviving spouse of such
participant for purposes of sections 401(a)(11)
and 417 (and any spouse of the participant
shall not be treated as a spouse of the
participant for such purposes), and
(B) if married for at least 1 year, the
surviving former spouse shall be treated as
meeting the requirements of section 417(d).
(6) Plan procedures with respect to orders.--
(A) Notice and determination by
administrator.--In the case of any domestic
relations order received by a plan--
(i) the plan administrator shall
promptly notify the participant and
each alternate payee of the receipt of
such order and the plan's procedures
for determining the qualified status of
domestic relations orders, and
(ii) within a reasonable period after
receipt of such order, the plan
administrator shall determine whether
such order is a qualified domestic
relations order and notify the
participant and each alternate payee of
such determination.
(B) Plan to establish reasonable
procedures.--Each plan shall establish
reasonable procedures to determine the
qualified status of domestic relations orders
and to administer distributions under such
qualified orders.
(7) Procedures for period during which determination
is being made.--
(A) In general.--During any period in which
the issue of whether a domestic relations order
is a qualified domestic relations order is
being determined (by the plan administrator, by
a court of competent jurisdiction, or
otherwise), the plan administrator shall
separately account for the amounts (hereinafter
in this paragraph referred to as the
``segregated amounts'') which would have been
payable to the alternate payee during such
period if the order had been determined to be a
qualified domestic relations order.
(B) Payment to alternate payee if order
determined to be qualified domestic relations
order.--If within the 18-month period described
in subparagraph (E) the order (or modification
thereof) is determined to be a qualified
domestic relations order, the plan
administrator shall pay the segregated amounts
(including any interest thereon) to the person
or persons entitled thereto.
(C) Payment to plan participant in certain
cases.--If within the 18-month period described
in subparagraph (E)--
(i) it is determined that the order
is not a qualified domestic relations
order, or
(ii) the issue as to whether such
order is a qualified domestic relations
order is not resolved,
then the plan administrator shall pay the
segregated amounts (including any interest
thereon) to the person or persons who would
have been entitled to such amounts if there had
been no order.
(D) Subsequent determination or order to be
applied prospectively only.--Any determination
that an order is a qualified domestic relations
order which is made after the close of the 18-
month period described in subparagraph (E)
shall be applied prospectively only.
(E) Determination of 18-month period.--For
purposes of this paragraph, the 18-month period
described in this subparagraph is the 18-month
period beginning with the date on which the
first payment would be required to be made
under the domestic relations order.
(8) Alternate payee defined.--The term ``alternate
payee'' means any spouse, former spouse, child or other
dependent of a participant who is recognized by a
domestic relations order as having a right to receive
all, or a portion of, the benefits payable under a plan
with respect to such participant.
(9) Subsection not to apply to plans to which section
401(a)(13) does not apply.--This subsection shall not
apply to any plan to which section 401(a)(13) does not
apply. For purposes of this title, except as provided
in regulations, any distribution from an annuity
contract under section 403(b) pursuant to a qualified
domestic relations order shall be treated in the same
manner as a distribution from a plan to which section
401(a)(13) applies.
(10) Waiver of certain distribution requirements.--
With respect to the requirements of subsections (a) and
(k) of section 401, section 403(b), section 409(d), and
section 457(d), a plan shall not be treated as failing
to meet such requirements solely by reason of payments
to an alternative payee pursuant to a qualified
domestic relations order.
(11) Application of rules to certain other plans.--
For purposes of this title, a distribution or payment
from a governmental plan (as defined in subsection (d))
or a church plan (as described in subsection (e)) or an
eligible deferred compensation plan (within the meaning
of section 457(b)) shall be treated as made pursuant to
a qualified domestic relations order if it is made
pursuant to a domestic relations order which meets the
requirement of clause (i) of paragraph (1)(A).
(12) Tax treatment of payments from a section 457
plan.--If a distribution or payment from an eligible
deferred compensation plan described in section 457(b)
is made pursuant to a qualified domestic relations
order, rules similar to the rules of section
402(e)(1)(A) shall apply to such distribution or
payment.
(13) Consultation with the Secretary.--In prescribing
regulations under this subsection and section
401(a)(13), the Secretary of Labor shall consult with
the Secretary.
(q) Highly compensated employee.--
(1) In general.--The term ``highly compensated
employee'' means any employee who--
(A) was a 5-percent owner at any time during
the year or the preceding year, or
(B) for the preceding year--
(i) had compensation from the
employer in excess of $80,000, and
(ii) if the employer elects the
application of this clause for such
preceding year, was in the top-paid
group of employees for such preceding
year.
The Secretary shall adjust the $80,000 amount under
subparagraph (B) at the same time and in the same
manner as under section 415(d), except that the base
period shall be the calendar quarter ending September
30, 1996.
(2) 5-percent owner.--An employee shall be treated as
a 5-percent owner for any year if at any time during
such year such employee was a 5-percent owner (as
defined in section 416(i)(1)) of the employer.
(3) Top-paid group.--An employee is in the top-paid
group of employees for any year if such employee is in
the group consisting of the top 20 percent of the
employees when ranked on the basis of compensation paid
during such year.
(4) Compensation.--For purposes of this subsection,
the term ``compensation'' has the meaning given such
term by section 415(c)(3).
(5) Excluded employees.--For purposes of subsection
(r) and for purposes of determining the number of
employees in the top-paid group, the following
employees shall be excluded--
(A) employees who have not completed 6 months
of service,
(B) employees who normally work less than
171/2 hours per week,
(C) employees who normally work during not
more than 6 months during any year,
(D) employees who have not attained age 21,
and
(E) except to the extent provided in
regulations, employees who are included in a
unit of employees covered by an agreement which
the Secretary of Labor finds to be a collective
bargaining agreement between employee
representatives and the employer.
Except as provided by the Secretary, the employer may
elect to apply subparagraph (A), (B), (C), or (D) by
substituting a shorter period of service, smaller
number of hours or months, or lower age for the period
of service, number of hours or months, or age (as the
case may be) than that specified in such subparagraph.
(6) Former employees.--A former employee shall be
treated as a highly compensated employee if--
(A) such employee was a highly compensated
employee when such employee separated from
service, or
(B) such employee was a highly compensated
employee at any time after attaining age 55.
(7) Coordination with other provisions.--Subsections
(b), (c), (m), (n), and (o) shall be applied before the
application of this subsection.
(8) Special rule for nonresident aliens.--For
purposes of this subsection and subsection (r),
employees who are nonresident aliens and who receive no
earned income (within the meaning of section 911(d)(2))
from the employer which constitutes income from sources
within the United States (within the meaning of section
861(a)(3)) shall not be treated as employees.
(9) Certain employees not considered highly
compensated and excluded employees under pre-ERISA
rules for church plans.--In the case of a church plan
(as defined in subsection (e)), no employee shall be
considered an officer, a person whose principal duties
consist of supervising the work of other employees, or
a highly compensated employee for any year unless such
employee is a highly compensated employee under
paragraph (1) for such year.
(r) Special rules for separate line of business.--
(1) In general.--For purposes of sections 129(d)(8)
and 410(b), an employer shall be treated as operating
separate lines of business during any year if the
employer for bona fide business reasons operates
separate lines of business.
(2) Line of business must have 50 employees, etc..--A
line of business shall not be treated as separate under
paragraph (1) unless--
(A) such line of business has at least 50
employees who are not excluded under subsection
(q)(5),
(B) the employer notifies the Secretary that
such line of business is being treated as
separate for purposes of paragraph (1), and
(C) such line of business meets guidelines
prescribed by the Secretary or the employer
receives a determination from the Secretary
that such line of business may be treated as
separate for purposes of paragraph (1).
(3) Safe harbor rule.--
(A) In general.--The requirements of
subparagraph (C) of paragraph (2) shall not
apply to any line of business if the highly
compensated employee percentage with respect to
such line of business is--
(i) not less than one-half, and
(ii) not more than twice,
the percentage which highly compensated
employees are of all employees of the employer.
An employer shall be treated as meeting the
requirements of clause (i) if at least 10
percent of all highly compensated employees of
the employer perform services solely for such
line of business.
(B) Determination may be based on preceding
year.--The requirements of subparagraph (A)
shall be treated as met with respect to any
line of business if such requirements were met
with respect to such line of business for the
preceding year and if--
(i) no more than a de minimis number
of employees were shifted to or from
the line of business after the close of
the preceding year, or
(ii) the employees shifted to or from
the line of business after the close of
the preceding year contained a
substantially proportional number of
highly compensated employees.
(4) Highly compensated employee percentage defined.--
For purposes of this subsection, the term ``highly
compensated employee percentage'' means the percentage
which highly compensated employees performing services
for the line of business are of all employees
performing services for the line of business.
(5) Allocation of benefits to line of business.--For
purposes of this subsection, benefits which are
attributable to services provided to a line of business
shall be treated as provided by such line of business.
(6) Headquarters personnel, etc..--The Secretary
shall prescribe rules providing for--
(A) the allocation of headquarters personnel
among the lines of business of the employer,
and
(B) the treatment of other employees
providing services for more than 1 line of
business of the employer or not in lines of
business meeting the requirements of paragraph
(2).
(7) Separate operating units.--For purposes of this
subsection, the term ``separate line of business''
includes an operating unit in a separate geographic
area separately operated for a bona fide business
reason.
(8) Affiliated service groups.--This subsection shall
not apply in the case of any affiliated service group
(within the meaning of section 414(m)).
(s) Compensation.--For purposes of any applicable provision--
(1) In general.--Except as provided in this
subsection, the term ``compensation'' has the meaning
given such term by section 415(c)(3).
(2) Employer may elect not to treat certain deferrals
as compensation.--An employer may elect not to include
as compensation any amount which is contributed by the
employer pursuant to a salary reduction agreement and
which is not includible in the gross income of an
employee under section 125, 132(f)(4), 402(e)(3),
402(h), or 403(b).
(3) Alternative determination of compensation.--The
Secretary shall by regulation provide for alternative
methods of determining compensation which may be used
by an employer, except that such regulations shall
provide that an employer may not use an alternative
method if the use of such method discriminates in favor
of highly compensated employees (within the meaning of
subsection (q)).
(4) Applicable provision.--For purposes of this
subsection, the term ``applicable provision'' means any
provision which specifically refers to this subsection.
(t) Application of controlled group rules to certain employee
benefits.--
(1) In general.--All employees who are treated as
employed by a single employer under subsection (b),
(c), or (m) shall be treated as employed by a single
employer for purposes of an applicable section. The
provisions of subsection (o) shall apply with respect
to the requirements of an applicable section.
(2) Applicable section.--For purposes of this
subsection, the term ``applicable section'' means
section 79, 106, 117(d), 125, 127, 129, 132, 137,
274(j), 505, or 4980B.
(u) Special rules relating to veterans' reemployment rights
under USERRA and to differential wage payments to members on
active duty.--
(1) Treatment of certain contributions made pursuant
to veterans' reemployment rights.--If any contribution
is made by an employer or an employee under an
individual account plan with respect to an employee, or
by an employee to a defined benefit plan that provides
for employee contributions, and such contribution is
required by reason of such employee's rights under
chapter 43 of title 38, United States Code, resulting
from qualified military service, then--
(A) such contribution shall not be subject to
any otherwise applicable limitation contained
in section 402(g), 402(h), 403(b), 404(a),
404(h), 408, 415, or 457, and shall not be
taken into account in applying such limitations
to other contributions or benefits under such
plan or any other plan, with respect to the
year in which the contribution is made,
(B) such contribution shall be subject to the
limitations referred to in subparagraph (A)
with respect to the year to which the
contribution relates (in accordance with rules
prescribed by the Secretary), and
(C) such plan shall not be treated as failing
to meet the requirements of section 401(a)(4),
401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12),
401(m), 403(b)(12), 408(k)(3), 408(k)(6),
408(p), 410(b), or 416 by reason of the making
of (or the right to make) such contribution.
For purposes of the preceding sentence, any elective
deferral or employee contribution made under paragraph
(2) shall be treated as required by reason of the
employee's rights under such chapter 43.
(2) Reemployment rights under USERRA with respect to
elective deferrals.--
(A) In general.--For purposes of this
subchapter and section 457, if an employee is
entitled to the benefits of chapter 43 of title
38, United States Code, with respect to any
plan which provides for elective deferrals, the
employer sponsoring the plan shall be treated
as meeting the requirements of such chapter 43
with respect to such elective deferrals only if
such employer--
(i) permits such employee to make
additional elective deferrals under
such plan (in the amount determined
under subparagraph (B) or such lesser
amount as is elected by the employee)
during the period which begins on the
date of the reemployment of such
employee with such employer and has the
same length as the lesser of--
(I) the product of 3 and the
period of qualified military
service which resulted in such
rights, and
(II) 5 years, and
(ii) makes a matching contribution
with respect to any additional elective
deferral made pursuant to clause (i)
which would have been required had such
deferral actually been made during the
period of such qualified military
service.
(B) Amount of makeup required.--The amount
determined under this subparagraph with respect
to any plan is the maximum amount of the
elective deferrals that the individual would
have been permitted to make under the plan in
accordance with the limitations referred to in
paragraph (1)(A) during the period of qualified
military service if the individual had
continued to be employed by the employer during
such period and received compensation as
determined under paragraph (7). Proper
adjustment shall be made to the amount
determined under the preceding sentence for any
elective deferrals actually made during the
period of such qualified military service.
(C) Elective deferral.--For purposes of this
paragraph, the term ``elective deferral'' has
the meaning given such term by section
402(g)(3); except that such term shall include
any deferral of compensation under an eligible
deferred compensation plan (as defined in
section 457(b)).
(D) After-tax employee contributions.--
References in subparagraphs (A) and (B) to
elective deferrals shall be treated as
including references to employee contributions.
(3) Certain retroactive adjustments not required.--
For purposes of this subchapter and subchapter E, no
provision of chapter 43 of title 38, United States
Code, shall be construed as requiring--
(A) any crediting of earnings to an employee
with respect to any contribution before such
contribution is actually made, or
(B) any allocation of any forfeiture with
respect to the period of qualified military
service.
(4) Loan repayment suspensions permitted.--If any
plan suspends the obligation to repay any loan made to
an employee from such plan for any part of any period
during which such employee is performing service in the
uniformed services (as defined in chapter 43 of title
38, United States Code), whether or not qualified
military service, such suspension shall not be taken
into account for purposes of section 72(p), 401(a), or
4975(d)(1).
(5) Qualified military service.--For purposes of this
subsection, the term ``qualified military service''
means any service in the uniformed services (as defined
in chapter 43 of title 38, United States Code) by any
individual if such individual is entitled to
reemployment rights under such chapter with respect to
such service.
(6) Individual account plan.--For purposes of this
subsection, the term ``individual account plan'' means
any defined contribution plan (including any tax-
sheltered annuity plan under section 403(b), any
simplified employee pension under section 408(k), any
qualified salary reduction arrangement under section
408(p), and any eligible deferred compensation plan (as
defined in section 457(b))).
(7) Compensation.--For purposes of sections
403(b)(3), 415(c)(3), and 457(e)(5), an employee who is
in qualified military service shall be treated as
receiving compensation from the employer during such
period of qualified military service equal to--
(A) the compensation the employee would have
received during such period if the employee
were not in qualified military service,
determined based on the rate of pay the
employee would have received from the employer
but for absence during the period of qualified
military service, or
(B) if the compensation the employee would
have received during such period was not
reasonably certain, the employee's average
compensation from the employer during the 12-
month period immediately preceding the
qualified military service (or, if shorter, the
period of employment immediately preceding the
qualified military service).
(8) USERRA requirements for qualified retirement
plans.--For purposes of this subchapter and section
457, an employer sponsoring a retirement plan shall be
treated as meeting the requirements of chapter 43 of
title 38, United States Code, only if each of the
following requirements is met:
(A) An individual reemployed under such
chapter is treated with respect to such plan as
not having incurred a break in service with the
employer maintaining the plan by reason of such
individual's period of qualified military
service.
(B) Each period of qualified military service
served by an individual is, upon reemployment
under such chapter, deemed with respect to such
plan to constitute service with the employer
maintaining the plan for the purpose of
determining the nonforfeitability of the
individual's accrued benefits under such plan
and for the purpose of determining the accrual
of benefits under such plan.
(C) An individual reemployed under such
chapter is entitled to accrued benefits that
are contingent on the making of, or derived
from, employee contributions or elective
deferrals only to the extent the individual
makes payment to the plan with respect to such
contributions or deferrals. No such payment may
exceed the amount the individual would have
been permitted or required to contribute had
the individual remained continuously employed
by the employer throughout the period of
qualified military service. Any payment to such
plan shall be made during the period beginning
with the date of reemployment and whose
duration is 3 times the period of the qualified
military service (but not greater than 5
years).
(9) Treatment in the case of death or disability
resulting from active military service.--
(A) In general.--For benefit accrual
purposes, an employer sponsoring a retirement
plan may treat an individual who dies or
becomes disabled (as defined under the terms of
the plan) while performing qualified military
service with respect to the employer
maintaining the plan as if the individual has
resumed employment in accordance with the
individual's reemployment rights under chapter
43 of title 38, United States Code, on the day
preceding death or disability (as the case may
be) and terminated employment on the actual
date of death or disability. In the case of any
such treatment, and subject to subparagraphs
(B) and (C), any full or partial compliance by
such plan with respect to the benefit accrual
requirements of paragraph (8) with respect to
such individual shall be treated for purposes
of paragraph (1) as if such compliance were
required under such chapter 43.
(B) Nondiscrimination requirement.--
Subparagraph (A) shall apply only if all
individuals performing qualified military
service with respect to the employer
maintaining the plan (as determined under
subsections (b), (c), (m), and (o)) who die or
became disabled as a result of performing
qualified military service prior to
reemployment by the employer are credited with
service and benefits on reasonably equivalent
terms.
(C) Determination of benefits.--The amount of
employee contributions and the amount of
elective deferrals of an individual treated as
reemployed under subparagraph (A) for purposes
of applying paragraph (8)(C) shall be
determined on the basis of the individual's
average actual employee contributions or
elective deferrals for the lesser of--
(i) the 12-month period of service
with the employer immediately prior to
qualified military service, or
(ii) if service with the employer is
less than such 12-month period, the
actual length of continuous service
with the employer.
(10) Plans not subject to title 38.--This subsection
shall not apply to any retirement plan to which chapter
43 of title 38, United States Code, does not apply.
(11) References.--For purposes of this section, any
reference to chapter 43 of title 38, United States
Code, shall be treated as a reference to such chapter
as in effect on December 12, 1994 (without regard to
any subsequent amendment).
(12) Treatment of differential wage payments.--
(A) In general.--Except as provided in this
paragraph, for purposes of applying this title
to a retirement plan to which this subsection
applies--
(i) an individual receiving a
differential wage payment shall be
treated as an employee of the employer
making the payment,
(ii) the differential wage payment
shall be treated as compensation, and
(iii) the plan shall not be treated
as failing to meet the requirements of
any provision described in paragraph
(1)(C) by reason of any contribution or
benefit which is based on the
differential wage payment.
(B) Special rule for distributions.--
(i) In general.--Notwithstanding
subparagraph (A)(i), for purposes of
section 401(k)(2)(B)(i)(I),
403(b)(7)(A)(ii), 403(b)(11)(A), or
457(d)(1)(A)(ii), an individual shall
be treated as having been severed from
employment during any period the
individual is performing service in the
uniformed services described in section
3401(h)(2)(A).
(ii) Limitation.--If an individual
elects to receive a distribution by
reason of clause (i), the plan shall
provide that the individual may not
make an elective deferral or employee
contribution during the 6-month period
beginning on the date of the
distribution.
(C) Nondiscrimination requirement.--
Subparagraph (A)(iii) shall apply only if all
employees of an employer (as determined under
subsections (b), (c), (m), and (o)) performing
service in the uniformed services described in
section 3401(h)(2)(A) are entitled to receive
differential wage payments on reasonably
equivalent terms and, if eligible to
participate in a retirement plan maintained by
the employer, to make contributions based on
the payments on reasonably equivalent terms.
For purposes of applying this subparagraph, the
provisions of paragraphs (3), (4), and (5) of
section 410(b) shall apply.
(D) Differential wage payment.--For purposes
of this paragraph, the term ``differential wage
payment'' has the meaning given such term by
section 3401(h)(2).
(v) Catch-up contributions for individuals age 50 or over.--
(1) In general.--An applicable employer plan shall
not be treated as failing to meet any requirement of
this title solely because the plan permits an eligible
participant to make additional elective deferrals in
any plan year. Except in the case of an applicable
employer plan described in paragraph (6)(iv), the
preceding sentence shall only apply if contributions
are designated Roth contributions (as defined in
section 402A(c)(1)).
(2) Limitation on amount of additional deferrals.--
(A) In general.--A plan shall not permit
additional elective deferrals under paragraph
(1) for any year in an amount greater than the
lesser of--
(i) the applicable dollar amount, or
(ii) the excess (if any) of--
(I) the participant's
compensation (as defined in
section 415(c)(3)) for the
year, over
(II) any other elective
deferrals of the participant
for such year which are made
without regard to this
subsection.
(B) Applicable dollar amount.--For purposes
of this paragraph--
(i) In the case of an applicable
employer plan other than a plan
described in section 401(k)(11) or
408(p), the applicable dollar amount is
$5,000 ($10,000, in the case of an
eligible participant who has attained
age 62, but not age 65, before the
close of the taxable year).
(ii) In the case of an applicable
employer plan described in section
401(k)(11) or 408(p), the applicable
dollar amount is $2,500 ($5,000, in the
case of an eligible participant who has
attained age 62, but not age 65, before
the close of the taxable year).
(C) Cost-of-living adjustment.--In the case
of a year beginning after December 31, 2006,
the Secretary shall adjust annually the $5,000
amount in subparagraph (B)(i) and the $2,500
amount in subparagraph (B)(ii) for increases in
the cost-of-living at the same time and in the
same manner as adjustments under section
415(d); except that the base period taken into
account shall be the calendar quarter beginning
July 1, 2005, and any increase under this
subparagraph which is not a multiple of $500
shall be rounded to the next lower multiple of
$500. In the case of a year beginning after
December 31, 2022, the Secretary shall adjust
annually the $10,000 amount in subparagraph
(B)(i) and the $5,000 amount in subparagraph
(B)(ii) for increases in the cost-of-living at
the same time and in the same manner as
adjustments under the preceding sentence;
except that the period at the end of the base
sentence taken into account shall be the
calendar quarter beginning July 1, 2021.
(D) Aggregation of plans.--For purposes of
this paragraph, plans described in clauses (i),
(ii), and (iv) of paragraph (6)(A) that are
maintained by the same employer (as determined
under subsection (b), (c), (m) or (o)) shall be
treated as a single plan, and plans described
in clause (iii) of paragraph (6)(A) that are
maintained by the same employer shall be
treated as a single plan.
(3) Treatment of contributions.--In the case of any
contribution to a plan under paragraph (1)--
(A) such contribution shall not, with respect
to the year in which the contribution is made--
(i) be subject to any otherwise
applicable limitation contained in
sections 401(a)(30), 402(h), 403(b),
408, 415(c), and 457(b)(2) (determined
without regard to section 457(b)(3)),
or
(ii) be taken into account in
applying such limitations to other
contributions or benefits under such
plan or any other such plan, and
(B) except as provided in paragraph (4), such
plan shall not be treated as failing to meet
the requirements of section 401(a)(4),
401(k)(3), 401(k)(11), 403(b)(12), 408(k),
410(b), or 416 by reason of the making of (or
the right to make) such contribution.
(4) Application of nondiscrimination rules.--
(A) In general.--An applicable employer plan
shall be treated as failing to meet the
nondiscrimination requirements under section
401(a)(4) with respect to benefits, rights, and
features unless the plan allows all eligible
participants to make the same election with
respect to the additional elective deferrals
under this subsection.
(B) Aggregation.--For purposes of
subparagraph (A), all plans maintained by
employers who are treated as a single employer
under subsection (b), (c), (m), or (o) of
section 414 shall be treated as 1 plan, except
that a plan described in clause (i) of section
410(b)(6)(C) shall not be treated as a plan of
the employer until the expiration of the
transition period with respect to such plan (as
determined under clause (ii) of such section).
(5) Eligible participant.--For purposes of this
subsection, the term ``eligible participant'' means a
participant in a plan--
(A) who would attain age 50 by the end of the
taxable year,
(B) with respect to whom no other elective
deferrals may (without regard to this
subsection) be made to the plan for the plan
(or other applicable) year by reason of the
application of any limitation or other
restriction described in paragraph (3) or
comparable limitation or restriction contained
in the terms of the plan.
(6) Other definitions and rules.--For purposes of
this subsection--
(A) Applicable employer plan.--The term
``applicable employer plan'' means--
(i) an employees' trust described in
section 401(a) which is exempt from tax
under section 501(a),
(ii) a plan under which amounts are
contributed by an individual's employer
for an annuity contract described in
section 403(b),
(iii) an eligible deferred
compensation plan under section 457 of
an eligible employer described in
section 457(e)(1)(A), and
(iv) an arrangement meeting the
requirements of section 408(k) or (p).
(B) Elective deferral.--The term ``elective
deferral'' has the meaning given such term by
subsection (u)(2)(C).
(C) Exception for section 457 plans.--This
subsection shall not apply to a participant for
any year for which a higher limitation applies
to the participant under section 457(b)(3).
(w) Special rules for certain withdrawals from eligible
automatic contribution arrangements.--
(1) In general.--If an eligible automatic
contribution arrangement allows an employee to elect to
make permissible withdrawals--
(A) the amount of any such withdrawal shall
be includible in the gross income of the
employee for the taxable year of the employee
in which the distribution is made,
(B) no tax shall be imposed under section
72(t) with respect to the distribution, and
(C) the arrangement shall not be treated as
violating any restriction on distributions
under this title solely by reason of allowing
the withdrawal.
In the case of any distribution to an employee by
reason of an election under this paragraph, employer
matching contributions shall be forfeited or subject to
such other treatment as the Secretary may prescribe.
(2) Permissible withdrawal.--For purposes of this
subsection--
(A) In general.--The term ``permissible
withdrawal'' means any withdrawal from an
eligible automatic contribution arrangement
meeting the requirements of this paragraph
which--
(i) is made pursuant to an election
by an employee, and
(ii) consists of elective
contributions described in paragraph
(3)(B) (and earnings attributable
thereto).
(B) Time for making election.--Subparagraph
(A) shall not apply to an election by an
employee unless the election is made no later
than the date which is 90 days after the date
of the first elective contribution with respect
to the employee under the arrangement.
(C) Amount of distribution.--Subparagraph (A)
shall not apply to any election by an employee
unless the amount of any distribution by reason
of the election is equal to the amount of
elective contributions made with respect to the
first payroll period to which the eligible
automatic contribution arrangement applies to
the employee and any succeeding payroll period
beginning before the effective date of the
election (and earnings attributable thereto).
(3) Eligible automatic contribution arrangement.--For
purposes of this subsection, the term ``eligible
automatic contribution arrangement'' means an
arrangement under an applicable employer plan--
(A) under which a participant may elect to
have the employer make payments as
contributions under the plan on behalf of the
participant, or to the participant directly in
cash,
(B) under which the participant is treated as
having elected to have the employer make such
contributions in an amount equal to a uniform
percentage of compensation provided under the
plan until the participant specifically elects
not to have such contributions made (or
specifically elects to have such contributions
made at a different percentage), and
(C) which meets the requirements of paragraph
(4).
(4) Notice requirements.--
(A) In general.--The administrator of a plan
containing an arrangement described in
paragraph (3) shall, within a reasonable period
before each plan year, give to each employee to
whom an arrangement described in paragraph (3)
applies for such plan year notice of the
employee's rights and obligations under the
arrangement which--
(i) is sufficiently accurate and
comprehensive to apprise the employee
of such rights and obligations, and
(ii) is written in a manner
calculated to be understood by the
average employee to whom the
arrangement applies.
(B) Time and form of notice.--A notice shall
not be treated as meeting the requirements of
subparagraph (A) with respect to an employee
unless--
(i) the notice includes an
explanation of the employee's right
under the arrangement to elect not to
have elective contributions made on the
employee's behalf (or to elect to have
such contributions made at a different
percentage),
(ii) the employee has a reasonable
period of time after receipt of the
notice described in clause (i) and
before the first elective contribution
is made to make such election, and
(iii) the notice explains how
contributions made under the
arrangement will be invested in the
absence of any investment election by
the employee.
(5) Applicable employer plan.--For purposes of this
subsection, the term ``applicable employer plan''
means--
(A) an employees' trust described in section
401(a) which is exempt from tax under section
501(a),
(B) a plan under which amounts are
contributed by an individual's employer for an
annuity contract described in section 403(b),
(C) an eligible deferred compensation plan
described in section 457(b) which is maintained
by an eligible employer described in section
457(e)(1)(A),
(D) a simplified employee pension the terms
of which provide for a salary reduction
arrangement described in section 408(k)(6), and
(E) a simple retirement account (as defined
in section 408(p)).
(6) Special rule.--A withdrawal described in
paragraph (1) (subject to the limitation of paragraph
(2)(C)) shall not be taken into account for purposes of
section 401(k)(3) or for purposes of applying the
limitation under section 402(g)(1).
(x) Special rules for eligible combined defined benefit plans
and qualified cash or deferred arrangements.--
(1) General rule.--Except as provided in this
subsection, the requirements of this title shall be
applied to any defined benefit plan or applicable
defined contribution plan which is part of an eligible
combined plan in the same manner as if each such plan
were not a part of the eligible combined plan. In the
case of a termination of the defined benefit plan and
the applicable defined contribution plan forming part
of an eligible combined plan, the plan administrator
shall terminate each such plan separately.
(2) Eligible combined plan.--For purposes of this
subsection--
(A) In general.--The term ``eligible combined
plan'' means a plan--
(i) which is maintained by an
employer which, at the time the plan is
established, is a small employer,
(ii) which consists of a defined
benefit plan and an applicable defined
contribution plan,
(iii) the assets of which are held in
a single trust forming part of the plan
and are clearly identified and
allocated to the defined benefit plan
and the applicable defined contribution
plan to the extent necessary for the
separate application of this title
under paragraph (1), and
(iv) with respect to which the
benefit, contribution, vesting, and
nondiscrimination requirements of
subparagraphs (B), (C), (D), (E), and
(F) are met.
For purposes of this subparagraph, the term
``small employer'' has the meaning given such
term by section 4980D(d)(2), except that such
section shall be applied by substituting
``500'' for ``50'' each place it appears.
(B) Benefit requirements.--
(i) In general.--The benefit
requirements of this subparagraph are
met with respect to the defined benefit
plan forming part of the eligible
combined plan if the accrued benefit of
each participant derived from employer
contributions, when expressed as an
annual retirement benefit, is not less
than the applicable percentage of the
participant's final average pay. For
purposes of this clause, final average
pay shall be determined using the
period of consecutive years (not
exceeding 5) during which the
participant had the greatest aggregate
compensation from the employer.
(ii) Applicable percentage.--For
purposes of clause (i), the applicable
percentage is the lesser of--
(I) 1 percent multiplied by
the number of years of service
with the employer, or
(II) 20 percent.
(iii) Special rule for applicable
defined benefit plans.--If the defined
benefit plan under clause (i) is an
applicable defined benefit plan as
defined in section 411(a)(13)(B) which
meets the interest credit requirements
of section 411(b)(5)(B)(i), the plan
shall be treated as meeting the
requirements of clause (i) with respect
to any plan year if each participant
receives a pay credit for the year
which is not less than the percentage
of compensation determined in
accordance with the following table:
(iv) Years of service.--For purposes
of this subparagraph, years of service
shall be determined under the rules of
paragraphs (4), (5), and (6) of section
411(a), except that the plan may not
disregard any year of service because
of a participant making, or failing to
make, any elective deferral with
respect to the qualified cash or
deferred arrangement to which
subparagraph (C) applies.
(C) Contribution requirements.--
(i) In general.--The contribution
requirements of this subparagraph with
respect to any applicable defined
contribution plan forming part of an
eligible combined plan are met if--
(I) the qualified cash or
deferred arrangement included
in such plan constitutes an
automatic contribution
arrangement, and
(II) the employer is required
to make matching contributions
on behalf of each employee
eligible to participate in the
arrangement in an amount equal
to 50 percent of the elective
contributions of the employee
to the extent such elective
contributions do not exceed 4
percent of compensation.
Rules similar to the rules of clauses (ii) and
(iii) of section 401(k)(12)(B) shall apply for
purposes of this clause.
(ii) Nonelective contributions.--An
applicable defined contribution plan
shall not be treated as failing to meet
the requirements of clause (i) because
the employer makes nonelective
contributions under the plan but such
contributions shall not be taken into
account in determining whether the
requirements of clause (i)(II) are met.
(D) Vesting requirements.--The vesting
requirements of this subparagraph are met if--
(i) in the case of a defined benefit
plan forming part of an eligible
combined plan an employee who has
completed at least 3 years of service
has a nonforfeitable right to 100
percent of the employee's accrued
benefit under the plan derived from
employer contributions, and
(ii) in the case of an applicable
defined contribution plan forming part
of eligible combined plan--
(I) an employee has a
nonforfeitable right to any
matching contribution made
under the qualified cash or
deferred arrangement included
in such plan by an employer
with respect to any elective
contribution, including
matching contributions in
excess of the contributions
required under subparagraph
(C)(i)(II), and
(II) an employee who has
completed at least 3 years of
service has a nonforfeitable
right to 100 percent of the
employee's accrued benefit
derived under the arrangement
from nonelective contributions
of the employer.
For purposes of this subparagraph, the rules
of section 411 shall apply to the extent not
inconsistent with this subparagraph.
(E) Uniform provision of contributions and
benefits.--In the case of a defined benefit
plan or applicable defined contribution plan
forming part of an eligible combined plan, the
requirements of this subparagraph are met if
all contributions and benefits under each such
plan, and all rights and features under each
such plan, must be provided uniformly to all
participants.
(F) Requirements must be met without taking
into account social security and similar
contributions and benefits or other plans.--
(i) In general.--The requirements of
this subparagraph are met if the
requirements of clauses (ii) and (iii)
are met.
(ii) Social security and similar
contributions.--The requirements of
this clause are met if--
(I) the requirements of
subparagraphs (B) and (C) are
met without regard to section
401(l), and
(II) the requirements of
sections 401(a)(4) and 410(b)
are met with respect to both
the applicable defined
contribution plan and defined
benefit plan forming part of an
eligible combined plan without
regard to section 401(l).
(iii) Other plans and arrangements.--
The requirements of this clause are met
if the applicable defined contribution
plan and defined benefit plan forming
part of an eligible combined plan meet
the requirements of sections 401(a)(4)
and 410(b) without being combined with
any other plan.
(3) Nondiscrimination requirements for qualified cash
or deferred arrangement.--
(A) In general.--A qualified cash or deferred
arrangement which is included in an applicable
defined contribution plan forming part of an
eligible combined plan shall be treated as
meeting the requirements of section
401(k)(3)(A)(ii) if the requirements of
paragraph (2)(C) are met with respect to such
arrangement.
(B) Matching contributions.--In applying
section 401(m)(11) to any matching contribution
with respect to a contribution to which
paragraph (2)(C) applies, the contribution
requirement of paragraph (2)(C) and the notice
requirements of paragraph (5)(B) shall be
substituted for the requirements otherwise
applicable under clauses (i) and (ii) of
section 401(m)(11)(A).
(4) Satisfaction of top-heavy rules.--A defined
benefit plan and applicable defined contribution plan
forming part of an eligible combined plan for any plan
year shall be treated as meeting the requirements of
section 416 for the plan year.
(5) Automatic contribution arrangement.--For purposes
of this subsection--
(A) In general.--A qualified cash or deferred
arrangement shall be treated as an automatic
contribution arrangement if the arrangement--
(i) provides that each employee
eligible to participate in the
arrangement is treated as having
elected to have the employer make
elective contributions in an amount
equal to 4 percent of the employee's
compensation unless the employee
specifically elects not to have such
contributions made or to have such
contributions made at a different rate,
and
(ii) meets the notice requirements
under subparagraph (B).
(B) Notice requirements.--
(i) In general.--The requirements of
this subparagraph are met if the
requirements of clauses (ii) and (iii)
are met.
(ii) Reasonable period to make
election.--The requirements of this
clause are met if each employee to whom
subparagraph (A)(i) applies--
(I) receives a notice
explaining the employee's right
under the arrangement to elect
not to have elective
contributions made on the
employee's behalf or to have
the contributions made at a
different rate, and
(II) has a reasonable period
of time after receipt of such
notice and before the first
elective contribution is made
to make such election.
(iii) Annual notice of rights and
obligations.--The requirements of this
clause are met if each employee
eligible to participate in the
arrangement is, within a reasonable
period before any year, given notice of
the employee's rights and obligations
under the arrangement.
The requirements of clauses (i) and (ii) of
section 401(k)(12)(D) shall be met with respect
to the notices described in clauses (ii) and
(iii) of this subparagraph.
(6) Coordination with other requirements.--
(A) Treatment of separate plans.--Section
414(k) shall not apply to an eligible combined
plan.
(B) Reporting.--An eligible combined plan
shall be treated as a single plan for purposes
of sections 6058 and 6059.
(7) Applicable defined contribution plan.--For
purposes of this subsection--
(A) In general.--The term ``applicable
defined contribution plan'' means a defined
contribution plan which includes a qualified
cash or deferred arrangement.
(B) Qualified cash or deferred arrangement.--
The term ``qualified cash or deferred
arrangement'' has the meaning given such term
by section 401(k)(2).
(y) Cooperative and small employer charity pension plans.--
(1) In general.--For purposes of this title, except
as provided in this subsection, a CSEC plan is a
defined benefit plan (other than a multiemployer
plan)--
(A) to which section 104 of the Pension
Protection Act of 2006 applies, without regard
to--
(i) section 104(a)(2) of such Act;
(ii) the amendments to such section
104 by section 202(b) of the
Preservation of Access to Care for
Medicare Beneficiaries and Pension
Relief Act of 2010; and
(iii) paragraph (3)(B);
(B) that, as of June 25, 2010, was maintained
by more than one employer and all of the
employers were organizations described in
section 501(c)(3);
(C) that, as of June 25, 2010, was maintained
by an employer--
(i) described in section 501(c)(3),
(ii) chartered under part B of
subtitle II of title 36, United States
Code,
(iii) with employees in at least 40
States, and
(iv) whose primary exempt purpose is
to provide services with respect to
children; or
(D) that, as of January 1, 2000, was
maintained by an employer--
(i) described in section 501(c)(3),
(ii) who has been in existence since
at least 1938,
(iii) who conducts medical research
directly or indirectly through grant
making, and
(iv) whose primary exempt purpose is
to provide services with respect to
mothers and children.
(2) Aggregation.--All employers that are treated as a
single employer under subsection (b) or (c) shall be
treated as a single employer for purposes of
determining if a plan was maintained by more than one
employer under subparagraphs (B) and (C) of paragraph
(1).
(3) Election.--
(A) In general.--If a plan falls within the
definition of a CSEC plan under this subsection
(without regard to this paragraph), such plan
shall be a CSEC plan unless the plan sponsor
elects not later than the close of the first
plan year of the plan beginning after December
31, 2013, not to be treated as a CSEC plan. An
election under the preceding sentence shall
take effect for such plan year and, once made,
may be revoked only with the consent of the
Secretary.
(B) Special rule.--If a plan described in
subparagraph (A) is treated as a CSEC plan,
section 104 of the Pension Protection Act of
2006, as amended by the Preservation of Access
to Care for Medicare Beneficiaries and Pension
Relief Act of 2010, shall cease to apply to
such plan as of the first date as of which such
plan is treated as a CSEC plan.
(z) Certain plan transfers and mergers.--
(1) In general.--Under rules prescribed by the
Secretary, except as provided in paragraph (2), no
amount shall be includible in gross income by reason
of--
(A) a transfer of all or a portion of the
accrued benefit of a participant or
beneficiary, whether or not vested, from a
church plan that is a plan described in section
401(a) or an annuity contract described in
section 403(b) to an annuity contract described
in section 403(b), if such plan and annuity
contract are both maintained by the same church
or convention or association of churches,
(B) a transfer of all or a portion of the
accrued benefit of a participant or
beneficiary, whether or not vested, from an
annuity contract described in section 403(b) to
a church plan that is a plan described in
section 401(a), if such plan and annuity
contract are both maintained by the same church
or convention or association of churches, or
(C) a merger of a church plan that is a plan
described in section 401(a), or an annuity
contract described in section 403(b), with an
annuity contract described in section 403(b),
if such plan and annuity contract are both
maintained by the same church or convention or
association of churches.
(2) Limitation.--Paragraph (1) shall not apply to a
transfer or merger unless the participant's or
beneficiary's total accrued benefit immediately after
the transfer or merger is equal to or greater than the
participant's or beneficiary's total accrued benefit
immediately before the transfer or merger, and such
total accrued benefit is nonforfeitable after the
transfer or merger.
(3) Qualification.--A plan or annuity contract shall
not fail to be considered to be described in section
401(a) or 403(b) merely because such plan or annuity
contract engages in a transfer or merger described in
this subsection.
(4) Definitions.--For purposes of this subsection--
(A) Church or convention or association of
churches.--The term ``church or convention or
association of churches'' includes an
organization described in subparagraph (A) or
(B)(ii) of subsection (e)(3).
(B) Annuity contract.--The term ``annuity
contract'' includes a custodial account
described in section 403(b)(7) and a retirement
income account described in section 403(b)(9).
(C) Accrued benefit.--The term ``accrued
benefit'' means--
(i) in the case of a defined benefit
plan, the employee's accrued benefit
determined under the plan, and
(ii) in the case of a plan other than
a defined benefit plan, the balance of
the employee's account under the plan.
(aa) Correcting Automatic Contribution Errors.--
(1) In general.--Any plan or arrangement shall not
fail to be treated as a plan described in sections
401(a), 403(b), 408, or 457(b), as applicable, solely
by reason of a corrected error.
(2) Corrected error defined.--For purposes of this
subsection, the term ``corrected error'' means a
reasonable administrative error in implementing an
automatic enrollment or automatic escalation feature in
accordance with the terms of an eligible automatic
contribution arrangement (as defined under subsection
(w)(3)), provided that such implementation error--
(A) is corrected by the date that is 91/2
months after the end of the plan year during
which the failure occurred,
(B) is corrected in a manner that is
favorable to the participant, and
(C) is of a type which is so corrected for
all similarly situated participants in a
nondiscriminatory manner.
Such correction may occur before or after the
participant has terminated employment and may occur
without regard to whether the error is identified by
the Secretary.
(3) Regulations and guidance for favorable correction
methods.--The Secretary shall, by regulations or other
guidance of general applicability, specify the
correction methods that are in a manner favorable to
the participant for purposes of paragraph (2)(B).
(bb) Special Rules Applicable to Benefit Overpayments.--
(1) In general.--A plan shall not fail to be treated
as described in clause (i), (ii), (iii), or (iv) of
section 219(g)(5)(A) (and shall not fail to be treated
as satisfying the requirements of section 401(a) or
403) merely because--
(A) the plan fails to obtain payment from any
participant, beneficiary, employer, plan
sponsor, fiduciary, or other party on account
of any inadvertent benefit overpayment made by
the plan, or
(B) the plan sponsor amends the plan to
increase past or future benefit payments to
affected participants and beneficiaries in
order to adjust for prior inadvertent benefit
overpayments.
(2) Reduction in future benefit payments and recovery
from responsible party.--Paragraph (1) shall not fail
to apply to a plan merely because, after discovering a
benefit overpayment, such plan--
(A) reduces future benefit payments to the
correct amount provided for under the terms of
the plan, or
(B) seeks recovery from the person or persons
responsible for such overpayment.
(3) Employer funding obligations.--Nothing in this
subsection shall relieve an employer of any obligation
imposed on it to make contributions to a plan to meet
the minimum funding standards under sections 412 and
430 or to prevent or restore an impermissible
forfeiture in accordance with section 411.
(4) Observance of benefit limitations.--
Notwithstanding paragraph (1), a plan to which
paragraph (1) applies shall observe any limitations
imposed on it by section 401(a)(17) or 415. The plan
may enforce such limitations using any method approved
by the Secretary for recouping benefits previously paid
or allocations previously made in excess of such
limitations.
(5) Coordination with other qualification
requirements.--The Secretary may issue regulations or
other guidance of general applicability specifying how
benefit overpayments and their recoupment or non-
recoupment from a participant or beneficiary shall be
taken into account for purposes of satisfying any
requirement applicable to a plan to which paragraph (1)
applies.
(cc) Eliminating Unnecessary Plan Requirements Related to
Unenrolled Participants.--
(1) In general.--Notwithstanding any other provision
of this title, with respect to any defined contribution
plan, no disclosure, notice, or other plan document
(other than the notices and documents described in
subparagraphs (A) and (B)) shall be required to be
furnished under this title to any unenrolled
participant if the unenrolled participant receives--
(A) an annual reminder notice (in paper
format, or in any electronic format consented
to by the participant) of such participant's
eligibility to participate in such plan and any
applicable election deadlines under the plan,
and
(B) any document requested by such
participant which the participant would be
entitled to receive without regard to this
subsection.
(2) Unenrolled participant.--For purposes of this
subsection, the term ``unenrolled participant'' means
an employee who--
(A) is eligible to participate in a defined
contribution plan,
(B) has received all required notices,
disclosures, and other plan documents required
to be furnished under this title and the
summary plan description as provided in section
104(b) of the Employee Retirement Income
Security Act of 1974 in connection with such
participant's initial eligibility to
participate in such plan,
(C) is not participating in such plan, and
(D) does not have a balance in the plan.
For purposes of this subsection, any eligibility to
participate in the plan following any period for which
such employee was not eligible to participate shall be
treated as initial eligibility.
(3) Annual reminder notice.--For purposes of this
subsection, the term ``annual reminder notice'' means
the notice described in section 111(c) of the Employee
Retirement Income Security Act of 1974.
SEC. 414A. REQUIREMENTS RELATED TO AUTOMATIC ENROLLMENT.
(a) In General.--Except as otherwise provided in this
section--
(1) an arrangement shall not be treated as a
qualified cash or deferred arrangement described in
section 401(k) unless such arrangement meets the
automatic enrollment requirements of subsection (b),
and
(2) an annuity contract otherwise described in
section 403(b)(1) which is purchased under a salary
reduction agreement shall not be treated as described
in such section unless such agreement meets the
automatic enrollment requirements of subsection (b).
(b) Automatic Enrollment Requirements.--
(1) In general.--An arrangement or agreement meets
the requirements of this subsection if such arrangement
or agreement is an eligible automatic contribution
arrangement (as defined in section 414(w)(3)) which
meets the requirements of paragraphs (2) through (4).
(2) Allowance of permissible withdrawals.--An
eligible automatic contribution arrangement meets the
requirements of this paragraph if such arrangement
allows employees to make permissible withdrawals (as
defined in section 414(w)(2)).
(3) Minimum contribution percentage.--
(A) In general.--An eligible automatic
contribution arrangement meets the requirements
of this paragraph if--
(i) the uniform percentage of
compensation contributed by the
participant under such arrangement
during the first year of participation
is not less than 3 percent and not more
than 10 percent (unless the participant
specifically elects not to have such
contributions made or to have such
contributions made at a different
percentage), and
(ii) effective for the first day of
each plan year starting after each
completed year of participation under
such arrangement such uniform
percentage is increased by 1 percentage
point (to at least 10 percent, but not
more than 15 percent) unless the
participant specifically elects not to
have such contributions made or to have
such contributions made at a different
percentage.
(B) Initial reduced ceiling for certain
plans.--In the case of any arrangement to which
this section applies (other than an arrangement
that meets the requirements of paragraph (12)
or (13) of section 401(k)), for plan years
ending before January 1, 2025, subparagraph
(A)(ii) shall be applied by substituting ``10
percent'' for ``15 percent''.
(4) Investment requirements.--An eligible automatic
contribution arrangement meets the requirements of this
paragraph if amounts contributed pursuant to such
arrangement, and for which no investment is elected by
the participant, are invested consistent with the
requirements of section 2550.404c-5 of title 29, Code
of Federal Regulations (or any successor regulations).
(c) Exceptions.--For purposes of this section--
(1) Simple plans.--Subsection (a) shall not apply to
any simple plan (within the meaning of section
401(k)(11)).
(2) Exception for plans or arrangements established
before enactment of section.--
(A) In general.--Subsection (a) shall not
apply to--
(i) any qualified cash or deferred
arrangement established before the date
of the enactment of this section, or
(ii) any annuity contract purchased
under a plan established before the
date of the enactment of this section.
(B) Post-enactment adoption of multiple
employer plan.--Subparagraph (A) shall not
apply in the case of an employer adopting after
such date of enactment a plan maintained by
more than one employer, and subsection (a)
shall apply with respect to such employer as if
such plan were a single plan.
(3) Exception for governmental and church plans.--
Subsection (a) shall not apply to any governmental plan
(within the meaning of section 414(d)) or any church
plan (within the meaning of section 414(e)).
(4) Exception for new and small businesses.--
(A) New business.--Subsection (a) shall not
apply to any qualified cash or deferred
arrangement, or any annuity contract purchased
under a plan, while the employer maintaining
such plan (and any predecessor employer) has
been in existence for less than 3 years.
(B) Small businesses.--Subsection (a) shall
not apply to any qualified cash or deferred
arrangement, any annuity contract purchased
under a plan, earlier than the date that is 1
year after the close of the first taxable year
with respect to which the employer maintaining
the plan normally employed more than 10
employees.
(C) Treatment of multiple employer plans.--In
the case of a plan maintained by more than 1
employer, subparagraphs (A) and (B) shall be
applied separately with respect to each such
employer, and all such employers to which
subsection (a) applies (after the application
of this paragraph) shall be treated as
maintaining a separate plan for purposes of
this section.
* * * * * * *
SEC. 416. SPECIAL RULES FOR TOP-HEAVY PLANS.
(a) General rule.--A trust shall not constitute a qualified
trust under section 401(a) for any plan year if the plan of
which it is a part is a top-heavy plan for such plan year
unless such plan meets--
(1) the vesting requirements of subsection (b), and
(2) the minimum benefit requirements of subsection
(c).
(b) Vesting requirements.--
(1) In general.--A plan satisfies the requirements of
this subsection if it satisfies the requirements of
either of the following subparagraphs:
(A) 3-year vesting.--A plan satisfies the
requirements of this subparagraph if an
employee who has completed at least 3 years of
service with the employer or employers
maintaining the plan has a nonforfeitable right
to 100 percent of his accrued benefit derived
from employer contributions.
(B) 6-year graded vesting.--A plan satisfies
the requirements of this subparagraph if an
employee has a nonforfeitable right to a
percentage of his accrued benefit derived from
employer contributions determined under the
following table:
(2) Certain rules made applicable.--Except to the
extent inconsistent with the provisions of this
subsection, the rules of section 411 shall apply for
purposes of this subsection.
(c) Plan must provide minimum benefits.--
(1) Defined benefit plans.--
(A) In general.--A defined benefit plan meets
the requirements of this subsection if the
accrued benefit derived from employer
contributions of each participant who is a non-
key employee, when expressed as an annual
retirement benefit, is not less than the
applicable percentage of the participant's
average compensation for years in the testing
period.
(B) Applicable percentage.--For purposes of
subparagraph (A), the term ``applicable
percentage'' means the lesser of--
(i) 2 percent multiplied by the
number of years of service with the
employer, or
(ii) 20 percent.
(C) Years of service.--For purposes of this
paragraph--
(i) In general.--Except as provided
in clause (ii) or (iii), years of
service shall be determined under the
rules of paragraphs (4), (5), and (6)
of section 411(a).
(ii) Exception for years during which
plan was not top-heavy.--A year of
service with the employer shall not be
taken into account under this paragraph
if--
(I) the plan was not a top-
heavy plan for any plan year
ending during such year of
service, or
(II) such year of service was
completed in a plan year
beginning before January 1,
1984.
(iii) Exception for plan under which
no key employee (or former key
employee) benefits for plan year.--For
purposes of determining an employee's
years of service with the employer, any
service with the employer shall be
disregarded to the extent that such
service occurs during a plan year when
the plan benefits (within the meaning
of section 410(b)) no key employee or
former key employee.
(D) Average compensation for high 5 years.--
For purposes of this paragraph--
(i) In general.--A participant's
testing period shall be the period of
consecutive years (not exceeding 5)
during which the participant had the
greatest aggregate compensation from
the employer.
(ii) Year must be included in year of
service.--The years taken into account
under clause (i) shall be properly
adjusted for years not included in a
year of service.
(iii) Certain years not taken into
account.--Except to the extent provided
in the plan, a year shall not be taken
into account under clause (i) if--
(I) such year ends in a plan
year beginning before January
1, 1984, or
(II) such year begins after
the close of the last year in
which the plan was a top-heavy
plan.
(E) Annual retirement benefit.--For purposes
of this paragraph, the term ``annual retirement
benefit'' means a benefit payable annually in
the form of a single life annuity (with no
ancillary benefits) beginning at the normal
retirement age under the plan.
(2) Defined contribution plans.--
(A) In general.--A defined contribution plan
meets the requirements of the subsection if the
employer contribution for the year for each
participant who is a non-key employee is not
less than 3 percent of such participant's
compensation (within the meaning of section
415). Employer matching contributions (as
defined in section 401(m)(4)(A)) shall be taken
into account for purposes of this subparagraph
(and any reduction under this sentence shall
not be taken into account in determining
whether section 401(k)(4)(A) applies).
(B) Special rule where maximum contribution
less than 3 percent.--
(i) In general.--The percentage
referred to in subparagraph (A) for any
year shall not exceed the percentage at
which contributions are made (or
required to be made) under the plan for
the year for the key employee for whom
such percentage is the highest for the
year.
(ii) Treatment of aggregation
groups.--(I) For purposes of this
subparagraph, all defined contribution
plans required to be included in an
aggregation group under subsection
(g)(2)(A)(i) shall be treated as one
plan.
(II) This subparagraph shall not
apply to any plan required to be
included in an aggregation group if
such plan enables a defined benefit
plan required to be included in such
group to meet the requirements of
section 401(a)(4) or 410.
(C) Separate application to employees not
meeting age and service requirements.--If
employees not meeting the age or service
requirements of section 410(a)(1) (without
regard to subparagraph (B) thereof) are covered
under a plan of the employer which meets the
requirements of subparagraphs (A) and (B)
separately with respect to such employees, such
employees may be excluded from consideration in
determining whether any plan of the employer
meets the requirements of subparagraphs (A) and
(B).
(e) Plan must meet requirements without taking into account
social security and similar contributions and benefits.--A top-
heavy plan shall not be treated as meeting the requirement of
subsection (b) or (c) unless such plan meets such requirement
without taking into account contributions or benefits under
chapter 2 (relating to tax on self-employment income), chapter
21 (relating to Federal Insurance Contributions Act), title II
of the Social Security Act, or any other Federal or State law.
(f) Coordination where employer has 2 or more plans.--The
Secretary shall prescribe such regulations as may be necessary
or appropriate to carry out the purposes of this section where
the employer has 2 or more plans including (but not limited to)
regulations to prevent inappropriate omissions or required
duplication of minimum benefits or contributions.
(g) Top-heavy plan defined.--For purposes of this section--
(1) In general.--
(A) Plans not required to be aggregated.--
Except as provided in subparagraph (B), the
term ``top-heavy plan'' means, with respect to
any plan year--
(i) any defined benefit plan if, as
of the determination date, the present
value of the cumulative accrued
benefits under the plan for key
employees exceeds 60 percent of the
present value of the cumulative accrued
benefits under the plan for all
employees, and
(ii) any defined contribution plan
if, as of the determination date, the
aggregate of the accounts of key
employees under the plan exceeds 60
percent of the aggregate of the
accounts of all employees under such
plan.
(B) Aggregated plans.--Each plan of an
employer required to be included in an
aggregation group shall be treated as a top-
heavy plan if such group is a top-heavy group.
(2) Aggregation.--For purposes of this subsection--
(A) Aggregation group.--
(i) Required aggregation.--The term
``aggregation group'' means--
(I) each plan of the employer
in which a key employee is a
participant, and
(II) each other plan of the
employer which enables any plan
described in subclause (I) to
meet the requirements of
section 401(a)(4) or 410.
(ii) Permissive aggregation.--The
employer may treat any plan not
required to be included in an
aggregation group under clause (i) as
being part of such group if such group
would continue to meet the requirements
of sections 401(a)(4) and 410 with such
plan being taken into account.
(B) Top-heavy group.--The term ``top-heavy
group'' means any aggregation group if--
(i) the sum (as of the determination
date) of--
(I) the present value of the
cumulative accrued benefits for
key employees under all defined
benefit plans included in such
group, and
(II) the aggregate of the
accounts of key employees under
all defined contribution plans
included in such group,
(ii) exceeds 60 percent of a similar
sum determined for all employees.
(3) Distributions during last year before
determination date taken into account.--
(A) In general.--For purposes of
determining--
(i) the present value of the
cumulative accrued benefit for any
employee, or
(ii) the amount of the account of any
employee,
such present value or amount shall be increased
by the aggregate distributions made with
respect to such employee under the plan during
the 1-year period ending on the determination
date. The preceding sentence shall also apply
to distributions under a terminated plan which
if it had not been terminated would have been
required to be included in an aggregation
group.
(B) 5-year period in case of in-service
distribution.--In the case of any distribution
made for a reason other than severance from
employment, death, or disability, subparagraph
(A) shall be applied by substituting ``5-year
period'' for ``1-year period''.
(4) Other special rules.--For purposes of this
subsection--
(A) Rollover contributions to plan not taken
into account.--Except to the extent provided in
regulations, any rollover contribution (or
similar transfer) initiated by the employee and
made after December 31, 1983, to a plan shall
not be taken into account with respect to the
transferee plan for purposes of determining
whether such plan is a top-heavy plan (or
whether any aggregation group which includes
such plan is a top-heavy group).
(B) Benefits not taken into account if
employee ceases to be key employee.--If any
individual is a non-key employee with respect
to any plan for any plan year, but such
individual was a key employee with respect to
such plan for any prior plan year, any accrued
benefit for such employee (and the account of
such employee) shall not be taken into account.
(C) Determination date.--The term
``determination date'' means, with respect to
any plan year--
(i) the last day of the preceding
plan year, or
(ii) in the case of the first plan
year of any plan, the last day of such
plan year.
(D) Years.--To the extent provided in
regulations, this section shall be applied on
the basis of any year specified in such
regulations in lieu of plan years.
(E) Benefits not taken into account if
employee not employed for last year before
determination date.--If any individual has not
performed services for the employer maintaining
the plan at any time during the 1-year period
ending on the determination date, any accrued
benefit for such individual (and the account of
such individual) shall not be taken into
account.
(F) Accrued benefits treated as accruing
ratably.--The accrued benefit of any employee
(other than a key employee) shall be
determined--
(i) under the method which is used
for accrual purposes for all plans of
the employer, or
(ii) if there is no method described
in clause (i), as if such benefit
accrued not more rapidly than the
slowest accrual rate permitted under
section 411(b)(1)(C).
(G) Simple retirement accounts.--The term
``top-heavy plan'' shall not include a simple
retirement account under section 408(p).
(H) Cash or deferred arrangements using
alternative methods of meeting
nondiscrimination requirements.--The term
``top-heavy plan'' shall not include a plan
which consists solely of--
(i) a cash or deferred arrangement
which meets the requirements of section
401(k)(12) or 401(k)(13), and
(ii) matching contributions with
respect to which the requirements of
section 401(m)(11) or 401(m)(12) are
met.
If, but for this subparagraph, a plan would be
treated as a top-heavy plan because it is a
member of an aggregation group which is a top-
heavy group, contributions under the plan may
be taken into account in determining whether
any other plan in the group meets the
requirements of subsection (c)(2).
(i) Definitions.--For purposes of this section--
(1) Key employee.--
(A) In general.--The term ``key employee''
means an employee who, at any time during the
plan year, is--
(i) an officer of the employer having
an annual compensation greater than
$130,000,
(ii) a 5-percent owner of the
employer, or
(iii) a 1-percent owner of the
employer having an annual compensation
from the employer of more than
$150,000.
For purposes of clause (i), no more than 50
employees (or, if lesser, the greater of 3 or
10 percent of the employees) shall be treated
as officers. In the case of plan years
beginning after December 31, 2002, the $130,000
amount in clause (i) shall be adjusted at the
same time and in the same manner as under
section 415(d), except that the base period
shall be the calendar quarter beginning July 1,
2001, and any increase under this sentence
which is not a multiple of $5,000 shall be
rounded to the next lower multiple of $5,000.
Such term shall not include any officer or
employee of an entity referred to in section
414(d) (relating to governmental plans). For
purposes of determining the number of officers
taken into account under clause (i), employees
described in section 414(q)(5) shall be
excluded.
(B) Percentage owners.--
(i) 5-percent owner.--For purposes of
this paragraph, the term ``5-percent
owner'' means--
(I) if the employer is a
corporation, any person who
owns (or is considered as
owning within the meaning of
section 318) more than 5
percent of the outstanding
stock of the corporation or
stock possessing more than 5
percent of the total combined
voting power of all stock of
the corporation, or
(II) if the employer is not a
corporation, any person who
owns more than 5 percent of the
capital or profits interest in
the employer.
(ii) 1-percent owner.--For purposes
of this paragraph, the term ``1-percent
owner'' means any person who would be
described in clause (i) if ``1
percent'' were substituted for ``5
percent'' each place it appears in
clause (i).
(iii) Constructive ownership rules.--
For purposes of this subparagraph--
(I) subparagraph (C) of
section 318(a)(2) shall be
applied by substituting ``5
percent'' for ``50 percent'',
and
(II) in the case of any
employer which is not a
corporation, ownership in such
employer shall be determined in
accordance with regulations
prescribed by the Secretary
which shall be based on
principles similar to the
principles of section 318 (as
modified by subclause (I)).
(C) Aggregation rules do not apply for
purposes of determining ownership in the
employer.--The rules of subsections (b), (c),
and (m) of section 414 shall not apply for
purposes of determining ownership in the
employer.
(D) Compensation.--For purposes of this
paragraph, the term ``compensation'' has the
meaning given such term by section 414(q)(4).
(2) Non-key employee.--The term ``non-key employee''
means any employee who is not a key employee.
(3) Self-employed individuals.--In the case of a
self-employed individual described in section
401(c)(1)--
(A) such individual shall be treated as an
employee, and
(B) such individual's earned income (within
the meaning of section 401(c)(2)) shall be
treated as compensation.
(4) Treatment of employees covered by collective
bargaining agreements.--The requirements of subsections
(b), (c), and (d) shall not apply with respect to any
employee included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a
collective bargaining agreement between employee
representatives and 1 or more employers if there is
evidence that retirement benefits were the subject of
good faith bargaining between such employee
representatives and such employer or employers.
(5) Treatment of beneficiaries.--The terms
``employee'' and ``key employee'' include their
beneficiaries.
(6) Treatment of simplified employee pensions.--
(A) Treatment as defined contribution
plans.--A simplified employee pension shall be
treated as a defined contribution plan.
(B) Election to have determinations based on
employer contributions.--In the case of a
simplified employee pension, at the election of
the employer, paragraphs (1)(A)(ii) and (2)(B)
of subsection (g) shall be applied by taking
into account aggregate employer contributions
in lieu of the aggregate of the accounts of
employees.
* * * * * * *
Subchapter E--ACCOUNTING PERIODS AND METHODS OF ACCOUNTING
* * * * * * *
PART II--METHODS OF ACCOUNTING
* * * * * * *
Subpart B--TAXABLE YEAR FOR WHICH ITEMS OF GROSS INCOME INCLUDED
* * * * * * *
SEC. 457. DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS
AND TAX-EXEMPT ORGANIZATIONS.
(a) Year of inclusion in gross income.--
(1) In general.--Any amount of compensation deferred
under an eligible deferred compensation plan, and any
income attributable to the amounts so deferred, shall
be includible in gross income only for the taxable year
in which such compensation or other income--
(A) is paid to the participant or other
beneficiary, in the case of a plan of an
eligible employer described in subsection
(e)(1)(A), and
(B) is paid or otherwise made available to
the participant or other beneficiary, in the
case of a plan of an eligible employer
described in subsection (e)(1)(B).
(2) Special rule for rollover amounts.--To the extent
provided in section 72(t)(9), section 72(t) shall apply
to any amount includible in gross income under this
subsection.
(3) Special rule for health and long-term care
insurance.--In the case of a plan of an eligible
employer described in subsection (e)(1)(A), to the
extent provided in section 402(l), paragraph (1) shall
not apply to amounts otherwise includible in gross
income under this subsection.
(b) Eligible deferred compensation plan defined.--For
purposes of this section, the term ``eligible deferred
compensation plan'' means a plan established and maintained by
an eligible employer--
(1) in which only individuals who perform service for
the employer may be participants,
(2) which provides that (except as provided in
paragraph (3)) the maximum amount which may be deferred
under the plan for the taxable year (other than
rollover amounts) shall not exceed the lesser of--
(A) the applicable dollar amount, or
(B) 100 percent of the participant's
includible compensation,
(3) which may provide that, for 1 or more of the
participant's last 3 taxable years ending before he
attains normal retirement age under the plan, the
ceiling set forth in paragraph (2) shall be the lesser
of--
(A) twice the dollar amount in effect under
subsection (b)(2)(A), or
(B) the sum of--
(i) the plan ceiling established for
purposes of paragraph (2) for the
taxable year (determined without regard
to this paragraph), plus
(ii) so much of the plan ceiling
established for purposes of paragraph
(2) for taxable years before the
taxable year as has not previously been
used under paragraph (2) or this
paragraph,
[(4) which provides that compensation will be
deferred for any calendar month only if an agreement
providing for such deferral has been entered into
before the beginning of such month,]
(4) which provides that compensation--
(A) in the case of an eligible employer
described in subsection (e)(1)(A), will be
deferred only if an agreement providing for
such deferral has been entered into before the
compensation is currently available to the
individual, and
(B) in any other case, will be deferred for
any calendar month only if an agreement
providing for such deferral has been entered
into before the beginning of such month,
(5) which meets the distribution requirements of
subsection (d), and
(6) except as provided in subsection (g), which
provides that--
(A) all amounts of compensation deferred
under the plan,
(B) all property and rights purchased with
such amounts, and
(C) all income attributable to such amounts,
property, or rights,
shall remain (until made available to the participant
or other beneficiary) solely the property and rights of
the employer (without being restricted to the provision
of benefits under the plan), subject only to the claims
of the employer's general creditors.
A plan which is established and maintained by an employer which
is described in subsection (e)(1)(A) and which is administered
in a manner which is inconsistent with the requirements of any
of the preceding paragraphs shall be treated as not meeting the
requirements of such paragraph as of the 1st plan year
beginning more than 180 days after the date of notification by
the Secretary of the inconsistency unless the employer corrects
the inconsistency before the 1st day of such plan year. A plan
which is established and maintained by an employer which is
described in subsection (e)(1)(A) shall not be treated as
failing to meet the requirements of this subsection solely
because the plan, or another plan maintained by the employer
which meets the requirements of section 401(a) or 403(b),
provides for matching contributions on account of qualified
student loan payments as described in section 401(m)(13).
(c) Limitation.--The maximum amount of the compensation of
any one individual which may be deferred under subsection (a)
during any taxable year shall not exceed the amount in effect
under subsection (b)(2)(A) (as modified by any adjustment
provided under subsection (b)(3)).
(d) Distribution requirements.--
(1) In general.--For purposes of subsection (b)(5), a
plan meets the distribution requirements of this
subsection if--
(A) under the plan amounts will not be made
available to participants or beneficiaries
earlier than--
(i) the calendar year in which the
participant attains age 701/2 (in the
case of a plan maintained by an
employer described in subsection
(e)(1)(A), age 591/2),
(ii) when the participant has a
severance from employment with the
employer,
(iii) when the participant is faced
with an unforeseeable emergency
(determined in the manner prescribed by
the Secretary in regulations), or
(iv) except as may be otherwise
provided by regulations, in the case of
a plan maintained by an employer
described in subsection (e)(1)(A), with
respect to amounts invested in a
lifetime income investment (as defined
in section 401(a)(38)(B)(ii)), the date
that is 90 days prior to the date that
such lifetime income investment may no
longer be held as an investment option
under the plan,
(B) the plan meets the minimum distribution
requirements of paragraph (2),
(C) in the case of a plan maintained by an
employer described in subsection (e)(1)(A), the
plan meets requirements similar to the
requirements of section 401(a)(31), and
(D) except as may be otherwise provided by
regulations, in the case of amounts described
in subparagraph (A)(iv), such amounts will be
distributed only in the form of a qualified
distribution (as defined in section
401(a)(38)(B)(i)) or a qualified plan
distribution annuity contract (as defined in
section 401(a)(38)(B)(iv)).
Any amount transferred in a direct trustee-to-trustee
transfer in accordance with section 401(a)(31) shall
not be includible in gross income for the taxable year
of transfer.
(2) Minimum distribution requirements.--A plan meets
the minimum distribution requirements of this paragraph
if such plan meets the requirements of section
401(a)(9).
(3) Special rule for government plan.--An eligible
deferred compensation plan of an employer described in
subsection (e)(1)(A) shall not be treated as failing to
meet the requirements of this subsection solely by
reason of making a distribution described in subsection
(e)(9)(A).
(4) Participant certification.--In determining
whether a distribution of a participant is made when
the participant is faced with an unforeseeable
emergency, the administrator of a plan maintained by an
eligible employer described in subsection (e)(1)(A) may
rely on a certification by the participant that the
distribution is made when the participant is faced with
unforeseeable emergency of a type that is specifically
described in regulations prescribed by the Secretary as
an unforeseeable emergency and that the distribution is
not in excess of the amount reasonably necessary to
satisfy the emergency need.
(e) Other definitions and special rules.--For purposes of
this section--
(1) Eligible employer.--The term ``eligible
employer'' means--
(A) a State, political subdivision of a
State, and any agency or instrumentality of a
State or political subdivision of a State, and
(B) any other organization (other than a
governmental unit) exempt from tax under this
subtitle.
(2) Performance of service.--The performance of
service includes performance of service as an
independent contractor and the person (or governmental
unit) for whom such services are performed shall be
treated as the employer.
(3) Participant.--The term ``participant'' means an
individual who is eligible to defer compensation under
the plan.
(4) Beneficiary.--The term ``beneficiary'' means a
beneficiary of the participant, his estate, or any
other person whose interest in the plan is derived from
the participant.
(5) Includible compensation.--The term ``includible
compensation'' has the meaning given to the term
``participant's compensation'' by section 415(c)(3).
(6) Compensation taken into account at present
value.--Compensation shall be taken into account at its
present value.
(7) Community property laws.--The amount of
includible compensation shall be determined without
regard to any community property laws.
(8) Income attributable.--Gains from the disposition
of property shall be treated as income attributable to
such property.
(9) Benefits of tax exempt organization plans not
treated as made available by reason of certain
elections, etc..--In the case of an eligible deferred
compensation plan of an employer described in
subsection (e)(1)(B)--
(A) Total amount payable is dollar limit or
less.--The total amount payable to a
participant under the plan shall not be treated
as made available merely because the
participant may elect to receive such amount
(or the plan may distribute such amount without
the participant's consent) if--
(i) the portion of such amount which
is not attributable to rollover
contributions (as defined in section
411(a)(11)(D)) does not exceed the
dollar limit under section
411(a)(11)(A), and
(ii) such amount may be distributed
only if--
(I) no amount has been
deferred under the plan with
respect to such participant
during the 2-year period ending
on the date of the
distribution, and
(II) there has been no prior
distribution under the plan to
such participant to which this
subparagraph applied.
A plan shall not be treated as failing to meet
the distribution requirements of subsection (d)
by reason of a distribution to which this
subparagraph applies.
(B) Election to defer commencement of
distributions.--The total amount payable to a
participant under the plan shall not be treated
as made available merely because the
participant may elect to defer commencement of
distributions under the plan if--
(i) such election is made after
amounts may be available under the plan
in accordance with subsection (d)(1)(A)
and before commencement of such
distributions, and
(ii) the participant may make only 1
such election.
(10) Transfers between plans.--A participant shall
not be required to include in gross income any portion
of the entire amount payable to such participant solely
by reason of the transfer of such portion from 1
eligible deferred compensation plan to another eligible
deferred compensation plan.
(11) Certain plans excluded.--
(A) In general.--The following plans shall be
treated as not providing for the deferral of
compensation:
(i) Any bona fide vacation leave,
sick leave, compensatory time,
severance pay, disability pay, or death
benefit plan.
(ii) Any plan paying solely length of
service awards to bona fide volunteers
(or their beneficiaries) on account of
qualified services performed by such
volunteers.
(B) Special rules applicable to length of
service award plans.--
(i) Bona fide volunteer.--An
individual shall be treated as a bona
fide volunteer for purposes of
subparagraph (A)(ii) if the only
compensation received by such
individual for performing qualified
services is in the form of--
(I) reimbursement for (or a
reasonable allowance for)
reasonable expenses incurred in
the performance of such
services, or
(II) reasonable benefits
(including length of service
awards), and nominal fees for
such services, customarily paid
by eligible employers in
connection with the performance
of such services by volunteers.
(ii) Limitation on accruals.--A plan
shall not be treated as described in
subparagraph (A)(ii) if the aggregate
amount of length of service awards
accruing with respect to any year of
service for any bona fide volunteer
exceeds $6,000.
(iii) Cost of living adjustment.--In
the case of taxable years beginning
after December 31, 2017, the Secretary
shall adjust the $6,000 amount under
clause (ii) at the same time and in the
same manner as under section 415(d),
except that the base period shall be
the calendar quarter beginning July 1,
2016, and any increase under this
paragraph that is not a multiple of
$500 shall be rounded to the next
lowest multiple of $500.
(iv) Special rule for application of
limitation on accruals for certain
plans.--In the case of a plan described
in subparagraph (A)(ii) which is a
defined benefit plan (as defined in
section 414(j)), the limitation under
clause (ii) shall apply to the
actuarial present value of the
aggregate amount of length of service
awards accruing with respect to any
year of service. Such actuarial present
value with respect to any year shall be
calculated using reasonable actuarial
assumptions and methods, assuming
payment will be made under the most
valuable form of payment under the plan
with payment commencing at the later of
the earliest age at which unreduced
benefits are payable under the plan or
the participant's age at the time of
the calculation.
(C) Qualified services.--For purposes of this
paragraph, the term ``qualified services''
means fire fighting and prevention services,
emergency medical services, and ambulance
services.
(D) Certain voluntary early retirement
incentive plans.--
(i) In general.--If an applicable
voluntary early retirement incentive
plan--
(I) makes payments or
supplements as an early
retirement benefit, a
retirement-type subsidy, or a
benefit described in the last
sentence of section 411(a)(9),
and
(II) such payments or
supplements are made in
coordination with a defined
benefit plan which is described
in section 401(a) and includes
a trust exempt from tax under
section 501(a) and which is
maintained by an eligible
employer described in paragraph
(1)(A) or by an education
association described in clause
(ii)(II),
such applicable plan shall be treated for
purposes of subparagraph (A)(i) as a bona fide
severance pay plan with respect to such
payments or supplements to the extent such
payments or supplements could otherwise have
been provided under such defined benefit plan
(determined as if section 411 applied to such
defined benefit plan).
(ii) Applicable voluntary early
retirement incentive plan.--For
purposes of this subparagraph, the term
``applicable voluntary early retirement
incentive plan'' means a voluntary
early retirement incentive plan
maintained by--
(I) a local educational
agency (as defined in section
8101 of the Elementary and
Secondary Education Act of
1965), or
(II) an education association
which principally represents
employees of 1 or more agencies
described in subclause (I) and
which is described in section
501(c)(5) or (6) and exempt
from tax under section 501(a).
(12) Exception for nonelective deferred compensation
of nonemployees.--
(A) In general.--This section shall not apply
to nonelective deferred compensation
attributable to services not performed as an
employee.
(B) Nonelective deferred compensation.--For
purposes of subparagraph (A), deferred
compensation shall be treated as nonelective
only if all individuals (other than those who
have not satisfied any applicable initial
service requirement) with the same relationship
to the payor are covered under the same plan
with no individual variations or options under
the plan.
(13) Special rule for churches.--The term ``eligible
employer'' shall not include a church (as defined in
section 3121(w)(3)(A)) or qualified church-controlled
organization (as defined in section 3121(w)(3)(B)).
(14) Treatment of qualified governmental excess
benefit arrangements.--Subsections (b)(2) and (c)(1)
shall not apply to any qualified governmental excess
benefit arrangement (as defined in section 415(m)(3)),
and benefits provided under such an arrangement shall
not be taken into account in determining whether any
other plan is an eligible deferred compensation plan.
(15) Applicable dollar amount.--
(A) In general.--The applicable dollar amount
is $15,000.
(B) Cost-of-living adjustments.--In the case
of taxable years beginning after December 31,
2006, the Secretary shall adjust the $15,000
amount under subparagraph (A) at the same time
and in the same manner as under section 415(d),
except that the base period shall be the
calendar quarter beginning July 1, 2005, and
any increase under this paragraph which is not
a multiple of $500 shall be rounded to the next
lowest multiple of $500.
(16) Rollover amounts.--
(A) General rule.--In the case of an eligible
deferred compensation plan established and
maintained by an employer described in
subsection (e)(1)(A), if--
(i) any portion of the balance to the
credit of an employee in such plan is
paid to such employee in an eligible
rollover distribution (within the
meaning of section 402(c)(4)),
(ii) the employee transfers any
portion of the property such employee
receives in such distribution to an
eligible retirement plan described in
section 402(c)(8)(B), and
(iii) in the case of a distribution
of property other than money, the
amount so transferred consists of the
property distributed,
then such distribution (to the extent so
transferred) shall not be includible in gross
income for the taxable year in which paid.
(B) Certain rules made applicable.--The rules
of paragraphs (2) through (7), (9), and (11) of
section 402(c) and section 402(f) shall apply
for purposes of subparagraph (A).
(C) Reporting.--Rollovers under this
paragraph shall be reported to the Secretary in
the same manner as rollovers from qualified
retirement plans (as defined in section
4974(c)).
(17) Trustee-to-trustee transfers to purchase
permissive service credit.--No amount shall be
includible in gross income by reason of a direct
trustee-to-trustee transfer to a defined benefit
governmental plan (as defined in section 414(d)) if
such transfer is--
(A) for the purchase of permissive service
credit (as defined in section 415(n)(3)(A))
under such plan, or
(B) a repayment to which section 415 does not
apply by reason of subsection (k)(3) thereof.
(18) Coordination with catch-up contributions for
individuals age 50 or older.--In the case of an
individual who is an eligible participant (as defined
by section 414(v)) and who is a participant in an
eligible deferred compensation plan of an employer
described in paragraph (1)(A), subsections (b)(3) and
(c) shall be applied by substituting for the amount
otherwise determined under the applicable subsection
the greater of--
(A) the sum of--
(i) the plan ceiling established for
purposes of subsection (b)(2) (without
regard to subsection (b)(3)), plus
(ii) the lesser of any designated
Roth contributions made by the
participant to the plan or the
applicable dollar amount for the
taxable year determined under section
414(v)(2)(B)(i), or
(B) the amount determined under the
applicable subsection (without regard to this
paragraph).
(f) Tax treatment of participants where plan or arrangement
of employer is not eligible.--
(1) In general.--In the case of a plan of an eligible
employer providing for a deferral of compensation, if
such plan is not an eligible deferred compensation
plan, then--
(A) the compensation shall be included in the
gross income of the participant or beneficiary
for the 1st taxable year in which there is no
substantial risk of forfeiture of the rights to
such compensation, and
(B) the tax treatment of any amount made
available under the plan to a participant or
beneficiary shall be determined under section
72 (relating to annuities, etc.).
(2) Exceptions.--Paragraph (1) shall not apply to--
(A) a plan described in section 401(a) which
includes a trust exempt from tax under section
501(a),
(B) an annuity plan or contract described in
section 403,
(C) that portion of any plan which consists
of a transfer of property described in section
83,
(D) that portion of any plan which consists
of a trust to which section 402(b) applies,
(E) a qualified governmental excess benefit
arrangement described in section 415(m), and
(F) that portion of any applicable employment
retention plan described in paragraph (4) with
respect to any participant.
(3) Definitions.--For purposes of this subsection--
(A) Plan includes arrangements, etc..--The
term ``plan'' includes any agreement or
arrangement.
(B) Substantial risk of forfeiture.--The
rights of a person to compensation are subject
to a substantial risk of forfeiture if such
person's rights to such compensation are
conditioned upon the future performance of
substantial services by any individual.
(4) Employment retention plans.--For purposes of
paragraph (2)(F)--
(A) In general.--The portion of an applicable
employment retention plan described in this
paragraph with respect to any participant is
that portion of the plan which provides
benefits payable to the participant not in
excess of twice the applicable dollar limit
determined under subsection (e)(15).
(B) Other rules.--
(i) Limitation.--Paragraph (2)(F)
shall only apply to the portion of the
plan described in subparagraph (A) for
years preceding the year in which such
portion is paid or otherwise made
available to the participant.
(ii) Treatment.--A plan shall not be
treated for purposes of this title as
providing for the deferral of
compensation for any year with respect
to the portion of the plan described in
subparagraph (A).
(C) Applicable employment retention plan.--
The term ``applicable employment retention
plan'' means an employment retention plan
maintained by--
(i) a local educational agency (as
defined in section 8101 of the
Elementary and Secondary Education Act
of 1965 (20 U.S.C. 7801)), or
(ii) an education association which
principally represents employees of 1
or more agencies described in clause
(i) and which is described in section
501(c)(5) or (6) and exempt from
taxation under section 501(a).
(D) Employment retention plan.--The term
``employment retention plan'' means a plan to
pay, upon termination of employment,
compensation to an employee of a local
educational agency or education association
described in subparagraph (C) for purposes of--
(i) retaining the services of the
employee, or
(ii) rewarding such employee for the
employee's service with 1 or more such
agencies or associations.
(g) Governmental plans must maintain set-asides for exclusive
benefit of participants.--
(1) In general.--A plan maintained by an eligible
employer described in subsection (e)(1)(A) shall not be
treated as an eligible deferred compensation plan
unless all assets and income of the plan described in
subsection (b)(6) are held in trust for the exclusive
benefit of participants and their beneficiaries.
(2) Taxability of trusts and participants.--For
purposes of this title--
(A) a trust described in paragraph (1) shall
be treated as an organization exempt from
taxation under section 501(a), and
(B) notwithstanding any other provision of
this title, amounts in the trust shall be
includible in the gross income of participants
and beneficiaries only to the extent, and at
the time, provided in this section.
(3) Custodial accounts and contracts.--For purposes
of this subsection, custodial accounts and contracts
described in section 401(f) shall be treated as trusts
under rules similar to the rules under section 401(f).
(4) Death benefits under USERRA-qualified active
military service.--A plan described in paragraph (1)
shall not be treated as an eligible deferred
compensation plan unless such plan meets the
requirements of section 401(a)(37).
* * * * * * *
Subtitle C--Employment Taxes
CHAPTER 25--GENERAL PROVISIONS RELATING TO EMPLOYMENT TAXES
* * * * * * *
SEC. 3511. CERTIFIED PROFESSIONAL EMPLOYER ORGANIZATIONS.
(a) General rules.--For purposes of the taxes, and other
obligations, imposed by this subtitle--
(1) a certified professional employer organization
shall be treated as the employer (and no other person
shall be treated as the employer) of any work site
employee performing services for any customer of such
organization, but only with respect to remuneration
remitted by such organization to such work site
employee, and
(2) the exemptions, exclusions, definitions, and
other rules which are based on type of employer and
which would (but for paragraph (1)) apply shall apply
with respect to such taxes imposed on such
remuneration.
(b) Successor employer status.--For purposes of sections
3121(a)(1), 3231(e)(2)(C), and 3306(b)(1)--
(1) a certified professional employer organization
entering into a service contract with a customer with
respect to a work site employee shall be treated as a
successor employer and the customer shall be treated as
a predecessor employer during the term of such service
contract, and
(2) a customer whose service contract with a
certified professional employer organization is
terminated with respect to a work site employee shall
be treated as a successor employer and the certified
professional employer organization shall be treated as
a predecessor employer.
(c) Liability of certified professional employer
organization.--Solely for purposes of its liability for the
taxes and other obligations imposed by this subtitle--
(1) a certified professional employer organization
shall be treated as the employer of any individual
(other than a work site employee or a person described
in subsection (f)) who is performing services covered
by a contract meeting the requirements of section
7705(e)(2), but only with respect to remuneration
remitted by such organization to such individual, and
(2) the exemptions, exclusions, definitions, and
other rules which are based on type of employer and
which would (but for paragraph (1)) apply shall apply
with respect to such taxes imposed on such
remuneration.
(d) Treatment of credits.--
(1) In general.--For purposes of any credit specified
in paragraph (2)--
(A) such credit with respect to a work site
employee performing services for the customer
applies to the customer, not the certified
professional employer organization,
(B) the customer, and not the certified
professional employer organization, shall take
into account wages and employment taxes--
(i) paid by the certified
professional employer organization with
respect to the work site employee, and
(ii) for which the certified
professional employer organization
receives payment from the customer, and
(C) the certified professional employer
organization shall furnish the customer and the
Secretary with any information necessary for
the customer to claim such credit.
(2) Credits specified.--A credit is specified in this
paragraph if such credit is allowed under--
(A) section 41 (credit for increasing
research activity),
(B) section 45A (Indian employment credit),
(C) section 45B (credit for portion of
employer social security taxes paid with
respect to employee cash tips),
(D) section 45C (clinical testing expenses
for certain drugs for rare diseases or
conditions),
(E) section 45R (employee health insurance
expenses of small employers),
(F) section 45U (military spouse retirement
plan eligibility credit),
[(F)] (G) section 51 (work opportunity
credit),
[(G)] (H) section 1396 (empowerment zone
employment credit), and
[(H)] (I) any other section as provided by
the Secretary.
(e) Special rule for related party.--This section shall not
apply in the case of a customer which bears a relationship to a
certified professional employer organization described in
section 267(b) or 707(b). For purposes of the preceding
sentence, such sections shall be applied by substituting ``10
percent'' for ``50 percent''.
(f) Special rule for certain individuals.--For purposes of
the taxes imposed under this subtitle, an individual with net
earnings from self-employment derived from the customer's trade
or business (including a partner in a partnership that is a
customer) is not a work site employee with respect to
remuneration paid by a certified professional employer
organization.
(g) Reporting requirements and obligations.--The Secretary
shall develop such reporting and recordkeeping rules,
regulations, and procedures as the Secretary determines
necessary or appropriate to ensure compliance with this title
by certified professional employer organizations or persons
that have been so certified. Such rules shall include--
(1) notification of the Secretary in such manner as
the Secretary shall prescribe in the case of the
commencement or termination of a service contract
described in section 7705(e)(2) between such a person
and a customer, and the employer identification number
of such customer,
(2) such information as the Secretary determines
necessary for the customer to claim the credits
identified in subsection (d) and the manner in which
such information is to be provided, as prescribed by
the Secretary, and
(3) such other information as the Secretary
determines is essential to promote compliance with
respect to the credits identified in subsection (d) and
section 3302, and
shall be designed in a manner which streamlines, to the extent
possible, the application of requirements of this section and
section 7705, the exchange of information between a certified
professional employer organization and its customers, and the
reporting and recordkeeping obligations of the certified
professional employer organization.
(h) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out the
purposes of this section.
* * * * * * *
Subtitle D--Miscellaneous Excise Taxes
CHAPTER 43--QUALIFIED PENSION, ETC., PLANS
* * * * * * *
SEC. 4973. TAX ON EXCESS CONTRIBUTIONS TO CERTAIN TAX-FAVORED ACCOUNTS
AND ANNUITIES.
(a) Tax imposed.--In the case of--
(1) an individual retirement account (within the
meaning of section 408(a)),
(2) an Archer MSA (within the meaning of section
220(d)),
(3) an individual retirement annuity (within the
meaning of section 408(b)), a custodial account treated
as an annuity contract under section 403(b)(7)(A)
(relating to custodial accounts for regulated
investment company stock),
(4) a Coverdell education savings account (as defined
in section 530),
(5) a health savings account (within the meaning of
section 223(d)), or
(6) an ABLE account (within the meaning of section
529A),
there is imposed for each taxable year a tax in an amount equal
to 6 percent of the amount of the excess contributions to such
individual's accounts or annuities (determined as of the close
of the taxable year). The amount of such tax for any taxable
year shall not exceed 6 percent of the value of the account or
annuity (determined as of the close of the taxable year). In
the case of an endowment contract described in section 408(b),
the tax imposed by this section does not apply to any amount
allocable to life, health, accident, or other insurance under
such contract. The tax imposed by this subsection shall be paid
by such individual.
(b) Excess contributions.--For purposes of this section, in
the case of individual retirement accounts or individual
retirement annuities, the term ``excess contributions'' means
the sum of--
(1) the excess (if any) of--
(A) the amount contributed for the taxable
year to the accounts or for the annuities
(other than a contribution to a Roth IRA or a
rollover contribution described in section
402(c), 403(a)(4), 403(b)(8), 408(d)(3), or
457(e)(16)), over
(B) the amount allowable as a deduction under
section 219 for such contributions, and
(2) the amount determined under this subsection for
the preceding taxable year reduced by the sum of--
(A) the distributions out of the account for
the taxable year which were included in the
gross income of the payee under section
408(d)(1),
(B) the distributions out of the account for
the taxable year to which section 408(d)(5)
applies, and
(C) the excess (if any) of the maximum amount
allowable as a deduction under section 219 for
the taxable year over the amount contributed
(determined without regard to section
219(f)(6)) to the accounts or for the annuities
(including the amount contributed to a Roth
IRA) for the taxable year.
For purposes of this subsection, any contribution which is
distributed from the individual retirement account or the
individual retirement annuity in a distribution to which
section 408(d)(4) applies shall be treated as an amount not
contributed. For purposes of paragraphs (1)(B) and (2)(C), the
amount allowable as a deduction under section 219 shall be
computed without regard to section 219(g). Such term shall not
include any designated nondeductible contribution (as defined
in subparagraph (C) of section 408(o)(2)) which does not exceed
the nondeductible limit under subparagraph (B) thereof by
reason of an election under section 408(o)(5).
(c) Section 403(b) contracts.--For purposes of this section,
in the case of a custodial account referred to in subsection
(a)(3), the term ``excess contributions'' means the sum of--
(1) the excess (if any) of the amount contributed for
the taxable year to such account (other than a rollover
contribution described in section 403(b)(8) or
408(d)(3)(A)(iii)), over the lesser of the amount
excludable from gross income under section 403(b) or
the amount permitted to be contributed under the
limitations contained in section 415 (or under
whichever such section is applicable, if only one is
applicable), and
(2) the amount determined under this subsection for
the preceding taxable year, reduced by--
(A) the excess (if any) of the lesser of (i)
the amount excludable from gross income under
section 403(b) or (ii) the amount permitted to
be contributed under the limitations contained
in section 415 over the amount contributed to
the account for the taxable year (or under
whichever such section is applicable, if only
one is applicable), and
(B) the sum of the distributions out of the
account (for all prior taxable years) which are
included in gross income under section 72(e).
(d) Excess contributions to Archer MSAs.--For purposes of
this section, in the case of Archer MSAs (within the meaning of
section 220(d)), the term ``excess contributions'' means the
sum of--
(1) the aggregate amount contributed for the taxable
year to the accounts (other than rollover contributions
described in section 220(f)(5)) which is neither
excludable from gross income under section 106(b) nor
allowable as a deduction under section 220 for such
year, and
(2) the amount determined under this subsection for
the preceding taxable year, reduced by the sum of--
(A) the distributions out of the accounts
which were included in gross income under
section 220(f)(2), and
(B) the excess (if any) of--
(i) the maximum amount allowable as a
deduction under section 220(b)(1)
(determined without regard to section
106(b)) for the taxable year, over
(ii) the amount contributed to the
accounts for the taxable year.
For purposes of this subsection, any contribution which is
distributed out of the Archer MSA in a distribution to which
section 220(f)(3) or section 138(c)(3) applies shall be treated
as an amount not contributed.
(e) Excess contributions to Coverdell education savings
accounts.--For purposes of this section--
(1) In general.--In the case of Coverdell education
savings accounts maintained for the benefit of any one
beneficiary, the term ``excess contributions'' means
the sum of--
(A) the amount by which the amount
contributed for the taxable year to such
accounts exceeds $2,000 (or, if less, the sum
of the maximum amounts permitted to be
contributed under section 530(c) by the
contributors to such accounts for such year);
and
(B) the amount determined under this
subsection for the preceding taxable year,
reduced by the sum of--
(i) the distributions out of the
accounts for the taxable year (other
than rollover distributions); and
(ii) the excess (if any) of the
maximum amount which may be contributed
to the accounts for the taxable year
over the amount contributed to the
accounts for the taxable year.
(2) Special rules.--For purposes of paragraph (1),
the following contributions shall not be taken into
account:
(A) Any contribution which is distributed out
of the Coverdell education savings account in a
distribution to which section 530(d)(4)(C)
applies.
(B) Any rollover contribution.
(f) Excess contributions to Roth IRAs.--For purposes of this
section, in the case of contributions to a Roth IRA (within the
meaning of section 408A(b)), the term ``excess contributions''
means the sum of--
(1) the excess (if any) of--
(A) the amount contributed for the taxable
year to Roth IRAs (other than a qualified
rollover contribution described in section
408A(e)), over
(B) the amount allowable as a contribution
under sections 408A(c)(2) and (c)(3), and
(2) the amount determined under this subsection for
the preceding taxable year, reduced by the sum of--
(A) the distributions out of the accounts for
the taxable year, and
(B) the excess (if any) of the maximum amount
allowable as a contribution under sections
408A(c)(2) and (c)(3) for the taxable year over
the amount contributed by the individual to all
individual retirement plans for the taxable
year.
For purposes of this subsection, any contribution which is
distributed from a Roth IRA in a distribution described in
section 408(d)(4) shall be treated as an amount not
contributed.
(g) Excess contributions to health savings accounts.--For
purposes of this section, in the case of health savings
accounts (within the meaning of section 223(d)), the term
``excess contributions'' means the sum of--
(1) the aggregate amount contributed for the taxable
year to the accounts (other than a rollover
contribution described in section 220(f)(5) or
223(f)(5)) which is neither excludable from gross
income under section 106(d) nor allowable as a
deduction under section 223 for such year, and
(2) the amount determined under this subsection for
the preceding taxable year, reduced by the sum of--
(A) the distributions out of the accounts
which were included in gross income under
section 223(f)(2), and
(B) the excess (if any) of--
(i) the maximum amount allowable as a
deduction under section 223(b)
(determined without regard to section
106(d)) for the taxable year, over
(ii) the amount contributed to the
accounts for the taxable year.
For purposes of this subsection, any contribution which is
distributed out of the health savings account in a distribution
to which section 223(f)(3) applies shall be treated as an
amount not contributed.
(h) Excess contributions to ABLE account.--For purposes of
this section--
(1) In general.--In the case of an ABLE account
(within the meaning of section 529A), the term ``excess
contributions'' means the amount by which the amount
contributed for the taxable year to such account (other
than contributions under section 529A(c)(1)(C)) exceeds
the contribution limit under section 529A(b)(2)(B).
(2) Special rule.--For purposes of this subsection,
any contribution which is distributed out of the ABLE
account in a distribution to which the last sentence of
section 529A(b)(2) applies shall be treated as an
amount not contributed.
SEC. 4974. EXCISE TAX ON CERTAIN ACCUMULATIONS IN QUALIFIED RETIREMENT
PLANS.
(a) General rule.--If the amount distributed during the
taxable year of the payee under any qualified retirement plan
or any eligible deferred compensation plan (as defined in
section 457(b)) is less than the minimum required distribution
for such taxable year, there is hereby imposed a tax equal to
[50 percent] 25 percent of the amount by which such minimum
required distribution exceeds the actual amount distributed
during the taxable year. The tax imposed by this section shall
be paid by the payee.
(b) Minimum required distribution.--For purposes of this
section, the term ``minimum required distribution'' means the
minimum amount required to be distributed during a taxable year
under section 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), or
457(d)(2), as the case may be, as determined under regulations
prescribed by the Secretary.
(c) Qualified retirement plan.--For purposes of this section,
the term ``qualified retirement plan'' means--
(1) a plan described in section 401(a) which includes
a trust exempt from tax under section 501(a),
(2) an annuity plan described in section 403(a),
(3) an annuity contract described in section 403(b),
(4) an individual retirement account described in
section 408(a), or
(5) an individual retirement annuity described in
section 408(b).
Such term includes any plan, contract, account, or annuity
which, at any time, has been determined by the Secretary to be
such a plan, contract, account, or annuity.
(d) Waiver of tax in certain cases.--If the taxpayer
establishes to the satisfaction of the Secretary that--
(1) the shortfall described in subsection (a) in the
amount distributed during any taxable year was due to
reasonable error, and
(2) reasonable steps are being taken to remedy the
shortfall,
the Secretary may waive the tax imposed by subsection (a) for
the taxable year.
(e) Reduction of Tax in Certain Cases.--
(1) Reduction.--In the case of a taxpayer who--
(A) corrects, during the correction window, a
shortfall of distributions from an individual
retirement plan which resulted in imposition of
a tax under subsection (a), and
(B) submits a return, during the correction
window, reflecting such tax (as modified by
this subsection),
the first sentence of subsection (a) shall be applied
by substituting ``10 percent'' for ``25 percent''.
(2) Correction window.--For purposes of this
subsection, the term ``correction window'' means the
period of time beginning on the date on which the tax
under subsection (a) is imposed with respect to a
shortfall of distributions from an individual
retirement plan, and ending on the earlier of--
(A) the date on which the Secretary initiates
an audit, or otherwise demands payment, with
respect to the shortfall of distributions, or
(B) the last day of the second taxable year
that begins after the end of the taxable year
in which the tax under subsection (a) is
imposed.
SEC. 4975. TAX ON PROHIBITED TRANSACTIONS.
(a) Initial taxes on disqualified person.--There is hereby
imposed a tax on each prohibited transaction. The rate of tax
shall be equal to 15 percent of the amount involved with
respect to the prohibited transaction for each year (or part
thereof) in the taxable period. The tax imposed by this
subsection shall be paid by any disqualified person who
participates in the prohibited transaction (other than a
fiduciary acting only as such).
(b) Additional taxes on disqualified person.--In any case in
which an initial tax is imposed by subsection (a) on a
prohibited transaction and the transaction is not corrected
within the taxable period, there is hereby imposed a tax equal
to 100 percent of the amount involved. The tax imposed by this
subsection shall be paid by any disqualified person who
participated in the prohibited transaction (other than a
fiduciary acting only as such).
(c) Prohibited transaction.--
(1) General rule.--For purposes of this section, the
term ``prohibited transaction'' means any direct or
indirect--
(A) sale or exchange, or leasing, of any
property between a plan and a disqualified
person;
(B) lending of money or other extension of
credit between a plan and a disqualified
person;
(C) furnishing of goods, services, or
facilities between a plan and a disqualified
person;
(D) transfer to, or use by or for the benefit
of, a disqualified person of the income or
assets of a plan;
(E) act by a disqualified person who is a
fiduciary whereby he deals with the income or
assets of a plan in his own interest or for his
own account; or
(F) receipt of any consideration for his own
personal account by any disqualified person who
is a fiduciary from any party dealing with the
plan in connection with a transaction involving
the income or assets of the plan.
(2) Special exemption.--The Secretary shall establish
an exemption procedure for purposes of this subsection.
Pursuant to such procedure, he may grant a conditional
or unconditional exemption of any disqualified person
or transaction, orders of disqualified persons or
transactions, from all or part of the restrictions
imposed by paragraph (1) of this subsection. Action
under this subparagraph may be taken only after
consultation and coordination with the Secretary of
Labor. The Secretary may not grant an exemption under
this paragraph unless he finds that such exemption is--
(A) administratively feasible,
(B) in the interests of the plan and of its
participants and beneficiaries, and
(C) protective of the rights of participants
and beneficiaries of the plan.
Before granting an exemption under this paragraph, the
Secretary shall require adequate notice to be given to
interested persons and shall publish notice in the
Federal Register of the pendency of such exemption and
shall afford interested persons an opportunity to
present views. No exemption may be granted under this
paragraph with respect to a transaction described in
subparagraph (E) or (F) of paragraph (1) unless the
Secretary affords an opportunity for a hearing and
makes a determination on the record with respect to the
findings required under subparagraphs (A), (B), and (C)
of this paragraph, except that in lieu of such hearing
the Secretary may accept any record made by the
Secretary of Labor with respect to an application for
exemption under section 408(a) of title I of the
Employee Retirement Income Security Act of 1974.
(3) Special rule for individual retirement
accounts.--An individual for whose benefit an
individual retirement account is established and his
beneficiaries shall be exempt from the tax imposed by
this section with respect to any transaction concerning
such account (which would otherwise be taxable under
this section) if, with respect to such transaction,
[the account ceases to be an individual retirement
account by reason of the application of section
408(e)(2)(A) or if section 408(e)(4) applies to such
account.] the portion of the account used in the
transaction is treated as distributed under paragraph
(2)(A) or (4) of section 408(e).
(4) Special rule for Archer MSAs.--An individual for
whose benefit an Archer MSA (within the meaning of
section 220(d)) is established shall be exempt from the
tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if section
220(e)(2) applies to such transaction.
(5) Special rule for Coverdell education savings
accounts.--An individual for whose benefit a Coverdell
education savings account is established and any
contributor to such account shall be exempt from the
tax imposed by this section with respect to any
transaction concerning such account (which would
otherwise be taxable under this section) if section
530(d) applies with respect to such transaction.
(6) Special rule for health savings accounts.--An
individual for whose benefit a health savings account
(within the meaning of section 223(d)) is established
shall be exempt from the tax imposed by this section
with respect to any transaction concerning such account
(which would otherwise be taxable under this section)
if, with respect to such transaction, the account
ceases to be a health savings account by reason of the
application of section 223(e)(2) to such account.
(7) Special rule for provision of pharmacy benefit
services.--Any party to an arrangement which satisfies
the requirements of section 408(h) of the Employee
Retirement Income Security Act of 1974 shall be exempt
from the tax imposed by this section with respect to
such arrangement.
(d) Exemptions.--Except as provided in subsection (f)(6), the
prohibitions provided in subsection (c) shall not apply to--
(1) any loan made by the plan to a disqualified
person who is a participant or beneficiary of the plan
if such loan--
(A) is available to all such participants or
beneficiaries on a reasonably equivalent basis,
(B) is not made available to highly
compensated employees (within the meaning of
section 414(q)) in an amount greater than the
amount made available to other employees,
(C) is made in accordance with specific
provisions regarding such loans set forth in
the plan,
(D) bears a reasonable rate of interest, and
(E) is adequately secured;
(2) any contract, or reasonable arrangement, made
with a disqualified person for office space, or legal,
accounting, or other services necessary for the
establishment or operation of the plan, if no more than
reasonable compensation is paid therefor;
(3) any loan to a leveraged employee stock ownership
plan (as defined in subsection (e)(7)), if--
(A) such loan is primarily for the benefit of
participants and beneficiaries of the plan, and
(B) such loan is at a reasonable rate of
interest, and any collateral which is given to
a disqualified person by the plan consists only
of qualifying employer securities (as defined
in subsection (e)(8));
(4) the investment of all or part of a plan's assets
in deposits which bear a reasonable interest rate in a
bank or similar financial institution supervised by the
United States or a State, if such bank or other
institution is a fiduciary of such plan and if--
(A) the plan covers only employees of such
bank or other institution and employees of
affiliates of such bank or other institution,
or
(B) such investment is expressly authorized
by a provision of the plan or by a fiduciary
(other than such bank or institution or
affiliates thereof) who is expressly empowered
by the plan to so instruct the trustee with
respect to such investment;
(5) any contract for life insurance, health
insurance, or annuities with one or more insurers which
are qualified to do business in a State if the plan
pays no more than adequate consideration, and if each
such insurer or insurers is--
(A) the employer maintaining the plan, or
(B) a disqualified person which is wholly
owned (directly or indirectly) by the employer
establishing the plan, or by any person which
is a disqualified person with respect to the
plan, but only if the total premiums and
annuity considerations written by such insurers
for life insurance, health insurance, or
annuities for all plans (and their employers)
with respect to which such insurers are
disqualified persons (not including premiums or
annuity considerations written by the employer
maintaining the plan) do not exceed 5 percent
of the total premiums and annuity
considerations written for all lines of
insurance in that year by such insurers (not
including premiums or annuity considerations
written by the employer maintaining the plan);
(6) the provision of any ancillary service by a bank
or similar financial institution supervised by the
United States or a State, if such service is provided
at not more than reasonable compensation, if such bank
or other institution is a fiduciary of such plan, and
if--
(A) such bank or similar financial
institution has adopted adequate internal
safeguards which assure that the provision of
such ancillary service is consistent with sound
banking and financial practice, as determined
by Federal or State supervisory authority, and
(B) the extent to which such ancillary
service is provided is subject to specific
guidelines issued by such bank or similar
financial institution (as determined by the
Secretary after consultation with Federal and
State supervisory authority), and under such
guidelines the bank or similar financial
institution does not provide such ancillary
service--
(i) in an excessive or unreasonable
manner, and
(ii) in a manner that would be
inconsistent with the best interests of
participants and beneficiaries of
employee benefit plans;
(7) the exercise of a privilege to convert
securities, to the extent provided in regulations of
the Secretary, but only if the plan receives no less
than adequate consideration pursuant to such
conversion;
(8) any transaction between a plan and a common or
collective trust fund or pooled investment fund
maintained by a disqualified person which is a bank or
trust company supervised by a State or Federal agency
or between a plan and a pooled investment fund of an
insurance company qualified to do business in a State
if--
(A) the transaction is a sale or purchase of
an interest in the fund,
(B) the bank, trust company, or insurance
company receives not more than a reasonable
compensation, and
(C) such transaction is expressly permitted
by the instrument under which the plan is
maintained, or by a fiduciary (other than the
bank, trust company, or insurance company, or
an affiliate thereof) who has authority to
manage and control the assets of the plan;
(9) receipt by a disqualified person of any benefit
to which he may be entitled as a participant or
beneficiary in the plan, so long as the benefit is
computed and paid on a basis which is consistent with
the terms of the plan as applied to all other
participants and beneficiaries;
(10) receipt by a disqualified person of any
reasonable compensation for services rendered, or for
the reimbursement of expenses properly and actually
incurred, in the performance of his duties with the
plan, but no person so serving who already receives
full-time pay from an employer or an association of
employers, whose employees are participants in the plan
or from an employee organization whose members are
participants in such plan shall receive compensation
from such fund, except for reimbursement of expenses
properly and actually incurred;
(11) service by a disqualified person as a fiduciary
in addition to being an officer, employee, agent, or
other representative of a disqualified person;
(12) the making by a fiduciary of a distribution of
the assets of the trust in accordance with the terms of
the plan if such assets are distributed in the same
manner as provided under section 4044 of title IV of
the Employee Retirement Income Security Act of 1974
(relating to allocation of assets);
(13) any transaction which is exempt from section 406
of such Act by reason of section 408(e) of such Act (or
which would be so exempt if such section 406 applied to
such transaction) or which is exempt from section 406
of such Act by reason of section 408(b)(12) of such
Act;
(14) any transaction required or permitted under part
1 of subtitle E of title IV or section 4223 of the
Employee Retirement Income Security Act of 1974, but
this paragraph shall not apply with respect to the
application of subsection (c)(1) (E) or (F);
(15) a merger of multiemployer plans, or the transfer
of assets or liabilities between multiemployer plans,
determined by the Pension Benefit Guaranty Corporation
to meet the requirements of section 4231 of such Act,
but this paragraph shall not apply with respect to the
application of subsection (c)(1)(E) or (F);
(16) a sale of stock held by a trust which
constitutes an individual retirement account under
section 408(a) to the individual for whose benefit such
account is established if--
(A) such stock is in a bank (as defined in
section 581) or a depository institution
holding company (as defined in section 3(w)(1)
of the Federal Deposit Insurance Act (12 U.S.C.
1813(w)(1))),
(B) such stock is held by such trust as of
the date of the enactment of this paragraph,
(C) such sale is pursuant to an election
under section 1362(a) by such bank or company,
(D) such sale is for fair market value at the
time of sale (as established by an independent
appraiser) and the terms of the sale are
otherwise at least as favorable to such trust
as the terms that would apply on a sale to an
unrelated party,
(E) such trust does not pay any commissions,
costs, or other expenses in connection with the
sale, and
(F) the stock is sold in a single transaction
for cash not later than 120 days after the S
corporation election is made;
(17) any transaction in connection with the provision
of investment advice described in subsection (e)(3)(B)
to a participant or beneficiary in a plan that permits
such participant or beneficiary to direct the
investment of plan assets in an individual account,
if--
(A) the transaction is--
(i) the provision of the investment
advice to the participant or
beneficiary of the plan with respect to
a security or other property available
as an investment under the plan,
(ii) the acquisition, holding, or
sale of a security or other property
available as an investment under the
plan pursuant to the investment advice,
or
(iii) the direct or indirect receipt
of fees or other compensation by the
fiduciary adviser or an affiliate
thereof (or any employee, agent, or
registered representative of the
fiduciary adviser or affiliate) in
connection with the provision of the
advice or in connection with an
acquisition, holding, or sale of a
security or other property available as
an investment under the plan pursuant
to the investment advice; and
(B) the requirements of subsection (f)(8) are
met,
(18) any transaction involving the purchase or sale
of securities, or other property (as determined by the
Secretary of Labor), between a plan and a disqualified
person (other than a fiduciary described in subsection
(e)(3)) with respect to a plan if--
(A) the transaction involves a block trade,
(B) at the time of the transaction, the
interest of the plan (together with the
interests of any other plans maintained by the
same plan sponsor), does not exceed 10 percent
of the aggregate size of the block trade,
(C) the terms of the transaction, including
the price, are at least as favorable to the
plan as an arm's length transaction, and
(D) the compensation associated with the
purchase and sale is not greater than the
compensation associated with an arm's length
transaction with an unrelated party,
(19) any transaction involving the purchase or sale
of securities, or other property (as determined by the
Secretary of Labor), between a plan and a disqualified
person if--
(A) the transaction is executed through an
electronic communication network, alternative
trading system, or similar execution system or
trading venue subject to regulation and
oversight by--
(i) the applicable Federal regulating
entity, or
(ii) such foreign regulatory entity
as the Secretary of Labor may determine
by regulation,
(B) either--
(i) the transaction is effected
pursuant to rules designed to match
purchases and sales at the best price
available through the execution system
in accordance with applicable rules of
the Securities and Exchange Commission
or other relevant governmental
authority, or
(ii) neither the execution system nor
the parties to the transaction take
into account the identity of the
parties in the execution of trades,
(C) the price and compensation associated
with the purchase and sale are not greater than
the price and compensation associated with an
arm's length transaction with an unrelated
party,
(D) if the disqualified person has an
ownership interest in the system or venue
described in subparagraph (A), the system or
venue has been authorized by the plan sponsor
or other independent fiduciary for transactions
described in this paragraph, and
(E) not less than 30 days prior to the
initial transaction described in this paragraph
executed through any system or venue described
in subparagraph (A), a plan fiduciary is
provided written or electronic notice of the
execution of such transaction through such
system or venue,
(20) transactions described in subparagraphs (A),
(B), and (D) of subsection (c)(1) between a plan and a
person that is a disqualified person other than a
fiduciary (or an affiliate) who has or exercises any
discretionary authority or control with respect to the
investment of the plan assets involved in the
transaction or renders investment advice (within the
meaning of subsection (e)(3)(B)) with respect to those
assets, solely by reason of providing services to the
plan or solely by reason of a relationship to such a
service provider described in subparagraph (F), (G),
(H), or (I) of subsection (e)(2), or both, but only if
in connection with such transaction the plan receives
no less, nor pays no more, than adequate consideration,
(21) any foreign exchange transactions, between a
bank or broker-dealer (or any affiliate of either) and
a plan (as defined in this section) with respect to
which such bank or broker-dealer (or affiliate) is a
trustee, custodian, fiduciary, or other disqualified
person, if--
(A) the transaction is in connection with the
purchase, holding, or sale of securities or
other investment assets (other than a foreign
exchange transaction unrelated to any other
investment in securities or other investment
assets),
(B) at the time the foreign exchange
transaction is entered into, the terms of the
transaction are not less favorable to the plan
than the terms generally available in
comparable arm's length foreign exchange
transactions between unrelated parties, or the
terms afforded by the bank or broker-dealer (or
any affiliate of either) in comparable arm's-
length foreign exchange transactions involving
unrelated parties,
(C) the exchange rate used by such bank or
broker-dealer (or affiliate) for a particular
foreign exchange transaction does not deviate
by more than 3 percent from the interbank bid
and asked rates for transactions of comparable
size and maturity at the time of the
transaction as displayed on an independent
service that reports rates of exchange in the
foreign currency market for such currency, and
(D) the bank or broker-dealer (or any
affiliate of either) does not have investment
discretion, or provide investment advice, with
respect to the transaction,
(22) any transaction described in subsection
(c)(1)(A) involving the purchase and sale of a security
between a plan and any other account managed by the
same investment manager, if--
(A) the transaction is a purchase or sale,
for no consideration other than cash payment
against prompt delivery of a security for which
market quotations are readily available,
(B) the transaction is effected at the
independent current market price of the
security (within the meaning of section
270.17a-7(b) of title 17, Code of Federal
Regulations),
(C) no brokerage commission, fee (except for
customary transfer fees, the fact of which is
disclosed pursuant to subparagraph (D)), or
other remuneration is paid in connection with
the transaction,
(D) a fiduciary (other than the investment
manager engaging in the cross-trades or any
affiliate) for each plan participating in the
transaction authorizes in advance of any cross-
trades (in a document that is separate from any
other written agreement of the parties) the
investment manager to engage in cross trades at
the investment manager's discretion, after such
fiduciary has received disclosure regarding the
conditions under which cross trades may take
place (but only if such disclosure is separate
from any other agreement or disclosure
involving the asset management relationship),
including the written policies and procedures
of the investment manager described in
subparagraph (H),
(E) each plan participating in the
transaction has assets of at least
$100,000,000, except that if the assets of a
plan are invested in a master trust containing
the assets of plans maintained by employers in
the same controlled group (as defined in
section 407(d)(7) of the Employee Retirement
Income Security Act of 1974), the master trust
has assets of at least $100,000,000,
(F) the investment manager provides to the
plan fiduciary who authorized cross trading
under subparagraph (D) a quarterly report
detailing all cross trades executed by the
investment manager in which the plan
participated during such quarter, including the
following information, as applicable: (i) the
identity of each security bought or sold; (ii)
the number of shares or units traded; (iii) the
parties involved in the cross-trade; and (iv)
trade price and the method used to establish
the trade price,
(G) the investment manager does not base its
fee schedule on the plan's consent to cross
trading, and no other service (other than the
investment opportunities and cost savings
available through a cross trade) is conditioned
on the plan's consent to cross trading,
(H) the investment manager has adopted, and
cross-trades are effected in accordance with,
written cross-trading policies and procedures
that are fair and equitable to all accounts
participating in the cross-trading program, and
that include a description of the manager's
pricing policies and procedures, and the
manager's policies and procedures for
allocating cross trades in an objective manner
among accounts participating in the cross-
trading program, and
(I) the investment manager has designated an
individual responsible for periodically
reviewing such purchases and sales to ensure
compliance with the written policies and
procedures described in subparagraph (H), and
following such review, the individual shall
issue an annual written report no later than 90
days following the period to which it relates
signed under penalty of perjury to the plan
fiduciary who authorized cross trading under
subparagraph (D) describing the steps performed
during the course of the review, the level of
compliance, and any specific instances of non-
compliance.
The written report shall also notify the plan fiduciary
of the plan's right to terminate participation in the
investment manager's cross-trading program at any time,
[or]
(23) except as provided in subsection (f)(11), a
transaction described in subparagraph (A), (B), (C), or
(D) of subsection (c)(1) in connection with the
acquisition, holding, or disposition of any security or
commodity, if the transaction is corrected before the
end of the correction period[.], or
(24) the provision of a de minimis financial
incentive described in section 401(k)(4)(A) or
403(b)(12)(A).
(e) Definitions.--
(1) Plan.--For purposes of this section, the term
``plan'' means--
(A) a trust described in section 401(a) which
forms a part of a plan, or a plan described in
section 403(a), which trust or plan is exempt
from tax under section 501(a),
(B) an individual retirement account
described in section 408(a),
(C) an individual retirement annuity
described in section 408(b),
(D) an Archer MSA described in section
220(d),
(E) a health savings account described in
section 223(d),
(F) a Coverdell education savings account
described in section 530, or
(G) a trust, plan, account, or annuity which,
at any time, has been determined by the
Secretary to be described in any preceding
subparagraph of this paragraph.
(2) Disqualified person.--For purposes of this
section, the term ``disqualified person'' means a
person who is--
(A) a fiduciary;
(B) a person providing services to the plan;
(C) an employer any of whose employees are
covered by the plan;
(D) an employee organization any of whose
members are covered by the plan;
(E) an owner, direct or indirect, of 50
percent or more of--
(i) the combined voting power of all
classes of stock entitled to vote or
the total value of shares of all
classes of stock of a corporation,
(ii) the capital interest or the
profits interest of a partnership, or
(iii) the beneficial interest of a
trust or unincorporated enterprise,
which is an employer or an employee
organization described in subparagraph (C) or
(D);
(F) a member of the family (as defined in
paragraph (6)) of any individual described in
subparagraph (A), (B), (C), or (E);
(G) a corporation, partnership, or trust or
estate of which (or in which) 50 percent or
more of--
(i) the combined voting power of all
classes of stock entitled to vote or
the total value of shares of all
classes of stock of such corporation,
(ii) the capital interest or profits
interest of such partnership, or
(iii) the beneficial interest of such
trust or estate,
is owned directly or indirectly, or held by
persons described in subparagraph (A), (B),
(C), (D), or (E);
(H) an officer, director (or an individual
having powers or responsibilities similar to
those of officers or directors), a 10 percent
or more shareholder, or a highly compensated
employee (earning 10 percent or more of the
yearly wages of an employer) of a person
described in subparagraph (C), (D), (E), or
(G); or
(I) a 10 percent or more (in capital or
profits) partner or joint venturer of a person
described in subparagraph (C), (D), (E), or
(G).
The Secretary, after consultation and coordination with
the Secretary of Labor or his delegate, may by
regulation prescribe a percentage lower than 50 percent
for subparagraphs (E) and (G) and lower than 10 percent
for subparagraphs (H) and (I).
(3) Fiduciary.--For purposes of this section, the
term ``fiduciary'' means any person who--
(A) exercises any discretionary authority or
discretionary control respecting management of
such plan or exercises any authority or control
respecting management or disposition of its
assets,
(B) renders investment advice for a fee or
other compensation, direct or indirect, with
respect to any moneys or other property of such
plan, or has any authority or responsibility to
do so, or
(C) has any discretionary authority or
discretionary responsibility in the
administration of such plan.
Such term includes any person designated under section
405(c)(1)(B) of the Employee Retirement Income Security
Act of 1974.
(4) Stockholdings.--For purposes of paragraphs
(2)(E)(i) and (G)(i) there shall be taken into account
indirect stockholdings which would be taken into
account under section 267(c), except that, for purposes
of this paragraph, section 267(c)(4) shall be treated
as providing that the members of the family of an
individual are the members within the meaning of
paragraph (6).
(5) Partnerships; trusts.--For purposes of paragraphs
(2)(E)(ii) and (iii), (G)(ii) and (iii), and (I) the
ownership of profits or beneficial interests shall be
determined in accordance with the rules for
constructive ownership of stock provided in section
267(c) (other than paragraph (3) thereof), except that
section 267(c)(4) shall be treated as providing that
the members of the family of an individual are the
members within the meaning of paragraph (6).
(6) Member of family.--For purposes of paragraph
(2)(F), the family of any individual shall include his
spouse, ancestor, lineal descendant, and any spouse of
a lineal descendant.
(7) Employee stock ownership plan.--The term
``employee stock ownership plan'' means a defined
contribution plan--
(A) which is a stock bonus plan which is
qualified, or a stock bonus and a money
purchase plan both of which are qualified under
section 401(a), and which are designed to
invest primarily in qualifying employer
securities; and
(B) which is otherwise defined in regulations
prescribed by the Secretary.
A plan shall not be treated as an employee stock
ownership plan unless it meets the requirements of
section 409(h), section 409(o), and, if applicable,
section 409(n), section 409(p), and section 664(g) and,
if the employer has a registration-type class of
securities (as defined in section 409(e)(4)), it meets
the requirements of section 409(e).
(8) Qualifying employer security.--The term
``qualifying employer security'' means any employer
security within the meaning of section 409(l). If any
moneys or other property of a plan are invested in
shares of an investment company registered under the
Investment Company Act of 1940, the investment shall
not cause that investment company or that investment
company's investment adviser or principal underwriter
to be treated as a fiduciary or a disqualified person
for purposes of this section, except when an investment
company or its investment adviser or principal
underwriter acts in connection with a plan covering
employees of the investment company, its investment
adviser, or its principal underwriter.
(9) Section made applicable to withdrawal liability
payment funds.--For purposes of this section--
(A) In general.--The term ``plan'' includes a
trust described in section 501(c)(22).
(B) Disqualified person.--In the case of any
trust to which this section applies by reason
of subparagraph (A), the term ``disqualified
person'' includes any person who is a
disqualified person with respect to any plan to
which such trust is permitted to make payments
under section 4223 of the Employee Retirement
Income Security Act of 1974.
(f) Other definitions and special rules.--For purposes of
this section--
(1) Joint and several liability.--If more than one
person is liable under subsection (a) or (b) with
respect to any one prohibited transaction, all such
persons shall be jointly and severally liable under
such subsection with respect to such transaction.
(2) Taxable period.--The term ``taxable period''
means, with respect to any prohibited transaction, the
period beginning with the date on which the prohibited
transaction occurs and ending on the earliest of--
(A) the date of mailing a notice of
deficiency with respect to the tax imposed by
subsection (a) under section 6212,
(B) the date on which the tax imposed by
subsection (a) is assessed, or
(C) the date on which correction of the
prohibited transaction is completed.
(3) Sale or exchange; encumbered property.--A
transfer or real or personal property by a disqualified
person to a plan shall be treated as a sale or exchange
if the property is subject to a mortgage or similar
lien which the plan assumes or if it is subject to a
mortgage or similar lien which a disqualified person
placed on the property within the 10-year period ending
on the date of the transfer.
(4) Amount involved.--The term ``amount involved''
means, with respect to a prohibited transaction, the
greater of the amount of money and the fair market
value of the other property given or the amount of
money and the fair market value of the other property
received; except that, in the case of services
described in paragraphs (2) and (10) of subsection (d)
the amount involved shall be only the excess
compensation. For purposes of the preceding sentence,
the fair market value--
(A) in the case of the tax imposed by
subsection (a), shall be determined as of the
date on which the prohibited transaction
occurs; and
(B) in the case of the tax imposed by
subsection (b), shall be the highest fair
market value during the taxable period.
(5) Correction.--The terms ``correction'' and
``correct'' mean, with respect to a prohibited
transaction, undoing the transaction to the extent
possible, but in any case placing the plan in a
financial position not worse than that in which it
would be if the disqualified person were acting under
the highest fiduciary standards.
(6) Exemptions not to apply to certain
transactions.--
(A) In general.--In the case of a trust
described in section 401(a) which is part of a
plan providing contributions or benefits for
employees some or all of whom are owner-
employees (as defined in section 401(c)(3)),
the exemptions provided by subsection (d)
(other than paragraphs (9) and (12)) shall not
apply to a transaction in which the plan
directly or indirectly--
(i) lends any part of the corpus or
income of the plan to,
(ii) pays any compensation for
personal services rendered to the plan
to, or
(iii) acquires for the plan any
property from, or sells any property
to,
any such owner-employee, a member of the family
(as defined in section 267(c)(4)) of any such
owner-employee, or any corporation in which any
such owner-employee owns, directly or
indirectly, 50 percent or more of the total
combined voting power of all classes of stock
entitled to vote or 50 percent or more of the
total value of shares of all classes of stock
of the corporation.
(B) Special rules for shareholder-employees,
etc..--
(i) In general.--For purposes of
subparagraph (A), the following shall
be treated as owner-employees:
(I) A shareholder-employee.
(II) A participant or
beneficiary of an individual
retirement plan (as defined in
section 7701(a)(37)).
(III) An employer or
association of employees which
establishes such an individual
retirement plan under section
408(c).
(ii) Exception for certain
transactions involving shareholder-
employees.--Subparagraph (A)(iii) shall
not apply to a transaction which
consists of a sale of employer
securities to an employee stock
ownership plan (as defined in
subsection (e)(7)) by a shareholder-
employee, a member of the family (as
defined in section 267(c)(4)) of such
shareholder-employee, or a corporation
in which such a shareholder-employee
owns stock representing a 50 percent or
greater interest described in
subparagraph (A).
(iii) Loan exception.--For purposes
of subparagraph (A)(i), the term
``owner-employee'' shall only include a
person described in subclause (II) or
(III) of clause (i).
(C) Shareholder-employee.--For purposes of
subparagraph (B), the term ``shareholder-
employee'' means an employee or officer of an S
corporation who owns (or is considered as
owning within the meaning of section 318(a)(1))
more than 5 percent of the outstanding stock of
the corporation on any day during the taxable
year of such corporation.
(7) S corporation repayment of loans for qualifying
employer securities.--A plan shall not be treated as
violating the requirements of section 401 or 409 or
subsection (e)(7), or as engaging in a prohibited
transaction for purposes of subsection (d)(3), merely
by reason of any distribution (as described in section
1368(a)) with respect to S corporation stock that
constitutes qualifying employer securities, which in
accordance with the plan provisions is used to make
payments on a loan described in subsection (d)(3) the
proceeds of which were used to acquire such qualifying
employer securities (whether or not allocated to
participants). The preceding sentence shall not apply
in the case of a distribution which is paid with
respect to any employer security which is allocated to
a participant unless the plan provides that employer
securities with a fair market value of not less than
the amount of such distribution are allocated to such
participant for the year which (but for the preceding
sentence) such distribution would have been allocated
to such participant.
(8) Provision of investment advice to participant and
beneficiaries.--
(A) In general.--The prohibitions provided in
subsection (c) shall not apply to transactions
described in subsection (d)(17) if the
investment advice provided by a fiduciary
adviser is provided under an eligible
investment advice arrangement.
(B) Eligible investment advice arrangement.--
For purposes of this paragraph, the term
``eligible investment advice arrangement''
means an arrangement--
(i) which either--
(I) provides that any fees
(including any commission or
other compensation) received by
the fiduciary adviser for
investment advice or with
respect to the sale, holding,
or acquisition of any security
or other property for purposes
of investment of plan assets do
not vary depending on the basis
of any investment option
selected, or
(II) uses a computer model
under an investment advice
program meeting the
requirements of subparagraph
(C) in connection with the
provision of investment advice
by a fiduciary adviser to a
participant or beneficiary, and
(ii) with respect to which the
requirements of subparagraphs (D), (E),
(F), (G), (H), and (I) are met.
(C) Investment advice program using computer
model.--
(i) In general.--An investment advice
program meets the requirements of this
subparagraph if the requirements of
clauses (ii), (iii), and (iv) are met.
(ii) Computer model.--The
requirements of this clause are met if
the investment advice provided under
the investment advice program is
provided pursuant to a computer model
that--
(I) applies generally
accepted investment theories
that take into account the
historic returns of different
asset classes over defined
periods of time,
(II) utilizes relevant
information about the
participant, which may include
age, life expectancy,
retirement age, risk tolerance,
other assets or sources of
income, and preferences as to
certain types of investments,
(III) utilizes prescribed
objective criteria to provide
asset allocation portfolios
comprised of investment options
available under the plan,
(IV) operates in a manner
that is not biased in favor of
investments offered by the
fiduciary adviser or a person
with a material affiliation or
contractual relationship with
the fiduciary adviser, and
(V) takes into account all
investment options under the
plan in specifying how a
participant's account balance
should be invested and is not
inappropriately weighted with
respect to any investment
option.
(iii) Certification.--
(I) In general.--The
requirements of this clause are
met with respect to any
investment advice program if an
eligible investment expert
certifies, prior to the
utilization of the computer
model and in accordance with
rules prescribed by the
Secretary of Labor, that the
computer model meets the
requirements of clause (ii).
(II) Renewal of
certifications.--If, as
determined under regulations
prescribed by the Secretary of
Labor, there are material
modifications to a computer
model, the requirements of this
clause are met only if a
certification described in
subclause (I) is obtained with
respect to the computer model
as so modified.
(III) Eligible investment
expert.--The term ``eligible
investment expert'' means any
person which meets such
requirements as the Secretary
of Labor may provide and which
does not bear any material
affiliation or contractual
relationship with any
investment adviser or a related
person thereof (or any
employee, agent, or registered
representative of the
investment adviser or related
person).
(iv) Exclusivity of recommendation.--
The requirements of this clause are met
with respect to any investment advice
program if--
(I) the only investment
advice provided under the
program is the advice generated
by the computer model described
in clause (ii), and
(II) any transaction
described in subsection
(d)(17)(A)(ii) occurs solely at
the direction of the
participant or beneficiary.
Nothing in the preceding sentence shall
preclude the participant or beneficiary from
requesting investment advice other than that
described in clause (i), but only if such
request has not been solicited by any person
connected with carrying out the arrangement.
(D) Express authorization by separate
fiduciary.--The requirements of this
subparagraph are met with respect to an
arrangement if the arrangement is expressly
authorized by a plan fiduciary other than the
person offering the investment advice program,
any person providing investment options under
the plan, or any affiliate of either.
(E) Audits.--
(i) In general.--The requirements of
this subparagraph are met if an
independent auditor, who has
appropriate technical training or
experience and proficiency and so
represents in writing--
(I) conducts an annual audit
of the arrangement for
compliance with the
requirements of this paragraph,
and
(II) following completion of
the annual audit, issues a
written report to the fiduciary
who authorized use of the
arrangement which presents its
specific findings regarding
compliance of the arrangement
with the requirements of this
paragraph.
(ii) Special rule for individual
retirement and similar plans.--In the
case of a plan described in
subparagraphs (B) through (F) (and so
much of subparagraph (G) as relates to
such subparagraphs) of subsection
(e)(1), in lieu of the requirements of
clause (i), audits of the arrangement
shall be conducted at such times and in
such manner as the Secretary of Labor
may prescribe.
(iii) Independent auditor.--For
purposes of this subparagraph, an
auditor is considered independent if it
is not related to the person offering
the arrangement to the plan and is not
related to any person providing
investment options under the plan.
(F) Disclosure.--The requirements of this
subparagraph are met if--
(i) the fiduciary adviser provides to
a participant or a beneficiary before
the initial provision of the investment
advice with regard to any security or
other property offered as an investment
option, a written notification (which
may consist of notification by means of
electronic communication)--
(I) of the role of any party
that has a material affiliation
or contractual relationship
with the fiduciary adviser in
the development of the
investment advice program and
in the selection of investment
options available under the
plan,
(II) of the past performance
and historical rates of return
of the investment options
available under the plan,
(III) of all fees or other
compensation relating to the
advice that the fiduciary
adviser or any affiliate
thereof is to receive
(including compensation
provided by any third party) in
connection with the provision
of the advice or in connection
with the sale, acquisition, or
holding of the security or
other property,
(IV) of any material
affiliation or contractual
relationship of the fiduciary
adviser or affiliates thereof
in the security or other
property,
(V) of the manner, and under
what circumstances, any
participant or beneficiary
information provided under the
arrangement will be used or
disclosed,
(VI) of the types of services
provided by the fiduciary
adviser in connection with the
provision of investment advice
by the fiduciary adviser,
(VII) that the adviser is
acting as a fiduciary of the
plan in connection with the
provision of the advice, and
(VIII) that a recipient of
the advice may separately
arrange for the provision of
advice by another adviser, that
could have no material
affiliation with and receive no
fees or other compensation in
connection with the security or
other property, and
(ii) at all times during the
provision of advisory services to the
participant or beneficiary, the
fiduciary adviser--
(I) maintains the information
described in clause (i) in
accurate form and in the manner
described in subparagraph (H),
(II) provides, without
charge, accurate information to
the recipient of the advice no
less frequently than annually,
(III) provides, without
charge, accurate information to
the recipient of the advice
upon request of the recipient,
and
(IV) provides, without
charge, accurate information to
the recipient of the advice
concerning any material change
to the information required to
be provided to the recipient of
the advice at a time reasonably
contemporaneous to the change
in information.
(G) Other conditions.--The requirements of
this subparagraph are met if--
(i) the fiduciary adviser provides
appropriate disclosure, in connection
with the sale, acquisition, or holding
of the security or other property, in
accordance with all applicable
securities laws,
(ii) the sale, acquisition, or
holding occurs solely at the direction
of the recipient of the advice,
(iii) the compensation received by
the fiduciary adviser and affiliates
thereof in connection with the sale,
acquisition, or holding of the security
or other property is reasonable, and
(iv) the terms of the sale,
acquisition, or holding of the security
or other property are at least as
favorable to the plan as an arm's
length transaction would be.
(H) Standards for presentation of
information.--
(i) In general.--The requirements of
this subparagraph are met if the
notification required to be provided to
participants and beneficiaries under
subparagraph (F)(i) is written in a
clear and conspicuous manner and in a
manner calculated to be understood by
the average plan participant and is
sufficiently accurate and comprehensive
to reasonably apprise such participants
and beneficiaries of the information
required to be provided in the
notification.
(ii) Model form for disclosure of
fees and other compensation.--The
Secretary of Labor shall issue a model
form for the disclosure of fees and
other compensation required in
subparagraph (F)(i)(III) which meets
the requirements of clause (i).
(I) Maintenance for 6 years of evidence of
compliance.--The requirements of this
subparagraph are met if a fiduciary adviser who
has provided advice referred to in subparagraph
(A) maintains, for a period of not less than 6
years after the provision of the advice, any
records necessary for determining whether the
requirements of the preceding provisions of
this paragraph and of subsection (d)(17) have
been met. A transaction prohibited under
subsection (c) shall not be considered to have
occurred solely because the records are lost or
destroyed prior to the end of the 6-year period
due to circumstances beyond the control of the
fiduciary adviser.
(J) Definitions.--For purposes of this
paragraph and subsection (d)(17)--
(i) Fiduciary adviser.--The term
``fiduciary adviser'' means, with
respect to a plan, a person who is a
fiduciary of the plan by reason of the
provision of investment advice referred
to in subsection (e)(3)(B) by the
person to a participant or beneficiary
of the plan and who is--
(I) registered as an
investment adviser under the
Investment Advisers Act of 1940
(15 U.S.C. 80b-1 et seq.) or
under the laws of the State in
which the fiduciary maintains
its principal office and place
of business,
(II) a bank or similar
financial institution referred
to in subsection (d)(4) or a
savings association (as defined
in section 3(b)(1) of the
Federal Deposit Insurance Act
(12 U.S.C. 1813(b)(1)), but
only if the advice is provided
through a trust department of
the bank or similar financial
institution or savings
association which is subject to
periodic examination and review
by Federal or State banking
authorities,
(III) an insurance company
qualified to do business under
the laws of a State,
(IV) a person registered as a
broker or dealer under the
Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.),
(V) an affiliate of a person
described in any of subclauses
(I) through (IV), or
(VI) an employee, agent, or
registered representative of a
person described in subclauses
(I) through (V) who satisfies
the requirements of applicable
insurance, banking, and
securities laws relating to the
provision of the advice.
For purposes of this title, a person who
develops the computer model described in
subparagraph (C)(ii) or markets the investment
advice program or computer model shall be
treated as a person who is a fiduciary of the
plan by reason of the provision of investment
advice referred to in subsection (e)(3)(B) to a
participant or beneficiary and shall be treated
as a fiduciary adviser for purposes of this
paragraph and subsection (d)(17), except that
the Secretary of Labor may prescribe rules
under which only 1 fiduciary adviser may elect
to be treated as a fiduciary with respect to
the plan.
(ii) Affiliate.--The term
``affiliate'' of another entity means
an affiliated person of the entity (as
defined in section 2(a)(3) of the
Investment Company Act of 1940 (15
U.S.C. 80a-2(a)(3))).
(iii) Registered representative.--The
term ``registered representative'' of
another entity means a person described
in section 3(a)(18) of the Securities
Exchange Act of 1934 (15 U.S.C.
78c(a)(18)) (substituting the entity
for the broker or dealer referred to in
such section) or a person described in
section 202(a)(17) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-
2(a)(17)) (substituting the entity for
the investment adviser referred to in
such section).
(9) Block trade.--The term ``block trade'' means any
trade of at least 10,000 shares or with a market value
of at least $200,000 which will be allocated across two
or more unrelated client accounts of a fiduciary.
(10) Adequate consideration.--The term ``adequate
consideration'' means--
(A) in the case of a security for which there
is a generally recognized market--
(i) the price of the security
prevailing on a national securities
exchange which is registered under
section 6 of the Securities Exchange
Act of 1934, taking into account
factors such as the size of the
transaction and marketability of the
security, or
(ii) if the security is not traded on
such a national securities exchange, a
price not less favorable to the plan
than the offering price for the
security as established by the current
bid and asked prices quoted by persons
independent of the issuer and of the
party in interest, taking into account
factors such as the size of the
transaction and marketability of the
security, and
(B) in the case of an asset other than a
security for which there is a generally
recognized market, the fair market value of the
asset as determined in good faith by a
fiduciary or fiduciaries in accordance with
regulations prescribed by the Secretary of
Labor.
(11) Correction period.--
(A) In general.--For purposes of subsection
(d)(23), the term ``correction period'' means
the 14-day period beginning on the date on
which the disqualified person discovers, or
reasonably should have discovered, that the
transaction would (without regard to this
paragraph and subsection (d)(23)) constitute a
prohibited transaction.
(B) Exceptions.--
(i) Employer securities.--Subsection
(d)(23) does not apply to any
transaction between a plan and a plan
sponsor or its affiliates that involves
the acquisition or sale of an employer
security (as defined in section
407(d)(1) of the Employee Retirement
Income Security Act of 1974) or the
acquisition, sale, or lease of employer
real property (as defined in section
407(d)(2) of such Act).
(ii) Knowing prohibited
transaction.--In the case of any
disqualified person, subsection (d)(23)
does not apply to a transaction if, at
the time the transaction is entered
into, the disqualified person knew (or
reasonably should have known) that the
transaction would (without regard to
this paragraph) constitute a prohibited
transaction.
(C) Abatement of tax where there is a
correction.--If a transaction is not treated as
a prohibited transaction by reason of
subsection (d)(23), then no tax under
subsections (a) and (b) shall be assessed with
respect to such transaction, and if assessed
the assessment shall be abated, and if
collected shall be credited or refunded as an
overpayment.
(D) Definitions.--For purposes of this
paragraph and subsection (d)(23)--
(i) Security.--The term ``security''
has the meaning given such term by
section 475(c)(2) (without regard to
subparagraph (F)(iii) and the last
sentence thereof).
(ii) Commodity.--The term
``commodity'' has the meaning given
such term by section 475(e)(2) (without
regard to subparagraph (D)(iii)
thereof).
(iii) Correct.--The term ``correct''
means, with respect to a transaction--
(I) to undo the transaction
to the extent possible and in
any case to make good to the
plan or affected account any
losses resulting from the
transaction, and
(II) to restore to the plan
or affected account any profits
made through the use of assets
of the plan.
(g) Application of section.--This section shall not apply--
(1) in the case of a plan to which a guaranteed
benefit policy (as defined in section 401(b)(2)(B) of
the Employee Retirement Income Security Act of 1974) is
issued, to any assets of the insurance company,
insurance service, or insurance organization merely
because of its issuance of such policy;
(2) to a governmental plan (within the meaning of
section 414(d)); or
(3) to a church plan (within the meaning of section
414(e)) with respect to which the election provided by
section 410(d) has not been made.
In the case of a plan which invests in any security issued by
an investment company registered under the Investment Company
Act of 1940, the assets of such plan shall be deemed to include
such security but shall not, by reason of such investment, be
deemed to include any assets of such company.
(h) Notification of Secretary of Labor.--Before sending a
notice of deficiency with respect to the tax imposed by
subsection (a) or (b), the Secretary shall notify the Secretary
of Labor and provide him a reasonable opportunity to obtain a
correction of the prohibited transaction or to comment on the
imposition of such tax.
(i) Cross reference.--For provisions concerning coordination
procedures between Secretary of Labor and Secretary of the
Treasury with respect to application of tax imposed by this
section and for authority to waive imposition of the tax
imposed by subsection (b), see section 3003 of the Employee
Retirement Income Security Act of 1974.
* * * * * * *
Subtitle F--Procedure and Administration
* * * * * * *
CHAPTER 61--INFORMATION AND RETURNS
* * * * * * *
Subchapter A--RETURNS AND RECORDS
* * * * * * *
PART II--TAX RETURNS OR STATEMENTS
* * * * * * *
Subpart A--GENERAL REQUIREMENT
* * * * * * *
SEC. 6011. GENERAL REQUIREMENT OF RETURN, STATEMENT, OR LIST.
(a) General rule.--When required by regulations prescribed by
the Secretary any person made liable for any tax imposed by
this title, or with respect to the collection thereof, shall
make a return or statement according to the forms and
regulations prescribed by the Secretary. Every person required
to make a return or statement shall include therein the
information required by such forms or regulations.
(b) Identification of taxpayer.--The Secretary is authorized
to require such information with respect to persons subject to
the taxes imposed by chapter 21 or chapter 24 as is necessary
or helpful in securing proper identification of such persons.
(c) Returns, etc., of DISCS and former DISCS and former
FSC's.--
(1) Records and information.--A DISC, former DISC, or
former FSC (as defined in section 922 as in effect
before its repeal by the FSC Repeal and
Extraterritorial Income Exclusion Act of 2000) shall
for the taxable year--
(A) furnish such information to persons who
were shareholders at any time during such
taxable year, and to the Secretary, and
(B) keep such records, as may be required by
regulations prescribed by the Secretary.
(2) Returns.--A DISC shall file for the taxable year
such returns as may be prescribed by the Secretary by
forms or regulations.
(d) Authority to require information concerning section 912
allowances.--The Secretary may by regulations require any
individual who receives allowances which are excluded from
gross income under section 912 for any taxable year to include
on his return of the taxes imposed by subtitle A for such
taxable year such information with respect to the amount and
type of such allowances as the Secretary determines to be
appropriate.
(e) Regulations requiring returns on magnetic media, etc..--
(1) In general.--The Secretary shall prescribe
regulations providing standards for determining which
returns must be filed on magnetic media or in other
machine-readable form. Except as provided in paragraph
(3), the Secretary may not require returns of any tax
imposed by subtitle A on individuals, estates, and
trusts to be other than on paper forms supplied by the
Secretary.
(2) Requirements of [regulations.--] [In prescribing]
regulations._
(A) In general._In prescribing regulations
under paragraph (1), the Secretary--
[(A)] (i) shall not require any
person to file returns on magnetic
media unless such person is required to
file at least the applicable number of
returns during the calendar year, and
[(B)] (ii) shall take into account
(among other relevant factors) the
ability of the taxpayer to comply at
reasonable cost with the requirements
of such regulations.
(B) Exceptions.--Notwithstanding subparagraph
(A), the Secretary shall require returns or
reports required under--
(i) sections 6057, 6058, and 6059,
and
(ii) sections 408(i), 6041, and 6047
to the extent such return or report
relates to the tax treatment of a
distribution from a plan, account,
contract, or annuity,
to be filed on magnetic media, but only with
respect to persons who are required to file at
least 50 returns during the calendar year which
includes the first day of the plan year to
which such returns or reports relate.
(3) Special rule for tax return preparers.--
(A) In general.--The Secretary shall require
that any individual income tax return prepared
by a tax return preparer be filed on magnetic
media if--
(i) such return is filed by such tax
return preparer, and
(ii) such tax return preparer is a
specified tax return preparer for the
calendar year during which such return
is filed.
(B) Specified tax return preparer.--For
purposes of this paragraph, the term
``specified tax return preparer'' means, with
respect to any calendar year, any tax return
preparer unless such preparer reasonably
expects to file 10 or fewer individual income
tax returns during such calendar year.
(C) Individual income tax return.--For
purposes of this paragraph, the term
``individual income tax return'' means any
return of the tax imposed by subtitle A on
individuals, estates, or trusts.
(D) Exception for certain preparers located
in areas without internet access.--The
Secretary may waive the requirement of
subparagraph (A) if the Secretary determines,
on the basis of an application by the tax
return preparer, that the preparer cannot meet
such requirement by reason of being located in
a geographic area which does not have access to
internet service (other than dial-up or
satellite service).
(4) Special rule for returns filed by financial
institutions with respect to withholding on foreign
transfers.--The numerical limitation under paragraph
(2)(A) shall not apply to any return filed by a
financial institution (as defined in section
1471(d)(5)) with respect to tax for which such
institution is made liable under section 1461 or
1474(a).
(5) Applicable number.--
(A) In general.--For purposes of paragraph
(2)(A), the applicable number shall be--
(i) except as provided in
subparagraph (B), in the case of
calendar years before 2021, 250,
(ii) in the case of calendar year
2021, 100, and
(iii) in the case of calendar years
after 2021, 10.
(B) Special rule for partnerships for 2018,
2019, 2020, and 2021.--In the case of a
partnership, for any calendar year before 2022,
the applicable number shall be--
(i) in the case of calendar year
2018, 200,
(ii) in the case of calendar year
2019, 150,
(iii) in the case of calendar year
2020, 100, and
(iv) in the case of calendar year
2021, 50.
(6) Partnerships required to file on magnetic
media.--Notwithstanding paragraph (2)(A), the Secretary
shall require partnerships having more than 100
partners to file returns on magnetic media.
(6) Application of numerical limitation to returns
relating to deferred compensation plans.--For purposes
of applying the numerical limitation under paragraph
(2)(A) to any return required under section 6058,
information regarding each plan for which information
is provided on such return shall be treated as a
separate return.
(f) Promotion of electronic filing.--
(1) In general.--The Secretary is authorized to
promote the benefits of and encourage the use of
electronic tax administration programs, as they become
available, through the use of mass communications and
other means.
(2) Incentives.--The Secretary may implement
procedures to provide for the payment of appropriate
incentives for electronically filed returns.
(g) Disclosure of reportable transaction to tax-exempt
entity.--Any taxable party to a prohibited tax shelter
transaction (as defined in section 4965(e)(1)) shall by
statement disclose to any tax-exempt entity (as defined in
section 4965(c)) which is a party to such transaction that such
transaction is such a prohibited tax shelter transaction.
(h) Mandatory e-filing of unrelated business income tax
return.--Any organization required to file an annual return
under this section which relates to any tax imposed by section
511 shall file such return in electronic form.
(i) Income, estate, and gift taxes.--For requirement that
returns of income, estate, and gift taxes be made whether or
not there is tax liability, see subparts B and C.
* * * * * * *
PART III--INFORMATION RETURNS
* * * * * * *
Subpart E--REGISTRATION OF AND INFORMATION CONCERNING PENSION, ETC.,
PLANS
* * * * * * *
SEC. 6057. ANNUAL REGISTRATION, ETC.
(a) Annual registration.--
(1) General rule.--Within such period after the end
of a plan year as the Secretary may by regulations
prescribe, the plan administrator (within the meaning
of section 414(g)) of each plan to which the vesting
standards of section 203 of part 2 of subtitle B of
title I of the Employee Retirement Income Security Act
of 1974 applies for such plan year shall file a
registration statement with the Secretary.
(2) Contents.--The registration statement required by
paragraph (1) shall set forth--
(A) the name of the plan,
(B) the name and address of the plan
administrator,
(C) the name and taxpayer identifying number
of each participant in the plan--
(i) who, [during such plan year]
during the plan year immediately
preceding such plan year, separated
from the service covered by the plan,
and
(ii) who is entitled to a deferred
vested benefit under the plan as of the
end of such plan year, and
[(iii) with respect to whom
retirement benefits were not paid under
the plan during such plan year,]
(D) the nature, amount, and form of the
deferred vested benefit to which such
participant is entitled, [and]
(E) the name and taxpayer identifying number
of each participant or former participant in
the plan--
(i) who, during the current plan year
or any previous plan year, was reported
under subparagraph (C), and with
respect to whom the benefits described
in subparagraph (C)(ii) were fully paid
during the plan year,
(ii) with respect to whom any amount
was distributed under section
401(a)(31)(B) during the plan year, or
(iii) with respect to whom a deferred
annuity contract was distributed during
the plan year,
(F) in the case of a participant or former
participant to whom subparagraph (E) applies--
(i) in the case of a participant
described in clause (ii) thereof, the
name and address of the designated
trustee or issuer described in section
401(a)(31)(B)(i) and the account number
of the individual retirement plan to
which the amount was distributed, and
(ii) in the case of a participant
described in clause (iii) thereof, the
name and address of the issuer of such
annuity contract and the contract or
certificate number, and
[(E)] (G) such other information as the
Secretary may require.
At the time he files the registration statement under
this subsection, the plan administrator shall furnish
evidence satisfactory to the Secretary that he has
complied with the requirement contained in subsection
(e).
(b) Notification of change in status.--Any plan administrator
required to register under subsection (a) shall also notify the
Secretary, at such time as may be prescribed by regulations,
of--
(1) any change in the name of the plan,
(2) any change in the name or address of the plan
administrator,
(3) the termination of the plan, or
(4) the merger or consolidation of the plan with any
other plan or its division into two or more plans.
(c) Voluntary reports.--To the extent provided in regulations
prescribed by the Secretary, the Secretary may receive from--
(1) any plan to which subsection (a) applies, and
(2) any other plan (including any governmental plan
or church plan (within the meaning of section 414)),
such information (including information relating to plan years
beginning before January 1, 1974) as the plan administrator may
wish to file with respect to the deferred vested benefit rights
of any participant separated from the service covered by the
plan during any plan year.
(d) Transmission of information to Commissioner of Social
Security.--The Secretary shall transmit copies of any
statements, notifications, reports, or other information
obtained by him under this section to the Commissioner of
Social Security.
(e) Individual statement to participant.--Each plan
administrator required to file a registration statement under
subsection (a) shall, before the expiration of the time
prescribed for the filing of such registration statement, also
furnish to each participant described in subsection (a)(2)(C)
an individual statement setting forth the information with
respect to such participant required to be contained in such
registration statement. Such statement shall also include a
notice to the participant of any benefits which are forfeitable
if the participant dies before a certain date, and, with
respect to any benefit of the individual subject to section
401(a)(31)(B), a notice of availability of, and the contact
information for, the Retirement Savings Lost and Found
established under section 306(a)(1) of the Securing a Strong
Retirement Act of 2021.
(f) Regulations.--
(1) In general.--The Secretary, after consultation
with the Commissioner of Social Security, may prescribe
such regulations as may be necessary to carry out the
provisions of this section.
(2) Plans to which more than one employer
contributes.--This section shall apply to any plan to
which more than one employer is required to contribute
only to the extent provided in regulations prescribed
under this subsection.
(g) 403(b) Multiple Employer Plans Treated as One Plan.--In
the case of annuity contracts to which this section applies and
to which section 403(b) applies by reason of the plan under
which such contracts are purchased meeting the requirements of
paragraph (15) thereof, such plan shall be treated as a single
plan for purposes of this section.
[(g)] (h) Cross references.--For provisions relating to
penalties for failure to register or furnish statements
required by this section, see section 6652(d) and section 6690.
For coordination between Department of the Treasury and the
Department of Labor with regard to administration of this
section, see section 3004 of the Employee Retirement Income
Security Act of 1974.
SEC. 6058. INFORMATION REQUIRED IN CONNECTION WITH CERTAIN PLANS OF
DEFERRED COMPENSATION.
(a) In general.--Every employer who maintains a pension,
annuity, stock bonus, profit-sharing, or other funded plan of
deferred compensation described in part I of subchapter D of
chapter 1, or the plan administrator (within the meaning of
section 414(g)) of the plan, shall file an annual return
stating such information as the Secretary may by regulations
prescribe with respect to the qualification, financial
conditions, and operations of the plan; except that, in the
discretion of the Secretary, the employer may be relieved from
stating in its return any information which is reported in
other returns.
(b) Actuarial statement in case of mergers, etc..--Not less
than 30 days before a merger, consolidation, or transfer of
assets or liabilities of a plan described in subsection (a) to
another plan, the plan administrator (within the meaning of
section 414(g)) shall file an actuarial statement of valuation
evidencing compliance with the requirements of section
401(a)(12).
(c) Employer.--For purposes of this section, the term
``employer'' includes a person described in section 401(c)(4)
and an individual who establishes an individual retirement
plan.
(d) Coordination with income tax returns, etc..--An
individual who establishes an individual retirement plan shall
not be required to file a return under this section with
respect to such plan for any taxable year for which there is--
(1) no special IRP tax, and
(2) no plan activity other than--
(A) the making of contributions (other than
rollover contributions), and
(B) the making of distributions.
(e) Special IRP tax defined.--For purposes of this section,
the term ``special IRP tax'' means a tax imposed by--
(1) section 4973, or
(2) section 4974.
(f) 403(b) Multiple Employer Plans Treated as One Plan.--In
the case of annuity contracts to which this section applies and
to which section 403(b) applies by reason of the plan under
which such contracts are purchased meeting the requirements of
paragraph (15) thereof, such plan shall be treated as a single
plan for purposes of this section.
[(f)] (g) Cross references.--For provisions relating to
penalties for failure to file a return required by this
section, see section 6652(e).
For coordination between the Department of the Treasury and
the Department of Labor with respect to the information
required under this section, see section 3004 of title III of
the Employee Retirement Income Security Act of 1974.
* * * * * * *
CHAPTER 66--LIMITATIONS
Subchapter A--LIMITATIONS ON ASSESSMENT AND COLLECTION
* * * * * * *
SEC. 6501. LIMITATIONS ON ASSESSMENT AND COLLECTION.
(a) General rule.--Except as otherwise provided in this
section, the amount of any tax imposed by this title shall be
assessed within 3 years after the return was filed (whether or
not such return was filed on or after the date prescribed) or,
if the tax is payable by stamp, at any time after such tax
became due and before the expiration of 3 years after the date
on which any part of such tax was paid, and no proceeding in
court without assessment for the collection of such tax shall
be begun after the expiration of such period. For purposes of
this chapter, the term ``return'' means the return required to
be filed by the taxpayer (and does not include a return of any
person from whom the taxpayer has received an item of income,
gain, loss, deduction, or credit).
(b) Time return deemed filed.--
(1) Early return.--For purposes of this section, a
return of tax imposed by this title, except tax imposed
by chapter 3, 4, 21, or 24, filed before the last day
prescribed by law or by regulations promulgated
pursuant to law for the filing thereof, shall be
considered as filed on such last day.
(2) Return of certain employment and withholding
taxes.--For purposes of this section, if a return of
tax imposed by chapter 3, 4, 21, or 24 for any period
ending with or within a calendar year is filed before
April 15 of the succeeding calendar year, such return
shall be considered filed on April 15 of such calendar
year.
(3) Return executed by Secretary.--Notwithstanding
the provisions of paragraph (2) of section 6020(b), the
execution of a return by the Secretary pursuant to the
authority conferred by such section shall not start the
running of the period of limitations on assessment and
collection.
(4) Return of excise taxes.--For purposes of this
section, the filing of a return for a specified period
on which an entry has been made with respect to a tax
imposed under a provision of subtitle D (including a
return on which an entry has been made showing no
liability for such tax for such period) shall
constitute the filing of a return of all amounts of
such tax which, if properly paid, would be required to
be reported on such return for such period.
(c) Exceptions.--
(1) False return.--In the case of a false or
fraudulent return with the intent to evade tax, the tax
may be assessed, or a proceeding in court for
collection of such tax may be begun without assessment,
at any time.
(2) Willful attempt to evade tax.--In case of a
willful attempt in any manner to defeat or evade tax
imposed by this title (other than tax imposed by
subtitle A or B), the tax may be assessed, or a
proceeding in court for the collection of such tax may
be begun without assessment, at any time.
(3) No return.--In the case of failure to file a
return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun
without assessment, at any time.
(4) Extension by agreement.--
(A) In general.--Where, before the expiration
of the time prescribed for the assessment of
any tax imposed by this title, except the
estate tax provided in chapter 11, both the
Secretary and the taxpayer have consented in
writing to its assessment after such time, the
tax may be assessed at any time prior to the
expiration of the period agreed upon. The
period so agreed upon may be extended by
subsequent agreements in writing made before
the expiration of the period previously agreed
upon.
(B) Notice to taxpayer of right to refuse or
limit extension.--The Secretary shall notify
the taxpayer of the taxpayer's right to refuse
to extend the period of limitations, or to
limit such extension to particular issues or to
a particular period of time, on each occasion
when the taxpayer is requested to provide such
consent.
(5) Tax resulting from changes in certain income tax
or estate tax credits.--For special rules applicable in
cases where the adjustment of certain taxes allowed as
a credit against income taxes or estate taxes results
in additional tax, see section 905(c) (relating to the
foreign tax credit for income tax purposes) and section
2016 (relating to taxes of foreign countries, States,
etc., claimed as credit against estate taxes).
(6) Termination of private foundation status.--In the
case of a tax on termination of private foundation
status under section 507, such tax may be assessed, or
a proceeding in court for the collection of such tax
may be begun without assessment, at any time.
(7) Special rule for certain amended returns.--Where,
within the 60-day period ending on the day on which the
time prescribed in this section for the assessment of
any tax imposed by subtitle A for any taxable year
would otherwise expire, the Secretary receives a
written document signed by the taxpayer showing that
the taxpayer owes an additional amount of such tax for
such taxable year, the period for the assessment of
such additional amount shall not expire before the day
60 days after the day on which the Secretary receives
such document.
(8) Failure to notify Secretary of certain foreign
transfers.--
(A) In general.--In the case of any
information which is required to be reported to
the Secretary pursuant to an election under
section 1295(b) or under section 1298(f), 6038,
6038A, 6038B, 6038D, 6046, 6046A, or 6048, the
time for assessment of any tax imposed by this
title with respect to any tax return, event, or
period to which such information relates shall
not expire before the date which is 3 years
after the date on which the Secretary is
furnished the information required to be
reported under such section.
(B) Application to failures due to reasonable
cause.--If the failure to furnish the
information referred to in subparagraph (A) is
due to reasonable cause and not willful
neglect, subparagraph (A) shall apply only to
the item or items related to such failure.
(9) Gift tax on certain gifts not shown on return.--
If any gift of property the value of which (or any
increase in taxable gifts required under section
2701(d) which) is required to be shown on a return of
tax imposed by chapter 12 (without regard to section
2503(b)), and is not shown on such return, any tax
imposed by chapter 12 on such gift may be assessed, or
a proceeding in court for the collection of such tax
may be begun without assessment, at any time. The
preceding sentence shall not apply to any item which is
disclosed in such return, or in a statement attached to
the return, in a manner adequate to apprise the
Secretary of the nature of such item.
(10) Listed transactions.--If a taxpayer fails to
include on any return or statement for any taxable year
any information with respect to a listed transaction
(as defined in section 6707A(c)(2)) which is required
under section 6011 to be included with such return or
statement, the time for assessment of any tax imposed
by this title with respect to such transaction shall
not expire before the date which is 1 year after the
earlier of--
(A) the date on which the Secretary is
furnished the information so required, or
(B) the date that a material advisor meets
the requirements of section 6112 with respect
to a request by the Secretary under section
6112(b) relating to such transaction with
respect to such taxpayer.
(11) Certain orders of criminal restitution.--In the
case of any amount described in section 6201(a)(4),
such amount may be assessed, or a proceeding in court
for the collection of such amount may be begun without
assessment, at any time.
(12) Certain taxes attributable to partnership
adjustments.--In the case of any partnership adjustment
determined under subchapter C of chapter 63, the period
for assessment of any tax imposed under chapter 2 or 2A
which is attributable to such adjustment shall not
expire before the date that is 1 year after--
(A) in the case of an adjustment pursuant to
the decision of a court in a proceeding brought
under section 6234, such decision becomes
final, or
(B) in any other case, 90 days after the date
on which the notice of the final partnership
adjustment is mailed under section 6231.
(d) Request for prompt assessment.--Except as otherwise
provided in subsection (c), (e), or (f), in the case of any tax
(other than the tax imposed by chapter 11 of subtitle B,
relating to estate taxes) for which return is required in the
case of a decedent, or by his estate during the period of
administration, or by a corporation, the tax shall be assessed,
and any proceeding in court without assessment for the
collection of such tax shall be begun, within 18 months after
written request therefor (filed after the return is made and
filed in such manner and such form as may be prescribed by
regulations of the Secretary) by the executor, administrator,
or other fiduciary representing the estate of such decedent, or
by the corporation, but not after the expiration of 3 years
after the return was filed. This subsection shall not apply in
the case of a corporation unless--
(1)(A) such written request notifies the Secretary
that the corporation contemplates dissolution at or
before the expiration of such 18-month period, (B) the
dissolution is in good faith begun before the
expiration of such 18-month period, and (C) the
dissolution is completed;
(2)(A) such written request notifies the Secretary
that a dissolution has in good faith been begun, and
(B) the dissolution is completed; or
(3) a dissolution has been completed at the time such
written request is made.
(e) Substantial omission of items.--Except as otherwise
provided in subsection (c)--
(1) Income taxes.--In the case of any tax imposed by
subtitle A--
(A) General rule.--If the taxpayer omits from
gross income an amount properly includible
therein and--
(i) such amount is in excess of 25
percent of the amount of gross income
stated in the return, or
(ii) such amount--
(I) is attributable to one or
more assets with respect to
which information is required
to be reported under section
6038D (or would be so required
if such section were applied
without regard to the dollar
threshold specified in
subsection (a) thereof and
without regard to any
exceptions provided pursuant to
subsection (h)(1) thereof), and
(II) is in excess of $5,000,
the tax may be assessed, or a proceeding in
court for collection of such tax may be begun
without assessment, at any time within 6 years
after the return was filed.
(B) Determination of gross income.--For
purposes of subparagraph (A)--
(i) In the case of a trade or
business, the term ``gross income''
means the total of the amounts received
or accrued from the sale of goods or
services (if such amounts are required
to be shown on the return) prior to
diminution by the cost of such sales or
services;
(ii) An understatement of gross
income by reason of an overstatement of
unrecovered cost or other basis is an
omission from gross income; and
(iii) In determining the amount
omitted from gross income (other than
in the case of an overstatement of
unrecovered cost or other basis), there
shall not be taken into account any
amount which is omitted from gross
income stated in the return if such
amount is disclosed in the return, or
in a statement attached to the return,
in a manner adequate to apprise the
Secretary of the nature and amount of
such item.
(C) Constructive dividends.--If the taxpayer
omits from gross income an amount properly
includible therein under section 951(a), the
tax may be assessed, or a proceeding in court
for the collection of such tax may be done
without assessing, at any time within 6 years
after the return was filed.
(2) Estate and gift taxes.--In the case of a return
of estate tax under chapter 11 or a return of gift tax
under chapter 12, if the taxpayer omits from the gross
estate or from the total amount of the gifts made
during the period for which the return was filed items
includible in such gross estate or such total gifts, as
the case may be, as exceed in amount 25 percent of the
gross estate stated in the return or the total amount
of gifts stated in the return, the tax may be assessed,
or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within 6
years after the return was filed. In determining the
items omitted from the gross estate or the total gifts,
there shall not be taken into account any item which is
omitted from the gross estate or from the total gifts
stated in the return if such item is disclosed in the
return, or in a statement attached to the return, in a
manner adequate to apprise the Secretary of the nature
and amount of such item.
(3) Excise taxes.--In the case of a return of a tax
imposed under a provision of subtitle D, if the return
omits an amount of such tax properly includible thereon
which exceeds 25 percent of the amount of such tax
reported thereon, the tax may be assessed, or a
proceeding in court for the collection of such tax may
be begun without assessment, at any time within 6 years
after the return is filed. In determining the amount of
tax omitted on a return, there shall not be taken into
account any amount of tax imposed by chapter 41, 42,
43, or 44 which is omitted from the return if the
transaction giving rise to such tax is disclosed in the
return, or in a statement attached to the return, in a
manner adequate to apprise the Secretary of the
existence and nature of such item.
(f) Personal holding company tax.--If a corporation which is
a personal holding company for any taxable year fails to file
with its return under chapter 1 for such year a schedule
setting forth--
(1) the items of gross income and adjusted ordinary
gross income, described in section 543, received by the
corporation during such year, and
(2) the names and addresses of the individuals who
owned, within the meaning of section 544 (relating to
rules for determining stock ownership), at any time
during the last half of such year more than 50 percent
in value of the outstanding capital stock of the
corporation,
the personal holding company tax for such year may be assessed,
or a proceeding in court for the collection of such tax may be
begun without assessment, at any time within 6 years after the
return for such year was filed.
(g) Certain income tax returns of corporations.--
(1) Trusts or partnerships.--If a taxpayer determines
in good faith that it is a trust or partnership and
files a return as such under subtitle A, and if such
taxpayer is thereafter held to be a corporation for the
taxable year for which the return is filed, such return
shall be deemed the return of the corporation for
purposes of this section.
(2) Exempt organizations.--If a taxpayer determines
in good faith that it is an exempt organization and
files a return as such under section 6033, and if such
taxpayer is thereafter held to be a taxable
organization for the taxable year for which the return
is filed, such return shall be deemed the return of the
organization for purposes of this section.
(3) DISC.--If a corporation determines in good faith
that it is a DISC (as defined in section 992(a)) and
files a return as such under section 6011(c)(2) and if
such corporation is thereafter held to be a corporation
which is not a DISC for the taxable year for which the
return is filed, such return shall be deemed the return
of a corporation which is not a DISC for purposes of
this section.
(h) Net operating loss or capital loss carrybacks.--In the
case of a deficiency attributable to the application to the
taxpayer of a net operating loss carryback or a capital loss
carryback (including deficiencies which may be assessed
pursuant to the provisions of section 6213(b)(3)), such
deficiency may be assessed at any time before the expiration of
the period within which a deficiency for the taxable year of
the net operating loss or net capital loss which results in
such carryback may be assessed.
(i) Foreign tax carrybacks.--In the case of a deficiency
attributable to the application to the taxpayer of a carryback
under section 904(c) (relating to carryback and carryover of
excess foreign taxes) or under section 907(f) (relating to
carryback and carryover of disallowed foreign oil and gas
taxes), such deficiency may be assessed at any time before the
expiration of one year after the expiration of the period
within which a deficiency may be assessed for the taxable year
of the excess taxes described in section 904(c) or 907(f) which
result in such carryback.
(j) Certain credit carrybacks.--
(1) In general.--In the case of a deficiency
attributable to the application to the taxpayer of a
credit carryback (including deficiencies which may be
assessed pursuant to the provisions of section
6213(b)(3)), such deficiency may be assessed at any
time before the expiration of the period within which a
deficiency for the taxable year of the unused credit
which results in such carryback may be assessed, or
with respect to any portion of a credit carryback from
a taxable year attributable to a net operating loss
carryback, capital loss carryback, or other credit
carryback from a subsequent taxable year, at any time
before the expiration of the period within which a
deficiency for such subsequent taxable year may be
assessed.
(2) Credit carryback defined.--For purposes of this
subsection, the term ``credit carryback'' has the
meaning given such term by section 6511(d)(4)(C).
(k) Tentative carryback adjustment assessment period.--In a
case where an amount has been applied, credited, or refunded
under section 6411 (relating to tentative carryback and refund
adjustments) by reason of a net operating loss carryback, a
capital loss carryback, or a credit carryback (as defined in
section 6511(d)(4)(C)) to a prior taxable year, the period
described in subsection (a) of this section for assessing a
deficiency for such prior taxable year shall be extended to
include the period described in subsection (h) or (j),
whichever is applicable; except that the amount which may be
assessed solely by reason of this subsection shall not exceed
the amount so applied, credited, or refunded under section
6411, reduced by any amount which may be assessed solely by
reason of subsection (h) or (j), as the case may be.
(l) Special rule for chapter 42 and similar taxes.--
(1) In general.--For purposes of any tax imposed by
section 4912, by chapter 42 (other than section 4940),
or by section 4975, the return referred to in this
section shall be the return filed by the private
foundation, plan, trust, or other organization (as the
case may be) for the year in which the act (or failure
to act) giving rise to liability for such tax occurred.
For purposes of section 4940, such return is the return
filed by the private foundation for the taxable year
for which the tax is imposed.
(2) Certain contributions to section 501(c)(3)
organizations.--In the case of a deficiency of tax of a
private foundation making a contribution in the manner
provided in section 4942(g)(3) (relating to certain
contributions to section 501(c)(3) organizations)
attributable to the failure of a section 501(c)(3)
organization to make the distribution prescribed by
section 4942(g)(3), such deficiency may be assessed at
any time before the expiration of one year after the
expiration of the period within which a deficiency may
be assessed for the taxable year with respect to which
the contribution was made.
(3) Certain set-asides described in section
4942(g)(2).--In the case of a deficiency attributable
to the failure of an amount set aside by a private
foundation for a specific project to be treated as a
qualifying distribution under the provisions of section
4942(g)(2)(B)(ii), such deficiency may be assessed at
any time before the expiration of 2 years after the
expiration of the period within which a deficiency may
be assessed for the taxable year to which the amount
set aside relates.
(4) Individual retirement plans.--
(A) In general.--For purposes of any tax
imposed by section 4973 or 4974 in connection
with an individual retirement plan, the return
referred to in this section shall be the income
tax return filed by the person on whom the tax
under such section is imposed for the year in
which the act (or failure to act) giving rise
to the liability for such tax occurred.
(B) Rule in case of individuals not required
to file return.--In the case of a person who is
not required to file an income tax return for
such year--
(i) the return referred to in this
section shall be the income tax return
that such person would have been
required to file but for the fact that
such person was not required to file
such return, and
(ii) the 3-year period referred to in
subsection (a) with respect to the
return shall be deemed to begin on the
date by which the return would have
been required to be filed (excluding
any extension thereof).
(m) Deficiencies attributable to election of certain
credits.--The period for assessing a deficiency attributable to
any election under section 30B(h)(9), 30C(e)(4), 30D(e)(4),
35(g)(11), 40(f), 43, 45B, 45C(d)(4), 45H(g), or 51(j) (or any
revocation thereof) shall not expire before the date 1 year
after the date on which the Secretary is notified of such
election (or revocation).
(n) Cross reference.--For period of limitations for
assessment and collection in the case of a joint income return
filed after separate returns have been filed, see section
6013(b)(3) and (4).
* * * * * * *
CHAPTER 68--ADDITIONS TO THE TAX, ADDITIONAL AMOUNTS, AND ASSESSABLE
PENALTIES
Subchapter A--ADDITIONS TO THE TAX AND ADDITIONAL AMOUNTS
PART I--GENERAL PROVISIONS
* * * * * * *
SEC. 6652. FAILURE TO FILE CERTAIN INFORMATION RETURNS, REGISTRATION
STATEMENTS, ETC.
(a) Returns with respect to certain payments aggregating less
than $10.--In the case of each failure to file a statement of a
payment to another person required under the authority of--
(1) section 6042(a)(2) (relating to payments of
dividends aggregating less than $10), or
(2) section 6044(a)(2) (relating to payments of
patronage dividends aggregating less than $10),
on the date prescribed therefor (determined with regard to any
extension of time for filing), unless it is shown that such
failure is due to reasonable cause and not to willful neglect,
there shall be paid (upon notice and demand by the Secretary
and in the same manner as tax) by the person failing to so file
the statement, $1 for each such statement not so filed, but the
total amount imposed on the delinquent person for all such
failures during the calendar year shall not exceed $1,000.
(b) Failure to report tips.--In the case of failure by an
employee to report to his employer on the date and in the
manner prescribed therefor any amount of tips required to be so
reported by section 6053(a) which are wages (as defined in
section 3121(a)) or which are compensation (as defined in
section 3231(e)), unless it is shown that such failure is due
to reasonable cause and not due to willful neglect, there shall
be paid by the employee, in addition to the tax imposed by
section 3101 or section 3201 (as the case may be) with respect
to the amount of tips which he so failed to report, an amount
equal to 50 percent of such tax.
(c) Returns by exempt organizations and by certain trusts.--
(1) Annual returns under section 6033(a)(1) or
6012(a)(6).--
(A) Penalty on organization.--In the case
of--
(i) a failure to file a return
required under section 6033(a)(1)
(relating to returns by exempt
organizations) or section 6012(a)(6)
(relating to returns by political
organizations) on the date and in the
manner prescribed therefor (determined
with regard to any extension of time
for filing), or
(ii) a failure to include any of the
information required to be shown on a
return filed under section 6033(a)(1)
or section 6012(a)(6) or to show the
correct information,
there shall be paid by the exempt organization
$20 for each day during which such failure
continues. The maximum penalty under this
subparagraph on failures with respect to any 1
return shall not exceed the lesser of $10,000
or 5 percent of the gross receipts of the
organization for the year. In the case of an
organization having gross receipts exceeding
$1,000,000 for any year, with respect to the
return required under section 6033(a)(1) or
section 6012(a)(6) for such year, in applying
the first sentence of this subparagraph, the
amount of the penalty for each day during which
a failure continues shall be $100 in lieu of
the amount otherwise specified, and, in lieu of
applying the second sentence of this
subparagraph, the maximum penalty under this
subparagraph shall not exceed $50,000.
(B) Managers.--
(i) In general.--The Secretary may
make a written demand on any
organization subject to penalty under
subparagraph (A) specifying therein a
reasonable future date by which the
return shall be filed (or the
information furnished) for purposes of
this subparagraph.
(ii) Failure to comply with demand.--
If any person fails to comply with any
demand under clause (i) on or before
the date specified in such demand,
there shall be paid by the person
failing to so comply $10 for each day
after the expiration of the time
specified in such demand during which
such failure continues. The maximum
penalty imposed under this subparagraph
on all persons for failures with
respect to any 1 return shall not
exceed $5,000.
(C) Public inspection of annual returns and
reports.--In the case of a failure to comply
with the requirements of section 6104(d) with
respect to any annual return on the date and in
the manner prescribed therefor (determined with
regard to any extension of time for filing) or
report required under section 527(j), there
shall be paid by the person failing to meet
such requirements $20 for each day during which
such failure continues. The maximum penalty
imposed under this subparagraph on all persons
for failures with respect to any 1 return or
report shall not exceed $10,000.
(D) Public inspection of applications for
exemption and notice of status.--In the case of
a failure to comply with the requirements of
section 6104(d) with respect to any exempt
status application materials (as defined in
such section) or notice materials (as defined
in such section) on the date and in the manner
prescribed therefor, there shall be paid by the
person failing to meet such requirements $20
for each day during which such failure
continues.
(E) No penalty for certain annual notices.--
This paragraph shall not apply with respect to
any notice required under section 6033(i).
(2) Returns under section 6034 or 6043(b).--
(A) Penalty on organization or trust.--In the
case of a failure to file a return required
under section 6034 (relating to returns by
certain trusts) or section 6043(b) (relating to
terminations, etc., of exempt organizations),
on the date and in the manner prescribed
therefor (determined with regard to any
extension of time for filing), there shall be
paid by the exempt organization or trust
failing so to file $10 for each day during
which such failure continues, but the total
amount imposed under this subparagraph on any
organization or trust for failure to file any 1
return shall not exceed $5,000.
(B) Managers.--The Secretary may make written
demand on an organization or trust failing to
file under subparagraph (A) specifying therein
a reasonable future date by which such filing
shall be made for purposes of this
subparagraph. If such filing is not made on or
before such date, there shall be paid by the
person failing so to file $10 for each day
after the expiration of the time specified in
the written demand during which such failure
continues, but the total amount imposed under
this subparagraph on all persons for failure to
file any 1 return shall not exceed $5,000.
(C) Split-interest trusts.--In the case of a
trust which is required to file a return under
section 6034(a), subparagraphs (A) and (B) of
this paragraph shall not apply and paragraph
(1) shall apply in the same manner as if such
return were required under section 6033, except
that--
(i) the 5 percent limitation in the
second sentence of paragraph (1)(A)
shall not apply,
(ii) in the case of any trust with
gross income in excess of $250,000, in
applying the first sentence of
paragraph (1)(A), the amount of the
penalty for each day during which a
failure continues shall be $100 in lieu
of the amount otherwise specified, and
in lieu of applying the second sentence
of paragraph (1)(A), the maximum
penalty under paragraph (1)(A) shall
not exceed $50,000, and
(iii) the third sentence of paragraph
(1)(A) shall be disregarded.
In addition to any penalty imposed on the trust
pursuant to this subparagraph, if the person
required to file such return knowingly fails to
file the return, such penalty shall also be
imposed on such person who shall be personally
liable for such penalty.
(3) Disclosure under section 6033(a)(2).--
(A) Penalty on entities.--In the case of a
failure to file a disclosure required under
section 6033(a)(2), there shall be paid by the
tax-exempt entity (the entity manager in the
case of a tax-exempt entity described in
paragraph (4), (5), (6), or (7) of section
4965(c)) $100 for each day during which such
failure continues. The maximum penalty under
this subparagraph on failures with respect to
any 1 disclosure shall not exceed $50,000.
(B) Written demand.--
(i) In general.--The Secretary may
make a written demand on any entity or
manager subject to penalty under
subparagraph (A) specifying therein a
reasonable future date by which the
disclosure shall be filed for purposes
of this subparagraph.
(ii) Failure to comply with demand.--
If any entity or manager fails to
comply with any demand under clause (i)
on or before the date specified in such
demand, there shall be paid by such
entity or manager failing to so comply
$100 for each day after the expiration
of the time specified in such demand
during which such failure continues.
The maximum penalty imposed under this
subparagraph on all entities and
managers for failures with respect to
any 1 disclosure shall not exceed
$10,000.
(C) Definitions.--Any term used in this
section which is also used in section 4965
shall have the meaning given such term under
section 4965.
(4) Notices under section 506.--
(A) Penalty on organization.--In the case of
a failure to submit a notice required under
section 506(a) (relating to organizations
required to notify Secretary of intent to
operate as 501(c)(4)) on the date and in the
manner prescribed therefor, there shall be paid
by the organization failing to so submit $20
for each day during which such failure
continues, but the total amount imposed under
this subparagraph on any organization for
failure to submit any one notice shall not
exceed $5,000.
(B) Managers.--The Secretary may make written
demand on an organization subject to penalty
under subparagraph (A) specifying in such
demand a reasonable future date by which the
notice shall be submitted for purposes of this
subparagraph. If such notice is not submitted
on or before such date, there shall be paid by
the person failing to so submit $20 for each
day after the expiration of the time specified
in the written demand during which such failure
continues, but the total amount imposed under
this subparagraph on all persons for failure to
submit any one notice shall not exceed $5,000.
(5) Reasonable cause exception.--No penalty shall be
imposed under this subsection with respect to any
failure if it is shown that such failure is due to
reasonable cause.
(6) Other special rules.--
(A) Treatment as tax.--Any penalty imposed
under this subsection shall be paid on notice
and demand of the Secretary and in the same
manner as tax.
(B) Joint and several liability.--If more
than 1 person is liable under this subsection
for any penalty with respect to any failure,
all such persons shall be jointly and severally
liable with respect to such failure.
(C) Person.--For purposes of this subsection,
the term ``person'' means any officer,
director, trustee, employee, or other
individual who is under a duty to perform the
act in respect of which the violation occurs.
(7) Adjustment for inflation.--
(A) In general.--In the case of any failure
relating to a return required to be filed in a
calendar year beginning after 2014, each of the
dollar amounts under paragraphs (1), (2), and
(3) shall be increased by an amount equal to
such dollar amount multiplied by the cost-of-
living adjustment determined under section
1(f)(3) for the calendar year determined by
substituting ``calendar year 2013'' for
``calendar year 2016'' in subparagraph (A)(ii)
thereof.
(B) Rounding.--If any amount adjusted under
subparagraph (A)--
(i) is not less than $5,000 and is
not a multiple of $500, such amount
shall be rounded to the next lowest
multiple of $500, and
(ii) is not described in clause (i)
and is not a multiple of $5, such
amount shall be rounded to the next
lowest multiple of $5.
(d) Annual registration and other notification by pension
plan.--
(1) Registration.--In the case of any failure to file
a registration statement required under section 6057(a)
(relating to annual registration of certain plans)
which includes all participants required to be included
in such statement, on the date prescribed therefor
(determined without regard to any extension of time for
filing), unless it is shown that such failure is due to
reasonable cause, there shall be paid (on notice and
demand by the Secretary and in the same manner as tax)
by the person failing so to file, an amount equal to
$10 for each participant with respect to whom there is
a failure to file, multiplied by the number of days
during which such failure continues, but the total
amount imposed under this paragraph on any person for
any failure to file with respect to any plan year shall
not exceed $50,000.
(2) Notification of change of status.--In the case of
failure to file a notification required under section
6057(b) (relating to notification of change of status)
on the date prescribed therefor (determined without
regard to any extension of time for filing), unless it
is shown that such failure is due to reasonable cause,
there shall be paid (on notice and demand by the
Secretary and in the same manner as tax) by the person
failing so to file, $10 for each day during which such
failure continues, but the total amounts imposed under
this paragraph on any person for failure to file any
notification shall not exceed $10,000.
(e) Information required in connection with certain plans of
deferred compensation, etc..--In the case of failure to file a
return or statement required under section 6058 (relating to
information required in connection with certain plans of
deferred compensation), 6047 (relating to information relating
to certain trusts and annuity and bond purchase plans), or
6039D (relating to returns and records with respect to certain
fringe benefit plans) on the date and in the manner prescribed
therefor (determined with regard to any extension of time for
filing), unless it is shown that such failure is due to
reasonable cause, there shall be paid (on notice and demand by
the Secretary and in the same manner as tax) by the person
failing so to file, $250 for each day during which such failure
continues, but the total amount imposed under this subsection
on any person for failure to file any return shall not exceed
$150,000. This subsection shall not apply to any return or
statement which is an information return described in section
6724(d)(1)(C)(ii) or a payee statement described in section
6724(d)(2)(AA).
(f) Returns required under section 6039C.--
(1) In general.--In the case of each failure to make
a return required by section 6039C which contains the
information required by such section on the date
prescribed therefor (determined with regard to any
extension of time for filing), unless it is shown that
such failure is due to reasonable cause and not to
willful neglect, the amount determined under paragraph
(2) shall be paid (upon notice and demand by the
Secretary and in the same manner as tax) by the person
failing to make such return.
(2) Amount of penalty.--For purposes of paragraph
(1), the amount determined under this paragraph with
respect to any failure shall be $25 for each day during
which such failure continues.
(3) Limitation.--The amount determined under
paragraph (2) with respect to any person for failing to
meet the requirements of section 6039C for any calendar
year shall not exceed the lesser of--
(A) $25,000, or
(B) 5 percent of the aggregate of the fair
market value of the United States real property
interests owned by such person at any time
during such year.
For purposes of the preceding sentence, fair market
value shall be determined as of the end of the calendar
year (or, in the case of any property disposed of
during the calendar year, as of the date of such
disposition).
(h) Failure to give notice to recipients of certain pension,
etc., distributions.--In the case of each failure to provide
notice as required by section 3405(e)(10)(B), at the time
prescribed therefor, unless it is shown that such failure is
due to reasonable cause and not to willful neglect, there shall
be paid, on notice and demand of the Secretary and in the same
manner as tax, by the person failing to provide such notice, an
amount equal to $100 for each such failure, but the total
amount imposed on such person for all such failures during any
calendar year shall not exceed $50,000.
(i) Failure to Give Written Explanation [to Recipients] or
Notification of Certain Qualifying Rollover Distributions.--In
the case of each failure to provide a written explanation as
required by section [402(f),] 402(f) or a notification as
required by section 402(e)(6)(B), at the time prescribed
therefor, unless it is shown that such failure is due to
reasonable cause and not to willful neglect, there shall be
paid, on notice and demand of the Secretary and in the same
manner as tax, by the person failing to provide [such written
explanation] such written explanation or notification, an
amount equal to $100 for each such failure, but the total
amount imposed on such person for all such failures during any
calendar year shall not exceed $50,000.
(j) Failure to file certification with respect to certain
residential rental projects.--In the case of each failure to
provide a certification as required by section 142(d)(7) at the
time prescribed therefor, unless it is shown that such failure
is due to reasonable cause and not to willful neglect, there
shall be paid, on notice and demand of the Secretary and in the
same manner as tax, by the person failing to provide such
certification, an amount equal to $100 for each such failure.
(k) Failure to make reports required under section 1202.--In
the case of a failure to make a report required under section
1202(d)(1)(C) which contains the information required by such
section on the date prescribed therefor (determined with regard
to any extension of time for filing), there shall be paid (on
notice and demand by the Secretary and in the same manner as
tax) by the person failing to make such report, an amount equal
to $50 for each report with respect to which there was such a
failure. In the case of any failure due to negligence or
intentional disregard, the preceding sentence shall be applied
by substituting ``$100'' for ``$50''. In the case of a report
covering periods in 2 or more years, the penalty determined
under preceding provisions of this subsection shall be
multiplied by the number of such years. No penalty shall be
imposed under this subsection on any failure which is shown to
be due to reasonable cause and not willful neglect.
(l) Failure to file return with respect to certain corporate
transactions.--In the case of any failure to make a return
required under section 6043(c) containing the information
required by such section on the date prescribed therefor
(determined with regard to any extension of time for filing),
unless it is shown that such failure is due to reasonable
cause, there shall be paid (on notice and demand by the
Secretary and in the same manner as tax) by the person failing
to file such return, an amount equal to $500 for each day
during which such failure continues, but the total amount
imposed under this subsection with respect to any return shall
not exceed $100,000.
(m) Alcohol and tobacco taxes.--For penalties for failure to
file certain information returns with respect to alcohol and
tobacco taxes, see, generally, subtitle E.
(n) Failure to make reports required under sections 3511,
6053(c)(8), and 7705.--In the case of a failure to make a
report required under section 3511, 6053(c)(8), or 7705 which
contains the information required by such section on the date
prescribed therefor (determined with regard to any extension of
time for filing), there shall be paid (on notice and demand by
the Secretary and in the same manner as tax) by the person
failing to make such report, an amount equal to $50 for each
report with respect to which there was such a failure. In the
case of any failure due to negligence or intentional disregard
the preceding sentence shall be applied by substituting
``$100'' for ``$50''.
(o) Failure to provide notices with respect to qualified
small employer health reimbursement arrangements.--In the case
of each failure to provide a written notice as required by
section 9831(d)(4), unless it is shown that such failure is due
to reasonable cause and not willful neglect, there shall be
paid, on notice and demand of the Secretary and in the same
manner as tax, by the person failing to provide such written
notice, an amount equal to $50 per employee per incident of
failure to provide such notice, but the total amount imposed on
such person for all such failures during any calendar year
shall not exceed $2,500.
(p) Failure to provide notice under section 83(i).--In the
case of each failure to provide a notice as required by section
83(i)(6), at the time prescribed therefor, unless it is shown
that such failure is due to reasonable cause and not to willful
neglect, there shall be paid, on notice and demand of the
Secretary and in the same manner as tax, by the person failing
to provide such notice, an amount equal to $100 for each such
failure, but the total amount imposed on such person for all
such failures during any calendar year shall not exceed
$50,000.
* * * * * * *
----------
INVESTMENT COMPANY ACT OF 1940
* * * * * * *
TITLE I--INVESTMENT COMPANIES
* * * * * * *
definition of investment company
Sec. 3. (a)(1) When used in this title, ``investment
company'' means any issuer which--
(A) is or holds itself out as being engaged
primarily, or proposes to engage primarily, in the
business of investing, reinvesting, or trading in
securities;
(B) is engaged or proposes to engage in the business
of issuing face-amount certificates of the installment
type, or has been engaged in such business and has any
such certificate outstanding; or
(C) is engaged or proposes to engage in the business
of investing, reinvesting, owning, holding, or trading
in securities, and owns or proposes to acquire
investment securities having a value exceeding 40 per
centum of the value of such issuer's total assets
(exclusive of Government securities and cash items) on
an unconsolidated basis.
(2) As used in this section, ``investment securities''
includes all securities except (A) Government securities, (B)
securities issued by employees' securities companies, and (C)
securities issued by majority-owned subsidiaries of the owner
which (i) are not investment companies, and (ii) are not
relying on the exception from the definition of investment
company in paragraph (1) or (7) of subsection (c).
(b) Notwithstanding paragraph (1)(C) of subsection (a), none
of the following persons is an investment company within the
meaning of this title:
(1) Any issuer primarily engaged, directly or through
a wholly-owned subsidiary or subsidiaries, in a
business or businesses other than that of investing,
reinvesting, owning, holding, or trading in securities.
(2) Any issuer which the Commission, upon application
by such issuer, finds and by order declares to be
primarily engaged in a business or businesses other
than that of investing, reinvesting, owning, holding,
or trading in securities either directly or (A) through
majority-owned subsidiaries or (B) through controlled
companies conducting similar types of businesses. The
filing of an application under this paragraph in good
faith by an issuer other than a registered investment
company shall exempt the applicant for a period of
sixty days from all provisions of this title applicable
to investment companies as such. For cause shown, the
Commission by order may extend such period of exemption
for an additional period or periods. Whenever the
Commission, upon its own motion or upon application,
finds that the circumstances which gave rise to the
issuance of an order granting an application under this
paragraph no longer exist, the Commission shall by
order revoke such order.
(3) Any issuer all the outstanding securities of
which (other than short-term paper and directors'
qualifying shares) are directly or indirectly owned by
a company excepted from the definition of investment
company by paragraph (1) or (2) of this subsection.
(c) Notwithstanding subsection (a), none of the following
persons is an investment company within the meaning of this
title:
(1) Any issuer whose outstanding securities (other
than short-term paper) are beneficially owned by not
more than one hundred persons (or, in the case of a
qualifying venture capital fund, 250 persons) and which
is not making and does not presently propose to make a
public offering of its securities. Such issuer shall be
deemed to be an investment company for purposes of the
limitations set forth in subparagraphs (A)(i) and
(B)(i) of section 12(d)(1) governing the purchase or
other acquisition by such issuer of any security issued
by any registered investment company and the sale of
any security issued by any registered open-end
investment company to any such issuer. For purposes of
this paragraph:
(A) Beneficial ownership by a company shall
be deemed to be beneficial ownership by one
person, except that, if the company owns 10 per
centum or more of the outstanding voting
securities of the issuer, and is or, but for
the exception provided for in this paragraph or
paragraph (7), would be an investment company,
the beneficial ownership shall be deemed to be
that of the holders of such company's
outstanding securities (other than short-term
paper).
(B) Beneficial ownership by any person who
acquires securities or interests in securities
of an issuer described in the first sentence of
this paragraph shall be deemed to be beneficial
ownership by the person from whom such transfer
was made, pursuant to such rules and
regulations as the Commission shall prescribe
as necessary or appropriate in the public
interest and consistent with the protection of
investors and the purposes fairly intended by
the policy and provisions of this title, where
the transfer was caused by legal separation,
divorce, death, or other involuntary event.
(C)(i) The term ``qualifying venture capital
fund'' means a venture capital fund that has
not more than $10,000,000 in aggregate capital
contributions and uncalled committed capital,
with such dollar amount to be indexed for
inflation once every 5 years by the Commission,
beginning from a measurement made by the
Commission on a date selected by the
Commission, rounded to the nearest $1,000,000.
(ii) The term ``venture capital fund'' has
the meaning given the term in section
275.203(l)-1 of title 17, Code of Federal
Regulations, or any successor regulation.
(2)(A) Any person primarily engaged in the business
of underwriting and distributing securities issued by
other persons, selling securities to customers, acting
as broker, and acting as market intermediary, or any
one or more of such activities, whose gross income
normally is derived principally from such business and
related activities.
(B) For purposes of this paragraph--
(i) the term ``market intermediary'' means
any person that regularly holds itself out as
being willing contemporaneously to engage in,
and that is regularly engaged in, the business
of entering into transactions on both sides of
the market for a financial contract or one or
more such financial contracts; and
(ii) the term ``financial contract'' means
any arrangement that--
(I) takes the form of an individually
negotiated contract, agreement, or
option to buy, sell, lend, swap, or
repurchase, or other similar
individually negotiated transaction
commonly entered into by participants
in the financial markets;
(II) is in respect of securities,
commodities, currencies, interest or
other rates, other measures of value,
or any other financial or economic
interest similar in purpose or function
to any of the foregoing; and
(III) is entered into in response to
a request from a counter party for a
quotation, or is otherwise entered into
and structured to accommodate the
objectives of the counter party to such
arrangement.
(3) Any bank or insurance company; any savings and
loan association, building and loan association,
cooperative bank, homestead association, or similar
institution, or any receiver, conservator, liquidator,
liquidating agent, or similar official or person
thereof or therefor; or any common trust fund or
similar fund maintained by a bank exclusively for the
collective investment and reinvestment of moneys
contributed thereto by the bank in its capacity as a
trustee, executor, administrator, or guardian, if--
(A) such fund is employed by the bank solely
as an aid to the administration of trusts,
estates, or other accounts created and
maintained for a fiduciary purpose;
(B) except in connection with the ordinary
advertising of the bank's fiduciary services,
interests in such fund are not--
(i) advertised; or
(ii) offered for sale to the general
public; and
(C) fees and expenses charged by such fund
are not in contravention of fiduciary
principles established under applicable Federal
or State law.
(4) Any person substantially all of whose business is
confined to making small loans, industrial banking, or
similar businesses.
(5) Any person who is not engaged in the business of
issuing redeemable securities, face-amount certificates
of the installment type or periodic payment plan
certificates, and who is primarily engaged in one or
more of the following businesses: (A) Purchasing or
otherwise acquiring notes, drafts, acceptances, open
accounts receivable, and other obligations representing
part or all of the sales price of merchandise,
insurance, and services; (B) making loans to
manufacturers, wholesalers, and retailers of, and to
prospective purchasers of, specified merchandise,
insurance, and services; and (C) purchasing or
otherwise acquiring mortgages and other liens on and
interests in real estate.
(6) Any company primarily engaged, directly or
through majority-owned subsidiaries, in one or more of
the businesses described in paragraphs (3), (4), and
(5), or in one or more of such businesses (from which
not less than 25 centum of such company's gross income
during its last fiscal year was derived) together with
an additional business or businesses other than
investing, reinvesting, owning, holding, or trading in
securities.
(7)(A) Any issuer, the outstanding securities of
which are owned exclusively by persons who, at the time
of acquisition of such securities, are qualified
purchasers, and which is not making and does not at
that time propose to make a public offering of such
securities. Securities that are owned by persons who
received the securities from a qualified purchaser as a
gift or bequest, or in a case in which the transfer was
caused by legal separation, divorce, death, or other
involuntary event, shall be deemed to be owned by a
qualified purchaser, subject to such rules,
regulations, and orders as the Commission may prescribe
as necessary or appropriate in the public interest or
for the protection of investors.
(B) Notwithstanding subparagraph (A), an issuer is
within the exception provided by this paragraph if--
(i) in addition to qualified purchasers,
outstanding securities of that issuer are
beneficially owned by not more than 100 persons
who are not qualified purchasers, if--
(I) such persons acquired any portion
of the securities of such issuer on or
before September 1, 1996; and
(II) at the time at which such
persons initially acquired the
securities of such issuer, the issuer
was excepted by paragraph (1); and
(ii) prior to availing itself of the
exception provided by this paragraph--
(I) such issuer has disclosed to each
beneficial owner, as determined under
paragraph (1), that future investors
will be limited to qualified
purchasers, and that ownership in such
issuer is no longer limited to not more
than 100 persons; and
(II) concurrently with or after such
disclosure, such issuer has provided
each beneficial owner, as determined
under paragraph (1), with a reasonable
opportunity to redeem any part or all
of their interests in the issuer,
notwithstanding any agreement to the
contrary between the issuer and such
persons, for that person's
proportionate share of the issuer's net
assets.
(C) Each person that elects to redeem under
subparagraph (B)(ii)(II) shall receive an amount in
cash equal to that person's proportionate share of the
issuer's net assets, unless the issuer elects to
provide such person with the option of receiving, and
such person agrees to receive, all or a portion of such
person's share in assets of the issuer. If the issuer
elects to provide such persons with such an
opportunity, disclosure concerning such opportunity
shall be made in the disclosure required by
subparagraph (B)(ii)(I).
(D) An issuer that is excepted under this paragraph
shall nonetheless be deemed to be an investment company
for purposes of the limitations set forth in
subparagraphs (A)(i) and (B)(i) of section 12(d)(1)
relating to the purchase or other acquisition by such
issuer of any security issued by any registered
investment company and the sale of any security issued
by any registered open-end investment company to any
such issuer.
(E) For purposes of determining compliance with this
paragraph and paragraph (1), an issuer that is
otherwise excepted under this paragraph and an issuer
that is otherwise excepted under paragraph (1) shall
not be treated by the Commission as being a single
issuer for purposes of determining whether the
outstanding securities of the issuer excepted under
paragraph (1) are beneficially owned by not more than
100 persons or whether the outstanding securities of
the issuer excepted under this paragraph are owned by
persons that are not qualified purchasers. Nothing in
this subparagraph shall be construed to establish that
a person is a bona fide qualified purchaser for
purposes of this paragraph or a bona fide beneficial
owner for purposes of paragraph (1).
(9) Any person substantially all of whose business
consists of owning or holding oil, gas, or other
mineral royalties or leases, or fractional interests
therein, or certificates of interest or participation
in or investment contracts relative to such royalties,
leases, or fractional interests.
(10)(A) Any company organized and operated
exclusively for religious, educational, benevolent,
fraternal, charitable, or reformatory purposes--
(i) no part of the net earnings of which
inures to the benefit of any private
shareholder or individual; or
(ii) which is or maintains a fund described
in subparagraph (B).
(B) For the purposes of subparagraph (A)(ii), a fund
is described in this subparagraph if such fund is a
pooled income fund, collective trust fund, collective
investment fund, or similar fund maintained by a
charitable organization exclusively for the collective
investment and reinvestment of one or more of the
following:
(i) assets of the general endowment fund or
other funds of one or more charitable
organizations;
(ii) assets of a pooled income fund;
(iii) assets contributed to a charitable
organization in exchange for the issuance of
charitable gift annuities;
(iv) assets of a charitable remainder trust
or of any other trust, the remainder interests
of which are irrevocably dedicated to any
charitable organization;
(v) assets of a charitable lead trust;
(vi) assets of a trust, the remainder
interests of which are revocably dedicated to
or for the benefit of 1 or more charitable
organizations, if the ability to revoke the
dedication is limited to circumstances
involving--
(I) an adverse change in the
financial circumstances of a settlor or
an income beneficiary of the trust;
(II) a change in the identity of the
charitable organization or
organizations having the remainder
interest, provided that the new
beneficiary is also a charitable
organization; or
(III) both the changes described in
subclauses (I) and (II);
(vii) assets of a trust not described in
clauses (i) through (v), the remainder
interests of which are revocably dedicated to a
charitable organization, subject to
subparagraph (C); or
(viii) such assets as the Commission may
prescribe by rule, regulation, or order in
accordance with section 6(c).
(C) A fund that contains assets described in clause
(vii) of subparagraph (B) shall be excluded from the
definition of an investment company for a period of 3
years after the date of enactment of this subparagraph,
but only if--
(i) such assets were contributed before the
date which is 60 days after the date of
enactment of this subparagraph; and
(ii) such assets are commingled in the fund
with assets described in one or more of clauses
(i) through (vi) and (viii) of subparagraph
(B).
(D) For purposes of this paragraph--
(i) a trust or fund is ``maintained'' by a
charitable organization if the organization
serves as a trustee or administrator of the
trust or fund or has the power to remove the
trustees or administrators of the trust or fund
and to designate new trustees or
administrators;
(ii) the term ``pooled income fund'' has the
same meaning as in section 642(c)(5) of the
Internal Revenue Code of 1986;
(iii) the term ``charitable organization''
means an organization described in paragraphs
(1) through (5) of section 170(c) or section
501(c)(3) of the Internal Revenue Code of 1986;
(iv) the term ``charitable lead trust'' means
a trust described in section 170(f)(2)(B),
2055(e)(2)(B), or 2522(c)(2)(B) of the Internal
Revenue Code of 1986;
(v) the term ``charitable remainder trust''
means a charitable remainder annuity trust or a
charitable remainder unitrust, as those terms
are defined in section 664(d) of the Internal
Revenue Code of 1986; and
(vi) the term ``charitable gift annuity''
means an annuity issued by a charitable
organization that is described in section
501(m)(5) of the Internal Revenue Code of 1986.
[(11) Any employee's stock bonus, pension, or profit-
sharing trust which meets the requirements for
qualification under section 401 of the Internal Revenue
Code of 1986; or any governmental plan described in
section 3(a)(2)(C) of the Securities Act of 1933; or
any collective trust fund maintained by a bank
consisting solely of assets of one or more of such
trusts, government plans, or church plans, companies or
accounts that are excluded from the definition of an
investment company under paragraph (14) of this
subsection; or any separate account the assets of which
are derived solely from (A) contributions under pension
or profit-sharing plans which meet the requirements of
section 401 of the Internal Revenue Code of 1986 or the
requirements for deduction of the employer's
contribution under section 404(a)(2) of such Code, (B)
contributions under governmental plans in connection
with which interests, participations, or securities are
exempted from the registration provisions of section 5
of the Securities Act of 1933 by section 3(a)(2)(C) of
such Act, and (C) advances made by an insurance company
in connection with the operation of such separate
account.]
(11) Any--
(A) employee's stock bonus, pension, or
profit-sharing trust which meets the
requirements for qualification under section
401 of the Internal Revenue Code of 1986;
(B) custodial account meeting the
requirements of section 403(b)(7) of such Code;
(C) governmental plan described in section
3(a)(2)(C) of the Securities Act of 1933;
(D) collective trust fund maintained by a
bank consisting solely of assets of one or
more--
(i) trusts described in subparagraph
(A);
(ii) government plans described in
subparagraph (C);
(iii) church plans, companies, or
accounts that are excluded from the
definition of an investment company
under paragraph (14) of this
subsection; or
(iv) plans which meet the
requirements of section 403(b) of the
Internal Revenue Code of 1986 if--
(I) such plan is subject to
title I of the Employee
Retirement Income Security Act
of 1974 (29 U.S.C. 1001 et
seq.);
(II) any employer making such
plan available agrees to serve
as a fiduciary for the plan
with respect to the selection
of the plan's investments among
which participants can choose;
or
(III) such plan is a
governmental plan (as defined
in section 414(d) of such
Code); or
(E) separate account the assets of which are
derived solely from--
(i) contributions under pension or
profit-sharing plans which meet the
requirements of section 401 of the
Internal Revenue Code of 1986 or the
requirements for deduction of the
employer's contribution under section
404(a)(2) of such Code;
(ii) contributions under governmental
plans in connection with which
interests, participations, or
securities are exempted from the
registration provisions of section 5 of
the Securities Act of 1933 by section
3(a)(2)(C) of such Act;
(iii) advances made by an insurance
company in connection with the
operation of such separate account; and
(iv) contributions to a plan
described in subparagraph (D)(iv).
(12) Any voting trust the assets of which consist
exclusively of securities of a single issuer which is
not an investment company.
(13) Any security holders' protective committee or
similar issuer having outstanding and issuing no
securities other than certificates of deposit and
short-term paper.
(14) Any church plan described in section 414(e) of
the Internal Revenue Code of 1986, if, under any such
plan, no part of the assets may be used for, or
diverted to, purposes other than the exclusive benefit
of plan participants or beneficiaries, or any company
or account that is--
(A) established by a person that is eligible
to establish and maintain such a plan under
section 414(e) of the Internal Revenue Code of
1986; and
(B) substantially all of the activities of
which consist of--
(i) managing or holding assets
contributed to such church plans or
other assets which are permitted to be
commingled with the assets of church
plans under the Internal Revenue Code
of 1986; or
(ii) administering or providing
benefits pursuant to church plans.
* * * * * * *
----------
SECURITIES ACT OF 1933
* * * * * * *
TITLE I--
* * * * * * *
exempted securities
Sec. 3. (a) Except as hereinafter expressly provided, the
provisions of this title shall not apply to any of the
following classes of securities:
(1) Reserved.
(2) Any security issued or guaranteed by the United
States or any Territory thereof, or by the District of
Columbia, or by any State of the United States, or by
any political subdivision of a State or Territory, or
by any public instrumentality of one or more States or
Territories, or by any person controlled or supervised
by and acting as an instrumentality of the Government
of the United States pursuant to authority granted by
the Congress of the United States; or any certificate
of deposit for any of the foregoing; or any security
issued or guaranteed by any bank; or any security
issued by or representing an interest in or a direct
obligation of a Federal Reserve bank; or any interest
or participation in any common trust fund or similar
fund that is excluded from the definition of the term
``investment company'' under section 3(c)(3) of the
Investment Company Act of 1940; or any security which
is an industrial development bond (as defined in
section 103(c)(2) of the Internal Revenue Code of 1954)
the interest on which is excludable from gross income
under section 103(a)(1) of such Code if, by reason of
the application of paragraph (4) or (6) of section
103(c) of such Code (determined as if paragraphs
(4)(A), (5), and (7) were not included in such section
103(c)), paragraph (1) of such section 103(c) does not
apply to such security; or any interest or
participation in a single trust fund, or in a
collective trust fund maintained by a bank, or any
security arising out of a contract issued by an
insurance company, which interest, participation, or
security is issued in connection with (A) a stock
bonus, pension, or profit-sharing plan which meets the
requirements for qualification under section 401 of the
Internal Revenue Code of 1954, (B) an annuity plan
which meets the requirements for the deduction of the
employer's contributions under section 404(a)(2) of
such Code, (C) a governmental plan as defined in
section 414(d) of such Code which has been established
by an employer for the exclusive benefit of its
employees or their beneficiaries for the purpose of
distributing to such employees or their beneficiaries
the corpus and income of the funds accumulated under
such plan, if under such plan it is impossible, prior
to the satisfaction of all liabilities with respect to
such employees and their beneficiaries, for any part of
the corpus or income to be used for, or diverted to,
purposes other than the exclusive benefit of such
employees or their beneficiaries, [or (D)] (D) a plan
which meets the requirements of section 403(b) of such
Code if (i) such plan is subject to title I of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1001 et seq.), (ii) any employer making such
plan available agrees to serve as a fiduciary for the
plan with respect to the selection of the plan's
investments among which participants can choose, or
(iii) such plan is a governmental plan (as defined in
section 414(d) of such Code); or (E) a church plan,
company, or account that is excluded from the
definition of an investment company under section
3(c)(14) of the Investment Company Act of 1940, other
than any plan described in subparagraph (A), (B), [(C),
or (D)] (C), (D), or (E) of this paragraph (i) the
contributions under which are held in a single trust
fund or in a separate account maintained by an
insurance company for a single employer and under which
an amount in excess of the employer's contribution is
allocated to the purchase of securities (other than
interests or participations in the trust or separate
account itself) issued by the employer or any company
directly or indirectly controlling, controlled by, or
under common control with the employer, (ii) which
covers employees some or all of whom are employees
within the meaning of section 401(c)(1) of such Code
(other than a person participating in a church plan who
is described in section 414(e)(3)(B) of the Internal
Revenue Code of 1986), or [(iii) which is a plan
funded] (iii) in the case of a plan not described in
subparagraph (D), which is a plan funded by an annuity
contract described in section 403(b) of such Code
(other than a retirement income account described in
section 403(b)(9) of the Internal Revenue Code of 1986,
to the extent that the interest or participation in
such single trust fund or collective trust fund is
issued to a church, a convention or association of
churches, or an organization described in section
414(e)(3)(A) of such Code establishing or maintaining
the retirement income account or to a trust established
by any such entity in connection with the retirement
income account). The Commission, by rules and
regulations or order, shall exempt from the provisions
of section 5 of this title any interest or
participation issued in connection with a stock bonus,
pension, profit-sharing, or annuity plan which covers
employees some or all of whom are employees within the
meaning of section 401(c)(1) of the Internal Revenue
Code of 1954, if and to the extent that the Commission
determines this to be necessary or appropriate in the
public interest and consistent with the protection of
investors and the purposes fairly intended by the
policy and provisions of this title. For purposes of
this paragraph, a security issued or guaranteed by a
bank shall not include any interest or participation in
any collective trust fund maintained by a bank; and the
term ``bank'' means any national bank, or any banking
institution organized under the laws of any State,
territory, or the District of Columbia, the business of
which is substantially confined to banking and is
supervised by the State or territorial banking
commission or similar official; except that in the case
of a common trust fund or similar fund, or a collective
trust fund, the term ``bank'' has the same meaning as
in the Investment Company Act of 1940;
(3) Any note, draft, bill of exchange, or banker's
acceptance which arises out of a current transaction or
the proceeds of which have been or are to be used for
current transactions, and which has a maturity at the
time of issuance of not exceeding nine months,
exclusive of days of grace, or any renewal thereof the
maturity of which is likewise limited;
(4) Any security issued by a person organized and
operated exclusively for religious, educational,
benevolent, fraternal, charitable, or reformatory
purposes and not for pecuniary profit, and no part of
the net earnings of which inures to the benefit of any
person, private stockholder, or individual, or any
security of a fund that is excluded from the definition
of an investment company under section 3(c)(10)(B) of
the Investment Company Act of 1940;
(5) Any security issued (A) by a savings and loan
association, building and loan association, cooperative
bank, homestead association, or similar institution,
which is supervised and examined by State or Federal
authority having supervision over any such institution;
or (B) by (i) a farmer's cooperative organization
exempt from tax under section 521 of the Internal
Revenue Code of 1954, (ii) a corporation described in
section 501(c)(16) of such Code and exempt from tax
under section 501(a) of such Code, or (iii) a
corporation described in section 501(c)(2) of such Code
which is exempt from tax under section 501(a) of such
Code and is organized for the exclusive purpose of
holding title to property, collecting income therefrom,
and turning over the entire amount thereof, less
expenses, to an organization or corporation described
in clause (i) or (ii);
(6) Any interest in a railroad equipment trust. For
purposes of this paragraph ``interest in a railroad
equipment trust'' means any interest in an equipment
trust, lease, conditional sales contract, or other
similar arrangement entered into, issued, assumed,
guaranteed by, or for the benefit of, a common carrier
to finance the acquisition of rolling stock, including
motive power;
(7) Certificates issued by a receiver or by a trustee
in bankruptcy, with the approval of the court;
(8) Any insurance or endowment policy or annuity
contract or optional annuity contract, issued by a
corporation subject to the supervision of the insurance
commissioner, bank commissioner, or any agency or
officer performing like functions, of any State or
Territory of the United States or the District of
Columbia;
(9) Except with respect to a security exchanged in a
case under title 11, any security exchanged by the
issuer with its existing security holders exclusively
where no commission or other remuneration is paid or
given directly or indirectly for soliciting such
exchange;
(10) Except with respect to a security exchanged in a
case under title 11, any security which is issued in
exchange for one or more bona fide outstanding
securities, claims or property interests, or partly in
such exchange and partly for cash, where the terms and
conditions of such issuance and exchange are approved,
after a hearing upon the fairness of such terms and
conditions at which all persons to whom it is proposed
to issue securities in such exchange shall have the
right to appear, by any court, or by any official or
agency of the United States, or by any State or
Territorial banking or insurance commission or other
governmental authority expressly authorized by law to
grant such approval;
(11) Any security which is a part of an issue offered
and sold only to persons resident within a single State
or Territory, where the issuer of such security is a
person resident and doing business within or, if a
corporation, incorporated by and doing business within,
such State or Territory.
(12) Any equity security issued in connection with
the acquisition by a holding company of a bank under
section 3(a) of the Bank Holding Company Act of 1956 or
a savings association under section 10(e) of the Home
Owners' Loan Act, if--
(A) the acquisition occurs solely as part of
a reorganization in which security holders
exchange their shares of a bank or savings
association for shares of a newly formed
holding company with no significant assets
other than securities of the bank or savings
association and the existing subsidiaries of
the bank or savings association;
(B) the security holders receive, after that
reorganization, substantially the same
proportional share interests in the holding
company as they held in the bank or savings
association, except for nominal changes in
shareholders' interests resulting from lawful
elimination of fractional interests and the
exercise of dissenting shareholders' rights
under State or Federal law;
(C) the rights and interests of security
holders in the holding company are
substantially the same as those in the bank or
savings association prior to the transaction,
other than as may be required by law; and
(D) the holding company has substantially the
same assets and liabilities, on a consolidated
basis, as the bank or savings association had
prior to the transaction.
For purposes of this paragraph, the term ``savings
association'' means a savings association (as defined
in section 3(b) of the Federal Deposit Insurance Act)
the deposits of which are insured by the Federal
Deposit Insurance Corporation.
(13) Any security issued by or any interest or
participation in any church plan, company or account
that is excluded from the definition of an investment
company under section 3(c)(14) of the Investment
Company Act of 1940.
(14) Any security futures product that is--
(A) cleared by a clearing agency registered
under section 17A of the Securities Exchange
Act of 1934 or exempt from registration under
subsection (b)(7) of such section 17A; and
(B) traded on a national securities exchange
or a national securities association registered
pursuant to section 15A(a) of the Securities
Exchange Act of 1934.
(b) Additional Exemptions.--
(1) Small issues exemptive authority.--The Commission
may from time to time by its rules and regulations, and
subject to such terms and conditions as may be
prescribed therein, add any class of securities to the
securities exempted as provided in this section, if it
finds that the enforcement of this title with respect
to such securities is not necessary in the public
interest and for the protection of investors by reason
of the small amount involved or the limited character
of the public offering; but no issue of securities
shall be exempted under this subsection where the
aggregate amount at which such issue is offered to the
public exceeds $5,000,000.
(2) Additional issues.--The Commission shall by rule
or regulation add a class of securities to the
securities exempted pursuant to this section in
accordance with the following terms and conditions:
(A) The aggregate offering amount of all
securities offered and sold within the prior
12-month period in reliance on the exemption
added in accordance with this paragraph shall
not exceed $50,000,000.
(B) The securities may be offered and sold
publicly.
(C) The securities shall not be restricted
securities within the meaning of the Federal
securities laws and the regulations promulgated
thereunder.
(D) The civil liability provision in section
12(a)(2) shall apply to any person offering or
selling such securities.
(E) The issuer may solicit interest in the
offering prior to filing any offering
statement, on such terms and conditions as the
Commission may prescribe in the public interest
or for the protection of investors.
(F) The Commission shall require the issuer
to file audited financial statements with the
Commission annually.
(G) Such other terms, conditions, or
requirements as the Commission may determine
necessary in the public interest and for the
protection of investors, which may include--
(i) a requirement that the issuer
prepare and electronically file with
the Commission and distribute to
prospective investors an offering
statement, and any related documents,
in such form and with such content as
prescribed by the Commission, including
audited financial statements, a
description of the issuer's business
operations, its financial condition,
its corporate governance principles,
its use of investor funds, and other
appropriate matters; and
(ii) disqualification provisions
under which the exemption shall not be
available to the issuer or its
predecessors, affiliates, officers,
directors, underwriters, or other
related persons, which shall be
substantially similar to the
disqualification provisions contained
in the regulations adopted in
accordance with section 926 of the
Dodd-Frank Wall Street Reform and
Consumer Protection Act (15 U.S.C. 77d
note).
(3) Limitation.--Only the following types of
securities may be exempted under a rule or regulation
adopted pursuant to paragraph (2): equity securities,
debt securities, and debt securities convertible or
exchangeable to equity interests, including any
guarantees of such securities.
(4) Periodic disclosures.--Upon such terms and
conditions as the Commission determines necessary in
the public interest and for the protection of
investors, the Commission by rule or regulation may
require an issuer of a class of securities exempted
under paragraph (2) to make available to investors and
file with the Commission periodic disclosures regarding
the issuer, its business operations, its financial
condition, its corporate governance principles, its use
of investor funds, and other appropriate matters, and
also may provide for the suspension and termination of
such a requirement with respect to that issuer.
(5) Adjustment.--Not later than 2 years after the
date of enactment of the Small Company Capital
Formation Act of 2011 and every 2 years thereafter, the
Commission shall review the offering amount limitation
described in paragraph (2)(A) and shall increase such
amount as the Commission determines appropriate. If the
Commission determines not to increase such amount, it
shall report to the Committee on Financial Services of
the House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate on
its reasons for not increasing the amount.
(c) The Commission may from time to time by its rules and
regulations and subject to such terms and conditions as may be
prescribed therein, add to the securities exempted as provided
in this section any class of securities issued by a small
business investment company under the Small Business Investment
Act of 1958 if it finds, having regard to the purposes of that
Act, that the enforcement of this Act with respect to such
securities is not necessary in the public interest and for the
protection of investors.
* * * * * * *
----------
SECURITIES EXCHANGE ACT OF 1934
* * * * * * *
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
definitions and application of title
Sec. 3. (a) When used in this title, unless the context
otherwise requires--
(1) The term ``exchange'' means any organization,
association, or group of persons, whether incorporated
or unincorporated, which constitutes, maintains, or
provides a market place or facilities for bringing
together purchasers and sellers of securities or for
otherwise performing with respect to securities the
functions commonly performed by a stock exchange as
that term is generally understood, and includes the
market place and the market facilities maintained by
such exchange.
(2) The term ``facility'' when used with respect to
an exchange includes its premises, tangible or
intangible property whether on the premises or not, any
right to the use of such premises or property or any
service thereof for the purpose of effecting or
reporting a transaction on an exchange (including,
among other things, any system of communication to or
from the exchange, by ticker or otherwise, maintained
by or with the consent of the exchange), and any right
of the exchange to the use of any property or service.
(3)(A) The term ``member'' when used with respect to
a national securities exchange means (i) any natural
person permitted to effect transactions on the floor of
the exchange without the services of another person
acting as broker, (ii) any registered broker or dealer
with which such a natural person is associated, (iii)
any registered broker or dealer permitted to designate
as a representative such a natural person, and (iv) any
other registered broker or dealer which agrees to be
regulated by such exchange and with respect to which
the exchange undertakes to enforce compliance with the
provisions of this title, the rules and regulations
thereunder, and its own rules. For purposes of sections
6(b)(1), 6(b)(4), 6(b)(6), 6(b)(7), 6(d), 17(d), 19(d),
19(e), 19(g), 19(h), and 21 of this title, the term
``member'' when used with respect to a national
securities exchange also means, to the extent of the
rules of the exchange specified by the Commission, any
person required by the Commission to comply with such
rules pursuant to section 6(f) of this title.
(B) The term ``member'' when used with respect to a
registered securities association means any broker or
dealer who agrees to be regulated by such association
and with respect to whom the association undertakes to
enforce compliance with the provisions of this title,
the rules and regulations thereunder, and its own
rules.
(4) Broker.--
(A) In general.--The term ``broker'' means
any person engaged in the business of effecting
transactions in securities for the account of
others.
(B) Exception for certain bank activities.--A
bank shall not be considered to be a broker
because the bank engages in any one or more of
the following activities under the conditions
described:
(i) Third party brokerage
arrangements.--The bank enters into a
contractual or other written
arrangement with a broker or dealer
registered under this title under which
the broker or dealer offers brokerage
services on or off the premises of the
bank if--
(I) such broker or dealer is
clearly identified as the
person performing the brokerage
services;
(II) the broker or dealer
performs brokerage services in
an area that is clearly marked
and, to the extent practicable,
physically separate from the
routine deposit-taking
activities of the bank;
(III) any materials used by
the bank to advertise or
promote generally the
availability of brokerage
services under the arrangement
clearly indicate that the
brokerage services are being
provided by the broker or
dealer and not by the bank;
(IV) any materials used by
the bank to advertise or
promote generally the
availability of brokerage
services under the arrangement
are in compliance with the
Federal securities laws before
distribution;
(V) bank employees (other
than associated persons of a
broker or dealer who are
qualified pursuant to the rules
of a self-regulatory
organization) perform only
clerical or ministerial
functions in connection with
brokerage transactions
including scheduling
appointments with the
associated persons of a broker
or dealer, except that bank
employees may forward customer
funds or securities and may
describe in general terms the
types of investment vehicles
available from the bank and the
broker or dealer under the
arrangement;
(VI) bank employees do not
receive incentive compensation
for any brokerage transaction
unless such employees are
associated persons of a broker
or dealer and are qualified
pursuant to the rules of a
self-regulatory organization,
except that the bank employees
may receive compensation for
the referral of any customer if
the compensation is a nominal
one-time cash fee of a fixed
dollar amount and the payment
of the fee is not contingent on
whether the referral results in
a transaction;
(VII) such services are
provided by the broker or
dealer on a basis in which all
customers that receive any
services are fully disclosed to
the broker or dealer;
(VIII) the bank does not
carry a securities account of
the customer except as
permitted under clause (ii) or
(viii) of this subparagraph;
and
(IX) the bank, broker, or
dealer informs each customer
that the brokerage services are
provided by the broker or
dealer and not by the bank and
that the securities are not
deposits or other obligations
of the bank, are not guaranteed
by the bank, and are not
insured by the Federal Deposit
Insurance Corporation.
(ii) Trust activities.--The bank
effects transactions in a trustee
capacity, or effects transactions in a
fiduciary capacity in its trust
department or other department that is
regularly examined by bank examiners
for compliance with fiduciary
principles and standards, and--
(I) is chiefly compensated
for such transactions,
consistent with fiduciary
principles and standards, on
the basis of an administration
or annual fee (payable on a
monthly, quarterly, or other
basis), a percentage of assets
under management, or a flat or
capped per order processing fee
equal to not more than the cost
incurred by the bank in
connection with executing
securities transactions for
trustee and fiduciary
customers, or any combination
of such fees; and
(II) does not publicly
solicit brokerage business,
other than by advertising that
it effects transactions in
securities in conjunction with
advertising its other trust
activities.
(iii) Permissible securities
transactions.--The bank effects
transactions in--
(I) commercial paper, bankers
acceptances, or commercial
bills;
(II) exempted securities;
(III) qualified Canadian
government obligations as
defined in section 5136 of the
Revised Statutes, in conformity
with section 15C of this title
and the rules and regulations
thereunder, or obligations of
the North American Development
Bank; or
(IV) any standardized, credit
enhanced debt security issued
by a foreign government
pursuant to the March 1989 plan
of then Secretary of the
Treasury Brady, used by such
foreign government to retire
outstanding commercial bank
loans.
(iv) Certain stock purchase plans.--
(I) Employee benefit plans.--
The bank effects transactions,
as part of its transfer agency
activities, in the securities
of an issuer as part of any
pension, retirement, profit-
sharing, bonus, thrift,
savings, incentive, or other
similar benefit plan for the
employees of that issuer or its
affiliates (as defined in
section 2 of the Bank Holding
Company Act of 1956), if the
bank does not solicit
transactions or provide
investment advice with respect
to the purchase or sale of
securities in connection with
the plan.
(II) Dividend reinvestment
plans.--The bank effects
transactions, as part of its
transfer agency activities, in
the securities of an issuer as
part of that issuer's dividend
reinvestment plan, if--
(aa) the bank does
not solicit
transactions or provide
investment advice with
respect to the purchase
or sale of securities
in connection with the
plan; and
(bb) the bank does
not net shareholders'
buy and sell orders,
other than for programs
for odd-lot holders or
plans registered with
the Commission.
(III) Issuer plans.--The bank
effects transactions, as part
of its transfer agency
activities, in the securities
of an issuer as part of a plan
or program for the purchase or
sale of that issuer's shares,
if--
(aa) the bank does
not solicit
transactions or provide
investment advice with
respect to the purchase
or sale of securities
in connection with the
plan or program; and
(bb) the bank does
not net shareholders'
buy and sell orders,
other than for programs
for odd-lot holders or
plans registered with
the Commission.
(IV) Permissible delivery of
materials.--The exception to
being considered a broker for a
bank engaged in activities
described in subclauses (I),
(II), and (III) will not be
affected by delivery of written
or electronic plan materials by
a bank to employees of the
issuer, shareholders of the
issuer, or members of affinity
groups of the issuer, so long
as such materials are--
(aa) comparable in
scope or nature to that
permitted by the
Commission as of the
date of the enactment
of the Gramm-Leach-
Bliley Act; or
(bb) otherwise
permitted by the
Commission.
(v) Sweep accounts.--The bank effects
transactions as part of a program for
the investment or reinvestment of
deposit funds into any no-load, open-
end management investment company
registered under the Investment Company
Act of 1940 that holds itself out as a
money market fund.
(vi) Affiliate transactions.--The
bank effects transactions for the
account of any affiliate of the bank
(as defined in section 2 of the Bank
Holding Company Act of 1956) other
than--
(I) a registered broker or
dealer; or
(II) an affiliate that is
engaged in merchant banking, as
described in section 4(k)(4)(H)
of the Bank Holding Company Act
of 1956.
(vii) Private securities offerings.--
The bank--
(I) effects sales as part of
a primary offering of
securities not involving a
public offering, pursuant to
section 3(b), 4(2), or 4(5) of
the Securities Act of 1933 or
the rules and regulations
issued thereunder;
(II) at any time after the
date that is 1 year after the
date of the enactment of the
Gramm-Leach-Bliley Act, is not
affiliated with a broker or
dealer that has been registered
for more than 1 year in
accordance with this Act, and
engages in dealing, market
making, or underwriting
activities, other than with
respect to exempted securities;
and
(III) if the bank is not
affiliated with a broker or
dealer, does not effect any
primary offering described in
subclause (I) the aggregate
amount of which exceeds 25
percent of the capital of the
bank, except that the
limitation of this subclause
shall not apply with respect to
any sale of government
securities or municipal
securities.
(viii) Safekeeping and custody
activities.--
(I) In general.--The bank, as
part of customary banking
activities--
(aa) provides
safekeeping or custody
services with respect
to securities,
including the exercise
of warrants and other
rights on behalf of
customers;
(bb) facilitates the
transfer of funds or
securities, as a
custodian or a clearing
agency, in connection
with the clearance and
settlement of its
customers' transactions
in securities;
(cc) effects
securities lending or
borrowing transactions
with or on behalf of
customers as part of
services provided to
customers pursuant to
division (aa) or (bb)
or invests cash
collateral pledged in
connection with such
transactions;
(dd) holds securities
pledged by a customer
to another person or
securities subject to
purchase or resale
agreements involving a
customer, or
facilitates the
pledging or transfer of
such securities by book
entry or as otherwise
provided under
applicable law, if the
bank maintains records
separately identifying
the securities and the
customer; or
(ee) serves as a
custodian or provider
of other related
administrative services
to any individual
retirement account,
pension, retirement,
profit sharing, bonus,
thrift savings,
incentive, or other
similar benefit plan.
(II) Exception for carrying
broker activities.--The
exception to being considered a
broker for a bank engaged in
activities described in
subclause (I) shall not apply
if the bank, in connection with
such activities, acts in the
United States as a carrying
broker (as such term, and
different formulations thereof,
are used in section 15(c)(3) of
this title and the rules and
regulations thereunder) for any
broker or dealer, unless such
carrying broker activities are
engaged in with respect to
government securities (as
defined in paragraph (42) of
this subsection).
(ix) Identified banking products.--
The bank effects transactions in
identified banking products as defined
in section 206 of the Gramm-Leach-
Bliley Act.
(x) Municipal securities.--The bank
effects transactions in municipal
securities.
(xi) De minimis exception.--The bank
effects, other than in transactions
referred to in clauses (i) through (x),
not more than 500 transactions in
securities in any calendar year, and
such transactions are not effected by
an employee of the bank who is also an
employee of a broker or dealer.
(C) Execution by broker or dealer.--The
exception to being considered a broker for a
bank engaged in activities described in clauses
(ii), (iv), and (viii) of subparagraph (B)
shall not apply if the activities described in
such provisions result in the trade in the
United States of any security that is a
publicly traded security in the United States,
unless--
(i) the bank directs such trade to a
registered broker or dealer for
execution;
(ii) the trade is a cross trade or
other substantially similar trade of a
security that--
(I) is made by the bank or
between the bank and an
affiliated fiduciary; and
(II) is not in contravention
of fiduciary principles
established under applicable
Federal or State law; or
(iii) the trade is conducted in some
other manner permitted under rules,
regulations, or orders as the
Commission may prescribe or issue.
(D) Fiduciary capacity.--For purposes of
subparagraph (B)(ii), the term ``fiduciary
capacity'' means--
(i) in the capacity as trustee,
executor, administrator, registrar of
stocks and bonds, transfer agent,
guardian, assignee, receiver, or
custodian under a uniform gift to minor
act, or as an investment adviser if the
bank receives a fee for its investment
advice;
(ii) in any capacity in which the
bank possesses investment discretion on
behalf of another; or
(iii) in any other similar capacity.
(E) Exception for entities subject to section
15(e).--The term ``broker'' does not include a
bank that--
(i) was, on the day before the date
of enactment of the Gramm-Leach-Bliley
Act, subject to section 15(e); and
(ii) is subject to such restrictions
and requirements as the Commission
considers appropriate.
(F) Joint rulemaking required.--The
Commission and the Board of Governors of the
Federal Reserve System shall jointly adopt a
single set of rules or regulations to implement
the exceptions in subparagraph (B).
(5) Dealer.--
(A) In general.--The term ``dealer'' means
any person engaged in the business of buying
and selling securities (not including security-
based swaps, other than security-based swaps
with or for persons that are not eligible
contract participants) for such person's own
account through a broker or otherwise.
(B) Exception for person not engaged in the
business of dealing.--The term ``dealer'' does
not include a person that buys or sells
securities (not including security-based swaps,
other than security-based swaps with or for
persons that are not eligible contract
participants) for such person's own account,
either individually or in a fiduciary capacity,
but not as a part of a regular business.
(C) Exception for certain bank activities.--A
bank shall not be considered to be a dealer
because the bank engages in any of the
following activities under the conditions
described:
(i) Permissible securities
transactions.--The bank buys or sells--
(I) commercial paper, bankers
acceptances, or commercial
bills;
(II) exempted securities;
(III) qualified Canadian
government obligations as
defined in section 5136 of the
Revised Statutes of the United
States, in conformity with
section 15C of this title and
the rules and regulations
thereunder, or obligations of
the North American Development
Bank; or
(IV) any standardized, credit
enhanced debt security issued
by a foreign government
pursuant to the March 1989 plan
of then Secretary of the
Treasury Brady, used by such
foreign government to retire
outstanding commercial bank
loans.
(ii) Investment, trustee, and
fiduciary transactions.--The bank buys
or sells securities for investment
purposes--
(I) for the bank; or
(II) for accounts for which
the bank acts as a trustee or
fiduciary.
(iii) Asset-backed transactions.--The
bank engages in the issuance or sale to
qualified investors, through a grantor
trust or other separate entity, of
securities backed by or representing an
interest in notes, drafts, acceptances,
loans, leases, receivables, other
obligations (other than securities of
which the bank is not the issuer), or
pools of any such obligations
predominantly originated by--
(I) the bank;
(II) an affiliate of any such
bank other than a broker or
dealer; or
(III) a syndicate of banks of
which the bank is a member, if
the obligations or pool of
obligations consists of
mortgage obligations or
consumer-related receivables.
(iv) Identified banking products.--
The bank buys or sells identified
banking products, as defined in section
206 of the Gramm-Leach-Bliley Act.
(6) The term ``bank'' means (A) a banking institution
organized under the laws of the United States or a
Federal savings association, as defined in section 2(5)
of the Home Owners' Loan Act, (B) a member bank of the
Federal Reserve System, (C) any other banking
institution or savings association, as defined in
section 2(4) of the Home Owners' Loan Act, whether
incorporated or not, doing business under the laws of
any State or of the United States, a substantial
portion of the business of which consists of receiving
deposits or exercising fiduciary powers similar to
those permitted to national banks under the authority
of the Comptroller of the Currency pursuant to the
first section of Public Law 87-722 (12 U.S.C. 92a), and
which is supervised and examined by State or Federal
authority having supervision over banks or savings
associations, and which is not operated for the purpose
of evading the provisions of this title, and (D) a
receiver, conservator, or other liquidating agent of
any institution or firm included in clauses (A), (B),
or (C) of this paragraph.
(7) The term ``director'' means any director of a
corporation or any person performing similar functions
with respect to any organization, whether incorporated
or unincorporated.
(8) The term ``issuer'' means any person who issues
or proposes to issue any security; except that with
respect to certificates of deposit for securities,
voting-trust certificates, or collateral-trust
certificates, or with respect to certificates of
interest or shares in an unincorporated investment
trust not having a board of directors or of the fixed,
restricted management, or unit type, the term
``issuer'' means the person or persons performing the
acts and assuming the duties of depositor or manager
pursuant to the provisions of the trust or other
agreement or instrument under which such securities are
issued; and except that with respect to equipment-trust
certificates or like securities, the term ``issuer''
means the person by whom the equipment or property is,
or is to be, used.
(9) The term ``person'' means a natural person,
company, government, or political subdivision, agency,
or instrumentality of a government.
(10) The term ``security'' means any note, stock,
treasury stock, security future, security-based
swap,bond, debenture, certificate of interest or
participation in any profit-sharing agreement or in any
oil, gas, or other mineral royalty or lease, any
collateral-trust certificate, preorganization
certificate or subscription, transferable share,
investment contract, voting-trust certificate,
certificate of deposit for a security, any put, call,
straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities
(including any interest therein or based on the value
thereof), or any put, call, straddle, option, or
privilege entered into on a national securities
exchange relating to foreign currency, or in general,
any instrument commonly known as a ``security''; or any
certificate of interest or participation in, temporary
or interim certificate for, receipt for, or warrant or
right to subscribe to or purchase, any of the
foregoing; but shall not include currency or any note,
draft, bill of exchange, or banker's acceptance which
has a maturity at the time of issuance of not exceeding
nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited.
(11) The term ``equity security'' means any stock or
similar security; or any security future on any such
security; or any security convertible, with or without
consideration, into such a security, or carrying any
warrant or right to subscribe to or purchase such a
security; or any such warrant or right; or any other
security which the Commission shall deem to be of
similar nature and consider necessary or appropriate,
by such rules and regulations as it may prescribe in
the public interest or for the protection of investors,
to treat as an equity security.
(12)(A) The term ``exempted security'' or ``exempted
securities'' includes--
(i) government securities, as defined in
paragraph (42) of this subsection;
(ii) municipal securities, as defined in
paragraph (29) of this subsection;
(iii) any interest or participation in any
common trust fund or similar fund that is
excluded from the definition of the term
``investment company'' under section 3(c)(3) of
the Investment Company Act of 1940;
(iv) any interest or participation in a
single trust fund, or a collective trust fund
maintained by a bank, or any security arising
out of a contract issued by an insurance
company, which interest, participation, or
security is issued in connection with a
qualified plan as defined in subparagraph (C)
of this paragraph;
(v) any security issued by or any interest or
participation in any pooled income fund,
collective trust fund, collective investment
fund, or similar fund that is excluded from the
definition of an investment company under
section 3(c)(10)(B) of the Investment Company
Act of 1940;
(vi) solely for purposes of sections 12, 13,
14, and 16 of this title, any security issued
by or any interest or participation in any
church plan, company, or account that is
excluded from the definition of an investment
company under section 3(c)(14) of the
Investment Company Act of 1940; and
(vii) such other securities (which may
include, among others, unregistered securities,
the market in which is predominantly
intrastate) as the Commission may, by such
rules and regulations as it deems consistent
with the public interest and the protection of
investors, either unconditionally or upon
specified terms and conditions or for stated
periods, exempt from the operation of any one
or more provisions of this title which by their
terms do not apply to an ``exempted security''
or to ``exempted securities''.
(B)(i) Notwithstanding subparagraph (A)(i) of this
paragraph, government securities shall not be deemed to
be ``exempted securities'' for the purposes of section
17A of this title.
(ii) Notwithstanding subparagraph (A)(ii) of this
paragraph, municipal securities shall not be deemed to
be ``exempted securities'' for the purposes of sections
15 and 17A of this title.
(C) For purposes of subparagraph (A)(iv) of this
paragraph, the term ``qualified plan'' means (i) a
stock bonus, pension, or profit-sharing plan which
meets the requirements for qualification under section
401 of the Internal Revenue Code of 1954, (ii) an
annuity plan which meets the requirements for the
deduction of the employer's contribution under section
404(a)(2) of such Code, (iii) a governmental plan as
defined in section 414(d) of such Code which has been
established by an employer for the exclusive benefit of
its employees or their beneficiaries for the purpose of
distributing to such employees or their beneficiaries
the corpus and income of the funds accumulated under
such plan, if under such plan it is impossible, prior
to the satisfaction of all liabilities with respect to
such employees and their beneficiaries, for any part of
the corpus or income to be used for, or diverted to,
purposes other than the exclusive benefit of such
employees or their beneficiaries, [or (iv)] (iv) a plan
which meets the requirements of section 403(b) of such
Code if (I) such plan is subject to title I of the
Employee Retirement Income Security Act of 1974 (29
U.S.C. 1001 et seq.), (II) in the case of a plan not
described in clause (iv), is a plan funded any employer
making such plan available agrees to serve as a
fiduciary for the plan with respect to the selection of
the plan's investments among which participants can
choose, or (III) such plan is a governmental plan (as
defined in section 414(d) of such Code), or (v) a
church plan, company, or account that is excluded from
the definition of an investment company under section
3(c)(14) of the Investment Company Act of 1940, other
than any plan described in clause (i), [(ii), or (iii)]
(ii), (iii), or (iv) of this subparagraph which (I)
covers employees some or all of whom are employees
within the meaning of section 401(c) of such Code, or
[(II) is a plan funded] (II) in the case of a plan not
described in 19 clause (iv), is a plan funded by an
annuity contract described in section 403(b) of such
Code.
(13) The terms ``buy'' and ``purchase'' each include
any contract to buy, purchase, or otherwise acquire.
For security futures products, such term includes any
contract, agreement, or transaction for future
delivery. For security-based swaps, such terms include
the execution, termination (prior to its scheduled
maturity date), assignment, exchange, or similar
transfer or conveyance of, or extinguishing of rights
or obligations under, a security-based swap, as the
context may require.
(14) The terms ``sale'' and ``sell'' each include any
contract to sell or otherwise dispose of. For security
futures products, such term includes any contract,
agreement, or transaction for future delivery. For
security-based swaps, such terms include the execution,
termination (prior to its scheduled maturity date),
assignment, exchange, or similar transfer or conveyance
of, or extinguishing of rights or obligations under, a
security-based swap, as the context may require.
(15) The term ``Commission'' means the Securities and
Exchange Commission established by section 4 of this
title.
(16) The term ``State'' means any State of the United
States, the District of Columbia, Puerto Rico, the
Virgin Islands, or any other possession of the United
States.
(17) The term ``interstate commerce'' means trade,
commerce, transportation, or communication among the
several States, or between any foreign country and any
State, or between any State and any place or ship
outside thereof. The term also includes intrastate use
of (A) any facility of a national securities exchange
or of a telephone or other interstate means of
communication, or (B) any other interstate
instrumentality.
(18) The term ``person associated with a broker or
dealer'' or ``associated person of a broker or dealer''
means any partner, officer, director, or branch manager
of such broker or dealer (or any person occupying a
similar status or performing similar functions), any
person directly or indirectly controlling, controlled
by, or under common control with such broker or dealer,
or any employee of such broker or dealer, except that
any person associated with a broker or dealer whose
functions are solely clerical or ministerial shall not
be included in the meaning of such term for purposes of
section 15(b) of this title (other than paragraph (6)
thereof).
(19) The terms ``investment company,''``affiliated
person,''``insurance company,''``separate account,''
and ``company'' have the same meanings as in the
Investment Company Act of 1940.
(20) The terms ``investment adviser'' and
``underwriter'' have the same meanings as in the
Investment Advisers Act of 1940.
(21) The term ``persons associated with a member'' or
``associated person of a member'' when used with
respect to a member of a national securities exchange
or registered securities association means any partner,
officer, director, or branch manager of such member (or
any person occupying a similar status or performing
similar functions), any person directly or indirectly
controlling, controlled by, or under common control
with such member, or any employee of such member.
(22)(A) The term ``securities information processor''
means any person engaged in the business of (i)
collecting, processing, or preparing for distribution
or publication, or assisting, participating in, or
coordinating the distribution or publication of,
information with respect to transactions in or
quotations for any security (other than an exempted
security) or (ii) distributing or publishing (whether
by means of a ticker tape, a communications network, a
terminal display device, or otherwise) on a current and
continuing basis, information with respect to such
transactions or quotations. The term ``securities
information processor'' does not include any bona fide
newspaper, news magazine, or business or financial
publication of general and regular circulation, any
self-regulatory organization, any bank, broker, dealer,
building and loan, savings and loan, or homestead
association, or cooperative bank, if such bank, broker,
dealer, association, or cooperative bank would be
deemed to be a securities information processor solely
by reason of functions performed by such institutions
as part of customary banking, brokerage, dealing,
association, or cooperative bank activities, or any
common carrier, as defined in section 3 of the
Communications Act of 1934, subject to the jurisdiction
of the Federal Communications Commission or a State
commission, as defined in section 3 of that Act, unless
the Commission determines that such carrier is engaged
in the business of collecting, processing, or preparing
for distribution or publication, information with
respect to transactions in or quotations for any
security.
(B) The term ``exclusive processor'' means any
securities information processor or self-regulatory
organization which, directly or indirectly, engages on
an exclusive basis on behalf of any national securities
exchange or registered securities association, or any
national securities exchange or registered securities
association which engages on an exclusive basis on its
own behalf, in collecting, processing, or preparing for
distribution or publication any information with
respect to (i) transactions or quotations on or
effected or made by means of any facility of such
exchange or (ii) quotations distributed or published by
means of any electronic system operated or controlled
by such association.
(23)(A) The term ``clearing agency'' means any person
who acts as an intermediary in making payments or
deliveries or both in connection with transactions in
securities or who provides facilities for comparison of
data respecting the terms of settlement of securities
transactions, to reduce the number of settlements of
securities transactions, or for the allocation of
securities settlement responsibilities. Such term also
means any person, such as a securities depository, who
(i) acts as a custodian of securities in connection
with a system for the central handling of securities
whereby all securities of a particular class or series
of any issuer deposited within the system are treated
as fungible and may be transferred, loaned, or pledged
by bookkeeping entry without physical delivery of
securities certificates, or (ii) otherwise permits or
facilitates the settlement of securities transactions
or the hypothecation or lending of securities without
physical delivery of securities certificates.
(B) The term ``clearing agency'' does not include (i)
any Federal Reserve bank, Federal home loan bank, or
Federal land bank; (ii) any national securities
exchange or registered securities association solely by
reason of its providing facilities for comparison of
data respecting the terms of settlement of securities
transactions effected on such exchange or by means of
any electronic system operated or controlled by such
association; (iii) any bank, broker, dealer, building
and loan, savings and loan, or homestead association,
or cooperative bank if such bank, broker, dealer,
association, or cooperative bank would be deemed to be
a clearing agency solely by reason of functions
performed by such institution as part of customary
banking, brokerage, dealing, association, or
cooperative banking activities, or solely by reason of
acting on behalf of a clearing agency or a participant
therein in connection with the furnishing by the
clearing agency of services to its participants or the
use of services of the clearing agency by its
participants, unless the Commission, by rule, otherwise
provides as necessary or appropriate to assure the
prompt and accurate clearance and settlement of
securities transactions or to prevent evasion of this
title; (iv) any life insurance company, its registered
separate accounts, or a subsidiary of such insurance
company solely by reason of functions commonly
performed by such entities in connection with variable
annuity contracts or variable life policies issued by
such insurance company or its separate accounts; (v)
any registered open-end investment company or unit
investment trust solely by reason of functions commonly
performed by it in connection with shares in such
registered open-end investment company or unit
investment trust, or (vi) any person solely by reason
of its performing functions described in paragraph
25(E) of this subsection.
(24) The term ``participant'' when used with respect
to a clearing agency means any person who uses a
clearing agency to clear or settle securities
transactions or to transfer, pledge, lend, or
hypothecate securities. Such term does not include a
person whose only use of a clearing agency is (A)
through another person who is a participant or (B) as a
pledgee of securities.
(25) The term ``transfer agent'' means any person who
engages on behalf of an issuer of securities or on
behalf of itself as an issuer of securities in (A)
countersigning such securities upon issuance; (B)
monitoring the issuance of such securities with a view
to preventing unauthorized issuance, a function
commonly performed by a person called a registrar; (C)
registering the transfer of such securities; (D)
exchanging or converting such securities; or (E)
transferring record ownership of securities by
bookkeeping entry without physical issuance of
securities certificates. The term ``transfer agent''
does not include any insurance company or separate
account which performs such functions solely with
respect to variable annuity contracts or variable life
policies which it issues or any registered clearing
agency which performs such functions solely with
respect to options contracts which it issues.
(26) The term ``self-regulatory organization'' means
any national securities exchange, registered securities
association, or registered clearing agency, or (solely
for purposes of sections 19(b), 19(c), and 23(b) of
this title) the Municipal Securities Rulemaking Board
established by section 15B of this title.
(27) The term ``rules of an exchange'', ``rules of an
association'', or ``rules of a clearing agency'' means
the constitution, articles of incorporation, bylaws,
and rules, or instruments corresponding to the
foregoing, of an exchange, association of brokers and
dealers, or clearing agency, respectively, and such of
the stated policies, practices, and interpretations of
such exchange, association, or clearing agency as the
Commission, by rule, may determine to be necessary or
appropriate in the public interest or for the
protection of investors to be deemed to be rules of
such exchange, association, or clearing agency.
(28) The term ``rules of a self-regulatory
organization'' means the rules of an exchange which is
a national securities exchange, the rules of an
association of brokers and dealers which is a
registered securities association, the rules of a
clearing agency which is a registered clearing agency,
or the rules of the Municipal Securities Rulemaking
Board.
(29) The term ``municipal securities'' means
securities which are direct obligations of, or
obligations guaranteed as to principal or interest by,
a State or any political subdivision thereof, or any
agency or instrumentality of a State or any political
subdivision thereof, or any municipal corporate
instrumentality of one or more States, or any security
which is an industrial development bond (as defined in
section 103(c)(2) of the Internal Revenue Code of 1954)
the interest on which is excludable from gross income
under section 103(a)(1) of such Code if, by reason of
the application of paragraph (4) or (6) of section
103(c) of such Code (determined as if paragraphs
(4)(A), (5), and (7) were not included in such section
103(c)), paragraph (1) of such section 103(c) does not
apply to such security.
(30) The term ``municipal securities dealer'' means
any person (including a separately identifiable
department or division of a bank) engaged in the
business of buying and selling municipal securities for
his own account, through a broker or otherwise, but
does not include--
(A) any person insofar as he buys or sells
such securities for his own account, either
individually or in some fiduciary capacity, but
not as a part of a regular business; or
(B) a bank, unless the bank is engaged in the
business of buying and selling municipal
securities for its own account other than in a
fiduciary capacity, through a broker or
otherwise; Provided, however, That if the bank
is engaged in such business through a
separately identifiable department or division
(as defined by the Municipal Securities
Rulemaking Board in accordance with section
15B(b)(2)(H) of this title), the department or
division and not the bank itself shall be
deemed to be the municipal securities dealer.
(31) The term ``municipal securities broker'' means a
broker engaged in the business of effecting
transactions in municipal securities for the account of
others.
(32) The term ``person associated with a municipal
securities dealer'' when used with respect to a
municipal securities dealer which is a bank or a
division or department of a bank means any person
directly engaged in the management, direction,
supervision, or performance of any of the municipal
securities dealer's activities with respect to
municipal securities, and any person directly or
indirectly controlling such activities or controlled by
the municipal securities dealer in connection with such
activities.
(33) The term ``municipal securities investment
portfolio'' means all municipal securities held for
investment and not for sale as part of a regular
business by a municipal securities dealer or by a
person, directly or indirectly, controlling, controlled
by, or under common control with a municipal securities
dealer.
(34) The term ``appropriate regulatory agency''
means--
(A) When used with respect to a municipal
securities dealer:
(i) the Comptroller of the Currency,
in the case of a national bank, a
subsidiary or a department or division
of any such bank, a Federal savings
association (as defined in section
3(b)(2) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(2))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary or
department or division of any such
Federal savings association;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System, a subsidiary or a
department or division thereof, a bank
holding company, a subsidiary of a bank
holding company which is a bank other
than a bank specified in clause (i),
(iii), or (iv) of this subparagraph, a
subsidiary or a department or division
of such subsidiary, or a savings and
loan holding company;
(iii) the Federal Deposit Insurance
Corporation, in the case of a bank
insured by the Federal Deposit
Insurance Corporation (other than a
member of the Federal Reserve System),
a subsidiary or department or division
of any such bank, a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary or a
department or division of any such
State savings association; and
(iv) the Commission in the case of
all other municipal securities dealers.
(B) When used with respect to a clearing
agency or transfer agent:
(i) the Comptroller of the Currency,
in the case of a national bank, a
subsidiary of any such bank, a Federal
savings association (as defined in
section 3(b)(2) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(2))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary of any
such Federal savings association;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System, a subsidiary thereof, a
bank holding company, a subsidiary of a
bank holding company that is a bank
other than a bank specified in clause
(i) or (iii) of this subparagraph, or a
savings and loan holding company;
(iii) the Federal Deposit Insurance
Corporation, in the case of a bank
insured by the Federal Deposit
Insurance Corporation (other than a
member of the Federal Reserve System),
a subsidiary of any such bank, a State
savings association (as defined in
section 3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation, or a subsidiary of any
such State savings association; and
(iv) the Commission in the case of
all other clearing agencies and
transfer agents.
(C) When used with respect to a participant
or applicant to become a participant in a
clearing agency or a person requesting or
having access to services offered by a clearing
agency:
(i) the Comptroller of the Currency,
in the case of a national bank or a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation when the
appropriate regulatory agency for such
clearing agency is not the Commission;
(ii) the Board of Governors of the
Federal Reserve System in the case of a
State member bank of the Federal
Reserve System, a bank holding company,
or a subsidiary of a bank holding
company, a subsidiary of a bank holding
company that is a bank other than a
bank specified in clause (i) or (iii)
of this subparagraph, or a savings and
loan holding company when the
appropriate regulatory agency for such
clearing agency is not the Commission;
(iii) the Federal Deposit Insurance
Corporation, in the case of a bank
insured by the Federal Deposit
Insurance Corporation (other than a
member of the Federal Reserve System)
or a State savings association (as
defined in section 3(b)(3) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(b)(3))), the deposits of
which are insured by the Federal
Deposit Insurance Corporation; and when
the appropriate regulatory agency for
such clearing agency is not the
Commission;
(iv) the Commission in all other
cases.
(D) When used with respect to an
institutional investment manager which is a
bank the deposits of which are insured in
accordance with the Federal Deposit Insurance
Act:
(i) the Comptroller of the Currency,
in the case of a national bank or a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
any other member bank of the Federal
Reserve System; and
(iii) the Federal Deposit Insurance
Corporation, in the case of any other
insured bank or a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation.
(E) When used with respect to a national
securities exchange or registered securities
association, member thereof, person associated
with a member thereof, applicant to become a
member thereof or to become associated with a
member thereof, or person requesting or having
access to services offered by such exchange or
association or member thereof, or the Municipal
Securities Rulemaking Board, the Commission.
(F) When used with respect to a person
exercising investment discretion with respect
to an account:
(i) the Comptroller of the Currency,
in the case of a national bank or a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act (12 U.S.C.
1813(b)(2))), the deposits of which are
insured by the Federal Deposit
Insurance Corporation;
(ii) the Board of Governors of the
Federal Reserve System in the case of
any other member bank of the Federal
Reserve System;
(iii) the Federal Deposit Insurance
Corporation, in the case of any other
bank the deposits of which are insured
in accordance with the Federal Deposit
Insurance Act or a State savings
association (as defined in section
3(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(b)(3))),
the deposits of which are insured by
the Federal Deposit Insurance
Corporation; and
(iv) the Commission in the case of
all other such persons.
(G) When used with respect to a government
securities broker or government securities
dealer, or person associated with a government
securities broker or government securities
dealer:
(i) the Comptroller of the Currency,
in the case of a national bank, a
Federal savings association (as defined
in section 3(b)(2) of the Federal
Deposit Insurance Act), the deposits of
which are insured by the Federal
Deposit Insurance Corporation, or a
Federal branch or Federal agency of a
foreign bank (as such terms are used in
the International Banking Act of 1978);
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System, a foreign bank, an
uninsured State branch or State agency
of a foreign bank, a commercial lending
company owned or controlled by a
foreign bank (as such terms are used in
the International Banking Act of 1978),
or a corporation organized or having an
agreement with the Board of Governors
of the Federal Reserve System pursuant
to section 25 or section 25A of the
Federal Reserve Act;
(iii) the Federal Deposit Insurance
Corporation, in the case of a bank
insured by the Federal Deposit
Insurance Corporation (other than a
member of the Federal Reserve System or
a Federal savings bank), a State
savings association (as defined in
section 3(b)(3) of the Federal Deposit
Insurance Act), the deposits of which
are insured by the Federal Deposit
Insurance Corporation, or an insured
State branch of a foreign bank (as such
terms are used in the International
Banking Act of 1978); and
(iv) the Commission, in the case of
all other government securities brokers
and government securities dealers.
(H) When used with respect to an institution
described in subparagraph (D), (F), or (G) of
section 2(c)(2), or held under section 4(f), of
the Bank Holding Company Act of 1956--
(i) the Comptroller of the Currency,
in the case of a national bank;
(ii) the Board of Governors of the
Federal Reserve System, in the case of
a State member bank of the Federal
Reserve System or any corporation
chartered under section 25A of the
Federal Reserve Act;
(iii) the Federal Deposit Insurance
Corporation, in the case of any other
bank the deposits of which are insured
in accordance with the Federal Deposit
Insurance Act; or
(iv) the Commission in the case of
all other such institutions.
As used in this paragraph, the terms ``bank holding
company'' and ``subsidiary of a bank holding company''
have the meanings given them in section 2 of the Bank
Holding Company Act of 1956. As used in this paragraph,
the term ``savings and loan holding company'' has the
same meaning as in section 10(a) of the Home Owners'
Loan Act (12 U.S.C. 1467a(a)).
(35) A person exercises ``investment discretion''
with respect to an account if, directly or indirectly,
such person (A) is authorized to determine what
securities or other property shall be purchased or sold
by or for the account, (B) makes decisions as to what
securities or other property shall be purchased or sold
by or for the account even though some other person may
have responsibility for such investment decisions, or
(C) otherwise exercises such influence with respect to
the purchase and sale of securities or other property
by or for the account as the Commission, by rule,
determines, in the public interest or for the
protection of investors, should be subject to the
operation of the provisions of this title and rules and
regulations thereunder.
(36) A class of persons or markets is subject to
``equal regulation'' if no member of the class has a
competitive advantage over any other member thereof
resulting from a disparity in their regulation under
this title which the Commission determines is unfair
and not necessary or appropriate in furtherance of the
purposes of this title.
(37) The term ``records'' means accounts,
correspondence, memorandums, tapes, discs, papers,
books, and other documents or transcribed information
of any type, whether expressed in ordinary or machine
language.
(38) The term ``market maker'' means any specialist
permitted to act as a dealer, any dealer acting in the
capacity of block positioner, and any dealer who, with
respect to a security, holds himself out (by entering
quotations in an inter-dealer communications system or
otherwise) as being willing to buy and sell such
security for his own account on a regular or continuous
basis.
(39) A person is subject to a ``statutory
disqualification'' with respect to membership or
participation in, or association with a member of, a
self-regulatory organization, if such person--
(A) has been and is expelled or suspended
from membership or participation in, or barred
or suspended from being associated with a
member of, any self-regulatory organization,
foreign equivalent of a self-regulatory
organization, foreign or international
securities exchange, contract market designated
pursuant to section 5 of the Commodity Exchange
Act (7 U.S.C. 7), or any substantially
equivalent foreign statute or regulation, or
futures association registered under section 17
of such Act (7 U.S.C. 21), or any substantially
equivalent foreign statute or regulation, or
has been and is denied trading privileges on
any such contract market or foreign equivalent;
(B) is subject to--
(i) an order of the Commission, other
appropriate regulatory agency, or foreign
financial regulatory authority--
(I) denying, suspending for a period
not exceeding 12 months, or revoking
his registration as a broker, dealer,
municipal securities dealer, government
securities broker, government
securities dealer, security-based swap
dealer, or major security-based swap
participant or limiting his activities
as a foreign person performing a
function substantially equivalent to
any of the above; or
(II) barring or suspending for a
period not exceeding 12 months his
being associated with a broker, dealer,
municipal securities dealer, government
securities broker, government
securities dealer, security-based swap
dealer, major security-based swap
participant, or foreign person
performing a function substantially
equivalent to any of the above;
(ii) an order of the Commodity Futures
Trading Commission denying, suspending, or
revoking his registration under the Commodity
Exchange Act (7 U.S.C. 1 et seq.); or
(iii) an order by a foreign financial
regulatory authority denying, suspending, or
revoking the person's authority to engage in
transactions in contracts of sale of a
commodity for future delivery or other
instruments traded on or subject to the rules
of a contract market, board of trade, or
foreign equivalent thereof;
(C) by his conduct while associated with a
broker, dealer, municipal securities dealer,
government securities broker, government
securities dealer, security-based swap dealer,
or major security-based swap participant, or
while associated with an entity or person
required to be registered under the Commodity
Exchange Act, has been found to be a cause of
any effective suspension, expulsion, or order
of the character described in subparagraph (A)
or (B) of this paragraph, and in entering such
a suspension, expulsion, or order, the
Commission, an appropriate regulatory agency,
or any such self-regulatory organization shall
have jurisdiction to find whether or not any
person was a cause thereof;
(D) by his conduct while associated with any
broker, dealer, municipal securities dealer,
government securities broker, government
securities dealer, security-based swap dealer,
major security-based swap participant, or any
other entity engaged in transactions in
securities, or while associated with an entity
engaged in transactions in contracts of sale of
a commodity for future delivery or other
instruments traded on or subject to the rules
of a contract market, board of trade, or
foreign equivalent thereof, has been found to
be a cause of any effective suspension,
expulsion, or order by a foreign or
international securities exchange or foreign
financial regulatory authority empowered by a
foreign government to administer or enforce its
laws relating to financial transactions as
described in subparagraph (A) or (B) of this
paragraph;
(E) has associated with him any person who is
known, or in the exercise of reasonable care
should be known, to him to be a person
described by subparagraph (A), (B), (C), or (D)
of this paragraph; or
(F) has committed or omitted any act, or is
subject to an order or finding, enumerated in
subparagraph (D), (E), (H), or (G) of paragraph
(4) of section 15(b) of this title, has been
convicted of any offense specified in
subparagraph (B) of such paragraph (4) or any
other felony within ten years of the date of
the filing of an application for membership or
participation in, or to become associated with
a member of, such self-regulatory organization,
is enjoined from any action, conduct, or
practice specified in subparagraph (C) of such
paragraph (4), has willfully made or caused to
be made in any application for membership or
participation in, or to become associated with
a member of, a self-regulatory organization,
report required to be filed with a self-
regulatory organization, or proceeding before a
self-regulatory organization, any statement
which was at the time, and in the light of the
circumstances under which it was made, false or
misleading with respect to any material fact,
or has omitted to state in any such
application, report, or proceeding any material
fact which is required to be stated therein.
(40) The term ``financial responsibility rules''
means the rules and regulations of the Commission or
the rules and regulations prescribed by any self-
regulatory organization relating to financial
responsibility and related practices which are
designated by the Commission, by rule or regulation, to
be financial responsibility rules.
(41) The term ``mortgage related security'' means a
security that meets standards of credit-worthiness as
established by the Commission, and either:
(A) represents ownership of one or more
promissory notes or certificates of interest or
participation in such notes (including any
rights designed to assure servicing of, or the
receipt or timeliness of receipt by the holders
of such notes, certificates, or participations
of amounts payable under, such notes,
certificates, or participations), which notes:
(i) are directly secured by a first
lien on a single parcel of real estate,
including stock allocated to a dwelling
unit in a residential cooperative
housing corporation, upon which is
located a dwelling or mixed residential
and commercial structure, on a
residential manufactured home as
defined in section 603(6) of the
National Manufactured Housing
Construction and Safety Standards Act
of 1974, whether such manufactured home
is considered real or personal property
under the laws of the State in which it
is to be located, or on one or more
parcels of real estate upon which is
located one or more commercial
structures; and
(ii) were originated by a savings and
loan association, savings bank,
commercial bank, credit union,
insurance company, or similar
institution which is supervised and
examined by a Federal or State
authority, or by a mortgage approved by
the Secretary of Housing and Urban
Development pursuant to sections 203
and 211 of the National Housing Act,
or, where such notes involve a lien on
the manufactured home, by any such
institution or by any financial
institution approved for insurance by
the Secretary of Housing and Urban
Development pursuant to section 2 of
the National Housing Act; or
(B) is secured by one or more promissory
notes or certificates of interest or
participations in such notes (with or without
recourse to the issuer thereof) and, by its
terms, provides for payments of principal in
relation to payments, or reasonable projections
of payments, on notes meeting the requirements
of subparagraphs (A) (i) and (ii) or
certificates of interest or participations in
promissory notes meeting such requirements.
For the purpose of this paragraph, the term
``promissory note'', when used in connection with a
manufactured home, shall also include a loan, advance,
or credit sale as evidence by a retail installment
sales contract or other instrument.
(42) The term ``government securities'' means--
(A) securities which are direct obligations
of, or obligations guaranteed as to principal
or interest by, the United States;
(B) securities which are issued or guaranteed
by the Tennessee Valley Authority or by
corporations in which the United States has a
direct or indirect interest and which are
designated by the Secretary of the Treasury for
exemption as necessary or appropriate in the
public interest or for the protection of
investors;
(C) securities issued or guaranteed as to
principal or interest by any corporation the
securities of which are designated, by statute
specifically naming such corporation, to
constitute exempt securities within the meaning
of the laws administered by the Commission;
(D) for purposes of sections 15C and 17A, any
put, call, straddle, option, or privilege on a
security described in subparagraph (A), (B), or
(C) other than a put, call, straddle, option,
or privilege--
(i) that is traded on one or more
national securities exchanges; or
(ii) for which quotations are
disseminated through an automated
quotation system operated by a
registered securities association; or
(E) for purposes of sections 15, 15C, and 17A
as applied to a bank, a qualified Canadian
government obligation as defined in section
5136 of the Revised Statutes of the United
States.
(43) The term ``government securities broker'' means
any person regularly engaged in the business of
effecting transactions in government securities for the
account of others, but does not include--
(A) any corporation the securities of which
are government securities under subparagraph
(B) or (C) of paragraph (42) of this
subsection; or
(B) any person registered with the Commodity
Futures Trading Commission, any contract market
designated by the Commodity Futures Trading
Commission, such contract market's affiliated
clearing organization, or any floor trader on
such contract market, solely because such
person effects transactions in government
securities that the Commission, after
consultation with the Commodity Futures Trading
Commission, has determined by rule or order to
be incidental to such person's futures-related
business.
(44) The term ``government securities dealer'' means
any person engaged in the business of buying and
selling government securities for his own account,
through a broker or otherwise, but does not include--
(A) any person insofar as he buys or sells
such securities for his own account, either
individually or in some fiduciary capacity, but
not as a part of a regular business;
(B) any corporation the securities of which
are government securities under subparagraph
(B) or (C) of paragraph (42) of this
subsection;
(C) any bank, unless the bank is engaged in
the business of buying and selling government
securities for its own account other than in a
fiduciary capacity, through a broker or
otherwise; or
(D) any person registered with the Commodity
Futures Trading Commission, any contract market
designated by the Commodity Futures Trading
Commission, such contract market's affiliated
clearing organization, or any floor trader on
such contract market, solely because such
person effects transactions in government
securities that the Commission, after
consultation with the Commodity Futures Trading
Commission, has determined by rule or order to
be incidental to such person's futures-related
business.
(45) The term ``person associated with a government
securities broker or government securities dealer''
means any partner, officer, director, or branch manager
of such government securities broker or government
securities dealer (or any person occupying a similar
status or performing similar functions), and any other
employee of such government securities broker or
government securities dealer who is engaged in the
management, direction, supervision, or performance of
any activities relating to government securities, and
any person directly or indirectly controlling,
controlled by, or under common control with such
government securities broker or government securities
dealer.
(46) The term ``financial institution'' means--
(A) a bank (as defined in paragraph (6) of
this subsection);
(B) a foreign bank (as such term is used in
the International Banking Act of 1978); and
(C) a savings association (as defined in
section 3(b) of the Federal Deposit Insurance
Act) the deposits of which are insured by the
Federal Deposit Insurance Corporation.
(47) The term ``securities laws'' means the
Securities Act of 1933 (15 U.S.C. 77a et seq.), the
Securities Exchange Act of 1934 (15 U.S.C. 78a et
seq.), the Sarbanes-Oxley Act of 2002, the Trust
Indenture Act of 1939 (15 U.S.C. 77aaa et seq.), the
Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.), the Investment Advisers Act of 1940 (15 U.S.C.
80b et seq.), and the Securities Investor Protection
Act of 1970 (15 U.S.C. 78aaa et seq.).
(48) The term ``registered broker or dealer'' means a
broker or dealer registered or required to register
pursuant to section 15 or 15B of this title, except
that in paragraph (3) of this subsection and sections 6
and 15A the term means such a broker or dealer and a
government securities broker or government securities
dealer registered or required to register pursuant to
section 15C(a)(1)(A) of this title.
(49) The terms ``person associated with a transfer
agent'' and ``associated person of a transfer agent''
mean any person (except an employee whose functions are
solely clerical or ministerial) directly engaged in the
management, direction, supervision, or performance of
any of the transfer agent's activities with respect to
transfer agent functions, and any person directly or
indirectly controlling such activities or controlled by
the transfer agent in connection with such activities.
(50) The term ``foreign securities authority'' means
any foreign government, or any governmental body or
regulatory organization empowered by a foreign
government to administer or enforce its laws as they
relate to securities matters.
(51)(A) The term ``penny stock'' means any equity
security other than a security that is--
(i) registered or approved for registration
and traded on a national securities exchange
that meets such criteria as the Commission
shall prescribe by rule or regulation for
purposes of this paragraph;
(ii) authorized for quotation on an automated
quotation system sponsored by a registered
securities association, if such system (I) was
established and in operation before January 1,
1990, and (II) meets such criteria as the
Commission shall prescribe by rule or
regulation for purposes of this paragraph;
(iii) issued by an investment company
registered under the Investment Company Act of
1940;
(iv) excluded, on the basis of exceeding a
minimum price, net tangible assets of the
issuer, or other relevant criteria, from the
definition of such term by rule or regulation
which the Commission shall prescribe for
purposes of this paragraph; or
(v) exempted, in whole or in part,
conditionally or unconditionally, from the
definition of such term by rule, regulation, or
order prescribed by the Commission.
(B) The Commission may, by rule, regulation, or
order, designate any equity security or class of equity
securities described in clause (i) or (ii) of
subparagraph (A) as within the meaning of the term
``penny stock'' if such security or class of securities
is traded other than on a national securities exchange
or through an automated quotation system described in
clause (ii) of subparagraph (A).
(C) In exercising its authority under this paragraph
to prescribe rules, regulations, and orders, the
Commission shall determine that such rule, regulation,
or order is consistent with the public interest and the
protection of investors.
(52) The term ``foreign financial regulatory
authority'' means any (A) foreign securities authority,
(B) other governmental body or foreign equivalent of a
self-regulatory organization empowered by a foreign
government to administer or enforce its laws relating
to the regulation of fiduciaries, trusts, commercial
lending, insurance, trading in contracts of sale of a
commodity for future delivery, or other instruments
traded on or subject to the rules of a contract market,
board of trade, or foreign equivalent, or other
financial activities, or (C) membership organization a
function of which is to regulate participation of its
members in activities listed above.
(53)(A) The term ``small business related security''
means a security that meets standards of credit-
worthiness as established by the Commission, and
either--
(i) represents an interest in 1 or more
promissory notes or leases of personal property
evidencing the obligation of a small business
concern and originated by an insured depository
institution, insured credit union, insurance
company, or similar institution which is
supervised and examined by a Federal or State
authority, or a finance company or leasing
company; or
(ii) is secured by an interest in 1 or more
promissory notes or leases of personal property
(with or without recourse to the issuer or
lessee) and provides for payments of principal
in relation to payments, or reasonable
projections of payments, on notes or leases
described in clause (i).
(B) For purposes of this paragraph--
(i) an ``interest in a promissory note or a
lease of personal property'' includes ownership
rights, certificates of interest or
participation in such notes or leases, and
rights designed to assure servicing of such
notes or leases, or the receipt or timely
receipt of amounts payable under such notes or
leases;
(ii) the term ``small business concern''
means a business that meets the criteria for a
small business concern established by the Small
Business Administration under section 3(a) of
the Small Business Act;
(iii) the term ``insured depository
institution'' has the same meaning as in
section 3 of the Federal Deposit Insurance Act;
and
(iv) the term ``insured credit union'' has
the same meaning as in section 101 of the
Federal Credit Union Act.
(54) Qualified investor.--
(A) Definition.--Except as provided in
subparagraph (B), for purposes of this title,
the term ``qualified investor'' means--
(i) any investment company registered
with the Commission under section 8 of
the Investment Company Act of 1940;
(ii) any issuer eligible for an
exclusion from the definition of
investment company pursuant to section
3(c)(7) of the Investment Company Act
of 1940;
(iii) any bank (as defined in
paragraph (6) of this subsection),
savings association (as defined in
section 3(b) of the Federal Deposit
Insurance Act), broker, dealer,
insurance company (as defined in
section 2(a)(13) of the Securities Act
of 1933), or business development
company (as defined in section 2(a)(48)
of the Investment Company Act of 1940);
(iv) any small business investment
company licensed by the United States
Small Business Administration under
section 301 (c) or (d) of the Small
Business Investment Act of 1958;
(v) any State sponsored employee
benefit plan, or any other employee
benefit plan, within the meaning of the
Employee Retirement Income Security Act
of 1974, other than an individual
retirement account, if the investment
decisions are made by a plan fiduciary,
as defined in section 3(21) of that
Act, which is either a bank, savings
and loan association, insurance
company, or registered investment
adviser;
(vi) any trust whose purchases of
securities are directed by a person
described in clauses (i) through (v) of
this subparagraph;
(vii) any market intermediary exempt
under section 3(c)(2) of the Investment
Company Act of 1940;
(viii) any associated person of a
broker or dealer other than a natural
person;
(ix) any foreign bank (as defined in
section 1(b)(7) of the International
Banking Act of 1978);
(x) the government of any foreign
country;
(xi) any corporation, company, or
partnership that owns and invests on a
discretionary basis, not less than
$25,000,000 in investments;
(xii) any natural person who owns and
invests on a discretionary basis, not
less than $25,000,000 in investments;
(xiii) any government or political
subdivision, agency, or instrumentality
of a government who owns and invests on
a discretionary basis not less than
$50,000,000 in investments; or
(xiv) any multinational or
supranational entity or any agency or
instrumentality thereof.
(B) Altered thresholds for asset-backed
securities and loan participations.--For
purposes of section 3(a)(5)(C)(iii) of this
title and section 206(a)(5) of the Gramm-Leach-
Bliley Act, the term ``qualified investor'' has
the meaning given such term by subparagraph (A)
of this paragraph except that clauses (xi) and
(xii) shall be applied by substituting
``$10,000,000'' for ``$25,000,000''.
(C) Additional authority.--The Commission
may, by rule or order, define a ``qualified
investor'' as any other person, taking into
consideration such factors as the financial
sophistication of the person, net worth, and
knowledge and experience in financial matters.
(55)(A) The term ``security future'' means a contract
of sale for future delivery of a single security or of
a narrow-based security index, including any interest
therein or based on the value thereof, except an
exempted security under section 3(a)(12) of this title
as in effect on the date of the enactment of the
Futures Trading Act of 1982 (other than any municipal
security as defined in section 3(a)(29) as in effect on
the date of the enactment of the Futures Trading Act of
1982). The term ``security future'' does not include
any agreement, contract, or transaction excluded from
the Commodity Exchange Act under section 2(c), 2(d),
2(f), or 2(g) of the Commodity Exchange Act (as in
effect on the date of the enactment of the Commodity
Futures Modernization Act of 2000) or title IV of the
Commodity Futures Modernization Act of 2000.
(B) The term ``narrow-based security index'' means an
index--
(i) that has 9 or fewer component securities;
(ii) in which a component security comprises
more than 30 percent of the index's weighting;
(iii) in which the five highest weighted
component securities in the aggregate comprise
more than 60 percent of the index's weighting;
or
(iv) in which the lowest weighted component
securities comprising, in the aggregate, 25
percent of the index's weighting have an
aggregate dollar value of average daily trading
volume of less than $50,000,000 (or in the case
of an index with 15 or more component
securities, $30,000,000), except that if there
are two or more securities with equal weighting
that could be included in the calculation of
the lowest weighted component securities
comprising, in the aggregate, 25 percent of the
index's weighting, such securities shall be
ranked from lowest to highest dollar value of
average daily trading volume and shall be
included in the calculation based on their
ranking starting with the lowest ranked
security.
(C) Notwithstanding subparagraph (B), an index is not
a narrow-based security index if--
(i)(I) it has at least nine component
securities;
(II) no component security comprises more
than 30 percent of the index's weighting; and
(III) each component security is--
(aa) registered pursuant to section
12 of the Securities Exchange Act of
1934;
(bb) one of 750 securities with the
largest market capitalization; and
(cc) one of 675 securities with the
largest dollar value of average daily
trading volume;
(ii) a board of trade was designated as a
contract market by the Commodity Futures
Trading Commission with respect to a contract
of sale for future delivery on the index,
before the date of the enactment of the
Commodity Futures Modernization Act of 2000;
(iii)(I) a contract of sale for future
delivery on the index traded on a designated
contract market or registered derivatives
transaction execution facility for at least 30
days as a contract of sale for future delivery
on an index that was not a narrow-based
security index; and
(II) it has been a narrow-based security
index for no more than 45 business days over 3
consecutive calendar months;
(iv) a contract of sale for future delivery
on the index is traded on or subject to the
rules of a foreign board of trade and meets
such requirements as are jointly established by
rule or regulation by the Commission and the
Commodity Futures Trading Commission;
(v) no more than 18 months have passed since
the date of the enactment of the Commodity
Futures Modernization Act of 2000 and--
(I) it is traded on or subject to the
rules of a foreign board of trade;
(II) the offer and sale in the United
States of a contract of sale for future
delivery on the index was authorized
before the date of the enactment of the
Commodity Futures Modernization Act of
2000; and
(III) the conditions of such
authorization continue to be met; or
(vi) a contract of sale for future delivery
on the index is traded on or subject to the
rules of a board of trade and meets such
requirements as are jointly established by
rule, regulation, or order by the Commission
and the Commodity Futures Trading Commission.
(D) Within 1 year after the enactment of the
Commodity Futures Modernization Act of 2000, the
Commission and the Commodity Futures Trading Commission
jointly shall adopt rules or regulations that set forth
the requirements under clause (iv) of subparagraph (C).
(E) An index that is a narrow-based security index
solely because it was a narrow-based security index for
more than 45 business days over 3 consecutive calendar
months pursuant to clause (iii) of subparagraph (C)
shall not be a narrow-based security index for the 3
following calendar months.
(F) For purposes of subparagraphs (B) and (C) of this
paragraph--
(i) the dollar value of average daily trading
volume and the market capitalization shall be
calculated as of the preceding 6 full calendar
months; and
(ii) the Commission and the Commodity Futures
Trading Commission shall, by rule or
regulation, jointly specify the method to be
used to determine market capitalization and
dollar value of average daily trading volume.
(56) The term ``security futures product'' means a
security future or any put, call, straddle, option, or
privilege on any security future.
(57)(A) The term ``margin'', when used with respect
to a security futures product, means the amount, type,
and form of collateral required to secure any extension
or maintenance of credit, or the amount, type, and form
of collateral required as a performance bond related to
the purchase, sale, or carrying of a security futures
product.
(B) The terms ``margin level'' and ``level of
margin'', when used with respect to a security futures
product, mean the amount of margin required to secure
any extension or maintenance of credit, or the amount
of margin required as a performance bond related to the
purchase, sale, or carrying of a security futures
product.
(C) The terms ``higher margin level'' and ``higher
level of margin'', when used with respect to a security
futures product, mean a margin level established by a
national securities exchange registered pursuant to
section 6(g) that is higher than the minimum amount
established and in effect pursuant to section
7(c)(2)(B).
(58) Audit committee.--The term ``audit committee''
means--
(A) a committee (or equivalent body)
established by and amongst the board of
directors of an issuer for the purpose of
overseeing the accounting and financial
reporting processes of the issuer and audits of
the financial statements of the issuer; and
(B) if no such committee exists with respect
to an issuer, the entire board of directors of
the issuer.
(59) Registered public accounting firm.--The term
``registered public accounting firm'' has the same
meaning as in section 2 of the Sarbanes-Oxley Act of
2002.
(60) Credit rating.--The term ``credit rating'' means
an assessment of the creditworthiness of an obligor as
an entity or with respect to specific securities or
money market instruments.
(61) Credit rating agency.--The term ``credit rating
agency'' means any person--
(A) engaged in the business of issuing credit
ratings on the Internet or through another
readily accessible means, for free or for a
reasonable fee, but does not include a
commercial credit reporting company;
(B) employing either a quantitative or
qualitative model, or both, to determine credit
ratings; and
(C) receiving fees from either issuers,
investors, or other market participants, or a
combination thereof.
(62) Nationally recognized statistical rating
organization.--The term ``nationally recognized
statistical rating organization'' means a credit rating
agency that--
(A) issues credit ratings certified by
qualified institutional buyers, in accordance
with section 15E(a)(1)(B)(ix), with respect
to--
(i) financial institutions, brokers,
or dealers;
(ii) insurance companies;
(iii) corporate issuers;
(iv) issuers of asset-backed
securities (as that term is defined in
section 1101(c) of part 229 of title
17, Code of Federal Regulations, as in
effect on the date of enactment of this
paragraph);
(v) issuers of government securities,
municipal securities, or securities
issued by a foreign government; or
(vi) a combination of one or more
categories of obligors described in any
of clauses (i) through (v); and
(B) is registered under section 15E.
(63) Person associated with a nationally recognized
statistical rating organization.--The term ``person
associated with'' a nationally recognized statistical
rating organization means any partner, officer,
director, or branch manager of a nationally recognized
statistical rating organization (or any person
occupying a similar status or performing similar
functions), any person directly or indirectly
controlling, controlled by, or under common control
with a nationally recognized statistical rating
organization, or any employee of a nationally
recognized statistical rating organization.
(64) Qualified institutional buyer.--The term
``qualified institutional buyer'' has the meaning given
such term in section 230.144A(a) of title 17, Code of
Federal Regulations, or any successor thereto.
(79) Asset-backed security.--The term ``asset-backed
security''--
(A) means a fixed-income or other security
collateralized by any type of self-liquidating
financial asset (including a loan, a lease, a
mortgage, or a secured or unsecured receivable)
that allows the holder of the security to
receive payments that depend primarily on cash
flow from the asset, including--
(i) a collateralized mortgage
obligation;
(ii) a collateralized debt
obligation;
(iii) a collateralized bond
obligation;
(iv) a collateralized debt obligation
of asset-backed securities;
(v) a collateralized debt obligation
of collateralized debt obligations; and
(vi) a security that the Commission,
by rule, determines to be an asset-
backed security for purposes of this
section; and
(B) does not include a security issued by a
finance subsidiary held by the parent company
or a company controlled by the parent company,
if none of the securities issued by the finance
subsidiary are held by an entity that is not
controlled by the parent company.
(65) Eligible contract participant.--The term
``eligible contract participant'' has the same meaning
as in section 1a of the Commodity Exchange Act (7
U.S.C. 1a).
(66) Major swap participant.--The term ``major swap
participant'' has the same meaning as in section 1a of
the Commodity Exchange Act (7 U.S.C. 1a).
(67) Major security-based swap participant.--
(A) In general.--The term ``major security-
based swap participant'' means any person--
(i) who is not a security-based swap
dealer; and
(ii)(I) who maintains a substantial
position in security-based swaps for
any of the major security-based swap
categories, as such categories are
determined by the Commission, excluding
both positions held for hedging or
mitigating commercial risk and
positions maintained by any employee
benefit plan (or any contract held by
such a plan) as defined in paragraphs
(3) and (32) of section 3 of the
Employee Retirement Income Security Act
of 1974 (29 U.S.C. 1002) for the
primary purpose of hedging or
mitigating any risk directly associated
with the operation of the plan;
(II) whose outstanding security-based
swaps create substantial counterparty
exposure that could have serious
adverse effects on the financial
stability of the United States banking
system or financial markets; or
(III) that is a financial entity
that--
(aa) is highly leveraged
relative to the amount of
capital such entity holds and
that is not subject to capital
requirements established by an
appropriate Federal banking
agency; and
(bb) maintains a substantial
position in outstanding
security-based swaps in any
major security-based swap
category, as such categories
are determined by the
Commission.
(B) Definition of substantial position.--For
purposes of subparagraph (A), the Commission
shall define, by rule or regulation, the term
``substantial position'' at the threshold that
the Commission determines to be prudent for the
effective monitoring, management, and oversight
of entities that are systemically important or
can significantly impact the financial system
of the United States. In setting the definition
under this subparagraph, the Commission shall
consider the person's relative position in
uncleared as opposed to cleared security-based
swaps and may take into consideration the value
and quality of collateral held against
counterparty exposures.
(C) Scope of designation.--For purposes of
subparagraph (A), a person may be designated as
a major security-based swap participant for 1
or more categories of security-based swaps
without being classified as a major security-
based swap participant for all classes of
security-based swaps.
(68) Security-based swap.--
(A) In general.--Except as provided in
subparagraph (B), the term ``security-based
swap'' means any agreement, contract, or
transaction that--
(i) is a swap, as that term is
defined under section 1a of the
Commodity Exchange Act (without regard
to paragraph (47)(B)(x) of such
section); and
(ii) is based on--
(I) an index that is a
narrow-based security index,
including any interest therein
or on the value thereof;
(II) a single security or
loan, including any interest
therein or on the value
thereof; or
(III) the occurrence,
nonoccurrence, or extent of the
occurrence of an event relating
to a single issuer of a
security or the issuers of
securities in a narrow-based
security index, provided that
such event directly affects the
financial statements, financial
condition, or financial
obligations of the issuer.
(B) Rule of construction regarding master
agreements.--The term ``security-based swap''
shall be construed to include a master
agreement that provides for an agreement,
contract, or transaction that is a security-
based swap pursuant to subparagraph (A),
together with all supplements to any such
master agreement, without regard to whether the
master agreement contains an agreement,
contract, or transaction that is not a
security-based swap pursuant to subparagraph
(A), except that the master agreement shall be
considered to be a security-based swap only
with respect to each agreement, contract, or
transaction under the master agreement that is
a security-based swap pursuant to subparagraph
(A).
(C) Exclusions.--The term ``security-based
swap'' does not include any agreement,
contract, or transaction that meets the
definition of a security-based swap only
because such agreement, contract, or
transaction references, is based upon, or
settles through the transfer, delivery, or
receipt of an exempted security under paragraph
(12), as in effect on the date of enactment of
the Futures Trading Act of 1982 (other than any
municipal security as defined in paragraph (29)
as in effect on the date of enactment of the
Futures Trading Act of 1982), unless such
agreement, contract, or transaction is of the
character of, or is commonly known in the trade
as, a put, call, or other option.
(D) Mixed swap.--The term ``security-based
swap'' includes any agreement, contract, or
transaction that is as described in
subparagraph (A) and also is based on the value
of 1 or more interest or other rates,
currencies, commodities, instruments of
indebtedness, indices, quantitative measures,
other financial or economic interest or
property of any kind (other than a single
security or a narrow-based security index), or
the occurrence, non-occurrence, or the extent
of the occurrence of an event or contingency
associated with a potential financial,
economic, or commercial consequence (other than
an event described in subparagraph
(A)(ii)(III)).
(E) Rule of construction regarding use of the
term index.--The term ``index'' means an index
or group of securities, including any interest
therein or based on the value thereof.
(69) Swap.--The term ``swap'' has the same meaning as
in section 1a of the Commodity Exchange Act (7 U.S.C.
1a).
(70) Person associated with a security-based swap
dealer or major security-based swap participant.--
(A) In general.--The term ``person associated
with a security-based swap dealer or major
security-based swap participant'' or
``associated person of a security-based swap
dealer or major security-based swap
participant'' means--
(i) any partner, officer, director,
or branch manager of such security-
based swap dealer or major security-
based swap participant (or any person
occupying a similar status or
performing similar functions);
(ii) any person directly or
indirectly controlling, controlled by,
or under common control with such
security-based swap dealer or major
security-based swap participant; or
(iii) any employee of such security-
based swap dealer or major security-
based swap participant.
(B) Exclusion.--Other than for purposes of
section 15F(l)(2), the term ``person associated
with a security-based swap dealer or major
security-based swap participant'' or
``associated person of a security-based swap
dealer or major security-based swap
participant'' does not include any person
associated with a security-based swap dealer or
major security-based swap participant whose
functions are solely clerical or ministerial.
(71) Security-based swap dealer.--
(A) In general.--The term ``security-based
swap dealer'' means any person who--
(i) holds themself out as a dealer in
security-based swaps;
(ii) makes a market in security-based
swaps;
(iii) regularly enters into security-
based swaps with counterparties as an
ordinary course of business for its own
account; or
(iv) engages in any activity causing
it to be commonly known in the trade as
a dealer or market maker in security-
based swaps.
(B) Designation by type or class.--A person
may be designated as a security-based swap
dealer for a single type or single class or
category of security-based swap or activities
and considered not to be a security-based swap
dealer for other types, classes, or categories
of security-based swaps or activities.
(C) Exception.--The term ``security-based
swap dealer'' does not include a person that
enters into security-based swaps for such
person's own account, either individually or in
a fiduciary capacity, but not as a part of
regular business.
(D) De minimis exception.--The Commission
shall exempt from designation as a security-
based swap dealer an entity that engages in a
de minimis quantity of security-based swap
dealing in connection with transactions with or
on behalf of its customers. The Commission
shall promulgate regulations to establish
factors with respect to the making of any
determination to exempt.
(72) Appropriate federal banking agency.--The term
``appropriate Federal banking agency'' has the same
meaning as in section 3(q) of the Federal Deposit
Insurance Act (12 U.S.C. 1813(q)).
(73) Board.--The term ``Board'' means the Board of
Governors of the Federal Reserve System.
(74) Prudential regulator.--The term ``prudential
regulator'' has the same meaning as in section 1a of
the Commodity Exchange Act (7 U.S.C. 1a).
(75) Security-based swap data repository.--The term
``security-based swap data repository'' means any
person that collects and maintains information or
records with respect to transactions or positions in,
or the terms and conditions of, security-based swaps
entered into by third parties for the purpose of
providing a centralized recordkeeping facility for
security-based swaps.
(76) Swap dealer.--The term ``swap dealer'' has the
same meaning as in section 1a of the Commodity Exchange
Act (7 U.S.C. 1a).
(77) Security-based swap execution facility.--The
term ``security-based swap execution facility'' means a
trading system or platform in which multiple
participants have the ability to execute or trade
security-based swaps by accepting bids and offers made
by multiple participants in the facility or system,
through any means of interstate commerce, including any
trading facility, that--
(A) facilitates the execution of security-
based swaps between persons; and
(B) is not a national securities exchange.
(78) Security-based swap agreement.--
(A) In general.--For purposes of sections 9,
10, 16, 20, and 21A of this Act, and section 17
of the Securities Act of 1933 (15 U.S.C. 77q),
the term ``security-based swap agreement''
means a swap agreement as defined in section
206A of the Gramm-Leach-Bliley Act (15 U.S.C.
78c note) of which a material term is based on
the price, yield, value, or volatility of any
security or any group or index of securities,
or any interest therein.
(B) Exclusions.--The term ``security-based
swap agreement'' does not include any security-
based swap.
(80) Emerging growth company.--The term ``emerging
growth company'' means an issuer that had total annual
gross revenues of less than $1,000,000,000 (as such
amount is indexed for inflation every 5 years by the
Commission to reflect the change in the Consumer Price
Index for All Urban Consumers published by the Bureau
of Labor Statistics, setting the threshold to the
nearest 1,000,000) during its most recently completed
fiscal year. An issuer that is an emerging growth
company as of the first day of that fiscal year shall
continue to be deemed an emerging growth company until
the earliest of--
(A) the last day of the fiscal year of the
issuer during which it had total annual gross
revenues of $1,000,000,000 (as such amount is
indexed for inflation every 5 years by the
Commission to reflect the change in the
Consumer Price Index for All Urban Consumers
published by the Bureau of Labor Statistics,
setting the threshold to the nearest 1,000,000)
or more;
(B) the last day of the fiscal year of the
issuer following the fifth anniversary of the
date of the first sale of common equity
securities of the issuer pursuant to an
effective registration statement under the
Securities Act of 1933;
(C) the date on which such issuer has, during
the previous 3-year period, issued more than
$1,000,000,000 in non-convertible debt; or
(D) the date on which such issuer is deemed
to be a ``large accelerated filer'', as defined
in section 240.12b-2 of title 17, Code of
Federal Regulations, or any successor thereto.
(80) Funding portal.--The term ``funding portal''
means any person acting as an intermediary in a
transaction involving the offer or sale of securities
for the account of others, solely pursuant to section
4(6) of the Securities Act of 1933 (15 U.S.C. 77d(6)),
that does not--
(A) offer investment advice or
recommendations;
(B) solicit purchases, sales, or offers to
buy the securities offered or displayed on its
website or portal;
(C) compensate employees, agents, or other
persons for such solicitation or based on the
sale of securities displayed or referenced on
its website or portal;
(D) hold, manage, possess, or otherwise
handle investor funds or securities; or
(E) engage in such other activities as the
Commission, by rule, determines appropriate.
(b) The Commission and the Board of Governors of the Federal
Reserve System, as to matters within their respective
jurisdictions, shall have power by rules and regulations to
define technical, trade, accounting, and other terms used in
this title, consistently with the provisions and purposes of
this title.
(c) No provision of this title shall apply to, or be deemed
to include, any executive department or independent
establishment of the United States, or any lending agency which
is wholly owned, directly or indirectly, by the United States,
or any officer, agent, or employee of any such department,
establishment, or agency, acting in the course of his official
duty as such, unless such provision makes specific reference to
such department, establishment, or agency.
(d) No issuer of municipal securities or officer or employee
thereof acting in the course of his official duties as such
shall be deemed to be a ``broker'', ``dealer'', or ``municipal
securities dealer'' solely by reason of buying, selling, or
effecting transactions in the issuer's securities.
(e) Charitable Organizations.--
(1) Exemption.--Notwithstanding any other provision
of this title, but subject to paragraph (2) of this
subsection, a charitable organization, as defined in
section 3(c)(10)(D) of the Investment Company Act of
1940, or any trustee, director, officer, employee, or
volunteer of such a charitable organization acting
within the scope of such person's employment or duties
with such organization, shall not be deemed to be a
``broker'', ``dealer'', ``municipal securities
broker'', ``municipal securities dealer'', ``government
securities broker'', or ``government securities
dealer'' for purposes of this title solely because such
organization or person buys, holds, sells, or trades in
securities for its own account in its capacity as
trustee or administrator of, or otherwise on behalf of
or for the account of--
(A) such a charitable organization;
(B) a fund that is excluded from the
definition of an investment company under
section 3(c)(10)(B) of the Investment Company
Act of 1940; or
(C) a trust or other donative instrument
described in section 3(c)(10)(B) of the
Investment Company Act of 1940, or the settlors
(or potential settlors) or beneficiaries of any
such trust or other instrument.
(2) Limitation on compensation.--The exemption
provided under paragraph (1) shall not be available to
any charitable organization, or any trustee, director,
officer, employee, or volunteer of such a charitable
organization, unless each person who, on or after 90
days after the date of enactment of this subsection,
solicits donations on behalf of such charitable
organization from any donor to a fund that is excluded
from the definition of an investment company under
section 3(c)(10)(B) of the Investment Company Act of
1940, is either a volunteer or is engaged in the
overall fund raising activities of a charitable
organization and receives no commission or other
special compensation based on the number or the value
of donations collected for the fund.
(f) Consideration of Promotion of Efficiency, Competition,
and Capital Formation.--Whenever pursuant to this title the
Commission is engaged in rulemaking, or in the review of a rule
of a self-regulatory organization, and is required to consider
or determine whether an action is necessary or appropriate in
the public interest, the Commission shall also consider, in
addition to the protection of investors, whether the action
will promote efficiency, competition, and capital formation.
(g) Church Plans.--No church plan described in section 414(e)
of the Internal Revenue Code of 1986, no person or entity
eligible to establish and maintain such a plan under the
Internal Revenue Code of 1986, no company or account that is
excluded from the definition of an investment company under
section 3(c)(14) of the Investment Company Act of 1940, and no
trustee, director, officer or employee of or volunteer for such
plan, company, account, person, or entity, acting within the
scope of that person's employment or activities with respect to
such plan, shall be deemed to be a ``broker'', ``dealer'',
``municipal securities broker'', ``municipal securities
dealer'', ``government securities broker'', ``government
securities dealer'', ``clearing agency'', or ``transfer agent''
for purposes of this title--
(1) solely because such plan, company, person, or
entity buys, holds, sells, trades in, or transfers
securities or acts as an intermediary in making
payments in connection with transactions in securities
for its own account in its capacity as trustee or
administrator of, or otherwise on behalf of, or for the
account of, any church plan, company, or account that
is excluded from the definition of an investment
company under section 3(c)(14) of the Investment
Company Act of 1940; and
(2) if no such person or entity receives a commission
or other transaction-related sales compensation in
connection with any activities conducted in reliance on
the exemption provided by this subsection.
(h) Limited Exemption for Funding Portals.--
(1) In general.--The Commission shall, by rule,
exempt, conditionally or unconditionally, a registered
funding portal from the requirement to register as a
broker or dealer under section 15(a)(1), provided that
such funding portal--
(A) remains subject to the examination,
enforcement, and other rulemaking authority of
the Commission;
(B) is a member of a national securities
association registered under section 15A; and
(C) is subject to such other requirements
under this title as the Commission determines
appropriate under such rule.
(2) National securities association membership.--For
purposes of sections 15(b)(8) and 15A, the term
``broker or dealer'' includes a funding portal and the
term ``registered broker or dealer'' includes a
registered funding portal, except to the extent that
the Commission, by rule, determines otherwise, provided
that a national securities association shall only
examine for and enforce against a registered funding
portal rules of such national securities association
written specifically for registered funding portals.
* * * * * * *
----------
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974
short title and table of contents
Section 1. This Act may be cited as the ``Employee Retirement
Income Security Act of 1974''.
TABLE OF CONTENTS
Sec. 1. Short title and table of contents.
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS
* * * * * * *
Subtitle B--Regulatory Provisions
Part 1--Reporting and Disclosure
* * * * * * *
[Sec. 111. Repeal and effective date.]
Sec. 111. Eliminating unnecessary plan requirements related to
unenrolled participants.
Sec. 112. Repeal and effective date.
* * * * * * *
TITLE IV--PLAN TERMINATION INSURANCE
* * * * * * *
Subtitle C--Terminations
* * * * * * *
Sec. 4051. Certain non-responsive participants entitled to small
benefits.
TITLE I--PROTECTION OF EMPLOYEE BENEFIT RIGHTS
Subtitle A--General Provisions
* * * * * * *
DEFINITIONS
Sec. 3. For purposes of this title:
(1) The terms ``employee welfare benefit plan'' and ``welfare
plan'' mean any plan, fund, or program which was heretofore or
is hereafter established or maintained by an employer or by an
employee organization, or by both, to the extent that such
plan, fund, or program was established or is maintained for the
purpose of providing for its participants or their
beneficiaries, through the purchase of insurance or otherwise,
(A) medical, surgical, or hospital care or benefits, or
benefits in the event of sickness, accident, disability, death
or unemployment, or vacation benefits, apprenticeship or other
training programs, or day care centers, scholarship funds, or
prepaid legal services, or (B) any benefit described in section
302(c) of the Labor Management Relations Act, 1947 (other than
pensions on retirement or death, and insurance to provide such
pensions).
(2)(A) Except as provided in subparagraph (B), the terms
``employee pension benefit plan'' and ``pension plan'' mean any
plan, fund, or program which was heretofore or is hereafter
established or maintained by an employer or by an employee
organization, or by both, to the extent that by its express
terms or as a result of surrounding circumstances such plan,
fund, or program--
(i) provides retirement income to employees, or
(ii) results in a deferral of income by employees for
periods extending to the termination of covered
employment or beyond,
regardless of the method of calculating the contributions made
to the plan, the method of calculating the benefits under the
plan or the method of distributing benefits from the plan. A
distribution from a plan, fund, or program shall not be treated
as made in a form other than retirement income or as a
distribution prior to termination of covered employment solely
because such distribution is made to an employee who has
attained age 62 and who is not separated from employment at the
time of such distribution.
(B) The Secretary may by regulation prescribe rules
consistent with the standards and purposes of this Act
providing one or more exempt categories under which--
(i) severance pay arrangements, and
(ii) supplemental retirement income payments, under
which the pension benefits of retirees or their
beneficiaries are supplemented to take into account
some portion or all of the increases in the cost of
living (as determined by the Secretary of Labor) since
retirement,
shall, for purposes of this title, be treated as welfare plans
rather than pension plans. In the case of any arrangement or
payment a principal effect of which is the evasion of the
standards or purposes of this Act applicable to pension plans,
such arrangement or payment shall be treated as a pension plan.
An applicable voluntary early retirement incentive plan (as
defined in section 457(e)(11)(D)(ii) of the Internal Revenue
Code of 1986) making payments or supplements described in
section 457(e)(11)(D)(i) of such Code, and an applicable
employment retention plan (as defined in section 457(f)(4)(C)
of such Code) making payments of benefits described in section
457(f)(4)(A) of such Code, shall, for purposes of this title,
be treated as a welfare plan (and not a pension plan) with
respect to such payments and supplements.
(C) A pooled employer plan shall be treated as--
(i) a single employee pension benefit plan or
single pension plan; and
(ii) a plan to which section 210(a) applies.
(3) The term ``employee benefit plan'' or ``plan'' means an
employee welfare benefit plan or an employee pension benefit
plan or a plan which is both an employee welfare benefit plan
and an employee pension benefit plan.
(4) The term ``employee organization'' means any labor union
or any organization of any kind, or any agency or employee
representation committee, association, group, or plan, in which
employees participate and which exists for the purpose, in
whole or in part, of dealing with employers concerning an
employee benefit plan, or other matters incidental to
employment relationships; or any employees' beneficiary
association organized for the purpose in whole or in part, of
establishing such a plan.
(5) The term ``employer'' means any person acting directly as
an employer, or indirectly in the interest of an employer, in
relation to an employee benefit plan; and includes a group or
association of employers acting for an employer in such
capacity.
(6) The term ``employee'' means any individual employed by an
employer.
(7) The term ``participant'' means any employee or former
employee of an employer, or any member or former member of an
employee organization, who is or may become eligible to receive
a benefit of any type from an employee benefit plan which
covers employees of such employer or members of such
organization, or whose beneficiaries may be eligible to receive
any such benefit.
(8) The term ``beneficiary'' means a person designated by a
participant, or by the terms of an employee benefit plan, who
is or may become entitled to a benefit thereunder.
(9) The term ``person'' means an individual, partnership,
joint venture, corporation, mutual company, joint-stock
company, trust, estate, unincorporated organization,
association, or employee organization.
(10) The term ``State'' includes any State of the United
States, the District of Columbia, Puerto Rico, the Virgin
Islands, American Samoa, Guam, Wake Island, and the Canal Zone.
The term ``United States'' when used in the geographic sense
means the States and the Outer Continental Shelf lands defined
in the Outer Continental Shelf Lands Act (43 U.S.C. 1331-1343).
(11) The term ``commerce'' means trade, traffic, commerce,
transportation, or communication between any State and any
place outside thereof.
(12) The term ``industry or activity affecting commerce''
means any activity, business, or industry in commerce or in
which a labor dispute would hinder or obstruct commerce or the
free flow of commerce, and includes any activity or industry
``affecting commerce'' within the meaning of the Labor
Management Relations Act, 1947, or the Railway Labor Act.
(13) The term ``Secretary'' means the Secretary of Labor.
(14) The term ``party in interest'' means, as to an employee
benefit plan--
(A) any fiduciary (including, but not limited to, any
administrator, officer, trustee, or custodian),
counsel, or employee of such employee benefit plan;
(B) a person providing services to such plan;
(C) an employer any of whose employees are covered by
such plan;
(D) an employee organization any of whose members are
covered by such plan;
(E) an owner, direct or indirect, of 50 percent or
more of--
(i) the combined voting power of all classes
of stock entitled to vote or the total value of
shares of all classes of stock of a
corporation,
(ii) the capital interest or the profits
interest of a partnership, or
(iii) the beneficial interest of a trust or
unincorporated enterprise,
which is an employer or an employee organization
described in subparagraph (C) or (D);
(F) a relative (as defined in paragraph (15)) of any
individual described in subparagraph (A), (B), (C), or
(E);
(G) a corporation, partnership, or trust or estate of
which (or in which) 50 percent or more of--
(i) the combined voting power of all classes
of stock entitled to vote or the total value of
shares of all classes of stock of such
corporation,
(ii) the capital interest or profits interest
of such partnership, or
(iii) the beneficial interest of such trust
or estate,
is owned directly or indirectly, or held by persons
described in subparagraph (A), (B), (C), (D), or (E);
(H) an employee, officer, director (or an individual
having powers or responsibilities similar to those of
officers or directors), or a 10 percent or more
shareholder directly or indirectly, of a person
described in subparagraph (B), (C), (D), (E), or (G),
or of the employee benefit plan; or
(I) a 10 percent or more (directly or indirectly in
capital or profits) partner or joint venturer of a
person described in subparagraph (B), (C), (D), (E), or
(G).
The Secretary, after consultation and coordination with the
Secretary of the Treasury, may by regulation prescribe a
percentage lower than 50 percent for subparagraph (E) and (G)
and lower than 10 percent for subparagraph (H) or (I). The
Secretary may prescribe regulations for determining the
ownership (direct or indirect) of profits and beneficial
interests, and the manner in which indirect stockholdings are
taken into account. Any person who is a party in interest with
respect to a plan to which a trust described in section
501(c)(22) of the Internal Revenue Code of 1986 is permitted to
make payments under section 4223 shall be treated as a party in
interest with respect to such trust.
(15) The term ``relative'' means a spouse, ancestor, lineal
descendant, or spouse of a lineal descendant.
(16)(A) The term ``administrator'' means--
(i) the person specifically so designated by the
terms of the instrument under which the plan is
operated;
(ii) if an administrator is not so designated, the
plan sponsor; or
(iii) in the case of a plan for which an
administrator is not designated and a plan sponsor
cannot be identified, such other person as the
Secretary may by regulation prescribe.
(B) The term ``plan sponsor'' means (i) the employer in the
case of an employee benefit plan established or maintained by a
single employer, (ii) the employee organization in the case of
a plan established or maintained by an employee organization,
(iii) in the case of a plan established or maintained by two or
more employers or jointly by one or more employers and one or
more employee organizations, the association, committee, joint
board of trustees, or other similar group of representatives of
the parties who establish or maintain the plan, or (iv) in the
case of a pooled employer plan, the pooled plan provider.
(17) The term ``separate account'' means an account
established or maintained by an insurance company under which
income, gains, and losses, whether or not realized, from assets
allocated to such account, are, in accordance with the
applicable contract, credited to or charged against such
account without regard to other income, gains, or losses of the
insurance company.
(18) The term ``adequate consideration'' when used in part 4
of subtitle B means (A) in the case of a security for which
there is a generally recognized market, either (i) the price of
the security prevailing on a national securities exchange which
is registered under section 6 of the Securities Exchange Act of
1934, or (ii) if the security is not traded on such a national
securities exchange, a price not less favorable to the plan
than the offering price for the security as established by the
current bid and asked prices quoted by persons independent of
the issuer and of any party in interest; and (B) in the case of
an asset other than a security for which there is a generally
recognized market, the fair market value of the asset as
determined in good faith by the trustee or named fiduciary
pursuant to the terms of the plan and in accordance with
regulations promulgated by the Secretary.
(19) The term ``nonforfeitable'' when used with respect to a
pension benefit or right means a claim obtained by a
participant or his beneficiary to that part of an immediate or
deferred benefit under a pension plan which arises from the
participant's service, which is unconditional, and which is
legally enforceable against the plan. For purposes of this
paragraph, a right to an accrued benefit derived from employer
contributions shall not be treated as forfeitable merely
because the plan contains a provision described in section
203(a)(3).
(20) The term ``security'' has the same meaning as such term
has under section 2(1) of the Securities Act of 1933 (15 U.S.C.
77b(1)).
(21)(A) Except as otherwise provided in subparagraph (B), a
person is a fiduciary with respect to a plan to the extent (i)
he exercises any discretionary authority or discretionary
control respecting management of such plan or exercises any
authority or control respecting management or disposition of
its assets, (ii) he renders investment advice for a fee or
other compensation, direct or indirect, with respect to any
moneys or other property of such plan, or has any authority or
responsibility to do so, or (iii) he has any discretionary
authority or discretionary responsibility in the administration
of such plan. Such term includes any person designated under
section 405(c)(1)(B).
(B) If any money or other property of an employee benefit
plan is invested in securities issued by an investment company
registered under the Investment Company Act of 1940, such
investment shall not by itself cause such investment company or
such investment company's investment adviser or principal
underwriter to be deemed to be a fiduciary or a party in
interest as those terms are defined in this title, except
insofar as such investment company or its investment adviser or
principal underwriter acts in connection with an employee
benefit plan covering employees of the investment company, the
investment adviser, or its principal underwriter. Nothing
contained in this subparagraph shall limit the duties imposed
on such investment company, investment adviser, or principal
underwriter by any other law.
(22) The term ``normal retirement benefit'' means the greater
of the early retirement benefit under the plan, or the benefit
under the plan commencing at normal retirement age. The normal
retirement benefit shall be determined without regard to--
(A) medical benefits, and
(B) disability benefits not in excess of the
qualified disability benefit.
For purposes of this paragraph, a qualified disability benefit
is a disability benefit provided by a plan which does not
exceed the benefit which would be provided for the participant
if he separated from the service at normal retirement age. For
purposes of this paragraph, the early retirement benefit under
a plan shall be determined without regard to any benefit under
the plan which the Secretary of the Treasury finds to be a
benefit described in section 204(b)(1)(G).
(23) The term ``accrued benefit'' means--
(A) in the case of a defined benefit plan, the
individual's accrued benefit determined under the plan
and, except as provided in section 204(c)(3), expressed
in the form of an annual benefit commencing at normal
retirement age, or
(B) in the case of a plan which is an individual
account plan, the balance of the individual's account.
The accrued benefit of an employee shall not be less than the
amount determined under section 204(c)(2)(B) with respect to
the employee's accumulated contribution.
(24) The term ``normal retirement age'' means the earlier
of--
(A) the time a plan participant attains normal
retirement age under the plan, or
(B) the later of--
(i) the time a plan participant attains age
65, or
(ii) the 5th anniversary of the time a plan
participant commenced participation in the
plan.
(25) The term ``vested liabilities'' means the present value
of the immediate or deferred benefits available at normal
retirement age for participants and their beneficiaries which
are nonforfeitable.
(26) The term ``current value'' means fair market value where
available and otherwise the fair value as determined in good
faith by a trustee or a named fiduciary (as defined in section
402(a)(2)) pursuant to the terms of the plan and in accordance
with regulations of the Secretary, assuming an orderly
liquidation at the time of such determination.
(27) The term ``present value'', with respect to a liability,
means the value adjusted to reflect anticipated events. Such
adjustments shall conform to such regulations as the Secretary
of the Treasury may prescribe.
(28) The term ``normal service cost'' or ``normal cost''
means the annual cost of future pension benefits and
administrative expenses assigned, under an actuarial cost
method, to years subsequent to a particular valuation date of a
pension plan. The Secretary of the Treasury may prescribe
regulations to carry out this paragraph.
(29) The term ``accrued liability'' means the excess of the
present value, as of a particular valuation date of a pension
plan, of the projected future benefit costs and administrative
expenses for all plan participants and beneficiaries over the
present value of future contributions for the normal cost of
all applicable plan participants and beneficiaries. The
Secretary of the Treasury may prescribe regulations to carry
out this paragraph.
(30) The term ``unfunded accrued liability'' means the excess
of the accrued liability, under an actuarial cost method which
so provides, over the present value of the assets of a pension
plan. The Secretary of the Treasury may prescribe regulations
to carry out this paragraph.
(31) The term ``advance funding actuarial cost method'' or
``actuarial cost method'' means a recognized actuarial
technique utilized for establishing the amount and incidence of
the annual actuarial cost of pension plan benefits and
expenses. Acceptable actuarial cost methods shall include the
accrued benefit cost method (unit credit method), the entry age
normal cost method, the individual level premium cost method,
the aggregate cost method, the attained age normal cost method,
and the frozen initial liability cost method. The terminal
funding cost method and the current funding (pay-as-you-go)
cost method are not acceptable actuarial cost methods. The
Secretary of the Treasury shall issue regulations to further
define acceptable actuarial cost methods.
(32) The term ``governmental plan'' means a plan established
or maintained for its employees by the Government of the United
States, by the government of any State or political subdivision
thereof, or by any agency or instrumentality of any of the
foregoing. The term ``governmental plan'' also includes any
plan to which the Railroad Retirement Act of 1935 or 1937
applies, and which is financed by contributions required under
that Act and any plan of an international organization which is
exempt from taxation under the provisions of the International
Organizations Immunities Act (59 Stat. 669). The term
``governmental plan'' includes a plan which is established and
maintained by an Indian tribal government (as defined in
section 7701(a)(40) of the Internal Revenue Code of 1986), a
subdivision of an Indian tribal government (determined in
accordance with section 7871(d) of such Code), or an agency or
instrumentality of either, and all of the participants of which
are employees of such entity substantially all of whose
services as such an employee are in the performance of
essential governmental functions but not in the performance of
commercial activities (whether or not an essential government
function)
(33)(A) The term ``church plan'' means a plan established and
maintained (to the extent required in clause (ii) of
subparagraph (B)) for its employees (or their beneficiaries) by
a church or by a convention or association of churches which is
exempt from tax under section 501 of the Internal Revenue Code
of 1986.
(B) The term ``church plan'' does not include a plan--
(i) which is established and maintained primarily for
the benefit of employees (or their beneficiaries) of
such church or convention or association of churches
who are employed in connection with one or more
unrelated trades or businesses (within the meaning of
section 513 of the Internal Revenue Code of 1986), or
(ii) if less than substantially all of the
individuals included in the plan are individuals
described in subparagraph (A) or in clause (ii) of
subparagraph (C) (or their beneficiaries).
(C) For purposes of this paragraph--
(i) A plan established and maintained for its
employees (or their beneficiaries) by a church or by a
convention or association of churches includes a plan
maintained by an organization, whether a civil law
corporation or otherwise, the principal purpose or
function of which is the administration or funding of a
plan or program for the provision of retirement
benefits or welfare benefits, or both, for the
employees of a church or a convention or association of
churches, if such organization is controlled by or
associated with a church or a convention or association
of churches.
(ii) The term employee of a church or a convention or
association of churches includes--
(I) a duly ordained, commissioned, or
licensed minister of a church in the exercise
of his ministry, regardless of the source of
his compensation;
(II) an employee of an organization, whether
a civil law corporation or otherwise, which is
exempt from tax under section 501 of the
Internal Revenue Code of 1986 and which is
controlled by or associated with a church or a
convention or association of churches; and
(III) an individual described in clause (v).
(iii) A church or a convention or association of
churches which is exempt from tax under section 501 of
the Internal Revenue Code of 1986 shall be deemed the
employer of any individual included as an employee
under clause (ii).
(iv) An organization, whether a civil law corporation
or otherwise, is associated with a church or a
convention or association of churches if it shares
common religious bonds and convictions with that church
or convention or association of churches.
(v) If an employee who is included in a church plan
separates from the service of a church or a convention
or association of churches or an organization, whether
a civil law corporation or otherwise, which is exempt
from tax under section 501 of the Internal Revenue Code
of 1986 and which is controlled by or associated with a
church or a convention or association of churches, the
church plan shall not fail to meet the requirements of
this paragraph merely because the plan--
(I) retains the employee's accrued benefit or
account for the payment of benefits to the
employee or his beneficiaries pursuant to the
terms of the plan; or
(II) receives contributions on the employee's
behalf after the employee's separation from
such service, but only for a period of 5 years
after such separation, unless the employee is
disabled (within the meaning of the disability
provisions of the church plan or, if there are
no such provisions in the church plan, within
the meaning of section 72(m)(7) of the Internal
Revenue Code of 1986) at the time of such
separation from service.
(D)(i) If a plan established and maintained for its employees
(or their beneficiaries) by a church or by a convention or
association of churches which is exempt from tax under section
501 of the Internal Revenue Code of 1986 fails to meet one or
more of the requirements of this paragraph and corrects its
failure to meet such requirements within the correction period,
the plan shall be deemed to meet the requirements of this
paragraph for the year in which the correction was made and for
all prior years.
(ii) If a correction is not made within the correction
period, the plan shall be deemed not to meet the requirements
of this paragraph beginning with the date on which the earliest
failure to meet one or more of such requirements occurred.
(iii) For purposes of this subparagraph, the term
``correction period'' means--
(I) the period ending 270 days after the date of
mailing by the Secretary of the Treasury of a notice of
default with respect to the plan's failure to meet one
or more of the requirements of this paragraph; or
(II) any period set by a court of competent
jurisdiction after a final determination that the plan
fails to meet such requirements, or, if the court does
not specify such period, any reasonable period
determined by the Secretary of the Treasury on the
basis of all the facts and circumstances, but in any
event not less than 270 days after the determination
has become final; or
(III) any additional period which the Secretary of
the Treasury determines is reasonable or necessary for
the correction of the default,
whichever has the latest ending date.
(34) The term ``individual account plan'' or ``defined
contribution plan'' means a pension plan which provides for an
individual account for each participant and for benefits based
solely upon the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any
forfeitures of accounts of other participants which may be
allocated to such participant's account.
(35) The term ``defined benefit plan'' means a pension plan
other than an individual account plan; except that a pension
plan which is not an individual account plan and which provides
a benefit derived from employer contributions which is based
partly on the balance of the separate account of a
participant--
(A) for the purposes of section 202, shall be treated
as an individual account plan, and
(B) for the purposes of paragraph (23) of this
section and section 204, shall be treated as an
individual account plan to the extent benefits are
based upon the separate account of a participant and as
a defined benefit plan with respect to the remaining
portion of benefits under the plan.
(36) The term ``excess benefit plan'' means a plan maintained
by an employer solely for the purpose of providing benefits for
certain employees in excess of the limitations on contributions
and benefits imposed by section 415 of the Internal Revenue
Code of 1986 on plans to which that section applies, without
regard to whether the plan is funded. To the extent that a
separable part of a plan (as determined by the Secretary of
Labor) maintained by an employer is maintained for such
purpose, that part shall be treated as a separate plan which is
an excess benefit plan.
(37)(A) The term ``multiemployer plan'' means a plan--
(i) to which more than one employer is required to
contribute,
(ii) which is maintained pursuant to one or more
collective bargaining agreements between one or more
employee organizations and more than one employer, and
(iii) which satisfies such other requirements as the
Secretary may prescribe by regulation.
(B) For purposes of this paragraph, all trades or businesses
(whether or not incorporated) which are under common control
within the meaning of section 4001(b)(1) are considered a
single employer.
(C) Notwithstanding subparagraph (A), a plan is a
multiemployer plan on and after its termination date if the
plan was a multiemployer plan under this paragraph for the plan
year preceding its termination date.
(D) For purposes of this title, notwithstanding the preceding
provisions of this paragraph, for any plan year which began
before the date of the enactment of the Multiemployer Pension
Plan Amendments Act of 1980, the term ``multiemployer plan''
means a plan described in section 3(37) of this Act as in
effect immediately before such date.
(E) Within one year after the date of the enactment of the
Multiemployer Pension Plan Amendments Act of 1980, a
multiemployer plan may irrevocably elect, pursuant to
procedures established by the corporation and subject to the
provisions of sections 4403(b) and (c), that the plan shall not
be treated as a multiemployer plan for all purposes under this
Act or the Internal Revenue Code of 1954 if for each of the
last 3 plan years ending prior to the effective date of the
Multiemployer Pension Plan Amendments Act of 1980--
(i) the plan was not a multiemployer plan because the
plan was not a plan described in section 3(37)(A)(iii)
of this Act and section 414(f)(1)(C) of the Internal
Revenue Code of 1954 (as such provisions were in effect
on the day before the date of the enactment of the
Multiemployer Pension Plan Amendments Act of 1980 );
and
(ii) the plan had been identified as a plan that was
not a multiemployer plan in substantially all its
filings with the corporation, the Secretary of Labor
and the Secretary of the Treasury.
(F)(i) For purposes of this title a qualified football
coaches plan--
(I) shall be treated as a multiemployer plan to the
extent not inconsistent with the purposes of this
subparagraph; and
(II) notwithstanding section 401(k)(4)(B) of the
Internal Revenue Code of 1986, may include a qualified
cash and deferred arrangement.
(ii) For purposes of this subparagraph, the term ``qualified
football coaches plan'' means any defined contribution plan
which is established and maintained by an organization--
(I) which is described in section 501(c) of such
Code;
(II) the membership of which consists entirely of
individuals who primarily coach football as full-time
employees of 4-year colleges or universities described
in section 170(b)(1)(A)(ii) of such Code; and
(III) which was in existence on September 18, 1986.
(G)(i) Within 1 year after the enactment of the
Pension Protection Act of 2006--
(I) an election under subparagraph (E) may be
revoked, pursuant to procedures prescribed by
the Pension Benefit Guaranty Corporation, if,
for each of the 3 plan years prior to the date
of the enactment of that Act, the plan would
have been a multiemployer plan but for the
election under subparagraph (E), and
(II) a plan that meets the criteria in
clauses (i) and (ii) of subparagraph (A) of
this paragraph or that is described in clause
(vi) may, pursuant to procedures prescribed by
the Pension Benefit Guaranty Corporation, elect
to be a multiemployer plan, if--
(aa) for each of the 3 plan years
immediately preceding the first plan
year for which the election under this
paragraph is effective with respect to
the plan, the plan has met those
criteria or is so described,
(bb) substantially all of the plan's
employer contributions for each of
those plan years were made or required
to be made by organizations that were
exempt from tax under section 501 of
the Internal Revenue Code of 1986, and
(cc) the plan was established prior
to September 2, 1974.
(ii) An election under this subparagraph shall be
effective for all purposes under this Act and under the
Internal Revenue Code of 1986, starting with any plan
year beginning on or after January 1, 1999, and ending
before January 1, 2008, as designated by the plan in
the election made under clause (i)(II).
(iii) Once made, an election under this subparagraph
shall be irrevocable, except that a plan described in
clause (i)(II) shall cease to be a multiemployer plan
as of the plan year beginning immediately after the
first plan year for which the majority of its employer
contributions were made or required to be made by
organizations that were not exempt from tax under
section 501 of the Internal Revenue Code of 1986.
(iv) The fact that a plan makes an election under
clause (i)(II) does not imply that the plan was not a
multiemployer plan prior to the date of the election or
would not be a multiemployer plan without regard to the
election.
(v)(I) No later than 30 days before an election is
made under this subparagraph, the plan administrator
shall provide notice of the pending election to each
plan participant and beneficiary, each labor
organization representing such participants or
beneficiaries, and each employer that has an obligation
to contribute to the plan, describing the principal
differences between the guarantee programs under title
IV and the benefit restrictions under this title for
single employer and multiemployer plans, along with
such other information as the plan administrator
chooses to include.
(II) Within 180 days after the date of enactment of
the Pension Protection Act of 2006, the Secretary shall
prescribe a model notice under this clause.
(III) A plan administrator's failure to provide the
notice required under this subparagraph shall be
treated for purposes of section 502(c)(2) as a failure
or refusal by the plan administrator to file the annual
report required to be filed with the Secretary under
section 101(b)(1).
(vi) A plan is described in this clause if it is a
plan sponsored by an organization which is described in
section 501(c)(5) of the Internal Revenue Code of 1986
and exempt from tax under section 501(a) of such Code
and which was established in Chicago, Illinois, on
August 12, 1881.
(vii) For purposes of this Act and the Internal Revenue Code
of 1986, a plan making an election under this subparagraph
shall be treated as maintained pursuant to a collective
bargaining agreement if a collective bargaining agreement,
expressly or otherwise, provides for or permits employer
contributions to the plan by one or more employers that are
signatory to such agreement, or participation in the plan by
one or more employees of an employer that is signatory to such
agreement, regardless of whether the plan was created,
established, or maintained for such employees by virtue of
another document that is not a collective bargaining agreement.
(38) The term ``investment manager'' means any fiduciary
(other than a trustee or named fiduciary, as defined in section
402(a)(2))--
(A) who has the power to manage, acquire, or dispose
of any asset of a plan;
(B) who (i) is registered as an investment adviser
under the Investment Advisers Act of 1940; (ii) is not
registered as an investment adviser under such Act by
reason of paragraph (1) of section 203A(a) of such Act,
is registered as an investment adviser under the laws
of the State (referred to in such paragraph (1)) in
which it maintains its principal office and place of
business, and, at the time the fiduciary last filed the
registration form most recently filed by the fiduciary
with such State in order to maintain the fiduciary's
registration under the laws of such State, also filed a
copy of such form with the Secretary; (iii) is a bank,
as defined in that Act; or (iv) is an insurance company
qualified to perform services described in subparagraph
(A) under the laws of more than one State; and
(C) has acknowledged in writing that he is a
fiduciary with respect to the plan.
(39) The terms ``plan year'' and ``fiscal year of the plan''
mean, with respect to a plan, the calendar, policy, or fiscal
year on which the records of the plan are kept.
(40)(A) The term ``multiple employer welfare arrangement''
means an employee welfare benefit plan, or any other
arrangement (other than an employee welfare benefit plan),
which is established or maintained for the purpose of offering
or providing any benefit described in paragraph (1) to the
employees of two or more employers (including one or more self-
employed individuals), or to their beneficiaries, except that
such term does not include any such plan or other arrangement
which is established or maintained--
(i) under or pursuant to one or more agreements which
the Secretary finds to be collective bargaining
agreements,
(ii) by a rural electric cooperative, or
(iii) by a rural telephone cooperative association.
(B) For purposes of this paragraph--
(i) two or more trades or businesses, whether or not
incorporated, shall be deemed a single employer if such
trades or businesses are within the same control group,
(ii) the term ``control group'' means a group of
trades or businesses under common control,
(iii) the determination of whether a trade or
business is under ``common control'' with another trade
or business shall be determined under regulations of
the Secretary applying principles similar to the
principles applied in determining whether employees of
two or more trades or businesses are treated as
employed by a single employer under section 4001(b),
except that, for purposes of this paragraph, common
control shall not be based on an interest of less than
25 percent,
(iv) the term ``rural electric cooperative'' means--
(I) any organization which is exempt from tax
under section 501(a) of the Internal Revenue
Code of 1986 and which is engaged primarily in
providing electric service on a mutual or
cooperative basis, and
(II) any organization described in paragraph
(4) or (6) of section 501(c) of the Internal
Revenue Code of 1986 which is exempt from tax
under section 501(a) of such Code and at least
80 percent of the members of which are
organizations described in subclause (I), and
(v) the term ``rural telephone cooperative
association'' means an organization described in
paragraph (4) or (6) of section 501(c) of the Internal
Revenue Code of 1986 which is exempt from tax under
section 501(a) of such Code and at least 80 percent of
the members of which are organizations engaged
primarily in providing telephone service to rural areas
of the United States on a mutual, cooperative, or other
basis.
(41) Single-employer plan.--The term ``single-employer plan''
means an employee benefit plan other than a multiemployer plan.
(42) the term ``plan assets'' means plan assets as defined by
such regulations as the Secretary may prescribe, except that
under such regulations the assets of any entity shall not be
treated as plan assets if, immediately after the most recent
acquisition of any equity interest in the entity, less than 25
percent of the total value of each class of equity interest in
the entity is held by benefit plan investors. For purposes of
determinations pursuant to this paragraph, the value of any
equity interest held by a person (other than such a benefit
plan investor) who has discretionary authority or control with
respect to the assets of the entity or any person who provides
investment advice for a fee (direct or indirect) with respect
to such assets, or any affiliate of such a person, shall be
disregarded for purposes of calculating the 25 percent
threshold. An entity shall be considered to hold plan assets
only to the extent of the percentage of the equity interest
held by benefit plan investors. For purposes of this paragraph,
the term ``benefit plan investor'' means an employee benefit
plan subject to part 4, any plan to which section 4975 of the
Internal Revenue Code of 1986 applies, and any entity whose
underlying assets include plan assets by reason of a plan's
investment in such entity.
(43) Pooled employer plan.--
(A) In general.--The term ``pooled employer
plan'' means a plan--
(i) which is an individual account
plan established or maintained for the
purpose of providing benefits to the
employees of 2 or more employers;
(ii) which is a plan described in
section 401(a) of the Internal Revenue
Code of 1986 which includes a trust
exempt from tax under [section 501(a)
of such Code or] 501(a) of such Code, a
plan that consists of contracts
described in section 403(b) of such
Code, or a plan that consists of
individual retirement accounts
described in section 408 of such Code
(including by reason of subsection (c)
thereof); and
(iii) the terms of which meet the
requirements of subparagraph (B).
Such term shall not include a plan maintained
by employers which have a common interest other
than having adopted [the plan.] the plan, but
such term shall include any program (other than
a governmental plan) maintained for the benefit
of the employees of more than 1 employer that
consists of contracts described in section
403(b) of such Code and that meets the
requirements of subparagraph (A) or (B) of
section 413(e)(1) of such Code.
(B) Requirements for plan terms.--The
requirements of this subparagraph are met with
respect to any plan if the terms of the plan--
(i) designate a pooled plan provider
and provide that the pooled plan
provider is a named fiduciary of the
plan;
(ii) designate one or more [trustees
meeting the requirements of section
408(a)(2) of the Internal Revenue Code
of 1986] trustees (or other fiduciaries
in the case of a plan that consists of
contracts described in section 403(b)
of the Internal Revenue Code of 1986)
meeting the requirements of section
408(a)(2) of such Code (other than an
employer in the plan) to be responsible
for collecting contributions to, and
[holding] holding (or causing to be
held under the terms of a plan
consisting of such contracts) the
assets of, the plan and require such
trustees to implement written
contribution collection procedures that
are reasonable, diligent, and
systematic;
(iii) provide that each employer in
the plan retains fiduciary
responsibility for--
(I) the selection and
monitoring in accordance with
section 404(a) of the person
designated as the pooled plan
provider and any other person
who, in addition to the pooled
plan provider, is designated as
a named fiduciary of the plan;
and
(II) to the extent not
otherwise delegated to another
fiduciary by the pooled plan
provider and subject to the
provisions of section 404(c),
the investment and management
of the portion of the plan's
assets attributable to the
employees of the employer (or
beneficiaries of such
employees);
(iv) provide that employers in the
plan, and participants and
beneficiaries, are not subject to
unreasonable restrictions, fees, or
penalties with regard to ceasing
participation, receipt of
distributions, or otherwise
transferring assets of the plan in
accordance with section 208 or
paragraph (44)(C)(i)(II);
(v) require--
(I) the pooled plan provider
to provide to employers in the
plan any disclosures or other
information which the Secretary
may require, including any
disclosures or other
information to facilitate the
selection or any monitoring of
the pooled plan provider by
employers in the plan; and
(II) each employer in the
plan to take such actions as
the Secretary or the pooled
plan provider determines are
necessary to administer the
plan or for the plan to meet
any requirement applicable
under this Act or the Internal
Revenue Code of 1986 to a plan
described in [section 401(a) of
such Code or] 401(a) of such
Code, a plan that consists of
contracts described in section
403(b) of such Code, or to a
plan that consists of
individual retirement accounts
described in section 408 of
such Code (including by reason
of subsection (c) thereof),
whichever is applicable,
including providing any
disclosures or other
information which the Secretary
may require or which the pooled
plan provider otherwise
determines are necessary to
administer the plan or to allow
the plan to meet such
requirements; and
(vi) provide that any disclosure or
other information required to be
provided under clause (v) may be
provided in electronic form and will be
designed to ensure only reasonable
costs are imposed on pooled plan
providers and employers in the plan.
(C) Exceptions.--The term ``pooled employer
plan'' does not include--
(i) a multiemployer plan; or
(ii) a plan established before the
date of the enactment of the Setting
Every Community Up for Retirement
Enhancement Act of 2019 unless the plan
administrator elects that the plan will
be treated as a pooled employer plan
and the plan meets the requirements of
this title applicable to a pooled
employer plan established on or after
such date.
(D) Treatment of employers as plan
sponsors.--Except with respect to the
administrative duties of the pooled plan
provider described in paragraph (44)(A)(i),
each employer in a pooled employer plan shall
be treated as the plan sponsor with respect to
the portion of the plan attributable to
employees of such employer (or beneficiaries of
such employees).
(44) Pooled plan provider.--
(A) In general.--The term ``pooled plan
provider'' means a person who--
(i) is designated by the terms of a
pooled employer plan as a named
fiduciary, as the plan administrator,
and as the person responsible for the
performance of all administrative
duties (including conducting proper
testing with respect to the plan and
the employees of each employer in the
plan) which are reasonably necessary to
ensure that--
(I) the plan meets any
requirement applicable under
this Act or the Internal
Revenue Code of 1986 to a plan
described in [section 401(a) of
such Code or] 401(a) of such
Code, a plan that consists of
contracts described in section
403(b) of such Code, or to a
plan that consists of
individual retirement accounts
described in section 408 of
such Code (including by reason
of subsection (c) thereof),
whichever is applicable; and
(II) each employer in the
plan takes such actions as the
Secretary or pooled plan
provider determines are
necessary for the plan to meet
the requirements described in
subclause (I), including
providing the disclosures and
information described in
paragraph (43)(B)(v)(II);
(ii) registers as a pooled plan
provider with the Secretary, and
provides to the Secretary such other
information as the Secretary may
require, before beginning operations as
a pooled plan provider;
(iii) acknowledges in writing that
such person is a named fiduciary, and
the plan administrator, with respect to
the pooled employer plan; and
(iv) is responsible for ensuring that
all persons who handle assets of, or
who are fiduciaries of, the pooled
employer plan are bonded in accordance
with section 412.
(B) Audits, examinations and
investigations.--The Secretary may perform
audits, examinations, and investigations of
pooled plan providers as may be necessary to
enforce and carry out the purposes of this
paragraph and paragraph (43).
(C) Guidance.--The Secretary shall issue such
guidance as the Secretary determines
appropriate to carry out this paragraph and
paragraph (43), including guidance--
(i) to identify the administrative
duties and other actions required to be
performed by a pooled plan provider
under either such paragraph; and
(ii) which requires in appropriate
cases that if an employer in the plan
fails to take the actions required
under subparagraph (A)(i)(II)--
(I) the assets of the plan
attributable to employees of
such employer (or beneficiaries
of such employees) are
transferred to a plan
maintained only by such
employer (or its successor), to
an eligible retirement plan as
defined in section 402(c)(8)(B)
of the Internal Revenue Code of
1986 for each individual whose
account is transferred, or to
any other arrangement that the
Secretary determines is
appropriate in such guidance;
and
(II) such employer (and not
the plan with respect to which
the failure occurred or any
other employer in such plan)
shall, except to the extent
provided in such guidance, be
liable for any liabilities with
respect to such plan
attributable to employees of
such employer (or beneficiaries
of such employees).
The Secretary shall take into account
under clause (ii) whether the failure
of an employer or pooled plan provider
to provide any disclosures or other
information, or to take any other
action, necessary to administer a plan
or to allow a plan to meet requirements
described in subparagraph (A)(i)(II)
has continued over a period of time
that demonstrates a lack of commitment
to compliance. The Secretary may waive
the requirements of subclause (ii)(I)
in appropriate circumstances if the
Secretary determines it is in the best
interests of the employees of the
employer referred to in such clause
(and the beneficiaries of such
employees) to retain the assets in the
plan with respect to which the
employer's failure occurred.
(D) Good faith compliance with law before
guidance.--An employer or pooled plan provider
shall not be treated as failing to meet a
requirement of guidance issued by the Secretary
under subparagraph (C) if, before the issuance
of such guidance, the employer or pooled plan
provider complies in good faith with a
reasonable interpretation of the provisions of
this paragraph, or paragraph (43), to which
such guidance relates.
(E) Aggregation rules.--For purposes of this
paragraph, in determining whether a person
meets the requirements of this paragraph to be
a pooled plan provider with respect to any
plan, all persons who perform services for the
plan and who are treated as a single employer
under subsection (b), (c), (m), or (o) of
section 414 of the Internal Revenue Code of
1986 shall be treated as one person.
* * * * * * *
Subtitle B--Regulatory Provisions
Part 1--Reporting and Disclosure
* * * * * * *
REPORTING OF PARTICIPANT'S BENEFIT RIGHTS
Sec. 105. (a) Requirements To Provide Pension Benefit
Statements.--
(1) Requirements.--
(A) Individual account plan.--The
administrator of an individual account plan
(other than a one-participant retirement plan
described in section 101(i)(8)(B)) shall
furnish a pension benefit statement--
(i) at least once each calendar
quarter to a participant or beneficiary
who has the right to direct the
investment of assets in his or her
account under the plan,
(ii) at least once each calendar year
to a participant or beneficiary who has
his or her own account under the plan
but does not have the right to direct
the investment of assets in that
account, and
(iii) upon written request to a plan
beneficiary not described in clause (i)
or (ii).
(B) Defined benefit plan.--The administrator
of a defined benefit plan (other than a one-
participant retirement plan described in
section 101(i)(8)(B)) shall furnish a pension
benefit statement--
(i) at least once every 3 years to
each participant with a nonforfeitable
accrued benefit and who is employed by
the employer maintaining the plan at
the time the statement is to be
furnished, and
(ii) to a participant or beneficiary
of the plan upon written request.
Information furnished under clause (i) to a
participant may be based on reasonable
estimates determined under regulations
prescribed by the Secretary, in consultation
with the Pension Benefit Guaranty Corporation.
(2) Statements.--
(A) In general.--A pension benefit statement
under paragraph (1)--
(i) shall indicate, on the basis of
the latest available information--
(I) the total benefits
accrued, and
(II) the nonforfeitable
pension benefits, if any, which
have accrued, or the earliest
date on which benefits will
become nonforfeitable,
(ii) shall include an explanation of
any permitted disparity under section
401(l) of the Internal Revenue Code of
1986 or any floor-offset arrangement
that may be applied in determining any
accrued benefits described in clause
(i),
(iii) shall be written in a manner
calculated to be understood by the
average plan participant, and
(iv) subject to subparagraph (E), may
be delivered in written, electronic, or
other appropriate form to the extent
such form is reasonably accessible to
the participant or beneficiary.
(B) Additional information.--In the case of
an individual account plan, any pension benefit
statement under clause (i) or (ii) of paragraph
(1)(A) shall include--
(i) the value of each investment to
which assets in the individual account
have been allocated, determined as of
the most recent valuation date under
the plan, including the value of any
assets held in the form of employer
securities, without regard to whether
such securities were contributed by the
plan sponsor or acquired at the
direction of the plan or of the
participant or beneficiary,
(ii) in the case of a pension benefit
statement under paragraph (1)(A)(i)--
(I) an explanation of any
limitations or restrictions on
any right of the participant or
beneficiary under the plan to
direct an investment,
(II) an explanation, written
in a manner calculated to be
understood by the average plan
participant, of the importance,
for the long-term retirement
security of participants and
beneficiaries, of a well-
balanced and diversified
investment portfolio, including
a statement of the risk that
holding more than 20 percent of
a portfolio in the security of
one entity (such as employer
securities) may not be
adequately diversified, and
(III) a notice directing the
participant or beneficiary to
the Internet website of the
Department of Labor for sources
of information on individual
investing and diversification,
and
(iii) the lifetime income disclosure
described in subparagraph (D)(i).
In the case of pension benefit statements
described in clause (i) of paragraph (1)(A), a
lifetime income disclosure under clause (iii)
of this subparagraph shall be required to be
included in only one pension benefit statement
during any one 12-month period.
(C) Alternative notice.--The requirements of
subparagraph (A)(i)(II) are met if, at least
annually and in accordance with requirements of
the Secretary, the plan--
(i) updates the information described
in such paragraph which is provided in
the pension benefit statement, or
(ii) provides in a separate statement
such information as is necessary to
enable a participant or beneficiary to
determine their nonforfeitable vested
benefits.
(D) Lifetime income disclosure.--
(i) In general.--
(I) Disclosure.--A lifetime
income disclosure shall set
forth the lifetime income
stream equivalent of the total
benefits accrued with respect
to the participant or
beneficiary.
(II) Lifetime income stream
equivalent of the total
benefits accrued.--For purposes
of this subparagraph, the term
``lifetime income stream
equivalent of the total
benefits accrued'' means the
amount of monthly payments the
participant or beneficiary
would receive if the total
accrued benefits of such
participant or beneficiary were
used to provide lifetime income
streams described in subclause
(III), based on assumptions
specified in rules prescribed
by the Secretary.
(III) Lifetime income
streams.--The lifetime income
streams described in this
subclause are a qualified joint
and survivor annuity (as
defined in section 205(d)),
based on assumptions specified
in rules prescribed by the
Secretary, including the
assumption that the participant
or beneficiary has a spouse of
equal age, and a single life
annuity. Such lifetime income
streams may have a term certain
or other features to the extent
permitted under rules
prescribed by the Secretary.
(ii) Model disclosure.--Not later
than 1 year after the date of the
enactment of the Setting Every
Community Up for Retirement Enhancement
Act of 2019, the Secretary shall issue
a model lifetime income disclosure,
written in a manner so as to be
understood by the average plan
participant, which--
(I) explains that the
lifetime income stream
equivalent is only provided as
an illustration;
(II) explains that the actual
payments under the lifetime
income stream described in
clause (i)(III) which may be
purchased with the total
benefits accrued will depend on
numerous factors and may vary
substantially from the lifetime
income stream equivalent in the
disclosures;
(III) explains the
assumptions upon which the
lifetime income stream
equivalent was determined; and
(IV) provides such other
similar explanations as the
Secretary considers
appropriate.
(iii) Assumptions and rules.--Not
later than 1 year after the date of the
enactment of the Setting Every
Community Up for Retirement Enhancement
Act of 2019, the Secretary shall--
(I) prescribe assumptions
which administrators of
individual account plans may
use in converting total accrued
benefits into lifetime income
stream equivalents for purposes
of this subparagraph; and
(II) issue interim final
rules under clause (i).
In prescribing assumptions under
subclause (I), the Secretary may
prescribe a single set of specific
assumptions (in which case the
Secretary may issue tables or factors
which facilitate such conversions), or
ranges of permissible assumptions. To
the extent that an accrued benefit is
or may be invested in a lifetime income
stream described in clause (i)(III),
the assumptions prescribed under
subclause (I) shall, to the extent
appropriate, permit administrators of
individual account plans to use the
amounts payable under such lifetime
income stream as a lifetime income
stream equivalent.
(iv) Limitation on liability.--No
plan fiduciary, plan sponsor, or other
person shall have any liability under
this title solely by reason of the
provision of lifetime income stream
equivalents which are derived in
accordance with the assumptions and
rules described in clause (iii) and
which include the explanations
contained in the model lifetime income
disclosure described in clause (ii).
This clause shall apply without regard
to whether the provision of such
lifetime income stream equivalent is
required by subparagraph (B)(iii).
(v) Effective date.--The requirement
in subparagraph (B)(iii) shall apply to
pension benefit statements furnished
more than 12 months after the latest of
the issuance by the Secretary of--
(I) interim final rules under
clause (i);
(II) the model disclosure
under clause (ii); or
(III) the assumptions under
clause (iii).
(E) Provision of paper statements.--With
respect to at least 1 pension benefit statement
furnished for a calendar year with respect to
an individual account plan under paragraph
(1)(A), and with respect to at least 1 pension
benefit statement furnished every 3 calendar
years with respect to a defined benefit plan
under paragraph (1)(B), such statement shall be
furnished on paper in written form except--
(i) in the case of a plan that
furnishes such statement in accordance
with section 2520.104b-1(c) of title
29, Code of Federal Regulations; or
(ii) in the case of a plan that
permits a participant or beneficiary to
request that the statements referred to
in the matter preceding clause (i) be
furnished by electronic delivery, if
the participant or beneficiary requests
that such statements be delivered
electronically and the statements are
so delivered.
(3) Defined benefit plans.--
(A) Alternative notice.--In the case of a
defined benefit plan, the requirements of
paragraph (1)(B)(i) shall be treated as met
with respect to a participant if at least once
each year the administrator provides to the
participant notice of the availability of the
pension benefit statement and the ways in which
the participant may obtain such statement. Such
notice may be delivered in written, electronic,
or other appropriate form to the extent such
form is reasonably accessible to the
participant.
(B) Years in which no benefits accrue.--The
Secretary may provide that years in which no
employee or former employee benefits (within
the meaning of section 410(b) of the Internal
Revenue Code of 1986) under the plan need not
be taken into account in determining the 3-year
period under paragraph (1)(B)(i).
(b) Limitation on Number of Statements.--In no case shall a
participant or beneficiary of a plan be entitled to more than 1
statement described in subparagraph (A)(iii) or (B)(ii) of
subsection (a)(1), whichever is applicable, in any 12-month
period.
(c) Each administrator required to register under section
6057 of the Internal Revenue Code of 1986 shall, before the
expiration of the time prescribed for such registration,
furnish to each participant described in subsection (a)(2)(C)
of such section, an individual statement setting forth the
information with respect to such participant required to be
contained in the registration statement required by section
6057(a)(2) of such Code. Such statement shall also include a
notice to the participant of any benefits which are forfeitable
if the participant dies before a certain date.
* * * * * * *
SEC. 111. ELIMINATING UNNECESSARY PLAN REQUIREMENTS RELATED TO
UNENROLLED PARTICIPANTS.
(a) In General.--Notwithstanding any other provision of this
title, with respect to any individual account plan, no
disclosure, notice, or other plan document (other than the
notices and documents described in paragraphs (1) and (2))
shall be required to be furnished under this title to any
unenrolled participant if the unenrolled participant receives--
(1) an annual reminder notice of such participant's
eligibility to participate in such plan and any
applicable election deadlines under the plan; and
(2) any document requested by such participant which
the participant would be entitled to receive without
regard to this section.
(b) Unenrolled Participant.--For purposes of this section,
the term ``unenrolled participant'' means an employee who--
(1) is eligible to participate in an individual
account plan;
(2) has received all required notices, disclosures,
and other plan documents, including the summary plan
description, required to be furnished under this title
in connection with such participant's initial
eligibility to participate in such plan;
(3) is not participating in such plan; and
(4) does not have a balance in the plan.
For purposes of this section, any eligibility to participate in
the plan following any period for which such employee was not
eligible to participate shall be treated as initial
eligibility.
(c) Annual Reminder Notice.--For purposes of this section,
the term ``annual reminder notice'' means a notice provided in
accordance with section 2520.104b-1 of title 29, Code of
Federal Regulations (or any successor regulation), which--
(1) is furnished in connection with the annual open
season election period with respect to the plan or, if
there is no such period, is furnished within a
reasonable period prior to the beginning of each plan
year;
(2) notifies the unenrolled participant of--
(A) the unenrolled participant's eligibility
to participate in the plan; and
(B) the key benefits under the plan and the
key rights and features under the plan
affecting such benefits; and
(3) provides such information in a prominent manner
calculated to be understood by the average participant.
repeal and effective date
Sec. [111.] 112. (a)(1) The Welfare and Pension Plans
Disclosure Act is repealed except that such Act shall continue
to apply to any conduct and events which occurred before the
effective date of this part.
(2)
(b)(1) Except as provided in paragraph (2), this part
(including the amendments and repeals made by subsection (a))
shall take effect on January 1, 1975.
(2) In the case of a plan which has a plan year which begins
before January 1, 1975, and ends after December 31, 1974, the
Secretary may postpone by regulation the effective date of the
repeal of any provision of the Welfare and Pension Plans
Disclosure Act (and of any amendment made by subsection (a)(2))
and the effective date of any provision of this part, until the
beginning of the first plan year of such plan which begins
after January 1, 1975.
(c) The provisions of this title authorizing the Secretary to
promulgate regulations shall take effect on the date of
enactment of this Act.
(d) Subsections (b) and (c) shall not apply with respect to
amendments made to this part in provisions enacted after the
date of the enactment of this Act.
Part 2--Participation and Vesting
* * * * * * *
MINIMUM VESTING STANDARDS
Sec. 203. (a) Each pension plan shall provide that an
employee's right to his normal retirement benefit is
nonforfeitable upon the attainment of normal retirement age and
in addition shall satisfy the requirements of paragraphs (1)
and (2) of this subsection.
(1) A plan satisfies the requirements of this
paragraph if an employee's rights in his accrued
benefit derived from his own contributions are
nonforfeitable.
(2)(A)(i) In the case of a defined benefit plan, a
plan satisfies the requirements of this paragraph if it
satisfies the requirements of clause (ii) or (iii).
(ii) A plan satisfies the requirements of this clause
if an employee who has completed at least 5 years of
service has a nonforfeitable right to 100 percent of
the employee's accrued benefit derived from employer
contributions.
(iii) A plan satisfies the requirements of this
clause if an employee has a nonforfeitable right to a
percentage of the employee's accrued benefit derived
from employer contributions determined under the
following table:
Years of service: The nonforfeitable
percentage is:
3............................................................. 20
4............................................................. 40
5............................................................. 60
6............................................................. 80
7 or more..................................................... 100.
(B)(i) In the case of an individual account plan, a
plan satisfies the requirements of this paragraph if it
satisfies the requirements of clause (ii) or (iii).
(ii) A plan satisfies the requirements of this clause
if an employee who has completed at least 3 years of
service has a nonforfeitable right to 100 percent of
the employee's accrued benefit derived from employer
contributions.
(iii) A plan satisfies the requirements of this
clause if an employee has a nonforfeitable right to a
percentage of the employee's accrued benefit derived
from employer contributions determined under the
following table:
Years of service: The nonforfeitable
percentage is:
2............................................................. 20
3............................................................. 40
4............................................................. 60
5............................................................. 80
6 or more..................................................... 100.
(3)(A) A right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because the plan provides that it is
not payable if the participant dies (except in the case
of a survivor annuity which is payable as provided in
section 205).
(B) A right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because the plan provides that the
payment of benefits is suspended for such period as the
employee is employed, subsequent to the commencement of
payment of such benefits--
(i) in the case of a plan other than a
multiemployer plan, by an employer who
maintains the plan under which such benefits
were being paid; and
(ii) in the case of a multiemployer plan, in
the same industry, in the same trade or craft,
and the same geographic area covered by the
plan, as when such benefits commenced.
The Secretary shall prescribe such regulations as may
be necessary to carry out the purposes of this
subparagraph, including regulations with respect to the
meaning of the term ``employed''.
(C) A right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because plan amendments may be given
retroactive application as provided in section
302(d)(2).
(D)(i) A right to an accrued benefit derived from
employer contributions shall not be treated as
forfeitable solely because the plan provides that, in
the case of a participant who does not have a
nonforfeitable right to at least 50 percent of his
accrued benefit derived from employer contributions,
such accrued benefit may be forfeited on account of the
withdrawal by the participant of any amount
attributable to the benefit derived from mandatory
contributions (as defined in the last sentence of
section 204(c)(2)(C)) made by such participant.
(ii) Clause (i) shall not apply to a plan unless the
plan provides that any accrued benefit forfeited under
a plan provision described in such clause shall be
restored upon repayment by the participant of the full
amount of the withdrawal described in such clause plus,
in the case of a defined benefit plan, interest. Such
interest shall be computed on such amount at the rate
determined for purposes of section 204(c)(2)(C) (if
such subsection applies) on the date of such repayment
(computed annually from the date of such withdrawal).
The plan provision required under this clause may
provide that such repayment must be made (I) in the
case of a withdrawal on account of separation from
service, before the earlier of 5 years after the first
date on which the participant is subsequently re-
employed by the employer, or the close of the first
period of 5 consecutive 1-year breaks in service
commencing after the withdrawal; or (II) in the case of
any other withdrawal, 5 years after the date of the
withdrawal.
(iii) In the case of accrued benefits derived from
employer contributions which accrued before the date of
the enactment of this Act, a right to such accrued
benefit derived from employer contributions shall not
be treated as forfeitable solely because the plan
provides that an amount of such accrued benefit may be
forfeited on account of the withdrawal by the
participant of an amount attributable to the benefit
derived from mandatory contributions, made by such
participant before the date of the enactment of this
Act if such amount forfeited is proportional to such
amount withdrawn. This clause shall not apply to any
plan to which any mandatory contribution is made after
the date of the enactment of this Act. The Secretary of
the Treasury shall prescribe such regulations as may be
necessary to carry out the purposes of this clause.
(iv) For purposes of this subparagraph, in the case
of any class-year plan, a withdrawal of employee
contributions shall be treated as a withdrawal of such
contributions on a plan year by plan year basis in
succeeding order of time.
(v) Cross Reference.--For nonforfeitability where the
employee has a nonforfeitable right to at least 50
percent of his accrued benefit, see section 206(c).
(E)(i) A right to an accrued benefit derived from
employer contributions under a multiemployer plan shall
not be treated as forfeitable solely because the plan
provides that benefits accrued as a result of service
with the participant's employer before the employer had
an obligation to contribute under the plan may not be
payable if the employer ceases contributions to the
multiemployer plan.
(ii) A participant's right to an accrued benefit
derived from employer contributions under a
multiemployer plan shall not be treated as forfeitable
solely because--
(I) the plan is amended to reduce benefits
under section 4244A or 4281, or
(II) benefit payments under the plan may be
suspended under section 4245 or 4281.
(F) A matching contribution (within the meaning of
section 401(m) of the Internal Revenue Code of 1986)
shall not be treated as forfeitable merely because such
contribution is forfeitable if the contribution to
which the matching contribution relates is treated as
an excess contribution under section 401(k)(8)(B) of
such Code, an excess deferral under section
402(g)(2)(A) of such Code, an erroneous automatic
contribution under section 414(w) of such Code, or an
excess aggregate contribution under section
401(m)(6)(B) of such Code.
(b)(1) In computing the period of service under the plan for
purposes of determining the nonforfeitable percentage under
subsection (a)(2), all of an employee's years of service with
the employer or employers maintaining the plan shall be taken
into account, except that the following may be disregarded:
(A) years of service before age 18,
(B) years of service during a period for which the
employee declined to contribute to a plan requiring
employee contributions;
(C) years of service with an employer during any
period for which the employer did not maintain the plan
or a predecessor plan, defined by the Secretary of the
Treasury;
(D) service not required to be taken into account
under paragraph (3);
(E) years of service before January 1, 1971, unless
the employee has had at least 3 years of service after
December 31, 1970;
(F) years of service before this part first applies
to the plan if such service would have been disregarded
under the rules of the plan with regard to breaks in
service, as in effect on the applicable date; and
(G) in the case of a multiemployer plan, years of
service--
(i) with an employer after--
(I) a complete withdrawal of such
employer from the plan (within the
meaning of section 4203), or
(II) to the extent permitted by
regulations prescribed by the Secretary
of the Treasury, a partial withdrawal
described in section 4205(b)(2)(A)(i)
of this title in connection with the
decertification of the collective
bargaining representative; and
(ii) with any employer under the plan after
the termination date of the plan under section
4048.
(2)(A) For purposes of this section, except as provided in
subparagraph (C), the term ``year of service'' means a calendar
year, plan year, or other 12-consecutive month period
designated by the plan (and not prohibited under regulations
prescribed by the Secretary) during which the participant has
completed 1,000 hours of service.
(B) For purposes of this section, the term ``hour of
service'' has the meaning provided by section 202(a)(3)(C).
(C) In the case of any seasonal industry where the customary
period of employment is less than 1,000 hours during a calendar
year, the term ``year of service'' shall be such period as
determined under regulations of the Secretary.
(D) For purposes of this section, in the case of any maritime
industry, 125 days of service shall be treated as 1,000 hours
of service. The Secretary may prescribe regulations to carry
out the purposes of this subparagraph.
(3)(A) For purposes of this paragraph, the term ``1-year
break in service'' means a calendar year, plan year, or other
12-consecutive-month period designated by the plan (and not
prohibited under regulations prescribed by the Secretary)
during which the participant has not completed more than 500
hours of service.
(B) For purposes of paragraph (1), in the case of any
employee who has any 1-year break in service, years of service
before such break shall not be required to be taken into
account until he has completed a year of service after his
return.
(C) For purposes of paragraph (1), in the case of any
participant in an individual account plan or an insured defined
benefit plan which satisfies the requirements of subsection
204(b)(1)(F) who has 5 consecutive 1-year breaks in service,
years of service after such 5-year period shall not be required
to be taken into account for purposes of determining the
nonforfeitable percentage of his accrued benefit derived from
employer contributions which accrued before such break.
(D)(i) For purposes of paragraph (1), in the case of a
nonvested participant, years of service with the employer or
employers maintaining the plan before any period of consecutive
1-year breaks in service shall not be required to be taken into
account if the number of consecutive 1-year breaks in service
within such period equals or exceeds the greater of--
(I) 5, or
(II) the aggregate number of years of service before
such period.
(ii) If any years of service are not required to be taken
into account by reason of a period of breaks in service to
which clause (i) applies, such years of service shall not be
taken into account in applying clause (i) to a subsequent
period of breaks in service.
(iii) For purposes of clause (i), the term ``nonvested
participant'' means a participant who does not have any
nonforfeitable right under the plan to an accrued benefit
derived from employer contributions.
(E)(i) In the case of each individual who is absent from work
for any period--
(I) by reason of the pregnancy of the individual,
(II) by reason of the birth of a child of the
individual,
(III) by reason of the placement of a child with the
individual in connection with the adoption of such
child by such individual, or
(IV) for purposes of caring for such child for a
period beginning immediately following such birth or
placement,
the plan shall treat as hours of service, solely for
purposes of determining under this paragraph whether a
1-year break in service has occurred, the hours
described in clause (ii).
(ii) The hours described in this clause are--
(I) the hours of service which otherwise would
normally have been credited to such individual but for
such absence, or
(II) in any case in which the plan is unable to
determine the hours described in subclause (I), 8 hours
of service per day of absence,
except that the total number of hours treated as hours of
service under this clause by reason of such pregnancy or
placement shall not exceed 501 hours.
(iii) The hours described in clause (ii) shall be treated as
hours of service as provided in this subparagraph--
(I) only in the year in which the absence from work
begins, if a participant would be prevented from
incurring a 1-year break in service in such year solely
because the period of absence is treated as hours of
service as provided in clause (i); or
(II) in any other case, in the immediately following
year.
(iv) For purposes of this subparagraph, the term ``year''
means the period used in computations pursuant to paragraph
(2).
(v) A plan may provide that no credit will be given pursuant
to this subparagraph unless the individual furnishes to the
plan administrator such timely information as the plan may
reasonably require to establish--
(I) that the absence from work is for reasons
referred to in clause (i), and
(II) the number of days for which there was such an
absence.
(4) Cross References.--
(A) For definitions of ``accrued benefit'' and
``normal retirement age'', see sections 3(23) and (24).
(B) For effect of certain cash out distributions, see
section 204(d)(1).
(c)(1)(A) A plan amendment changing any vesting schedule
under this plan shall be treated as not satisfying the
requirements of subsection (a)(2) if the nonforfeitable
percentage of the accrued benefit derived from employer
contributions (determined as of the later of the date such
amendment is adopted, or the date such amendment becomes
effective) of any employee who is a participant in the plan is
less than such nonforfeitable percentage computed under the
plan without regard to such amendment.
(B) A plan amendment changing any vesting schedule under the
plan shall be treated as not satisfying the requirements of
subsection (a)(2) unless each participant having not less than
3 years of service is permitted to elect, within a reasonable
period after adoption of such amendment, to have his
nonforfeitable percentage computed under the plan without
regard to such amendment.
(2) Subsection (a) shall not apply to benefits which may not
be provided for designated employees in the event of early
termination of the plan under provisions of the plan adopted
pursuant to regulations prescribed by the Secretary of the
Treasury to preclude the discrimination prohibited by section
401(a)(4) of the Internal Revenue Code of 1986.
(d) A pension plan may allow for nonforfeitable benefits
after a lesser period and in greater amounts than are required
by this part.
(e)(1) If the present value of any nonforfeitable benefit
with respect to a participant in a plan exceeds [$5,000]
$6,000, the plan shall provide that such benefit may not be
immediately distributed without the consent of the participant.
(2) For purposes of paragraph (1), the present value
shall be calculated in accordance with section
205(g)(3).
(3) This subsection shall not apply to any distribution of
dividends to which section 404(k) of the Internal Revenue Code
of 1986 applies.
(4) A plan shall not fail to meet the requirements of this
subsection if, under the terms of the plan, the present value
of the nonforfeitable accrued benefit is determined without
regard to that portion of such benefit which is attributable to
rollover contributions (and earnings allocable thereto). For
purposes of this subparagraph, the term ``rollover
contributions'' means any rollover contribution under sections
402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16)
of the Internal Revenue Code of 1986.
(f) Special Rules for Plans Computing Accrued Benefits by
Reference to Hypothetical Account Balance or Equivalent
Amounts.--
(1) In general.--An applicable defined benefit plan
shall not be treated as failing to meet--
(A) subject to paragraph (2), the
requirements of subsection (a)(2), or
(B) the requirements of section 204(c) or
205(g), or the requirements of subsection (e),
with respect to accrued benefits derived from
employer contributions,
solely because the present value of the accrued benefit
(or any portion thereof) of any participant is, under
the terms of the plan, equal to the amount expressed as
the balance in the hypothetical account described in
paragraph (3) or as an accumulated percentage of the
participant's final average compensation.
(2) 3-year vesting.--In the case of an applicable
defined benefit plan, such plan shall be treated as
meeting the requirements of subsection (a)(2) only if
an employee who has completed at least 3 years of
service has a nonforfeitable right to 100 percent of
the employee's accrued benefit derived from employer
contributions.
(3) Applicable defined benefit plan and related
rules.--For purposes of this subsection--
(A) In general.--The term ``applicable
defined benefit plan'' means a defined benefit
plan under which the accrued benefit (or any
portion thereof) is calculated as the balance
of a hypothetical account maintained for the
participant or as an accumulated percentage of
the participant's final average compensation.
(B) Regulations to include similar plans.--
The Secretary of the Treasury shall issue
regulations which include in the definition of
an applicable defined benefit plan any defined
benefit plan (or any portion of such a plan)
which has an effect similar to an applicable
defined benefit plan.
* * * * * * *
other provisions relating to form and payment of benefits
Sec. 206. (a) Each pension plan shall provide that unless the
participant otherwise elects, the payment of benefits under the
plan to the participant shall begin not later than the 60th day
after the latest of the close of the plan year in which--
(1) occurs the date on which the participant attains
the earlier of age 65 or the normal retirement age
specified under the plan,
(2) occurs the 10th anniversary of the year in which
the participant commenced participation in the plan, or
(3) the participant terminates his service with the
employer.
In the case of a plan which provides for the payment of an
early retirement benefit, such plan shall provide that a
participant who satisfied the service requirements for such
early retirement benefit, but separated from the service (with
any nonforfeitable right to an accrued benefit) before
satisfying the age requirement for such early retirement
benefit, is entitled upon satisfaction of such age requirement
to receive a benefit not less than the benefit to which he
would be entitled at the normal retirement age, actuarially
reduced under regulations prescribed by the Secretary of the
Treasury.
(b) If--
(1) a participant or beneficiary is receiving
benefits under a pension plan, or
(2) a participant is separated from the service and
has non-forfeitable rights to benefits,
a plan may not decrease benefits of such a participant by
reason of any increase in the benefit levels payable under
title II of the Social Security Act or the Railroad Retirement
Act of 1937 or any increase in the wage base under such title
II, if such increase takes place after the date of the
enactment of this Act or (if later) the earlier of the date of
first entitlement of such benefits or the date of such
separation.
(c) No pension plan may provide that any part of a
participant's accrued benefit derived from employer
contributions (whether or not otherwise nonforfeitable) is
forfeitable solely because of withdrawal by such participant of
any amount attributable to the benefit derived from
contributions made by such participant. The preceding sentence
shall not apply (1) to the accrued benefit of any participant
unless, at the time of such withdrawal, such participant has a
nonforfeitable right to at least 50 percent of such accrued
benefit, or (2) to the extent that an accrued benefit is
permitted to be forfeited in accordance with section
203(a)(3)(D)(iii).
(d)(1) Each pension plan shall provide that benefits provided
under the plan may not be assigned or alienated.
(2) For the purposes of paragraph (1) of this subsection,
there shall not be taken into account any voluntary and
revocable assignment of not to exceed 10 percent of any benefit
payment, or of any irrevocable assignment or alienation of
benefits executed before the date of enactment of this Act. The
preceding sentence shall not apply to any assignment or
alienation made for the purposes of defraying plan
administration costs. For purposes of this paragraph a loan
made to a participant or beneficiary shall not be treated as an
assignment or alienation if such loan is secured by the
participant's accrued nonforfeitable benefit and is exempt from
the tax imposed by section 4975 of the Internal Revenue Code of
1986 (relating to tax on prohibited transactions) by reason of
section 4975(d)(1) of such Code.
(3)(A) Paragraph (1) shall apply to the creation, assignment,
or recognition of a right to any benefit payable with respect
to a participant pursuant to a domestic relations order, except
that paragraph (1) shall not apply if the order is determined
to be a qualified domestic relations order. Each pension plan
shall provide for the payment of benefits in accordance with
the applicable requirements of any qualified domestic relations
order.
(B) For purposes of this paragraph--
(i) the term ``qualified domestic relations order''
means a domestic relations order--
(I) which creates or recognizes the existence
of an alternate payee's right to, or assigns to
an alternate payee the right to, receive all or
a portion of the benefits payable with respect
to a participant under a plan, and
(II) with respect to which the requirements
of subparagraphs (C) and (D) are met, and
(ii) the term ``domestic relations order'' means any
judgment, decree, or order (including approval of a
property settlement agreement) which--
(I) relates to the provision of child
support, alimony payments, or marital property
rights to a spouse, former spouse, child, or
other dependent of a participant, and
(II) is made pursuant to a State domestic
relations law (including a community property
law).
(C) A domestic relations order meets the requirements of this
subparagraph only if such order clearly specifies--
(i) the name and the last known mailing address (if
any) of the participant and the name and mailing
address of each alternate payee covered by the order,
(ii) the amount or percentage of the participant's
benefits to be paid by the plan to each such alternate
payee, or the manner in which such amount or percentage
is to be determined,
(iii) the number of payments or period to which such
order applies, and
(iv) each plan to which such order applies.
(D) A domestic relations order meets the requirements of this
subparagraph only if such order--
(i) does not require a plan to provide any type or
form of benefit, or any option, not otherwise provided
under the plan,
(ii) does not require the plan to provide increased
benefits (determined on the basis of actuarial value),
and
(iii) does not require the payment of benefits to an
alternate payee which are required to be paid to
another alternate payee under another order previously
determined to be a qualified domestic relations order.
(E)(i) A domestic relations order shall not be treated as
failing to meet the requirements of clause (i) of subparagraph
(D) solely because such order requires that payment of benefits
be made to an alternate payee--
(I) in the case of any payment before a participant
has separated from service, on or after the date on
which the participant attains (or would have attained)
the earliest retirement age,
(II) as if the participant had retired on the date on
which such payment is to begin under such order (but
taking into account only the present value of benefits
actually accrued and not taking into account the
present value of any employer subsidy for early
retirement), and
(III) in any form in which such benefits may be paid
under the plan to the participant (other than in the
form of a joint and survivor annuity with respect to
the alternate payee and his or her subsequent spouse).
For purposes of subclause (II), the interest rate
assumption used in determining the present value shall
be the interest rate specified in the plan or, if no
rate is specified, 5 percent.
(ii) For purposes of this subparagraph, the term ``earliest
retirement age'' means the earlier of--
(I) the date on which the participant is entitled to
a distribution under the plan, or
(II) the later of the date of the participant attains
age 50 or the earliest date on which the participant
could begin receiving benefits under the plan if the
participant separated from service.
(F) To the extent provided in any qualified domestic
relations order--
(i) the former spouse of a participant shall be
treated as a surviving spouse of such participant for
purposes of section 205 (and any spouse of the
participant shall not be treated as a spouse of the
participant for such purposes), and
(ii) if married for at least 1 year, the surviving
former spouse shall be treated as meeting the
requirements of section 205(f).
(G)(i) In the case of any domestic relations order received
by a plan--
(I) the plan administrator shall promptly notify the
participant and each alternate payee of the receipt of
such order and the plan's procedures for determining
the qualified status of domestic relations orders, and
(II) within a reasonable period after receipt of such
order, the plan administrator shall determine whether
such order is a qualified domestic relations order and
notify the participant and each alternate payee of such
determination.
(ii) Each plan shall establish reasonable procedures to
determine the qualified status of domestic relations orders and
to administer distributions under such qualified orders. Such
procedures--
(I) shall be in writing,
(II) shall provide for the notification of each
person specified in a domestic relations order as
entitled to payment of benefits under the plan (at the
address included in the domestic relations order) of
such procedures promptly upon receipt by the plan of
the domestic relations order, and
(III) shall permit an alternate payee to designate a
representative for receipt of copies of notices that
are sent to the alternate payee with respect to a
domestic relations order.
(H)(i) During any period in which the issue of whether a
domestic relations order is a qualified domestic relations
order is being determined (by the plan administrator, by a
court of competent jurisdiction, or otherwise), the plan
administrator shall separately account for the amounts
(hereinafter in this subparagraph referred to as the
``segregated amounts'') which would have been payable to the
alternate payee during such period if the order had been
determined to be a qualified domestic relations order.
(ii) If within the 18-month period described in clause (v)
the order (or modification thereof) is determined to be a
qualified domestic relations order, the plan administrator
shall pay the segregated amounts (including any interest
thereon) to the person or persons entitled thereto.
(iii) If within the 18-month period described in clause (v)--
(I) it is determined that the order is not a
qualified domestic relations order, or
(II) the issue as to whether such order is a
qualified domestic relations order is not resolved,
then the plan administrator shall pay the segregated amounts
(including any interest thereon) to the person or persons who
would have been entitled to such amounts if there had been no
order.
(iv) Any determination that an order is a qualified domestic
relations order which is made after the close of the 18-month
period described in clause (v) shall be applied prospectively
only.
(v) For purposes of this subparagraph, the 18-month period
described in this clause is the 18-month period beginning with
the date on which the first payment would be required to be
made under the domestic relations order.
(I) If a plan fiduciary acts in accordance with part 4 of
this subtitle in--
(i) treating a domestic relations order as being (or
not being) a qualified domestic relations order, or
(ii) taking action under subparagraph (H),
then the plan's obligation to the participant and each
alternate payee shall be discharged to the extent of any
payment made pursuant to such Act.
(J) A person who is an alternate payee under a qualified
domestic relations order shall be considered for purposes of
any provision of this Act a beneficiary under the plan. Nothing
in the preceding sentence shall permit a requirement under
section 4001 of the payment of more than 1 premium with respect
to a participant for any period.
(K) The term ``alternate payee'' means any spouse, former
spouse, child, or other dependent of a participant who is
recognized by a domestic relations order as having a right to
receive all, or a portion of, the benefits payable under a plan
with respect to such participant.
(L) This paragraph shall not apply to any plan to which
paragraph (1) does not apply.
(M) Payment of benefits by a pension plan in accordance with
the applicable requirements of a qualified domestic relations
order shall not be treated as garnishment for purposes of
section 303(a) of the Consumer Credit Protection Act.
(N) In prescribing regulations under this paragraph, the
Secretary shall consult with the Secretary of the Treasury.
(4) Paragraph (1) shall not apply to any offset of a
participant's benefits provided under an employee pension
benefit plan against an amount that the participant is ordered
or required to pay to the plan if--
(A) the order or requirement to pay arises--
(i) under a judgment of conviction for a
crime involving such plan,
(ii) under a civil judgment (including a
consent order or decree) entered by a court in
an action brought in connection with a
violation (or alleged violation) of part 4 of
this subtitle, or
(iii) pursuant to a settlement agreement
between the Secretary and the participant, or a
settlement agreement between the Pension
Benefit Guaranty Corporation and the
participant, in connection with a violation (or
alleged violation) of part 4 of this subtitle
by a fiduciary or any other person,
(B) the judgment, order, decree, or settlement
agreement expressly provides for the offset of all or
part of the amount ordered or required to be paid to
the plan against the participant's benefits provided
under the plan, and
(C) in a case in which the survivor annuity
requirements of section 205 apply with respect to
distributions from the plan to the participant, if the
participant has a spouse at the time at which the
offset is to be made--
(i) either--
(I) such spouse has consented in
writing to such offset and such consent
is witnessed by a notary public or
representative of the plan (or it is
established to the satisfaction of a
plan representative that such consent
may not be obtained by reason of
circumstances described in section
205(c)(2)(B)), or
(II) an election to waive the right
of the spouse to a qualified joint and
survivor annuity or a qualified
preretirement survivor annuity is in
effect in accordance with the
requirements of section 205(c),
(ii) such spouse is ordered or required in
such judgment, order, decree, or settlement to
pay an amount to the plan in connection with a
violation of part 4 of this subtitle, or
(iii) in such judgment, order, decree, or
settlement, such spouse retains the right to
receive the survivor annuity under a qualified
joint and survivor annuity provided pursuant to
section 205(a)(1) and under a qualified
preretirement survivor annuity provided
pursuant to section 205(a)(2), determined in
accordance with paragraph (5).
A plan shall not be treated as failing to meet the requirements
of section 205 solely by reason of an offset under this
paragraph.
(5)(A) The survivor annuity described in paragraph
(4)(C)(iii) shall be determined as if--
(i) the participant terminated employment on the date
of the offset,
(ii) there was no offset,
(iii) the plan permitted commencement of benefits
only on or after normal retirement age,
(iv) the plan provided only the minimum-required
qualified joint and survivor annuity, and
(v) the amount of the qualified preretirement
survivor annuity under the plan is equal to the amount
of the survivor annuity payable under the minimum-
required qualified joint and survivor annuity.
(B) For purposes of this paragraph, the term ``minimum-
required qualified joint and survivor annuity'' means the
qualified joint and survivor annuity which is the actuarial
equivalent of the participant's accrued benefit (within the
meaning of section 3(23)) and under which the survivor annuity
is 50 percent of the amount of the annuity which is payable
during the joint lives of the participant and the spouse.
(e) Limitation on Distributions Other Than Life Annuities
Paid By The Plan.--
(1) In general.--Notwithstanding any other provision
of this part, the fiduciary of a pension plan that is
subject to the additional funding requirements of
section 303(j)(4) shall not permit a prohibited payment
to be made from a plan during a period in which such
plan has a liquidity shortfall (as defined in section
303(j)(4)(E)(i)).
(2) Prohibited payment.--For purposes of paragraph
(1), the term ``prohibited payment'' means--
(A) any payment, in excess of the monthly
amount paid under a single life annuity (plus
any social security supplements described in
the last sentence of section 204(b)(1)(G)), to
a participant or beneficiary whose annuity
starting date (as defined in section
205(h)(2)), that occurs during the period
referred to in paragraph (1),
(B) any payment for the purchase of an
irrevocable commitment from an insurer to pay
benefits, and
(C) any other payment specified by the
Secretary of the Treasury by regulations.
(3) Period of shortfall.--For purposes of this
subsection, a plan has a liquidity shortfall during the
period that there is an underpayment of an installment
under section 303(j)(3) by reason of section
303(j)(4)(A).
(4) Coordination with other provisions.--Compliance
with this subsection shall not constitute a violation
of any other provision of this Act.
(f) Missing Participants in Terminated Plans.--In the case of
a plan covered by section 4050, upon termination of the plan,
benefits of missing participants shall be treated in accordance
with section 4050.
(g) Funding-Based Limits on Benefits and Benefit Accruals
Under Single-Employer Plans.--
(1) Funding-based limitation on shutdown benefits and
other unpredictable contingent event benefits under
single-employer plans.--
(A) In general.--If a participant of a
defined benefit plan which is a single-employer
plan is entitled to an unpredictable contingent
event benefit payable with respect to any event
occurring during any plan year, the plan shall
provide that such benefit may not be provided
if the adjusted funding target attainment
percentage for such plan year--
(i) is less than 60 percent, or
(ii) would be less than 60 percent
taking into account such occurrence.
(B) Exemption.--Subparagraph (A) shall cease
to apply with respect to any plan year,
effective as of the first day of the plan year,
upon payment by the plan sponsor of a
contribution (in addition to any minimum
required contribution under section 303) equal
to--
(i) in the case of subparagraph
(A)(i), the amount of the increase in
the funding target of the plan (under
section 303) for the plan year
attributable to the occurrence referred
to in subparagraph (A), and
(ii) in the case of subparagraph
(A)(ii), the amount sufficient to
result in an adjusted funding target
attainment percentage of 60 percent.
(C) Unpredictable contingent event benefit.--
For purposes of this paragraph, the term
``unpredictable contingent event benefit''
means any benefit payable solely by reason of--
(i) a plant shutdown (or similar
event, as determined by the Secretary
of the Treasury), or
(ii) an event other than the
attainment of any age, performance of
any service, receipt or derivation of
any compensation, or occurrence of
death or disability.
(2) Limitations on plan amendments increasing
liability for benefits.--
(A) In general.--No amendment to a defined
benefit plan which is a single-employer plan
which has the effect of increasing liabilities
of the plan by reason of increases in benefits,
establishment of new benefits, changing the
rate of benefit accrual, or changing the rate
at which benefits become nonforfeitable may
take effect during any plan year if the
adjusted funding target attainment percentage
for such plan year is--
(i) less than 80 percent, or
(ii) would be less than 80 percent
taking into account such amendment.
(B) Exemption.--Subparagraph (A) shall cease
to apply with respect to any plan year,
effective as of the first day of the plan year
(or if later, the effective date of the
amendment), upon payment by the plan sponsor of
a contribution (in addition to any minimum
required contribution under section 303) equal
to--
(i) in the case of subparagraph
(A)(i), the amount of the increase in
the funding target of the plan (under
section 303) for the plan year
attributable to the amendment, and
(ii) in the case of subparagraph
(A)(ii), the amount sufficient to
result in an adjusted funding target
attainment percentage of 80 percent.
(C) Exception for certain benefit
increases.--Subparagraph (A) shall not apply to
any amendment which provides for an increase in
benefits under a formula which is not based on
a participant's compensation, but only if the
rate of such increase is not in excess of the
contemporaneous rate of increase in average
wages of participants covered by the amendment.
(3) Limitations on accelerated benefit
distributions.--
(A) Funding percentage less than 60
percent.--A defined benefit plan which is a
single-employer plan shall provide that, in any
case in which the plan's adjusted funding
target attainment percentage for a plan year is
less than 60 percent, the plan may not pay any
prohibited payment after the valuation date for
the plan year.
(B) Bankruptcy.--A defined benefit plan which
is a single-employer plan shall provide that,
during any period in which the plan sponsor is
a debtor in a case under title 11, United
States Code, or similar Federal or State law,
the plan may not pay any prohibited payment.
The preceding sentence shall not apply on or
after the date on which the enrolled actuary of
the plan certifies that the adjusted funding
target attainment percentage of such plan
(determined by not taking into account any
adjustment of segment rates under section
303(h)(2)(C)(iv)) is not less than 100 percent.
(C) Limited payment if percentage at least 60
percent but less than 80 percent.--
(i) In general.--A defined benefit
plan which is a single-employer plan
shall provide that, in any case in
which the plan's adjusted funding
target attainment percentage for a plan
year is 60 percent or greater but less
than 80 percent, the plan may not pay
any prohibited payment after the
valuation date for the plan year to the
extent the amount of the payment
exceeds the lesser of--
(I) 50 percent of the amount
of the payment which could be
made without regard to this
subsection, or
(II) the present value
(determined under guidance
prescribed by the Pension
Benefit Guaranty Corporation,
using the interest and
mortality assumptions under
section 205(g)) of the maximum
guarantee with respect to the
participant under section 4022.
(ii) One-time application.--
(I) In general.--The plan
shall also provide that only 1
prohibited payment meeting the
requirements of clause (i) may
be made with respect to any
participant during any period
of consecutive plan years to
which the limitations under
either subparagraph (A) or (B)
or this subparagraph applies.
(II) Treatment of
beneficiaries.--For purposes of
this clause, a participant and
any beneficiary on his behalf
(including an alternate payee,
as defined in section
206(d)(3)(K)) shall be treated
as 1 participant. If the
accrued benefit of a
participant is allocated to
such an alternate payee and 1
or more other persons, the
amount under clause (i) shall
be allocated among such persons
in the same manner as the
accrued benefit is allocated
unless the qualified domestic
relations order (as defined in
section 206(d)(3)(B)(i))
provides otherwise.
(D) Exception.--This paragraph shall not
apply to any plan for any plan year if the
terms of such plan (as in effect for the period
beginning on September 1, 2005, and ending with
such plan year) provide for no benefit accruals
with respect to any participant during such
period.
(E) Prohibited payment.--For purpose of this
paragraph, the term ``prohibited payment''
means--
(i) any payment, in excess of the
monthly amount paid under a single life
annuity (plus any social security
supplements described in the last
sentence of section 204(b)(1)(G)), to a
participant or beneficiary whose
annuity starting date (as defined in
section 205(h)(2)) occurs during any
period a limitation under subparagraph
(A) or (B) is in effect,
(ii) any payment for the purchase of
an irrevocable commitment from an
insurer to pay benefits, and
(iii) any other payment specified by
the Secretary of the Treasury by
regulations.
Such term shall not include the payment of a
benefit which under section 203(e) may be
immediately distributed without the consent of
the participant.
(4) Limitation on benefit accruals for plans with
severe funding shortfalls.--
(A) In general.--A defined benefit plan which
is a single-employer plan shall provide that,
in any case in which the plan's adjusted
funding target attainment percentage for a plan
year is less than 60 percent, benefit accruals
under the plan shall cease as of the valuation
date for the plan year.
(B) Exemption.--Subparagraph (A) shall cease
to apply with respect to any plan year,
effective as of the first day of the plan year,
upon payment by the plan sponsor of a
contribution (in addition to any minimum
required contribution under section 303) equal
to the amount sufficient to result in an
adjusted funding target attainment percentage
of 60 percent.
(5) Rules relating to contributions required to avoid
benefit limitations.--
(A) Security may be provided.--
(i) In general.--For purposes of this
subsection, the adjusted funding target
attainment percentage shall be
determined by treating as an asset of
the plan any security provided by a
plan sponsor in a form meeting the
requirements of clause (ii).
(ii) Form of security.--The security
required under clause (i) shall consist
of--
(I) a bond issued by a
corporate surety company that
is an acceptable surety for
purposes of section 412 of this
Act,
(II) cash, or United States
obligations which mature in 3
years or less, held in escrow
by a bank or similar financial
institution, or
(III) such other form of
security as is satisfactory to
the Secretary of the Treasury
and the parties involved.
(iii) Enforcement.--Any security
provided under clause (i) may be
perfected and enforced at any time
after the earlier of--
(I) the date on which the
plan terminates,
(II) if there is a failure to
make a payment of the minimum
required contribution for any
plan year beginning after the
security is provided, the due
date for the payment under
section 303(j), or
(III) if the adjusted funding
target attainment percentage is
less than 60 percent for a
consecutive period of 7 years,
the valuation date for the last
year in the period.
(iv) Release of security.--The
security shall be released (and any
amounts thereunder shall be refunded
together with any interest accrued
thereon) at such time as the Secretary
of the Treasury may prescribe in
regulations, including regulations for
partial releases of the security by
reason of increases in the adjusted
funding target attainment percentage.
(B) Prefunding balance or funding standard
carryover balance may not be used.--No
prefunding balance or funding standard
carryover balance under section 303(f) may be
used under paragraph (1), (2), or (4) to
satisfy any payment an employer may make under
any such paragraph to avoid or terminate the
application of any limitation under such
paragraph.
(C) Deemed reduction of funding balances.--
(i) In general.--Subject to clause
(iii), in any case in which a benefit
limitation under paragraph (1), (2),
(3), or (4) would (but for this
subparagraph and determined without
regard to paragraph (1)(B), (2)(B), or
(4)(B)) apply to such plan for the plan
year, the plan sponsor of such plan
shall be treated for purposes of this
Act as having made an election under
section 303(f) to reduce the prefunding
balance or funding standard carryover
balance by such amount as is necessary
for such benefit limitation to not
apply to the plan for such plan year.
(ii) Exception for insufficient
funding balances.--Clause (i) shall not
apply with respect to a benefit
limitation for any plan year if the
application of clause (i) would not
result in the benefit limitation not
applying for such plan year.
(iii) Restrictions of certain rules
to collectively bargained plans.--With
respect to any benefit limitation under
paragraph (1), (2), or (4), clause (i)
shall only apply in the case of a plan
maintained pursuant to 1 or more
collective bargaining agreements
between employee representatives and 1
or more employers.
(6) New plans.--Paragraphs (1), (2), and (4) shall
not apply to a plan for the first 5 plan years of the
plan. For purposes of this paragraph, the reference in
this paragraph to a plan shall include a reference to
any predecessor plan.
(7) Presumed underfunding for purposes of benefit
limitations.--
(A) Presumption of continued underfunding.--
In any case in which a benefit limitation under
paragraph (1), (2), (3), or (4) has been
applied to a plan with respect to the plan year
preceding the current plan year, the adjusted
funding target attainment percentage of the
plan for the current plan year shall be
presumed to be equal to the adjusted funding
target attainment percentage of the plan for
the preceding plan year until the enrolled
actuary of the plan certifies the actual
adjusted funding target attainment percentage
of the plan for the current plan year.
(B) Presumption of underfunding after 10th
month.--In any case in which no certification
of the adjusted funding target attainment
percentage for the current plan year is made
with respect to the plan before the first day
of the 10th month of such year, for purposes of
paragraphs (1), (2), (3), and (4), such first
day shall be deemed, for purposes of such
paragraph, to be the valuation date of the plan
for the current plan year and the plan's
adjusted funding target attainment percentage
shall be conclusively presumed to be less than
60 percent as of such first day.
(C) Presumption of underfunding after 4th
month for nearly underfunded plans.--In any
case in which--
(i) a benefit limitation under
paragraph (1), (2), (3), or (4) did not
apply to a plan with respect to the
plan year preceding the current plan
year, but the adjusted funding target
attainment percentage of the plan for
such preceding plan year was not more
than 10 percentage points greater than
the percentage which would have caused
such paragraph to apply to the plan
with respect to such preceding plan
year, and
(ii) as of the first day of the 4th
month of the current plan year, the
enrolled actuary of the plan has not
certified the actual adjusted funding
target attainment percentage of the
plan for the current plan year,
until the enrolled actuary so certifies, such
first day shall be deemed, for purposes of such
paragraph, to be the valuation date of the plan
for the current plan year and the adjusted
funding target attainment percentage of the
plan as of such first day shall, for purposes
of such paragraph, be presumed to be equal to
10 percentage points less than the adjusted
funding target attainment percentage of the
plan for such preceding plan year.
(8) Treatment of plan as of close of prohibited or
cessation period.--For purposes of applying this part--
(A) Operation of plan after period.--Unless
the plan provides otherwise, payments and
accruals will resume effective as of the day
following the close of the period for which any
limitation of payment or accrual of benefits
under paragraph (3) or (4) applies.
(B) Treatment of affected benefits.--Nothing
in this paragraph shall be construed as
affecting the plan's treatment of benefits
which would have been paid or accrued but for
this subsection.
(9) Terms relating to funding target attainment
percentage.--For purposes of this subsection--
(A) In general.--The term ``funding target
attainment percentage'' has the same meaning
given such term by section 303(d)(2).
(B) Adjusted funding target attainment
percentage.--The term ``adjusted funding target
attainment percentage'' means the funding
target attainment percentage which is
determined under subparagraph (A) by increasing
each of the amounts under subparagraphs (A) and
(B) of section 303(d)(2) by the aggregate
amount of purchases of annuities for employees
other than highly compensated employees (as
defined in section 414(q) of the Internal
Revenue Code of 1986) which were made by the
plan during the preceding 2 plan years.
(C) Application to plans which are fully
funded without regard to reductions for funding
balances.--In the case of a plan for any plan
year, if the funding target attainment
percentage is 100 percent or more (determined
without regard to the reduction in the value of
assets under section 303(f)(4)), the funding
target attainment percentage for purposes of
subparagraphs (A) and (B) shall be determined
without regard to such reduction.
(10) Secretarial authority for plans with alternate
valuation date.--In the case of a plan which has
designated a valuation date other than the first day of
the plan year, the Secretary of the Treasury may
prescribe rules for the application of this subsection
which are necessary to reflect the alternate valuation
date.
(12) CSEC plans.--This subsection shall not apply to
a CSEC plan (as defined in section 210(f)).
(h) Special Rules Applicable to Benefit Overpayments.--
(1) General rule.--In the case of an inadvertent
benefit overpayment by any pension plan, the
responsible plan fiduciary shall not be considered to
have failed to comply with the requirements of this
title merely because such fiduciary determines, in the
exercise of its fiduciary discretion, not to seek
recovery of all or part of such overpayment from--
(A) any participant or beneficiary,
(B) any plan sponsor of, or contributing
employer to--
(i) an individual account plan,
provided that the amount needed to
prevent or restore any impermissible
forfeiture from any participant's or
beneficiary's account arising in
connection with the overpayment is,
separately from and independently of
the overpayment, allocated to such
account pursuant to the
nonforfeitability requirements of
section 203 (for example, out of the
plan's forfeiture account, additional
employer contributions, or recoveries
from those responsible for the
overpayment), or
(ii) a defined benefit pension plan
subject to the funding rules in part 3
of this subtitle B, unless the
responsible plan fiduciary determines,
in the exercise of its fiduciary
discretion, that failure to recover all
or part of the overpayment faster than
required under such funding rules would
materially affect the plan's ability to
pay benefits due to other participants
and beneficiaries, or
(C) any fiduciary of the plan, other than a
fiduciary (including a plan sponsor or
contributing employer acting in a fiduciary
capacity) whose breach of its fiduciary duties
resulted in such overpayment, provided that if
the plan has established prudent procedures to
prevent and minimize overpayment of benefits
and the relevant plan fiduciaries have followed
such procedures, an inadvertent benefit
overpayment will not give rise to a breach of
fiduciary duty.
(2) Reduction in future benefit payments and recovery
from responsible party.--Paragraph (1) shall not fail
to apply with respect to any inadvertent benefit
overpayment merely because, after discovering such
overpayment, the responsible plan fiduciary--
(A) reduces future benefit payments to the
correct amount provided for under the terms of
the plan, or
(B) seeks recovery from the person or persons
responsible for the overpayment.
(3) Employer funding obligations.--Nothing in this
subsection shall relieve an employer of any obligation
imposed on it to make contributions to a plan to meet
the minimum funding standards under part 3 of this
subtitle B or to prevent or restore an impermissible
forfeiture in accordance with section 203.
(4) Recoupment from participants and beneficiaries.--
If the responsible plan fiduciary, in the exercise of
its fiduciary discretion, decides to seek recoupment
from a participant or beneficiary of all or part of an
inadvertent benefit overpayment made by the plan to
such participant or beneficiary, it may do so, subject
to the following conditions:
(A) No interest or other additional amounts
(such as collection costs or fees) are sought
on overpaid amounts.
(B) If the plan seeks to recoup past
overpayments of a non-decreasing periodic
benefit by reducing future benefit payments--
(i) the reduction ceases after the
plan has recovered the full dollar
amount of the overpayment,
(ii) the amount recouped each
calendar year does not exceed 10
percent of the full dollar amount of
the overpayment, and
(iii) future benefit payments are not
reduced to below 90 percent of the
periodic amount otherwise payable under
the terms of the plan.
Alternatively, if the plan seeks to recoup past
overpayments of a non-decreasing periodic
benefit through one or more installment
payments, the sum of such installment payments
in any calendar year does not exceed the sum of
the reductions that would be permitted in such
year under the preceding sentence.
(C) If the plan seeks to recoup past
overpayments of a benefit other than a non-
decreasing periodic benefit, the plan satisfies
requirements developed by the Secretary of the
Treasury for purposes of this subparagraph.
(D) Efforts to recoup overpayments are not
made through a collection agency or similar
third party and such efforts are not
accompanied by threats of litigation, unless
the responsible plan fiduciary reasonably
believes it could prevail in a civil action
brought in Federal or State court to recoup the
overpayments.
(E) Recoupment of past overpayments to a
participant is not sought from any beneficiary
of the participant, including a spouse,
surviving spouse, former spouse, or other
beneficiary.
(F) Recoupment may not be sought if the first
overpayment occurred more than 3 years before
the participant or beneficiary is first
notified in writing of the error.
(G) A participant or beneficiary from whom
recoupment is sought is entitled to contest all
or part of the recoupment pursuant to the
plan's claims and appeals procedures.
(H) In determining the amount of recoupment
to seek, the responsible plan fiduciary may
take into account the hardship that recoupment
likely would impose on the participant or
beneficiary.
(5) Effect of culpability.--Subparagraphs (A) through
(F) of paragraph (4) shall not apply to protect a
participant or beneficiary who is culpable. For
purposes of this paragraph, a participant or
beneficiary is culpable if the individual bears
responsibility for the overpayment (such as through
misrepresentations or omissions that led to the
overpayment), or if the individual knew, or had good
reason to know under the circumstances, that the
benefit payment or payments were materially in excess
of the correct amount. Notwithstanding the preceding
sentence, an individual is not culpable merely because
the individual believed the benefit payment or payments
were or might be in excess of the correct amount, if
the individual raised that question with an authorized
plan representative and was told the payment or
payments were not in excess of the correct amount. With
respect to a culpable participant or beneficiary,
efforts to recoup overpayments shall not be made
through threats of litigation, unless a lawyer for the
plan could make the representations required under Rule
11 of the Federal Rules of Civil Procedure if the
litigation were brought in Federal court.
* * * * * * *
Part 4--Fiduciary Responsibility
* * * * * * *
FIDUCIARY DUTIES
Sec. 404. (a)(1) Subject to sections 403(c) and (d), 4042,
and 4044, a fiduciary shall discharge his duties with respect
to a plan solely in the interest of the participants and
beneficiaries and--
(A) for the exclusive purpose of:
(i) providing benefits to participants and
their beneficiaries; and
(ii) defraying reasonable expenses of
administering the plan;
(B) with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a
like character and with like aims;
(C) by diversifying the investments of the plan so as
to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so; and
(D) in accordance with the documents and instruments
governing the plan insofar as such documents and
instruments are consistent with the provisions of this
title and title IV.
(2) In the case of an eligible individual account plan (as
defined in section 407(d)(3)), the diversification requirement
of paragraph (1)(C) and the prudence requirement (only to the
extent that it requires diversification) of paragraph (1)(B) is
not violated by acquisition or holding of qualifying employer
real property or qualifying employer securities (as defined in
section 407(d)(4) and (5)).
(b) Except as authorized by the Secretary by regulation, no
fiduciary may maintain the indicia of ownership of any assets
of a plan outside the jurisdiction of the district courts of
the United States.
(c)(1)(A) In the case of a pension plan which provides for
individual accounts and permits a participant or beneficiary to
exercise control over assets in his account, if a participant
or beneficiary exercises control over the assets in his account
(as determined under regulations of the Secretary)--
(i) such participant or beneficiary shall not be
deemed to be a fiduciary by reason of such exercise,
and
(ii) no person who is otherwise a fiduciary shall be
liable under this part for any loss, or by reason of
any breach, which results from such participant's or
beneficiary's exercise of control, except that this
clause shall not apply in connection with such
participant or beneficiary for any blackout period
during which the ability of such participant or
beneficiary to direct the investment of the assets in
his or her account is suspended by a plan sponsor or
fiduciary.
(B) If a person referred to in subparagraph (A)(ii) meets the
requirements of this title in connection with authorizing and
implementing the blackout period, any person who is otherwise a
fiduciary shall not be liable under this title for any loss
occurring during such period.
(C) For purposes of this paragraph, the term ``blackout
period'' has the meaning given such term by section 101(i)(7).
(2) In the case of a simple retirement account
established pursuant to a qualified salary reduction
arrangement under section 408(p) of the Internal
Revenue Code of 1986, a participant or beneficiary
shall, for purposes of paragraph (1), be treated as
exercising control over the assets in the account upon
the earliest of--
(A) an affirmative election among investment
options with respect to the initial investment
of any contribution,
(B) a rollover to any other simple retirement
account or individual retirement plan, or
(C) one year after the simple retirement
account is established.
No reports, other than those required under section
101(g), shall be required with respect to a simple
retirement account established pursuant to such a
qualified salary reduction arrangement.
(3) In the case of a pension plan which makes a
transfer to an individual retirement account or annuity
of a designated trustee or issuer under section
401(a)(31)(B) of the Internal Revenue Code of 1986, the
participant or beneficiary shall, for purposes of
paragraph (1), be treated as exercising control over
the assets in the account or annuity upon--
(A) the earlier of--
(i) a rollover of all or a portion of
the amount to another individual
retirement account or annuity; or
(ii) one year after the transfer is
made; or
(B) a transfer that is made in a manner
consistent with guidance provided by the
Secretary[.], and, to the extent the Secretary
provides in guidance or regulations issued
after the enactment of the Securing a Strong
Retirement Act of 2021, is made to--
(i) a target date or life cycle fund
held under such account;
(ii) as described in section
2550.404a-2 of title 29, Code of
Federal Regulations, an investment
product held under such account
designed to preserve principal and
provide a reasonable rate of return;
(iii) the Office of the Retirement
Savings Lost and Found in accordance
with section 401(a)(31)(B)(iv) of the
Internal Revenue Code of 1986 and
section 306(c)(2)(A)(ii) of the
Securing a Strong Retirement Act of
2020; or
(iv) such other option as the
Secretary may so provide.
(4)(A) In any case in which a qualified change in
investment options occurs in connection with an
individual account plan, a participant or beneficiary
shall not be treated for purposes of paragraph (1) as
not exercising control over the assets in his account
in connection with such change if the requirements of
subparagraph (C) are met in connection with such
change.
(B) For purposes of subparagraph (A), the term
``qualified change in investment options'' means, in
connection with an individual account plan, a change in
the investment options offered to the participant or
beneficiary under the terms of the plan, under which--
(i) the account of the participant or
beneficiary is reallocated among one or more
remaining or new investment options which are
offered in lieu of one or more investment
options offered immediately prior to the
effective date of the change, and
(ii) the stated characteristics of the
remaining or new investment options provided
under clause (i), including characteristics
relating to risk and rate of return, are, as of
immediately after the change, reasonably
similar to those of the existing investment
options as of immediately before the change.
(C) The requirements of this subparagraph are met in
connection with a qualified change in investment
options if--
(i) at least 30 days and no more than 60 days
prior to the effective date of the change, the
plan administrator furnishes written notice of
the change to the participants and
beneficiaries, including information comparing
the existing and new investment options and an
explanation that, in the absence of affirmative
investment instructions from the participant or
beneficiary to the contrary, the account of the
participant or beneficiary will be invested in
the manner described in subparagraph (B),
(ii) the participant or beneficiary has not
provided to the plan administrator, in advance
of the effective date of the change,
affirmative investment instructions contrary to
the change, and
(iii) the investments under the plan of the
participant or beneficiary as in effect
immediately prior to the effective date of the
change were the product of the exercise by such
participant or beneficiary of control over the
assets of the account within the meaning of
paragraph (1).
(5) Default investment arrangements.--
(A) In general.--For purposes of paragraph
(1), a participant or beneficiary in an
individual account plan meeting the notice
requirements of subparagraph (B) shall be
treated as exercising control over the assets
in the account with respect to the amount of
contributions and earnings which, in the
absence of an investment election by the
participant or beneficiary, are invested by the
plan in accordance with regulations prescribed
by the Secretary. The regulations under this
subparagraph shall provide guidance on the
appropriateness of designating default
investments that include a mix of asset classes
consistent with capital preservation or long-
term capital appreciation, or a blend of both.
(B) Notice requirements.--
(i) In general.--The requirements of
this subparagraph are met if each
participant or beneficiary--
(I) receives, within a
reasonable period of time
before each plan year, a notice
explaining the employee's right
under the plan to designate how
contributions and earnings will
be invested and explaining how,
in the absence of any
investment election by the
participant or beneficiary,
such contributions and earnings
will be invested, and
(II) has a reasonable period
of time after receipt of such
notice and before the beginning
of the plan year to make such
designation.
(ii) Form of notice.--The
requirements of clauses (i) and (ii) of
section 401(k)(12)(D) of the Internal
Revenue Code of 1986 shall apply with
respect to the notices described in
this subparagraph.
(d)(1) If, in connection with the termination of a pension
plan which is a single-employer plan, there is an election to
establish or maintain a qualified replacement plan, or to
increase benefits, as provided under section 4980(d) of the
Internal Revenue Code of 1986, a fiduciary shall discharge the
fiduciary's duties under this title and title IV in accordance
with the following requirements:
(A) In the case of a fiduciary of the terminated
plan, any requirement--
(i) under section 4980(d)(2)(B) of such Code
with respect to the transfer of assets from the
terminated plan to a qualified replacement
plan, and
(ii) under section 4980(d)(2)(B)(ii) or
4980(d)(3) of such Code with respect to any
increase in benefits under the terminated plan.
(B) In the case of a fiduciary of a qualified
replacement plan, any requirement--
(i) under section 4980(d)(2)(A) of such Code
with respect to participation in the qualified
replacement plan of active participants in the
terminated plan,
(ii) under section 4980(d)(2)(B) of such Code
with respect to the receipt of assets from the
terminated plan, and
(iii) under section 4980(d)(2)(C) of such
Code with respect to the allocation of assets
to participants of the qualified replacement
plan.
(2) For purposes of this subsection--
(A) any term used in this subsection which is also
used in section 4980(d) of the Internal Revenue Code of
1986 shall have the same meaning as when used in such
section, and
(B) any reference in this subsection to the Internal
Revenue Code of 1986 shall be a reference to such Code
as in effect immediately after the enactment of the
Omnibus Budget Reconciliation Act of 1990.
(e) Safe Harbor for Annuity Selection.--
(1) In general.--With respect to the selection of an
insurer for a guaranteed retirement income contract,
the requirements of subsection (a)(1)(B) will be deemed
to be satisfied if a fiduciary--
(A) engages in an objective, thorough, and
analytical search for the purpose of
identifying insurers from which to purchase
such contracts;
(B) with respect to each insurer identified
under subparagraph (A)--
(i) considers the financial
capability of such insurer to satisfy
its obligations under the guaranteed
retirement income contract; and
(ii) considers the cost (including
fees and commissions) of the guaranteed
retirement income contract offered by
the insurer in relation to the benefits
and product features of the contract
and administrative services to be
provided under such contract; and
(C) on the basis of such consideration,
concludes that--
(i) at the time of the selection, the
insurer is financially capable of
satisfying its obligations under the
guaranteed retirement income contract;
and
(ii) the relative cost of the
selected guaranteed retirement income
contract as described in subparagraph
(B)(ii) is reasonable.
(2) Financial capability of the insurer.--A fiduciary
will be deemed to satisfy the requirements of
paragraphs (1)(B)(i) and (1)(C)(i) if--
(A) the fiduciary obtains written
representations from the insurer that--
(i) the insurer is licensed to offer
guaranteed retirement income contracts;
(ii) the insurer, at the time of
selection and for each of the
immediately preceding 7 plan years--
(I) operates under a
certificate of authority from
the insurance commissioner of
its domiciliary State which has
not been revoked or suspended;
(II) has filed audited
financial statements in
accordance with the laws of its
domiciliary State under
applicable statutory accounting
principles;
(III) maintains (and has
maintained) reserves which
satisfies all the statutory
requirements of all States
where the insurer does
business; and
(IV) is not operating under
an order of supervision,
rehabilitation, or liquidation;
(iii) the insurer undergoes, at least
every 5 years, a financial examination
(within the meaning of the law of its
domiciliary State) by the insurance
commissioner of the domiciliary State
(or representative, designee, or other
party approved by such commissioner);
and
(iv) the insurer will notify the
fiduciary of any change in
circumstances occurring after the
provision of the representations in
clauses (i), (ii), and (iii) which
would preclude the insurer from making
such representations at the time of
issuance of the guaranteed retirement
income contract; and
(B) after receiving such representations and
as of the time of selection, the fiduciary has
not received any notice described in
subparagraph (A)(iv) and is in possession of no
other information which would cause the
fiduciary to question the representations
provided.
(3) No requirement to select lowest cost.--Nothing in
this subsection shall be construed to require a
fiduciary to select the lowest cost contract. A
fiduciary may consider the value of a contract,
including features and benefits of the contract and
attributes of the insurer (including, without
limitation, the insurer's financial strength) in
conjunction with the cost of the contract.
(4) Time of selection.--
(A) In general.--For purposes of this
subsection, the time of selection is--
(i) the time that the insurer and the
contract are selected for distribution
of benefits to a specific participant
or beneficiary; or
(ii) if the fiduciary periodically
reviews the continuing appropriateness
of the conclusion described in
paragraph (1)(C) with respect to a
selected insurer, taking into account
the considerations described in such
paragraph, the time that the insurer
and the contract are selected to
provide benefits at future dates to
participants or beneficiaries under the
plan.
Nothing in the preceding sentence shall be
construed to require the fiduciary to review
the appropriateness of a selection after the
purchase of a contract for a participant or
beneficiary.
(B) Periodic review.--A fiduciary will be
deemed to have conducted the periodic review
described in subparagraph (A)(ii) if the
fiduciary obtains the written representations
described in clauses (i), (ii), and (iii) of
paragraph (2)(A) from the insurer on an annual
basis, unless the fiduciary receives any notice
described in paragraph (2)(A)(iv) or otherwise
becomes aware of facts that would cause the
fiduciary to question such representations.
(5) Limited liability.--A fiduciary which satisfies
the requirements of this subsection shall not be liable
following the distribution of any benefit, or the
investment by or on behalf of a participant or
beneficiary pursuant to the selected guaranteed
retirement income contract, for any losses that may
result to the participant or beneficiary due to an
insurer's inability to satisfy its financial
obligations under the terms of such contract.
(6) Definitions.--For purposes of this subsection--
(A) Insurer.--The term ``insurer'' means an
insurance company, insurance service, or
insurance organization, including affiliates of
such companies.
(B) Guaranteed retirement income contract.--
The term ``guaranteed retirement income
contract'' means an annuity contract for a
fixed term or a contract (or provision or
feature thereof) which provides guaranteed
benefits annually (or more frequently) for at
least the remainder of the life of the
participant or the joint lives of the
participant and the participant's designated
beneficiary as part of an individual account
plan.
* * * * * * *
EXEMPTIONS FROM PROHIBITED TRANSACTIONS
Sec. 408. (a) The Secretary shall establish an exemption
procedure for purposes of this subsection. Pursuant to such
procedure, he may grant a conditional or unconditional
exemption of any fiduciary or transaction, or class of
fiduciaries or transactions, from all or part of the
restrictions imposed by sections 406 and 407(a). Action under
this subsection may be taken only after consultation and
coordination with the Secretary of the Treasury. An exemption
granted under this section shall not relieve a fiduciary from
any other applicable provision of this Act. The Secretary may
not grant an exemption under this subsection unless he finds
that such exemption is--
(1) administratively feasible,
(2) in the interests of the plan and of its
participants and beneficiaries, and
(3) protective of the rights of participants and
beneficiaries of such plan.
Before granting an exemption under this subsection from section
406(a) or 407(a), the Secretary shall publish notice in the
Federal Register of the pendency of the exemption, shall
require that adequate notice be given to interested persons,
and shall afford interested persons opportunity to present
views. The Secretary may not grant an exemption under this
subsection from section 406(b) unless he affords an opportunity
for a hearing and makes a determination on the record with
respect to the findings required by paragraphs (1), (2), and
(3) of this subsection.
(b) The prohibitions provided in section 406 shall not apply
to any of the following transactions:
(1) Any loans made by the plan to parties in interest
who are participants or beneficiaries of the plan if
such loans (A) are available to all such participants
and beneficiaries on a reasonably equivalent basis, (B)
are not made available to highly compensated employees
(within the meaning of section 414(q) of the Internal
Revenue Code of 1986) in an amount greater than the
amount made available to other employees, (C) are made
in accordance with specific provisions regarding such
loans set forth in the plan, (D) bear a reasonable rate
of interest, and (E) are adequately secured. A loan
made by a plan shall not fail to meet the requirements
of the preceding sentence by reason of a loan repayment
suspension described under section 414(u)(4) of the
Internal Revenue Code of 1986.
(2)(A) Contracting or making reasonable arrangements
with a party in interest for office space, or legal,
accounting, or other services necessary for the
establishment or operation of the plan, if no more than
reasonable compensation is paid therefor.
(B)(i) No contract or arrangement for services
between a covered plan and a covered service provider,
and no extension or renewal of such a contract or
arrangement, is reasonable within the meaning of this
paragraph unless the requirements of this clause are
met.
(ii)(I) For purposes of this subparagraph:
(aa) The term ``covered plan'' means a group
health plan as defined section 733(a).
(bb) The term ``covered service provider''
means a service provider that enters into a
contract or arrangement with the covered plan
and reasonably expects $1,000 (or such amount
as the Secretary may establish in regulations
to account for inflation since the date of
enactment of the Consolidated Appropriations
Act, 2021, as appropriate) or more in
compensation, direct or indirect, to be
received in connection with providing one or
more of the following services, pursuant to the
contract or arrangement, regardless of whether
such services will be performed, or such
compensation received, by the covered service
provider, an affiliate, or a subcontractor:
(AA) Brokerage services, for which
the covered service provider, an
affiliate, or a subcontractor
reasonably expects to receive indirect
compensation or direct compensation
described in item (dd), provided to a
covered plan with respect to selection
of insurance products (including vision
and dental), recordkeeping services,
medical management vendor, benefits
administration (including vision and
dental), stop-loss insurance, pharmacy
benefit management services, wellness
services, transparency tools and
vendors, group purchasing organization
preferred vendor panels, disease
management vendors and products,
compliance services, employee
assistance programs, or third party
administration services.
(BB) Consulting, for which the
covered service provider, an affiliate,
or a subcontractor reasonably expects
to receive indirect compensation or
direct compensation described in item
(dd), related to the development or
implementation of plan design,
insurance or insurance product
selection (including vision and
dental), recordkeeping, medical
management, benefits administration
selection (including vision and
dental), stop-loss insurance, pharmacy
benefit management services, wellness
design and management services,
transparency tools, group purchasing
organization agreements and services,
participation in and services from
preferred vendor panels, disease
management, compliance services,
employee assistance programs, or third
party administration services.
(cc) The term ``affiliate'', with respect to
a covered service provider, means an entity
that directly or indirectly (through one or
more intermediaries) controls, is controlled
by, or is under common control with, such
provider, or is an officer, director, or
employee of, or partner in, such provider.
(dd)(AA) The term ``compensation'' means
anything of monetary value, but does not
include non-monetary compensation valued at
$250 (or such amount as the Secretary may
establish in regulations to account for
inflation since the date of enactment of the
Consolidated Appropriations Act, 2021, as
appropriate) or less, in the aggregate, during
the term of the contract or arrangement.
(BB) The term ``direct compensation'' means
compensation received directly from a covered
plan.
(CC) The term ``indirect compensation'' means
compensation received from any source other
than the covered plan, the plan sponsor, the
covered service provider, or an affiliate.
Compensation received from a subcontractor is
indirect compensation, unless it is received in
connection with services performed under a
contract or arrangement with a subcontractor.
(ee) The term ``responsible plan fiduciary''
means a fiduciary with authority to cause the
covered plan to enter into, or extend or renew,
the contract or arrangement.
(ff) The term ``subcontractor'' means any
person or entity (or an affiliate of such
person or entity) that is not an affiliate of
the covered service provider and that, pursuant
to a contract or arrangement with the covered
service provider or an affiliate, reasonably
expects to receive $1,000 (or such amount as
the Secretary may establish in regulations to
account for inflation since the date of
enactment of the Consolidated Appropriations
Act, 2021, as appropriate) or more in
compensation for performing one or more
services described in item (bb) under a
contract or arrangement with the covered plan.
(II) For purposes of this subparagraph, a description
of compensation or cost may be expressed as a monetary
amount, formula, or a per capita charge for each
enrollee or, if the compensation or cost cannot
reasonably be expressed in such terms, by any other
reasonable method, including a disclosure that
additional compensation may be earned but may not be
calculated at the time of contract if such a disclosure
includes a description of the circumstances under which
the additional compensation may be earned and a
reasonable and good faith estimate if the covered
service provider cannot otherwise readily describe
compensation or cost and explains the methodology and
assumptions used to prepare such estimate. Any such
description shall contain sufficient information to
permit evaluation of the reasonableness of the
compensation or cost.
(III) No person or entity is a ``covered service
provider'' within the meaning of subclause (I)(bb)
solely on the basis of providing services as an
affiliate or a subcontractor that is performing one or
more of the services described in subitem (AA) or (BB)
of such subclause under the contract or arrangement
with the covered plan.
(iii) A covered service provider shall disclose to a
responsible plan fiduciary, in writing, the following:
(I) A description of the services to be
provided to the covered plan pursuant to the
contract or arrangement.
(II) If applicable, a statement that the
covered service provider, an affiliate, or a
subcontractor will provide, or reasonably
expects to provide, services pursuant to the
contract or arrangement directly to the covered
plan as a fiduciary (within the meaning of
section 3(21)).
(III) A description of all direct
compensation, either in the aggregate or by
service, that the covered service provider, an
affiliate, or a subcontractor reasonably
expects to receive in connection with the
services described in subclause (I).
(IV)(aa) A description of all indirect
compensation that the covered service provider,
an affiliate, or a subcontractor reasonably
expects to receive in connection with the
services described in subclause (I)--
(AA) including compensation from a
vendor to a brokerage firm based on a
structure of incentives not solely
related to the contract with the
covered plan; and
(BB) not including compensation
received by an employee from an
employer on account of work performed
by the employee.
(bb) A description of the arrangement between
the payer and the covered service provider, an
affiliate, or a subcontractor, as applicable,
pursuant to which such indirect compensation is
paid.
(cc) Identification of the services for which
the indirect compensation will be received, if
applicable.
(dd) Identification of the payer of the
indirect compensation.
(V) A description of any compensation that
will be paid among the covered service
provider, an affiliate, or a subcontractor, in
connection with the services described in
subclause (I) if such compensation is set on a
transaction basis (such as commissions,
finder's fees, or other similar incentive
compensation based on business placed or
retained), including identification of the
services for which such compensation will be
paid and identification of the payers and
recipients of such compensation (including the
status of a payer or recipient as an affiliate
or a subcontractor), regardless of whether such
compensation also is disclosed pursuant to
subclause (III) or (IV).
(VI) A description of any compensation that
the covered service provider, an affiliate, or
a subcontractor reasonably expects to receive
in connection with termination of the contract
or arrangement, and how any prepaid amounts
will be calculated and refunded upon such
termination.
(iv) A covered service provider shall disclose to a
responsible plan fiduciary, in writing a description of
the manner in which the compensation described in
clause (iii), as applicable, will be received.
(v)(I) A covered service provider shall disclose the
information required under clauses (iii) and (iv) to
the responsible plan fiduciary not later than the date
that is reasonably in advance of the date on which the
contract or arrangement is entered into, and extended
or renewed.
(II) A covered service provider shall disclose any
change to the information required under clause (iii)
and (iv) as soon as practicable, but not later than 60
days from the date on which the covered service
provider is informed of such change, unless such
disclosure is precluded due to extraordinary
circumstances beyond the covered service provider's
control, in which case the information shall be
disclosed as soon as practicable.
(vi)(I) Upon the written request of the responsible
plan fiduciary or covered plan administrator, a covered
service provider shall furnish any other information
relating to the compensation received in connection
with the contract or arrangement that is required for
the covered plan to comply with the reporting and
disclosure requirements under this Act.
(II) The covered service provider shall disclose the
information required under clause (iii)(I) reasonably
in advance of the date upon which such responsible plan
fiduciary or covered plan administrator states that it
is required to comply with the applicable reporting or
disclosure requirement, unless such disclosure is
precluded due to extraordinary circumstances beyond the
covered service provider's control, in which case the
information shall be disclosed as soon as practicable.
(vii) No contract or arrangement will fail to be
reasonable under this subparagraph solely because the
covered service provider, acting in good faith and with
reasonable diligence, makes an error or omission in
disclosing the information required pursuant to clause
(iii) (or a change to such information disclosed
pursuant to clause (v)(II)) or clause (vi), provided
that the covered service provider discloses the correct
information to the responsible plan fiduciary as soon
as practicable, but not later than 30 days from the
date on which the covered service provider knows of
such error or omission.
(viii)(I) Pursuant to subsection (a), subparagraphs
(C) and (D) of section 406(a)(1) shall not apply to a
responsible plan fiduciary, notwithstanding any failure
by a covered service provider to disclose information
required under clause (iii), if the following
conditions are met:
(aa) The responsible plan fiduciary did not
know that the covered service provider failed
or would fail to make required disclosures and
reasonably believed that the covered service
provider disclosed the information required to
be disclosed.
(bb) The responsible plan fiduciary, upon
discovering that the covered service provider
failed to disclose the required information,
requests in writing that the covered service
provider furnish such information.
(cc) If the covered service provider fails to
comply with a written request described in
subclause (II) within 90 days of the request,
the responsible plan fiduciary notifies the
Secretary of the covered service provider's
failure, in accordance with subclauses (II) and
(III).
(II) A notice described in subclause (I)(cc) shall
contain--
(aa) the name of the covered plan;
(bb) the plan number used for the annual
report on the covered plan;
(cc) the plan sponsor's name, address, and
employer identification number;
(dd) the name, address, and telephone number
of the responsible plan fiduciary;
(ee) the name, address, phone number, and, if
known, employer identification number of the
covered service provider;
(ff) a description of the services provided
to the covered plan;
(gg) a description of the information that
the covered service provider failed to
disclose;
(hh) the date on which such information was
requested in writing from the covered service
provider; and
(ii) a statement as to whether the covered
service provider continues to provide services
to the plan.
(III) A notice described in subclause (I)(cc) shall
be filed with the Department not later than 30 days
following the earlier of--
(aa) The covered service provider's refusal
to furnish the information requested by the
written request described in subclause (I)(bb);
or
(bb) 90 days after the written request
referred to in subclause (I)(cc) is made.
(IV) If the covered service provider fails to comply
with the written request under subclause (I)(bb) within
90 days of such request, the responsible plan fiduciary
shall determine whether to terminate or continue the
contract or arrangement under section 404. If the
requested information relates to future services and is
not disclosed promptly after the end of the 90-day
period, the responsible plan fiduciary shall terminate
the contract or arrangement as expeditiously as
possible, consistent with such duty of prudence.
(ix) Nothing in this subparagraph shall be construed
to supersede any provision of State law that governs
disclosures by parties that provide the services
described in this section, except to the extent that
such law prevents the application of a requirement of
this section.
(3) A loan to an employee stock ownership plan (as
defined in section 407(d)(6)), if--
(A) such loan is primarily for the benefit of
participants and beneficiaries of the plan, and
(B) such loan is at an interest rate which is
not in excess of a reasonable rate.
If the plan gives collateral to a party in interest for
such loan, such collateral may consist only of
qualifying employer securities (as defined in section
407(d)(5)).
(4) The investment of all or part of a plan's assets
in deposits which bear a reasonable interest rate in a
bank or similar financial institution supervised by the
United States or a State, if such bank or other
institution is a fiduciary of such plan and if--
(A) the plan covers only employees of such
bank or other institution and employees of
affiliates of such bank or other institution,
or
(B) such investment is expressly authorized
by a provision of the plan or by a fiduciary
(other than such bank or institution or
affiliate thereof) who is expressly empowered
by the plan to so instruct the trustee with
respect to such investment.
(5) Any contract for life insurance, health
insurance, or annuities with one or more insurers which
are qualified to do business in a State, if the plan
pays no more than adequate consideration, and if each
such insurer or insurers is--
(A) the employer maintaining the plan, or
(B) a party in interest which is wholly owned
(directly or indirectly) by the employer
maintaining the plan, or by any person which is
a party in interest with respect to the plan,
but only if the total premiums and annuity
considerations written by such insurers for
life insurance, health insurance, or annuities
for all plans (and their employers) with
respect to which such insurers are parties in
interest (not including premiums or annuity
considerations written by the employer
maintaining the plan) do not exceed 5 percent
of the total premiums and annuity
considerations written for all lines of
insurance in that year by such insurers (not
including premiums or annuity considerations
written by the employer maintaining the plan).
(6) The providing of any ancillary service by a bank
or similar financial institution supervised by the
United States or a State, if such bank or other
institution is a fiduciary of such plan, and if--
(A) such bank or similar financial
institution has adopted adequate internal
safeguards which assure that the providing of
such ancillary service is consistent with sound
banking and financial practice, as determined
by Federal or State supervisory authority, and
(B) the extent to which such ancillary
service is provided is subject to specific
guidelines issued by such bank or similar
financial institution (as determined by the
Secretary after consultation with Federal and
State supervisory authority), and adherence to
such guidelines would reasonably preclude such
bank or similar financial institution from
providing such ancillary service (i) in an
excessive or unreasonable manner, and (ii) in a
manner that would be inconsistent with the best
interests of participants and beneficiaries of
employee benefit plans.
Such ancillary services shall not be provided at more
than reasonable compensation.
(7) The exercise of a privilege to convert
securities, to the extent provided in regulations of
the Secretary, but only if the plan receives no less
than adequate consideration pursuant to such
conversion.
(8) Any transaction between a plan and (i) a common
or collective trust fund or pooled investment fund
maintained by a party in interest which is a bank or
trust company supervised by a State or Federal agency
or (ii) a pooled investment fund of an insurance
company qualified to do business in a State, if--
(A) the transaction is a sale or purchase of
an interest in the fund,
(B) the bank, trust company, or insurance
company receives not more than reasonable
compensation, and
(C) such transaction is expressly permitted
by the instrument under which the plan is
maintained, or by a fiduciary (other than the
bank, trust company, or insurance company, or
an affiliate thereof) who has authority to
manage and control the assets of the plan.
(9) The making by a fiduciary of a distribution of
the assets of the plan in accordance with the terms of
the plan if such assets are distributed in the same
manner as provided under section 4044 of this Act
(relating to allocation of assets).
(10) Any transaction required or permitted under part
1 of subtitle E of title IV.
(11) A merger of multiemployer plans, or the transfer
of assets or liabilities between multiemployer plans,
determined by the Pension Benefit Guaranty Corporation
to meet the requirements of section 4231.
(12) The sale by a plan to a party in interest on or
after December 18, 1987, of any stock, if--
(A) the requirements of paragraphs (1) and
(2) of subsection (e) are met with respect to
such stock,
(B) on the later of the date on which the
stock was acquired by the plan, or January 1,
1975, such stock constituted a qualifying
employer security (as defined in section
407(d)(5) as then in effect), and
(C) such stock does not constitute a
qualifying employer security (as defined in
section 407(d)(5) as in effect at the time of
the sale).
(13) Any transfer made before January 1, 2026, of
excess pension assets from a defined benefit plan to a
retiree health account in a qualified transfer
permitted under section 420 of the Internal Revenue
Code of 1986 (as in effect on the date of the enactment
of the Surface Transportation and Veterans Health Care
Choice Improvement Act of 2015).
(14) Any transaction in connection with the provision
of investment advice described in section 3(21)(A)(ii)
to a participant or beneficiary of an individual
account plan that permits such participant or
beneficiary to direct the investment of assets in their
individual account, if--
(A) the transaction is--
(i) the provision of the investment
advice to the participant or
beneficiary of the plan with respect to
a security or other property available
as an investment under the plan,
(ii) the acquisition, holding, or
sale of a security or other property
available as an investment under the
plan pursuant to the investment advice,
or
(iii) the direct or indirect receipt
of fees or other compensation by the
fiduciary adviser or an affiliate
thereof (or any employee, agent, or
registered representative of the
fiduciary adviser or affiliate) in
connection with the provision of the
advice or in connection with an
acquisition, holding, or sale of a
security or other property available as
an investment under the plan pursuant
to the investment advice; and
(B) the requirements of subsection (g) are
met.
(15)(A) Any transaction involving the purchase or
sale of securities, or other property (as determined by
the Secretary), between a plan and a party in interest
(other than a fiduciary described in section 3(21)(A))
with respect to a plan if--
(i) the transaction involves a block trade,
(ii) at the time of the transaction, the
interest of the plan (together with the
interests of any other plans maintained by the
same plan sponsor), does not exceed 10 percent
of the aggregate size of the block trade,
(iii) the terms of the transaction, including
the price, are at least as favorable to the
plan as an arm's length transaction, and
(iv) the compensation associated with the
purchase and sale is not greater than the
compensation associated with an arm's length
transaction with an unrelated party.
(B) For purposes of this paragraph, the term ``block
trade'' means any trade of at least 10,000 shares or
with a market value of at least $200,000 which will be
allocated across two or more unrelated client accounts
of a fiduciary.
(16) Any transaction involving the purchase or sale
of securities, or other property (as determined by the
Secretary), between a plan and a party in interest if--
(A) the transaction is executed through an
electronic communication network, alternative
trading system, or similar execution system or
trading venue subject to regulation and
oversight by--
(i) the applicable Federal regulating
entity, or
(ii) such foreign regulatory entity
as the Secretary may determine by
regulation,
(B) either--
(i) the transaction is effected
pursuant to rules designed to match
purchases and sales at the best price
available through the execution system
in accordance with applicable rules of
the Securities and Exchange Commission
or other relevant governmental
authority, or
(ii) neither the execution system nor
the parties to the transaction take
into account the identity of the
parties in the execution of trades,
(C) the price and compensation associated
with the purchase and sale are not greater than
the price and compensation associated with an
arm's length transaction with an unrelated
party,
(D) if the party in interest has an ownership
interest in the system or venue described in
subparagraph (A), the system or venue has been
authorized by the plan sponsor or other
independent fiduciary for transactions
described in this paragraph, and
(E) not less than 30 days prior to the
initial transaction described in this paragraph
executed through any system or venue described
in subparagraph (A), a plan fiduciary is
provided written or electronic notice of the
execution of such transaction through such
system or venue.
(17)(A) Transactions described in subparagraphs (A),
(B), and (D) of section 406(a)(1) between a plan and a
person that is a party in interest other than a
fiduciary (or an affiliate) who has or exercises any
discretionary authority or control with respect to the
investment of the plan assets involved in the
transaction or renders investment advice (within the
meaning of section 3(21)(A)(ii)) with respect to those
assets, solely by reason of providing services to the
plan or solely by reason of a relationship to such a
service provider described in subparagraph (F), (G),
(H), or (I) of section 3(14), or both, but only if in
connection with such transaction the plan receives no
less, nor pays no more, than adequate consideration.
(B) For purposes of this paragraph, the term
``adequate consideration'' means--
(i) in the case of a security for which there
is a generally recognized market--
(I) the price of the security
prevailing on a national securities
exchange which is registered under
section 6 of the Securities Exchange
Act of 1934, taking into account
factors such as the size of the
transaction and marketability of the
security, or
(II) if the security is not traded on
such a national securities exchange, a
price not less favorable to the plan
than the offering price for the
security as established by the current
bid and asked prices quoted by persons
independent of the issuer and of the
party in interest, taking into account
factors such as the size of the
transaction and marketability of the
security, and
(ii) in the case of an asset other than a
security for which there is a generally
recognized market, the fair market value of the
asset as determined in good faith by a
fiduciary or fiduciaries in accordance with
regulations prescribed by the Secretary.
(18) Foreign exchange transactions.--Any foreign
exchange transactions, between a bank or broker-dealer
(or any affiliate of either), and a plan (as defined in
section 3(3)) with respect to which such bank or
broker-dealer (or affiliate) is a trustee, custodian,
fiduciary, or other party in interest, if--
(A) the transaction is in connection with the
purchase, holding, or sale of securities or
other investment assets (other than a foreign
exchange transaction unrelated to any other
investment in securities or other investment
assets),
(B) at the time the foreign exchange
transaction is entered into, the terms of the
transaction are not less favorable to the plan
than the terms generally available in
comparable arm's length foreign exchange
transactions between unrelated parties, or the
terms afforded by the bank or broker-dealer (or
any affiliate of either) in comparable arm's-
length foreign exchange transactions involving
unrelated parties,
(C) the exchange rate used by such bank or
broker-dealer (or affiliate) for a particular
foreign exchange transaction does not deviate
by more than 3 percent from the interbank bid
and asked rates for transactions of comparable
size and maturity at the time of the
transaction as displayed on an independent
service that reports rates of exchange in the
foreign currency market for such currency, and
(D) the bank or broker-dealer (or any
affiliate of either) does not have investment
discretion, or provide investment advice, with
respect to the transaction.
(19) Cross trading.--Any transaction described in
sections 406(a)(1)(A) and 406(b)(2) involving the
purchase and sale of a security between a plan and any
other account managed by the same investment manager,
if--
(A) the transaction is a purchase or sale,
for no consideration other than cash payment
against prompt delivery of a security for which
market quotations are readily available,
(B) the transaction is effected at the
independent current market price of the
security (within the meaning of section
270.17a-7(b) of title 17, Code of Federal
Regulations),
(C) no brokerage commission, fee (except for
customary transfer fees, the fact of which is
disclosed pursuant to subparagraph (D)), or
other remuneration is paid in connection with
the transaction,
(D) a fiduciary (other than the investment
manager engaging in the cross-trades or any
affiliate) for each plan participating in the
transaction authorizes in advance of any cross-
trades (in a document that is separate from any
other written agreement of the parties) the
investment manager to engage in cross trades at
the investment manager's discretion, after such
fiduciary has received disclosure regarding the
conditions under which cross trades may take
place (but only if such disclosure is separate
from any other agreement or disclosure
involving the asset management relationship),
including the written policies and procedures
of the investment manager described in
subparagraph (H),
(E) each plan participating in the
transaction has assets of at least
$100,000,000, except that if the assets of a
plan are invested in a master trust containing
the assets of plans maintained by employers in
the same controlled group (as defined in
section 407(d)(7)), the master trust has assets
of at least $100,000,000,
(F) the investment manager provides to the
plan fiduciary who authorized cross trading
under subparagraph (D) a quarterly report
detailing all cross trades executed by the
investment manager in which the plan
participated during such quarter, including the
following information, as applicable: (i) the
identity of each security bought or sold; (ii)
the number of shares or units traded; (iii) the
parties involved in the cross-trade; and (iv)
trade price and the method used to establish
the trade price,
(G) the investment manager does not base its
fee schedule on the plan's consent to cross
trading, and no other service (other than the
investment opportunities and cost savings
available through a cross trade) is conditioned
on the plan's consent to cross trading,
(H) the investment manager has adopted, and
cross-trades are effected in accordance with,
written cross-trading policies and procedures
that are fair and equitable to all accounts
participating in the cross-trading program, and
that include a description of the manager's
pricing policies and procedures, and the
manager's policies and procedures for
allocating cross trades in an objective manner
among accounts participating in the cross-
trading program, and
(I) the investment manager has designated an
individual responsible for periodically
reviewing such purchases and sales to ensure
compliance with the written policies and
procedures described in subparagraph (H), and
following such review, the individual shall
issue an annual written report no later than 90
days following the period to which it relates
signed under penalty of perjury to the plan
fiduciary who authorized cross trading under
subparagraph (D) describing the steps performed
during the course of the review, the level of
compliance, and any specific instances of non-
compliance.
The written report under subparagraph (I) shall also
notify the plan fiduciary of the plan's right to
terminate participation in the investment manager's
cross-trading program at any time.
(20)(A) Except as provided in subparagraphs (B) and
(C), a transaction described in section 406(a) in
connection with the acquisition, holding, or
disposition of any security or commodity, if the
transaction is corrected before the end of the
correction period.
(B) Subparagraph (A) does not apply to any
transaction between a plan and a plan sponsor or its
affiliates that involves the acquisition or sale of an
employer security (as defined in section 407(d)(1)) or
the acquisition, sale, or lease of employer real
property (as defined in section 407(d)(2)).
(C) In the case of any fiduciary or other party in
interest (or any other person knowingly participating
in such transaction), subparagraph (A) does not apply
to any transaction if, at the time the transaction
occurs, such fiduciary or party in interest (or other
person) knew (or reasonably should have known) that the
transaction would (without regard to this paragraph)
constitute a violation of section 406(a).
(D) For purposes of this paragraph, the term
``correction period'' means, in connection with a
fiduciary or party in interest (or other person
knowingly participating in the transaction), the 14-day
period beginning on the date on which such fiduciary or
party in interest (or other person) discovers, or
reasonably should have discovered, that the transaction
would (without regard to this paragraph) constitute a
violation of section 406(a).
(E) For purposes of this paragraph--
(i) The term ``security'' has the meaning
given such term by section 475(c)(2) of the
Internal Revenue Code of 1986 (without regard
to subparagraph (F)(iii) and the last sentence
thereof).
(ii) The term ``commodity'' has the meaning
given such term by section 475(e)(2) of such
Code (without regard to subparagraph (D)(iii)
thereof).
(iii) The term ``correct'' means, with
respect to a transaction--
(I) to undo the transaction to the
extent possible and in any case to make
good to the plan or affected account
any losses resulting from the
transaction, and
(II) to restore to the plan or
affected account any profits made
through the use of assets of the plan.
(21) The provision of a de minimis financial
incentive described in section 401(k)(4)(A) or
403(b)(12)(A) of the Internal Revenue Code of 1986.
(c) Nothing in section 406 shall be construed to prohibit any
fiduciary from--
(1) receiving any benefit to which he may be entitled
as a participant or beneficiary in the plan, so long as
the benefit is computed and paid on a basis which is
consistent with the terms of the plan as applied to all
other participants and beneficiaries;
(2) receiving any reasonable compensation for
services rendered, or for the reimbursement of expenses
properly and actually incurred, in the performance of
his duties with the plan; except that no person so
serving who already receives full time pay from an
employer or an association of employers, whose
employees are participants in the plan, or from an
employee organization whose members are participants in
such plan shall receive compensation from such plan,
except for reimbursement of expenses properly and
actually incurred; or
(3) serving as a fiduciary in addition to being an
officer, employee, agent, or other representative of a
party in interest.
(d)(1) Section 407(b) and subsections (b), (c), and (e) of
this section shall not apply to a transaction in which a plan
directly or indirectly--
(A) lends any part of the corpus or income of the
plan to,
(B) pays any compensation for personal services
rendered to the plan to, or
(C) acquires for the plan any property from, or sells
any property to,
any person who is with respect to the plan an owner-employee
(as defined in section 401(c)(3) of the Internal Revenue Code
of 1986), a member of the family (as defined in section
267(c)(4) of such Code) of any such owner-employee, or any
corporation in which any such owner-employee owns, directly or
indirectly, 50 percent or more of the total combined voting
power of all classes of stock entitled to vote or 50 percent or
more of the total value of shares of all classes of stock of
the corporation.
(2)(A) For purposes of paragraph (1), the following shall be
treated as owner-employees:
(i) A shareholder-employee.
(ii) A participant or beneficiary of an individual
retirement plan (as defined in section 7701(a)(37) of
the Internal Revenue Code of 1986).
(iii) An employer or association of employees which
establishes such an individual retirement plan under
section 408(c) of such Code.
(B) Paragraph (1)(C) shall not apply to a transaction which
consists of a sale of employer securities to an employee stock
ownership plan (as defined in section 407(d)(6)) by a
shareholder-employee, a member of the family (as defined in
section 267(c)(4) of such Code) of any such owner-employee, or
a corporation in which such a shareholder-employee owns stock
representing a 50 percent or greater interest described in
paragraph (1).
(C) For purposes of paragraph (1)(A), the term ``owner-
employee'' shall only include a person described in clause (ii)
or (iii) of subparagraph (A).
(3) For purposes of paragraph (2), the term ``shareholder-
employee'' means an employee or officer of an S corporation (as
defined in section 1361(a)(1) of such Code) who owns (or is
considered as owning within the meaning of section 318(a)(1) of
such Code) more than 5 percent of the outstanding stock of the
corporation on any day during the taxable year of such
corporation.
(e) Sections 406 and 407 shall not apply to the acquisition
or sale by a plan of qualifying employer securities (as defined
in section 407(d)(5)) or acquisition, sale or lease by a plan
of qualifying employer real property (as defined in section
407(d)(4))--
(1) if such acquisition, sale, or lease is for
adequate consideration (or in the case of a marketable
obligation, at a price not less favorable to the plan
than the price determined under section 407(e)(1)),
(2) if no commission is charged with respect thereto,
and
(3) if--
(A) the plan is an eligible individual
account plan (as defined in section 407(d)(3)),
or
(B) in the case of an acquisition or lease of
qualifying employer real property by a plan
which is not an eligible individual account
plan, or of an acquisition of qualifying
employer securities by such a plan, the lease
or acquisition is not prohibited by section
407(a).
(f) Section 406(b)(2) shall not apply to any merger or
transfer described in subsection (b)(11).
(g) Provision of Investment Advice to Participant and
Beneficiaries.--
(1) In general.--The prohibitions provided in section
406 shall not apply to transactions described in
subsection (b)(14) if the investment advice provided by
a fiduciary adviser is provided under an eligible
investment advice arrangement.
(2) Eligible investment advice arrangement.--For
purposes of this subsection, the term ``eligible
investment advice arrangement'' means an arrangement--
(A) which either--
(i) provides that any fees (including
any commission or other compensation)
received by the fiduciary adviser for
investment advice or with respect to
the sale, holding, or acquisition of
any security or other property for
purposes of investment of plan assets
do not vary depending on the basis of
any investment option selected, or
(ii) uses a computer model under an
investment advice program meeting the
requirements of paragraph (3) in
connection with the provision of
investment advice by a fiduciary
adviser to a participant or
beneficiary, and
(B) with respect to which the requirements of
paragraph (4), (5), (6), (7), (8), and (9) are
met.
(3) Investment advice program using computer model.--
(A) In general.--An investment advice program
meets the requirements of this paragraph if the
requirements of subparagraphs (B), (C), and (D)
are met.
(B) Computer model.--The requirements of this
subparagraph are met if the investment advice
provided under the investment advice program is
provided pursuant to a computer model that--
(i) applies generally accepted
investment theories that take into
account the historic returns of
different asset classes over defined
periods of time,
(ii) utilizes relevant information
about the participant, which may
include age, life expectancy,
retirement age, risk tolerance, other
assets or sources of income, and
preferences as to certain types of
investments,
(iii) utilizes prescribed objective
criteria to provide asset allocation
portfolios comprised of investment
options available under the plan,
(iv) operates in a manner that is not
biased in favor of investments offered
by the fiduciary adviser or a person
with a material affiliation or
contractual relationship with the
fiduciary adviser, and
(v) takes into account all investment
options under the plan in specifying
how a participant's account balance
should be invested and is not
inappropriately weighted with respect
to any investment option.
(C) Certification.--
(i) In general.--The requirements of
this subparagraph are met with respect
to any investment advice program if an
eligible investment expert certifies,
prior to the utilization of the
computer model and in accordance with
rules prescribed by the Secretary, that
the computer model meets the
requirements of subparagraph (B).
(ii) Renewal of certifications.--If,
as determined under regulations
prescribed by the Secretary, there are
material modifications to a computer
model, the requirements of this
subparagraph are met only if a
certification described in clause (i)
is obtained with respect to the
computer model as so modified.
(iii) Eligible investment expert.--
The term ``eligible investment expert''
means any person--
(I) which meets such
requirements as the Secretary
may provide, and
(II) does not bear any
material affiliation or
contractual relationship with
any investment adviser or a
related person thereof (or any
employee, agent, or registered
representative of the
investment adviser or related
person).
(D) Exclusivity of recommendation.--The
requirements of this subparagraph are met with
respect to any investment advice program if--
(i) the only investment advice
provided under the program is the
advice generated by the computer model
described in subparagraph (B), and
(ii) any transaction described in
subsection (b)(14)(A)(ii) occurs solely
at the direction of the participant or
beneficiary.
Nothing in the preceding sentence shall
preclude the participant or beneficiary from
requesting investment advice other than that
described in subparagraph (A), but only if such
request has not been solicited by any person
connected with carrying out the arrangement.
(4) Express authorization by separate fiduciary.--The
requirements of this paragraph are met with respect to
an arrangement if the arrangement is expressly
authorized by a plan fiduciary other than the person
offering the investment advice program, any person
providing investment options under the plan, or any
affiliate of either.
(5) Annual audit.--The requirements of this paragraph
are met if an independent auditor, who has appropriate
technical training or experience and proficiency and so
represents in writing--
(A) conducts an annual audit of the
arrangement for compliance with the
requirements of this subsection, and
(B) following completion of the annual audit,
issues a written report to the fiduciary who
authorized use of the arrangement which
presents its specific findings regarding
compliance of the arrangement with the
requirements of this subsection.
For purposes of this paragraph, an auditor is
considered independent if it is not related to the
person offering the arrangement to the plan and is not
related to any person providing investment options
under the plan.
(6) Disclosure.--The requirements of this paragraph
are met if--
(A) the fiduciary adviser provides to a
participant or a beneficiary before the initial
provision of the investment advice with regard
to any security or other property offered as an
investment option, a written notification
(which may consist of notification by means of
electronic communication)--
(i) of the role of any party that has
a material affiliation or contractual
relationship with the fiduciary adviser
in the development of the investment
advice program and in the selection of
investment options available under the
plan,
(ii) of the past performance and
historical rates of return of the
investment options available under the
plan,
(iii) of all fees or other
compensation relating to the advice
that the fiduciary adviser or any
affiliate thereof is to receive
(including compensation provided by any
third party) in connection with the
provision of the advice or in
connection with the sale, acquisition,
or holding of the security or other
property,
(iv) of any material affiliation or
contractual relationship of the
fiduciary adviser or affiliates thereof
in the security or other property,
(v) the manner, and under what
circumstances, any participant or
beneficiary information provided under
the arrangement will be used or
disclosed,
(vi) of the types of services
provided by the fiduciary adviser in
connection with the provision of
investment advice by the fiduciary
adviser,
(vii) that the adviser is acting as a
fiduciary of the plan in connection
with the provision of the advice, and
(viii) that a recipient of the advice
may separately arrange for the
provision of advice by another adviser,
that could have no material affiliation
with and receive no fees or other
compensation in connection with the
security or other property, and
(B) at all times during the provision of
advisory services to the participant or
beneficiary, the fiduciary adviser--
(i) maintains the information
described in subparagraph (A) in
accurate form and in the manner
described in paragraph (8),
(ii) provides, without charge,
accurate information to the recipient
of the advice no less frequently than
annually,
(iii) provides, without charge,
accurate information to the recipient
of the advice upon request of the
recipient, and
(iv) provides, without charge,
accurate information to the recipient
of the advice concerning any material
change to the information required to
be provided to the recipient of the
advice at a time reasonably
contemporaneous to the change in
information.
(7) Other conditions.--The requirements of this
paragraph are met if--
(A) the fiduciary adviser provides
appropriate disclosure, in connection with the
sale, acquisition, or holding of the security
or other property, in accordance with all
applicable securities laws,
(B) the sale, acquisition, or holding occurs
solely at the direction of the recipient of the
advice,
(C) the compensation received by the
fiduciary adviser and affiliates thereof in
connection with the sale, acquisition, or
holding of the security or other property is
reasonable, and
(D) the terms of the sale, acquisition, or
holding of the security or other property are
at least as favorable to the plan as an arm's
length transaction would be.
(8) Standards for presentation of information.--
(A) In general.--The requirements of this
paragraph are met if the notification required
to be provided to participants and
beneficiaries under paragraph (6)(A) is written
in a clear and conspicuous manner and in a
manner calculated to be understood by the
average plan participant and is sufficiently
accurate and comprehensive to reasonably
apprise such participants and beneficiaries of
the information required to be provided in the
notification.
(B) Model form for disclosure of fees and
other compensation.--The Secretary shall issue
a model form for the disclosure of fees and
other compensation required in paragraph
(6)(A)(iii) which meets the requirements of
subparagraph (A).
(9) Maintenance for 6 years of evidence of
compliance.--The requirements of this paragraph are met
if a fiduciary adviser who has provided advice referred
to in paragraph (1) maintains, for a period of not less
than 6 years after the provision of the advice, any
records necessary for determining whether the
requirements of the preceding provisions of this
subsection and of subsection (b)(14) have been met. A
transaction prohibited under section 406 shall not be
considered to have occurred solely because the records
are lost or destroyed prior to the end of the 6-year
period due to circumstances beyond the control of the
fiduciary adviser.
(10) Exemption for plan sponsor and certain other
fiduciaries.--
(A) In general.--Subject to subparagraph (B),
a plan sponsor or other person who is a
fiduciary (other than a fiduciary adviser)
shall not be treated as failing to meet the
requirements of this part solely by reason of
the provision of investment advice referred to
in section 3(21)(A)(ii) (or solely by reason of
contracting for or otherwise arranging for the
provision of the advice), if--
(i) the advice is provided by a
fiduciary adviser pursuant to an
eligible investment advice arrangement
between the plan sponsor or other
fiduciary and the fiduciary adviser for
the provision by the fiduciary adviser
of investment advice referred to in
such section,
(ii) the terms of the eligible
investment advice arrangement require
compliance by the fiduciary adviser
with the requirements of this
subsection, and
(iii) the terms of the eligible
investment advice arrangement include a
written acknowledgment by the fiduciary
adviser that the fiduciary adviser is a
fiduciary of the plan with respect to
the provision of the advice.
(B) Continued duty of prudent selection of
adviser and periodic review.--Nothing in
subparagraph (A) shall be construed to exempt a
plan sponsor or other person who is a fiduciary
from any requirement of this part for the
prudent selection and periodic review of a
fiduciary adviser with whom the plan sponsor or
other person enters into an eligible investment
advice arrangement for the provision of
investment advice referred to in section
3(21)(A)(ii). The plan sponsor or other person
who is a fiduciary has no duty under this part
to monitor the specific investment advice given
by the fiduciary adviser to any particular
recipient of the advice.
(C) Availability of plan assets for payment
for advice.--Nothing in this part shall be
construed to preclude the use of plan assets to
pay for reasonable expenses in providing
investment advice referred to in section
3(21)(A)(ii).
(11) Definitions.--For purposes of this subsection
and subsection (b)(14)--
(A) Fiduciary adviser.--The term ``fiduciary
adviser'' means, with respect to a plan, a
person who is a fiduciary of the plan by reason
of the provision of investment advice referred
to in section 3(21)(A)(ii) by the person to a
participant or beneficiary of the plan and who
is--
(i) registered as an investment
adviser under the Investment Advisers
Act of 1940 (15 U.S.C. 80b-1 et seq.)
or under the laws of the State in which
the fiduciary maintains its principal
office and place of business,
(ii) a bank or similar financial
institution referred to in subsection
(b)(4) or a savings association (as
defined in section 3(b)(1) of the
Federal Deposit Insurance Act (12
U.S.C. 1813(b)(1)), but only if the
advice is provided through a trust
department of the bank or similar
financial institution or savings
association which is subject to
periodic examination and review by
Federal or State banking authorities,
(iii) an insurance company qualified
to do business under the laws of a
State,
(iv) a person registered as a broker
or dealer under the Securities Exchange
Act of 1934 (15 U.S.C. 78a et seq.),
(v) an affiliate of a person
described in any of clauses (i) through
(iv), or
(vi) an employee, agent, or
registered representative of a person
described in clauses (i) through (v)
who satisfies the requirements of
applicable insurance, banking, and
securities laws relating to the
provision of the advice.
For purposes of this part, a person who
develops the computer model described in
paragraph (3)(B) or markets the investment
advice program or computer model shall be
treated as a person who is a fiduciary of the
plan by reason of the provision of investment
advice referred to in section 3(21)(A)(ii) to a
participant or beneficiary and shall be treated
as a fiduciary adviser for purposes of this
subsection and subsection (b)(14), except that
the Secretary may prescribe rules under which
only 1 fiduciary adviser may elect to be
treated as a fiduciary with respect to the
plan.
(B) Affiliate.--The term ``affiliate'' of
another entity means an affiliated person of
the entity (as defined in section 2(a)(3) of
the Investment Company Act of 1940 (15 U.S.C.
80a-2(a)(3))).
(C) Registered representative.--The term
``registered representative'' of another entity
means a person described in section 3(a)(18) of
the Securities Exchange Act of 1934 (15 U.S.C.
78c(a)(18)) (substituting the entity for the
broker or dealer referred to in such section)
or a person described in section 202(a)(17) of
the Investment Advisers Act of 1940 (15 U.S.C.
80b-2(a)(17)) (substituting the entity for the
investment adviser referred to in such
section).
(h) Provision of Pharmacy Benefit Services.--
(1) In general.--Provided that all of the conditions
described in paragraph (2) are met, the restrictions
imposed by subsections (a), (b)(1), and (b)(2) of
section 406 shall not apply to--
(A) the offering of pharmacy benefit services
to a group health plan that is sponsored by an
entity described in section 3(37)(G)(vi) or to
any other group health plan that is sponsored
by a regional council, local union, or other
labor organization affiliated with such entity;
(B) the purchase of pharmacy benefit services
by plan participants and beneficiaries of a
group health plan that is sponsored by an
entity described in section 3(37)(G)(vi) or of
any other group health plan that is sponsored
by a regional council, local union, or other
labor organization affiliated with such entity;
or
(C) the operation or implementation of
pharmacy benefit services by an entity
described in section 3(37)(G)(vi) or by any
other group health plan that is sponsored by a
regional council, local union, or other labor
organization affiliated with such entity,
in any arrangement where such entity described in
section 3(37)(G)(vi) or any related organization or
subsidiary of such entity provides pharmacy benefit
services that include prior authorization and appeals,
a retail pharmacy network, pharmacy benefit
administration, mail order fulfillment, formulary
support, manufacturer payments, audits, and specialty
pharmacy and goods, to any such group health plan.
(2) Conditions.--The conditions described in this
paragraph are the following:
(A) The terms of the arrangement are at least
as favorable to the group health plan as such
group health plan could obtain in a similar
arm's length arrangement with an unrelated
third party.
(B) At least 50 percent of the providers
participating in the pharmacy benefit services
offered by the arrangement are unrelated to the
contributing employers or any other party in
interest with respect to the group health plan.
(C) The group health plan retains an
independent fiduciary who will be responsible
for monitoring the group health plan's
consultants, contractors, subcontractors, and
other service providers for purposes of
pharmacy benefit services described in
paragraph (1) offered by such entity or any of
its related organizations or subsidiaries and
monitors the transactions of such entity and
any of its related organizations or
subsidiaries to ensure that all conditions of
this exemption are satisfied during each plan
year.
(D) Any decisions regarding the provision of
pharmacy benefit services described in
paragraph (1) are made by the group health
plan's independent fiduciary, based on
objective standards developed by the
independent fiduciary in reliance on
information provided by the arrangement.
(E) The independent fiduciary of the group
health plan provides an annual report to the
Secretary and the congressional committees of
jurisdiction attesting that the conditions
described in subparagraphs (C) and (D) have
been met for the applicable plan year, together
with a statement that use of the arrangement's
services are in the best interest of the
participants and beneficiaries in the aggregate
for that plan year compared to other similar
arrangements the group health plan could have
obtained in transactions with an unrelated
third party.
(F) The arrangement is not designed to
benefit any party in interest with respect to
the group health plan.
(3) Violations.--In the event an entity described in
section 3(37)(G)(vi) or any affiliate of such entity
violates any of the conditions of such exemption, such
exemption shall not apply with respect to such entity
or affiliate and all enforcement and claims available
under this Act shall apply with respect to such entity
or affiliate.
(4) Rule of construction.--Nothing in this subsection
shall be construed to modify any obligation of a group
health plan otherwise set forth in this Act.
(5) Group health plan.--In this subsection, the term
``group health plan'' has the meaning given such term
in section 733(a).
* * * * * * *
TITLE IV--PLAN TERMINATION INSURANCE
Subtitle A--Pension Benefit Guaranty Corporation
* * * * * * *
ESTABLISHMENT OF PENSION BENEFIT GUARANTY FUNDS
Sec. 4005. (a) There are established on the books of the
Treasury of the United States four revolving funds to be used
by the corporation in carrying out its duties under this title.
One of the funds shall be used with respect to basic benefits
guaranteed under section 4022, one of the funds shall be used
with respect to basic benefits guaranteed under section 4022A,
one of the funds shall be used with respect to nonbasic
benefits guaranteed under section 4022 (if any), and the
remaining fund shall be used with respect to nonbasic benefits
guaranteed under section 4022A (if any), other than subsection
(g)(2) thereof (if any). Whenever in this title reference is
made to the term ``fund'' the reference shall be considered to
refer to the appropriate fund established under this
subsection.
(b)(1) Each fund established under this section shall be
credited with the appropriate portion of--
(A) premiums, penalties, interest, and charges
collected under this title,
(B) the value of the assets of a plan administered
under section 4042 by a trustee to the extent that they
exceed the liabilities of such plan,
(C) the amount of any employer liability payments
under subtitle D, to the extent that such payments
exceed liabilities of the plan (taking into account all
other plan assets),
(D) earnings on investments of the fund or on assets
credited to the fund under this subsection,
(E) attorney's fees awarded to the corporation, and
(F) receipts from any other operations under this
title.
(2) Subject to the provisions of subsection (a), each fund
shall be available--
(A) for making such payments as the corporation
determines are necessary to pay benefits guaranteed
under section 4022 or 4022A,
(B) to purchase assets from a plan being terminated
by the corporation when the corporation determines such
purchase will best protect the interests of the
corporation, participants in the plan being terminated,
and other insured plans,
(C) to pay the operational and administrative
expenses of the corporation, including reimbursement of
the expenses incurred by the Department of the Treasury
in maintaining the funds, and the Comptroller General
in auditing the corporation, and
(D) to pay to participants and beneficiaries the
estimated amount of benefits which are guaranteed by
the corporation under this title and the estimated
amount of other benefits to which plan assets are
allocated under section 4044, under single-employer
plans which are unable to pay benefits when due or
which are abandoned.
(3)(A) Whenever the corporation determines that the moneys of
any fund are in excess of current needs, it may request the
investment of such amounts as it determines advisable by the
Secretary of the Treasury in obligations issued or guaranteed
by the United States.
(B) Notwithstanding subparagraph (A)--
(i) the amounts of premiums received under section
4006 with respect to the fund to be used for basic
benefits under section 4022A in a fiscal year in the
period beginning with fiscal year 2016 and ending with
fiscal year 2020 shall be placed in a noninterest-
bearing account within such fund in the following
amounts:
(I) for fiscal year 2016, $108,000,000;
(II) for fiscal year 2017, $111,000,000;
(III) for fiscal year 2018, $113,000,000;
(IV) for fiscal year 2019, $149,000,000; and
(V) for fiscal year 2020, $296,000,000;
(ii) premiums received in fiscal years specified in
subclauses (I) through (V) of clause (i) shall be
allocated in order first to the noninterest-bearing
account in the amount specified and second to any other
accounts within such fund; and
(iii) financial assistance, as provided under section
4261, shall be withdrawn proportionately from the
noninterest-bearing and other accounts within the fund.
(d)(1) A fifth fund shall be established for the
reimbursement of uncollectible withdrawal liability under
section 4222, and shall be credited with the appropriate--
(A) premiums, penalties, and interest charges
collected under this title, and
(B) earnings on investments of the fund or on assets
credited to the fund.
The fund shall be available to make payments pursuant to the
supplemental program established under section 4222, including
those expenses and other charges determined to be appropriate
by the corporation.
(2) The corporation may invest amounts of the fund in such
obligations as the corporation considers appropriate.
(e)(1) A sixth fund shall be established for the supplemental
benefit guarantee program provided under section 4022A(g)(2).
(2) Such fund shall be credited with the appropriate--
(A) premiums, penalties, and interest charges
collected under section 4022A(g)(2), and
(B) earnings on investments of the fund or on assets
credited to the fund.
The fund shall be available for making payments pursuant to the
supplemental benefit guarantee program established under
section 4022A(g)(2), including those expenses and other charges
determined to be appropriate by the corporation.
(3) The corporation may invest amounts of the fund in such
obligations as the corporation considers appropriate.
(f)(1) A seventh fund shall be established and credited
with--
(A) premiums, penalties, and interest charges
collected under section 4006(a)(3)(A)(i) (not described
in subparagraph (B)) to the extent attributable to the
amount of the premium in excess of $8.50,
(B) premiums, penalties, and interest charges
collected under section 4006(a)(3)(E), and
(C) earnings on investments of the fund or on assets
credited to the fund.
(2) Amounts in the fund shall be available for transfer to
other funds established under this section with respect to a
single-employer plan but shall not be available to pay--
(A) administrative costs of the corporation, or
(B) benefits under any plan which was terminated
before October 1, 1988,
unless no other amounts are available for such payment.
(3) The corporation may invest amounts of the fund in such
obligations as the corporation considers appropriate.
(g)(1) Amounts in any fund established under this section may
be used only for the purposes for which such fund was
established and may not be used to make loans to (or on behalf
of) any other fund or to finance any other activity of the
corporation.
(2) Any repayment to the corporation of any amount paid out
of any fund in connection with a multiemployer plan shall be
deposited in such fund.
(h) Any stock in a person liable to the corporation under
this title which is paid to the corporation by such person or a
member of such person's controlled group in satisfaction of
such person's liability under this title may be voted only by
the custodial trustees or outside money managers of the
corporation.
(i)(1) An eighth fund shall be established for special
financial assistance to multiemployer pension plans, as
provided under section 4262, and to pay for necessary
administrative and operating expenses of the corporation
relating to such assistance.
(2) There is appropriated from the general fund such amounts
as are necessary for the costs of providing financial
assistance under section 4262 and necessary administrative and
operating expenses of the corporation. The eighth fund
established under this subsection shall be credited with
amounts from time to time as the Secretary of the Treasury, in
conjunction with the Director of the Pension Benefit Guaranty
Corporation, determines appropriate, from the general fund of
the Treasury, but in no case shall such transfers occur after
September 30, 2030.
(j)(1) A ninth fund shall be established for the payment of
benefits under section 4051(b)(1)(D).
(2) Such fund shall be credited with the appropriate--
(A) amounts transferred to the Office of the
Retirement Savings Lost and Found under section
4051(b)(1)(A); and
(B) earnings on investments of the fund or on assets
credited to the fund.
(3) Whenever the corporation determines that the moneys of
any fund are in excess of current needs, it may request the
investment of such amounts as it determines advisable by the
Secretary of the Treasury in obligations issued or guaranteed
by the United States.
* * * * * * *
Subtitle C--Terminations
* * * * * * *
SEC. 4051. OFFICE OF THE RETIREMENT SAVINGS LOST AND FOUND.
(a) Establishment; Responsibilities of Office.--
(1) In general.--Not later than 2 years after the
date of the enactment of this section, the Secretary of
Labor, the Secretary of Treasury, and the Secretary of
Commerce shall establish within the corporation an
Office of the Retirement Savings Lost and Found (in
this section referred to as the ``Office'').
(2) Responsibilities of office.--
(A) In general.--The Office shall--
(i) carry out subsection (b) of this
section;
(ii) maintain the Retirement Savings
Lost and Found established under
section 306(a) of the Securing a Strong
Retirement Act of 2021; and
(iii) perform an annual audit of plan
information contained in the Retirement
Savings Lost and Found and ensure that
such information is current and
accurate.
(B) Option to contract.--
(i) In general.--Not later than 2
years after the date of enactment of
this section, the corporation shall
conduct an analysis of the cost
effectiveness of contracting with a
third party to carry out the
responsibilities under subparagraph
(A)(iii) and, upon a determination that
such contracting would be more cost
effective than carrying out such
responsibilities within the Office, the
corporation may enter into such
contracts as merited by such analysis.
(ii) Report.--The corporation shall
report on the results of the analysis
under clause (i) to the Committees on
Finance and Health, Education, Labor,
and Pensions of the Senate and the
Committees on Ways and Means and
Education and Labor of the House of
Representatives.
(b) Certain Non-responsive Participants Entitled to Small
Benefits.--
(1) General rule.--
(A) Transfer to the office of the retirement
savings lost and found.--The administrator of a
plan that is not terminated and to which
section 401(a)(31)(B) of the Internal Revenue
Code of 1986 applies shall transfer to the
Office the amount required to be transferred
under section 401(a)(31)(B)(iv) of such Code
for a non-responsive participant.
(B) Information and payment to the office.--
Upon making a transfer under subparagraph (A),
the plan administrator shall provide such
information and certifications as the Office
shall specify, including with respect to the
transferred amount and the non-responsive
participant.
(C) Information requirements after
transfer.--In the event that, after a transfer
is made under subparagraph (A), the relevant
non-responsive participant contacts the plan
administrator or the plan administrator
discovers information that may assist the
Office in locating the non-responsive
participant, the plan administrator shall
notify and provide such information as the
Office shall specify to the Office.
(D) Search and payment by the office
following transfer.--The Office shall
periodically, and upon receiving information
described in subparagraph (C), conduct a search
for the non-responsive participant for whom the
Office has received a transfer under
subparagraph (A). Upon location of a non-
responsive participant who claims benefits, the
Office shall make a single payment to the non-
responsive participant in an amount equal to
the sum of--
(i) the amount transferred to the
Office under subparagraph (A) for such
participant; and
(ii) the return on the investment
attributable to such amount under
section 4005(j)(3).
(2) Definition.--For purposes of this subsection, the
term ``non-responsive participant'' means a participant
or beneficiary of a plan described in paragraph
(1)(A)--
(A) who is entitled to a benefit subject to a
mandatory transfer under section
401(a)(31)(B)(iii) of the Internal Revenue Code
of 1986; and
(B) for whom the plan has satisfied the
conditions in section 401(a)(31)(B)(iv) of such
Code.
(3) Regulatory authority.--The Office shall prescribe
such regulations as are necessary to carry out the
purposes of this section, including rules relating to
the amount payable to the Office and the amount to be
paid by the Office.
(c) Information Collection.--Within such period after the end
of a plan year as the Office may by regulations prescribe, the
administrator of a plan to which the vesting standards of
section 203 apply shall submit the following information, and
such other information as the corporation may require, to the
corporation in such form as the corporation may require:
(1) The information described in paragraphs (1)
through (4) of section 6057(b) of the Internal Revenue
Code of 1986.
(2) The information described in subparagraphs (A),
(B), (E), and (F) of section 6057(a)(2) of the Internal
Revenue Code of 1986.
(d) Effective Date.--The requirements of subsections (b) and
(c) shall apply with respect to plan years beginning after the
second December 31 occurring after the date of the enactment of
this section.
(e) Authorization of Appropriations.--There are authorized to
be appropriated such sums as may be necessary to carry out this
section.
* * * * * * *
----------
SETTING EVERY COMMUNITY UP FOR RETIREMENT ENHANCEMENT ACT OF 2019
* * * * * * *
TITLE I--EXPANDING AND PRESERVING RETIREMENT SAVINGS
* * * * * * *
SEC. 112. QUALIFIED CASH OR DEFERRED ARRANGEMENTS MUST ALLOW LONG-TERM
EMPLOYEES WORKING MORE THAN 500 BUT LESS THAN 1,000
HOURS PER YEAR TO PARTICIPATE.
(a) Participation Requirement.--
(1) In general.--Section 401(k)(2)(D) of the Internal
Revenue Code of 1986is amended to read as follows:
``(D) which does not require, as a condition
of participation in the arrangement, that an
employee complete a period of service with the
employer (or employers) maintaining the plan
extending beyond the close of the earlier of--
``(i) the period permitted under
section 410(a)(1) (determined without
regard to subparagraph (B)(i) thereof),
or
``(ii) subject to the provisions of
paragraph (15), the first period of 3
consecutive 12-month periods during
each of which the employee has at least
500 hours of service.''.
(2) Special rules.--Section 401(k) of such Code is
amended by adding at the end the following new
paragraph:
``(15) Special rules for participation requirement
for long-term, part-time workers.--For purposes of
paragraph (2)(D)(ii)--
``(A) Age requirement must be met.--Paragraph
(2)(D)(ii) shall not apply to an employee
unless the employee has met the requirement of
section 410(a)(1)(A)(i) by the close of the
last of the 12-month periods described in such
paragraph.
``(B) Nondiscrimination and top-heavy rules
not to apply.--
``(i) Nondiscrimination rules.--In
the case of employees who are eligible
to participate in the arrangement
solely by reason of paragraph
(2)(D)(ii)--
``(I) notwithstanding
subsection (a)(4), an employer
shall not be required to make
nonelective or matching
contributions on behalf of such
employees even if such
contributions are made on
behalf of other employees
eligible to participate in the
arrangement, and
``(II) an employer may elect
to exclude such employees from
the application of subsection
(a)(4), paragraphs (3), (12),
and (13), subsection (m)(2),
and section 410(b).
``(ii) Top-heavy rules.--An employer
may elect to exclude all employees who
are eligible to participate in a plan
maintained by the employer solely by
reason of paragraph (2)(D)(ii) from the
application of the vesting and benefit
requirements under subsections (b) and
(c) of section 416.
``(iii) Vesting.--For purposes of
determining whether an employee
described in clause (i) has a
nonforfeitable right to employer
contributions (other than contributions
described in paragraph (3)(D)(i)) under
the arrangement, each 12-month period
for which the employee has at least 500
hours of service shall be treated as a
year of service, and section 411(a)(6)
shall be applied by substituting `at
least 500 hours of service' for `more
than 500 hours of service' in
subparagraph (A) thereof.
``(iv) Employees who become full-time
employees.--This subparagraph (other
than clause (iii)) shall cease to apply
to any employee as of the first plan
year beginning after the plan year in
which the employee meets the
requirements of section
410(a)(1)(A)(ii) without regard to
paragraph (2)(D)(ii).
``(C) Exception for employees under
collectively bargained plans, etc.--Paragraph
(2)(D)(ii) shall not apply to employees
described in section 410(b)(3).
``(D) Special rules.--
``(i) Time of participation.--The
rules of section 410(a)(4) shall apply
to an employee eligible to participate
in an arrangement solely by reason of
paragraph (2)(D)(ii).
``(ii) 12-month periods.--12-month
periods shall be determined in the same
manner as under the last sentence of
section 410(a)(3)(A).''.
(b) Effective Date.--The amendments made by this section
shall apply to plan years beginning after December 31, 2020,
except that, for purposes of [section 401(k)(2)(D)(ii)]
paragraphs (2)(D)(ii) and (15)(B)(iii) of section 401(k) of the
Internal Revenue Code of 1986 (as added by such amendments),
12-month periods beginning before January 1, 2021, shall not be
taken into account.
* * * * * * *
TITLE VI--ADMINISTRATIVE PROVISIONS
SEC. 601. PROVISIONS RELATING TO PLAN AMENDMENTS.
(a) In General.--If this section applies to any retirement
plan or contract amendment--
(1) such retirement plan or contract shall be treated
as being operated in accordance with the terms of the
plan during the period described in subsection
(b)(2)(A); and
(2) except as provided by the Secretary of the
Treasury (or the Secretary's delegate), such retirement
plan shall not fail to meet the requirements of section
411(d)(6) of the Internal Revenue Code of 1986 and
section 204(g) of the Employee Retirement Income
Security Act of 1974 by reason of such amendment.
(b) Amendments to Which Section Applies.--
(1) In general.--This section shall apply to any
amendment to any retirement plan or annuity contract
which is made--
(A) pursuant to any amendment made by this
Act or pursuant to any regulation issued by the
Secretary of the Treasury or the Secretary of
Labor (or a delegate of either such Secretary)
under this Act; and
(B) on or before the last day of the first
plan year beginning on or after [January 1,
2022] January 1, 2023, or such later date as
the Secretary of the Treasury may prescribe.In
the case of a governmental plan (as defined in
section 414(d) of the Internal Revenue Code of
1986), or an applicable collectively bargained
plan in the case of section 401 (and the
amendments made thereby), this paragraph shall
be applied by [substituting ``2024'' for
``2022''.] substituting ``2025'' for ``2023''.
For purposes of the preceding sentence, the
term ``applicable collectively bargained plan''
means a plan maintained pursuant to 1 or more
collective bargaining agreements between
employee representatives and 1 or more
employers ratified before the date of enactment
of this Act.
(2) Conditions.--This section shall not apply to any
amendment unless--
(A) during the period--
(i) beginning on the date the
legislative or regulatory amendment
described in paragraph (1)(A) takes
effect (or in the case of a plan or
contract amendment not required by such
legislative or regulatory amendment,
the effective date specified by the
plan); and
(ii) ending on the date described in
paragraph (1)(B) (as modified by the
second sentence of paragraph (1)) (or,
if earlier, the date the plan or
contract amendment is adopted),the plan
or contract is operated as if such plan
or contract amendment were in effect;
and
(B) such plan or contract amendment applies
retroactively for such period.
* * * * * * *
----------
CARES ACT
* * * * * * *
DIVISION A--KEEPING WORKERS PAID AND EMPLOYED, HEALTH CARE SYSTEM
ENHANCEMENTS, AND ECONOMIC STABILIZATION
* * * * * * *
TITLE II--ASSISTANCE FOR AMERICAN WORKERS, FAMILIES, AND BUSINESSES
* * * * * * *
Subtitle B--Rebates and Other Individual Provisions
* * * * * * *
SEC. 2202. SPECIAL RULES FOR USE OF RETIREMENT FUNDS.
(a) Tax-favored Withdrawals From Retirement Plans.--
(1) In general.--Section 72(t) of the Internal
Revenue Code of 1986 shall not apply to any
coronavirus-related distribution.
(2) Aggregate dollar limitation.--
(A) In general.--For purposes of this
subsection, the aggregate amount of
distributions received by an individual which
may be treated as coronavirus-related
distributions for any taxable year shall not
exceed $100,000.
(B) Treatment of plan distributions.--If a
distribution to an individual would (without
regard to subparagraph (A)) be a coronavirus-
related distribution, a plan shall not be
treated as violating any requirement of the
Internal Revenue Code of 1986 merely because
the plan treats such distribution as a
coronavirus-related distribution, unless the
aggregate amount of such distributions from all
plans maintained by the employer (and any
member of any controlled group which includes
the employer) to such individual exceeds
$100,000.
(C) Controlled group.--For purposes of
subparagraph (B), the term ``controlled group''
means any group treated as a single employer
under subsection (b), (c), (m), or (o) of
section 414 of the Internal Revenue Code of
1986.
(3) Amount distributed may be repaid.--
(A) In general.--Any individual who receives
a coronavirus-related distribution may, at any
time during the 3-year period beginning on the
day after the date on which such distribution
was received, make 1 or more contributions in
an aggregate amount not to exceed the amount of
such distribution to an eligible retirement
plan of which such individual is a beneficiary
and to which a rollover contribution of such
distribution could be made under section
402(c), 403(a)(4), 403(b)(8), 408(d)(3), or
457(e)(16), of the Internal Revenue Code of
1986, as the case may be.
(B) Treatment of repayments of distributions
from eligible retirement plans other than
iras.--For purposes of the Internal Revenue
Code of 1986, if a contribution is made
pursuant to subparagraph (A) with respect to a
coronavirus-related distribution from an
eligible retirement plan other than an
individual retirement plan, then the taxpayer
shall, to the extent of the amount of the
contribution, be treated as having received the
coronavirus-related distribution in an eligible
rollover distribution (as defined in section
402(c)(4) of such Code) and as having
transferred the amount to the eligible
retirement plan in a direct trustee to trustee
transfer within 60 days of the distribution.
(C) Treatment of repayments of distributions
from iras.--For purposes of the Internal
Revenue Code of 1986, if a contribution is made
pursuant to subparagraph (A) with respect to a
coronavirus-related distribution from an
individual retirement plan (as defined by
section 7701(a)(37) of such Code), then, to the
extent of the amount of the contribution, the
coronavirus-related distribution shall be
treated as a distribution described in section
408(d)(3) of such Code and as having been
transferred to the eligible retirement plan in
a direct trustee to trustee transfer within 60
days of the distribution.
(4) Definitions.--For purposes of this subsection--
(A) Coronavirus-related distribution.--Except
as provided in paragraph (2), the term
``coronavirus-related distribution'' means any
distribution from an eligible retirement plan
made--
(i) on or after January 1, 2020, and
before December 31, 2020,
(ii) to an individual--
(I) who is diagnosed with the
virus SARS-CoV-2 or with
coronavirus disease 2019
(COVID-19) by a test approved
by the Centers for Disease
Control and Prevention,
(II) whose spouse or
dependent (as defined in
section 152 of the Internal
Revenue Code of 1986) is
diagnosed with such virus or
disease by such a test, or
(III) who experiences adverse
financial consequences as a
result of being quarantined,
being furloughed or laid off or
having work hours reduced due
to such virus or disease, being
unable to work due to lack of
child care due to such virus or
disease, closing or reducing
hours of a business owned or
operated by the individual due
to such virus or disease, or
other factors as determined by
the Secretary of the Treasury
(or the Secretary's delegate).
(B) Employee certification.--The
administrator of an eligible retirement plan
may rely on an employee's certification that
the employee satisfies the conditions of
subparagraph (A)(ii) in determining whether any
distribution is a coronavirus-related
distribution.
(C) Eligible retirement plan.--The term
``eligible retirement plan'' has the meaning
given such term by section 402(c)(8)(B) of the
Internal Revenue Code of 1986.
(5) Income inclusion spread over 3-year period.--
(A) In general.--In the case of any
coronavirus-related distribution, unless the
taxpayer elects not to have this paragraph
apply for any taxable year, any amount required
to be included in gross income for such taxable
year shall be so included ratably over the 3-
taxable-year period beginning with such taxable
year.
(B) Special rule.--For purposes of
subparagraph (A), rules similar to the rules of
subparagraph (E) of section 408A(d)(3) of the
Internal Revenue Code of 1986 shall apply.
(6) Special rules.--
(A) Exemption of distributions from trustee
to trustee transfer and withholding rules.--For
purposes of sections 401(a)(31), 402(f), and
3405 of the Internal Revenue Code of 1986,
coronavirus-related distributions shall not be
treated as eligible rollover distributions.
(B) Coronavirus-related distributions treated
as meeting plan distribution requirements.--For
purposes of the Internal Revenue Code of 1986,
a coronavirus-related distribution shall be
treated as meeting the requirements of sections
401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11),
and 457(d)(1)(A) of such Code and section
8433(h)(1) of title 5, United States Code, and,
in the case of a money purchase pension plan, a
coronavirus-related distribution which is an
in-service withdrawal shall be treated as
meeting the distribution rules of section
401(a) of the Internal Revenue Code of 1986.
(b) Loans From Qualified Plans.--
(1) Increase in limit on loans not treated as
distributions.--In the case of any loan from a
qualified employer plan (as defined under section
72(p)(4) of the Internal Revenue Code of 1986) to a
qualified individual made during the 180-day period
beginning on the date of the enactment of this Act--
(A) clause (i) of section 72(p)(2)(A) of such
Code shall be applied by substituting
``$100,000'' for ``$50,000'', and
(B) clause (ii) of such section shall be
applied by substituting ``the present value of
the nonforfeitable accrued benefit of the
employee under the plan'' for ``one-half of the
present value of the nonforfeitable accrued
benefit of the employee under the plan''.
(2) Delay of repayment.--In the case of a qualified
individual with an outstanding loan (on or after the
date of the enactment of this Act) from a qualified
employer plan (as defined in section 72(p)(4) of the
Internal Revenue Code of 1986)--
(A) if the due date pursuant to subparagraph
(B) or (C) of section 72(p)(2) of such Code for
any repayment with respect to such loan occurs
during the period beginning on the date of the
enactment of this Act and ending on December
31, 2020, such due date shall be delayed for 1
year,
(B) any subsequent repayments with respect to
any such loan shall be appropriately adjusted
to reflect the delay in the due date under
subparagraph (A) and any interest accruing
during such delay, and
(C) in determining the 5-year period and the
term of a loan under subparagraph (B) or (C) of
section 72(p)(2) of such Code, the period
described in subparagraph (A) of this paragraph
shall be disregarded.
(3) Qualified individual.--For purposes of this
subsection, the term ``qualified individual'' means any
individual who is described in subsection
(a)(4)(A)(ii).
(c) Provisions Relating to Plan Amendments.--
(1) In general.--If this subsection applies to any
amendment to any plan or annuity contract--
(A) such plan or contract shall be treated as
being operated in accordance with the terms of
the plan during the period described in
paragraph (2)(B)(i), and
(B) except as provided by the Secretary of
the Treasury (or the Secretary's delegate),
such plan or contract shall not fail to meet
the requirements of section 411(d)(6) of the
Internal Revenue Code of 1986 and section
204(g) of the Employee Retirement Income
Security Act of 1974 by reason of such
amendment.
(2) Amendments to which subsection applies.--
(A) In general.--This subsection shall apply
to any amendment to any plan or annuity
contract which is made--
(i) pursuant to any provision of this
section, or pursuant to any regulation
issued by the Secretary of the Treasury
or the Secretary of Labor (or the
delegate of either such Secretary)
under any provision of this section,
and
(ii) on or before the last day of the
first plan year beginning on or after
[January 1, 2022] January 1, 2023, or
such later date as the Secretary of the
Treasury (or the Secretary's delegate)
may prescribe.In the case of a
governmental plan (as defined in
section 414(d) of the Internal Revenue
Code of 1986), clause (ii) shall be
applied by substituting the date which
is 2 years after the date otherwise
applied under clause (ii).
(B) Conditions.--This subsection shall not
apply to any amendment unless--
(i) during the period--
(I) beginning on the date
that this section or the
regulation described in
subparagraph (A)(i) takes
effect (or in the case of a
plan or contract amendment not
required by this section or
such regulation, the effective
date specified by the plan),
and
(II) ending on the date
described in subparagraph
(A)(ii) (or, if earlier, the
date the plan or contract
amendment is adopted),the plan
or contract is operated as if
such plan or contract amendment
were in effect, and
(ii) such plan or contract amendment
applies retroactively for such period.
SEC. 2203. TEMPORARY WAIVER OF REQUIRED MINIMUM DISTRIBUTION RULES FOR
CERTAIN RETIREMENT PLANS AND ACCOUNTS.
(a) In General.--Section 401(a)(9) of the Internal Revenue
Code of 1986is amended by adding at the end the following new
subparagraph:
``(I) Temporary waiver of minimum required
distribution.--
``(i) In general.--The requirements
of this paragraph shall not apply for
calendar year 2020 to--
``(I) a defined contribution
plan which is described in this
subsection or in section 403(a)
or 403(b),
``(II) a defined contribution
plan which is an eligible
deferred compensation plan
described in section 457(b) but
only if such plan is maintained
by an employer described in
section 457(e)(1)(A), or
``(III) an individual
retirement plan.
``(ii) Special rule for required
beginning dates in 2020.--Clause (i)
shall apply to any distribution which
is required to be made in calendar year
2020 by reason of--
``(I) a required beginning
date occurring in such calendar
year, and
``(II) such distribution not
having been made before January
1, 2020.
``(iii) Special rules regarding
waiver period.--For purposes of this
paragraph--
``(I) the required beginning
date with respect to any
individual shall be determined
without regard to this
subparagraph for purposes of
applying this paragraph for
calendar years after 2020, and
``(II) if clause (ii) of
subparagraph (B) applies, the
5-year period described in such
clause shall be determined
without regard to calendar year
2020.''.
(b) Eligible Rollover Distributions.--Section 402(c)(4) of
the Internal Revenue Code of 1986is amended by striking
``2009'' each place it appears in the last sentence and
inserting ``2020''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section
shall apply for calendar years beginning after December
31, 2019.
(2) Provisions relating to plan or contract
amendments.--
(A) In general.--If this paragraph applies to
any plan or contract amendment--
(i) such plan or contract shall not
fail to be treated as being operated in
accordance with the terms of the plan
during the period described in
subparagraph (B)(ii) solely because the
plan operates in accordance with this
section, and
(ii) except as provided by the
Secretary of the Treasury (or the
Secretary's delegate), such plan or
contract shall not fail to meet the
requirements of section 411(d)(6) of
the Internal Revenue Code of 1986 and
section 204(g) of the Employee
Retirement Income Security Act of 1974
by reason of such amendment.
(B) Amendments to which paragraph applies.--
(i) In general.--This paragraph shall
apply to any amendment to any plan or
annuity contract which--
(I) is made pursuant to the
amendments made by this
section, and
(II) is made on or before the
last day of the first plan year
beginning on or after [January
1, 2022] January 1, 2023.
In the case of a governmental plan,
subclause (II) shall be applied by
[substituting ``2024'' for ``2022''.]
substituting ``2025'' for ``2023''.
(ii) Conditions.--This paragraph
shall not apply to any amendment unless
during the period beginning on the
effective date of the amendment and
ending on December 31, 2020, the plan
or contract is operated as if such plan
or contract amendment were in effect.
* * * * * * *
----------
SECTION 302 OF THE TAXPAYER CERTAINTY AND DISASTER TAX RELIEF ACT OF
2020
SEC. 302. SPECIAL DISASTER-RELATED RULES FOR USE OF RETIREMENT FUNDS.
(a) Tax-Favored Withdrawals from Retirement Plans.--
(1) In general.--Section 72(t) of the Internal
Revenue Code of 1986 shall not apply to any qualified
disaster distribution.
(2) Aggregate dollar limitation.--
(A) In general.--For purposes of this
subsection, the aggregate amount of
distributions received by an individual which
may be treated as qualified disaster
distributions for any taxable year shall not
exceed the excess (if any) of--
(i) $100,000, over
(ii) the aggregate amounts treated as
qualified disaster distributions
received by such individual for all
prior taxable years.
(B) Treatment of plan distributions.--If a
distribution to an individual would (without
regard to subparagraph (A)) be a qualified
disaster distribution, a plan shall not be
treated as violating any requirement of the
Internal Revenue Code of 1986 merely because
the plan treats such distribution as a
qualified disaster distribution, unless the
aggregate amount of such distributions from all
plans maintained by the employer (and any
member of any controlled group which includes
the employer) to such individual exceeds
$100,000.
(C) Controlled group.--For purposes of
subparagraph (B), the term ``controlled group''
means any group treated as a single employer
under subsection (b), (c), (m), or (o) of
section 414 of the Internal Revenue Code of
1986.
(D) Special rule for individuals affected by
more than one disaster.--The limitation of
subparagraph (A) shall be applied separately
with respect to distributions made with respect
to each qualified disaster.
(3) Amount distributed may be repaid.--
(A) In general.--Any individual who receives
a qualified disaster distribution may, at any
time during the 3-year period beginning on the
day after the date on which such distribution
was received, make 1 or more contributions in
an aggregate amount not to exceed the amount of
such distribution to an eligible retirement
plan of which such individual is a beneficiary
and to which a rollover contribution of such
distribution could be made under section
402(c), 403(a)(4), 403(b)(8), 408(d)(3), or
457(e)(16), of the Internal Revenue Code of
1986, as the case may be.
(B) Treatment of repayments of distributions
from eligible retirement plans other than
iras.--For purposes of the Internal Revenue
Code of 1986, if a contribution is made
pursuant to subparagraph (A) with respect to a
qualified disaster distribution from an
eligible retirement plan other than an
individual retirement plan, then the taxpayer
shall, to the extent of the amount of the
contribution, be treated as having received the
qualified disaster distribution in an eligible
rollover distribution (as defined in section
402(c)(4) of such Code) and as having
transferred the amount to the eligible
retirement plan in a direct trustee to trustee
transfer within 60 days of the distribution.
(C) Treatment of repayments of distributions
from iras.--For purposes of the Internal
Revenue Code of 1986, if a contribution is made
pursuant to subparagraph (A) with respect to a
qualified disaster distribution from an
individual retirement plan (as defined by
section 7701(a)(37) of such Code), then, to the
extent of the amount of the contribution, the
qualified disaster distribution shall be
treated as a distribution described in section
408(d)(3) of such Code and as having been
transferred to the eligible retirement plan in
a direct trustee to trustee transfer within 60
days of the distribution.
(4) Definitions.--For purposes of this subsection--
(A) Qualified disaster distribution.--Except
as provided in paragraph (2), the term
``qualified disaster distribution'' means any
distribution from an eligible retirement plan
made--
(i) on or after the first day of the
incident period of a qualified disaster
and before the date which is 180 days
after the date of the enactment of this
Act, and
(ii) to an individual whose principal
place of abode at any time during the
incident period of such qualified
disaster is located in the qualified
disaster area with respect to such
qualified disaster and who has
sustained an economic loss by reason of
such qualified disaster.
(B) Eligible retirement plan.--The term
``eligible retirement plan'' shall have the
meaning given such term by section 402(c)(8)(B)
of the Internal Revenue Code of 1986.
(5) Income inclusion spread over 3-year period
(A) In general.--In the case of any qualified
disaster distribution, unless the taxpayer
elects not to have this paragraph apply for any
taxable year, any amount required to be
included in gross income for such taxable year
shall be so included ratably over the 3-
taxable-year period beginning with such taxable
year.
(B) Special rule.--For purposes of
subparagraph (A), rules similar to the rules of
subparagraph (E) of section 408A(d)(3) of the
Internal Revenue Code of 1986 shall apply.
(6) Special rules.--
(A) Exemption of distributions from trustee
to trustee transfer and withholding rules.--For
purposes of sections 401(a)(31), 402(f), and
3405 of the Internal Revenue Code of 1986,
qualified disaster distributions shall not be
treated as eligible rollover distributions.
(B) Qualified disaster distributions treated
as meeting plan distribution requirements.--For
purposes of the Internal Revenue Code of 1986,
a qualified disaster distribution shall be
treated as meeting the requirements of sections
401(k)(2)(B)(i), 403(b)(7)(A)(i), 403(b)(11),
and 457(d)(1)(A) of such Code and section
8433(h)(1) of title 5, United States Code, and,
in the case of a money purchase pension plan, a
qualified disaster distribution which is an in-
service withdrawal shall be treated as meeting
the distribution rules of section 401(a) of
such Code.
(b) Recontributions of Withdrawals for Home Purchases.--
(1) Recontributions.--
(A) In general.--Any individual who received
a qualified distribution may, during the
applicable period, make 1 or more contributions
in an aggregate amount not to exceed the amount
of such qualified distribution to an eligible
retirement plan (as defined in section
402(c)(8)(B) of the Internal Revenue Code of
1986) of which such individual is a beneficiary
and to which a rollover contribution of such
distribution could be made under section
402(c), 403(a)(4), 403(b)(8), or 408(d)(3), of
such Code, as the case may be.
(B) Treatment of repayments.--Rules similar
to the rules of subparagraphs (B) and (C) of
subsection (a)(3) shall apply for purposes of
this subsection.
(2) Qualified distribution.--For purposes of this
subsection, the term ``qualified distribution'' means
any distribution--
(A) described in section 401(k)(2)(B)(i)(IV),
403(b)(7)(A)(i)(V), 403(b)(11)(B), or
72(t)(2)(F), of the Internal Revenue Code of
1986,
(B) which was to be used to purchase or
construct a principal residence in a qualified
disaster area, but which was not so used on
account of the qualified disaster with respect
to such area, and
(C) which was received during the period
beginning on the date which is 180 days before
the first day of the incident period of such
qualified disaster and ending on the date which
is 30 days after the last day of such incident
period.
(3) Applicable period.--For purposes of this
subsection, the term ``applicable period'' means, in
the case of a principal residence in a qualified
disaster area with respect to any qualified disaster,
the period beginning on the first day of the incident
period of such qualified disaster and ending on the
date which is 180 days after the date of the enactment
of this Act.
(c) Loans from Qualified Plans.--
(1) Increase in limit on loans not treated as
distributions.--In the case of any loan from a
qualified employer plan (as defined under section
72(p)(4) of the Internal Revenue Code of 1986) to a
qualified individual made during the 180-day period
beginning on the date of the enactment of this Act--
(A) clause (i) of section 72(p)(2)(A) of such
Code shall be applied by substituting ``
$100,000'' for `` $50,000'', and
(B) clause (ii) of such section shall be
applied by substituting ``the present value of
the nonforfeitable accrued benefit of the
employee under the plan'' for ``one-half of the
present value of the nonforfeitable accrued
benefit of the employee under the plan''.
(2) Delay of repayment.--In the case of a qualified
individual (with respect to any qualified disaster)
with an outstanding loan (on or after the first day of
the incident period of such qualified disaster) from a
qualified employer plan (as defined in section 72(p)(4)
of the Internal Revenue Code of 1986)--
(A) if the due date pursuant to subparagraph
(B) or (C) of section 72(p)(2) of such Code for
any repayment with respect to such loan occurs
during the period beginning on the first day of
the incident period of such qualified disaster
and ending on the date which is 180 days after
the last day of such incident period, such due
date shall be delayed for 1 year (or, if later,
until the date which is 180 days after the date
of the enactment of this Act),
(B) any subsequent repayments with respect to
any such loan shall be appropriately adjusted
to reflect the delay in the due date under
subparagraph (A) and any interest accruing
during such delay, and
(C) in determining the 5-year period and the
term of a loan under subparagraph (B) or (C) of
section 72(p)(2) of such Code, the period
described in subparagraph (A) of this paragraph
shall be disregarded.
(3) Qualified individual.--For purposes of this
subsection, the term ``qualified individual'' means any
individual--
(A) whose principal place of abode at any
time during the incident period of any
qualified disaster is located in the qualified
disaster area with respect to such qualified
disaster, and
(B) who has sustained an economic loss by
reason of such qualified disaster.
(d) Provisions Relating to Plan Amendments.--
(1) In general.--If this subsection applies to any
amendment to any plan or annuity contract, such plan or
contract shall be treated as being operated in
accordance with the terms of the plan during the period
described in paragraph (2)(B)(i).
(2) Amendments to which subsection applies.--
(A) In general.--This subsection shall apply
to any amendment to any plan or annuity
contract which is made--
(i) pursuant to any provision of this
section, or pursuant to any regulation
issued by the Secretary or the
Secretary of Labor under any provision
of this section, and
(ii) on or before the last day of the
first plan year beginning on or after
[January 1, 2022] January 1, 2023, or
such later date as the Secretary may
prescribe.
In the case of a governmental plan (as defined
in section 414(d) of the Internal Revenue Code
of 1986), clause (ii) shall be applied by
substituting the date which is 2 years after
the date otherwise applied under clause (ii).
(B) Conditions.--This subsection shall not
apply to any amendment unless--
(i) during the period--
(I) beginning on the date
that this section or the
regulation described in
subparagraph (A)(i) takes
effect (or in the case of a
plan or contract amendment not
required by this section or
such regulation, the effective
date specified by the plan),
and
(II) ending on the date
described in subparagraph
(A)(ii) (or, if earlier, the
date the plan or contract
amendment is adopted), the plan
or contract is operated as if
such plan or contract amendment
were in effect, and
(ii) such plan or contract amendment
applies retroactively for such period.
[all]